-----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, Dwps6Db5NBBaLBMlGpJdV2xxMKjzNiRayDWev5iim2HSzV5k5NHy7Zk7z++wp2xK FaBQsigjd6Nx3eY0IzsWYw== 0000820027-04-000239.txt : 20040326 0000820027-04-000239.hdr.sgml : 20040326 20040326172112 ACCESSION NUMBER: 0000820027-04-000239 CONFORMED SUBMISSION TYPE: N-14/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20040326 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP VARIABLE PORTFOLIO INVESTMENT SERIES INC CENTRAL INDEX KEY: 0000353968 IRS NUMBER: 411409539 STATE OF INCORPORATION: MN FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-14/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-112508 FILM NUMBER: 04693971 BUSINESS ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: 50606 AXP FINANCIAL CENTER CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126718626 MAIL ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: 50606 AXP FINANCIAL CENTER CITY: MINNEAPOLIS STATE: MN ZIP: 55474 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 N-14/A 1 n-14.txt AXP VARIABLE PORTFOLIO - INVESTMENT SERIES, INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] Pre-Effective Amendment No. [ 1 ] (File No. 333-112508) [ ] Post-Effective Amendment No. [ ] (Check Appropriate Box or Boxes) AXP Variable Portfolio - Investment Series, Inc. - ------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Charter) (612) 330-9283 - ------------------------------------------------------------------------------- (Area Code and Telephone Number) 901 Marquette Avenue South, Suite 2810, Minneapolis, MN 55402-3268 - ------------------------------------------------------------------------------- (Address of Principal Executive Offices: Number, Street, City, State, Zip Code) Leslie L. Ogg - 901 Marquette Avenue South, - ------------------------------------------------------------------------------- (Name and Address of Agent For Service) Suite 2810, Minneapolis MN 55402-3268 - ------------------------------------------------------------------------------- (Number and Street) (City) (State) (Zip Code) Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of the Registration Statement. Title of Securities Being Registered: Common Stock No filing fee is due because of reliance on Section 24(f) of the Investment Company Act of 1940. This Registration Statement shall hereafter become effective in accordance with Section 8(a) of the Securities Act of 1933. AMERICAN EXPRESS(R) FUNDS Principal Executive Office 901 Marquette Avenue South, Suite 2810 Minneapolis, MN 55402-3268 NOTICE OF A SPECIAL MEETING To be held June 9, 2004 AXP(R) Variable Portfolio - Investment Series, Inc. -- AXP(R) Variable Portfolio - Blue Chip Advantage Fund -- AXP(R) Variable Portfolio - Stock Fund AXP Variable Portfolio - Blue Chip Advantage Fund ("VP Blue Chip") and AXP Variable Portfolio - Stock Fund ("VP Stock") (individually a "Selling Fund" and together the "Selling Funds") will hold a special meeting at 1:00 p.m. on June 9, 2004, at 901 Marquette Avenue South, Suite 2810, Minneapolis, MN. This will be a joint meeting for each of the funds listed above. The purpose of the meeting is to consider the following: o A proposal to approve an Agreement and Plan of Reorganization (the "Agreement") between each Selling Fund and AXP Variable Portfolio - Capital Resource Fund ("VP Capital Resource" or the "Buying Fund"). The insurance company that issued your variable life insurance policy or variable annuity contract is the legal owner of the Fund's shares and will vote those shares at the meeting. However, as a contract holder you are entitled to instruct the insurance company how to vote. You do this by voting yourself. If you were a contract holder on April 10, 2004, you may vote at the meeting or any adjournment of the meeting. We hope you can attend the meeting. If you cannot attend, please vote by mail, telephone or internet. Just follow the instructions on the enclosed voting instruction card. If you have questions, please call your advisor or call client services toll free at (866) 270-3133. It is important that you vote. The Board of Directors (the "Board") recommends that you vote FOR the proposal. Please take a few minutes to read the proxy statement. It discusses the proposal in more detail. This proxy statement was first mailed to contract holders on or about April 19, 2004. By order of the Board of Directors Leslie L. Ogg, Secretary April 10, 2004 - -------------------------------------------------------------------------------- 1 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT COMBINED PROXY STATEMENT/PROSPECTUS Dated April 10, 2004 This document is a proxy statement for VP Blue Chip and VP Stock and a prospectus for VP Capital Resource (each individually a "Fund" and collectively the "Funds"). It contains the information you should know before voting on the proposal. Please read it carefully and keep it for future reference. The address of each of the Funds is 901 Marquette Avenue South, Suite 2810, Minneapolis, MN 55402-3268. The phone number for each of the Funds is (612) 330-9283. The insurance company that issued your variable life insurance policy or variable annuity contract is the legal owner of all Fund shares and therefore holds all voting rights. The insurance company sponsors a separate account that funds your variable life insurance policy or variable annuity contract. This separate account is the shareholder of the Fund. The separate account is comprised of various subaccounts. Because you allocated contract values to a subaccount that invests in the Selling Fund, you are entitled to instruct the insurance company how to vote. For purposes of this proxy statement/prospectus, contract holders and policyholders will be referred to as "contract holders". The following information describes the proposed reorganization of each Selling Fund into the corresponding Buying Fund (the "Reorganization"). Each Reorganization is a separate transaction. Implementation of one Reorganization is not contingent on approval of any other Reorganization. Contract holders vote separately with respect to each Selling Fund and the proposed Reorganization will be effective as to a particular Selling Fund only if contract holders approve the proposal for that Fund. How the Reorganization Will Work o The Selling Fund will transfer all of its assets to the Buying Fund. The Buying Fund will assume the Selling Fund's stated liabilities. o The Buying Fund will issue shares to the Selling Fund in an amount equal to the value of the assets that it receives from the Selling Fund, less the liabilities it assumes. These shares will be distributed to the Selling Fund's shareholders (the separate accounts) in proportion to their holdings in the Selling Fund. Your interest in the subaccount investing in the Buying Fund will equal your interest in the subaccount that invested in the Selling Fund. You will not pay any sales charge in connection with this distribution of shares. - -------------------------------------------------------------------------------- 2 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Fund Investment Objectives The investment objective for each of the Funds is as follows: Selling Fund VP Blue Chip Advantage: Long-term total return exceeding that of the U.S. stock market. VP Stock: Current income and growth of capital. Buying Fund VP Capital Resource: Capital appreciation. Please note that the Buying Fund is not a bank deposit, is not federally insured, is not endorsed by any bank or government agency and is not guaranteed to achieve its goal. As with all mutual funds, the Securities and Exchange Commission (the "SEC") has not approved or disapproved these securities or passed on the adequacy of this prospectus. Any representation to the contrary is a criminal offense. - -------------------------------------------------------------------------------- 3 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Where to Get More Information The Buying Fund Most recent prospectus, dated Oct. 30, Accompanying, and incorporated by 2003, as supplemented. reference into, this proxy statement/prospectus. - ----------------------------------------- -------------------------------------- Most recent annual report, for the Incorporated by reference into this period ended Aug. 31, 2003. proxy statement/prospectus. For a copy at no charge, call toll-free (800) 862-7919 or write to the address at the bottom of this table. - ----------------------------------------- -------------------------------------- The Selling Fund Most recent prospectus, dated Oct. 30, Incorporated by reference into this 2003, as supplemented. proxy statement/prospectus. For a copy at no charge, call toll-free (800) 862-7919 or write to the address at the bottom of this table. - ----------------------------------------- -------------------------------------- Most recent annual report, for the Incorporated by reference into this period ended Aug. 31, 2003. proxy statement/prospectus. For a copy at no charge, call toll-free (800) 862-7919 or write to the address at the bottom of this table. - ----------------------------------------- -------------------------------------- This Proxy Statement/Prospectus Statement of additional information Incorporated by reference into this dated the same date as this proxy proxy statement/prospectus. For a copy statement/prospectus. This document at no charge, call toll-free (866) contains information about both the 270-3133 or write to the address at Selling Fund and the Buying Fund. the bottom of this table. - ----------------------------------------- -------------------------------------- To ask questions about this proxy Call toll-free (866) 270-3133 or write statement/prospectus. to: American Express Client Service Corporation 70100 AXP Financial Center Minneapolis, MN 55474. - ----------------------------------------- -------------------------------------- Each of the Funds is subject to the information requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940 (the "1940 Act") and files reports, proxy materials and other information with the SEC. These reports, proxy materials and other information can be inspected and copied at the Public Reference Room maintained by the SEC. Copies may be obtained, after paying a duplicating fee, by electronic request at http://www.publicinfo@sec.gov, or by writing to the Public Reference Section of the SEC, Washington, D.C. 20549-0102. In addition, copies of these documents may be viewed on-line or downloaded from the SEC's Web site at http://www.sec.gov. - -------------------------------------------------------------------------------- 4 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT TABLE OF CONTENTS Page Section A -- Approve or Reject the Agreement and Plan of Reorganization 6 Summary 6 How the Reorganization Will Work 6 Comparison of the Selling Fund and the Buying Fund 6 Risk Factors 8 Tax Consequences 9 Fees and Expenses 10 The Reorganization 12 Terms of the Reorganization 12 Conditions to Closing the Reorganization 12 Termination of the Agreement 13 Tax Status of the Reorganization 13 Reasons for the Proposed Reorganization and Board Deliberations 14 Boards' Determinations 16 Recommendation and Vote Required 16 Section B -- Proxy Voting and Contract Holder Meeting Information 17 Section C -- Capitalization and Ownership of Fund Shares 19 Exhibits A. Form of Agreement and Plan of Reorganization A.1 B. Minnesota Business Corporation Act Sections 302A.471 and 302A.473. B.1 C. Management's Discussion of the Buying Fund. C.1 D. Most Recent Buying Fund Prospectus. D.1 - -------------------------------------------------------------------------------- 5 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT SECTION A -- APPROVE OR REJECT THE AGREEMENT AND PLAN OF REORGANIZATION SUMMARY This proxy statement/prospectus is being used by the Board of the Selling Fund to solicit proxies to vote at a special meeting. The purpose of the meeting is to consider a proposal to approve the Agreement providing for the Reorganization of the Selling Fund into the Buying Fund. The following is a summary. More complete information appears later in this proxy statement/prospectus. You should read the entire proxy statement/prospectus and the exhibits because they contain details that are not in the summary. How the Reorganization Will Work o The Selling Fund will transfer all of its assets to the Buying Fund. The Buying Fund will assume the Selling Fund's stated liabilities. o The Buying Fund will issue shares to the Selling Fund in an amount equal to the value of the assets that it receives from the Selling Fund, less the liabilities it assumes. These shares will be distributed to the Selling Fund's shareholders (the separate accounts) in proportion to their holdings in the Selling Fund. Your interest in the subaccount investing in the Buying Fund will equal your interest in the subaccount that invested in the Selling Fund. If you already have contract values allocated to a subaccount invested in the Buying Fund your interest in that subaccount will increase. o Neither the Selling Fund nor the contract holders whose contract values are allocated to a subaccount investing in the Selling Fund will pay any sales charge in connection with the Reorganization. o After the Reorganization is completed, contract values that were allocated to subaccounts investing in the Selling Fund will be allocated to subaccounts investing in the Buying Fund. The Selling Fund will be terminated. Comparison of the Selling Fund and the Buying Fund Both the Selling Fund and the Buying Fund: o Are structured as a series of capital stock of an open-end management investment company organized as a Minnesota corporation. o Have American Express Financial Corporation ("AEFC") as an investment adviser. o Have the same policies for buying and selling shares and the same exchange rights. o Have the same distribution policies. o Are available only by buying an annuity contract or life insurance policy and allocating contract values to a subaccount that invests in a Fund. - -------------------------------------------------------------------------------- 6 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Comparison of Investment Objectives. The investment objectives for the funds are as follows: Selling Fund VP Blue Chip Advantage: Long-term total return exceeding that of the U.S. stock market. VP Stock: Current income and growth of capital. Buying Fund VP Capital Resource: Capital appreciation. Comparison of Investment Strategies VP Blue Chip Advantage: Under normal market conditions, at least 80% of the Fund's net assets are invested in 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. A common measure of blue chip stocks is the S&P 500 Composite Stock Price Index (S&P 500 Index). The S&P 500 Index is an unmanaged market index used to measure the total return of the U.S. stock market (the Fund may change this market index from time to time). While the Fund invests in stocks included in 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. VP Stock: Under normal circumstances, at least 80% of the Fund's net assets are invested in common stocks and securities convertible into common stocks. In pursuit of its income objective, the Fund will invest in income-producing equity securities (such as convertible securities and preferred stocks and short-term debt instruments (such as commercial paper). The Fund may invest up to 25% of its total assets in foreign investments. VP Capital Resource: The Fund invests primarily in U.S. common stocks of companies with market capitalization of at least $5 billion and other securities convertible into common stock. Additionally, the Fund may invest up to 25% of its total assets in foreign investments. All Funds: o Unusual Market Conditions. During weak or declining markets, each of the Funds may invest more of its assets in money market securities. Although investing in these securities would serve 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 and expenses. o Other Strategies. For each of the Funds, the investment adviser may invest in other securities and may employ other investment strategies that are not principal investment strategies. Each of the Funds may invest in money - -------------------------------------------------------------------------------- 7 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT market securities and may use derivative instruments, such as futures, options and forward contracts, to produce incremental earnings, to hedge existing positions, and to increase flexibility. In addition VP Capital Resource may invest in debt obligations of any rating and VP Stock may invest in debt obligations rated C or higher. Comparison of Fundamental Policies Each Fund has substantially similar fundamental investment policies. The fundamental policies of VP Stock and VP Capital Resource are identical. VP Blue Chip has two fundamental policies that are not fundamental policies of VP Capital Resource. Those two fundamental policies prohibit the issuance of senior securities, except as permitted under the 1940 Act, and prohibit loans to affiliates. Even though those are not stated as fundamental policies of VP Capital Resource, the Fund is nonetheless subject to those restrictions under the provisions of the 1940 Act. If shareholders of the Selling Fund approve the Reorganization, they will be subject to the fundamental investment policies of the Buying Fund. AEFC does not believe that the differences between the fundamental investment policies will result in any material difference in the way the Funds are managed. Risk Factors The principal risks associated with an investment in the Fund are shown below. VP Capital Risk VP Blue Chip VP Stock Resource Market Risk x x x Issuer Risk x x x Style Risk -- VP Blue Chip x Style Risk -- VP Capital Resource x Foreign Risk x o 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. o 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 decision, competitive pressures, breakthroughs in technology, reliance on suppliers, labor problems or shortages, corporate restructurings, fraudulent disclosures, or other factors. o Style Risk -- VP Blue Chip. 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 Index 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 - -------------------------------------------------------------------------------- 8 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 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 underperform the market index. o Style Risk -- VP Capital Resource. 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. o 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 that problems will occur. Tax Consequences The Reorganization is expected to be tax-free for federal income tax purposes and will not take place unless the Selling Fund and the Buying Fund receive a satisfactory opinion of tax counsel, substantially to that effect. Accordingly, no gain or loss is expected to be recognized by the Selling Fund or its separate account shareholders as a result of the Reorganization, and the tax basis of the shares received by the Selling Fund's separate accounts as shareholders is expected to be the same in the aggregate as the tax basis of the shares held by the separate accounts as shareholders of the Selling Fund prior to the Reorganization. As long as contracts funded through the separate accounts of the insurance company qualify as annuity contracts or life insurance contracts under Section 72 or Section 7702(a) of the Internal Revenue Code of 1986, as amended (the "Code"), respectively, the Reorganization will not create any tax liability for the separate accounts as shareholders. For more information about the federal income tax consequences of the Reorganization, see the section entitled "Tax Status of the Reorganization." - -------------------------------------------------------------------------------- 9 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT FEES AND EXPENSES The following table describes the fees and expenses of the Selling Fund and the Buying Fund. The table also shows pro forma expenses of the Buying Fund assuming the proposed Reorganization had been effective during the most recent fiscal year. The table does not reflect the expenses that apply to the subaccounts or the contracts. Inclusion of these charges would increase expenses for all periods shown. Table A-2 Actual and Pro Forma Fund Expenses For the Most Recent Fiscal Year Ended Aug. 31, 2003 Because each Fund is the underlying investment vehicle for an annuity contract or life insurance policy, there is no sales charge for the purchase or sale of Fund shares. Annual Fund operating expenses (expenses that are deducted from Fund assets) As a percentage of average daily net assets: Management Distribution Other fee(a) (12b-1) fees(b) expenses(c) Total VP Blue Chip 0.53%(g) 0.13% 0.14% 0.80% VP Stock 0.55%(e) 0.13% 1.13% 1.81%(d) VP Capital Resource 0.64%(f) 0.13% 0.08% 0.85% VP Capital Resource - Pro Forma with VP Blue Chip 0.64%(f) 0.13% 0.08% 0.85% VP Capital Resource - Pro Forma with VP Stock 0.64%(f) 0.13% 0.08% 0.85% VP Capital Resource - Pro Forma with VP Blue Chip and VP Stock 0.64%(f) 0.13% 0.08% 0.85% (a) The Fund pays a fee to AEFC for managing its assets. (b) 12b-1 fees are paid out of the Fund's assets on an ongoing basis. Over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. (c) The Fund pays taxes, brokerage commissions and other nonadvisory expenses, including administrative and accounting services. (d) Through April 30, 2004, AEFC has contractually agreed to waive certain fees and reimburse certain expenses to the extent that total expenses exceed 1.10% of the Fund's average daily net assets. (e) Includes the impact of a performance incentive adjustment fee that decreased the management fee by 0.01%. (f) Includes the impact of a performance incentive adjustment fee that increased the management fee by 0.02%. (g) Includes the impact of a performance incentive adjustment fee that decreased the management fee by 0.03%. - -------------------------------------------------------------------------------- 10 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT The performance incentive adjustment is an increase or decrease in the management fee based on a Fund's outperforming (increase) or underperforming (decrease) an index of comparable funds. If the effect of the performance incentive adjustment is ignored, total fees for VP Blue Chip and VP Capital Resource were the same for the last fiscal year. Example: This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. Assume you invest $10,000 and the Fund earns a 5% annual return. The operating expenses remain the same each year. If you sell your shares at the end of the years shown, the following table shows your costs under the current arrangements and your costs if the proposed reorganization had been in effect. Fund 1 year 3 years 5 years 10 years VP Blue Chip $ 82 $256 $445 $ 994 VP Stock $136 $524 $937 $2,093 VP Capital Resource $ 87 $271 $472 $1,053 VP Capital Resource - Pro Forma with VP Blue Chip $ 87 $271 $472 $1,053 VP Capital Resource - Pro Forma with VP Stock $ 87 $271 $472 $1,053 VP Capital Resource - Pro Forma with VP Blue Chip and VP Stock $ 87 $271 $472 $1,053 This example does not represent actual expenses, past or future. Actual expenses may be higher or lower than those shown. This example does not reflect the expenses that apply to the subaccounts or the contracts. Inclusion of these charges would increase expenses for all periods shown. Performance Performance information for the Funds is shown below. Table A-1 Average Annual Total Returns As of Dec. 31, 2003 Since Inception Fund 1 year 5 years 10 years inception date VP Blue Chip 27.42% -- -- (4.08%) 9/15/1999 VP Stock 24.09% -- -- (2.08%) 8/13/2001 VP Capital Resource 29.22% (3.37%) 6.13% -- -- - -------------------------------------------------------------------------------- 11 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT THE REORGANIZATION Terms of the Reorganization The Board has approved the Agreement, a copy of which is attached as Exhibit A. The Agreement provides for Reorganization on the following terms: o The Reorganization is scheduled to occur on the first day that the NYSE is open for business following contract holder approval and receipt of any necessary regulatory approvals, but may occur on any later date agreed to by the Selling Fund and the Buying Fund. o The Selling Fund will transfer all of its assets to the Buying Fund and, in exchange, the Buying Fund will assume the Selling Fund's stated liabilities. o The Buying Fund will issue shares to the Selling Fund in an amount equal to the value of the assets that it receives from the Selling Fund, less the liabilities assumed by the Buying Fund in the transaction. These shares will immediately be distributed by the Selling Fund to its shareholders in proportion to their holdings in the Selling Fund. As a result, shareholders (the separate accounts) of the Selling Fund will become shareholders of the Buying Fund. Contract values that were allocated to subaccounts invested in the Selling Fund will be allocated to subaccounts investing in the Buying Fund. o Neither the Selling Fund nor the contract holders whose contract values are allocated to subaccounts investing in the Selling Fund will pay any sales charge in connection with the Reorganization. o The net asset value of the Selling Fund and the Buying Fund will be computed as of 3:00 p.m. Central time, on the closing date. o After the Reorganization, the Selling Fund will be terminated. Conditions to Closing the Reorganization The completion of the Reorganization is subject to certain conditions described in the Agreement, including: o The Selling Fund will have declared and paid a dividend that will distribute all of the Fund's taxable income, if any, to the shareholders (the separate accounts) of the Fund for the taxable years ending at or prior to the closing. o The Funds will have received any approvals, consents or exemptions from the SEC or any regulatory body necessary to carry out the Reorganization. o A registration statement on Form N-14 will have been filed with the SEC and declared effective. o The contract holders will have approved the Agreement with respect to the Selling Fund. o The Selling Fund will have received an opinion of tax counsel that the proposed Reorganization will be tax-free for the Selling Fund and for contract holders. - -------------------------------------------------------------------------------- 12 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Termination of the Agreement The Agreement and the transactions contemplated by it may be terminated and abandoned by resolutions of the Board of the Selling Fund or the Buying Fund at any time prior to closing. In the event of a termination, there will be no liability for damages on the part of either the Selling Fund or the Buying Fund or the directors, officers or the separate accounts as shareholders of the Selling Fund or of the Buying Fund. Tax Status of the Reorganization The Reorganization is expected to be tax-free for federal income tax purposes and will not take place unless the Selling Fund and the Buying Fund receive a satisfactory opinion of tax counsel (which opinion will be based on certain factual representations and certain customary assumptions), to the effect that, on the basis of existing law under specified sections of the Code. o The transfer of the Selling Fund's assets to the Buying Fund in exchange for shares of the Buying Fund and the assumption of the Selling Fund's liabilities, followed by the distribution of those shares to the separate accounts as shareholders of the Selling Fund and the termination of the Selling Fund will be a "reorganization" within the meaning of Section 368(a)(1) of the Code, and the Selling Fund and the Buying Fund will each be a "party to the reorganization" within the meaning of Section 368(b) of the Code. o Under Section 361 of the Code, no gain or loss will be recognized by the Selling Fund upon the transfer of all of its assets to the Buying Fund or on the distribution by the Selling Fund of shares of the Buying Fund to the separate accounts as shareholders of the Selling Fund in liquidation. o Under Section 354 of the Code, the separate accounts as shareholders of the Selling Fund will not recognize gain or loss upon the exchange of their shares of the Selling Fund solely for Buying Fund shares as part of the Reorganization. o Under Section 358 of the Code, the aggregate basis of the shares of the Buying Fund that a separate account as a shareholder of the Selling Fund receives in the Reorganization will be the same as the aggregate basis of the shares of the Selling exchanged therefore. o Under Section 1223(1) of the Code, the tax holding period for the shares of the Buying Fund that a separate account as a shareholder of the Selling Fund receives in the Reorganization will include the period for which it held the shares of the Selling Fund exchanged therefore, provided that on the date of the exchange it held such Selling Fund shares as capital assets. o Under Section 1032 of the Code, no gain or loss will be recognized by the Buying Fund upon the receipt of the Selling Fund's assets solely in exchange for the issuance of Buying Fund's shares to the Selling Fund and the assumption of all of the Selling Fund's liabilities by the Buying Fund. - -------------------------------------------------------------------------------- 13 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT o Under Section 362(b) of the Code, the basis in the hands of the Buying Fund of the assets of the Selling Fund transferred to the Buying Fund will be, in each instance, the same as the basis of those assets in the hands of the Selling Fund immediately prior to the transfer. o Under Section 1223(2) of the Code, the tax holding period of the assets of the Selling Fund in the hands of the Buying Fund will include periods during which such assets were held by the Selling Fund. o The Buying Fund will succeed to and take into account the items of the Selling Fund described in Section 381(c) of the Code, subject to the conditions and limitations specified in Section 381, 382, 383 and 384 of the Code and Regulations thereunder. Prior to the closing of the Reorganization, the Selling Fund will distribute to its separate accounts as shareholders all of its respective net investment company taxable income, if any, and net realized capital gains (after reduction by any available capital loss carryforward), if any, that have not been previously distributed. As long as the contracts qualify as annuity contracts or life insurance contracts under Section 72 or Section 7702(a) of the Code, respectively, the Reorganization will not create any tax liability for the separate accounts as shareholders. Reasons for the Proposed Reorganization and Board Deliberations The Board believes that the proposed Reorganization will be advantageous to Selling Fund contract holders for several reasons. Both Selling Funds are small, are not gathering assets and are unlikely to reach the size necessary to make them viable. The Board considered that higher aggregate net assets resulting from the Reorganization and the opportunity for net cash inflows may reduce the risk that, if net assets of the Selling Fund fail to grow, or diminish, its total expense ratio could rise as fixed expenses become a larger percentage of net assets. The Board considered the following matters, among others, in approving the Reorganization. o Terms and Conditions of the Reorganization. The Board considered the terms and conditions of the Reorganization as described in the previous paragraphs. o Tax Consequences. The Board considered the tax-free nature of the Reorganization. o Continuity of Investment. The Board took into account the fact that, following the Reorganization, contract holders of the Selling Fund will be invested in a fund holding a similar investment securities portfolio, with similar investment objectives, policies, and restrictions. - -------------------------------------------------------------------------------- 14 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT o Expense Ratios. Following the Reorganization, the expense ratio for the Buying Fund is expected to be the same as or lower than the expense ratio of the Selling Fund, ignoring the impact of any potential performance incentive adjustment. Thus, Selling Fund contract holders are expected to experience lower per share fixed costs by holding shares of the Buying Fund than they would if they continued to hold shares in the Selling Fund. The performance incentive adjustment is an increase or decrease in the management fee based on a Fund's outperforming (increase) or underperforming (decrease) an index of comparable funds. If the effect of the performance incentive adjustment is ignored, the fees for VP Blue Chip and VP Capital Resource were the same for the last fiscal year. o Economies of Scale. The Board considered the advantage of combining Funds that share similar investment objectives, styles and holdings. The Board believes that by combining the Funds, the contract holders continue to have available to them a Fund with a similar investment objective, but can at the same time take advantage of the economies of scale associated with a larger fund. A larger fund should have an enhanced ability to effect portfolio transactions on more favorable terms and should have greater investment flexibility. Expenses such as audit expenses and accounting expenses that are charged on a per fund basis will be reduced. o Costs. The Board considered the fact that AEFC has agreed to bear all solicitation expenses in order to achieve contract holder approval of the Reorganization and to bear any other costs of effecting the Reorganization. o Dilution. The Board considered the fact that the Reorganization will not dilute the interests of the existing contract holders with contract values allocated to the subaccounts investing in the Selling Fund. o Performance. The Board considered the relative performance records of the funds. o Potential Benefits to AEFC and its Affiliates. The Board also considered the potential benefits from the Reorganization that could be realized by AEFC and its affiliates. The Board recognized that the potential benefits to AEFC consist principally of the elimination of expenses incurred in duplicative efforts to administer separate funds. For VP Stock, AEFC also will benefit to the extent it no longer waives its fees. The Board also noted, however, that contract holders of the Selling Fund will benefit directly from any decrease in overall operating expense ratios resulting from the proposed Reorganization. - -------------------------------------------------------------------------------- 15 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Boards' Determinations After considering the factors described above and other relevant information, at a meeting held on Jan. 7-8, 2004, the Selling Fund Board members, including a majority of the independent Board members, found that participation in the Reorganization is in the best interests of the Selling Fund and that the interests of existing contract holders with contract values allocated to subaccounts investing in the Selling Fund will not be diluted as a result of the Reorganization. The Board of Directors of the Buying Fund approved the Agreement at a meeting held on Jan. 7-8, 2004. The Board members considered the terms of the Agreement, the provisions intended to avoid the dilution of contract holder interests and the anticipated tax consequences of the Reorganization. The Board found that participation in the Reorganization is in the best interests of the Buying Fund and that the interests of existing contract holders with contract values allocated to subaccounts investing in the Buying Fund will not be diluted as a result of the Reorganization. Recommendation and Vote Required The Board recommends that contract holders approve the proposed Agreement. The Agreement must be approved by a majority of the voting power of all shares entitled to vote. If the Agreement is not approved, the Board will consider what further action should be taken. - -------------------------------------------------------------------------------- 16 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT SECTION B -- PROXY VOTING AND CONTRACT HOLDER MEETING INFORMATION Voting. You are entitled to vote based on your total dollar interest in the subaccount investing in the Fund. Each dollar is entitled to one vote. For those of you who cannot come to the meeting, the Board is asking permission to vote for you. The shares will be voted as you instruct either by mail, telephone or internet. Signed instruction cards returned without instructions will be voted in favor of the proposal. As the owner of a variable annuity contract or variable life insurance policy, you have the right to instruct your insurance company how to vote the variable portfolio fund shares held under your annuity contract or life insurance policy. Your insurance company will vote any fund shares for which it does not receive voting instructions in proportionately the same manner -- either For, Against, or Abstain -- as shares for which it does receive instructions. All votes count toward a quorum, regardless of how they are voted (For, Against or Abstain). Broker non-votes will be counted toward a quorum but not toward the approval of any proposals. (Broker non-votes are shares for which the underlying owner has not voted and the broker holding the shares does not have authority to vote.) Revoking Your Proxy. If your plans change and you can attend the meeting, simply inform the Secretary at the meeting that you will be voting in person. Also, if you change your mind after you vote, you may change your vote or revoke it by mail, telephone or internet. Joint Proxy Statement/Simultaneous Meetings. This joint proxy statement reduces the preparation, printing and mailing costs of sending separate proxy statements for each Selling Fund. The meetings will be held simultaneously with each proposal being voted on separately by contract holders with respect to each Selling Fund. If any contract holder objects to the holding of simultaneous meetings, the contract holders may move for an adjournment of the Fund's meeting to a time immediately after the simultaneous meetings so that a meeting of that Fund may be held separately. If a contract holder makes this motion, the persons named as proxies will take into consideration the reasons for the objection in deciding whether to vote in favor of the adjournment. Solicitation of Proxies. The Board is asking for your vote and for you to vote as promptly as possible. AEFC will pay the expenses of the solicitation. Supplementary solicitations may be made by mail, telephone, electronic means or personal contact. - -------------------------------------------------------------------------------- 17 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Contract Holder Proposals. No proposals were received from contract holders. The Funds are not required to hold regular meetings each year. However, meetings of contract holders are held from time to time and proposals of contract holders that are intended to be presented at future contract holder meetings must be submitted in writing to the Funds in reasonable time prior to the solicitation of proxies for the meeting. Dissenters' Right of Appraisal. Under Sections 302A.471 and 302A.473 of the Minnesota Business Corporation Act, Selling Fund shareholders are entitled to assert dissenters' rights in connection with the Reorganization and obtain payment of the "fair value" of shares, provided that they comply with the requirements of Minnesota law. A copy of the relevant provisions is attached as Exhibit B. Notwithstanding the provisions of Minnesota law, the SEC has taken the position that use of state appraisal procedures by a mutual fund would be a violation of Rule 22c-1, the forward pricing rule, under the 1940 Act. This rule states that no mutual fund may redeem its shares other than at net asset value next computed after receipt of a request for redemption. It is the SEC's position that Rule 22c-1 supersedes appraisal provisions in state statutes. In the interest of ensuring equal valuation for all shareholders, dissenters' rights will be determined in accordance with the SEC's interpretation. As a result, if any shareholder elects to exercise dissenters' rights under Minnesota law, the Selling Fund intends to submit this question to a court of competent jurisdiction. In that event, a dissenting shareholder would not receive any payment until the end of the court proceeding. Adjournment. In the event that not enough votes in favor of the proposal are received by the time scheduled for the meeting, the persons named as proxies may move for one or more adjournments of the meeting for a period of not more than 120 days in the aggregate to allow further solicitation of contract holders on the proposal. Any adjournment requires the affirmative vote of a majority of the voting power of the shares present at the meeting. The persons named as proxies will vote in favor of adjournment those shares they are entitled to vote that have voted in favor of the proposal. They will vote against any adjournment those shares that have voted against the proposal. AEFC will pay the costs of any additional solicitation and of any adjourned meeting. - -------------------------------------------------------------------------------- 18 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT SECTION C -- CAPITALIZATION AND OWNERSHIP OF FUND SHARES Capitalization The following table shows the capitalization of the Funds as of Feb. 29, 2004 and on a pro forma basis, assuming the proposed Reorganization had taken place. Table C-1 Capitalization Net asset value Shares Fund Net assets per share outstanding VP Blue Chip $ 73,525,819 $ 8.04 9,150,064 VP Stock 15,256,238 9.33 1,635,447 VP Capital Resource 2,104,160,405 20.27 103,828,135 VP Capital Resource - Pro Forma with VP Blue Chip 2,177,686,224 20.27 107,455,457 VP Capital Resource - Pro Forma with VP Stock 2,119,416,643 20.27 104,580,786 VP Capital Resource - Pro Forma with VP Blue Chip and VP Stock 2,192,942,462 20.27 108,208,108 - -------------------------------------------------------------------------------- 19 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Ownership of Fund Shares The following table provides information on contract holders who indirectly owned more than 5% of the Fund's outstanding shares as of Feb. 29, 2004. Under the 1940 Act, any person who owns more than 25% of the voting securities of a company is presumed to "control" the company. Your insurance company will vote on the Reorganization as you instruct. Therefore, your insurance company does not exercise control over the Fund solely as the record owner of the fund's shares. As of Feb. 29, 2004, officers and directors of the Fund as a group indirectly owned less than 1% of the outstanding shares of the Fund. Table C-2 Ownership of Fund Shares Percent of Percent shares held of shares following the Fund 5% owners held reorganization VP Blue Chip (1) 100% 100% VP Stock (1) 100% 100% VP Capital Resource (1) 100% 100% (1) 100% of the fund's assets are owned by the subaccounts of IDS Life Insurance Company in Minneapolis, MN, IDS Life Insurance Company of New York in Albany NY, American Centurion Life Assurance Company (ACL) in Albany NY, American Enterprise Life Insurance Company (AEL) in Minneapolis MN and American Partners Life Insurance Company (APL) in Minneapolis MN. - -------------------------------------------------------------------------------- 20 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Exhibit A Form of Agreement and Plan of Reorganization This Agreement and Plan of Reorganization dated as of Jan. 8, 2004 (the "Agreement") is between AXP Variable Portfolio Investment Series, Inc. (the "Corporation"), a Minnesota corporation on behalf of its series, AXP Variable Portfolio - Blue Chip Advantage Fund (the "Selling Fund"), and the same corporation on behalf of its series, AXP Variable Portfolio Capital Resource Fund (the "Buying Fund"), and American Express Financial Corporation (solely for the purposes of Section 3c and 10 of the Agreement). In consideration of their mutual promises, the parties agree as follows: 1. Contract Holder Approval. The Selling Fund will call a meeting of its contract holders for the purpose of approving the Agreement and the transactions it contemplates (the "Reorganization"). The Buying Fund agrees to furnish data and information, as reasonably requested, for the proxy statement to be furnished to shareholders of the Selling Fund. 2. Reorganization. a. Plan of Reorganization. The Reorganization will be a reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"). At the Closing, the Corporation will convey all of the assets of the Selling Fund to the Buying Fund. The Buying Fund will assume all liabilities of the Selling Fund. At the Closing, the Corporation will deliver shares of the Buying Fund, including fractional shares, to the Corporation. The number of shares will be determined by dividing the value of the net assets of shares of the Selling Fund, computed as described in paragraph 3(a), by the net asset value of one share of the Buying Fund, computed as described in paragraph 3(b). The Selling Fund will not pay a sales charge on the receipt of Buying Fund shares in exchange for the assets of the Selling Fund. In addition, the separate account shareholders of the Selling Fund will not pay a sales charge on distribution to them of shares of the Buying Fund. b. Closing and Effective Time of the Reorganization. The Reorganization and all related acts necessary to complete the Reorganization (the "Closing") will occur on the first day on which the New York Stock Exchange (the "NYSE") is open for business following approval of contract holders with respect to the Selling Fund and receipt of all necessary regulatory approvals, or such later date as the parties may agree. - -------------------------------------------------------------------------------- A.1 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 3. Valuation of Net Assets. a. The net asset value of shares of the Selling Fund will be computed as of the close of regular trading on the NYSE on the day of Closing (the "Valuation Date") using the valuation procedures in the Buying Fund's prospectus. b. The net asset value per share of shares of the Buying Fund will be determined as of the close of regular trading on the NYSE on the Valuation Date, using the valuation procedures in the Buying Fund's prospectus. c. At the Closing, the Selling Fund will provide the Buying Fund with a copy of the computation showing the valuation of the net asset value per share of shares of the Selling Fund on the Valuation Date. The Buying Fund will provide the Selling Fund with a copy of the computation showing the determination of the net asset value per share of shares of the Buying Fund on the Valuation Date. Both computations will be certified by an officer of American Express Financial Corporation, the investment manager. 4. Liquidation and Dissolution of the Selling Fund. a. As soon as practicable after the Valuation Date, the Corporation will liquidate the Selling Fund and distribute shares of the Buying Fund to the Selling Fund's shareholders of record. The Buying Fund will establish shareholder accounts in the names of each Selling Fund shareholder, representing the respective pro rata number of full and fractional shares of the Buying Fund due to each shareholder. All issued and outstanding shares of the Selling Fund will simultaneously be cancelled on the books of the Corporation. The Buying Fund or its transfer agent will establish shareholder accounts in accordance with instructions from the Corporation. b. Immediately after the Valuation Date, the share transfer books of the Corporation relating to the Selling Fund will be closed and no further transfer of shares will be made. c. Promptly after the distribution, the Buying Fund or its transfer agent will notify each shareholder of the Selling Fund of the number of shares distributed to the shareholder and confirm the registration in the shareholder's name. d. As promptly as practicable after the liquidation of the Selling Fund, and in no event later than twelve months from the date of the Closing, the Selling Fund will be dissolved. - -------------------------------------------------------------------------------- A.2 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 5. Representations, Warranties and Covenants of the Corporation on behalf of the Buying Fund. The Corporation represents and warrants to the Selling Fund as follows: a. Organization, Existence, etc. The Corporation is a corporation duly organized, validly existing and in good standing under the laws of the state of Minnesota and has the power to carry on its business as it is now being conducted. b. Registration as Investment Company. The Buying Fund is a series of the Corporation, registered under the Investment Company Act of 1940 (the "1940 Act") as an open-end, management investment company. c. Capitalization. The Corporation has authorized capital of 10,000,000,000 shares of common stock, par value $0.01 per share. All of the outstanding shares have been duly authorized and are validly issued, fully paid and non-assessable. Since the Buying Fund is engaged in the continuous offering and redemption of its shares, the number of outstanding shares may vary daily. d. Financial Statements. The audited financial statements as of the end of the last fiscal year, and the subsequent unaudited semi-annual financial statements, if any (the "Buying Fund Financial Statements"), fairly present the financial position of the Buying Fund, and the results of its operations and changes in its net assets for the periods shown. e. Shares to be Issued Upon Reorganization. The shares to be issued in connection with the Reorganization will be duly authorized and, at the time of the Closing, will be validly issued, fully paid and non-assessable. f. Authority Relative to the Agreement. The Corporation has the power to enter into and carry out the obligations described in this Agreement. The Agreement and the transactions contemplated by it have been duly authorized by the Board of Directors and no other proceedings by the Corporation or the Buying Fund are necessary. g. No Violation. The Corporation is not in violation of its Articles of Incorporation or By-Laws (the "Articles") or in default in the performance of any material agreement to which it is a party. The execution of this Agreement and the completion of the transactions contemplated by it will not conflict with, or constitute a breach of, any material contract or other instrument to which the Buying Fund is subject. The transactions will not result in any violation of the provisions of the Articles or any law, administrative regulation or administrative or court decree applicable to the Buying Fund. - -------------------------------------------------------------------------------- A.3 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT h. Liabilities. There are no liabilities of the Buying Fund other than: o liabilities disclosed in the Buying Fund Financial Statements, o liabilities incurred in the ordinary course of business subsequent to the date of the latest annual or semi-annual financial statements, or o liabilities previously disclosed to the Selling Fund, none of which has been materially adverse to the business, assets or results of operation of the Buying Fund. i. Litigation. There is no litigation, administrative proceeding or investigation before any court or governmental body currently pending or, to the knowledge of the Buying Fund, threatened, that would materially and adversely affect the Buying Fund, its financial condition or the conduct of its business, or that would prevent or hinder completion of the transactions contemplated by this Agreement. The Buying Fund knows of no facts that might form the basis for the institution of any such litigation, proceeding or investigation and the Buying Fund is not a party to or subject to the provisions of any order, decree or judgment. j. Contracts. Except for contracts and agreements previously disclosed to the Corporation, the Buying Fund is not a party to or subject to any material contract, debt instrument, plan, lease, franchise, license or permit. k. Taxes. The Buying Fund has qualified as a regulated investment company under the Code with respect to each taxable year since commencement of its operations and will qualify as a regulated investment company at all times through the Closing. As of the Closing, the Buying Fund will (i) have filed all federal and other tax returns and reports that have been required to be filed, (ii) have paid or provided for payment of all federal and other taxes shown to be due on such returns or on any assessments received, (iii) have adequately provided for all tax liabilities on its books, (iv) except as disclosed to the Selling Fund, not have had any tax deficiency or liability asserted against it or question with respect thereto raised, and (v) except as disclosed to the Selling Fund, not be under audit by the Internal Revenue Service or by any state or local tax authority for taxes in excess of those already paid. l. Registration Statement. The Buying Fund will file a registration statement on Form N-14 (the "Registration Statement") with the Securities and Exchange Commission under the Securities Act of 1933 (the "1933 Act") relating to the shares to be issued in the Reorganization. At the time the Registration Statement becomes - -------------------------------------------------------------------------------- A.4 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT effective, at the time of the shareholders' meeting and at the Closing, the Registration Statement will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading. However, none of the representations and warranties in this subsection apply to statements in, or omissions from, the Registration Statement made in reliance on information furnished by the Selling Fund for use in the Registration Statement. 6. Representations, Warranties and Covenants of the Corporation on behalf of the Selling Fund. The Corporation represents and warrants to the Buying Fund as follows: a. Organization, Existence, etc. The Corporation is a corporation duly organized, validly existing and in good standing under the laws of the state of Minnesota and has the power to carry on its business as it is now being conducted. b. Registration as Investment Company. The Selling Fund is a series of the Corporation, registered under the 1940 Act as an open-end, management investment company. c. Capitalization. The Corporation has authorized capital of 10,000,000,000 shares of common stock, par value $0.01 per share. All of the outstanding shares have been duly authorized and are validly issued, fully paid and non-assessable. Since the Selling Fund is engaged in the continuous offering and redemption of its shares, the number of outstanding shares may vary daily. d. Financial Statements. The audited financial statements as of the end of the last fiscal year, and the subsequent unaudited semi-annual financial statements, if any (the "Selling Fund Financial Statements"), fairly present the financial position of the Selling Fund, and the results of its operations and changes in its net assets for the periods shown. e. Authority Relative to the Agreement. The Corporation has the power to enter into and to carry out its obligations under this Agreement. The Agreement and the transactions contemplated by it have been duly authorized by the Board of Directors and no other proceedings by the Corporation or the Selling Fund are necessary. f. No Violation. The Corporation is not in violation of its Articles or in default in the performance of any material agreement to which it is a party. The execution of this Agreement and the completion of the transactions contemplated by it will not conflict with or constitute a breach of, any material contract to which the Selling Fund is subject. Nor will the transactions result in any violation of the provisions of the Articles or any law, administrative regulation or administrative or court decree applicable to the Selling Fund. - -------------------------------------------------------------------------------- A.5 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT g. Liabilities. There are no liabilities of the Selling Fund other than: o liabilities disclosed in the Selling Fund Financial Statements, o liabilities incurred in the ordinary course of business subsequent to the date of the latest annual or semi-annual financial statements, or o liabilities previously disclosed to the Buying Fund, none of which has been materially adverse to the business, assets or results of operation of the Selling Fund. h. Litigation. There is no litigation, administrative proceeding or investigation before any court or governmental body currently pending or, to the knowledge of the Selling Fund, threatened, that would materially and adversely affect the Selling Fund, its financial condition or the conduct of its business, or that would prevent or hinder completion of the transactions contemplated by this Agreement. The Selling Fund knows of no facts that might form the basis for the institution of any such litigation, proceeding or investigation and is not a party to or subject to the provisions of any order, decree or judgment. i. Contracts. Except for contracts and agreements previously disclosed to the Corporation, the Selling Fund is not a party to or subject to any material contract, debt instrument, plan, lease, franchise, license or permit. j. Taxes. The Selling Fund has qualified as a regulated investment company under the Code with respect to each taxable year since commencement of its operations and will qualify as a regulated investment company at all times through the Closing. As of the Closing, the Selling Fund will (i) have filed all federal and other tax returns and reports that have been required to be filed, (ii) have paid or provided for payment of all federal and other taxes shown to be due on such returns or on any assessments received, (iii) have adequately provided for all tax liabilities on its books, (iv) except as disclosed to the Buying Fund, not have had any tax deficiency or liability asserted against it or question with respect thereto raised, and (v) except as disclosed to the Buying Fund, not be under audit by the Internal Revenue Service or by any state or local tax authority for taxes in excess of those already paid. k. Fund Securities. All securities listed in the schedule of investments of the Selling Fund as of the Closing will be owned by the Selling Fund free and clear of any encumbrances, except as indicated in the schedule. - -------------------------------------------------------------------------------- A.6 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT l. Registration Statement. The Selling Fund will cooperate with the Buying Fund and will furnish information relating to the Corporation and the Selling Fund required in the Registration Statement. At the time the Registration Statement becomes effective, at the time of the shareholders' meeting and at the Closing, the Registration Statement, as it relates to the Corporation or the Selling Fund, will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading. However, the representations and warranties in this subsection apply only to statements in or omissions from the Registration Statement made in reliance upon information furnished by the Corporation or the Selling Fund for use in the Registration Statement. 7. Conditions to Obligations of the Corporation with respect to the Selling Fund. The obligations of the Corporation with respect to the Reorganization are subject to the satisfaction of the following conditions: a. Contract Holder Approval. This Agreement will have been approved by the affirmative vote of the holders of the majority of the voting power of all Selling Fund shares entitled to vote. b. Representations, Warranties and Agreements. The Corporation and the Selling Fund will have complied with this Agreement and each of the representations and warranties in this Agreement will be true in all material respects as of the Closing. An officer of the Corporation will provide a certificate to the Buying Fund confirming that, as of the Closing, the representations and warranties set forth in Section 6 are true and correct and that there have been no material adverse changes in the financial condition, results of operations, business, properties or assets of the Selling Fund since the date of its last financial statement, except as otherwise indicated in any financial statements, certified by an officer of the Corporation, and delivered to the Buying Fund on or prior to the last business day before the Closing. c. Regulatory Approvals. o The Registration Statement referred to in Section 5(l) will be effective and no stop orders under the 1933 Act will have been issued. o All necessary approvals, consents and exemptions from federal and state regulatory authorities will have been obtained. - -------------------------------------------------------------------------------- A.7 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT d. Tax Opinion. The Corporation will have received the opinion of Ropes & Gray LLP dated as of the Closing, as to the federal income tax consequences of the Reorganization to the Buying Fund and its shareholders. For purposes of rendering their opinion, Ropes & Gray LLP may rely, as to factual matters, upon the statements made in this Agreement, the proxy statement which will be distributed to the contract holders with respect to the Selling Fund, and other written representations as an officer of the Corporation will have verified as of Closing. The opinion of Ropes & Gray LLP will be substantially to the effect that: (i) neither the Selling Fund nor the Buying Fund will recognize any gain or loss upon the transfer of the assets of the Selling Fund to, and assumption of its liabilities by, the Buying Fund in exchange for shares of the Buying Fund and upon the distribution of the shares to the Selling Fund shareholders in exchange for their shares of the Selling Fund; (ii) the shareholders of the Selling Fund who receive shares of the Buying Fund in the Reorganization will not recognize any gain or loss on the exchange of their shares of the Selling Fund for the shares of the Buying Fund; (iii) the holding period and the basis of the shares received by the Selling Fund shareholders will be the same as the holding period and the basis of the shares of the Selling Fund surrendered in the exchange; (iv) the holding period and the basis of the assets acquired by the Buying Fund will be the same as the holding period and the basis of the assets to the Selling Fund immediately prior to the Reorganization. e. Opinion of Counsel. The Corporation will have received an opinion of counsel for the Selling Fund, dated as of the Closing, to the effect that: (i) the Corporation is a corporation duly organized and validly existing under the laws of the state of Minnesota; (ii) the Selling Fund is a series of the Corporation, an open-end investment company registered under the 1940 Act; (iii) this Agreement and the Reorganization have been duly authorized and approved by all requisite action of the Corporation and the Selling Fund and this Agreement has been duly executed by, and is a valid and binding obligation of, the Corporation. f. Declaration of Dividend. The Selling Fund, prior to the Closing, has declared a dividend or dividends, which, together with all previous such dividends, shall have the effect of distributing to the Selling Fund shareholders (i) all of the excess of (x) the Selling Fund's investment income excludable from gross income under Section 103 of the Code over (y) the Selling Fund's deductions disallowed under Sections 265 and 171 of the Code, (ii) all of the Selling Fund's investment company taxable income as defined in Section 852 of the Code (in each case computed without regard to any deduction for dividends paid), and - -------------------------------------------------------------------------------- A.8 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT (iii) all of the Selling Fund's net capital gain realized (after reduction for any capital loss carryover), in each case for the current taxable year (which will end on the Closing date) and any preceding taxable years for which such a dividend is eligible to be made under Section 855 of the Code. 8. Conditions to Obligations of the Corporation with respect to the Buying Fund. The obligations of the Corporation with respect to the Reorganization are subject to the satisfaction of the following conditions: a. Contract Holder Approval. This Agreement will have been approved by the affirmative vote of the holders of the majority of the voting power of all Selling Fund shares entitled to vote. b. Representations, Warranties and Agreements. The Buying Fund will have complied with this Agreement and each of the representations and warranties in this Agreement will be true in all material respects as of the Closing. An officer of the Corporation will provide a certificate to the Selling Fund confirming that, as of the Closing, the representations and warranties set forth in Section 5 are true and correct and that there have been no material adverse changes in the financial condition, results of operations, business, properties or assets of the Buying Fund since the date of its last financial statement, except as otherwise indicated in any financial statements, certified by an officer of the Corporation, and delivered to the Selling Fund on or prior to the last business day before the Closing. c. Regulatory Approvals. o The Registration Statement referred to in Section 5(l) will be effective and no stop orders under the 1933 Act will have been issued. o All necessary approvals, consents and exemptions from federal and state regulatory authorities will have been obtained. d. Tax Opinion. The Corporation will have received the opinion of Ropes & Gray LLP dated as of the Closing, as to the federal income tax consequences of the Reorganization to the Selling Fund and its shareholders. For purposes of rendering their opinion, Ropes & Gray LLP may rely, as to factual matters, upon the statements made in this Agreement, the proxy statement which will be distributed to the contract holders with respect to the Selling Fund, and other written representations as an officer of the Corporation will have verified as of Closing. The opinion of Ropes & Gray LLP will be substantially to the effect that: (i) neither the Selling Fund nor the Buying Fund will recognize any gain or loss upon the transfer of the assets of the Selling Fund to, and assumption of its liabilities by, the Buying Fund in - -------------------------------------------------------------------------------- A.9 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT exchange for shares of the Buying Fund and upon the distribution of the shares to the Selling Fund shareholders in exchange for their shares of the Selling Fund; (ii) the shareholders of the Selling Fund who receive shares of the Buying Fund in the Reorganization will not recognize any gain or loss on the exchange of their shares of the Selling Fund for the shares of the Buying Fund; (iii) the holding period and the basis of the shares received by the Selling Fund shareholders will be the same as the holding period and the basis of the shares of the Selling Fund surrendered in the exchange; (iv) the holding period and the basis of the assets acquired by the Buying Fund will be the same as the holding period and the basis of the assets to the Selling Fund immediately prior to the Reorganization; and (v) the Buying Fund will succeed to and take into account the items of the Selling Fund described in Section 381(c) of the Code, subject to the conditions and limitations specified in Sections 381, 382, 383, and 384 of the Code and the regulations thereunder. e. Opinion of Counsel. The Corporation will have received the opinion of counsel for the Buying Fund, dated as of the Closing, to the effect that: (i) the Corporation is a corporation duly organized and validly existing under the laws of the state of Minnesota; (ii) the Buying Fund is a series of the Corporation, an open-end investment company registered under the 1940 Act; (iii) this Agreement and the Reorganization have been authorized and approved by all requisite action of the Corporation and the Buying Fund and this Agreement has been duly executed by, and is a valid and binding obligation of, the Corporation; and (iv) the shares to be issued in the Reorganization are duly authorized and upon issuance in accordance with this Agreement will be validly issued, fully paid and non-assessable shares of the Buying Fund. 9. Amendment; Termination; Non-Survival of Covenants, Warranties and Representations. a. This Agreement may be amended in writing if authorized by the respective Boards of Directors. The Agreement may be amended at any time before or after approval by the shareholders of the Selling Fund, but after shareholder approval, no amendment shall be made that substantially changes the terms of paragraphs 2 or 3. b. At any time prior to the Closing, any of the parties may waive in writing (i) any inaccuracies in the representations and warranties made to it and (ii) compliance with any of the covenants or conditions made for its benefit. However, neither party may waive the requirement to obtain contract holder approval or the requirement to obtain a tax opinion. - -------------------------------------------------------------------------------- A.10 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT c. The Corporation may terminate this Agreement at any time prior to the Closing by notice to the Buying Fund if a material condition to its performance or a material covenant of the Corporation on behalf of the Buying Fund is not fulfilled on or before the date specified for its fulfillment or a material breach of this Agreement is made by the Corporation on behalf of the Buying Fund and is not cured. d. The Corporation may terminate this Agreement at any time prior to the Closing by notice to the Selling Fund if a material condition to its performance or a material covenant of the Corporation on behalf of the Selling Fund is not fulfilled on or before the date specified for its fulfillment or a material breach of this Agreement is made by the Corporation on behalf of the Selling Fund and is not cured. e. This Agreement may be terminated by any party at any time prior to the Closing, whether before or after approval by the contract holders with respect to the Selling Fund, without any liability on the part of either party or its respective directors, officers, or the separate account shareholders, on written notice to the other party, and shall be terminated without liability as of the close of business on Dec. 31, 2004, or a later date agreed upon by the parties, if the Closing is not on or prior to that date. f. The representations, warranties and covenants contained in this Agreement, or in any document delivered in connection with this Agreement, will survive the Reorganization. 10. Expenses. American Express Financial Corporation will pay the costs of carrying out the provisions of this Agreement whether or not the Reorganization is completed. 11. General. a. Headings. The headings contained in this Agreement are for reference purposes only and will not affect the meaning or interpretation of this Agreement. Nothing in this Agreement is intended to confer upon any other person any rights or remedies by reason of this Agreement. b. Governing Law. This Agreement will be governed by the laws of the state of Minnesota. - -------------------------------------------------------------------------------- A.11 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 12. Indemnification. Each party will indemnify and hold the other and its officers and directors (each an "Indemnitee") harmless from and against any liability or other cost and expense, in connection with the defense or disposition of any action, suit, or other proceeding, before any court or administrative or investigative body in which the Indemnitee may be involved as a party, with respect to actions taken under this Agreement. However, no Indemnitee will be indemnified against any liability or expense arising by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the Indemnitee's position. IN WITNESS WHEREOF, each of the parties has caused this Agreement to be signed. AXP Variable Portfolio - Investment Series, Inc. on behalf of AXP Variable Portfolio - Blue Chip Advantage Fund By _________________________________ Leslie L. Ogg Vice President AXP Variable Portfolio - Investment Series, Inc. on behalf of AXP Variable Portfolio - Capital Resource Fund By _________________________________ Leslie L. Ogg Vice President The undersigned is a party to this Agreement for purposes of Section 3c and 10 only. American Express Financial Corporation By _________________________________ Paula R. Meyer Senior Vice President and General Manager - Mutual Funds - -------------------------------------------------------------------------------- A.12 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Exhibit B Minnesota Business Corporation Act Sections 302A.471 and 302A.473 Minnesota law requires that we provide you with a copy of the state law on dissenters' rights. Notwithstanding the provisions of the law set out below, the SEC has taken the position that use of state appraisal procedures by a registered mutual fund such as the Fund would be a violation of Rule 22c-1, the forward pricing rule, under the 1940 Act. As a result, if any shareholder elects to exercise dissenters' rights under Minnesota law, the Fund intends to submit this question to a court of competent jurisdiction. In that event, a dissenting shareholder would not receive any payment until the end of the court proceeding. 302A.471. Rights of dissenting shareholders Subdivision 1. Actions creating rights. A shareholder of a corporation may dissent from, and obtain payment for the fair value of the shareholder's shares in the event of, any of the following corporate actions: (a) An amendment of the articles that materially and adversely affects the rights or preferences of the shares of the dissenting shareholder in that it: (1) alters or abolishes a preferential right of the shares; (2) creates, alters, or abolishes a right in respect of the redemption of the shares, including a provision respecting a sinking fund for the redemption or repurchase of the shares; (3) alters or abolishes a preemptive right of the holder of the shares to acquire shares, securities other than shares, or rights to purchase shares or securities other than shares; (4) excludes or limits the right of a shareholder to vote on a matter, or to cumulate votes, except as the right may be excluded or limited through the authorization or issuance of securities of an existing or new class or series with similar or different voting rights; except that an amendment to the articles of an issuing public corporation that provides that section 302A.671 does not apply to a control share acquisition does not give rise to the right to obtain payment under this section; (b) A sale, lease, transfer, or other disposition of all or substantially all of the property and assets of the corporation, but not including a transaction permitted without shareholder approval in section 302A.661, subdivision 1, or a disposition in dissolution described in section 302A.725, subdivision 2, or a disposition pursuant to an order of a court, or a disposition for cash on terms requiring that all or substantially all of the net proceeds of disposition be distributed to the shareholders in accordance with their respective interests within one year after the date of disposition; - -------------------------------------------------------------------------------- B.1 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT (c) A plan of merger, whether under this chapter or under chapter 322B, to which the corporation is a party, except as provided in subdivision 3, and except for a plan of merger adopted under section 302A.626; (d) A plan of exchange, whether under this chapter or under chapter 322B, to which the corporation is a party as the corporation whose shares will be acquired by the acquiring corporation, except as provided in subdivision 3; or (e) Any other corporate action taken pursuant to a shareholder vote with respect to which the articles, the bylaws, or a resolution approved by the board directs that dissenting shareholders may obtain payment for their shares. Subdivision 2. Beneficial owners. (a) A shareholder shall not assert dissenters' rights as to less than all of the shares registered in the name of the shareholder, unless the shareholder dissents with respect to all the shares that are beneficially owned by another person but registered in the name of the shareholder and discloses the name and address of each beneficial owner on whose behalf the shareholder dissents. In that event, the rights of the dissenter shall be determined as if the shares as to which the shareholder has dissented and the other shares were registered in the names of different shareholders. (b) The beneficial owner of shares who is not the shareholder may assert dissenters' rights with respect to shares held on behalf of the beneficial owner, and shall be treated as a dissenting shareholder under the terms of this section and section 302A.473, if the beneficial owner submits to the corporation at the time of or before the assertion of the rights a written consent of the shareholder. Subdivision 3. Rights not to apply. (a) Unless the articles, the bylaws, or a resolution approved by the board otherwise provide, the right to obtain payment under this section does not apply to a shareholder of (1) the surviving corporation in a merger with respect to shares of the shareholder that are not entitled to be voted on the merger or (2) the corporation whose shares will be acquired by the acquiring corporation in a plan of exchange with respect to shares of the shareholder that are not entitled to be voted on the plan of exchange and are not exchanged in the plan of exchange. (b) If a date is fixed according to section 302A.445, subdivision 1, for the determination of shareholders entitled to receive notice of and to vote on an action described in subdivision 1, only shareholders as of the date fixed, and beneficial owners as of the date fixed who hold through shareholders, as provided in subdivision 2, may exercise dissenters' rights. - -------------------------------------------------------------------------------- B.2 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Subdivision 4. Other rights. The shareholders of a corporation who have a right under this section to obtain payment for their shares do not have a right at law or in equity to have a corporate action described in subdivision 1 set aside or rescinded, except when the corporate action is fraudulent with regard to the complaining shareholder or the corporation. 302A.473. Procedures for asserting dissenters' rights Subdivision 1. Definitions. (a) For purposes of this section, the terms defined in this subdivision have the meanings given them. (b) "Corporation" means the issuer of the shares held by a dissenter before the corporate action referred to in section 302A.471, subdivision 1 or the successor by merger of that issuer. (c) "Fair value of the shares" means the value of the shares of a corporation immediately before the effective date of the corporate action referred to in section 302A.471, subdivision 1. (d) "Interest" means interest commencing five days after the effective date of the corporate action referred to in section 302A.471, subdivision 1, up to and including the date of payment, calculated at the rate provided in section 549.09 for interest on verdicts and judgments. Subdivision 2. Notice of action. If a corporation calls a shareholder meeting at which any action described in section 302A.471, subdivision 1 is to be voted upon, the notice of the meeting shall inform each shareholder of the right to dissent and shall include a copy of section 302A.471 and this section and a brief description of the procedure to be followed under these sections. Subdivision 3. Notice of dissent. If the proposed action must be approved by the shareholders, a shareholder who is entitled to dissent under section 302A.471 and who wishes to exercise dissenters' rights must file with the corporation before the vote on the proposed action a written notice of intent to demand the fair value of the shares owned by the shareholder and must not vote the shares in favor of the proposed action. Subdivision 4. Notice of procedure; deposit of shares. (a) After the proposed action has been approved by the board and, if necessary, the shareholders, the corporation shall send to all shareholders who have complied with subdivision 3 and to all shareholders entitled to dissent if no shareholder vote was required, a notice that contains: (1) The address to which a demand for payment and certificates of certificated shares must be sent in order to obtain payment and the date by which they must be received; (2) Any restrictions on transfer of uncertificated shares that will apply after the demand for payment is received; - -------------------------------------------------------------------------------- B.3 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT (3) A form to be used to certify the date on which the shareholder, or the beneficial owner on whose behalf the shareholder dissents, acquired the shares or an interest in them and to demand payment; and (4) A copy of section 302A.471 and this section and a brief description of the procedures to be followed under these sections. (b) In order to receive the fair value of the shares, a dissenting shareholder must demand payment and deposit certificated shares or comply with any restrictions on transfer of uncertificated shares within 30 days after the notice required by paragraph (a) was given, but the dissenter retains all other rights of a shareholder until the proposed action takes effect. Subdivision 5. Payment; return of shares. (a) After the corporate action takes effect, or after the corporation receives a valid demand for payment, whichever is later, the corporation shall remit to each dissenting shareholder who has complied with subdivisions 3 and 4 the amount the corporation estimates to be the fair value of the shares, plus interest, accompanied by: (1) The corporation's closing balance sheet and statement of income for a fiscal year ending not more than 16 months before the effective date of the corporate action, together with the latest available interim financial statements; (2) An estimate by the corporation of the fair value of the shares and a brief description of the method used to reach the estimate; and (3) A copy of section 302A.471 and this section, and a brief description of the procedure to be followed in demanding supplemental payment. (b) The corporation may withhold the remittance described in paragraph (a) from a person who was not a shareholder on the date the action dissented from was first announced to the public or who is dissenting on behalf of a person who was not a beneficial owner on that date. If the dissenter has complied with subdivisions 3 and 4, the corporation shall forward to the dissenter the materials described in paragraph (a), a statement of the reason for withholding the remittance, and an offer to pay to the dissenter the amount listed in the materials if the dissenter agrees to accept that amount in full satisfaction. The dissenter may decline the offer and demand payment under subdivision 6. Failure to do so entitled the dissenter only to the amount offered. If the dissenter makes demand, subdivision 7 and 8 apply. (c) If the corporation fails to remit payment within 60 days of the deposit of certificates or the imposition of transfer restrictions on uncertificated shares, it shall return all deposited certificates and cancel all transfer restrictions. However, the corporation may again give notice under subdivision 4 and require deposit or restrict transfer at a later time. - -------------------------------------------------------------------------------- B.4 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Subdivision 6. Supplemental payment; demand. If a dissenter believes that the amount remitted under subdivision 5 is less than the fair value of the shares plus interest, the dissenter may give written notice to the corporation of the dissenter's own estimate of the fair value of the shares, plus interest, within 30 days after the corporation mails the remittance under subdivision 5, and demand payment of the difference. Otherwise, a dissenter is entitled only to the amount remitted by the corporation. Subdivision 7. Petition; determination. If the corporation receives a demand under subdivision 6, it shall, within 60 days after receiving the demand, either pay to the dissenter the amount demanded or agreed to by the dissenter after discussion with the corporation or file in a court a petition requesting that the court determine the fair value of the shares, plus interest. The petition shall be filed in the county in which the registered office of the corporation is located, except that a surviving foreign corporation that receives a demand relating to the shares of a constituent domestic corporation shall file the petition in the county in this state in which the last registered office of the constituent corporation was located. The petition shall name as parties all dissenters who have demanded payment under subdivision 6 and who have not reached agreement with the corporation. The corporation shall, after filing the petition, serve all parties with a summons and copy of the petition under the rules of civil procedure. Nonresidents of this state may be served by registered or certified mail or by publication as provided by law. Except as otherwise provided, the rules of civil procedures apply to this proceeding. The jurisdiction of the court is plenary and exclusive. The court may appoint appraisers, with powers and authorities the court deems proper, to receive evidence on and recommend the amount of the fair value of the shares. The court shall determine whether the shareholder or shareholders in question have fully complied with the requirements of this section, and shall determine the fair value of the shares, taking into account any and all factors the court finds relevant, computed by any method or combination of methods that the court, in its discretion, sees fit to use, whether or not used by the corporation or by a dissenter. The fair value of the shares as determined by the court is binding on all shareholders, wherever located. A dissenter is entitled to judgment in cash for the amount by which the fair value of the shares as determined by the court, plus interest, exceeds the amount, if any, remitted under subdivision 5, but shall not be liable to the corporation for the amount, if any, by which the amount, if any, remitted to the dissenter under subdivision 5 exceeds the fair value of the shares as determined by the court, plus interest. - -------------------------------------------------------------------------------- B.5 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Subdivision 8. Costs; fees; expenses. (a) The court shall determine the costs and expenses of a proceeding under subdivision 7, including the reasonable expenses and compensation of any appraisers appointed by the court, and shall assess those costs and expenses against the corporation, except that the court may assess part or all of those costs and expenses against a dissenter whose action in demanding payment under subdivision 6 is found to be arbitrary, vexatious, or not in good faith. (b) If the court finds that the corporation has failed to comply substantially with this section, the court may assess all fees and expenses of any experts or attorneys as the court deems equitable. These fees and expenses may also be assessed against a person who has acted arbitrarily, vexatiously, or not in good faith in bringing the proceeding, and may be awarded to a party injured by those actions. (c) The court may award, in its discretion, fees and expenses to an attorney for the dissenters out of the amount awarded to the dissenters, if any. - -------------------------------------------------------------------------------- B.6 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Exhibit C Management's Discussion of the Buying Fund For the fiscal year ended Aug. 31, 2003 Portfolio Management Q & A AXP VP - Capital Resource Fund Q: How did the AXP VP - Capital Resource Fund perform for the fiscal year ended Aug. 31, 2003? A: AXP VP - Capital Resource Fund rose 10.16% for the 12 months ended Aug. 31, 2003, outpacing the average return of 9.83% of its peer group, as represented by the Lipper Large-Cap Core Funds Index. However, the Fund underperformed its benchmark, the Standard & Poor's 500 Index (S&P 500 Index), which gained 12.07% during the same time frame. Q: What factors significantly affected the Fund's performance? A: The stock market was very weak early on in the Fund's fiscal year, with the S&P 500 Index down 10% in September 2002. Stocks then rebounded nicely in October and November until the threat of war with Iraq took its toll on the markets starting in December and dampened stock performance into March of 2003. The tide turned once again in late March and stocks began a sustained rally as investors embraced a view that the U.S. economy was showing signs of fundamental improvement. The market produced strong results throughout the remainder of the fiscal year. The Fund entered its fiscal year in September 2002 positioned for an economic upturn and was hurt by the market's dismal performance in that month. However, the rally in October and November benefited performance, particularly within the technology sector, in which the Fund had an overweight position. As technology stocks continued to rally, the Fund pared back its holdings in the sector due to our view that the move in the stocks had outpaced the evidence of fundamental improvements we were seeing within the sector. Within technology, the Fund maintained an underweight position for much of the remainder of the fiscal year. The Fund was negatively impacted by the market's swoon in December but held its own in the relatively flat first calendar quarter of 2003, and performed quite well in the second calendar quarter of 2003 as the S&P 500 Index staged one of its most impressive quarters on record. During that second quarter, companies continued to suggest that business conditions remained sluggish. Nevertheless, the stocks of cyclically sensitive companies continued to do very well. The Fund began to sell them in favor of less expensive stocks where fundamentals appeared to be stronger. - -------------------------------------------------------------------------------- C.1 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT (bar chart) PERFORMANCE COMPARISON For the year ended Aug. 31, 2003 15% (bar 2) 12% (bar 1) +12.07% +10.16% (bar 3) 9% +9.83% 6% 3% 0% (bar 1) AXP VP - Capital Resource Fund (bar 2) S&P 500 Index (unmanaged) (bar 3) Lipper Large-Cap Core Funds Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. This move detracted from performance in July and August as cyclically sensitive stocks continued to advance, many to all-time highs, with the record earnings to accompany such performance nowhere in sight. While we acknowledge that equities always discount the future, far too many stocks, in our opinion, are discounting a cyclical rebound, the magnitude and extent of which, historically speaking, may be very difficult to achieve to justify current expectations. While we continue to find some industrial and energy stocks attractive as well as selected cyclical stocks in other industries, we believe that risk and reward currently favors overweight positions in areas where future earnings levels are more certain. Overall, favorable stock selection benefited the Fund's relative performance in the period while its sector weightings detracted from the Fund's results. Cendant, a player in the leisure and travel services industry, provided excellent results during the period. Select holdings in the pharmaceutical, media, technology and financial industries benefited the Fund's returns. Those holdings which turned in disappointing performance included an oil service company, Transocean, as well as Fannie Mae and Freddie Mac. Although the mortgage market experienced a record number of refinancings during the period due to low interest rates, both of these companies suffered as a result of Freddie Mac's accounting and regulatory issues. In terms of sector allocations, the Fund was underweighted in technology and telecommunications for much of the fiscal year, which benefited performance early on in the period but proved detrimental to performance as these sectors rallied with the market. Moreover, an overweight position in health care hindered the Fund's performance in the first few months of the fiscal year. - -------------------------------------------------------------------------------- C.2 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Q: What changes did you make to the Fund during the period? A: The Fund began the fiscal year in September 2002 positioned to benefit from a slow economic recovery with a reduced exposure to cyclical stocks. As we entered 2003, the consensus for the economic outlook shifted and the market seemed to favor a more robust recovery. Consequently, we shifted the Fund's focus to more economically sensitive sectors including energy, materials and industrials. The Fund maintained an underweighted exposure to financials and technology throughout most of the fiscal year due to our view that fundamentals were not as strong in those sectors. Early in 2003, following a period of weakness for consumer discretionary stocks valuations, in our view, appeared more attractive in that sector and we began to add aggressively to a number of names, including media players in the content provider space, infrastructure players, advertising firms and other communication plays. Late in the period, profits were taken and positions reduced in a number of companies which had been strong performers for the Fund, including Cendant, AOL Time Warner and Wyeth. Q: How are you positioning the Fund for the coming months? A: As we enter a new fiscal year, the stock market continues its rally despite a lack of compelling evidence suggesting fundamental improvements within the U.S. economy. Estimates for earnings growth, which are coming in at around 18% for the fourth calendar quarter and 13% for 2004, appear to be overstated, and stocks, in our view, are trading at valuations which discount very high 2004 earnings growth. Moreover, because the economy declined only 0.2% during the recent recession and the consumer never quit spending, we believe it is difficult to make the case for a strong rebound. We believe the consumer may struggle once we get beyond tax refunds in the first calendar quarter and we have yet to see meaningful evidence of a pickup in corporate spending. Given this view, we have positioned the Fund with a more defensive posture going into the new fiscal year as we expect the market to favor those companies which demonstrate an ability to grow earnings regardless of the economy. Sectors the Fund is overweight include health care and consumer staples as well as energy and industrials. Sectors the Fund is underweight include financials, technology and consumer discretionary. Regardless of the economic environment, shareholders may expect the AXP VP - Capital Resource Fund to continue to adhere to its strategy of identifying stocks with strong fundamentals, sustainable growth rates and reasonable valuations. - -------------------------------------------------------------------------------- C.3 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT The 10 Largest Holdings AXP VP - Capital Resource Fund Percent Value (of net assets) (as of Aug. 31, 2003) Pfizer 6.8% $135,582,480 Microsoft 4.2 82,463,940 Citigroup 3.9 76,729,500 AmerisourceBergen 3.5 70,096,482 General Electric 3.4 67,863,150 ConocoPhillips 3.0 60,307,200 Cardinal Health 3.0 58,643,593 Cendant 2.9 56,559,686 Wyeth 2.8 56,262,050 Altria Group 2.8 55,069,920 (pie chart) The 10 holdings listed here make up 36.3% of net assets - -------------------------------------------------------------------------------- C.4 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT The Fund's Long-term Performance
AXP VP - Capital Resource Fund (line chart) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP VP - CAPITAL RESOURCE FUND AXP VP - Capital Resource Fund $10,000 $10,760 $12,609 $13,352 $17,154 $16,867 $23,633 $28,185 $17,903 $15,382 $16,945 S&P 500 Index $10,000 $10,547 $12,809 $15,209 $21,391 $23,128 $32,330 $37,607 $28,434 $23,319 $26,134 Lipper Large-Cap Core Funds Index $10,000 $10,441 $12,235 $14,242 $19,260 $20,547 $27,711 $34,456 $25,456 $21,223 $23,309 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Average Annual Total Returns as of Aug. 31, 2003 1 year +10.16% 5 years +0.09% 10 years +5.44% This chart illustrates the total value of an assumed $10,000 investment in AXP VP - Capital Resource Fund as compared to two widely cited performance indexes, the S&P 500 Index and the Lipper Large-Cap Core Funds Index. Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than the original cost. Short-term performance may be higher or lower than the figures shown. The above chart does not reflect expenses that apply to the subaccounts or the policies. The S&P 500 Index, an unmanaged index 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. The S&P 500 Index companies may be generally larger than those in which the Fund invests. The Lipper Large-Cap Core Funds 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. - -------------------------------------------------------------------------------- C.5 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Exhibit D American Express(R) Variable Portfolio Funds PROSPECTUS/OCT. 30, 2003 AXP(R) Variable Portfolio - Capital Resource Fund Please note that the 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. These securities are not deposits or obligations of, or guaranteed by, any bank or an affiliate of any bank, nor are they insured by the Federal Deposit Insurance Corporation (FDIC), or any other agency of the United States, or any bank or an affiliate of any bank; and are subject to investment risks including possible loss of value. Managed by: American Express Financial Corporation - -------------------------------------------------------------------------------- D.1 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Table of Contents TAKE A CLOSER LOOK AT: The Fund D.3 AXP Variable Portfolio - Capital Resource Fund D.3 Goal D.3 Principal Investment Strategies D.3 Principal Risks D.4 Past Performance D.5 Management D.6 Other Securities and Investment Strategies D.7 Fees and Expenses D.7 Buying and Selling Shares D.9 Valuing Fund Shares D.9 Purchasing Shares D.9 Transferring/Selling Shares D.9 Distributions and Taxes D.10 Other Information D.11 Financial Highlights D.12 Supplement dated Nov. 19, 2003 D.15 - -------------------------------------------------------------------------------- D.2 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT The Fund Please remember that you may not buy (nor will you own) shares of the Fund directly. You invest by buying a variable annuity contract or life insurance policy and allocating your purchase payments to the variable subaccount or variable account (the subaccounts) that invests in the Fund. AXP Variable Portfolio - Capital Resource Fund GOAL The Fund seeks capital appreciation. Because any investment involves risk, achieving this goal cannot be guaranteed. PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in U.S. common stocks of companies with market capitalization of at least $5 billion. Additionally, the Fund may invest up to 25% of its total assets in foreign investments. In pursuit of the Fund's goal, American Express Financial Corporation (AEFC), the Fund's investment manager, chooses investments by: o Identifying securities that AEFC believes have good capital appreciation potential. o Evaluating opportunities and risks by reviewing interest rates and economic forecasts. o Buying a diversified portfolio of securities. AEFC may weight certain sectors more heavily based on its expectations for growth and market trends. In evaluating whether to sell a security, AEFC considers, among other factors, whether: o The interest rate or economic outlook changes. o The security is overvalued relative to other potential investments. o The security has reached AEFC's price objective. o AEFC wishes to lock-in profits. o A more attractive opportunity has been identified. o The issuer or the security continues to meet the other standards described above. - -------------------------------------------------------------------------------- D.3 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Unusual Market Conditions During unusual market conditions, the Fund may invest more of its assets in money market securities. Although investing in these securities would serve 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 and expenses. PRINCIPAL 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 Issuer 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. 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. 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. - -------------------------------------------------------------------------------- D.4 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 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. (bar chart) AXP VP - Capital Resource Fund Performance (based on calendar years) 80% 70% 60% 50% 40% 30% +27.86% +24.14% +24.12% +23.75% 20% 10% +7.71% 0% +1.17% +3.42% - -10% - -20% -17.46% -18.11% -22.03% - -30% - -40% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 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 -17.27% (quarter ending September 2001). The Fund's year to date return as of Sept. 30, 2003 was +16.19%. - -------------------------------------------------------------------------------- D.5 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Average Annual Total Returns (as of Dec. 31, 2002) 1 year 5 years 10 years AXP VP - Capital Resource Fund -22.03% -4.14% +3.79% S&P 500 Index -22.10% -0.59% +9.34% Lipper Large-Cap Core Funds Index -21.23% -0.74% +8.04% 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 index 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. The S&P 500 Index companies may be generally larger than those in which the Fund invests. The Lipper Large-Cap Core Funds 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 index may not be the same as those held by the Fund. MANAGEMENT Doug Chase, Portfolio Manger o Managed the Fund since 2002. o Joined AEFC in 2002. o Prior to that, Analyst and Portfolio Manager at Fidelity Investments. o Began investment career in 1992. o MBA, University of Michigan. - -------------------------------------------------------------------------------- D.6 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT OTHER SECURITIES AND INVESTMENT STRATEGIES The Fund may invest in other securities and may employ other investment strategies that are not principal investment strategies. The Fund's policies permit investment in other instruments, such as money market securities, convertible securities, and debt obligations of any rating. Additionally, the Fund may use derivative instruments such as futures, options, and forward contracts to produce incremental earnings, to hedge existing positions, and to increase flexibility. Even though the Fund's policies permit the use of derivatives in this manner, the portfolio manager is not required to use derivatives. For more information on strategies and holdings, see the Fund's Statement of Additional Information (SAI) and its annual and semiannual reports. Fees and Expenses Because the Fund is the underlying investment vehicle for an annuity contract or life insurance policy, there is no sales charge for the purchase or sale of Fund shares. However, there may be charges associated with your annuity contract or life insurance policy, including those that may be associated with surrender or withdrawal. Any charges that apply to the subaccount and your contract or policy are described in the annuity contract or life insurance policy prospectus. The summary below describes the Fund fees and expenses that you would pay if you buy a variable annuity or life insurance policy and allocate your purchase payments to subaccounts or premiums that invest in the Fund. This summary does not reflect any fee or sales charges imposed by your annuity contract or life insurance policy. - -------------------------------------------------------------------------------- D.7 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Management fees(a)Distribution (12b-1) fees(b)Other expenses(c)TotalFee waiver/expense reimbursementNet expenses ANNUAL FUND OPERATING EXPENSES As a percentage of average daily net assets
Fund Management Distribution Other Total Fee waiver/expense Net expenses fees(a) (12b-1) fees(b) expenses(c) reimbursement AXP VP - Capital Resource Fund 0.64%(f) 0.13% 0.08% 0.85% 0.00% 0.85%
(a) The Fund pays AEFC a fee for managing its assets. (b) The Fund has adopted a plan under Rule 12b-1 of the Investment Company Act of 1940. The Fund pays IDS Life Insurance Company 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. (c) The Fund pays taxes, brokerage commissions and other nonadvisory expenses including administrative and accounting services. (d) AEFC pays AEAMI a fee for sub-investment advisory services. AEAMI (50192 AXP Financial Center, Minneapolis, MN 55474) is a wholly-owned subsidiary of AEFC. Example This example is intended to show you the expenses you would pay if you invest $10,000 to a subaccount that invests in the Fund which earns a 5% annual return. The operating expenses remain the same each year. If you hold your accumulation units until the end of the years shown, your costs would be: Fund 1 year 3 years 5 years 10 years AXP VP - Capital Resource Fund $87 $271 $472 $1,053 This example does not represent actual expenses, past or future. Actual expenses may be higher or lower than those shown. This example does not reflect the expenses that apply to the subaccounts or the contracts. Inclusion of these charges would increase expenses for all periods shown. - -------------------------------------------------------------------------------- D.8 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 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 4 p.m. Eastern time, on each day the New York Stock Exchange (NYSE) is open. The Fund's assets are valued primarily on the basis of market quotations. Foreign investments are valued in U.S. dollars. AEFC will price a security at fair value in accordance with procedures adopted by the Fund's Board of Directors if a reliable market quotation is not readily available. AEFC also may use fair value if a security's value has been materially affected by events after the close of the primary exchanges or markets on which the security is traded and before the NAV is calculated. This occurs most commonly with foreign securities, but may occur in other cases. The fair value of a security is different from the quoted or published price. PURCHASING SHARES You may not buy (nor will you own) shares of the Fund directly. You invest by buying an annuity contract or life insurance policy 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 contract 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 annuity contract or life insurance policy. Any charges that apply to the subaccount and your contract are described in your annuity contract or life insurance policy 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. - -------------------------------------------------------------------------------- D.9 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT You may provide instructions to sell any shares you have allocated to the subaccounts. AEFC 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 annuity contract or life insurance policy prospectus for more information about transfers among subaccounts as well as surrenders and withdrawals. Distributions and Taxes The Fund distributes to shareholders (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 (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 annuity contracts or life insurance policies is discussed in your annuity contract or life insurance policy prospectus. - -------------------------------------------------------------------------------- D.10 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Other Information The Fund operates under an order from the Securities and Exchange Commission to permit AEFC, subject to the approval of the Board of Directors, to appoint a subadviser or change the terms of a subadvisory agreement for the Fund without first obtaining shareholder approval. The order permits the Fund to add or change unaffiliated subadvisers or the fees paid to subadvisers from time to time without the expense and delays associated with obtaining shareholder approval of the change. INVESTMENT MANAGER AEFC, the Fund's investment manager, located at 200 AXP Financial Center, Minneapolis, MN 55474, is the wholly-owned subsidiary of American Express Company, a financial services company with headquarters at American Express Tower, World Financial Center, New York, NY 10285. 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 $209 billion in assets. - -------------------------------------------------------------------------------- D.11 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Financial Highlights The financial highlights tables are intended to help you understand the Fund's financial performance. Certain information reflects financial results for a single Fund share. The total returns in the tables represent the rate that an investor would have earned or lost on an investment in the Fund (assuming reinvestment of all dividends and distributions). The returns 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. This information has been audited by KPMG LLP, whose report, along with the Fund's financial statements, is included in the annual report which, if not included with this prospectus, is available upon request.
AXP VP - Capital Resource Fund Per share income and capital changes(a) Fiscal period ended Aug. 31, 2003 2002 2001 2000 1999 Net asset value, beginning of period $16.48 $20.87 $ 37.21 $34.62 $26.80 Income from investment operations: Net investment income (loss) .10 .10 .05 .01 .06 Net gains (losses) (both realized and unrealized) 1.56 ( 2.83) (12.96) 6.20 10.28 Total from investment operations 1.66 (2.73) (12.91) 6.21 10.34 Less distributions: Dividends from net investment income (.10) (.09) (.04) (.01) (.06) Distributions from realized gains -- (1.57) (3.39) (3.61) (2.46) Total distributions (.10) (1.66) (3.43) (3.62) (2.52) Net asset value, end of period $18.04 $16.48 $ 20.87 $37.21 $34.62 Ratios/supplemental data Net assets, end of period (in millions) $1,982 $2,227 $3,270 $5,920 $5,621 Ratio of expenses to average daily net assets(b) .85% .80% .78% .77% .66% Ratio of net investment income (loss) to average daily net assets .62% .52% .13% (.02%) .17% Portfolio turnover rate (excluding short-term securities) 115% 146% 62% 52% 56% Total return(c) 10.16% (14.08%) (36.48%) 19.26% 40.12%
Notes to financial highlights (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. - -------------------------------------------------------------------------------- D.12 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 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 - Capital Resource Fund 811-3218 American Express Variable Portfolio Funds 70100 AXP Financial Center Minneapolis, MN 55474 S-6466-99 W (10/03) - -------------------------------------------------------------------------------- D.13 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Supplement Dated Nov. 19, 2003* to the Prospectus Dated Oct. 30, 2003 of American Express(R) Variable Portfolio Funds S-6466-99 W AXP(R) Variable Portfolio - Blue Chip Advantage Fund AXP(R) Variable Portfolio - Stock Fund AXP(R) Variable Portfolio - Capital Resource Fund AXP(R) Variable Portfolio - Partners Small Cap Value Fund The Fund's Directors have approved in principle the merger of AXP(R) Variable Portfolio - Blue Chip Advantage Fund and AXP(R) Variable Portfolio - Stock Fund into AXP(R) Variable Portfolio - Capital Resource Fund, a Fund that seeks to provide shareholders with capital appreciation by investing primarily in U.S. common stocks of companies with market capitalization of at least $5 billion and other securities convertible into common stock. Unlike AXP(R) Variable Portfolio - - Blue Chip Advantage Fund, AXP(R) Variable Portfolio - Capital Resource Fund does not limit its investments to those defined as "blue chip." Effective Jan. 1, 2004, the portfolio manager for AXP(R) Variable Portfolio - Blue Chip Advantage Fund will be Doug Chase, who is also the portfolio manager for AXP(R) Variable Portfolio - Capital Resource Fund. The Fund will be managed in a style substantially similar to that of AXP(R) Variable Portfolio - Capital Resource Fund. Effective on or after May 1, 2004, AXP(R) Variable Portfolio - Capital Resource Fund will change its name to AXP(R) Variable Portfolio - Large Cap Equity Fund. For more information about AXP(R) Variable Portfolio - Capital Resource Fund, please call (800) 862-7919 for a prospectus. Completion of the merger is subject to a number of conditions, including final approval by the Fund's Directors and approval by shareholders of the Fund at a shareholder meeting expected to be held within approximately the next six months. It is anticipated that AXP(R) Variable Portfolio - Blue Chip Advantage Fund and AXP(R) Variable Portfolio - Stock Fund will be closed to new investors during the second quarter of 2004. Effective Dec. 1, 2003, the total fees and expenses for AXP(R) Variable Portfolio - Partners Small Cap Value Fund will be capped at 1.39%. S-6466-37 A (11/03) * Valid until Oct. 29, 2004 - -------------------------------------------------------------------------------- D.15 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT - -------------------------------------------------------------------------------- (logo) AMERICAN EXPRESS - -------------------------------------------------------------------------------- S-6305 A (4/04) (logo) [FUND NAME DROP-IN] PROXY PROXY AMERICAN Principal Executive Office EXPRESS 901 Marquette Avenue South, Suite 2810, Minneapolis, MN 55402-3268 NOTICE OF SPECIAL MEETING TO BE HELD JUNE 9, 2004 Your fund(s) will hold a special meeting at 1:00 p.m. on June 9, 2004, at 901 Marquette Avenue South, Suite 2810, Minneapolis, MN. You are entitled to vote at the meeting if you were a contract holder on April 10, 2004. Please read the proxy statement. The Board recommends that you vote FOR the proposal. Please vote immediately by mail, telephone, or Internet, even if you plan to attend the meeting. Just follow the instructions on this voting instruction card. The undersigned hereby appoints Anne H. Carlson and Leslie L. Ogg or anyone of them, as proxies, with full power of substitution, to represent and to vote all of the shares allocated to the contract or policy of the undersigned at the special meeting to be held on June 9, 2004, and any adjournment thereof. VOTE VIA THE INTERNET: americanexpress.com/proxyvoting VOTE VIA THE TELEPHONE: 1-866-241-6192 VOTE BY MAIL 999 99999 999 999 Note: Please sign this proxy exactly as your name or names appears on this card. Joint owners should each sign personally. Trustees and other fiduciaries should indicate the capacity in which they sign, and where more than one name appears, a majority must sign. If a corporation, this signature should be that of an authorized officer who should state his or her title. ______________________________________________________ Signature ______________________________________________________ Signature of joint owner, if any ______________________________________________________ Date 13973_VPL Please vote by filling in the appropriate box below. If you do not mark the proposal, your Proxy will be voted FOR the proposal. PLEASE MARK VOTES AS IN THIS EXAMPLE: [X] FOR AGAINST ABSTAIN 1. To approve an Agreement and Plan of Reorganization between the Fund and AXP VP Capital Resource Fund. [ ] [ ] [ ] (logo) American Express Funds AXP(R) Variable Portfolio - Investment Series, Inc. - AXP(R) Variable Portfolio - Blue Chip Advantage Fund - AXP(R) Variable Portfolio - Stock Fund Proxy Statement April 10, 2004 Here's a brief overview of changes being recommended for your American Express mutual fund. We encourage you to read the full text of the enclosed proxy statement. Q: Why am I being asked to vote? Funds are required to get contract holders' votes for certain kinds of changes, like the ones included in this proxy statement. You have a right to vote on this change either by mailing your proxy card, calling a toll-free number, responding by internet, or attending the meeting. Q: Is my vote important? Absolutely! While the Board has reviewed this change and recommends you approve it, you have the right to voice your opinion. Until the Fund is sure that enough shares will vote by the time of the meeting, it will continue to contact contract holders asking them to vote. So please, vote immediately. Q: What is being voted on? Contract holders are being asked to vote on the merger ("Reorganization") of AXP(R) VP - Blue Chip Advantage Fund ("Selling Fund") with AXP(R) VP - Capital Resource Fund ("Buying Fund") and AXP(R) VP - Stock Fund ("Selling Fund") with AXP(R) VP - Capital Resource Fund ("Buying Fund"). (logo) AMERICAN EXPRESS (R) Q: How does the Board recommend that I vote? After careful consideration, the Board recommends that you vote FOR the proposals. An explanation for the Board's recommendation is contained in the proxy statement. Q: How do I vote? You can vote in one of four ways: 1. By mail with the enclosed card 2. By telephone 3. By Web site 4. In person at the meeting Please refer to the enclosed voting instruction card for the telephone number and internet address. We encourage you to vote by telephone or internet in order to reduce mailing and handling expenses. If you own more than one Fund, it is important that you vote for each Fund. Q: Do I, as a policy holder or contract owner, have to do anything to re-allocate assets invested in the "Selling Fund"? If you have assets allocated to a subaccount that invests in one of the "Selling Funds," those assets will automatically be re-allocated to the subaccount that invests in the "Buying Fund." Assuming the proposal receives sufficient votes to pass, the proposal will be implemented soon after the meeting on June 9, 2004. Q: Whom should I call if I have questions? If you have questions about any of the issues described in the proxy statement or about voting procedures, please call your financial advisor or call client services toll free at (866) 270-3133. Statement of Additional Information April 10, 2004 AXP(R) Variable Portfolio - Investment Series, Inc. AXP VP Capital Resource Fund This Statement of Additional Information ("SAI") consists of this cover page and incorporates by reference the following described documents, each of which has been previously filed and accompanies this Statement of Additional Information: 1. AXP VP Capital Resource Fund's most recent SAI, dated Oct. 30, 2003. 2. AXP VP Capital Resource Fund's most recent annual report, for the period ended Aug. 31, 2003. 3. AXP VP Blue Chip Advantage Fund's most recent SAI, dated Oct. 30, 2003. 4. AXP VP Stock Fund's most recent SAI, dated Oct. 30, 2003. 5. AXP VP Blue Chip Advantage Fund's most recent annual report, for the period ended Aug. 31, 2003. 6. AXP VP Stock Fund's most recent annual report, for the period ended Aug. 31, 2003. In accordance with Securities and Exchange Commission requirements, pro forma financial statements are not included since the net asset value of the Selling Fund is less than 10% of the net asset value of the Buying Fund. This SAI is not a prospectus. It should be read in conjunction with the proxy statement/prospectus, dated the same date as this SAI, which may be obtained by calling (866) 270-3133 or writing American Express Client Service Corporation, 70100 AXP Financial Center, Minneapolis, MN 55474. S-6305-20 A (4/04) PART C. OTHER INFORMATION Item 15. 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 16. Exhibits (1)(a) Articles of Incorporation as amended Nov. 10, 1994, filed electronically as Exhibit 1 to Post-Effective Amendment No. 34 to Registration Statement No. 2-73115, are incorporated by reference. (1)(b) Articles of Amendment to the Articles of Incorporation, dated June 16, 1999, filed electronically as Exhibit (a)(2) to Post-Effective Amendment No. 50 to Registration Statement No. 2-73115 on or about Oct. 28, 2003, are incorporated by reference. (1)(c) Articles of Amendment to the Articles of Incorporation, dated November 14, 2002, filed electronically as Exhibit (a)(3) to Post-Effective Amendment No. 50 to Registration Statement No. 2-73115 on or about Oct. 28, 2003, are incorporated by reference. (2) By-Laws as amended January 11, 2001, filed electronically as Exhibit (b) to Post-Effective Amendment No. 50 to Registration Statement No. 2-73115 on or about Oct. 28, 2003, are incorporated by reference. (3) Not applicable. (4) Form of Agreement and Plan of Reorganization is included herewith as Exhibit A of this Registration Statement. (5) Not applicable. (6)(a) 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 Post-Effective Amendment No. 30, to Registration Statement No. 2-73115 is incorporated by reference. (6)(b) Amendment to Investment Management Services Agreement between Registrant, on behalf of AXP Variable Portfolio - Capital Resources Fund, AXP Variable Portfolio - International Fund and AXP Variable Portfolio - Strategy Aggressive Fund, and American Express Financial Corporation dated June 3, 2002, filed electronically as Exhibit (d)(2) to Post-Effective Amendment No. 47, to Registration Statement No. 2-73115 filed on or about Aug. 29, 2002, is incorporated by reference. (6)(c) Investment Management Services Agreement between Registrant on behalf of its underlying series AXP Variable Portfolio - Blue Chip Advantage Fund, AXP Variable Portfolio - Capital Resource Fund, AXP Variable Portfolio - Emerging Markets Fund, AXP Variable Portfolio - Equity Select 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 - Stock Fund and AXP Variable Portfolio - Strategy Aggressive Fund, and American Express Financial Corporation dated December 1, 2002 filed electronically as Exhibit (d)(13) to Post-Effective Amendment No. 50 to Registration Statement No. 2-73115 on or about Oct. 28, 2003, is incorporated by reference. (7) Not Applicable. (8) 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. (9)(a) 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 Post-Effective Amendment No. 30, to Registration Statement No. 2-73115 is incorporated by reference. (9)(b) 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. (9)(c) Custodian Agreement First Amendment between American Express Trust Company and The Bank of New York, dated December 1, 2000, filed electronically as Exhibit (g)(4) to AXP Precious Metals Fund, Inc. Post-Effective Amendment No. 37 to Registration Statement No. 2-93745, filed on or about May 28, 2002 is incorporated by reference. (9)(d) Custodian Agreement Second Amendment between American Express Trust Company and The Bank of New York, dated June 7, 2001, filed electronically as Exhibit (g)(5) to AXP Precious Metals Fund, Inc. Post-Effective Amendment No. 37 to Registration Statement No. 2-93745, filed on or about May 28, 2002 is incorporated by reference. (9)(e) Custodian Agreement Amendment between American Express Trust Company and The Bank of New York, dated January 31, 2002, filed electronically as Exhibit (g)(6) to AXP Precious Metals Fund, Inc. Post-Effective Amendment No. 37 to Registration Statement No. 2-93745, filed on or about May 28, 2002 is incorporated by reference. (9)(f) Custodian Agreement Amendment between American Express Trust Company and The Bank of New York, dated April 29, 2003, filed electronically as Exhibit (g)(8) to AXP Partners Series, Inc. Post-Effective Amendment No. 7 to Registration Statement No. 333-57852, filed on or about May 22, 2003 is incorporated by reference. (10) Plan and Agreement of Distribution dated Sept. 20, 1999, between Registrant (on behalf of AXP(SM) Variable Portfolio - Capital Resource Fund, AXP(SM) Variable Portfolio - International Fund, AXP(SM) Variable Portfolio - New Dimensions Fund and AXP(SM) Variable Portfolio - Strategy Aggressive Fund) and IDS Life Insurance Company, filed electronically as Exhibit (m)(2) to Post-Effective Amendment No. 43, to Registration Statement No. 2-73115 filed on or about Oct. 26, 2000, is incorporated by reference. (11) Opinion and consent of counsel as to the legality of the securities being registered is filed electronically herewith. (12) Tax opinion to be filed by amendment. (13)(a) 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 Post-Effective Amendment No. 30, to Registration Statement No. 2-73115 is incorporated by reference. (13)(b) Amendment to Administrative Services Agreement between Registrant on behalf of AXP Variable Portfolio - Capital Resource Fund, AXP Variable Portfolio - Strategy Aggressive Fund and AXP Variable Portfolio - International Fund, and American Express Financial Corporation, dated June 3, 2002, filed electronically as Exhibit (d)(23) to Post-Effective Amendment No. 47, to Registration Statement No. 2-73115 filed on or about Aug. 29, 2002, is incorporated by reference. (13)(c) 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. (13)(d) 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. (13)(e) Addendum to Schedule A and Schedule B of the License Agreement dated June 15, 2001, between the American Express Company and American Express Funds, filed electronically as Exhibit (h)(4) to Post-Effective Amendment No. 46 to Registration Statement No. 2-73115, is incorporated by reference. (13)(f) 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. (14) Independent Auditors' Consent is filed electronically herewith. (15) Omitted Financial Statements: Not Applicable. (16)(a) Directors' Power of Attorney to sign Amendments to this Registration Statement dated Jan. 7, 2004 filed electronically as Exhibit (16)(a) to Registration Statement No. 333-112508 filed on or about Feb. 5, 2004, is incorporated by reference. (16)(b) Officers' Power of Attorney to sign Amendments to this Registration Statement, dated Jan. 9, 2002 filed electronically as Exhibit (q)(2) to Post-Effective Amendment No. 47, to Registration Statement No. 2-73115 filed on or about Aug. 29, 2002, is incorporated by reference. (16)(c) Officers' Power of Attorney to sign Amendments to this Registration Statement, dated September 17, 2002, filed electronically as Exhibit (q)(3) to Post-Effective Amendment No. 48 to Registration Statement No. 2-73115 is incorporated by reference. (17)(a) 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. (17)(b) Code of Ethics adopted under Rule 17j-1 for Registrant's investment advisor and principal underwriter, dated January 2, 2004, filed electronically on or about January 12, 2004 as Exhibit (p)(2) to AXP Discovery Series, Inc.'s Post-Effective Amendment No. 47 to Registration Statement No. 2-72174, is incorporated by reference. (17)(c) Prospectus, dated Oct. 30, 2003, for AXP Variable Portfolio - Capital Resource Fund, AXP Variable Portfolio - Blue Chip Advantage Fund and AXP Portfolio - Stock Fund filed electronically as Exhibit (17)(c) to Registration Statement No. 333-112508 filed on or about Feb. 5, 2004, is incorporated by reference. (17)(d) Statement of Additional Information, dated Oct. 30, 2003, for AXP Variable Portfolio - Capital Resource Fund, AXP Variable Portfolio - Blue Chip Advantage Fund and AXP Portfolio - Stock Fund filed electronically as Exhibit (17)(d) to Registration Statement No. 333-112508 filed on or about Feb. 5, 2004, is incorporated by reference. (17)(e) Annual Report, dated Oct. 30, 2003 for the period ended Aug. 31, 2003, for AXP Variable Portfolio - Capital Resource Fund, AXP Variable Portfolio - Blue Chip Advantage Fund and AXP Portfolio - Stock Fund is filed electronically herewith. (17)(f) Prospectus Supplement, dated Jan. 6, 2004 for AXP Portfolio - Stock Fund filed electronically as Exhibit (17)(f) to Registration Statement No. 333-112508 filed on or about Feb. 5, 2004, is incorporated by reference. (17)(g) Prospectus Supplement, dated Nov. 19, 2003 for AXP Variable Portfolio - Capital Resource Fund, AXP Variable Portfolio - Blue Chip Advantage Fund and AXP Portfolio - Stock Fund filed electronically as Exhibit (17)(g) to Registration Statement No. 333-112508 filed on or about Feb. 5, 2004, is incorporated by reference. Item 17. Undertakings. (1) The undersigned registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is a part of this registration statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act, the reoffering prospectus will contain the information called for by the applicable registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The undersigned registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment to the registration statement and will not be used until the amendment is effective, and that, in determining any liability under the 1933 Act, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them. (3) The Registrant undertakes to file by Post-Effective Amendment an Opinion of Counsel supporting the tax consequences of the proposed reorganization within a reasonable time after receipt of such opinion. SIGNATURES As required by the Securities Act of 1933, as amended, this Registration Statement has been signed on behalf of the Registrant, in the city of Minneapolis, and State of Minnesota on the 26th day of March, 2004. AXP VARIABLE PORTFOLIO - INVESTMENT SERIES, INC. By /s/ Paula R. Meyer ---------------------------------------------- Paula R. Meyer, President By /s/ Jeffrey P. Fox ---------------------------------------------- Jeffrey P. Fox, Treasurer As required by the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities indicated on the 26th day of March, 2004. Signature Capacity /s/ Arne H. Carlson* Chair of the Board - --------------------- Arne H. Carlson /s/ Philip J. Carroll, Jr.* Director - ---------------------------- Philip J. Carroll, Jr. /s/ Livio D. DeSimone* Director - ----------------------- Livio D. DeSimone /s/ Barbara H. Fraser* Director - ------------------------ Barbara H. Fraser /s/ Heinz F. Hutter* Director - ---------------------- Heinz F. Hutter /s/ Anne P. Jones* Director - ------------------- Anne P. Jones /s/ Stephen R. Lewis, Jr.* Director - ----------------------------- Stephen R. Lewis, Jr. Signature Capacity /s/ Alan G. Quasha* - ---------------------- Director Alan G. Quasha /s/ Stephen W. Roszell* Director - ------------------------- Stephen W. Roszell /s/ Alan K. Simpson* Director - --------------------- Alan K. Simpson /s/ Alison Taunton-Rigby* Director - --------------------------- Alison Taunton-Rigby /s/ William F. Truscott* Director - ------------------------- William F. Truscott * Signed pursuant to Directors' Power of Attorney, dated Jan. 7, 2004, filed electronically on or about Feb. 5, 2004, as Exhibit (16)(a) to this Registration Statement, by: /s/ Leslie L. Ogg ------------- Leslie L. Ogg EX-99 3 ex-index.txt EXHIBIT INDEX EXHIBIT INDEX (11) Opinion and consent of counsel as to the legality of the securities being registered. (14) Independent Auditors' Consent. (17)(e) Annual Report, dated Oct. 30, 2003 for the period ended Aug. 31, 2003, for AXP Variable Portfolio - Capital Resource Fund, AXP Variable Portfolio - Blue Chip Advantage Fund and AXP Portfolio - Stock Fund. EX-99.11 OPIN CONSL 4 ex11-opinion.txt OPINION AND CONSENT OF COUNSEL March 26, 2004 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 this Registration Statement. Sincerely, /s/ Leslie L. Ogg - ----------------- Leslie L. Ogg Attorney at Law 901 Marquette Ave. S., Suite 2810 Minneapolis, Minnesota 55402-3268 EX-99.14 AUD CONSENT 5 ex14_vpinvest-audcon.txt INDEPENDENT AUDITORS' CONSENT Independent auditors' consent The board and shareholders AXP Variable Portfolio - Investment Series, Inc. We consent to the use of our reports incorporated herein by reference and to the references to our Firm under the heading "Financial Highlights" in the prospectuses included or incorporated herein by reference and under the heading "INDEPENDENT AUDITORS" in the Statements of Additional Information incorporated herein by reference on Form N-14. /s/ KPMG LLP - ------------------ KPMG LLP Minneapolis, Minnesota March 26, 2004 EX-99.17E ANNUAL REP 6 ex17e-vpfunds_annual.txt AXP VARIABLE PORTFOLIO FUNDS-ANNUAL REPORT American Express(R) Variable Portfolio Funds ANNUAL REPORT For the Period Ended Aug. 31, 2003 (2003 Prospectus Enclosed) References to "Fund" throughout this annual report refer to the following individual funds, singularly or collectively as the context requires: AXP(R) Variable Portfolio - Blue Chip Advantage Fund AXP(R) Variable Portfolio - Capital Resource Fund AXP(R) Variable Portfolio - Cash Management Fund AXP(R) Variable Portfolio - Diversified Bond Fund AXP(R) Variable Portfolio - Diversified Equity Income Fund AXP(R) Variable Portfolio - Emerging Markets Fund AXP(R) Variable Portfolio - Equity Select Fund AXP(R) Variable Portfolio - Global Bond Fund AXP(R) Variable Portfolio - Growth Fund AXP(R) Variable Portfolio - High Yield Bond Fund AXP(R) Variable Portfolio - International Fund AXP(R) Variable Portfolio - Managed Fund AXP(R) Variable Portfolio - New Dimensions Fund(R) AXP(R) Variable Portfolio - Partners Small Cap Value Fund AXP(R) Variable Portfolio - S&P 500 Index Fund AXP(R) Variable Portfolio - Short Duration U.S. Government Fund AXP(R) Variable Portfolio - Small Cap Advantage Fund AXP(R) Variable Portfolio - Stock Fund AXP(R) Variable Portfolio - Strategy Aggressive Fund Please remember that you may not buy (nor will you own) shares of the Fund directly. You invest by buying a variable annuity contract or life insurance policy and allocating your purchase payments to the variable subaccount or variable account (the subaccounts) that invests in the Fund. This annual report may contain information on funds not available under your variable annuity contract or life insurance policy. Please refer to your variable annuity contract or life insurance policy prospectus for information regarding the investment options available to you. Managed by: American Express Financial Corporation The American Express(R) Variable Portfolio (AXP VP) Funds provide several alternatives to consider for investment through your variable annuity contract or life insurance policy. Table of Contents 2003 ANNUAL REPORT The purpose of this annual report is to tell investors how the Fund performed. AXP VP - Blue Chip Advantage Fund Portfolio Management Q & A 3 The 10 Largest Holdings 4 The Fund's Long-term Performance 4 AXP VP - Capital Resource Fund Portfolio Management Q & A 5 The 10 Largest Holdings 6 The Fund's Long-term Performance 7 AXP VP - Cash Management Fund Portfolio Management Q & A 8 AXP VP - Diversified Bond Fund Portfolio Management Q & A 9 The 10 Largest Holdings 10 The Fund's Long-term Performance 11 AXP VP - Diversified Equity Income Fund Portfolio Management Q & A 12 The 10 Largest Holdings 13 The Fund's Long-term Performance 13 AXP VP - Emerging Markets Fund Portfolio Management Q & A 14 The 10 Largest Holdings 15 The Fund's Long-term Performance 15 AXP VP - Equity Select Fund Portfolio Management Q & A 16 The 10 Largest Holdings 17 The Fund's Long-term Performance 17 AXP VP - Global Bond Fund Portfolio Management Q & A 18 The 10 Largest Holdings 19 The Fund's Long-term Performance 20 AXP VP - Growth Fund Portfolio Management Q & A 21 The 10 Largest Holdings 22 The Fund's Long-term Performance 23 AXP VP - High Yield Bond Fund Portfolio Management Q & A 24 The 10 Largest Holdings 25 The Fund's Long-term Performance 26 AXP VP - International Fund Portfolio Management Q & A 27 The 10 Largest Holdings 28 The Fund's Long-term Performance 29 AXP VP - Managed Fund Portfolio Management Q & A 30 The 10 Largest Holdings 31 The Fund's Long-term Performance 32 AXP VP - New Dimensions Fund Portfolio Management Q & A 33 The 10 Largest Holdings 34 The Fund's Long-term Performance 35 AXP VP - Partners Small Cap Value Fund Portfolio Management Q & A 36 The 10 Largest Holdings 38 The Fund's Long-term Performance 38 AXP VP - S&P 500 Index Fund Portfolio Management Q & A 39 The 10 Largest Holdings 40 The Fund's Long-term Performance 41 AXP VP - Short Duration U.S. Government Fund Portfolio Management Q & A 42 The Fund's Long-term Performance 43 AXP VP - Small Cap Advantage Fund Portfolio Management Q & A 44 The 10 Largest Holdings 45 The Fund's Long-term Performance 45 AXP VP - Stock Fund Portfolio Management Q & A 46 The 10 Largest Holdings 47 The Fund's Long-term Performance 47 AXP VP - Strategy Aggressive Fund Portfolio Management Q & A 48 The 10 Largest Holdings 49 The Fund's Long-term Performance 49 Board Members and Officers 50 Independent Auditors' Report 52 Financial Statements 53 Notes to Financial Statements 72 Investments in Securities 97 - -------------------------------------------------------------------------------- 2 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT Portfolio Management Q & A AXP VP - Blue Chip Advantage Fund Q: How did AXP VP - Blue Chip Advantage Fund perform for the fiscal year ended Aug. 31, 2003? A: AXP VP - Blue Chip Advantage Fund advanced 9.60% for the period, underperforming its benchmark, the Standard & Poor's 500 Index (S&P 500 Index), which advanced 12.07%. The Lipper Large-Cap Core Funds Index, representing the Fund's peer group, gained 9.83% over the same period. Q: What factors significantly affected the Fund's performance? A: Throughout the first half of the fiscal year, the U.S. stock market was affected by negative economic news, corporate scandals and global tensions. Then, in mid-March when the war in Iraq was imminent, the stock market embarked on a rally that continued through August 2003. The Fund's health care position was a key contributor during the past year. Holdings in the managed care industry, such as Coventry Health, and in the medical products group such as Boston Scientific and Guidant, performed particularly well for us. The Fund's technology larger-than-index position was also a favorable factor as technology ranked among the leading sectors during the fall rally and through the latter half of the fiscal year. Several software providers, including Citrix and Macromedia, were particularly strong contributors, as were hardware companies EMC and Sandisk. An underweight in semi-conductor companies was a negative factor, given that industry's recent gains. Leisure and entertainment stocks were one of the Fund's weaker areas, primarily due to underweight positions in strong performers AOL Time Warner and Disney. The Fund's larger-than-index retail position, in general, detracted from performance as well. In the financial services area, the Fund was underweight in companies with exposure to the capital markets, such as brokerage firms. In our view, these companies had high valuations and less attractive risk profiles. Nevertheless, during the period, financial services stocks benefited from the improved stock market outlook. Q: Did you make significant changes to the Fund during this period? A: Throughout the year, the Fund maintained its discipline of emphasizing stocks with attractive valuations, good growth dynamics and solid financial strength. There were several shifts in the Fund's sector positioning that stemmed from our stock selection process. At the start of the fiscal year, the portfolio had a larger allocation to the consumer staples sector than the S&P 500 Index. We have since moved to an underweight position. Our financial services position increased on an absolute basis, but remained underweight relative to the S&P 500 Index. In terms of individual stocks, we increased the Fund's weightings in Allstate, Countrywide Financial, Intel, Comcast and Coach. We reduced our allocation to Fannie Mae, which suffered from regulatory and accounting difficulties. We also reduced positions in Johnson and Johnson, Abbot Laboratories, General Electric, and Motorola. Q: How are you positioning the Fund for the coming months? A: We use a quantitative strategy to select stocks, so we don't rely on broad views of the market, economy or sectors. However, our stock selection can lead to overweights or underweights in particular sectors. At the end of the fiscal period, the Fund's largest sector overweights were in financial services, health care, consumer services and technology. The largest underweights were in basic materials, industrials, consumer cyclicals and consumer staples. At fiscal year-end, the Fund was trading attractively and we believe the Fund is positioned favorably for the coming months. (bar chart) PERFORMANCE COMPARISON For the year ended Aug. 31, 2003 15% (bar 2) 12% +12.07% (bar 1) (bar 3) 9% +9.60% +9.83% 6% 3% 0% (bar 1) AXP VP - Blue Chip Advantage Fund (bar 2) S&P 500 Index (unmanaged) (bar 3) Lipper Large-Cap Core Funds Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. - -------------------------------------------------------------------------------- 3 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT The 10 Largest Holdings AXP VP - Blue Chip Advantage Fund Percent Value (of net assets) (as of Aug. 31, 2003) Microsoft 3.1% $2,048,669 General Electric 2.6 1,704,710 Exxon Mobil 2.6 1,698,385 Citigroup 2.5 1,653,803 Pfizer 2.4 1,594,735 Wal-Mart Stores 2.2 1,482,208 Intel 2.1 1,370,898 Intl Business Machines 1.7 1,119,436 Bank of America 1.7 1,113,462 Merck & Co 1.4 903,243 For further detail about these holdings, please refer to the section entitled "Investments in Securities." (pie chart) The 10 holdings listed here make up 22.3% of net assets The Fund's Long-term Performance
AXP VP - Blue Chip Advantage Fund (line chart) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP VP - BLUE CHIP ADVANTAGE FUND AXP VP - Blue Chip Advantage Fund $10,000 $11,923 $8,418 $6,846 $7,503 S&P 500 Index $10,000 $11,960 $9,043 $7,416 $8,311 Lipper Large-Cap Core Funds Index $10,000 $12,434 $9,186 $7,659 $8,411 10/1/99 8/00 8/01 8/02 8/03
Average Annual Total Returns as of Aug. 31, 2003 1 year +9.60% Since inception (9/15/99) -6.99% This chart illustrates the total value of an assumed $10,000 investment in AXP VP - Blue Chip Advantage Fund as compared to two widely cited performance indexes, the S&P 500 Index and the Lipper Large-Cap Core Funds Index. Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than the original cost. Short-term performance may be higher or lower than the figures shown. The above chart does not reflect expenses that apply to the subaccounts or the policies. The S&P 500 Index, an unmanaged index 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. The Lipper Large-Cap Core Funds 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. - -------------------------------------------------------------------------------- 4 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT Portfolio Management Q & A AXP VP - Capital Resource Fund Q: How did the AXP VP - Capital Resource Fund perform for the fiscal year ended Aug. 31, 2003? A: AXP VP - Capital Resource Fund rose 10.16% for the 12 months ended Aug. 31, 2003, outpacing the average return of 9.83% of its peer group, as represented by the Lipper Large-Cap Core Funds Index. However, the Fund underperformed its benchmark, the Standard & Poor's 500 Index (S&P 500 Index), which gained 12.07% during the same time frame. Q: What factors significantly affected the Fund's performance? A: The stock market was very weak early on in the Fund's fiscal year, with the S&P 500 Index down 10% in September 2002. Stocks then rebounded nicely in October and November until the threat of war with Iraq took its toll on the markets starting in December and dampened stock performance into March of 2003. The tide turned once again in late March and stocks began a sustained rally as investors embraced a view that the U.S. economy was showing signs of fundamental improvement. The market produced strong results throughout the remainder of the fiscal year. The Fund entered its fiscal year in September 2002 positioned for an economic upturn and was hurt by the market's dismal performance in that month. However, the rally in October and November benefited performance, particularly within the technology sector, in which the Fund had an overweight position. As technology stocks continued to rally, the Fund pared back its holdings in the sector due to our view that the move in the stocks had outpaced the evidence of fundamental improvements we were seeing within the sector. Within technology, the Fund maintained an underweight position for much of the remainder of the fiscal year. The Fund was negatively impacted by the market's swoon in December but held its own in the relatively flat first calendar quarter of 2003, and performed quite well in the second calendar quarter of 2003 as the S&P 500 Index staged one of its most impressive quarters on record. During that second quarter, companies continued to suggest that business conditions remained sluggish. Nevertheless, the stocks of cyclically sensitive companies continued to do very well. The Fund began to sell them in favor of less expensive stocks where fundamentals appeared to be stronger. This move detracted from performance in July and August as cyclically sensitive stocks continued to advance, many to all-time highs, with the record earnings to accompany such performance nowhere in sight. While we acknowledge that equities always discount the future, far too many stocks, in our opinion, are discounting a cyclical rebound, the magnitude and extent of which, historically speaking, may be very difficult to achieve to justify current expectations. While we continue to find some industrial and energy stocks attractive as well as selected cyclical stocks in other industries, we believe that risk and reward currently favors overweight positions in areas where future earnings levels are more certain. Overall, favorable stock selection benefited the Fund's relative performance in the period while its sector weightings detracted from the Fund's results. Cendant, a player in the leisure and travel services industry, provided excellent results during the period. Select holdings in the pharmaceutical, media, technology and financial industries benefited the Fund's returns. Those holdings which turned in disappointing performance included an oil service company, Transocean, as well as Fannie Mae and Freddie Mac. Although the mortgage market experienced a record number of refinancings during the period due to low interest rates, both of these companies suffered as a result of Freddie Mac's accounting and regulatory issues. In terms of sector allocations, the Fund was underweighted in technology and telecommunications for much of the fiscal year, which benefited performance early on in the period but proved detrimental to performance as these sectors rallied with the market. Moreover, an overweight position in health care hindered the Fund's performance in the first few months of the fiscal year. (bar chart) PERFORMANCE COMPARISON For the year ended Aug. 31, 2003 15% (bar 2) 12% (bar 1) +12.07% +10.16% (bar 3) 9% +9.83% 6% 3% 0% (bar 1) AXP VP - Capital Resource Fund (bar 2) S&P 500 Index (unmanaged) (bar 3) Lipper Large-Cap Core Funds Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. - -------------------------------------------------------------------------------- 5 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT AXP VP - Capital Resource Fund Q: What changes did you make to the Fund during the period? A: The Fund began the fiscal year in September 2002 positioned to benefit from a slow economic recovery with a reduced exposure to cyclical stocks. As we entered 2003, the consensus for the economic outlook shifted and the market seemed to favor a more robust recovery. Consequently, we shifted the Fund's focus to more economically sensitive sectors including energy, materials and industrials. The Fund maintained an underweighted exposure to financials and technology throughout most of the fiscal year due to our view that fundamentals were not as strong in those sectors. Early in 2003, following a period of weakness for consumer discretionary stocks valuations, in our view, appeared more attractive in that sector and we began to add aggressively to a number of names, including media players in the content provider space, infrastructure players, advertising firms and other communication plays. Late in the period, profits were taken and positions reduced in a number of companies which had been strong performers for the Fund, including Cendant, AOL Time Warner and Wyeth. Q: How are you positioning the Fund for the coming months? A: As we enter a new fiscal year, the stock market continues its rally despite a lack of compelling evidence suggesting fundamental improvements within the U.S. economy. Estimates for earnings growth, which are coming in at around 18% for the fourth calendar quarter and 13% for 2004, appear to be overstated, and stocks, in our view, are trading at valuations which discount very high 2004 earnings growth. Moreover, because the economy declined only 0.2% during the recent recession and the consumer never quit spending, we believe it is difficult to make the case for a strong rebound. We believe the consumer may struggle once we get beyond tax refunds in the first calendar quarter and we have yet to see meaningful evidence of a pickup in corporate spending. Given this view, we have positioned the Fund with a more defensive posture going into the new fiscal year as we expect the market to favor those companies which demonstrate an ability to grow earnings regardless of the economy. Sectors the Fund is overweight include health care and consumer staples as well as energy and industrials. Sectors the Fund is underweight include financials, technology and consumer discretionary. Regardless of the economic environment, shareholders may expect the AXP VP - Capital Resource Fund to continue to adhere to its strategy of identifying stocks with strong fundamentals, sustainable growth rates and reasonable valuations. The 10 Largest Holdings AXP VP - Capital Resource Fund Percent Value (of net assets) (as of Aug. 31, 2003) Pfizer 6.8% $135,582,480 Microsoft 4.2 82,463,940 Citigroup 3.9 76,729,500 AmerisourceBergen 3.5 70,096,482 General Electric 3.4 67,863,150 ConocoPhillips 3.0 60,307,200 Cardinal Health 3.0 58,643,593 Cendant 2.9 56,559,686 Wyeth 2.8 56,262,050 Altria Group 2.8 55,069,920 For further detail about these holdings, please refer to the section entitled "Investments in Securities." (pie chart) The 10 holdings listed here make up 36.3% of net assets - -------------------------------------------------------------------------------- 6 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT The Fund's Long-term Performance
AXP VP - Capital Resource Fund (line chart) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP VP - CAPITAL RESOURCE FUND AXP VP - Capital Resource Fund $10,000 $10,760 $12,609 $13,352 $17,154 $16,867 $23,633 $28,185 $17,903 $15,382 $16,945 S&P 500 Index $10,000 $10,547 $12,809 $15,209 $21,391 $23,128 $32,330 $37,607 $28,434 $23,319 $26,134 Lipper Large-Cap Core Funds Index $10,000 $10,441 $12,235 $14,242 $19,260 $20,547 $27,711 $34,456 $25,456 $21,223 $23,309 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Average Annual Total Returns as of Aug. 31, 2003 1 year +10.16% 5 years +0.09% 10 years +5.44% This chart illustrates the total value of an assumed $10,000 investment in AXP VP - Capital Resource Fund as compared to two widely cited performance indexes, the S&P 500 Index and the Lipper Large-Cap Core Funds Index. Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than the original cost. Short-term performance may be higher or lower than the figures shown. The above chart does not reflect expenses that apply to the subaccounts or the policies. The S&P 500 Index, an unmanaged index 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. The S&P 500 Index companies may be generally larger than those in which the Fund invests. The Lipper Large-Cap Core Funds 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. - -------------------------------------------------------------------------------- 7 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT Portfolio Management Q & A AXP VP - Cash Management Fund Q: How did AXP VP - Cash Management Fund perform for the fiscal year ended Aug. 31, 2003? A: AXP VP - Cash Management Fund provided a return of 0.72% for the period. The Fund's seven-day yield was 0.16%. The Fund continues to provide liquidity for individuals who want to avoid riskier investment alternatives. Q: What factors significantly affected the Fund's performance? A: The most significant factors were the economy and the actions taken by the Federal Reserve Board (the Fed). During the year, the Fed maintained a stimulative monetary policy designed to provide ongoing support to a sluggish economy. The Fed reduced its target interest rate by 0.50% in November 2002 and 0.25% in June 2003. These cuts brought the target rate down to 1.00% -- a level last seen in 1958 -- and reduced the income potential of money market investments. As short-term securities matured, the Fund reinvested the proceeds in securities with lower rates and the yield of the Fund gradually declined. Q: What changes did you make to the Fund during this period? A: The Fund sought to invest assets in an effective manner to generate a competitive yield while maintaining a stable net asset value. During the period, we increased the Fund's allocation to certificates of deposit, while reducing its position in government agency securities. All of the Fund's investments continue to be in high quality securities with minimal credit risk. We also actively managed the average maturity of the Fund. With interest rates likely to stay low for a considerable period of time, we tried to selectively extend the maturity when the yield curve provided attractive opportunities. On Aug. 31, 2003, the Fund's average maturity was 64 days, an increase from the start of the fiscal year. With these adjustments, we believe the Fund is strategically positioned to navigate the current low interest rate environment. Q: How do you plan to manage the Fund for the coming months? A: We believe there are several factors in place to spur economic growth, including relatively low interest rates, a reduction in federal income tax rates and improving corporate profits. However, we expect inflation to remain low due to the current excess production capacity in the economy and the lack of pricing power in most sectors. In addition, the labor market remains weak. Given these conditions, we expect the Fed to keep rates low through the end of the year. However, we could see rates rise in 2004. As always, we attempt to maximize the Fund's yield without taking unnecessary risks. Since we do not anticipate a near-term increase in interest rates, we have positioned the portfolio with an average maturity at the longer end of our range. We will continue to closely monitor economic data and the interest rate yield curve, striving to strategically adjust our portfolio positioning to maximize the return to Fund shareholders. Average Annual Total Returns as of Aug. 31, 2003 1 year +0.72% 5 years +3.48% 10 years +4.12% An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. - -------------------------------------------------------------------------------- 8 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT Portfolio Management Q & A AXP VP - Diversified Bond Fund On Feb. 24, 2003, a team led by Tom Murphy, Sector Leader for Investment Grade Corporate Bonds, succeeded Ray Goodner in managing the day-to-day operations of AXP VP - Diversified Bond Fund. The Fund's name changed from AXP VP - Bond Fund to AXP VP - Diversified Bond Fund in June 2003. Q: How did AXP VP - Diversified Bond Fund perform for the fiscal year ended Aug. 31, 2003? A: AXP VP - Diversified Bond Fund rose 4.50% for the 12 months ended Aug. 31, 2003, outperforming the Lehman Brothers Aggregate Bond Index, which rose 4.36%. The Lipper Intermediate Investment Grade Index, representing the Fund's peer group, rose 5.38% over the same period. Q: How did the Fund's positioning contribute to its performance relative to the benchmark and peer group? A: Corporate bonds, both investment-grade and high-yield (also known as junk bonds), led the bond market during this period, as they rallied back from the confidence and liquidity-challenged environment of summer of 2002, making a significant contribution to performance. As a result of its large credit position, the Fund had lower-than-index positions in the mortgage sectors (which outperformed Treasuries, but not to the extent of credit) and in Treasuries/agencies. However, many of the Fund's peers had even larger allocations to corporate bonds. This led to our relative underperformance compared to our peer group. The Fund outpaced its unmanaged benchmark, the Lehman Brothers Aggregate Bond Index in the first six months of the fiscal year. During the second half of the year -- following the reorganization of our fixed income organization and portfolio management structure -- the Fund continued to benefit from a larger-than-index position in corporate bonds, though we pared our investment-grade and high yield holdings to approximately 30% and 6%, respectively. In addition, small allocations to foreign-denominated bonds (2%) and emerging markets (1%) were opportunistically added to the portfolio and they also had a favorable impact on performance. Our high yield security selection had a bias to higher-rated BB securities, based primarily on relative valuations. Although the mortgage sector struggled in the latter half of the fiscal year from the combination of low interest rates and a greater interest rate volatility, the Fund's emphasis on identifying mortgage pools with lower pre-payment histories helped support performance in this sector. In general, the portfolio had a somewhat defensive posture through much of the second half. Although this affected our relative performance versus our peer group, we believe it was the prudent course, given our outlook for the economy and valuations across various sectors of the overall bond market. Our opportunistic additions of out-of-index securities in high yield, global and emerging markets helped the portfolio outperform its unmanaged benchmark in the second half of the fiscal year. Q: What changes were made to the Fund's positioning during the year? A: In conjunction with our reorganization of the fixed income department and the portfolio management structure, we changed the emphasis of the Fund from being very credit-centric to more diversified across corporate bonds, mortgage securities and Treasuries/agencies -- in line with our benchmark, the Lehman Brothers Aggregate Bond Index. As a point of reference, at Aug. 31, 2003, the Index was approximately 27% corporate bonds, 39% mortgages and 34% Treasuries/agencies. These changes led to the portfolio's high turnover rate. Early in the second half of the fiscal year, we adjusted the mortgage component of the Fund, aligning it more closely with the duration and structure of the Fund's benchmark. Beginning in January and February of 2003 and continuing through the remainder of the fiscal year, we gradually trimmed the Fund's corporate bond position, both investment-grade and high-yield. Given the corporate sector's previous strong performance and the fact that so much positive economic news was already priced into the bonds, we believed near-term risks outweighed the potential rewards. Through the remainder of the fiscal year, we actively managed our allocation to high-yield corporate bonds -- incrementally adding or reducing our exposure based on valuations. Within the high yield sector, we focused primarily on BB-rated securities, which offered good incremental yield gains over BBB-rated bonds. We specifically sought securities of companies whose financial profile and fundamental performance were comparable to higher rated companies. We believed such issues were overlooked and undervalued, creating an attractive investment opportunity for the Fund versus BBB-rated alternatives. (bar chart) PERFORMANCE COMPARISON For the year ended Aug. 31, 2003 6% (bar 3) 5% (bar 1) (bar 2) +5.38% +4.50% +4.36% 4% 3% 2% 1% 0% (bar 1) AXP VP - Diversified Bond Fund (bar 2) Lehman Brothers Aggregate Bond Index (unmanaged) (bar 3) Lipper Intermediate Investment Grade Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. - -------------------------------------------------------------------------------- 9 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT AXP VP - Diversified Bond Fund Q: How sensitive is the Fund to interest rate changes? A: Throughout the year we kept the Fund's duration fairly conservative. Interest rates remain near historically low levels and the Fed has expressed its intention to maintain rates at current levels (1% Fed Funds rate) while they look to stimulate the economy. Given monetary and fiscal stimulus present, it is unlikely that rates will decline much further, unless the economic recovery does not materialize as expected. Longer maturity rates shouldn't rise much either, given the Fed's focus on generating growth as opposed to concerns about inflation. Consequently, we still believe our best opportunities for more attractive performance are through sector rotation and individual security selection rather than increasing interest rate sensitivity. Q: How are you positioning the Fund for the coming months? A: In the corporate segment of the portfolio, we have maintained a defensive bias, focusing on, for example, securities of high-quality banks as well as non-cyclical consumer companies that generate strong free cash flow. However, if the economy fails to gain momentum, we may see opportunities to establish positions in more cyclical companies and sectors at wider spreads since steady economic growth and return to pricing power are seemingly priced into those securities at present. Mortgages tend to perform best when interest rates are stable. Unfortunately, during the early part of this past summer, Treasury rates were anything but stable, and mortgages struggled as a result. Mortgage rates have since moved slightly higher, and as the market adjusts to this higher rate level, we believe the outlook for mortgages could improve. While we believe the economy is likely to continue its recovery, we remain somewhat cautious. Regardless of the economic environment, the Fund's sector-based management team will continue to focus on adding value primarily through security selection and sector rotation. The 10 Largest Holdings AXP VP - Diversified Bond Fund Percent Value (of net assets) (as of Aug. 31, 2003) Citigroup 7.25% 2010 1.5% $26,371,745 General Electric 5.00% 2013 1.0 17,057,503 Comcast 5.50% 2011 0.7 12,302,414 Washington Mutual Bank 6.88% 2011 0.7 11,933,581 Weyerhaeuser 6.13% 2007 0.7 11,896,086 GMAC 6.88% 2011 0.7 11,584,285 Cleveland Electric Illuminating 9.50% 2005 0.6 11,073,281 Masco 6.00% 2004 0.6 10,065,217 ASIF Global Financing 4.90% 2013 0.6 9,928,321 Bank of America 7.80% 2010 0.5 9,376,656 Excludes U.S. Treasury and government agency holdings. For further detail about these holdings, please refer to the section entitled "Investments in Securities." (pie chart) The 10 holdings listed here make up 7.6% of net assets - -------------------------------------------------------------------------------- 10 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT The Fund's Long-term Performance
AXP VP - Diversified Bond Fund (line chart) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP VP - DIVERSIFIED BOND FUND AXP VP - Diversified Bond Fund $10,000 $9,869 $11,226 $11,879 $13,333 $13,539 $13,864 $14,514 $15,975 $16,487 $17,228 Lehman Brothers Aggregate Bond Index $10,000 $9,849 $10,962 $11,412 $12,554 $13,881 $13,992 $15,049 $16,908 $18,279 $19,076 Lipper Intermediate Investment Grade Index $10,000 $9,820 $10,822 $11,248 $12,327 $13,498 $13,557 $14,449 $16,228 $17,177 $18,101 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Average Annual Total Returns as of Aug. 31, 2003 1 year +4.50% 5 years +4.94% 10 years +5.59% This chart illustrates the total value of an assumed $10,000 investment in AXP VP - Diversified Bond Fund as compared to two widely cited performance indexes, the Lehman Brothers Aggregate Bond Index and the Lipper Intermediate Investment Grade Index. Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than the original cost. Short-term performance may be higher or lower than the figures shown. The above chart does not reflect expenses that apply to the subaccounts or the policies. 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 Lipper Intermediate Investment Grade 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. - -------------------------------------------------------------------------------- 11 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT Portfolio Management Q & A AXP VP - Diversified Equity Income Fund Q: How did AXP VP - Diversified Equity Income Fund perform for the fiscal year ended Aug. 31, 2003? A: AXP VP - Diversified Equity Income Fund gained 17.00% for the 12 months ended Aug. 31, 2003, significantly outperforming the Russell 1000(R) Value Index, which advanced 11.63% and its peers, as represented by the Lipper Equity Income Funds Index, which advanced 8.67% for the same period. Q: What factors significantly affected the Fund's performance? A: The first half of the period was marked by continued market volatility, as investors worried about economic uncertainty and global tensions. During the brief stock rally in October and November of 2002, the Fund benefited from exposure to economically sensitive sectors such as capital goods and basic materials, but its gains were limited by lower-than-index positions in technology and utility stocks, which performed very well. Following the fall rally, equity markets remained weak through mid-March. When it became clear that war in Iraq was imminent, stocks embarked on a rally that continued virtually uninterrupted through fiscal year-end. During this time, the Fund benefited significantly from several opportunities we identified before the Iraqi conflict. At that time, the market had sold off and investors were extremely wary of a prolonged war and the potential for higher energy prices. Given our view that the war might be short, we began to reduce our energy weighting and shift the portfolio toward more economically sensitive sectors. This repositioning, accomplished during March and early April, was largely responsible for the Fund's substantial outperformance through the latter months of the fiscal year. The Fund's long-held underweight in consumer non-durable stocks also contributed to relative return, as did our exposure to small and mid-cap stocks, which outperformed their large cap peers for a large portion of our fiscal period. Q: What other changes did you make to the Fund during this period? A: In the first half of the fiscal year, we made several portfolio changes. For example, we added Household International and then sold the stock to capture profits generated by the announcement that HSBC, a Hong Kong bank, would acquire the company. We also bought and sold Metropolitan Life after it rapidly gained value. As part of the repositioning at the outset of the Iraqi war, we increased the Fund's holdings of credit card providers, finance companies and brokerage and investment banking firms. We also added to the Fund's retail allocation, specifically The Limited, a clothing store chain. In both areas, we thought potential problems had already been substantially discounted in stock prices and that investors were overlooking the possibility that consumers would sustain reasonable spending levels and that other economic areas would rebound. The portfolio had some exposure to technology; however, many technology stocks do not meet our dividend targets. We were pleased that the Fund performed well without being overweighted in the higher risk technology area. We maintained a strategic overweight in industrial stocks because we believe the market is in the process of a long and broad transition from the leadership of consumer non-durable companies toward a period when industrial stocks may begin to outperform. Q: How are you positioning the Fund for the coming months? A: Despite the large gains so far in 2003, the stock market is still down quite a bit from three years ago. In the current environment, we are not having any problem finding stocks that make sense for us to buy. However, should stock prices go much higher, we might position the portfolio a bit more conservatively and begin to take some profits in stocks we bought in March. We might also consider adding to energy, where we are still modestly overweight, or utilities, where we are underweight. As always, we will continue to emphasize stocks with attractive valuations and will invest in equities across the market capitalization sectors. (bar chart) PERFORMANCE COMPARISON For the year ended Aug. 31, 2003 20% (bar 1) +17.00% 15% (bar 2) 10% +11.63% (bar 3) +8.67% 5% 0% (bar 1) AXP VP - Diversified Equity Income Fund (bar 2) Russell 1000(R) Value Index (unmanaged) (bar 3) Lipper Equity Funds Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. - -------------------------------------------------------------------------------- 12 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT The 10 Largest Holdings AXP VP - Diversified Equity Income Fund Percent Value (of net assets) (as of Aug. 31, 2003) Caterpillar 3.3% $12,194,291 PacifiCare Health Systems 3.1 11,293,843 Citigroup 2.4 8,863,384 Ingersoll-Rand Cl A 2.3 8,671,468 Royal Caribbean Cruises 2.1 7,893,410 Burlington Northern Santa Fe 1.9 7,204,302 Intl Paper 1.9 7,018,799 Travelers Property Casualty Cl A 1.8 6,780,557 Textron 1.8 6,677,774 Crescent Real Estate Equities 1.7 6,301,504 For further detail about these holdings, please refer to the section entitled "Investments in Securities." (pie chart) The 10 holdings listed here make up 22.3% of net assets The Fund's Long-term Performance
AXP VP - Diversified Equity Income Fund (line chart) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP VP - DIVERSIFIED EQUITY INCOME FUND AXP VP - Diversified Equity Income Fund $10,000 $10,421 $10,688 $8,961 $10,484 Russell 1000(R) Value Index $10,000 $10,793 $10,672 $9,271 $10,349 Lipper Equity Funds Index $10,000 $10,834 $10,585 $9,159 $ 9,953 10/1/99 8/00 8/01 8/02 8/03
Average Annual Total Returns as of Aug. 31, 2003 1 year +17.00% Since inception (9/15/99) +1.20% This chart illustrates the total value of an assumed $10,000 investment in AXP VP - Diversified Equity Income Fund as compared to two widely cited performance indexes, the Russell 1000(R) Value Index and the Lipper Equity Income Funds Index. Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than the original cost. Short-term performance may be higher or lower than the figures shown. The above chart does not reflect expenses that apply to the subaccounts or the policies. Russell 1000(R) Value Index, an unmanaged index, measures the performance of those Russell 1000(R) companies with lower price-to-book ratios and lower forecasted growth values. The Lipper Equity Income Funds 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. - -------------------------------------------------------------------------------- 13 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT Portfolio Management Q & A AXP VP - Emerging Markets Fund Q: How did AXP VP - Emerging Markets Fund perform for the fiscal year ended Aug. 31, 2003? A: AXP VP - Emerging Markets Fund rose 20.25% for the 12-month period ended Aug. 31, 2003. This was less than the Fund's benchmark, the MSCI Emerging Markets Free Index, which advanced 29.27% for the period. The Lipper Emerging Markets Funds Index, representing the Fund's peer group, rose 26.94% for the same time frame. Q: What factors significantly affected the Fund's performance? A: Performance benefited from the overall asset allocation of the Fund, and by gradually increasing the Fund's position in Asia. However the Fund's defensive positioning detracted from the Fund's yearly results. We saw an aggressive rebound in emerging markets in the second half of the fiscal year, and the Fund did not fully participate in this recovery. Our conservative positioning -- mostly in stock selection rather than asset allocation -- contributed significantly to the Fund's underperformance of both its benchmark and peer group. Asset allocation. At the beginning of the period, the Fund allocated 49% of its assets in Asia; the benchmark index allocated 58%. By the end of the period, the allocation to Asia had changed significantly with the Fund at 58% versus the Index at 55%. Asia was the strongest contributor to performance throughout the period, so we increased our allocation to that market. The Fund's allocations for Latin America, Europe and the Middle East were closely aligned to the Index (17.6%, 12%, and 12%, respectively) and we were slightly underweight Africa (10% vs. the Index's 12%). These reallocations led to the Fund's high turnover rate of 191%. Stock selection. During the first six months of the period, the global economy had yet to show evidence of a sustainable recovery. We remained defensive, investing in high-quality securities that we judged to be traditionally strong performers. However, in the second half of the period, we saw a violent rebound in emerging markets. The market favored low quality, speculative stocks, which subsequently rose in both favor and in price. We continued to favor steady, quality issues, such as gold stocks. Gold stocks are one example of stocks that are not responsive to turns in the economy, and the economy experienced a dramatic turn during this reporting period. Hence the Fund underperformed its index and peer group. Q: What changes did you make to the portfolio? A: Asia is the area that has the most leverage to economic growth. Clearly, technology is a key factor. Korea, Taiwan, and increasingly China are heavy manufacturing economies. We increased our allocation to Asia to benefit from this expected economic growth. Korea and Taiwan are the two largest emerging markets in Asia. Over the period, we gradually increased our allocation to both countries. Rebalancing the allocation in these two markets added 2.20% to the Fund's performance over the period. We began the fiscal year with a large position in the materials sector. These stocks had performed very well, but we believe that these stocks are now fully valued. China provided a catalyst for growth in this sector. The combination of stronger than expected demand and good supply discipline has somewhat increased commodity prices. The Fund's asset allocation to Russia was predicated on energy prices remaining firm, which they have not. At the start of the period, the Fund invested 7% of its assets in Russia; it grew to 10%, and was reduced to 5% (more aligned with the Index) at the end of the period. Q: How are you positioning the Fund for the coming months? A: We believe that emerging markets, as an asset class, should enjoy continued growth as the global economy shows more signs of recovery. Initially, we were skeptical about an economic turnaround, but we've seen increasing evidence that it may be underway. We also expect that interest rates globally will stay low and many emerging markets will benefit from this. Brazil's benchmark interest rate, for example, is currently at 22%, and the expectation is that it will fall towards 16%, a nearly 10 percentage point drop from a year ago. The Fund had been very defensively positioned, but we have now moved to a more aggressive position. When needed, we may be overweighted in countries such as South Korea and Taiwan. We can also take advantage of interest rate cuts in countries, such as Brazil, and overweight our position, when prudent. In this more aggressive stance, we are overweight in Asia, in hopes of capturing growth in that region. South Korea and Taiwan continue to be the largest emerging markets in Asia and we continue to watch those countries, and all growth-oriented markets, for opportunities. (bar chart) PERFORMANCE COMPARISON For the year ended Aug. 31, 2003 20% (bar 1) +17.00% 15% (bar 2) 10% +11.63% (bar 3) +8.67% 5% 0% (bar 1) AXP VP - Diversified Equity Income Fund (bar 2) Russell 1000(R) Value Index (unmanaged) (bar 3) Lipper Equity Funds Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. - -------------------------------------------------------------------------------- 14 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT The 10 Largest Holdings AXP VP - Emerging Markets Fund Percent Value (of net assets) (as of Aug. 31, 2003) Samsung Electronics (South Korea) 6.5% $1,052,196 Kookmin Bank (South Korea) 3.3 543,869 Telefonos de Mexico ADR Cl L (Mexico) 2.7 436,161 Taiwan Semiconductor Mfg (Taiwan) 2.6 428,700 Lukoil Holding ADR (Russia) 2.4 394,835 Standard Bank Group (South Africa) 2.2 365,055 Chinatrust Financial Holding (Taiwan) 2.1 345,999 Brasil Telecom Participacoes (Brazil) 2.1 345,724 Banco Itau Holding Financeira (Brazil) 2.0 329,599 LG Electronics (South Korea) 2.0 325,364 Note:Certain foreign investment risks include: changes in currency exchange rates, adverse political or economic order, and lack of similar regulatory requirements followed by U.S. companies. For further detail about these holdings, please refer to the section entitled "Investments in Securities." (pie chart) The 10 holdings listed here make up 27.9% of net assets The Fund's Long-term Performance
AXP VP - Emerging Markets Fund (line chart) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP VP - EMERGING MARKETS FUND AXP VP - Emerging Markets Fund $10,000 $9,397 $6,532 $6,888 $8,273 MSCI Emerging Markets Free Index $10,000 $9,542 $6,887 $7,058 $9,123 Lipper Emerging Markets Funds Index $10,000 $9,630 $6,948 $7,125 $9,044 5/1/00 8/00 8/01 8/02 8/03
Average Annual Total Returns as of Aug. 31, 2003 1 year +20.25% Since inception (5/1/00) -5.53% This chart illustrates the total value of an assumed $10,000 investment in AXP VP - Emerging Markets Fund as compared to two widely cited performance indexes, the Morgan Stanley Capital International (MSCI) Emerging Markets Free Index and the Lipper Emerging Markets Funds Index. Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than the original cost. Short-term performance may be higher or lower than the figures shown. The above chart does not reflect expenses that apply to the subaccounts or the policies. Morgan Stanley Capital International (MSCI) Emerging Markets Free Index, an unmanaged market capitalization-weighted index, is compiled from a composite of securities markets of 26 emerging markets countries. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. The Lipper Emerging Markets Funds 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. - -------------------------------------------------------------------------------- 15 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT Portfolio Management Q & A AXP VP - Equity Select Fund Q: How did the AXP VP - Equity Select Fund perform for the fiscal year ended Aug. 31, 2003? A: AXP VP - Equity Select Fund advanced 18.20%, less than the Russell MidCap(R) Growth Index, which gained 30.39%. The Lipper Mid-Cap Growth Funds Index, representing the Fund's peer group, advanced 23.98% over the same period. Q: What factors significantly affected the Fund's performance? A: During the first half of the fiscal year, when the stock market continued to struggle, the Fund declined by a modest amount, preserving capital better than the Russell MidCap(R) Growth Index and many of its peers. During the second half, the U.S. stock market's performance was driven by recoveries in some of the worst performing stocks and sectors of the previous three years. In sharp contrast to this profile, the Fund's portfolio included many higher-quality stocks. These holdings had contributed to the Fund's strong relative performance since its inception in May 2001, but they experienced less robust price gains in the most recent six months. Consequently, stock selection was primarily responsible for the fiscal year 2003 underperformance of the Fund compared to its benchmark and peers. Technology, telecommunications, and the consumer sectors negatively affected performance in the second half of the year. Although the Fund was not particularly underweight in technology, we owned a more conservative mix of technology stocks, which did not rebound as strongly. The Fund held no telecommunications services companies, a group that advanced during this period. The consumer area, which had performed well and enhanced the Fund's performance in 2002, weakened early in 2003 as the looming war in Iraq and the uncertain economic outlook shook consumer confidence. Factors working in the Fund's favor included the outperformance of growth stocks versus value stocks and the outperformance of mid-cap stocks relative to large cap stocks. Both trends developed in the second half of the fiscal period. Q: What changes did you make to the Fund during this period? A: Given the Fund's long-term oriented investment strategy, there were no dramatic positioning changes. However, we moved the Fund to a slightly more aggressive posture by trimming positions in some service-oriented technology and health care companies, by adding product-oriented stocks in the technology and health care areas, and by reducing several consumer positions. Our goal is to make the Fund adaptive to changing markets, while remaining consistent with its mission to invest in stocks with a certain durability and to hold them longer term. We were overweight in the consumer area last year and several companies drove our strong performance in the sector. During the past six months, we trimmed some of those positions including Whole Foods Market, Williams-Sonoma and The Cheesecake Factory, although we still hold smaller positions and consider them to have viable franchises and business plans. Q: How are you positioning the Fund for the coming months? A: The Fund's positioning is really defined by stock specific factors, rather than economic or market trends. Our stock selection is based on the strength of company's management, the nature of a company's franchise, its durability, its defensibility, its consistency and the company's financial situation. At fiscal year-end, the Fund was slightly overweight in technology, health care and energy. Considering a broader perspective, we think the Fund can benefit from the improving economic picture. For the next six months there is likely to be a fair amount of confidence in the earnings picture for corporate America. We also think the consumer outlook is now more favorable, given recent improvement in consumer sentiment and the impact that recent stock market and real estate gains have had on consumer wealth. (bar chart) PERFORMANCE COMPARISON For the year ended Aug. 31, 2003 35% (bar 2) 30% +30.39% 25% (bar 3) +23.98% 20% (bar 1) +18.20% 15% 10% 5% 0% (bar 1) AXP VP - Equity Select Fund (bar 2) Russell MidCap(R) Growth Index (unmanaged) (bar 3) Lipper Mid-Cap Growth Funds Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. - -------------------------------------------------------------------------------- 16 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT The 10 Largest Holdings AXP VP - Equity Select Fund Percent Value (of net assets) (as of Aug. 31, 2003) Williams-Sonoma 2.9% $4,904,395 Fiserv 2.8 4,763,514 Fair, Isaac & Co 2.7 4,565,232 Paychex 2.6 4,361,580 Whole Foods Market 2.5 4,267,024 Fastenal 2.4 4,087,958 SunGard Data Systems 2.2 3,750,600 Health Management Associates Cl A 2.2 3,735,243 Legg Mason 2.2 3,734,083 Murphy Oil 2.1 3,653,616 For further detail about these holdings, please refer to the section entitled "Investments in Securities." (pie chart) The 10 holdings listed here make up 24.6% of net assets The Fund's Long-term Performance
AXP VP - Equity Select Fund (line chart) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP VP - EQUITY SELECT FUND AXP VP - Equity Select Fund $10,000 $9,318 $8,314 $9,828 Russell MidCap(R) Growth Index $10,000 $8,614 $6,600 $8,606 Lipper Mid-Cap Growth Funds Index $10,000 $8,877 $6,596 $8,177 5/1/01 8/01 8/02 8/03
Average Annual Total Returns as of Aug. 31, 2003 1 year +18.20% Since inception (5/1/01) -0.74% This chart illustrates the total value of an assumed $10,000 investment in AXP VP - Equity Select Fund as compared to two widely cited performance indexes, the Russell MidCap(R) Growth Index and the Lipper Mid-Cap Growth Funds Index. Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than the original cost. Short-term performance may be higher or lower than the figures shown. The above chart does not reflect expenses that apply to the subaccounts or the policies. Russell MidCap(R) Growth Index, an unmanaged 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. The Lipper Mid-Cap Growth Funds 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. - -------------------------------------------------------------------------------- 17 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT Portfolio Management Q & A AXP VP - Global Bond Fund Q: How did AXP VP - Global Bond Fund perform for the fiscal year ended Aug. 31, 2003? A: AXP VP - Global Bond Fund gained 9.56% for the 12 months ended Aug. 31, 2003. The Fund outperformed its current benchmark, the Lehman Brothers Global Aggregate Index, which increased 8.54% for the period and its benchmark in the calendar year 2002, the CitiGroup World Government Bond Index, which increased 9.43% for the period. The Fund underperformed the Lipper Global Income Funds Index, representing the Fund's peer group, which rose 10.10% over the same time frame. Q: What factors significantly affected the Fund's performance? A: Three factors most helped the Fund generate strong results relative to its benchmarks during the 12 months -- currency positioning, sector exposure and country allocation. The Fund had a larger-than-index position in the euro, a lower-than-index position in the yen and maintained a neutral position in the dollar. This strategy worked well, as the dollar weakened versus world currencies over the annual period, especially against the euro. As the value of the U.S. dollar declines, the currency value of foreign bonds typically improves. The yen underperformed not only the euro during the annual period, but also the Canadian, Australian and New Zealand dollars. The Fund's participation in the emerging markets and high-yield credit sectors also boosted performance relative to its benchmarks. These sectors, which are not part of the index benchmarks, produced strong returns during the fiscal year. Finally, the Fund's overweighted position in the core European debt markets and underweighted position in the Japanese bond market supported the Fund's performance. The core European debt markets outperformed the U.S. bond markets for the fiscal year in local currency terms. Japan was the worst-performing debt market, producing a negative annual return in local currency terms. The Fund was underweight to neutral in the U.S. market through most of the fiscal year. The Fund underperformed its Lipper peer group for the fiscal year primarily because of its relatively lower risk posture. However, we continue to believe that our investment strategy remains the prudent one for long-term investors in this asset class. Q: What changes did you make to the portfolio and how is it currently positioned? A: We made several changes to the portfolio. First, we enhanced the diversification of the Fund, which held approximately 249 securities as of Aug. 31, 2003, up from less than 90 one year prior. We believe this diversification should make Fund performance more consistent over time. Second, in early 2003, the Fund's board voted to switch its benchmark to the Lehman Brothers Global Aggregate Index to better represent the Fund's investment approach and holdings, including its non-government securities. Third, we made shifts in the Fund's sector weightings. For example, we reduced the Fund's position in government & agency bonds and redeployed those assets into the securitized sector. By increasing exposure to securitized debt on an opportunistic basis when relative value was attractive, the Fund's percentage of assets in this sector more than doubled from approximately 8% at the start of the fiscal year to 18% at the end of August 2003, a percentage that was still lower than the Fund's benchmark. The securitized sector includes holdings such as U.S. mortgage-backed securities, commercial mortgage-backed securities, and asset-backed securities as well as European collateralized securities such as Danish mortgages and German Pfandbriefe. Technically, currency and country weights remained relatively stable through the period. Finally, we shifted to a team-based approach in managing the Fund. As the Fund broadened its diversification in different bond sectors, we believe sector teams will help the Fund identify and analyze opportunities as they develop. (bar chart) PERFORMANCE COMPARISON For the year ended Aug. 31, 2003 12% (bar 4) 10% (bar 1) (bar 3) +10.10% +9.56% (bar 2) +9.43% 8% +8.54% 6% 4% 2% 0% (bar 1) AXP VP - Global Bond Fund (bar 2) Lehman Brothers Global Aggregate Index (unmanaged) (bar 3) CitiGroup World Government Bond Index (unmanaged) (bar 4) Lipper Global Income Funds Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. - -------------------------------------------------------------------------------- 18 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT AXP VP - Global Bond Fund AXP VP - Global Bond FundQ: How are you positioning the Fund for the coming months? A: For the first two-thirds of the fiscal year, there was relative stability in global interest rates. From May through early June, bond yields dropped dramatically as U.S. Federal Open Market Committee (FOMC) comments about its deflation concerns rippled around the world. Then, from mid-June to the end of August, bond yields rose significantly when the FOMC softened its outlook on the risk of deflation and began discussing "an economy which it expects to improve over time." We believe that the recent back-up in yields was probably overdone, given too high expectations of central bank monetary policy easing, and thus we anticipate yields will likely settle down soon and move within a moderate range over the coming months. Even though global growth is starting to accelerate, we expect the Federal Reserve and other major central banks to keep official policy rates at their current low levels for quite some time. Inflation remains subdued both in the U.S. and overseas, giving central banks plenty of time to assess the durability of the current upturn in growth before tightening monetary policy. We also expect the U.S. dollar to continue to depreciate, reflecting the financing pressures created by a large and growing U.S. current account deficit. In our view, further depreciation of the U.S. dollar would be positive for the global economy since it would encourage stronger domestic demand growth overseas, reduce the global economy's dependence on the U.S. consumer, and help offset disinflationary pressures in the global economy. Given these views, we may look to increase the Fund's allocation to U.S. mortgage-backed securities, which typically perform well in a more stable interest rate environment. We intend to maintain our neutral duration positioning until we see clearer evidence of a sustainable global economic recovery. We also intend to monitor currencies carefully given their important impact on the return and risk profile of the Fund. We remain focused on careful security selection, as we continue to seek opportunities to capitalize on attractively valued bonds. The 10 Largest Holdings AXP VP - Global Bond Fund Percent Value (of net assets) (as of Aug. 31, 2003) Govt of Spain 4.25% 2007 2.7% $8,293,619 Govt of France 3.75% 2007 2.4 7,495,176 Republic of Finland 2.75% 2006 2.2 6,966,446 Development Bank of Japan 1.40% 2012 2.1 6,623,628 Govt of Spain 4.00% 2010 2.1 6,433,496 Federal Republic of Germany 4.50% 2009 2.0 6,290,251 Federal Republic of Germany 4.13% 2008 1.9 6,089,278 Govt of Netherlands 5.00% 2012 1.7 5,259,110 Hellenic Republic 2.75% 2006 1.6 5,117,392 Hellenic Republic 5.35% 2011 1.6 5,106,200 Note:Certain foreign investment risks include: changes in currency exchange rates, adverse political or economic order, and lack of similar regulatory requirements followed by U.S. companies. Excludes U.S. Treasury and government agency holdings. For further detail about these holdings, please refer to the section entitled "Investments in Securities." (pie chart) The 10 holdings listed here make up 20.3% of net assets - -------------------------------------------------------------------------------- 19 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT The Fund's Long-term Performance
AXP VP - Global Bond Fund (line chart) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP VP - GLOBAL BOND FUND AXP VP - Global Bond Fund $10,000 $10,249 $10,908 $11,325 $11,608 $11,384 $12,197 $13,152 $14,409 Lehman Brothers Global Aggregate Index $10,000 $10,297 $10,755 $11,824 $12,049 $11,898 $12,784 $13,937 $15,127 CitiGroup World Government Bond Index $10,000 $10,314 $10,384 $11,236 $11,708 $11,449 $12,099 $13,317 $14,573 Lipper Global Income Funds Index $10,000 $10,323 $11,099 $11,267 $11,665 $11,773 $12,613 $13,340 $14,688 5/1/96 8/96 8/97 8/98 8/99 8/00 8/01 8/02 8/03
Average Annual Total Returns as of Aug. 31, 2003 1 year +9.56% 5 years +4.93% Since inception (5/1/96) +5.08% This chart illustrates the total value of an assumed $10,000 investment in AXP VP - Global Bond Fund as compared to three widely cited performance indexes, the Lehman Brothers Global Aggregate Index, the CitiGroup World Government Bond Index and the Lipper Global Income Funds Index. Recently, the Fund's investment manager recommended to the Fund that the Fund change its comparative index from the CitiGroup World Government Index to the Lehman Brothers Global Aggregate Index. The investment manager made this recommendation because the new index more closely represents the Fund's holdings. We will include both indices in this transition year. In the future, however, only the Lehman Brothers Global Aggregate Index will be included. Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than the original cost. Short-term performance may be higher or lower than the figures shown. The above chart does not reflect expenses that apply to the subaccounts or the policies. The Lehman Brothers Global Aggregate Index, an unmanaged market capitalization weighted benchmark, tracks the performance of investment grade fixed income securities denominated in 13 currencies. The index reflects the reinvestment of all income and changes in market prices, but exclude brokerage commissions or other fees. CitiGroup 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. The Lipper Global Income Funds 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. - -------------------------------------------------------------------------------- 20 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT Portfolio Management Q & A AXP VP - Growth Fund Q: How did AXP VP - Growth Fund perform for fiscal year ended Aug. 31, 2003? A: AXP VP - Growth Fund rose 9.29% for the 12-month period ended Aug. 31, 2003, less than the 11.03% return of the Lipper Large-Cap Growth Funds Index, the Fund's peer group. The Russell 1000(R) Growth Index climbed 14.08% for the period. The Fund enjoyed a positive fiscal year return for the first time in three years. While the Fund outpaced its peers for most of the fiscal year, weak results in July and August resulted in underperformance relative to its peers for the full fiscal year. Sector allocation in industrials, financials and technology hurt results substantially in July and August and this unfavorable positioning overshadowed the strong results generated earlier in the fiscal year. Q: What factors significantly affected the Fund's performance? A: Aggressive growth stocks with historically high levels of volatility (high beta) provided exceptionally strong returns in the second calendar quarter of 2003. During this time, effective stock selection helped the Fund keep pace with its benchmark and peers even as it avoided stocks that appeared overvalued and/or lacked sufficient growth potential. Earlier in the fiscal year the Fund reduced its emphasis on financial stocks and assumed an overweight position in the health care sector, both of which benefited relative performance. Yet by early in the summer of 2003 the market had reversed and the Fund's performance was negatively impacted as economically sensitive stocks such as financials and technology outperformed while the stocks in stable growth areas such as health care and consumer staples performed poorly on a relative basis. In addition, there were some technology holdings within the portfolio, which did not meet expectations, notably Nokia and Sun Microsystems. Throughout the year there has been a consistent focus on identifying companies with good growth prospects, which are trading at reasonable valuations. McDonald's and IACI (formerly USA Interactive) were two solid contributors to the Fund's results. We believe McDonald's benefited from a new CEO focusing on the firm's core fast-food business, cutting capital spending and improving cash flow. McDonald's was one the Fund's largest overweight positions during the second half of the fiscal year and this benefited performance. IACI grew its earnings very rapidly over the past year while at the same time simplifying its corporate structure and delivered positive results for the Fund. Q: What were the portfolio's weakest areas? A: The Fund's sector weightings mildly detracted from its performance. The Fund had a lower-than-index position in both technology and financials which performed well for much of the period. While we managed to find some individual opportunities within technology, we underestimated the extent to which stocks could advance given what we viewed as limited evidence of fundamental improvement in the sector and valuations, which appeared extended. Two names in technology that the Fund did own were Motorola and Nokia. We bought Motorola because it was a stock with a cost cutting story that had not been appreciated by the market and we bought Nokia as a leadership technology company with good end market growth, which was trading at a reasonable valuation. While we are always looking for fast growing companies in the technology sector, we do tend to shy away from those whose valuations do not appear justified. Within financials, the Fund's performance was negatively impacted in the latter half of the year by below average exposure to brokerage stocks which performed well in the period as well as by its positioning in Fannie Mae and Freddie Mac which were negatively impacted by management issues at Freddie Mac. Q: What changes did you make during the year? A: Generally, the Fund favored stable growth over cyclical growth throughout much of the period due to concerns over the extent of earnings recovery, which appeared to be anticipated in cyclical stocks. However, the Fund did increase its cyclical exposure at points in which these stocks were more depressed and expectations had been tempered. An example of a cyclical sector which the Fund increased its exposure to over the course of the year was energy because we believed that expectations for energy stocks seemed more reasonable than those for the average cyclical sector. (bar chart) PERFORMANCE COMPARISON For the year ended Aug. 31, 2003 15% (bar 2) +14.08% 12% (bar 1) (bar 3) +9.29% +11.03% 9% 6% 3% 0% (bar 1) AXP VP - Growth Fund (bar 2) Russell 1000(R) Growth Index (unmanaged) (bar 3) Lipper Large-Cap Growth Funds Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. - -------------------------------------------------------------------------------- 21 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT AXP VP - Growth Fund In health care, we substantially reduced the Fund's position in HCA, the nation's largest hospital operator, during the period as our concerns related to earnings growth increased, and we reduced our positions in HMO (health maintenance organization) stocks as well following a period of significant price appreciation in the stocks subsequent to fundamental improvements in the sector. We felt that HMO stocks had fully discounted the favorable near term growth outlook. A stock the Fund purchased during the period, which fits our investment discipline, is Disney. Disney is a cyclical growth company that, in our view, was being painted with a different brush than other cyclical stocks. If there is a cyclical recovery, Disney stands to benefit like many other companies, yet it was trading at a valuation, which suggested it would not benefit. These allocations led to the Fund's increase in turnover. Q: How are you positioning the Fund for the coming months? A: Above all, we will adhere to our long-term investment discipline and continue to strive to identify those companies with good growth rates for which we believe we do not need to overpay. Given this discipline, we have recently seen better opportunities in stable growth sectors than in cyclical growth sectors. Examples of stable growth sectors with substantial weightings in the Fund exiting the fiscal year include health care and consumer staples and examples of cyclical sectors with lower weights exiting the period include information technology and industrials. The 10 Largest Holdings AXP VP - Growth Fund Percent Value (of net assets) (as of Aug. 31, 2003) Microsoft 4.2% $9,383,996 Pfizer 3.9 8,781,699 Lockheed Martin 2.0 4,533,855 InterActiveCorp 1.9 4,212,844 NTL 1.9 4,180,936 McDonald's 1.8 4,107,344 Johnson & Johnson 1.8 3,946,568 Wyeth 1.8 3,946,485 Amgen 1.7 3,861,411 Motorola 1.7 3,715,799 For further detail about these holdings, please refer to the section entitled "Investments in Securities." (pie chart) The 10 holdings listed here make up 22.7% of net assets - -------------------------------------------------------------------------------- 22 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT The Fund's Long-term Performance
AXP VP - Growth Fund (line chart) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP VP - GROWTH FUND AXP VP - Growth Fund $10,000 $13,859 $6,670 $5,154 $5,633 Russell 1000(R) Growth Index $10,000 $13,632 $7,454 $5,801 $6,618 Lipper Large-Cap Growth Funds Index $10,000 $13,394 $7,473 $5,856 $6,502 10/1/99 8/00 8/01 8/02 8/03
Average Annual Total Returns as of Aug. 31, 2003 1 year +9.29% Since inception (9/15/99) -13.52% This chart illustrates the total value of an assumed $10,000 investment in AXP VP - Growth Fund as compared to two widely cited performance indexes, the Russell 1000(R) Growth Index and the Lipper Large-Cap Growth Funds Index. Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than the original cost. Short-term performance may be higher or lower than the figures shown. The above chart does not reflect expenses that apply to the subaccounts or the policies. The Russell 1000(R) Growth Index, an unmanaged index, measures the performance of the growth subset of the Russell 1000(R) Index, which is composed of the 1,000 largest companies in the U.S. These companies have higher price-to-book ratios and higher forecasted growth values. The Lipper Large-Cap Growth Funds 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. - -------------------------------------------------------------------------------- 23 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT Portfolio Management Q & A AXP VP - High Yield Bond Fund In June 2003, the Fund's name changed from AXP VP - Extra Income Fund to AXP VP - - High Yield Bond Fund. This change did not affect the Fund's investment strategy. Q: How did AXP VP - High Yield Bond Fund perform for the fiscal year ended Aug. 31, 2003? A: AXP VP - High Yield Bond Fund gained 18.81% for the 12 months ended Aug. 31, 2003. The Lipper High Yield Funds Index, representing the Fund's peer group, rose 21.79%, and the JP Morgan Global High Yield Index advanced 22.31% over the same period. The Merrill Lynch High Yield Bond Index rose 22.88% for the period. Q: What factors significantly affected the Fund's performance? A: As the Fund's fiscal year began, the high-yield bond market was at the tail end of an extremely volatile time, impacted by weak economic growth, corporate governance problems, and the aftershocks of the WorldCom and Adelphia accounting scandals. Beginning mid-October 2002, investors started to become less risk-averse, as stock prices rose, corporations seemed to be on more solid footing, and statistical data indicated a slow but steadier course for economic recovery. A rally ensued in the high-yield bond market that lasted through most of July 2003. From late July through mid-August, there was a significant sell-off in the high yield bond market, caused primarily by a shift in the balance of supply and demand. Investors sought to take profits after the extended rally concurrently to a sizable new issue calendar of high yield bonds. By the end of August, absorbed supply and renewed demand reinvigorated the market and resulted in higher returns. Among the Fund's best performers for the fiscal year were those that had been among the hardest hit over the previous annual period. For example, in the cellular and personal communications services (PCS) areas of the wireless telecommunications sector, Fund positions in Nextel Communications, Dobson/Sygnet Communications, and Rural Cellular each performed well. In cable TV, Cablevision Systems, Coaxial Communications and Quebecor Media were winners for the Fund. In utilities, regulated IPALCO Enterprises and Xcel Energy and pipelines El Paso Energy and Williams Gas Pipeline were strong performers for the Fund. We sold Xcel during the period at a profit. While our security selection throughout the fiscal year was relatively strong, there were a few disappointments. These included Venezuelan cable/telephony company Veninfotel, chemical company Resolution Performance and conglomerate Jordan Industries. Overall, the Fund's performance was affected most by its somewhat defensive posture. We strategically chose to underweight lower credit quality CCC-rated and distressed bonds, which rebounded most dramatically during the high-yield market rally. While we maintained the Fund's emphasis on single-B rated bonds, we began to add riskier CCC-rated securities in a selective fashion during the second calendar quarter of 2003, being careful to manage position sizes. We continued to focus on managing downside risk through careful due diligence, enhanced portfolio diversification and avoidance of certain securities and sectors. Q: What changes did you make to the portfolio and how is it currently positioned? A: During the fiscal year, we reduced the Fund's weighting in the homebuilding industry to a neutral position due to valuation, although we continue to believe in the fundamentals of this sector. We also reduced the Fund's position in lodging and leisure to an underweighted position, as we do not see the fundamentals for this industry turning around anytime soon given the still-lingering effects of post-Sept. 11, 2001. On the other hand, we added modestly to the Fund's weighting in certain industrial, chemical and manufacturing holdings, as we gradually shifted the portfolio's stance to a more cyclically oriented one. (bar chart) PERFORMANCE COMPARISON For the year ended Aug. 31, 2003 25% (bar 2) (bar 4) +22.31% (bar 3) +22.88% 20% (bar 1) +21.79% +18.81% 15% 10% 5% 0% (bar 1) AXP VP - High Yield Bond Fund (bar 2) JP Morgan Global High Yield Index (unmanaged) (bar 3) Lipper High Yield Funds Index (bar 4) Merrill Lynch High Yield Bond Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. - -------------------------------------------------------------------------------- 24 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT AXP VP - High Yield Bond Fund In what we consider core sectors, the Fund was overweighted in food and beverages, which performed well, and in media, including television and radio broadcasting, publishing and outdoor advertising, which produced positive returns and added value to the portfolio during the fiscal year. We shifted from a neutral to an underweighted position in gaming, which has strong fundamentals, but, in our opinion, has reached full value. We shifted from an underweighted to a neutral position in auto suppliers, given our view of economic recovery. Based on our outlook for industry fundamentals, we maintained underweighted positions in supermarkets, retail and technology. Starting mid-summer 2002, we began to buy what we saw as less risky securities in the bank loan market at attractive prices. Bank loan paper is historically a comparatively lower risk investment, as it is considered more senior debt within a company's capital structure. We focused on wireless communications and cable television, where we saw an opportunity to mitigate downside risk in sectors we liked. These investments generated strong risk-adjusted returns for the Fund, and, in August 2003, we sold several of the wireless communications bank loans at a profit. Q: How are you positioning the Fund for the coming months? A: We are generally optimistic in our view for the high-yield market and believe several factors support our perspective. We believe the U.S. economy will improve during the second half of the calendar year. Also, the absolute level of interest rates and inflation are low, which is typically positive for high-yield bonds. High-yield default rates peaked in 2002 and have fallen significantly in 2003 year-to-date. Also, the technical environment for the high-yield market has been positive, as measured by cash inflows to this asset class. Finally, yield alternatives among other asset classes remain scarce. Looking ahead, we will continue to monitor the pace of U.S. economic growth, the direction of interest rates and the quality of new issues in the high-yield bond market. We intend to use any continued improvement in valuations to upgrade the portfolio's credit quality emphasis. We will continue to seek opportunities to capitalize on attractively valued bonds that have the potential for positive returns. The 10 Largest Holdings AXP VP - High Yield Bond Fund Percent Value (of net assets) (as of Aug. 31, 2003) Qwest 6.95% 2010 1.8% $15,012,600 Vivendi Universal 6.25% 2008 1.5 12,315,000 Eott Energy Partners LP./Energy Finance 11.00% 2009 1.4 11,627,850 Dobson/Sygnet Communications 12.25% 2008 1.3 10,721,399 El Paso Production Holding 7.75% 2013 1.1 9,551,999 Hilcorp Energy/Finance 10.50% 2010 1.1 9,472,500 Qwest Services 13.50% 2010 1.1 9,432,510 Western Wireless 9.25% 2013 1.1 9,380,000 Nextel Communications 7.38% 2015 1.0 8,695,000 Varde Fund V LP 0.9 7,681,056 For further detail about these holdings, please refer to the section entitled "Investments in Securities." (pie chart) The 10 holdings listed here make up 12.3% of net assets - -------------------------------------------------------------------------------- 25 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT The Fund's Long-term Performance
AXP VP - High Yield Bond Fund (line chart) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP VP - HIGH YIELD BOND FUND AXP VP - High Yield Bond Fund $10,000 $10,011 $11,614 $11,733 $12,040 $11,848 $11,624 $10,540 $12,522 JP Morgan Global High Yield Index $10,000 $10,337 $11,914 $12,144 $12,725 $12,951 $12,958 $12,532 $15,327 Lipper High Yield Funds Index $10,000 $10,293 $11,895 $12,054 $12,710 $12,791 $11,828 $10,791 $13,142 Merrill Lynch High Yield Bond Index $10,000 $10,307 $11,839 $12,415 $12,914 $13,095 $13,447 $12,510 $15,372 5/1/96 8/96 8/97 8/98 8/99 8/00 8/01 8/02 8/03
Average Annual Total Returns as of Aug. 31, 2003 1 year +18.81% 5 years +1.31% Since inception (5/1/96) +3.11% This chart illustrates the total value of an assumed $10,000 investment in AXP VP - High Yield Bond Fund as compared to three widely cited performance indexes, the JP Morgan Global High Yield Index, the Lipper High Yield Funds Index and the Merrill Lynch HighYield Bond Index. Recently, the Fund's investment manager recommended to the Fund that the Fund change its comparative index from the Merrill Lynch High Yield Bond Index to the JP Morgan Global High Yield Index. The investment manager made this recommendation because the new index more closely represents the Fund's holdings. We will include both indexes in this transition year. In the future, however, only the JP Morgan Global High Yield Index will be included. Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than the original cost. Short-term performance may be higher or lower than the figures shown. The above chart does not reflect expenses that apply to the subaccounts or the policies. JP Morgan Global High Yield Index is an unmanaged index used to mirror the investable universe of the U.S. dollar global high yield corporate debt market of both developed and emerging markets. The securities used to create the index may not be representative of the bonds held in the Fund. The Lipper High Yield Funds 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. Merrill Lynch High Yield Bond Index, an unmanaged 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. - -------------------------------------------------------------------------------- 26 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT Portfolio Management Q & A AXP VP - International Fund Q: How did AXP VP - International Fund perform for the fiscal year ended Aug. 31, 2003? A: AXP VP - International Fund rose 3.48% for the 12-month period ended Aug. 31, 2003. This was less than the Fund's benchmark, the MSCI EAFE Index, which advanced 9.58% for the period. The Lipper International Funds Index, representing the Fund's peer group, rose 9.89% for the same time frame. Q: What factors most significantly affected the Fund's performance? A: The Fund's performance was disappointing over the 12-month reporting period. Our regional allocation added value, but poor stock selection in Europe and Japan led to underperformance against the Fund's benchmark and peers. Low-quality stocks led the global advance in stock prices during the past fiscal year. Stocks in companies with weak balance sheets, poor market positioning and negative structural issues performed unexpectedly well, particularly in Europe. To some investors, such stocks appeared oversold this past winter. This perception helped generate a strong rally beginning in late March. However, we avoided stocks with weak fundamentals and potential problems, which detracted from performance. Nevertheless, we still believe that the Fund's positioning in higher quality European stocks is the right strategy for the long term. In fact, we began to see some evidence of a more favorable turn in investor sentiment between June and August. Generally, the Fund focuses on companies with strong franchises, which have demonstrated improved performance. In Japan, the Fund underperformed because we held too many mid- to large cap stocks at a time when small cap stocks performed extremely well. During the first half of the fiscal period Japanese pension plans sold many large cap holdings to raise cash as a result of a change in Japanese government pension policy resulting in small caps outperforming their benchmark by about 25%. In the second half of the year, small cap stocks underperformed. Q: What changes did you make to the portfolio? A: The Fund was conservatively positioned for most of the fiscal year. We believed there would be a degree of volatility in the global economy and it would be slow to recover. That turned out not to be the case, and our position hurt the Fund's returns as economically cyclical stocks rebounded. We have subsequently repositioned the Fund towards areas of economic growth and activity and have bought companies that we believe may benefit from the improving economy. In Europe, we have been underweight the benchmarks for most of the period. Among the changes in allocation over the period were: o An increased Japanese equity weighting early in 2003, as we moved to a more cyclical bias in the Fund. o An increased emerging markets weighting during the last six months of the fiscal period, as we have begun to see the benefits of improving global economic activity --particularly the benefits of government tax cuts and central banking stimulus to the U.S. economy and its trickle-down effect across global activity. Our current weighting in emerging markets is around 7%, compared to 0% for the Fund's benchmark. The Fund's peers tended to hold up to 5% in emerging markets in the past fiscal year. Emerging markets are more competitive against more high cost production areas in Europe, the U.S. and other mature markets. We believe that, over time, more attention will be focused on emerging markets, and that is why we have significantly increased our position in that direction. o During the period, we reduced our position in three Pacific Rim countries: Singapore, Australia, and Hong Kong. We feel Australia is a relative defensive market and less cyclically exposed and therefore sold some of our Australian stocks. We then used those assets to reinvest in emerging markets and Japan. We have been optimistic about equities in general for some time. Stepping back for the long view, we have worked through a bull market, a bear market, then a risk-recovery phase (when low-quality stocks gained favor), and now, we have moved into an economic recovery cycle. (bar chart) PERFORMANCE COMPARISON For the year ended Aug. 31, 2003 10% (bar 2) (bar 3) +9.58% +9.89% 8% 6% 4% (bar 1) +3.48% 2% 0% (bar 1) AXP VP - International Fund (bar 2) MSCI EAFE Index (unmanaged) (bar 3) Lipper International Funds Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. - -------------------------------------------------------------------------------- 27 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT AXP VP - International Fund Q: How are you positioning the Fund for the coming months? A: When adding stocks to the Fund, we have paid great attention to those areas of greatest cyclicality. We want to benefit from an improving economic cycle. We have also broadened out the market cap for the Fund so it includes more mid-cap stocks, which we believe will benefit from improvements in economic growth. Other areas that we have been adding to more recently have been on the consumer cyclical side. We also added to some areas of technology in the early part of the year and have maintained those positions. We have sufficiently reduced our holdings in defensive stocks, in particular, consumer staples (e.g., food manufacturing, household goods, etc.). We have lessened our position for two reasons. First, these stocks do not benefit from an economic recovery; and second, many of those companies have been through a phase of restructuring that we believe has already been fully priced into the market. We believe global economic growth is picking up and that investors have seen the worst that the bear market had to offer. The 10 Largest Holdings AXP VP - International Fund Percent Value (of net assets) (as of Aug. 31, 2003) HSBC Holdings (United Kingdom) 3.2% $23,676,753 GlaxoSmithKline (United Kingdom) 3.1 23,046,484 Vodafone Group (United Kingdom) 3.1 22,697,568 TotalFinaElf (France) 3.0 21,869,047 Novartis (Switzerland) 2.6 18,996,625 BP (United Kingdom) 2.5 18,311,935 Royal Bank of Scotland Group (United Kingdom) 2.3 16,758,153 BNP Paribas (France) 1.9 14,290,692 Royal Dutch Petroleum (Netherlands) 1.7 12,567,479 Schneider Electric (France) 1.7 12,433,469 Note:Certain foreign investment risks include: changes in currency exchange rates, adverse political or economic order and lack of similar regulatory requirements followed by U.S. companies. For further detail about these holdings, please refer to the section entitled "Investments in Securities." (pie chart) The 10 holdings listed here make up 25.1% of net assets - -------------------------------------------------------------------------------- 28 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT The Fund's Long-term Performance
AXP VP - International Fund (line chart) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP VP - INTERNATIONAL FUND AXP VP - International Fund $10,000 $11,520 $11,340 $12,372 $13,529 $14,082 $17,206 $19,742 $12,457 $10,541 $10,908 MSCI EAFE Index $10,000 $11,114 $11,202 $12,119 $13,254 $13,271 $16,725 $18,366 $13,943 $11,895 $13,035 Lipper International Funds Index $10,000 $11,757 $11,656 $12,834 $15,066 $14,906 $18,375 $21,694 $16,370 $14,324 $15,740 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Average Annual Total Returns as of Aug. 31, 2003 1 year +3.48% 5 years -4.98% 10 years +0.87% This chart illustrates the total value of an assumed $10,000 investment in AXP VP - International Fund as compared to two widely cited performance indexes, the Morgan Stanley Capital International EAFE Index (MSCI EAFE Index) and the Lipper International Funds Index. Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than the original cost. Short-term performance may be higher or lower than the figures shown. The above chart does not reflect expenses that apply to the subaccounts or the policies. 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. The Lipper International Funds 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. - -------------------------------------------------------------------------------- 29 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT Portfolio Management Q & A AXP VP - Managed Fund Tom Murphy was named portfolio manager of the fixed-income portion of AXP VP - Managed Fund portfolio in February 2003. Bob Ewing has responsibility for the Fund's equity holdings and asset allocation. Below they discuss the Fund's results for fiscal year 2003. Q: How did the AXP VP - Managed Fund perform for the one-year period ended Aug. 31, 2003? A: AXP VP - Managed Fund advanced 9.40% for 12 months ended Aug. 31, 2003, underperforming the Standard & Poor's 500 Index (S&P 500 Index), which gained 12.07%. The Lipper Balanced Funds Index, representing the Fund's peer group, gained 10.05% for the same period. The Lehman Brothers Aggregate Bond Index rose 4.36% for the period. Q: What factors significantly affected the Fund's performance? A: The Fund maintained a conservative stance throughout the fiscal year, positioning the portfolio to benefit if the financial markets were to question the sustainability of the economic recovery. The markets, in fact, were biased toward a stronger economic scenario, favoring higher risk equity and fixed income sectors. For example, on the equity side, investors embraced industrials, information technology, and other cyclical stocks. However, the Fund had higher-than-index positions in several classically defensive sectors, such as consumer staples and health care. The Fund also had lower-than-index positions in the relatively strongly performing financials sector. The Fund was further affected by its large-cap orientation during a period when small-cap and mid-cap stocks led the equity market rally. At the same time, stock selection remained key to strong positive absolute returns and was enough to allow the equity portion of the Fund to outperform large-cap, value oriented benchmarks by almost 200 basis points, or 2%. The biggest contributors to Fund performance during the 12 months were InterActive Corp and National Semiconductor in the information technology sector, McDonalds in the consumer sector, MBNA and Capital One in the financial sector and Caremark in health care. Of course, there were disappointments. TXU Corp in utilities, HCA Inc. and Schering-Plough Corp in health care and Fannie Mae and Freddie Mac in financials detracted from Fund performance during the annual period. Within the fixed income portfolio, our emphasis on corporate bonds was detrimental to performance in the first half of the year when the bond market struggled in October, but proved exceptionally beneficial when the corporate sector began a prolonged rally in November. During the second half of the fiscal year, the portfolio's fixed-income component benefited from small allocations to high-yield bonds and emerging markets debt. The high-yield bond market, in particular, performed well during this period. Q: Were there significant changes to the Fund during this period? A: The Fund maintained its allocation of approximately 65% equities and 35% bonds throughout the fiscal year. This tilt toward equities was beneficial given that stocks outperformed bonds during the period. On the equity side, we maintained virtually the same sector weightings throughout, but to varying degrees. At the start of the period, the Fund had larger-than-index positions in pharmaceuticals and energy. As the fiscal year progressed, we increased the Fund's position in consumer staples. At the end of the fiscal year, we held larger-than-index positions in the health care and industrial sectors. The Fund held smaller-than-index positions in the utilities, financial and consumer discretionary sectors at the end of the fiscal year. In February, the Fund's fixed-income security selection was restructured to capitalize on the skills of bond sector teams. Early in the fiscal period, the portfolio experienced above-average turnover as the portfolio was realigned in accordance with the models. Since then turnover has returned to historical norms. In the bond component of the portfolio, we became a bit more defensive as the bond market advanced. Because so much good news was priced into bonds, we were concerned that anything less than a perfect environment might cause a sell-off. During the latter part of the fiscal period, we modestly reduced the corporate bond allocation given that sector's previous gains. (bar chart) PERFORMANCE COMPARISON For the year ended Aug. 31, 2003 15% (bar 2) +12.07% (bar 4) 12% (bar 1) +10.61 +9.40% 9% 6% (bar 3) +4.36% 3% 0% (bar 1) AXP VP - Managed Fund (bar 2) S&P 500 Index (unmanaged) (bar 3) Lehman Brothers Aggregate Bond Index (bar 4) Lipper Flexible Portfolio Funds Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. - -------------------------------------------------------------------------------- 30 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT AXP VP - Managed Fund Q: How are you positioning the Fund for the coming months? A: We believe that the economic recovery will likely develop into a sustainable one, with growth at a respectable but not vigorous pace. We also believe that the U.S. equity market will rise over the coming months, but that it may only appreciate modestly given current elevated valuations. Given this view, we intend to maintain our "value with reasonable growth prospects" style and our conservative posture, seeking buying opportunities on a stock-by-stock basis. In evaluating individual stocks, we use four criteria. First, the stock should have a fundamentally appealing story, a driver for growth. Second, we want to know the stock on an in-depth basis, using intensive and extensive research by our team of analysts to gain what we like to call an information advantage. Third, the stock must be attractive from a classic value perspective. And fourth, we seek to identify an investment catalyst -- why are we buying this stock? Looking ahead, we continue to see stocks that meet these criteria in the consumer staples and health care sectors, particularly in the pharmaceuticals industry. We also intend to continue to look to exploit market inconsistencies. For example, if the global economy is going to recover as quickly as the market seems to be discounting, energy stocks should do very well. To date, they have been left behind. Thus, we may look to add to the Fund's position in energy stocks. If the recovery doesn't progress as the market anticipates, we expect to have opportunities to adjust the fixed income portfolio, which might then include larger allocations to corporate bonds and more cyclical positions within the corporate sector. The 10 Largest Holdings AXP VP - Managed Fund Percent Value (of net assets) (as of Aug. 31, 2003) Citigroup 2.9% $70,547,790 Bank of America 1.5 37,437,699 Exxon Mobil 1.5 36,176,919 ChevronTexaco 1.5 36,143,520 ConocoPhillips 1.3 32,275,520 Altria Group 1.1 25,445,106 U.S. Bancorp 1.0 24,985,060 J.P. Morgan Chase 1.0 24,706,840 Wells Fargo 1.0 24,157,452 American Intl Group 1.0 23,208,472 Excludes U.S. Treasury and government agency holdings. For further detail about these holdings, please refer to the section entitled "Investments in Securities." (pie chart) The 10 holdings listed here make up 13.8% of net assets - -------------------------------------------------------------------------------- 31 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT The Fund's Long-term Performance
AXP VP - Managed Fund (line chart) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP VP - MANAGED FUND AXP VP - Managed Fund $10,000 $10,151 $11,362 $12,612 $16,091 $16,371 $20,134 $23,842 $19,224 $17,127 $18,737 S&P 500 Index $10,000 $10,547 $12,809 $15,209 $21,391 $23,128 $32,330 $37,607 $28,434 $23,319 $26,134 Lehman Brothers Aggregate Bond Index $10,000 $ 9,849 $10,962 $11,412 $12,554 $13,881 $13,992 $15,049 $16,908 $18,279 $19,076 Lipper Flexible Portfolio Funds Index $10,000 $10,215 $11,585 $12,792 $15,957 $16,673 $19,994 $22,402 $20,657 $18,858 $20,753 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Average Annual Total Returns as of Aug. 31, 2003 1 year +9.40% 5 years +2.74% 10 years +6.48% This chart illustrates the total value of an assumed $10,000 investment in AXP VP - Managed Fund as compared to three widely cited performance indexes, the S&P 500 Index, the Lehman Brothers Aggregate Bond Index and the Lipper Balanced Funds Index. Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than the original cost. Short-term performance may be higher or lower than the figures shown. The above chart does not reflect expenses that apply to the subaccounts or the policies. The S&P 500 Index, an unmanaged index 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. The S&P 500 Index companies may be generally larger than those in which the Fund invests. The 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 Lipper Balanced Funds 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. - -------------------------------------------------------------------------------- 32 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT Portfolio Management Q & A AXP VP - New Dimensions Fund Q: How did AXP VP - New Dimensions Fund perform for the fiscal year ended Aug. 31, 2003? A: AXP VP - New Dimensions Fund gained 10.11% for the 12 months ended Aug. 31, 2003. In comparison, the Standard & Poor's 500 Index (S&P 500 Index) increased 12.07%, and the Lipper Large-Cap Growth Funds Index, representing the Fund's peer group, rose 11.03% over the same period. Q: What factors significantly affected the Fund's performance? A: The Fund's relative performance was impacted most by its conservative positioning. The portfolio's defensive stance, including an emphasis on consumer cyclical companies and other sectors most likely to weather the storm, helped performance during most of the annual period. However, when the equity market rose sharply in the autumn and again in the second calendar quarter, the Fund's relatively conservative stocks did not rally as much as more aggressive, less well-capitalized companies. The Fund was also underweighted in the strongly performing information technology sector relative to the S&P 500 Index. Equity market gains appeared to be based more on investor momentum than on economic or company fundamentals. While our stance was based on our outlook for a modest economic recovery, this momentum-driven environment rewarded funds that took a more aggressive posture. Thus, the Fund underperformed its benchmark index and its peers. Still, effective stock selection helped the Fund achieve positive double-digit absolute returns. For example, WalMart, Citigroup and Bank of America were strong performers for the year overall. Johnson & Johnson and 3M held up well during the first half; Amgen and Target were among the Fund's best performers during the second half. Among the Fund's specific stock disappointments were Microsoft and Viacom. Microsoft was a top performer during the first half of the fiscal year, but experienced a slowdown in growth during the second half along with much of the personal computer industry. Entertainment company Viacom lost ground primarily due to a slowdown in advertising spending. However, we continued to hold both of these companies in the Fund's portfolio, as each is clearly a leader in its respective industry, and we are optimistic about their prospects going forward. Lockheed Martin in the defense industry was another disappointment, as the high level of government spending anticipated by many was not fully realized. We eliminated the Fund's holding in this stock. Q: What changes did you make to the portfolio and how is it currently positioned? A: The Fund has historically had a low turnover rate compared to many of its large cap growth peers, and we upheld this approach in fiscal year 2003. Indeed, for most of the fiscal year, the bulk of the Fund's assets remained relatively constant. However, we slightly increased our positions in the energy sector in anticipation of improving stock prices. Within the health care sector, we shifted away from hospitals and distribution companies toward a focus on biotechnology and medical device companies. For example, we eliminated the Fund's position in HCA, the nation's largest hospital chain, and bought Amgen, a leading biotechnology company in the fight against cancer. We also added Genzyme and Stryker to the portfolio. Genzyme is a biotechnology company focused on rare genetic disorders, renal disease and osteoarthritis. Stryker is a surgical and medical device manufacturer. In June, we repositioned the Fund a bit, shifting the portfolio's stance to take advantage of the less risk-averse market environment. We moderately increased the Fund's weighting in the technology sector, with a focus on software-related companies. We also reduced the Fund's weighting in the more defensive consumer staples sector, by cutting back on such positions as Budweiser and Procter & Gamble. We then redeployed those assets into industrial-related and business services companies that we believe may benefit from the eventual upturn in the economy. One such addition to the portfolio was Caterpillar, the manufacturer of construction, agricultural, mining and forestry machinery. (bar chart) PERFORMANCE COMPARISON For the year ended Aug. 31, 2003 15% (bar 2) 12% (bar 1) +12.07% (bar 3) +10.11% +11.03% 9% 6% 3% 0% (bar 1) AXP VP - New Dimensions Fund (bar 2) S&P 500 Index (unmanaged) (bar 3) Lipper Large-Cap Growth Funds Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. - -------------------------------------------------------------------------------- 33 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT AXP VP - New Dimensions Fund Q: How are you positioning the Fund for the coming months? A: We are optimistic about the equity market going forward. A great deal of fiscal and monetary stimulus is currently in the pipeline, including low interest rates, tax cuts and dividend and capital gains tax reform. Such stimulus should help boost economic growth in the months ahead. What is missing so far is job growth, which is key to improving consumer confidence and consumer spending. Also, capital spending remains flat, as businesses remain reluctant to hire or invest aggressively. Our focus will remain on seeking long-term growth of capital. We will continue to broadly diversify the Fund's holdings, looking for large cap opportunities that display good fundamentals and a better-than-average potential for growth. We will also continue to look for dividend-paying stocks of companies that can maintain earnings growth through varying market cycles. The 10 Largest Holdings AXP VP - New Dimensions Fund Percent Value (of net assets) (as of Aug. 31, 2003) Wal-Mart Stores 4.1% $128,676,999 Bank of America 3.8 118,875,000 Microsoft 3.7 114,447,060 Viacom Cl B 3.4 107,096,265 Amgen 3.3 101,677,109 Citigroup 3.2 98,661,696 UnitedHealth Group 2.6 81,055,314 General Electric 2.6 80,885,778 Target 2.5 79,178,120 Caterpillar 2.5 78,797,510 For further detail about these holdings, please refer to the section entitled "Investments in Securities." (pie chart) The 10 holdings listed here make up 31.7% of net assets - -------------------------------------------------------------------------------- 34 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT The Fund's Long-term Performance
AXP VP - New Dimensions Fund (line chart) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP VP - NEW DIMENSIONS FUND AXP VP - New Dimensions Fund $10,000 $ 9,914 $13,021 $13,436 $19,162 $25,679 $17,192 $14,584 $16,058 S&P 500 Index $10,000 $10,050 $14,135 $15,283 $21,364 $24,851 $18,790 $15,409 $17,269 Lipper Large-Cap Growth Funds Index $10,000 $ 9,946 $13,519 $14,376 $21,127 $28,010 $15,627 $12,246 $13,597 5/1/96 8/96 8/97 8/98 8/99 8/00 8/01 8/02 8/03
Average Annual Total Returns as of Aug. 31, 2003 1 year +10.11% 5 years +3.63% Since inception (5/1/96) +6.76% This chart illustrates the total value of an assumed $10,000 investment in AXP VP - New Dimensions Fund as compared to two widely cited performance indexes, the S&P 500 Index and the Lipper Large-Cap Growth Funds Index. Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than the original cost. Short-term performance may be higher or lower than the figures shown. The above chart does not reflect expenses that apply to the subaccounts or the policies. The S&P 500 Index, an unmanaged index 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. The S&P 500 Index companies may be generally larger than those in which the Fund invests. The Lipper Large-Cap Growth Funds 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. - -------------------------------------------------------------------------------- 35 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT Portfolio Management Q & A AXP VP - Partners Small Cap Value Fund Performance Summary AXP VP - Partners Small Cap Value Fund is managed by three independent money management firms that invest a portion of Fund assets in small company value stocks. The goal is to provide long-term capital appreciation. For the fiscal year ended Aug. 31, 2003, AXP VP - Partners Small Cap Value Fund rose 20.24%. This was less than the 24.14% return of the Fund's peer group over the same period, as represented by the Lipper Small-Cap Value Funds Index. The Fund also underperformed both the Russell 2000(R) Index and Russell 2000(R) Value Index, which respectively rose 29.08% and 23.68% for the 12 months ended Aug. 31, 2003. Royce & Associates, Third Avenue and Goldman Sachs managed 46%, 30% and 24% of the Fund's portfolio, respectively, as of Aug. 31, 2003. Goldman Sachs replaced National City Investment Management on Aug. 11, 2003. During most of the 2003 fiscal year, National City's portion of the portfolio generally underperformed the Fund's benchmark and peer group. Q: How did the Fund perform in comparison to its benchmark/peers? A: Royce & Associates: Our portion of the Fund reflected the robust rally that began last fall and began to gather steam in mid-March 2003. While we are pleased to report a positive return for the fiscal year period, we were disappointed that our portion of the Fund underperformed both of its benchmarks and peer group for most of the 12 months ended Aug. 31, 2003. Our underperformance was partially the result of a relative underweighting in financial services and consumer discretionary areas within our portion of the Fund. Third Avenue: Our portion of the Fund's portfolio performed in line with the Russell 2000(R) Value Index and our peer group for most of the fiscal year. We finished the year slightly behind the Fund's peer group in part because of disappointments in financial services companies such as Phoenix and Instinet. Goldman Sachs: For the brief period from Aug. 11, 2003, when we began managing a portion of the Fund's assets, until Aug. 31, 2003, our portion of the Fund provided a positive return that was slightly less than the Fund's benchmark and peer group. Q: What factors significantly affected the Fund's performance? A: Royce & Associates: Positive performance within our holdings came from several sectors, most notably from the Fund's largest sector, technology, followed by solid returns from stocks in the natural resources, consumer products and health sectors. The upshot is that the Fund's top four sectors -- technology, natural resources, health care and consumer products -- all posted net gains. The negatives could be found on a stock-by-stock basis. We slightly reduced our position in surety underwriter, CAN Surety, when its business began to struggle after the bankruptcy of a major client. We still think that its long-term prospects are solid. We also sold shares in underperforming insurance firm, PMA Capital, due to what we thought were poor business decisions by the company. Third Avenue: For our portion of the portfolio, performance for the year was driven by appreciation in cable/telecom equipment common stocks, including Comverse, Commscope and Scientific Atlanta, which was added during the year and more than doubled in value, based on our cost. Additionally, real estate operating company common stocks performed well, led by Forest City, Catellus and LNR. Trinity Industries, a manufacturer of rail cars and other industrial products, also was a significant positive contributor. Goldman Sachs: Returns in the small cap arena in August 2003 were driven largely by lower-quality companies with depressed earnings and negative returns in recent years. Investors were clearly looking beyond an economic recovery and giving many of these riskier firms the benefit of the doubt. Our emphasis on quality will typically cause our portion of the portfolio to underperform during such periods of high speculation in the market. Our relative underperformance during the short reporting period has been broad-based across many sectors, an indication that it was a result of our quality bias being out of favor in the market, rather than a specific stock selection issue. In other words, no one or two individual stocks were responsible for the Fund's underperformance. While most of the stocks in the Fund's portfolio participated in the market's advance, they did not appreciate as fully as those held in the benchmark. (bar chart) PERFORMANCE COMPARISON For the year ended Aug. 31, 2003 30% (bar 4) +29.08% 25% (bar 2) (bar 3) (bar 1) +23.68% +24.14% 20% +20.24% 15% 10% 5% 0% (bar 1) AXP VP - Partners Small Cap Value Fund (bar 2) Russell 2000(R) Value Index (unmanaged) (bar 3) Lipper Small-Cap Value Funds Index (bar 4) Russell 2000(R) Index (unmanaged) (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. - -------------------------------------------------------------------------------- 36 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT AXP VP - Partners Small Cap Value Fund Q: What changes did you make to the portfolio, and why? A: Royce & Associates: We bought more health care stocks, including two nursing staffing services firms that we think offer solid value, AMN Healthcare Services and Cross Country Healthcare. We also like the long-term prospects for Medicaid HMO, Molina Healthcare and for physical therapy provider U.S. Physical Therapy. In addition, we built our position in The Yankee Candle Company, automotive toy manufacturer RC2, and initiated a position in video game retailer Electronic Boutique Holdings. We believe that the latter two companies could benefit from an upswing in the gaming and toy market, which has been struggling for the last year or so. Third Avenue: During the year, we established 18 new positions and eliminated three holdings. Major new positions included Agrium, AMN Healthcare, AVX, Dress Barn, E-L Financial, Parexel, SFK Pulp Fund and Willbros Group. The Fund eliminated its positions in Energizer, Brookfield and First American Financial, following significant appreciation. We also trimmed positions in some sectors (technology and cable/telecom equipment) where rising stock prices resulted in less attractive valuations. Goldman Sachs: During the period, we began to restructure our portion of the portfolio to reflect a value investment approach that balances price and prospects. Our focus on quality stocks with attractive valuations has served us well in most market environments. While the period was dominated by the strong rebound in highly controversial, lower quality names, we remain committed to finding and investing in those companies with good business models, high or improving return on investable capital and quality managements. Core holdings such as Wabash National Corp., Ann Taylor Stores Corp. and Hutchinson Technologies reflect these key attributes. Q: How are you positioning the Fund for the coming months? A: Royce & Associates: We remain cautious. While the market rally has been a welcome development, quality stocks have not been the biggest beneficiaries, so we are dubious about the rally's sustainability. However, we continue to believe that the Fund's portfolio holds what we think are many highly undervalued small companies, and our long-term outlook remains positive, especially in light of small caps' ongoing market strength. We are looking for what we believe is good value on a stock-by-stock basis. In our estimation, such value remains in natural resources and health care companies, as well as in some consumer stocks. We do not know when the market will recognize the underlying value of these companies, but we feel very confident about the Fund's overall long-term performance potential. Third Avenue: At Third Avenue Management, we focus almost entirely on company fundamentals; the general market does not factor into our analysis. We use a disciplined, bottom-up investment approach to identify securities of companies that we believe exhibit financial strength, reasonable management teams, readily available financial information and disclosure and a stock price significantly below the company's private market values. We are excited about the companies in our portion of the Fund based on their financial strength and long-term growth prospects. Although the low interest rate/easy credit environment over the last several months has resulted in better stock performance for leveraged/speculative companies than the conservatively financed ones in our portfolio, we believe that the strong financial positions of our companies may generate attractive long-term returns. Recent reductions in the dividend tax should benefit many of our cash rich holdings by enabling them to increase payouts or make special distributions, especially in cases where insider ownership is high. Additionally, we would expect many of our companies to continue to use their financial strength to buy valuable assets. Goldman Sachs: While it seems that the recent strength in stock prices has reflected investors' increased optimism rather than improving fundamentals, it is difficult to predict what the remainder of the year will bring. We believe that visibility will continue to be low as the penalty for earnings disappointments is likely to increase. Furthermore, the recent rise in stock prices has some investors skeptical that the gains are a temporary trap. Against this backdrop, we continue to be invested in what we consider to be potential high conviction ideas -- companies with quality managements, high returns on invested capital and sound business models. We believe companies with these attributes will enable the portfolio to perform well over the long run. - -------------------------------------------------------------------------------- 37 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT The 10 Largest Holdings AXP VP - Partners Small Cap Value Fund Percent Value (of net assets) (as of Aug. 31, 2003) Maxwell Shoes Cl A 1.1% $1,456,008 Trinity Inds 1.0 1,402,855 Forest City Enterprises Cl A 1.0 1,341,900 SFK Pulp Fund 1.0 1,304,834 CommScope 0.9 1,237,711 KEMET 0.9 1,213,739 AMN Healthcare Services 0.8 1,110,450 Agrium 0.8 1,080,401 LNR Property 0.8 1,060,000 iShares Russell 2000 Value Index Fund 0.8 1,032,897 For further detail about these holdings, please refer to the section entitled "Investments in Securities." (pie chart) The 10 holdings listed here make up 9.1% of net assets The Fund's Long-term Performance
AXP VP - Partners Small Cap Value Fund (line chart) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP VP - PARTNERS SMALL CAP VALUE FUND AXP VP - Partners Small Cap Value Fund $10,000 $10,001 $10,713 $11,579 $9,510 $10,035 $9,087 $10,531 $11,768 Russell 2000(R) Value Index $10,000 $ 9,784 $10,585 $11,389 $9,440 $ 9,608 $8,638 $10,535 $11,675 Lipper Small-Cap Value Funds Index $10,000 $ 9,762 $10,461 $11,204 $9,492 $ 9,551 $8,676 $10,391 $11,782 Russell 2000(R) Index $10,000 $ 9,869 $10,085 $10,507 $8,456 $ 8,823 $7,856 $ 9,646 $10,914 9/1/01 11/01 2/02 5/02 8/02 11/02 2/03 5/03 8/03
Average Annual Total Returns as of Aug. 31, 2003 1 year +20.24% Since inception (8/14/01) +6.77% This chart illustrates the total value of an assumed $10,000 investment in AXP VP - Partners Small Cap Value Fund as compared to three widely cited performance indexes, the Russell 2000(R) Value Index, the Lipper Small-Cap Value Funds Index and the Russell 2000(R) Index. Recently, the Fund's investment manager recommended to the Fund that the Fund change its comparative index from the Russell 2000(R) Index to the Russell 2000(R) Value Index. The investment manager made this recommendation because the new index more closely represents the Fund's holdings. We will include both indexes in this transition year. In the future, however, only the Russell 2000(R) Value Index will be included. Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than the original cost. Short-term performance may be higher or lower than the figures shown. The above chart does not reflect expenses that apply to the subaccounts or the policies. The Russell 2000(R) Value Index, an unmanaged index, measures the performance of those Russell 2000(R) companies with lower price-to-book ratios and lower forecasted growth values. The Lipper Small-Cap Value Funds 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 Russell 2000(R) Index, an unmanaged index, measures the performance of the 2,000 smallest companies in the Russell 3000(R) Index, which represents approximately 8% of the total market capitalization of the Russell 2000(R) Index. - -------------------------------------------------------------------------------- 38 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT Portfolio Management Q & A AXP VP - S&P 500 Index Fund Q: How did AXP VP - S&P 500 Index Fund perform for the fiscal year ended Aug. 31, 2003? A: AXP VP - S&P 500 Index Fund gained 11.51% net of Fund expenses for the 12 months ended Aug. 31, 2003. This was slightly less than the unmanaged Standard & Poor's 500 Index, which increased 12.07% for the period. The Lipper S&P 500 Funds Index, representing the Fund's peer group, rose 11.70% over the same time frame. Q: What factors most significantly affected the Fund's performance? A: In a welcome turnabout from the past three years, the S&P 500 Index, which the Fund seeks to replicate, registered double-digit gains for the 12 months ended Aug. 31, 2003, aided by improved corporate earnings, stronger economic growth and renewed investor optimism. Still, volatility remained high. The S&P 500 Index declined by more than 10% for the month of September 2002, as investors showed concern about growing world tensions and sluggish economic growth. After bottoming in early October, U.S. equities rebounded sharply through November. The technology and telecommunications sectors led the equity market advance. During December, concerns over a possible conflict with Iraq and rising tensions with North Korea adversely impacted investor and consumer confidence, detracting from equity market performance. The technology sector gave back some of its prior two months gains. The equity markets then experienced a sustained decline through February 2003. Added to the geopolitical concerns was the impact of rising oil prices, falling consumer spending, slowing economic activity, and declining consumer and investor sentiment. By the beginning of March, the market rallied amid prospects of military victory in Iraq. Economic and political conditions continued to improve over the next several months, as did corporate earnings reports overall, leading investors to favor equities. August was the sixth consecutive month of stock market gains. For the 12 months ended Aug. 31, 2003, sector performance within the S&P 500 Index was positive with the single exception of consumer staples, which produced a negative return. Information technology and consumer cyclicals were the best performing sectors in the Index. The financials sector continued to be the largest weight within the Index through the period. Taking both total returns and weightings into account, the individual stocks contributing most to S&P 500 Index performance were Intel, Bank of America, Citigroup, Cisco Systems and Amgen. The companies whose stocks had the greatest negative impact on the Index, taking both weightings and total returns into account, were The Coca Cola Company, Tenet Healthcare, Pfizer, American International Group and Home Depot. Q: What changes did you make to the portfolios? A: The only changes made to the Fund were those required to maintain consistency in tracking its benchmark. From time to time, Standard & Poor's adjusts the makeup of its indices following corporate actions, such as mergers, acquisitions, spin-offs and similar events. In addition, Standard & Poor's may adjust the makeup of its indices to reflect its changing assessment of which businesses and industries are having a major impact on the U.S. economy. As the S&P 500 Index changed, we adjusted the Fund's holdings accordingly. During the Fund's annual period, there were just 10 additions to and nine deletions from the S&P 500 Index. To name just a few changes, Quest Diagnostics was added in mid-December 2002, replacing TRW. Household International was bought out by foreign-owned HSBC, and thus became ineligible for a place in the Index. Deleted at the end of March 2003, Household International was replaced by Symantec Corp. In July, after Mirant filed for bankruptcy, ProLogis, a global industrial real estate investment trust, replaced it. In August, McDermott International was deleted for lack of representation, and Medco Health Services was added. Turnover for the Index was lower than for last year. (bar chart) PERFORMANCE COMPARISON For the year ended Aug. 31, 2003 15% (bar 2) 12% (bar 1) +12.07% (bar 3) +11.51% +11.70% 9% 6% 3% 0% (bar 1) AXP VP - S&P 500 Index Fund (bar 2) S&P 500 Index (unmanaged) (bar 3) Lipper S&P 500 Funds Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. "Standard & Poor's"(R) and "S&P 500"(R) are trademarks of McGraw-Hill Companies, Inc. These trademarks and service marks have been licensed for use by American Express Financial Advisors Inc. The Fund is not sponsored, endorsed, sold or promoted by Standard & Poor's or any of their subsidiaries or affiliates (the "Licensor") and the Licensors make no representations regarding the advisability of investing in the Fund. - -------------------------------------------------------------------------------- 39 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT AXP VP - S&P 500 Index Fund Q: How are you positioning the Fund for the coming months? A: Overall, we remain positive on the U.S. equity markets for the remainder of 2003. We expect the rate of economic growth to pick up during the third and fourth calendar quarters. This should produce continuing improvements in company bottom lines, stock prices, and, eventually, employment numbers. Of course, there also remain risks. One is that valuations are still high, although it is a good sign that price-earnings ratios for the S&P 500 Index have not increased substantially even with the run-up in stock prices. Another is that so much of corporate earnings improvement has come from cost cutting. Investors, in our view, should not be surprised if the market gives back a portion of its gain in the historically challenging period of early autumn. As index investors, we do not evaluate or respond to changing economic and market conditions. The Fund will always attempt to stay fully invested in stocks that make up the S&P 500 Index. In this way, the Fund can best achieve its primary objective, which is to provide performance that is comparable to the direction of the broad stock market. Our focus will remain on seeking long-term capital appreciation. The 10 Largest Holdings AXP VP - S&P 500 Index Fund Percent Value (of net assets) (as of Aug. 31, 2003) General Electric 3.1% $5,349,538 Microsoft 3.0 5,153,738 Wal-Mart Stores 2.7 4,689,993 Exxon Mobil 2.7 4,558,231 Pfizer 2.5 4,275,808 Citigroup 2.4 4,039,830 Intel 2.0 3,385,087 American Intl Group 1.6 2,812,599 Johnson & Johnson 1.6 2,664,677 Intl Business Machines 1.5 2,565,109 For further detail about these holdings, please refer to the section entitled "Investments in Securities." (pie chart) The 10 holdings listed here make up 23.1% of net assets - -------------------------------------------------------------------------------- 40 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT The Fund's Long-term Performance
AXP VP - S&P 500 Index Fund (line chart) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP VP - S&P 500 INDEX FUND AXP VP - S&P 500 Index Fund $10,000 $10,349 $7,766 $6,346 $7,076 S&P 500 Index $10,000 $10,493 $7,934 $6,506 $7,292 Lipper S&P 500 Funds Index $10,000 $10,485 $7,907 $6,466 $7,223 5/1/00 8/00 8/01 8/02 8/03
Average Annual Total Returns as of Aug. 31, 2003 1 year +11.51% Since inception (5/1/00) -9.86% This chart illustrates the total value of an assumed $10,000 investment in AXP VP - S&P 500 Index Fund as compared to two widely cited performance indexes, the S&P 500 Index and the Lipper S&P 500 Funds Index. Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than the original cost. Short-term performance may be higher or lower than the figures shown. The above chart does not reflect expenses that apply to the subaccounts or the policies. The S&P 500 Index, an unmanaged index 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. The Lipper S&P 500 Funds 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. - -------------------------------------------------------------------------------- 41 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT Portfolio Management Q & A AXP VP - Short Duration U.S. Government Fund In June 2003, the Fund changed its name from the AXP VP - Federal Income Fund to the AXP VP - Short Duration U.S. Government Fund. This change did not affect the Fund's investment strategy. Q: How did AXP VP - Short Duration U.S. Government Fund perform for the fiscal year ended Aug. 31, 2003? A: AXP VP - Short Duration U.S. Government Fund gained 2.06% for the 12 months ended Aug. 31, 2003. The Fund outperformed the Lipper Short U.S. Government Funds Index, representing the Fund's peer group, which rose 1.84% over the annual period. During the fiscal year, the Fund changed its benchmark to the Lehman Brothers 1-3 Year Government Index, which rose 2.59% for 12 months ended Aug. 31, 2003, from the Lehman Brothers Aggregate Bond Index, which increased 4.36%. In our view, the Lehman Brothers 1-3 Year Government Index is more representative of the Fund's portfolio. Q: What factors significantly affected the Fund's performance? A: From the start of the fiscal year through mid-October, the Federal Reserve Board believed that the economy was likely to be weak. This, together with problems regarding corporate governance, a declining stock market and the threat of war with Iraq, prompted investors to seek less risky investments. U.S. Treasuries, led by the shorter end of the curve, rallied. Beginning mid-October 2002, investors became less risk-averse as stock prices rose, corporations seemed to be on more solid footing and economic data indicated a slow but steadier course for economic recovery. Yields on U.S. Treasuries remained relatively range-bound through early May. As investors then sought yield elsewhere, mortgage-backed securities benefited. On May 6, 2003, the Federal Reserve Board kept the targeted federal funds rate unchanged at 1.25%, but made it clear that it would maintain its accommodative monetary policy. It believed the risk of deflation exceeded that of a pickup in inflation over the next few calendar quarters. The fixed income market immediately rallied, fueled by the belief that interest rates would remain low until the economy showed sustained signs of a recovery. Then, on June 25, 2003, the Federal Reserve Board moderated their stance on deflation and disappointed the market by cutting the targeted federal funds rate by only 0.25% to 1.00%, in an effort to "add further support for an economy which it expects to improve over time." The Federal Reserve Board's conservative move led to a market sell-off, and U.S. Treasury yields rose dramatically by July. July was also the worst month for mortgage securities in history based on duration-adjusted excess returns over U.S. Treasuries. Compounding matters was news of a stabilizing U.S. economy. After peaking in mid-August, U.S. Treasury yields declined somewhat by the end of the fiscal year. Mortgage securities also gained back a portion of their underperformance. The Fund underperformed its benchmark due to its allocation to mortgages, which are not a component of the Lehman Brothers 1-3 Year Government Index. However, the Fund outperformed its peers primarily because of its allocation strategy among the fixed-income sectors and its security selection within the mortgage-backed sector. We were able to capture for the Fund the extra income boost that mortgage-backed securities provided over comparable Treasuries, especially during the period from October through May. Within the mortgage sector, we were able to add relative value by focusing on pools that historically have had lower-than-average prepayment risks. These included low-balance mortgages, mortgages in states with less refinancing activity, newer mortgages that would likely not be seeking to refinance too quickly, mortgages with lower credit quality borrowers who would find it difficult to refinance, and servicing organizations that have historically been less aggressive in getting customers to refinance. For much of the annual period, we maintained a portfolio asset allocation to mortgage-backed securities near the 50% target. To help manage risk, we also participated in the U.S. Treasury futures market. This strategy was particularly successful during the last few months of the fiscal year. (bar chart) PERFORMANCE COMPARISON For the year ended Aug. 31, 2003 5% (bar 3) +4.6% 4% 3% (bar 2) (bar 1) +2.59% 2% +2.06% (bar 4) +1.84% 1% 0% (bar 1) AXP VP - Short Duration U.S. Government Fund (bar 2) Lehman Brothers 1-3 Year Government Index (unmanaged) (bar 3) Lehman Brothers Aggregate Bond Index (unmanaged) (bar 4) Lipper Short U.S. Government Funds Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. - -------------------------------------------------------------------------------- 42 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT AXP VP - Short Duration U.S. Government Fund Q: What changes did you make to the portfolio and how is it currently positioned? A: We reduced the Fund's allocation to U.S. government agencies and increased its allocation to U.S. Treasuries. After May 6, we modestly reduced the Fund's position in mortgage-backed securities and increased its position in U.S. Treasuries even further. In July, we shifted to a neutral weighting in mortgages before moving back to a modest overweight in this sector by the end of August. Q: How are you positioning the Fund for the coming months? A: We expect interest rates to remain low for some time to come. The Fund may shift slightly from a barbell strategy, whereby we own positions at the short and longer ends of the curve, to a bulleted strategy, in which intermediate securities are favored. At the same time, we intend to keep the Fund's duration at or shorter than the benchmark and to seek opportunities to reduce duration further over the coming months as prospects for the economic recovery become clearer. We believe that mortgages continue to offer good relative value, and having come through the sell-off in July and August, currently offer investors attractive buying opportunities. Quality issues and security selection will remain a priority. The Fund's Long-term Performance
AXP VP - Short Duration U.S. Government Fund (line chart) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP VP - SHORT DURATION U.S. GOVERNMENT FUND AXP VP - Short Duration U.S. Government Fund $10,000 $10,464 $11,436 $12,055 $12,303 Lehman Brothers 1-3 Year Government Index $10,000 $10,502 $11,521 $12,299 $12,618 Lehman Brothers Aggregate Bond Index $10,000 $10,632 $11,945 $12,914 $13,477 Lipper Short U.S. Government Funds Index $10,000 $10,495 $11,422 $12,076 $12,298 10/1/99 8/00 8/01 8/02 8/03
Average Annual Total Returns as of Aug. 31, 2003 1 year +2.06% Since inception (9/15/99) +5.39% This chart illustrates the total value of an assumed $10,000 investment in AXP VP - Short Duration U.S. Government Fund as compared to three widely cited performance indexes, the Lehman Brothers 1-3 Year Government Index, the Lehman Brothers Aggregate Bond Index and the Lipper Short U.S. Government Funds Index. Recently, the Fund's investment manager recommended to the Fund that the Fund change its comparative index from the Lehman Brothers Aggregate Bond Index to the Lehman Brothers 1-3 Year Government Index. The investment manager made this recommendation because the new index more closely represents the Fund's objectives. We will include both indices in this transition year. In the future, however, only the Lehman Brothers 1-3 Year Government Index will be included. Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than the original cost. Short-term performance may be higher or lower than the figures shown. The above chart does not reflect expenses that apply to the subaccounts or the policies. Lehman Brothers 1-3 Year Government Index, an unmanaged index, is made up of all publicly issued, non-convertible domestic debt of the U.S. government, or agency thereof, or any quasi-federal corporation. The index also includes corporate debt guaranteed by the U.S. government. Only notes and bonds with a minimum maturity of one year up to a maximum maturity of 2.9 years are included. 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 Lipper Short U.S. Government Funds 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. - -------------------------------------------------------------------------------- 43 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT Portfolio Management Q & A AXP VP - Small Cap Advantage Fund Q: How did AXP VP - Small Cap Advantage Fund perform for the fiscal year ended Aug. 31, 2003? A: AXP VP - Small Cap Advantage Fund rose 27.96% for the 12-month period ended Aug. 31, 2003, slightly trailing the Fund's benchmark, the Russell 2000(R) Index, which advanced 29.08% for the period. The Fund outperformed the Lipper Small-Cap Core Funds Index, representing the Fund's peer group, which returned 23.28% for the same time frame. Q: What factors significantly affected the Fund's performance? A: Small cap stocks performed particularly well over the past 12 months, outpacing large cap and mid-cap stocks. Both small cap growth and small cap value stocks posted strong returns, and all sectors of the small cap market participated in the recovery. It was not a smooth ride, however. Stocks declined sharply in September and early October 2002, and then rallied sharply through November. This brief and somewhat speculative rally was led by small caps and was concentrated in the higher risk sectors of the market that had suffered the greatest losses over the past three years, such as telecom, biotech and technology. The broad equity market subsequently retraced almost all of its gains, leading to the second market bottom in early March. The market low came just prior to the outbreak of hostilities in Iraq, as evidence of accelerating U.S. economic growth was beginning to emerge. In the second half of the Fund's fiscal year, we saw a recovery in stock prices that touched all sectors. Small caps lagged in the first calendar quarter of 2003 during the broad equity market's decline, then began to outperform following the March lows. To us, this shift in stock performance came as no surprise. Historically, as the market embraces the notion of a domestic economic recovery, small cap stocks have performed especially well. As a group, higher risk and low priced stocks performed very well during this 12-month period, as investors focused more on the potential of an economic recovery than on company-specific fundamentals such as current earnings. Our investment style leads us to build a well-diversified portfolio of small cap stocks with good earnings and cash flow and avoid companies with excessive business risk or unfavorable valuations. Therefore, the Fund's return fell modestly short of its benchmark, the Russell 2000(R) Index, because we had less exposure to the most speculative stocks in the Index. However, our disciplined approach helped the Fund outpace its peer group by a strong margin this past fiscal year. Within small cap, growth stocks -- led by technology and telecom stocks -- were the strongest performers during this period as the technology-spending drought that lasted nearly four years appeared to be coming to an end. Among these industries, the Fund's holdings in wireless telecommunications were strong performers. The Fund's holdings in consumer finance and manufacturing also contributed positively to the Fund's performance. The Fund's best relative performance occurred in the capital goods sector. Q: How would you describe your investment approach? A: We seek a balance between valuation and momentum while employing both quantitative and qualitative analysis. The quantitative, or "by the numbers" approach uses computer models to identify the most attractive stocks in each economic sector of the small cap market, using valuation, earnings and price-related variables. Simply put, it seeks quality companies -- differentiated by superior cash flow generation and attractive relative valuations -- on both the growth and value sides of the small cap universe. For value stocks, we consider more than the company's relative cheapness. We want to see evidence that there is a catalyst in place for the stock price to move higher, so we pay close attention to indicators that, on average, signal an earnings turnaround. Likewise, for growth stocks, we want to own stocks with above average future growth potential and attractive valuations. We believe that by using a balance of approaches, we can produce consistent, attractive risk-adjusted returns for the Fund's investors. Q: How are you positioning the Fund for the coming months? A: We continue to look for the best investment opportunities within each sector of the small cap market. We look to balance growth stocks and value stocks, valuation and momentum, and a quantitative and qualitative investment management decision-making process. Our long-time practice is to favor companies with superior cash flow generation and with attractive valuations relative to other investment opportunities. We invest in all segments of the small cap market, but pick select individual stocks that fit well within our investment strategy. In our disciplined framework, we do not attempt to time the market or overweight individual sectors. Instead, we seek to provide consistent exposure to all segments of the small cap market. (bar chart) PERFORMANCE COMPARISON For the year ended Aug. 31, 2003 30% (bar 1) (bar 2) +27.96% +29.08% 25% (bar 3) +23.28% 20% 15% 10% 5% 0% (bar 1) AXP VP - Small Cap Advantage Fund (bar 2) Russell 2000(R) Index (unmanaged) (bar 3) Lipper Small-Cap Core Funds Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. - -------------------------------------------------------------------------------- 44 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT The 10 Largest Holdings AXP VP - Small Cap Advantage Fund Percent Value (of net assets) (as of Aug. 31, 2003) VCA Antech 0.6% $585,215 Energen 0.6 563,244 Skyworks Solutions 0.5 553,845 Delphi Financial Group Cl A 0.5 543,078 NII Holdings Cl B 0.5 535,415 Sterling Financial 0.5 522,561 Black Hills 0.5 518,560 PNM Resources 0.5 515,120 First BanCorp 0.5 506,714 FirstFed Financial 0.5 493,987 For further detail about these holdings, please refer to the section entitled "Investments in Securities." (pie chart) The 10 holdings listed here make up 5.2% of net assets The Fund's Long-term Performance
AXP VP - Small Cap Advantage Fund (line chart) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP VP - SMALL CAP ADVANTAGE FUND AXP VP - Small Cap Advantage Fund $10,000 $12,819 $10,681 $ 9,262 $11,852 Russell 2000(R) Index $10,000 $12,713 $11,234 $ 9,500 $12,262 Lipper Small-Cap Core Funds Index $10,000 $13,626 $12,874 $11,196 $13,803 10/1/99 8/00 8/01 8/02 8/03
Average Annual Total Returns as of Aug. 31, 2003 1 year +27.96% Since inception (9/15/99) +4.38% This chart illustrates the total value of an assumed $10,000 investment in AXP VP - Small Cap Advantage Fund as compared to two widely cited performance indexes, the Russell 2000(R) Index and the Lipper Small-Cap Core Funds Index. Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than the original cost. Short-term performance may be higher or lower than the figures shown. The above chart does not reflect expenses that apply to the subaccounts or the policies. Russell 2000(R) Index, an unmanaged index, measures the performance of the 2,000 smallest companies in the Russell 3000(R) Index, which represents approximately 8% of the total market capitalization of the Russell 3000(R) Index. The Lipper Small-Cap Core Funds 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. - -------------------------------------------------------------------------------- 45 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT Portfolio Management Q & A AXP VP - Stock Fund Q: How did the AXP VP - Stock Fund perform for the fiscal year ended Aug. 31, 2003? A: AXP VP - Stock Fund rose 6.65% for the 12 months ended Aug. 31, 2003, underperforming its Lipper peer group and its broad-based benchmark. The Lipper Large-Cap Core Funds Index returned 9.83% while the Standard & Poor's 500 Index (S&P 500 Index) gained 12.07% during the same period. Q: What factors significantly affected the Fund's performance? A: During a volatile 12-month period for stocks, market leadership was not based on quality or fundamentals but rather on momentum and beta. September 2002 started the period on a down note, with the stock market continuing its poor performance that began in the summer. The tide turned dramatically in October and November of last year as the market rallied, led by the technology and telecommunications sectors. However, the rally quickly ran out of steam and the market began to slide in December with the threat of war with Iraq and other geopolitical problems looming. Then in March of this year, the market began another rally as war concerns eased and the U.S. economy began to show signs of a recovery. During the rest of the period, the market continued an upward ascent. The Fund's defensive positioning proved beneficial to its performance in September 2002 and the first quarter of 2003. However, we underperformed in the fourth quarter of 2002 and the second quarter of 2003 as higher-risk, lower-quality stocks led the pack. AXP VP - Stock Fund focuses on higher quality companies with real fundamental earnings prospects. Q: What changes did you make to the Fund during the period? A: Throughout the fiscal year, we shifted the Fund's emphasis from defensive stocks that would do well in a recessionary environment to holdings that should benefit from an economic recovery. We reduced the Fund's exposure to the consumer staples sector, including selling a number of food, beverage and household product companies such as Anheuser-Busch, Kraft Foods, Gillette and Tyson Foods. We also decreased the Fund's exposure to financial stocks as well as health care companies in a number of health-related sectors including biotechnology and major pharmaceuticals. Although the long-term outlook for health care is favorable due to the aging population in the U.S., short-term we are concerned about the potential negative impact that Medicare reform will have on these stocks. Consumer staples and financials are now the most underweighted sectors in the Fund versus the S&P benchmark. We increased the Fund's allocation to economically sensitive sectors, including technology, basic materials and industrials. Within technology, we brought the Fund's position to market weight with additions in the semiconductor and fiber communications areas. Basic materials and industrials are now the Fund's most overweighted sectors including holdings such as Caterpillar, Deere, 3M and Rockwell Automation. We believe material and industrial companies have the most upside operating leverage in the recovery as even a slight increase in capital spending should result in improved earnings. Q: How are you positioning the Fund for the coming months? A: We believe the U.S. economic recovery will be below average compared to historical standards. This belief is based on the fact that the consumer never quit spending on housing and autos during the recent recession. As the economy continues to improve, it is likely that interest rates and inflation will rise. This will be a change from the falling interest rate, lower inflation environment we have experienced over the past 10 years. In this scenario, the Fund will emphasize companies that have real operating leverage as prices increase and avoid companies that suffer when the cost of capital is rising. (bar chart) PERFORMANCE COMPARISON For the year ended Aug. 31, 2003 15% (bar 2) 12% +12.07% (bar 3) 9% (bar 1) +9.83% +6.65% 6% 3% 0% (bar 1) AXP VP - Stock Fund (bar 2) S&P 500 Index (unmanaged) (bar 3) Lipper Large-Cap Core Funds Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. - -------------------------------------------------------------------------------- 46 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT The 10 Largest Holdings AXP VP - Stock Fund Percent Value (of net assets) (as of Aug. 31, 2003) Microsoft 3.5% $402,627 Wal-Mart Stores 3.4 392,711 InterActiveCorp 3.3 386,088 General Electric 3.2 364,155 Pfizer 3.0 341,448 Citigroup 2.5 288,105 Intel 2.5 285,513 Medtronic 2.0 235,108 Intl Paper 2.0 230,608 Weyerhaeuser 2.0 228,599 For further detail about these holdings, please refer to the section entitled "Investments in Securities." (pie chart) The 10 holdings listed here make up 27.4% of net assets The Fund's Long-term Performance
AXP VP - Stock Fund (line chart) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP VP - STOCK FUND AXP VP - Stock Fund $10,000 $ 9,539 $9,558 $9,254 $8,195 $8,036 $7,509 $8,420 $8,740 S&P 500 Index $10,000 $10,086 $9,833 $9,513 $8,200 $8,421 $7,603 $8,747 $9,190 Lipper Large-Cap Core Funds Index $10,000 $10,078 $9,863 $9,595 $8,337 $8,475 $7,714 $8,757 $9,156 9/1/01 11/01 2/02 5/02 8/02 11/02 2/03 5/03 8/03
Average Annual Total Returns as of Aug. 31, 2003 1 year +6.65% Since inception (8/13/01) -6.35% This chart illustrates the total value of an assumed $10,000 investment in AXP VP - Stock Fund as compared to two widely cited performance indexes, the S&P 500 Index and the Lipper Large-Cap Core Funds Index. Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than the original cost. Short-term performance may be higher or lower than the figures shown. The above chart does not reflect expenses that apply to the subaccounts or the policies. The S&P 500 Index, an unmanaged index 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. The Lipper Large-Cap Core Funds 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. - -------------------------------------------------------------------------------- 47 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT Portfolio Management Q & A AXP VP - Strategy Aggressive Fund Q: How did the AXP VP - Strategy Aggressive Fund perform for the fiscal year ended Aug. 31, 2003? A: AXP VP - Strategy Aggressive Fund rose 22.16% for the 12 months ended Aug. 31, 2003, underperforming its broad-based benchmark and Lipper peer group. The Fund's benchmark, the Russell MidCap(R) Growth Index, and its peer group, the Lipper Mid-Cap Growth Funds Index, gained 30.39% and 23.98%, respectively over the same period. Q: What factors significantly affected the Fund's performance? A: The fiscal year was marked by two distinct periods of performance for the stock market and the Fund. During the first six months, the markets and the Fund were down overall as concerns about the U.S. economic recovery and the potential conflict with Iraq weighed heavily on stocks. Despite negative performance, the Fund actually held up better than most of its Lipper peers between August 2002 and February 2003 because of strong stock selection and positioning in holdings such as Forest Laboratories, MedImmune, Biomet, St. Jude Medical, Microchip Technology, BMC Software, Starbucks and Amazon.com. Halfway through the fiscal period, the climate changed. Fear gave way to initial success in liberating Iraq. Fiscal and monetary stimulus kicked in and the markets became convinced that the U.S. economy would improve. The second six months were characterized by strong market performance, led in particular by low-quality stocks in the technology and telecommunications sectors. The Fund generated a positive return in the second half, but we fell short of the average return of the Lipper peers and the Russell benchmark between February 2003 and August 2003. The Fund's private placement investments and the Fund's 2% to 3% cash position detracted from performance during this period. We also did not hold the most aggressive stocks within technology and telecommunications sectors, which rallied the most this past spring and summer. Top contributors in the second half included Gilead Sciences, JB Hunt, Network Appliance, Amazon.com, Chico's and Univision Communications. Q: What changes did you make to the Fund during the period? A: At the start of the period, we began shifting the Fund's portfolio out of some aggressive technology holdings and investing the proceeds in the industrial sector. The Fund also moved from an overweighted position in the consumer area, including both the staples and discretionary sectors, to an underweighted stance. We redeployed profits from the sale of consumer stocks to areas that we believed would have more leverage in an economic recovery. The Fund ended the period with an overweighting in energy, health care, industrials, basic materials and technology, an underweighting in financials and no holdings in the telecommunications services or utility sectors. Compared to a year ago, the Fund is now more concentrated with fewer individual holdings and a greater percentage of its assets in the top 10 holdings as of Aug. 31, 2003. Q: How are you positioning the Fund for the coming months? A: We're starting to see many signs of improvement for the economy as a whole and also at the individual company level as we do fundamental research for the Fund. Our overall theme right now is a shift toward more aggressive companies that have a cyclical kicker to their earnings growth. Within each sector, we're looking for opportunities to switch from more broadly diversified or service-oriented companies to niche players that are more narrowly focused on one product. Because we believe the low interest rate environment we've enjoyed over the past 10 years is ending, the Fund is avoiding any holdings that would be hurt by higher rates including financial and mortgage companies. As is always the case, we will continue to position the core portion of the Fund in companies with sustainable growth opportunities. In the opportunistic portion of the Fund, we will attempt to exploit more growth opportunities that we think can be realized over a three- to nine-month time frame. (bar chart) PERFORMANCE COMPARISON For the year ended Aug. 31, 2003 35% (bar 2) 30% +30.39% 25% (bar 1) (bar 3) +22.16% +23.98% 20% 15% 10% 5% 0% (bar 1) AXP VP - Strategy Aggressive Fund (bar 2) Russell MidCap(R) Growth Index (unmanaged) (bar 3) Lipper Mid-Cap Growth Funds Index (see "The Fund's Long-term Performance" for Index descriptions) Past performance is no guarantee of future results. - -------------------------------------------------------------------------------- 48 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT The 10 Largest Holdings AXP VP - Strategy Aggressive Fund Percent Value (of net assets) (as of Aug. 31, 2003) Gilead Sciences 3.0% $28,814,400 Univision Communications Cl A 2.2 21,369,300 Microchip Technology 2.2 21,287,600 MedImmune 2.1 20,712,780 Hunt (JB) Transport Services 2.1 19,880,000 Network Appliance 1.9 17,928,000 Chico's FAS 1.8 17,609,580 Electronic Arts 1.8 17,321,750 Apollo Group Cl A 1.8 17,298,900 Barr Laboratories 1.8 17,019,016 For further detail about these holdings, please refer to the section entitled "Investments in Securities." (pie chart) The 10 holdings listed here make up 20.7% of net assets The Fund's Long-term Performance
AXP VP - Strategy Aggressive Fund (line chart) VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP VP - STRATEGY AGGRESSIVE FUND AXP VP - Strategy Aggressive Fund $10,000 $ 9,823 $12,456 $13,899 $16,580 $13,861 $18,750 $34,682 $16,089 $11,106 $13,567 Russell MidCap(R) Growth Index $10,000 $10,539 $13,147 $14,701 $19,294 $17,079 $25,421 $42,498 $23,357 $17,896 $23,335 Lipper Mid-Cap Growth Funds Index $10,000 $10,389 $13,926 $16,125 $18,435 $15,229 $24,148 $41,596 $23,880 $17,743 $21,998 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Average Annual Total Returns as of Aug. 31, 2003 1 year +22.16% 5 years -0.43% 10 years +3.10% This chart illustrates the total value of an assumed $10,000 investment in AXP VP - Strategy Aggressive Fund as compared to two widely cited performance indexes, the Russell MidCap(R) Growth Index and the Lipper Mid-Cap Growth Funds Index. Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than the original cost. Short-term performance may be higher or lower than the figures shown. The above chart does not reflect expenses that apply to the subaccounts or the policies. 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. The Lipper Mid-Cap Growth Funds 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. - -------------------------------------------------------------------------------- 49 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 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. Each member oversees 15 Master Trust portfolios and 86 American Express mutual funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the board.
Independent Board Members Name, address, age Position held with Fund and Principal occupation during Other directorships length of service past five years - -------------------------------- --------------------------------- --------------------------------- ------------------------------- Arne H. Carlson Board member since 1999 Chair, Board Services 901 S. Marquette Ave. Corporation (provides Minneapolis, MN 55402 administrative services to Age 69 boards). Former Governor of Minnesota - -------------------------------- --------------------------------- --------------------------------- ------------------------------- Philip J. Carroll, Jr. Board member since 2002 Retired Chairman and CEO, Fluor Scottish Power PLC, Vulcan 901 S. Marquette Ave. Corporation (engineering and Materials Company, Inc. Minneapolis, MN 55402 construction) since 1998 (construction Age 65 materials/chemicals) - -------------------------------- --------------------------------- --------------------------------- ------------------------------- Livio D. DeSimone Board member since 2001 Retired Chair of the Board and Cargill, Incorporated 30 Seventh Street East Chief Executive Officer, (commodity merchants and Suite 3050 Minnesota Mining and processors), General Mills, St. Paul, MN 55101-4901 Manufacturing (3M) Inc. (consumer foods), Vulcan Age 69 Materials Company (construction materials/chemicals), Milliken & Company (textiles and chemicals), and Nexia Biotechnologies, Inc. - -------------------------------- --------------------------------- --------------------------------- ------------------------------- Heinz F. Hutter* Board member since 1994 Retired President and Chief 901 S. Marquette Ave. Operating Officer, Cargill, Minneapolis, MN 55402 Incorporated (commodity Age 74 merchants and processors) - -------------------------------- --------------------------------- --------------------------------- ------------------------------- Anne P. Jones Board member since 1985 Attorney and Consultant 901 S. Marquette Ave. Minneapolis, MN 55402 Age 68 - -------------------------------- --------------------------------- --------------------------------- ------------------------------- Stephen R. Lewis, Jr.** Board member since 2002 Retired President and Professor Valmont Industries, Inc. 901 S. Marquette Ave. of Economics, Carleton College (manufactures irrigation Minneapolis, MN 55402 systems) Age 64 - -------------------------------- --------------------------------- --------------------------------- ------------------------------- Alan G. Quasha Board member since 2002 President, Quadrant Management, Compagnie Financiere Richemont 901 S. Marquette Ave. Inc. (management of private AG (luxury goods), Harken Minneapolis, MN 55402 equities) Energy Corporation (oil and gas Age 53 exploration) and SIRIT Inc. (radio frequency identification technology) - -------------------------------- --------------------------------- --------------------------------- ------------------------------- Alan K. Simpson Board member since 1997 Former three-term United States Biogen, Inc. 1201 Sunshine Ave. Senator for Wyoming (biopharmaceuticals) Cody, WY 82414 Age 71 - -------------------------------- --------------------------------- --------------------------------- ------------------------------- Alison Taunton-Rigby Board member since 2002 President, Forester Biotech 901 S. Marquette Ave. since 2000. Former President Minneapolis, MN 55402 and CEO, Aquila Age 59 Biopharmaceuticals, Inc. - -------------------------------- --------------------------------- --------------------------------- -------------------------------
* Interested person of AXP Partners International Aggressive Growth Fund and AXP Partners Aggressive Growth Fund by reason of being a security holder of J P Morgan Chase & Co., which has a 45% interest in American Century Companies, Inc., the parent company of the subadviser of two of the AXP Partners Funds, American Century Investment Management, Inc. ** Interested person of AXP Partners International Aggressive Growth Fund by reason of being a security holder of FleetBoston Financial Corporation, parent company of Liberty Wanger Asset Management, L.P., one of the fund's subadvisers. - -------------------------------------------------------------------------------- 50 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT
Board Members Affiliated with AEFC*** - -------------------------------- --------------------------------- --------------------------------- ------------------------------- Name, address, age Position held with Fund and Principal occupation during Other directorships length of service past five years - -------------------------------- --------------------------------- --------------------------------- ------------------------------- Barbara H. Fraser Board member since 2002 Executive Vice President - AEFA 1546 AXP Financial Center Products and Corporate Minneapolis, MN 55474 Marketing of AEFC since 2002. Age 53 President - Travelers Check Group, American Express Company, 2001-2002. Management Consultant, Reuters, 2000-2001. Managing Director - International Investments, Citibank Global, 1999-2000. Chairman and CEO, Citicorp Investment Services and Citigroup Insurance Group, U.S., 1998-1999 - -------------------------------- --------------------------------- --------------------------------- ------------------------------- Stephen W. Roszell Board member since 2002, Vice Senior Vice President - 50238 AXP Financial Center President since 2002 Institutional Group of AEFC Minneapolis, MN 55474 Age 54 - -------------------------------- --------------------------------- --------------------------------- ------------------------------- William F. Truscott Board member since 2001, Vice Senior Vice President - Chief 53600 AXP Financial Center President since 2002 Investment Officer of AEFC Minneapolis, MN 55474 since 2001. Former Chief Age 42 Investment Officer and Managing Director, Zurich Scudder Investments - -------------------------------- --------------------------------- --------------------------------- -------------------------------
*** Interested person by reason of being an officer, director and/or employee of AEFC. The board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the board. In addition to Mr. Roszell, who is vice president, and Mr. Truscott, who is vice president, the Fund's other officers are:
Other Officers - -------------------------------- --------------------------------- --------------------------------- ------------------------------- Name, address, age Position held with Fund and Principal occupation during Other directorships length of service past five years - -------------------------------- --------------------------------- --------------------------------- ------------------------------- Jeffrey P. Fox Treasurer since 2002 Vice President - Investment 50005 AXP Financial Center Accounting, AEFC, since 2002; Minneapolis, MN 55474 Vice President - Finance, Age 48 American Express Company, 2000-2002; Vice President - Corporate Controller, AEFC, 1996-2000 - -------------------------------- --------------------------------- --------------------------------- ------------------------------- Paula R. Meyer President since 2002 Senior Vice President and 596 AXP Financial Center General Manager - Mutual Funds, Minneapolis, MN 55474 AEFC, since 2002; Vice Age 49 President and Managing Director - American Express Funds, AEFC, 2000-2002; Vice President, AEFC, 1998-2000 - -------------------------------- --------------------------------- --------------------------------- ------------------------------- Leslie L. Ogg Vice President, General President of Board Services 901 S. Marquette Ave. Counsel, and Secretary since Corporation Minneapolis, MN 55402 1978 Age 65 - -------------------------------- --------------------------------- --------------------------------- -------------------------------
The SAI has additional information about the Fund's directors and is available, without charge, upon request by calling (800) 862-7919. - -------------------------------------------------------------------------------- 51 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT INDEPENDENT AUDITORS' REPORT THE BOARD AND SHAREHOLDERS AXP(R) VARIABLE PORTFOLIO - INCOME SERIES, INC. AXP(R) VARIABLE PORTFOLIO - INVESTMENT SERIES, INC. AXP(R) VARIABLE PORTFOLIO - MANAGED SERIES, INC. AXP(R) VARIABLE PORTFOLIO - MONEY MARKET SERIES, INC. AXP(R) VARIABLE PORTFOLIO - PARTNERS SERIES, INC. We have audited the accompanying statements of assets and liabilities, including the schedules of investments in securities, of AXP VP - Diversified Bond Fund (formerly AXP VP - Bond Fund), AXP VP - Global Bond Fund, AXP VP - High Yield Bond Fund (formerly AXP VP - Extra Income Fund) and AXP VP - Short Duration U.S. Government Fund (formerly AXP VP - Federal Income 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 - Equity Select 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 - Stock 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.), AXP VP - Cash Management Fund, (fund within AXP Variable Portfolio - Money Market Series, Inc.), and AXP VP - Partners Small Cap Value Fund (fund within AXP Variable Portfolio - Partners Series, Inc.) as of August 31, 2003, 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, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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 - - Diversified Bond Fund, AXP VP - Global Bond Fund, AXP VP - High Yield Bond Fund, AXP VP - Short Duration U.S. Government Fund, AXP VP - Blue Chip Advantage Fund, AXP VP - Capital Resource Fund, AXP VP - Emerging Markets Fund, AXP VP - Equity Select 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 - Stock Fund, AXP VP - Strategy Aggressive Fund, AXP VP - Diversified Equity Income Fund, AXP VP - Managed Fund, AXP VP - Cash Management Fund and AXP VP - Partners Small Cap Value Fund as of August 31, 2003 and the results of their operations, the changes in their net assets, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Minneapolis, Minnesota October 10, 2003 AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 52 FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
AXP VP - AXP VP - AXP VP - BLUE CHIP CAPITAL CASH ADVANTAGE RESOURCE MANAGEMENT AUG. 31, 2003 FUND FUND FUND ASSETS Investments in securities, at value (Note 1) (identified cost $65,161,267, $1,879,780,195 and $875,577,858) $ 65,752,333 $ 1,986,352,055 $ 875,577,858 Cash in bank on demand deposit 268,716 65,464 110,683 Receivable for investment securities sold 15,275 14,853,613 -- Dividends and accrued interest receivable 93,969 2,873,500 599,081 - ---------------------------------------------------------------------------------------------------------------------------------- Total assets 66,130,293 2,004,144,632 876,287,622 - ---------------------------------------------------------------------------------------------------------------------------------- LIABILITIES Dividends payable to shareholders (Note 1) 131,521 2,650,999 196,568 Payable for investment securities purchased -- 18,582,508 7,500,000 Accrued investment management services fee 28,835 976,402 361,974 Accrued distribution fee 6,436 196,034 88,719 Accrued administrative services fee 2,060 74,545 21,293 Other accrued expenses 22,022 159,892 104,519 - ---------------------------------------------------------------------------------------------------------------------------------- Total liabilities 190,874 22,640,380 8,273,073 - ---------------------------------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $ 65,939,419 $ 1,981,504,252 $ 868,014,549 ================================================================================================================================== REPRESENTED BY Capital stock -- $.01 par value (Note 1) $ 92,381 $ 1,098,315 $ 8,683,262 Additional paid-in capital 100,018,803 2,456,299,464 859,334,378 Undistributed (excess of distributions over) net investment income (1,958) 14,169 -- Accumulated net realized gain (loss) (Note 9) (34,801,860) (582,479,556) (3,091) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (Note 7) 632,053 106,571,860 -- - ---------------------------------------------------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $ 65,939,419 $ 1,981,504,252 $ 868,014,549 ================================================================================================================================== Shares outstanding 9,238,072 109,831,455 868,326,214 - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value per share of outstanding capital stock $ 7.14 $ 18.04 $ 1.00 - ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 53 STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
AXP VP - AXP VP - AXP VP - DIVERSIFIED DIVERSIFIED EMERGING BOND EQUITY INCOME MARKETS AUG. 31, 2003 FUND FUND FUND ASSETS Investments in securities, at value (Note 1)* (identified cost $2,065,340,495, $350,235,794 and $13,935,478) $ 2,032,144,048 $ 375,303,546 $ 16,110,158 Cash in bank on demand deposit 95,094 75,501 218,920 Foreign currency holdings for AXP VP - Emerging Markets Fund (identified cost $110,700) (Note 1) -- -- 111,018 Receivable for investment securities sold 96,814,838 -- 628,313 Dividends and accrued interest receivable 14,481,009 774,354 32,853 Unrealized appreciation on foreign currency contracts held, at value (Note 5) -- -- 140 U.S. government securities held as collateral (Note 6) 3,116,537 -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Total assets 2,146,651,526 376,153,401 17,101,402 - ---------------------------------------------------------------------------------------------------------------------------------- LIABILITIES Dividends payable to shareholders (Note 1) 4,742,558 1,483,179 12,868 Payable for investment securities purchased 95,578,015 1,429,622 770,797 Payable for securities puchased on a forward-commitment basis (Note 1) 207,512,889 -- -- Accrued investment management services fee 856,039 156,515 14,277 Accrued distribution fee 177,336 34,936 1,525 Unrealized depreciation on foreign currency contracts held, at value (Note 5) -- -- 2,043 Accrued administrative services fee 67,814 11,180 1,220 Payable upon return of securities loaned (Note 6) 71,864,263 2,858,000 -- Other accrued expenses 179,866 60,454 27,070 Options contracts written, at value (premiums received, $558,645 for AXP VP - Diversified Bond Fund (Note 8) 787,998 -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Total liabilities 381,766,778 6,033,886 829,800 - ---------------------------------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $ 1,764,884,748 $ 370,119,515 $ 16,271,602 ================================================================================================================================== REPRESENTED BY Capital stock -- $.01 par value (Note 1) $ 1,696,972 $ 383,730 $ 19,288 Additional paid-in capital 1,936,011,438 371,492,705 15,828,865 Undistributed (excess of distributions over) net investment income (603,136) (41,304) 6,142 Accumulated net realized gain (loss) (Note 9) (139,761,242) (26,783,368) (1,756,434) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (Notes 5 and 7) (32,459,284) 25,067,752 2,173,741 - ---------------------------------------------------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $ 1,764,884,748 $ 370,119,515 $ 16,271,602 ================================================================================================================================== Shares outstanding 169,697,198 38,372,962 1,928,808 - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value per share of outstanding capital stock $ 10.40 $ 9.65 $ 8.44 - ---------------------------------------------------------------------------------------------------------------------------------- * Including securities on loan, at value (Note 6) $ 70,628,180 $ 2,837,600 $ -- - ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 54 STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
AXP VP - AXP VP - EQUITY GLOBAL AXP VP - SELECT BOND GROWTH AUG. 31, 2003 FUND FUND FUND ASSETS Investments in securities, at value (Note 1)* (identified cost $154,819,332, $331,468,168 and $209,601,244) $ 170,871,311 $ 339,274,469 $ 226,607,479 Cash in bank on demand deposit 249,701 84,701 65,444 Foreign currency holdings for AXP VP - Global Bond Fund (identified cost $1,405,427) (Note 1) -- 1,371,049 -- Receivable for investment securities sold -- 2,716,204 2,508,934 Dividends and accrued interest receivable 55,851 4,372,241 176,976 Unrealized appreciation on foreign currency contracts held, at value (Note 5) -- 201,527 -- - ---------------------------------------------------------------------------------------------------------------------------------- Total assets 171,176,863 348,020,191 229,358,833 - ---------------------------------------------------------------------------------------------------------------------------------- LIABILITIES Dividends payable to shareholders (Note 1) -- 585,825 -- Payable for investment securities purchased 665,100 8,833,234 5,996,789 Payable for securities puchased on a forward-commitment basis (Note 1) -- 20,736,065 -- Accrued investment management services fee 82,445 209,205 106,818 Accrued distribution fee 15,855 31,246 21,194 Accrued administrative services fee 7,610 14,742 8,478 Payable upon return of securities loaned (Note 6) -- 5,037,500 -- Other accrued expenses 56,552 47,902 71,104 Options contracts written, at value (premiums received, $93,580 for AXP VP - Global Bond Fund (Note 8) -- 132,000 -- - ---------------------------------------------------------------------------------------------------------------------------------- Total liabilities 827,562 35,627,719 6,204,383 - ---------------------------------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $ 170,349,301 $ 312,392,472 $ 223,154,450 ================================================================================================================================== REPRESENTED BY Capital stock -- $.01 par value (Note 1) $ 168,790 $ 300,472 $ 409,588 Additional paid-in capital 155,891,842 310,234,244 374,639,358 Undistributed (excess of distributions over) net investment income -- 486,617 (364) Accumulated net realized gain (loss) (Note 9) (1,763,310) (6,119,701) (168,900,551) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (Notes 5 and 7) 16,051,979 7,490,840 17,006,419 - ---------------------------------------------------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $ 170,349,301 $ 312,392,472 $ 223,154,450 ================================================================================================================================== Shares outstanding 16,878,982 30,047,216 40,958,790 - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value per share of outstanding capital stock $ 10.09 $ 10.40 $ 5.45 - ---------------------------------------------------------------------------------------------------------------------------------- * Including securities on loan, at value (Note 6) $ -- $ 4,916,400 $ -- - ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 55 STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
AXP VP - HIGH YIELD AXP VP - AXP VP - BOND INTERNATIONAL MANAGED AUG. 31, 2003 FUND FUND FUND ASSETS Investments in securities, at value (Note 1)* (identified cost $836,453,639, $696,709,938 and $2,487,789,953) $ 844,581,064 $ 733,712,481 $ 2,556,266,332 Cash in bank on demand deposit 216,831 167,026 97,173 Foreign currency holdings for AXP VP - International Fund (identified cost $2,859,275) (Note 1) -- 2,875,646 -- Receivable for investment securities sold 4,351,602 6,304,803 47,034,965 Dividends and accrued interest receivable 15,549,118 2,552,505 9,867,198 - ---------------------------------------------------------------------------------------------------------------------------------- Total assets 864,698,615 745,612,461 2,613,265,668 - ---------------------------------------------------------------------------------------------------------------------------------- LIABILITIES Dividends payable to shareholders (Note 1) 5,307,613 2,626,622 12,982,485 Payable for investment securities purchased 13,983,361 3,966,589 80,136,672 Payable for securities purchased on a forward-commitment basis (Note 1) 2,105,625 -- 76,764,966 Accrued investment management services fee 403,725 495,462 1,166,102 Accrued distribution fee 81,396 72,399 240,254 Accrued administrative services fee 32,559 31,939 61,955 Payable upon return of securities loaned (Note 6) -- -- 24,896,500 Other accrued expenses 81,634 115,752 205,487 Options contracts written at value (premium received, $252,383 for AXP VP - Managed Fund) (Note 8) -- -- 355,999 - ---------------------------------------------------------------------------------------------------------------------------------- Total liabilities 21,995,913 7,308,763 196,810,420 - ---------------------------------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $ 842,702,702 $ 738,303,698 $ 2,416,455,248 ================================================================================================================================== REPRESENTED BY Capital stock -- $.01 par value ($.001 for AXP VP - Managed Fund) (Note 1) $ 1,354,759 $ 1,027,435 $ 185,820 Additional paid-in capital 1,132,870,395 1,504,647,352 2,524,692,313 Undistributed net investment income 2,320,156 510 19,627 Accumulated net realized gain (loss) (Note 9) (301,970,033) (804,384,719) (176,763,009) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (Note 7) 8,127,425 37,013,120 68,320,497 - ---------------------------------------------------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $ 842,702,702 $ 738,303,698 $ 2,416,455,248 ================================================================================================================================== Shares outstanding 135,475,929 102,743,484 185,819,642 - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value per share of outstanding capital stock $ 6.22 $ 7.19 $ 13.00 - ---------------------------------------------------------------------------------------------------------------------------------- * Including securities on loan, at value (Note 6) $ -- $ -- $ 24,397,031 - ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 56 STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
AXP VP - AXP VP - PARTNERS AXP VP - NEW SMALL CAP S&P 500 DIMENSIONS VALUE INDEX AUG. 31, 2003 FUND FUND FUND ASSETS Investments in securities, at value (Note 1)* (identified cost $2,970,552,415, $121,138,738 and $183,893,842) $ 3,158,617,309 $ 134,460,013 $ 171,173,216 Cash in bank on demand deposit 77,222 151,143 422,622 Foreign currency holdings for AXP VP - New Dimensions Fund (identified cost $1,577) (Note 1) 1,595 -- -- Receivable for investment securities sold 17,984,584 175,566 39,667 Dividends and accrued interest receivable 4,420,937 80,662 258,094 U.S. government securities held as collateral (Note 6) 3,319,751 -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Total assets 3,184,421,398 134,867,384 171,893,599 - ---------------------------------------------------------------------------------------------------------------------------------- LIABILITIES Dividends payable to shareholders (Note 1) 4,936,028 -- 496,664 Payable for investment securities purchased 19,516,610 843,599 11,888 Accrued investment management services fee 1,496,836 102,291 38,085 Accrued distribution fee 304,558 12,536 16,416 Accrued administrative services fee 109,111 8,023 10,506 Payable upon return of securities loaned (Note 6) 43,018,151 -- -- Other accrued expenses 230,277 73,137 15,801 - ---------------------------------------------------------------------------------------------------------------------------------- Total liabilities 69,611,571 1,039,586 589,360 - ---------------------------------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $ 3,114,809,827 $ 133,827,798 $ 171,304,239 ================================================================================================================================== REPRESENTED BY Capital stock -- $.01 par value (Note 1) $ 2,179,256 $ 117,480 $ 249,098 Additional paid-in capital 3,440,553,699 119,310,994 186,653,625 Excess of distributions over net investment income -- (114,349) (10,731) Accumulated net realized gain (loss) (Note 9) (515,988,040) 1,192,258 (2,910,969) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (Note 7) 188,064,912 13,321,415 (12,676,784) - ---------------------------------------------------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $ 3,114,809,827 $ 133,827,798 $ 171,304,239 ================================================================================================================================== Shares outstanding 217,925,584 11,748,041 24,909,775 - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value per share of outstanding capital stock $ 14.29 $ 11.39 $ 6.88 - ---------------------------------------------------------------------------------------------------------------------------------- * Including securities on loan, at value (Note 6) $ 42,274,460 $ -- $ -- - ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 57 STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
AXP VP - AXP VP - SHORT DURATION SMALL CAP AXP VP - U.S. GOVERNMENT ADVANTAGE STOCK AUG. 31, 2003 FUND FUND FUND ASSETS Investments in securities, at value (Note 1) (identified cost $490,836,377, $84,123,290 and $10,365,546) $ 490,472,500 $ 102,023,539 $ 11,198,662 Cash in bank on demand deposit 107,541 197,718 383,468 Expense reimbursement receivable from AEFC -- -- 692 Receivable for investment securities sold 10,049,537 2,013,271 -- Dividends and accrued interest receivable 3,374,259 46,549 17,099 - ---------------------------------------------------------------------------------------------------------------------------------- Total assets 504,003,837 104,281,077 11,599,921 - ---------------------------------------------------------------------------------------------------------------------------------- LIABILITIES Dividends payable to shareholders (Note 1) 741,004 -- 12,566 Payable for investment securities purchased 10,079,039 2,596,888 39,638 Payable for securities purchased on a forward-commitment basis (Note 1) 13,580,449 -- -- Accrued investment management services fee 233,561 59,247 4,953 Accrued distribution fee 47,861 9,375 1,106 Accrued administrative services fee 19,144 4,500 354 Other accrued expenses 49,245 35,086 16,005 Options contracts written at value (premium received, $107,060 for AXP VP - Short Duration U.S. Government Fund) (Note 8) 324,375 -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Total liabilities 25,074,678 2,705,096 74,622 - ---------------------------------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $ 478,929,159 $ 101,575,981 $ 11,525,299 ================================================================================================================================== REPRESENTED BY Capital stock -- $.01 par value (Note 1) $ 457,793 $ 90,323 $ 13,586 Additional paid-in capital 476,950,694 93,894,819 11,497,877 Undistributed net investment income -- 17,697 691 Accumulated net realized gain (loss) (Note 9) 2,358,344 (10,327,107) (819,971) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (Note 7) (837,672) 17,900,249 833,116 - ---------------------------------------------------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $ 478,929,159 $ 101,575,981 $ 11,525,299 ================================================================================================================================== Shares outstanding 45,779,285 9,032,273 1,358,620 - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value per share of outstanding capital stock $ 10.46 $ 11.25 $ 8.48 - ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 58 STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
AXP VP - STRATEGY AGGRESSIVE AUG. 31, 2003 FUND ASSETS Investments in securities, at value (Note 1) Investments in securities of unaffiliated issuers* (identified cost $920,277,161) $ 975,399,896 Investments in securities of affiliated issuers (identified cost $3,300,002) 144 - ---------------------------------------------------------------------------------------------------------------------------------- Total investments in securities (identified cost $923,577,163) 975,400,040 Cash in bank on demand deposit 732,843 Receivable for investment securities sold 528,933 Dividends and accrued interest receivable 182,269 - ---------------------------------------------------------------------------------------------------------------------------------- Total assets 976,844,085 - ---------------------------------------------------------------------------------------------------------------------------------- LIABILITIES Accrued investment management services fee 464,148 Accrued distribution fee 92,205 Accrued administrative services fee 39,153 Payable upon return of securities loaned (Note 6) 7,475,000 Other accrued expenses 91,198 - ---------------------------------------------------------------------------------------------------------------------------------- Total liabilities 8,161,704 - ---------------------------------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $ 968,682,381 ================================================================================================================================== REPRESENTED BY Capital stock -- $.01 par value (Note 1) $ 1,385,897 Additional paid-in capital 2,262,105,288 Undistributed net investment income 555,302 Accumulated net realized gain (loss) (Note 9) (1,347,186,983) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 51,822,877 - ---------------------------------------------------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $ 968,682,381 ================================================================================================================================== Shares outstanding 138,589,728 - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value per share of outstanding capital stock $ 6.99 - ---------------------------------------------------------------------------------------------------------------------------------- * Including securities on loan, at value (Note 6) $ 7,171,125 - ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 59 STATEMENTS OF OPERATIONS AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
AXP VP - AXP VP - AXP VP - BLUE CHIP CAPITAL CASH ADVANTAGE RESOURCE MANAGEMENT YEAR ENDED AUG. 31, 2003 FUND FUND FUND INVESTMENT INCOME Income: Dividends $ 1,020,923 $ 27,037,159 $ -- Interest 36,939 1,734,801 14,433,946 Fee income from securities lending (Note 6) -- 6,837 -- Less foreign taxes withheld -- (30,097) -- - ---------------------------------------------------------------------------------------------------------------------------------- Total income 1,057,862 28,748,700 14,433,946 - ---------------------------------------------------------------------------------------------------------------------------------- Expenses (Note 2): Investment management services fee 321,077 12,597,101 5,189,115 Distribution fee 75,470 2,446,359 1,274,132 Administrative services fees and expenses 24,614 968,533 324,844 Custodian fees 22,228 103,700 96,836 Compensation of board members 8,099 18,950 12,958 Printing and postage 12,224 389,871 164,751 Audit fees 17,000 24,000 18,500 Other 101 9,849 3,544 - ---------------------------------------------------------------------------------------------------------------------------------- Total expenses 480,813 16,558,363 7,084,680 Earnings credits on cash balances (Note 2) (763) (716) (282) - ---------------------------------------------------------------------------------------------------------------------------------- Total net expenses 480,050 16,557,647 7,084,398 - ---------------------------------------------------------------------------------------------------------------------------------- Investment income (loss) -- net 577,812 12,191,053 7,349,548 - ---------------------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions (Note 3) (7,487,066) (188,314,276) 30 Futures contracts 482,417 -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments (7,004,649) (188,314,276) 30 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 11,900,526 346,211,686 -- - ---------------------------------------------------------------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies 4,895,877 157,897,410 30 - ---------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 5,473,689 $ 170,088,463 $ 7,349,578 ==================================================================================================================================
See accompanying notes to financial statements. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 60 STATEMENTS OF OPERATIONS (CONTINUED) AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
AXP VP - AXP VP - AXP VP - DIVERSIFIED DIVERSIFIED EMERGING BOND EQUITY INCOME MARKETS YEAR ENDED AUG. 31, 2003 FUND FUND FUND INVESTMENT INCOME Income: Dividends $ -- $ 8,122,817 $ 312,835 Interest 92,741,980 130,968 8,935 Fee income from securities lending (Note 6) 255,949 27,611 -- Less foreign taxes withheld -- (80,943) (35,119) - ---------------------------------------------------------------------------------------------------------------------------------- Total income 92,997,929 8,200,453 286,651 - ---------------------------------------------------------------------------------------------------------------------------------- Expenses (Note 2): Investment management services fee 11,121,622 1,495,598 134,837 Distribution fee 2,305,049 354,586 14,889 Administrative services fees and expenses 913,878 116,748 11,910 Custodian fees 170,513 114,651 63,613 Compensation of board members 17,049 8,392 -- Printing and postage 374,672 51,748 946 Audit fees 25,000 18,000 17,000 Other 10,273 238 -- - ---------------------------------------------------------------------------------------------------------------------------------- Total expenses 14,938,056 2,159,961 243,195 Expenses waived/reimbursed by AEFC (Note 2) -- -- (34,648) - ---------------------------------------------------------------------------------------------------------------------------------- 14,938,056 2,159,961 208,547 Earnings credits on cash balances (Note 2) (1,154) (806) (1,915) - ---------------------------------------------------------------------------------------------------------------------------------- Total net expenses 14,936,902 2,159,155 206,632 - ---------------------------------------------------------------------------------------------------------------------------------- Investment income (loss) -- net 78,061,027 6,041,298 80,019 - ---------------------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions (Note 3) 43,235,998 (16,484,766) 79,663 Foreign currency transactions (5,077,680) (202) (38,973) Futures contracts 471,572 -- -- Options contracts written (Note 8) 1,076,689 -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments 39,706,579 (16,484,968) 40,690 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (36,198,070) 62,393,427 2,605,051 - ---------------------------------------------------------------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies 3,508,509 45,908,459 2,645,741 - ---------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 81,569,536 $ 51,949,757 $ 2,725,760 ==================================================================================================================================
See accompanying notes to financial statements. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 61 STATEMENTS OF OPERATIONS (CONTINUED) AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
AXP VP - AXP VP - EQUITY GLOBAL AXP VP - SELECT BOND GROWTH YEAR ENDED AUG. 31, 2003 FUND FUND FUND INVESTMENT INCOME Income: Dividends $ 312,590 $ -- $ 1,771,265 Interest 63,423 11,796,628 193,131 Fee income from securities lending (Note 6) -- 3,756 7,501 Less foreign taxes withheld -- (3,490) (17,019) - ---------------------------------------------------------------------------------------------------------------------------------- Total income 376,013 11,796,894 1,954,878 - ---------------------------------------------------------------------------------------------------------------------------------- Expenses (Note 2): Investment management services fee 758,579 2,370,419 1,068,315 Distribution fee 138,731 353,522 204,477 Administrative services fees and expenses 67,462 172,574 84,387 Custodian fees 161,884 102,608 205,884 Compensation of board members 8,100 8,392 8,099 Printing and postage 19,906 57,894 36,949 Audit fees 17,000 20,000 18,000 Other 14 364 349 - ---------------------------------------------------------------------------------------------------------------------------------- Total expenses 1,171,676 3,085,773 1,626,460 Earnings credits on cash balances (Note 2) (2,194) (400) (1,120) - ---------------------------------------------------------------------------------------------------------------------------------- Total net expenses 1,169,482 3,085,373 1,625,340 - ---------------------------------------------------------------------------------------------------------------------------------- Investment income (loss) -- net (793,469) 8,711,521 329,538 - ---------------------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions (Note 3) (138,674) 13,510,402 (9,111,551) Foreign currency transactions -- (2,156,463) 615 Futures contracts -- 300,524 -- Options contracts written (Note 8) -- 104,759 -- - ---------------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments (138,674) 11,759,222 (9,110,936) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 24,185,577 2,830,114 24,976,105 - ---------------------------------------------------------------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies 24,046,903 14,589,336 15,865,169 - ---------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 23,253,434 $ 23,300,857 $ 16,194,707 ==================================================================================================================================
See accompanying notes to financial statements. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 62 STATEMENTS OF OPERATIONS (CONTINUED) AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
AXP VP - HIGH YIELD AXP VP - AXP VP - BOND INTERNATIONAL MANAGED YEAR ENDED AUG. 31, 2003 FUND FUND FUND INVESTMENT INCOME Income: Dividends $ 1,399,103 $ 18,286,629 $ 35,164,585 Interest 59,952,745 413,005 45,323,860 Fee income from securities lending (Note 6) -- 364,960 135,467 Less foreign taxes withheld -- (2,520,533) (13,835) - ---------------------------------------------------------------------------------------------------------------------------------- Total income 61,351,848 16,544,061 80,610,077 - ---------------------------------------------------------------------------------------------------------------------------------- Expenses (Note 2): Investment management services fee 4,158,089 6,108,448 14,961,945 Distribution fee 838,324 916,060 3,068,716 Administrative services fees and expenses 341,823 414,456 836,945 Custodian fees 80,531 155,372 182,051 Compensation of board members 10,366 11,743 21,600 Printing and postage 133,988 159,722 514,831 Audit fees 24,000 23,000 24,500 Other 1,952 3,933 13,644 - ---------------------------------------------------------------------------------------------------------------------------------- Total expenses 5,589,073 7,792,734 19,624,232 Earnings credits on cash balances (Note 2) (806) (475) (1,026) - ---------------------------------------------------------------------------------------------------------------------------------- Total net expenses 5,588,267 7,792,259 19,623,206 - ---------------------------------------------------------------------------------------------------------------------------------- Investment income (loss) -- net 55,763,581 8,751,802 60,986,871 - ---------------------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions (Note 3) (22,640,290) (113,150,831) (136,848,539) Foreign currency transactions -- (247,148) (1,383,162) Futures contracts -- -- (762,629) Options contracts written (Note 8) -- -- 493,517 - ---------------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments (22,640,290) (113,397,979) (138,500,813) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 85,244,865 120,445,926 284,044,624 - ---------------------------------------------------------------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies 62,604,575 7,047,947 145,543,811 - ---------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 118,368,156 $ 15,799,749 $ 206,530,682 ==================================================================================================================================
See accompanying notes to financial statements. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 63 STATEMENTS OF OPERATIONS (CONTINUED) AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
AXP VP - AXP VP - PARTNERS AXP VP - NEW SMALL CAP S&P 500 DIMENSIONS VALUE INDEX YEAR ENDED AUG. 31, 2003 FUND FUND FUND INVESTMENT INCOME Income: Dividends $ 41,276,845 $ 887,058 $ 2,200,671 Interest 621,068 135,300 52,221 Fee income from securities lending (Note 6) 31,473 -- -- Less foreign taxes withheld (29,917) (22,389) -- - ---------------------------------------------------------------------------------------------------------------------------------- Total income 41,899,469 999,969 2,252,892 - ---------------------------------------------------------------------------------------------------------------------------------- Expenses (Note 2): Investment management services fee 17,629,745 876,649 361,397 Distribution fee 3,592,015 111,147 155,774 Administrative services fees and expenses 1,354,201 72,474 101,514 Custodian fees 159,005 273,097 111,123 Compensation of board members 23,366 8,100 8,099 Printing and postage 690,860 16,783 20,130 Licensing fees -- -- 14,495 Audit fees 24,500 17,500 18,500 Other 6,286 3,034 2,241 - ---------------------------------------------------------------------------------------------------------------------------------- Total expenses 23,479,978 1,378,784 793,273 Expenses waived/reimbursed by AEFC (Note 2) -- -- (176,230) - ---------------------------------------------------------------------------------------------------------------------------------- 23,479,978 1,378,784 617,043 Earnings credits on cash balances (Note 2) (1,223) -- (2,359) - ---------------------------------------------------------------------------------------------------------------------------------- Total net expenses 23,478,755 1,378,784 614,684 - ---------------------------------------------------------------------------------------------------------------------------------- Investment income (loss) -- net 18,420,714 (378,815) 1,638,208 - ---------------------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions (Note 3) (111,274,392) 1,617,768 (564,520) Foreign currency transactions (279,783) (6,330) -- Futures contracts -- -- 883,964 Options contracts written (Note 8) 180,000 -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments (111,374,175) 1,611,438 319,444 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 364,453,383 20,844,781 14,980,671 - ---------------------------------------------------------------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies 253,079,208 22,456,219 15,300,115 - ---------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 271,499,922 $ 22,077,404 $ 16,938,323 ==================================================================================================================================
See accompanying notes to financial statements. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 64 STATEMENTS OF OPERATIONS (CONTINUED) AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
AXP VP - AXP VP - SHORT DURATION SMALL CAP AXP VP - U.S. GOVERNMENT ADVANTAGE STOCK YEAR ENDED AUG. 31, 2003 FUND FUND FUND INVESTMENT INCOME Income: Dividends $ -- $ 646,718 $ 122,158 Interest 13,568,850 21,897 8,614 Fee income from securities lending (Note 6) -- 13,595 -- Less foreign taxes withheld -- (781) (809) - ---------------------------------------------------------------------------------------------------------------------------------- Total income 13,568,850 681,429 129,963 - ---------------------------------------------------------------------------------------------------------------------------------- Expenses (Note 2): Investment management services fee 2,508,938 560,022 41,942 Distribution fee 514,127 86,753 9,574 Administrative services fees and expenses 212,068 42,618 3,064 Custodian fees 52,914 97,000 61,763 Compensation of board members 8,892 8,099 -- Printing and postage 74,569 12,308 2,409 Audit fees 19,500 17,000 17,000 Other -- 109 3,058 - ---------------------------------------------------------------------------------------------------------------------------------- Total expenses 3,391,008 823,909 138,810 Expenses waived/reimbursed by AEFC (Note 2) -- -- (54,735) - ---------------------------------------------------------------------------------------------------------------------------------- 3,391,008 823,909 84,075 Earnings credits on cash balances (Note 2) (381) (2,944) (1,982) - ---------------------------------------------------------------------------------------------------------------------------------- Total net expenses 3,390,627 820,965 82,093 - ---------------------------------------------------------------------------------------------------------------------------------- Investment income (loss) -- net 10,178,223 (139,536) 47,870 - ---------------------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions (Note 3) 2,617,374 (3,472,109) (401,084) Futures contracts (346,810) -- -- Options contracts written (Note 8) 369,173 -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments 2,639,737 (3,472,109) (401,084) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (5,589,855) 24,120,853 1,206,533 - ---------------------------------------------------------------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies (2,950,118) 20,648,744 805,449 - ---------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 7,228,105 $ 20,509,208 $ 853,319 ==================================================================================================================================
See accompanying notes to financial statements. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 65 STATEMENTS OF OPERATIONS (CONTINUED) AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
AXP VP - STRATEGY AGGRESSIVE YEAR ENDED AUG. 31, 2003 FUND INVESTMENT INCOME Income: Dividends $ 2,023,894 Interest 469,728 Fee income from securities lending (Note 6) 56,618 Less foreign taxes withheld (9,887) - ---------------------------------------------------------------------------------------------------------------------------------- Total income 2,540,353 - ---------------------------------------------------------------------------------------------------------------------------------- Expenses (Note 2): Investment management services fee 5,526,254 Distribution fee 1,126,018 Administrative services fees and expenses 498,086 Custodian fees 67,765 Compensation of board members 12,733 Printing and postage 177,695 Audit fees 22,500 Other 5,186 - ---------------------------------------------------------------------------------------------------------------------------------- Total expenses 7,436,237 Earnings credits on cash balances (Note 2) (331) - ---------------------------------------------------------------------------------------------------------------------------------- Total net expenses 7,435,906 - ---------------------------------------------------------------------------------------------------------------------------------- Investment income (loss) -- net (4,895,553) - ---------------------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions (Note 3) (63,101,780) Options contracts written (Note 8) 144,370 - ---------------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments (62,957,410) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 245,325,134 - ---------------------------------------------------------------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies 182,367,724 - ---------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 177,472,171 ==================================================================================================================================
See accompanying notes to financial statements. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 66 STATEMENTS OF CHANGES IN NET ASSETS AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
AXP VP - BLUE CHIP ADVANTAGE FUND AXP VP - CAPITAL RESOURCE FUND YEAR ENDED AUG. 31, 2003 2002 2003 2002 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 577,812 $ 526,692 $ 12,191,053 $ 14,929,976 Net realized gain (loss) on investments (7,004,649) (13,509,279) (188,314,276) (392,662,025) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 11,900,526 (2,735,760) 346,211,686 (31,370,552) - -------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 5,473,689 (15,718,347) 170,088,463 (409,102,601) - -------------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income (575,688) (526,692) (12,159,512) (13,618,196) Net realized gain -- -- -- (226,597,742) - -------------------------------------------------------------------------------------------------------------------------------- Total distributions (575,688) (526,692) (12,159,512) (240,215,938) - -------------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS (NOTE 4) Proceeds from sales 6,618,598 12,387,550 39,257,748 26,311,282 Reinvestment of distributions at net asset value 575,675 510,024 12,843,852 240,885,427 Payments for redemptions (9,355,725) (14,395,624) (455,331,887) (661,353,102) - -------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions (2,161,452) (1,498,050) (403,230,287) (394,156,393) - -------------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 2,736,549 (17,743,089) (245,301,336) (1,043,474,932) Net assets at beginning of year 63,202,870 80,945,959 2,226,805,588 3,270,280,520 - -------------------------------------------------------------------------------------------------------------------------------- Net assets at end of year $ 65,939,419 $ 63,202,870 $ 1,981,504,252 $ 2,226,805,588 ================================================================================================================================ Undistributed (excess of distributions over) net investment income $ (1,958) $ (1,523) $ 14,169 $ (31,541) - --------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
AXP VP - CASH MANAGEMENT FUND AXP VP - DIVERSIFIED BOND FUND YEAR ENDED AUG. 31, 2003 2002 2003 2002 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 7,349,548 $ 17,771,251 $ 78,061,027 $ 92,978,259 Net realized gain (loss) on investments 30 -- 39,706,579 (63,284,059) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies -- -- (36,198,070) 25,649,907 - -------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 7,349,578 17,771,251 81,569,536 55,344,107 - -------------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income (7,349,548) (17,809,621) (78,124,877) (92,738,533) - -------------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS (NOTE 4) Proceeds from sales 1,034,080,685 1,058,210,653 236,544,839 338,056,662 Reinvestment of distributions at net asset value 8,160,797 19,553,193 81,298,134 92,561,111 Payments for redemptions (1,297,109,007) (1,018,223,186) (369,949,868) (205,796,427) - -------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions (254,867,525) 59,540,660 (52,106,895) 224,821,346 - -------------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (254,867,495) 59,502,290 (48,662,236) 187,426,920 Net assets at beginning of year 1,122,882,044 1,063,379,754 1,813,546,984 1,626,120,064 - -------------------------------------------------------------------------------------------------------------------------------- Net assets at end of year $ 868,014,549 $ 1,122,882,044 $ 1,764,884,748 $ 1,813,546,984 ================================================================================================================================ Undistributed (excess of distributions over) net investment income $ -- $ -- $ (603,136) $ 1,087,188 - --------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 67 STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
AXP VP - DIVERSIFIED EQUITY INCOME FUND AXP VP - EMERGING MARKETS FUND YEAR ENDED AUG. 31, 2003 2002 2003 2002 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 6,041,298 $ 3,237,686 $ 80,019 $ 24,112 Net realized gain (loss) on investments (16,484,968) (10,495,341) 40,690 (1,400) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 62,393,427 (36,589,843) 2,605,051 (161,344) - -------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 51,949,757 (43,847,498) 2,725,760 (138,632) - -------------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income (5,837,997) (3,207,115) (41,003) (1,018) Net realized gain -- (723,310) -- -- - -------------------------------------------------------------------------------------------------------------------------------- Total distributions (5,837,997) (3,930,425) (41,003) (1,018) - -------------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS (NOTE 4) Proceeds from sales 127,536,983 285,364,171 10,689,540 5,268,091 Reinvestment of distributions at net asset value 5,418,241 3,199,218 28,135 1,018 Payments for redemptions (76,420,263) (78,822,962) (6,978,719) (985,879) - -------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions 56,534,961 209,740,427 3,738,956 4,283,230 - -------------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 102,646,721 161,962,504 6,423,713 4,143,580 Net assets at beginning of year 267,472,794 105,510,290 9,847,889 5,704,309 - -------------------------------------------------------------------------------------------------------------------------------- Net assets at end of year $ 370,119,515 $ 267,472,794 $ 16,271,602 $ 9,847,889 ================================================================================================================================ Undistributed (excess of distributions over) net investment income $ (41,304) $ (58,180) $ 6,142 $ -- - --------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
AXP VP - EQUITY SELECT FUND AXP VP - GLOBAL BOND FUND YEAR ENDED AUG. 31, 2003 2002 2003 2002 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ (793,469) $ (309,292) $ 8,711,521 $ 7,830,823 Net realized gain (loss) on investments (138,674) (1,472,649) 11,759,222 (2,573,044) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 24,185,577 (7,657,601) 2,830,114 10,510,906 - -------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 23,253,434 (9,439,542) 23,300,857 15,768,685 - -------------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income -- -- (15,508,799) (9,972,691) - -------------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS (NOTE 4) Proceeds from sales 78,499,807 82,057,178 92,043,308 58,834,310 Reinvestment of distributions at net asset value -- -- 16,984,403 8,611,585 Payments for redemptions (3,361,177) (14,281,109) (37,269,180) (31,869,821) - -------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions 75,138,630 67,776,069 71,758,531 35,576,074 - -------------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 98,392,064 58,336,527 79,550,589 41,372,068 Net assets at beginning of year 71,957,237 13,620,710 232,841,883 191,469,815 - -------------------------------------------------------------------------------------------------------------------------------- Net assets at end of year $ 170,349,301 $ 71,957,237 $ 312,392,472 $ 232,841,883 ================================================================================================================================ Undistributed net investment income $ -- $ -- $ 486,617 $ 182,188 - --------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 68 STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
AXP VP - GROWTH FUND AXP VP - HIGH YIELD BOND FUND YEAR ENDED AUG. 31, 2003 2002 2003 2002 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 329,538 $ 1,028 $ 55,763,581 $ 53,834,235 Net realized gain (loss) on investments (9,110,936) (107,229,835) (22,640,290) (121,077,732) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 24,976,105 63,547,901 85,244,865 6,038,329 - -------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 16,194,707 (43,680,906) 118,368,156 (61,205,168) - -------------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income (354,762) -- (53,023,212) (54,044,758) - -------------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS (NOTE 4) Proceeds from sales 82,559,548 35,827,335 425,037,720 186,575,990 Reinvestment of distributions at net asset value 354,762 -- 51,864,894 54,870,752 Payments for redemptions (20,054,062) (24,596,876) (276,410,382) (158,253,604) - -------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions 62,860,248 11,230,459 200,492,232 83,193,138 - -------------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 78,700,193 (32,450,447) 265,837,176 (32,056,788) Net assets at beginning of year 144,454,257 176,904,704 576,865,526 608,922,314 - -------------------------------------------------------------------------------------------------------------------------------- Net assets at end of year $ 223,154,450 $ 144,454,257 $ 842,702,702 $ 576,865,526 ================================================================================================================================ Undistributed (excess of distributions over) net investment income $ (364) $ 340 $ 2,320,156 $ 32,074 - --------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
AXP VP - INTERNATIONAL FUND AXP VP - MANAGED FUND YEAR ENDED AUG. 31, 2003 2002 2003 2002 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 8,751,802 $ 9,090,362 $ 60,986,871 $ 77,138,997 Net realized gain (loss) on investments (113,397,979) (167,464,926) (138,500,813) 24,828,211 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 120,445,926 (17,833,601) 284,044,624 (476,482,350) - -------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 15,799,749 (176,208,165) 206,530,682 (374,515,142) - -------------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income (5,547,305) (8,908,956) (60,600,462) (77,891,964) Net realized gain -- (2,224,868) (29,213,177) (250,253,587) Excess distributions from net investment income (Note 1) -- (4,199,167) -- -- - -------------------------------------------------------------------------------------------------------------------------------- Total distributions (5,547,305) (15,332,991) (89,813,639) (328,145,551) - -------------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS (NOTE 4) Proceeds from sales 404,942,637 274,361,181 49,597,930 35,053,958 Reinvestment of distributions at net asset value 7,254,815 16,483,561 98,478,730 327,385,104 Payments for redemptions (557,645,677) (535,716,623) (557,377,522) (709,804,776) - -------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions (145,448,225) (244,871,881) (409,300,862) (347,365,714) - -------------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (135,195,781) (436,413,037) (292,583,819) (1,050,026,407) Net assets at beginning of year 873,499,479 1,309,912,516 2,709,039,067 3,759,065,474 - -------------------------------------------------------------------------------------------------------------------------------- Net assets at end of year $ 738,303,698 $ 873,499,479 $ 2,416,455,248 $ 2,709,039,067 ================================================================================================================================ Undistributed (excess of distributions over) net investment income $ 510 $ (2,956,839) $ 19,627 $ 230,750 - --------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 69 STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
AXP VP - PARTNERS SMALL CAP AXP VP - NEW DIMENSIONS FUND VALUE FUND YEAR ENDED AUG. 31, 2003 2002 2003 2002 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 18,420,714 $ 17,171,597 $ (378,815) $ (218,680) Net realized gain (loss) on investments (111,374,175) (140,044,412) 1,611,438 469,554 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 364,453,383 (466,854,646) 20,844,781 (7,442,391) - -------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 271,499,922 (589,727,461) 22,077,404 (7,191,517) - -------------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income (18,140,932) (17,226,808) (89,612) -- Net realized gain -- (3,533,136) (317,725) -- - -------------------------------------------------------------------------------------------------------------------------------- Total distributions (18,140,932) (20,759,944) (407,337) -- - -------------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS (NOTE 4) Proceeds from sales 200,067,483 239,607,332 52,429,258 66,069,165 Reinvestment of distributions at net asset value 18,319,384 17,343,868 407,337 -- Payments for redemptions (402,428,794) (493,298,991) (3,387,646) (953,809) - -------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions (184,041,927) (236,347,791) 49,448,949 65,115,356 - -------------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 69,317,063 (846,835,196) 71,119,016 57,923,839 - -------------------------------------------------------------------------------------------------------------------------------- Net assets at beginning of year 3,045,492,764 3,892,327,960 62,708,782 4,784,943 - -------------------------------------------------------------------------------------------------------------------------------- Net assets at end of year $ 3,114,809,827 $ 3,045,492,764 $ 133,827,798 $ 62,708,782 ================================================================================================================================ Undistributed (excess of distributions over) net investment income $ -- $ -- $ (114,349) $ 1,479 - --------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
AXP VP - SHORT DURATION AXP VP - S&P 500 INDEX FUND U.S. GOVERNMENT FUND YEAR ENDED AUG. 31, 2003 2002 2003 2002 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 1,638,208 $ 837,688 $ 10,178,223 $ 5,496,739 Net realized gain (loss) on investments 319,444 (2,639,565) 2,639,737 1,251,741 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 14,980,671 (17,951,524) (5,589,855) 2,718,665 - -------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 16,938,323 (19,753,401) 7,228,105 9,467,145 - -------------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income (1,634,273) (842,615) (10,178,223) (5,496,739) Net realized gain -- -- (1,387,607) (264,298) - -------------------------------------------------------------------------------------------------------------------------------- Total distributions (1,634,273) (842,615) (11,565,830) (5,761,037) - -------------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS (NOTE 4) Proceeds from sales 67,724,355 69,263,218 273,291,893 182,106,477 Reinvestment of distributions at net asset value 1,425,617 670,952 11,535,473 5,416,056 Payments for redemptions (11,723,973) (6,666,038) (77,268,814) (21,995,473) - -------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions 57,425,999 63,268,132 207,558,552 165,527,060 - -------------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 72,730,049 42,672,116 203,220,827 169,233,168 - -------------------------------------------------------------------------------------------------------------------------------- Net assets at beginning of year 98,574,190 55,902,074 275,708,332 106,475,164 - -------------------------------------------------------------------------------------------------------------------------------- Net assets at end of year $ 171,304,239 $ 98,574,190 $ 478,929,159 $ 275,708,332 ================================================================================================================================
See accompanying notes to financial statements. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 70 STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
AXP VP - SMALL CAP ADVANTAGE FUND AXP VP - STOCK FUND YEAR ENDED AUG. 31, 2003 2002 2003 2002 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ (139,536) $ (120,145) $ 47,870 $ 18,895 Net realized gain (loss) on investments (3,472,109) (4,087,349) (401,084) (412,004) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 24,120,853 (4,682,108) 1,206,533 (283,648) - -------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 20,509,208 (8,889,602) 853,319 (676,757) - -------------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income -- -- (48,267) (18,391) - -------------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS (NOTE 4) Proceeds from sales 25,694,819 23,713,018 6,299,134 3,812,517 Reinvestment of distributions at net asset value -- -- 42,016 14,213 Payments for redemptions (3,903,840) (4,777,768) (494,002) (242,563) - -------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions 21,790,979 18,935,250 5,847,148 3,584,167 - -------------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 42,300,187 10,045,648 6,652,200 2,889,019 Net assets at beginning of year 59,275,794 49,230,146 4,873,099 1,984,080 - -------------------------------------------------------------------------------------------------------------------------------- Net assets at end of year $ 101,575,981 $ 59,275,794 $ 11,525,299 $ 4,873,099 ================================================================================================================================ Undistributed net investment income $ 17,697 $ 10,342 $ 691 $ 1,088 - --------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS
AXP VP - STRATEGY AGGRESSIVE FUND YEAR ENDED AUG. 31, 2003 2002 OPERATIONS Investment income (loss) -- net $ (4,895,553) $ (7,402,355) Net realized gain (loss) on investments (62,957,410) (551,796,489) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 245,325,134 55,661,883 - -------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 177,472,171 (503,536,961) - -------------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS (NOTE 4) Proceeds from sales 42,357,867 77,928,737 Reinvestment of distributions at net asset value -- 2,827,564 Payments for redemptions (241,907,633) (400,968,776) - -------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions (199,549,766) (320,212,475) - -------------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (22,077,595) (823,749,436) Net assets at beginning of year 990,759,976 1,814,509,412 - -------------------------------------------------------------------------------------------------------------------------------- Net assets at end of year $ 968,682,381 $ 990,759,976 ================================================================================================================================ Undistributed net investment income $ 555,302 $ 319,691 - --------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 71 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) (the 1940 Act) as a diversified, (non-diversified for AXP VP - Global Bond Fund, AXP VP - Partners Small Cap Value Fund and AXP VP - S&P 500 Index Fund) open-end management investment company. Each Fund has 10 billion authorized shares of capital stock. 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 Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index). AXP VP - Capital Resource Fund invests primarily in U.S. common stocks. AXP VP - Cash Management Fund invests primarily 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. AXP VP - Diversified Bond Fund (formerly AXP VP - Bond Fund) invests primarily in bonds and other debt obligations including securities issued by the U.S. government, corporate bonds and mortgage- and asset-backed securities. AXP VP - Diversified Equity Income Fund invests primarily in dividend-paying common and preferred stocks. AXP VP - Emerging Markets Fund invests primarily in equity securities of companies in emerging market countries. AXP VP - Equity Select Fund invests primarily in growth stocks of medium-sized companies. AXP VP - Global Bond Fund invests primarily in debt securities of U.S. and foreign issuers. AXP VP - Growth Fund invests primarily in common stocks that appear to offer growth opportunities. AXP VP - High Yield Bond Fund (formerly 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 - 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, bonds and other debt securities. AXP VP - New Dimensions Fund invests primarily in common stocks showing potential for significant growth. AXP VP - Partners Small Cap Value Fund invests primarily in equity securities of small capitalization companies. 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 S&P 500 Index. AXP VP - Short Duration U.S. Government Fund (formerly AXP VP - Federal Income Fund) invests primarily in debt obligations 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. AXP VP - Small Cap Advantage Fund invests primarily in equity securities of small companies. AXP VP - Stock Fund invests primarily in common stocks and securities convertible into common stocks. AXP VP - Strategy Aggressive Fund invests primarily in securities of growth companies. You may not buy (nor will you own) shares of each Fund directly. You invest by buying a variable annuity contract or life insurance policy and allocating your purchase payments to the variable subaccount or variable account (the subaccounts) that invests in each Fund. Each 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, liabilities and contingent 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. Foreign securities are valued based on quotations from the principal market in which such securities are normally traded. If trading or events occurring in other markets after the close of the principal market in which foreign securities are traded, and before the close of business of the Fund, are expected to materially affect the value of those securities, then they are valued at their fair value taking this trading or these events into account. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 72 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 write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. The Funds also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the 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. 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. As of Aug. 31, 2003 foreign currency holdings for AXP VP - Global Bond Fund, AXP - VP Emerging Markets Fund and AXP VP - International Fund consisted of multiple denominations and foreign currency holdings for AXP VP - New Dimensions Fund were entirely comprised of Taiwan Dollars. The Funds, except AXP VP - Cash Management Fund and AXP VP - Short Duration U.S. Government Fund, may enter into forward foreign currency exchange contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the 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, 2003, investments in securities for AXP VP - Capital Resource Fund, AXP VP - Diversified Bond Fund, AXP VP - High Yield Bond Fund and AXP VP - Strategy Aggressive Fund, included issues that are illiquid which the 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, 2003, was $10,437,182, $2,790,233, $20,805,972 and $17,527,489, representing 0.53%, 0.16%, 2.47% and 1.81% of net assets for AXP VP - Capital Resource Fund, AXP VP - Diversified Bond Fund, AXP VP - High Yield Bond Fund and AXP VP - Strategy Aggressive Fund, respectively. These securities are valued at fair value according to methods selected in good faith by the board. According to board guidelines, certain unregistered securities are determined to be liquid and are not included within the 10% limitation specified above. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 73 SECURITIES PURCHASED ON A FORWARD-COMMITMENT BASIS Delivery and payment for securities that have been purchased by the Funds on a forward-commitment basis, including when-issued securities, other forward-commitments and future capital commitments for limited partnership interests, can take place one month or more after the transaction date. During this period, when-issued securities and other forward-commitments are subject to market fluctuations, and they may affect each Fund's net assets the same as owned securities. The Funds designate cash or liquid securities at least equal to the amount of its forward-commitments. As of Aug. 31, 2003, the outstanding forward-commitments for the Funds are as follows:
WHEN-ISSUED OTHER FUTURE FUND SECURITIES FORWARD-COMMITMENTS CAPITAL COMMITMENTS - ------------------------------------------------------------------------------------------------------------------------ AXP VP - Diversified Bond Fund $ 178,867,172 $ 28,645,717 $ -- AXP VP - Global Bond Fund 17,757,818 2,978,247 -- AXP VP - High Yield Bond Fund -- 2,105,625 -- AXP VP - Managed Fund 60,098,087 16,666,879 -- AXP VP - Short Duration U.S. Government Fund 12,606,504 973,945 -- AXP VP - Strategy Aggressive Fund -- -- 4,275,000 - ------------------------------------------------------------------------------------------------------------------------
Certain Funds may also enter into transactions to sell purchase commitments to third parties at current market values and concurrently acquire other purchase commitments for similar securities at later dates. As an inducement for these Funds to "roll over" their purchase commitments, these Funds receive negotiated amounts in the form of reductions of the purchase price of the commitment. 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 subaccounts. 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 statement 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 - AXP VP - AXP VP - AXP VP - BLUE CHIP CAPITAL CASH DIVERSIFIED DIVERSIFIED EMERGING ADVANTAGE RESOURCE MANAGEMENT BOND EQUITY INCOME MARKETS FUND FUND FUND FUND FUND FUND - ----------------------------------------------------------------------------------------------------------------------------- Accumulated net realized gain (loss) $ 2,559 $ (14,169) $ -- $ 1,626,474 $ 186,425 $ 32,245 Undistributed net investment income (2,559) 14,169 -- (1,626,474) (186,425) (32,874) - ----------------------------------------------------------------------------------------------------------------------------- Additional paid-in capital reduction (increase) $ -- $ -- $ -- $ -- $ -- $ (629) - -----------------------------------------------------------------------------------------------------------------------------
AXP VP - AXP VP - AXP VP - AXP VP - AXP VP - AXP VP - EQUITY SELECT GLOBAL BOND GROWTH HIGH YIELD BOND INTERNATIONAL MANAGED FUND FUND FUND FUND FUND FUND - ----------------------------------------------------------------------------------------------------------------------------- Accumulated net realized gain (loss) $ -- $ (7,101,707) $ 466 $ 452,287 $ 247,148 $ 597,532 Undistributed net investment income 793,469 7,101,707 24,520 (452,287) (247,148) (597,532) - ----------------------------------------------------------------------------------------------------------------------------- Additional paid-in capital reduction (increase) $ 793,469 $ -- $ 24,986 $ -- $ -- $ -- - -----------------------------------------------------------------------------------------------------------------------------
AXP VP - AXP VP - AXP VP - AXP VP - AXP VP - AXP VP - NEW PARTNERS S&P 500 SHORT DURATION SMALL CAP AXP VP - STRATEGY DIMENSIONS SMALL CAP INDEX U.S. GOVERNMENT ADVANTAGE STOCK AGGRESSIVE FUND VALUE FUND FUND FUND FUND FUND FUND - ----------------------------------------------------------------------------------------------------------------------------------- Accumulated net realized gain (loss) $ 279,782 $ (355,091) $ 11,854 $ -- $ 40,517 $ -- $ -- Undistributed net investment income (279,782) 352,599 (11,854) -- 146,891 -- 5,131,164 - ----------------------------------------------------------------------------------------------------------------------------------- Additional paid-in capital reduction (increase) $ -- $ (2,492) $ -- $ -- $ 187,408 $ -- $ 5,131,164 - -----------------------------------------------------------------------------------------------------------------------------------
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 74 The tax character of distributions paid for the years indicated is as follows:
YEAR ENDED AUG. 31, 2003 2002 - ---------------------------------------------------------------------------------- AXP VP - Blue Chip Advantage Fund Distributions paid from: Ordinary income $ 575,688 $ 526,692 Long-term capital gain -- -- AXP VP - Capital Resource Fund Distributions paid from: Ordinary income 12,159,512 13,618,196 Long-term capital gain -- 226,597,742 AXP VP - Cash Management Fund Distributions paid from: Ordinary income 7,349,548 17,809,621 Long-term capital gain -- -- AXP VP - Diversified Bond Fund Distributions paid from: Ordinary income 78,124,877 92,738,533 Long-term capital gain -- -- AXP VP - Diversified Equity Income Fund Distributions paid from: Ordinary income 5,837,997 3,836,273 Long-term capital gain -- 94,152 AXP VP - Emerging Markets Fund Distributions paid from: Ordinary income 41,003 1,018 Long-term capital gain -- -- AXP VP - Equity Select Fund Distributions paid from: Ordinary income -- -- Long-term capital gain -- -- AXP VP - Global Bond Fund Distributions paid from: Ordinary income 15,508,799 9,972,691 Long-term capital gain -- -- AXP VP - Growth Fund Distributions paid from: Ordinary income 354,762 -- Long-term capital gain -- -- AXP VP - High Yield Bond Fund Distributions paid from: Ordinary income 53,023,212 54,044,758 Long-term capital gain -- -- AXP VP - International Fund Distributions paid from: Ordinary income 5,547,305 13,108,123 Long-term capital gain -- 2,224,868 AXP VP - Managed Fund Distributions paid from: Ordinary income 60,600,462 77,891,964 Long-term capital gain 29,213,177 250,253,587
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 75
YEAR ENDED AUG. 31, 2003 2002 - ---------------------------------------------------------------------------------- AXP VP - New Dimensions Fund Distributions paid from: Ordinary income $ 18,140,932 $ 17,226,808 Long-term capital gain -- 3,533,136 AXP VP - Partners Small Cap Value Fund Distributions paid from: Ordinary income 407,236 -- Long-term capital gain 101 -- AXP VP - S&P 500 Index Fund Distributions paid from: Ordinary income 1,634,273 842,615 Long-term capital gain -- -- AXP VP - Short Duration U.S. Government Fund Distributions paid from: Ordinary income 11,091,527 5,713,659 Long-term capital gain 474,303 47,378 AXP VP - Small Cap Advantage Fund Distributions paid from: Ordinary income -- -- Long-term capital gain -- -- AXP VP - Stock Fund Distributions paid from: Ordinary income 48,267 18,391 Long-term capital gain -- -- AXP VP - Strategy Aggressive Fund Distributions paid from: Ordinary income -- -- Long-term capital gain -- --
As of Aug. 31, 2003, the components of distributable earnings on a tax basis for each Fund are as follows:
ACCUMULATED UNREALIZED UNDISTRIBUTED LONG-TERM APPRECIATION FUND ORDINARY INCOME GAIN (LOSS) (DEPRECIATION) - --------------------------------------------------------------------------------------------------------- AXP VP - Blue Chip Advantage Fund $ 128,967 $ (33,756,009) $ (413,202) AXP VP - Capital Resource Fund 2,665,168 (571,842,581) 95,934,885 AXP VP - Cash Management Fund 196,568 (3,091) -- AXP VP - Diversified Bond Fund 3,860,901 (139,636,838) (32,305,167) AXP VP - Diversified Equity Income Fund 807,977 (21,848,621) 20,766,903 AXP VP - Emerging Markets Fund 132,119 (1,685,173) 1,989,371 AXP VP - Equity Select Fund -- (929,452) 15,218,121 AXP VP - Global Bond Fund 1,561,440 (5,792,969) 6,675,110 AXP VP - Growth Fund -- (164,893,812) 12,999,316 AXP VP - High Yield Bond Fund 3,473,465 (300,351,153) 10,662,849 AXP VP - International Fund 3,765,642 (794,731,098) 26,220,989 AXP VP - Managed Fund 12,885,808 (149,722,831) 41,396,623 AXP VP - New Dimensions Fund 4,936,029 (512,441,380) 184,518,251 AXP VP - Partners Small Cap Value Fund 1,803,430 (231,273) 12,827,167 AXP VP - S&P 500 Index Fund 481,834 (2,590,558) (12,993,096) AXP VP - Short Duration U.S. Government Fund 2,618,148 411,876 (768,348) AXP VP - Small Cap Advantage Fund -- (9,684,863) 17,275,702 AXP VP - Stock Fund 13,257 (764,578) 777,723 AXP VP - Strategy Aggressive Fund -- (1,346,618,303) 51,809,499
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 76 DIVIDENDS As of Aug. 31, 2003, dividends declared for each Fund payable Sept. 2, 2003 are as follows:
FUND AMOUNT PER SHARE - ------------------------------------------------------------------------------------------ AXP VP - Blue Chip Advantage Fund $ 0.0142 AXP VP - Capital Resource Fund 0.0241 AXP VP - Cash Management Fund 0.0002 AXP VP - Diversified Bond Fund 0.0276 AXP VP - Diversified Equity Income Fund 0.0387 AXP VP - Emerging Markets 0.0067 AXP VP - Global Bond Fund 0.0195 AXP VP - High Yield Bond Fund 0.0396 AXP VP - International Fund 0.0256 AXP VP - Managed Fund 0.0699 AXP VP - New Dimensions Fund 0.0227 AXP VP - S&P 500 Index Fund 0.0199 AXP VP - Short Duration U.S. Government Fund 0.0161 AXP VP - Stock Fund 0.0092
Distributions to the subaccounts 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, when available, for AXP VP - Cash Management Fund, AXP VP - Diversified Bond Fund, AXP VP - Global Bond, AXP VP - High Yield Bond Fund and AXP VP - Short Duration U.S. Government Fund and declared and distributed quarterly, when available, for AXP VP - Blue Chip Advantage Fund, AXP VP - Capital Resource Fund, AXP VP - Diversified Equity Income Fund, AXP VP - Emerging Markets Fund, AXP VP - Equity Select Fund, AXP VP - Growth Fund, AXP VP - International Fund, AXP VP - Managed Fund, AXP VP - New Dimensions Fund, AXP VP - Partners Small Cap Value Fund, AXP VP - S&P 500 Index Fund, AXP VP - Small Cap Advantage Fund, AXP VP - Stock Fund and AXP VP - Strategy Aggressive Fund. 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. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of the security received. Interest income, including amortization of premium and discount using the effective interest method, is accrued daily. 2. EXPENSES The Funds have an Investment Management Services Agreement with IDS Life Insurance Company (IDS Life) for managing investments, record keeping and other services that are based solely on the assets of each Fund. Under an investment advisory agreement, IDS Life pays American Express Financial Corporation (AEFC) a fee for investment advice. Shareholders have approved a change to the Investment Management Services Agreement to combine all investment roles within AEFC. The Funds plan to implement this change of investment manager to AEFC in the near future. 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 - Capital Resource Fund 0.630% to 0.570% AXP VP - Cash Management Fund 0.510% to 0.440% AXP VP - Diversified Bond Fund 0.610% to 0.535% AXP VP - Diversified Equity Income Fund 0.560% to 0.470% AXP VP - Emerging Markets Fund 1.170% to 1.095% AXP VP - Equity Select Fund 0.650% to 0.560% AXP VP - Global Bond Fund 0.840% to 0.780% AXP VP - Growth Fund 0.630% to 0.570% AXP VP - High Yield Bond Fund 0.620% to 0.545% 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 - Partners Small Cap Value Fund 1.020% to 0.920% AXP VP - S&P 500 Index Fund 0.290% to 0.260% AXP VP - Short Duration U.S. Government Fund 0.610% to 0.535% AXP VP - Small Cap Advantage Fund 0.790% to 0.650% AXP VP - Stock Fund 0.560% to 0.470% AXP VP - Strategy Aggressive Fund 0.650% to 0.575%
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 77 For the following Funds the fee may be adjusted upward or downward by a performance incentive adjustment. The adjustment is based on a comparison of the performance of each Fund to the stated index up to a maximum percentage of each 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. On Nov. 13, 2002, shareholders approved modification of the performance incentive adjustment calculation by adjusting the performance difference intervals, changing the maximum adjustment for some of the Funds and reducing the amount of the performance difference for which no adjustment is made to 0.50%. In addition, a performance incentive adjustment was added to five of the Funds for which the first adjustment was made on June 1, 2003 and covered the six-month period beginning Dec. 1, 2002. The index name, maximum percentage adjustment and the amount the fee was increased (decreased) for each Fund for the year ended Aug. 31, 2003 are as follows:
MAXIMUM MAXIMUM ADJUSTMENT ADJUSTMENT INDEX INCREASE FUND (PRIOR TO DEC. 1, 2002) (AFTER DEC. 1, 2002) NAME (DECREASE) - ----------------------------------------------------------------------------------------------------------------------------------- AXP VP - Blue Chip Advantage Fund 0.08% 0.12% Lipper Large-Cap Core Funds Index $ (17,027) AXP VP - Capital Resource Fund N/A 0.12% Lipper Large-Cap Core Funds Index 415,078 AXP VP - Diversified Equity Income Fund 0.08% 0.12% Lipper Equity Income Funds Index (92,950) AXP VP - Emerging Markets Fund 0.12% 0.12% Lipper Emerging Markets Funds Index (4,524) AXP VP - Equity Select Fund 0.12% 0.12% Lipper Mid-Cap Growth Funds Index 37,180 AXP VP - Growth Fund 0.12% 0.12% Lipper Large-Cap Growth Funds Index 37,751 AXP VP - International Fund N/A 0.12% Lipper International Funds Index (157,857) AXP VP - Managed Fund N/A 0.08% Lipper Balanced Funds Index 76,793 AXP VP - New Dimensions Fund N/A 0.12% Lipper Large-Cap Growth Funds Index (58,606) AXP VP - Partners Small Cap Value Fund 0.12% 0.12% Lipper Small-Cap Value Funds Index (30,309) AXP VP - Small Cap Advantage Fund 0.12% 0.12% Lipper Small-Cap Core Funds Index 11,741 AXP VP - Stock Fund 0.08% 0.12% Lipper Large-Cap Core Funds Index (951) AXP VP - Strategy Aggressive Fund N/A 0.12% Lipper Mid-Cap Growth Funds Index (148,057) - -----------------------------------------------------------------------------------------------------------------------------------
IDS Life, in turn, pays to American Express Financial Corporation (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 - Emerging Markets Fund and AXP VP - International Fund and 0.25% for each remaining Fund. AEFC has Subadvisory Agreements with American Express Asset Management International Inc., a wholly-owned subsidiary of AEFC to subadvise the assets of AXP VP - Emerging Markets Fund and AXP VP - International Fund and Kenwood Capital Management LLC, an indirect subsidiary of AEFC to subadvise the assets of AXP VP - Small Cap Advantage Fund. AEFC has Subadvisory Agreements with Royce & Associates, LLC (Royce), a wholly-owned subsidiary of Legg Mason, Third Avenue Management LLC (Third Avenue) and Goldman Sachs Asset Management, L.P. (GSAM) for AXP VP - Partners Small Cap Value Fund. Prior to Aug. 11, 2003, National City was allocated 50% of new investments in the Fund, net of any redemptions, while Royce and Third Avenue were each allocated 25%. Currently, AEFC anticipates allocating new assets so that over time each subadviser manages approximately one-third of AXP VP - Partners Small Cap Value Fund. Each subadviser's proportionate share of investments in AXP VP - Partners Small Cap Value Fund will vary due to market fluctuations. In addition to paying its own management fee, brokerage commissions, taxes and costs of certain legal services, each Fund will reimburse IDS Life an amount equal 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. The Funds have an agreement with IDS Life for distribution services. Under a Plan and Agreement of Distribution, each Fund pays a fee at an annual rate up to 0.125% of each Fund's average daily net assets. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 78 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 - Capital Resource Fund 0.050% to 0.030% AXP VP - Cash Management Fund 0.030% to 0.020% AXP VP - Diversified Bond Fund 0.050% to 0.025% AXP VP - Diversified Equity Income Fund 0.040% to 0.020% AXP VP - Emerging Markets Fund 0.100% to 0.050% AXP VP - Equity Select Fund 0.060% to 0.030% AXP VP - Global Bond Fund 0.060% to 0.040% AXP VP - Growth Fund 0.050% to 0.030% AXP VP - High Yield Bond Fund 0.050% to 0.025% 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 - Partners Small Cap Value Fund 0.080% to 0.055% AXP VP - S&P 500 Index Fund 0.080% to 0.065% AXP VP - Short Duration U.S. Government Fund 0.050% to 0.025% AXP VP - Small Cap Advantage Fund 0.060% to 0.035% AXP VP - Stock Fund 0.040% to 0.020% 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. For the year ended Aug. 31, 2003, AEFC waived certain fees and expenses to 1.75% for AXP VP - Emerging Markets Fund, 0.50% for AXP VP - S&P 500 Index Fund, and 1.10% for AXP VP - Stock Fund. In addition, IDS Life and AEFC have agreed to waive certain fees and expenses until April 30, 2004. Under this agreement, total expenses will not exceed the following percentage of the Fund's average daily net assets:
FUND PERCENTAGE - ------------------------------------------------------------------------------------------------------------ AXP VP - Emerging Markets Fund 1.750% AXP VP - Equity Select Fund 1.100% AXP VP - S&P 500 Index Fund 0.495% AXP VP - Stock Fund 1.100%
During the year ended Aug. 31, 2003, the Fund's custodian fees were reduced as a result of earnings credits from overnight cash balances as follows:
FUND REDUCTION - ------------------------------------------------------------------------------------------------------------- AXP VP - Blue Chip Advantage Fund $ 763 AXP VP - Capital Resource Fund 716 AXP VP - Cash Management Fund 282 AXP VP - Diversified Bond Fund 1,154 AXP VP - Diversified Equity Income Fund 806 AXP VP - Emerging Markets Fund 1,915 AXP VP - Equity Select Fund 2,194 AXP VP - Global Bond Fund 400 AXP VP - Growth Fund 1,120 AXP VP - High Yield Bond Fund 806 AXP VP - International Fund 475 AXP VP - Managed Fund 1,026 AXP VP - New Dimensions Fund 1,223 AXP VP - S&P 500 Index Fund 2,359 AXP VP - Short Duration U.S. Government Fund 381 AXP VP - Small Cap Advantage Fund 2,944 AXP VP - Stock Fund 1,982 AXP VP - Strategy Aggressive Fund 331
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 79 3. SECURITIES TRANSACTIONS For the year ended Aug. 31, 2003, cost of purchases and proceeds from sales of securities aggregated $5,797,015,537 and $6,045,692,491, respectively, 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 $ 50,214,915 $ 54,331,767 AXP VP - Capital Resource Fund 2,114,277,877 2,415,103,269 AXP VP - Diversified Bond Fund 4,415,259,393 4,396,786,112 AXP VP - Diversified Equity Income Fund 164,297,867 107,596,522 AXP VP - Emerging Markets Fund 24,822,981 21,152,765 AXP VP - Equity Select Fund 90,813,985 20,544,200 AXP VP - Global Bond Fund 327,526,881 270,710,960 AXP VP - Growth Fund 326,745,656 293,311,814 AXP VP - High Yield Bond Fund 1,105,778,030 905,873,451 AXP VP - International Fund 724,572,262 851,100,081 AXP VP - Managed Fund 2,792,536,323 3,269,351,210 AXP VP - New Dimensions Fund 660,619,120 916,910,222 AXP VP - Partners Small Cap Value Fund 107,493,520 69,332,848 AXP VP - S&P 500 Index Fund 61,917,771 6,672,193 AXP VP - Short Duration U.S. Government Fund 933,062,381 721,848,961 AXP VP - Small Cap Advantage Fund 107,203,992 85,241,265 AXP VP - Stock Fund 10,501,556 5,256,252 AXP VP - Strategy Aggressive Fund 239,701,093 411,580,608
Net realized gains and losses on investment sales are determined on an identified cost basis. Brokerage clearing fees paid to brokers affiliated with IDS Life for the year ended Aug. 31, 2003 are as follows:
FUND AMOUNT PAID - ------------------------------------------------------------------------------------------------- AXP VP - Blue Chip Advantage Fund $ 1,274 AXP VP - Capital Resource Fund 23,751 AXP VP - Diversified Equity Income Fund 9,635 AXP VP - Growth Fund 31,108 AXP VP - Managed Fund 172,596 AXP VP - New Dimensions Fund 32,412 AXP VP - Small Cap Advantage Fund 57 AXP VP - Strategy Aggressive Fund 18,428
Brokerage commissions paid to brokers affiliated with the subadvisers for AXP VP - - Partners Small Cap Value Fund were $74,790 for the year ended Aug. 31, 2003. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the years indicated are as follows:
YEAR ENDED AUG. 31, 2003 - ------------------------------------------------------------------------------------------------ AXP VP - AXP VP - AXP VP - BLUE CHIP CAPITAL CASH ADVANTAGE RESOURCE MANAGEMENT FUND FUND FUND - ------------------------------------------------------------------------------------------------ Sold 1,008,616 2,362,134 1,034,451,999 Issued for reinvested distributions 88,889 800,832 8,163,727 Redeemed (1,473,639) (28,451,446) (1,297,574,772) - ------------------------------------------------------------------------------------------------ Net increase (decrease) (376,134) (25,288,480) (254,959,046) - ------------------------------------------------------------------------------------------------
YEAR ENDED AUG. 31, 2002 - ------------------------------------------------------------------------------------------------ AXP VP - AXP VP - AXP VP - BLUE CHIP CAPITAL CASH ADVANTAGE RESOURCE MANAGEMENT FUND FUND FUND - ------------------------------------------------------------------------------------------------ Sold 1,590,826 1,436,087 1,058,582,063 Issued for reinvested distributions 64,140 12,638,213 19,559,976 Redeemed (1,986,639) (35,665,988) (1,018,583,282) - ------------------------------------------------------------------------------------------------ Net increase (decrease) (331,673) (21,591,688) 59,558,757 - ------------------------------------------------------------------------------------------------
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 80
YEAR ENDED AUG. 31, 2003 - ------------------------------------------------------------------------------------------------ AXP VP - AXP VP - AXP VP - DIVERSIFIED DIVERSIFIED EMERGING BOND EQUITY INCOME MARKETS FUND FUND FUND - ------------------------------------------------------------------------------------------------ Sold 22,489,701 15,141,340 1,532,314 Issued for reinvested distributions 7,739,126 656,338 3,929 Redeemed (35,224,619) (9,246,293) (1,005,938) - ------------------------------------------------------------------------------------------------ Net increase (decrease) (4,995,792) 6,551,385 530,305 - ------------------------------------------------------------------------------------------------
YEAR ENDED AUG. 31, 2002 ----------------------------------------------------------------------------------------------- AXP VP - AXP VP - AXP VP - DIVERSIFIED DIVERSIFIED EMERGING BOND EQUITY INCOME MARKETS FUND FUND FUND - ------------------------------------------------------------------------------------------------ Sold 32,427,670 29,435,932 675,358 Issued for reinvested distributions 8,842,954 319,622 147 Redeemed (19,778,881) (8,277,637) (131,141) - ------------------------------------------------------------------------------------------------ Net increase (decrease) 21,491,743 21,477,917 544,364 - ------------------------------------------------------------------------------------------------
YEAR ENDED AUG. 31, 2003 - ------------------------------------------------------------------------------------------------ AXP VP - AXP VP - EQUITY GLOBAL AXP VP - SELECT BOND GROWTH FUND FUND FUND - ------------------------------------------------------------------------------------------------ Sold 8,836,598 8,750,558 15,981,122 Issued for reinvested distributions -- 1,621,030 70,858 Redeemed (384,943) (3,568,486) (3,986,581) - ------------------------------------------------------------------------------------------------ Net increase (decrease) 8,451,655 6,803,102 12,065,399 - ------------------------------------------------------------------------------------------------
YEAR ENDED AUG. 31, 2002 - ------------------------------------------------------------------------------------------------ AXP VP - AXP VP - EQUITY GLOBAL AXP VP - SELECT BOND GROWTH FUND FUND FUND - ------------------------------------------------------------------------------------------------ Sold 8,511,084 6,018,539 5,979,237 Issued for reinvested distributions -- 893,799 -- Redeemed (1,507,262) (3,291,689) (4,397,794) - ------------------------------------------------------------------------------------------------ Net increase (decrease) 7,003,822 3,620,649 1,581,443 - ------------------------------------------------------------------------------------------------
YEAR ENDED AUG. 31, 2003 - ------------------------------------------------------------------------------------------------ AXP VP - HIGH YIELD AXP VP - AXP VP - BOND INTERNATIONAL MANAGED FUND FUND FUND - ------------------------------------------------------------------------------------------------ Sold 71,858,946 61,563,364 4,062,031 Issued for reinvested distributions 8,853,755 1,051,833 7,990,651 Redeemed (47,133,508) (84,683,630) (46,100,074) - ------------------------------------------------------------------------------------------------ Net increase (decrease) 33,579,193 (22,068,433) (34,047,392) - ------------------------------------------------------------------------------------------------
YEAR ENDED AUG. 31, 2002 - ------------------------------------------------------------------------------------------------ AXP VP - HIGH YIELD AXP VP - AXP VP - BOND INTERNATIONAL MANAGED FUND FUND FUND - ------------------------------------------------------------------------------------------------ Sold 29,589,447 35,702,230 2,568,221 Issued for reinvested distributions 8,675,279 2,028,378 23,669,165 Redeemed (25,495,937) (68,997,946) (52,085,480) - ------------------------------------------------------------------------------------------------ Net increase (decrease) 12,768,789 (31,267,338) (25,848,094) - ------------------------------------------------------------------------------------------------
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 81
YEAR ENDED AUG. 31, 2003 - ------------------------------------------------------------------------------------------------ AXP VP - AXP VP - PARTNERS AXP VP - NEW SMALL CAP S&P 500 DIMENSIONS VALUE INDEX FUND FUND FUND - ------------------------------------------------------------------------------------------------ Sold 15,280,603 5,477,129 10,815,463 Issued for reinvested distributions 1,422,655 41,935 229,997 Redeemed (31,925,693) (356,206) (1,925,880) - ------------------------------------------------------------------------------------------------ Net increase (decrease) (15,222,435) 5,162,858 9,119,580 - ------------------------------------------------------------------------------------------------
YEAR ENDED AUG. 31, 2002 - ------------------------------------------------------------------------------------------------ AXP VP - AXP VP - PARTNERS AXP VP - NEW SMALL CAP S&P 500 DIMENSIONS VALUE INDEX FUND FUND FUND - ------------------------------------------------------------------------------------------------ Sold 15,837,795 6,189,596 9,458,245 Issued for reinvested distributions 1,127,450 -- 88,952 Redeemed (35,154,263) (90,834) (1,004,336) - ------------------------------------------------------------------------------------------------ Net increase (decrease) (18,189,018) 6,098,762 8,542,861 - ------------------------------------------------------------------------------------------------
YEAR ENDED AUG. 31, 2003 - ------------------------------------------------------------------------------------------------ AXP VP - AXP VP - SHORT DURATION SMALL CAP AXP VP - U.S. GOVERNMENT ADVANTAGE STOCK FUND FUND FUND - ------------------------------------------------------------------------------------------------ Sold 25,859,995 2,733,191 806,564 Issued for reinvested distributions 1,092,715 -- 5,373 Redeemed (7,318,788) (445,359) (62,280) - ------------------------------------------------------------------------------------------------ Net increase (decrease) 19,633,922 2,287,832 749,657 - ------------------------------------------------------------------------------------------------
YEAR ENDED AUG. 31, 2002 - ------------------------------------------------------------------------------------------------ AXP VP - AXP VP - SHORT DURATION SMALL CAP AXP VP - U.S. GOVERNMENT ADVANTAGE STOCK FUND FUND FUND - ------------------------------------------------------------------------------------------------ Sold 17,445,761 2,371,220 426,883 Issued for reinvested distributions 520,613 -- 1,527 Redeemed (2,116,788) (484,255) (27,812) - ------------------------------------------------------------------------------------------------ Net increase (decrease) 15,849,586 1,886,965 400,598 - ------------------------------------------------------------------------------------------------
YEAR ENDED AUG. 31, 2003 - --------------------------------------------------------------------------------------------- AXP VP - STRATEGY AGGRESSIVE FUND - --------------------------------------------------------------------------------------------- Sold 6,880,685 Issued for reinvested distributions -- Redeemed (41,451,528) - --------------------------------------------------------------------------------------------- Net increase (decrease) (34,570,843) - ---------------------------------------------------------------------------------------------
YEAR ENDED AUG. 31, 2002 - --------------------------------------------------------------------------------------------- AXP VP - STRATEGY AGGRESSIVE FUND - --------------------------------------------------------------------------------------------- Sold 10,311,970 Issued for reinvested distributions 341,129 Redeemed (56,399,156) - --------------------------------------------------------------------------------------------- Net increase (decrease) (45,746,057) - ---------------------------------------------------------------------------------------------
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 82 5. FORWARD FOREIGN CURRENCY CONTRACTS As of Aug. 31, 2003, AXP VP - Emerging Markets Fund and AXP VP - Global Bond Fund have entered into forward 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
CURRENCY TO CURRENCY TO UNREALIZED UNREALIZED EXCHANGE DATE BE DELIVERED BE RECEIVED APPRECIATION DEPRECIATION - ---------------------------------------------------------------------------------------------------------------------------- Sept. 2, 2003 197,338 310,096 $ -- $ 2,043 British Pound U.S. Dollar Sept. 4, 2003 68,612 503,850 107 -- U.S. Dollar South African Rand Sept. 5, 2003 40,366 296,126 33 -- U.S. Dollar South African Rand - ---------------------------------------------------------------------------------------------------------------------------- $ 140 $ 2,043 - ----------------------------------------------------------------------------------------------------------------------------
AXP VP - GLOBAL BOND FUND
CURRENCY TO CURRENCY TO UNREALIZED UNREALIZED EXCHANGE DATE BE DELIVERED BE RECEIVED APPRECIATION DEPRECIATION - ---------------------------------------------------------------------------------------------------------------------------- Sept. 2, 2003 621,638 394,917 $ 3,021 $ -- U.S. Dollar British Pound Sept. 2, 2003 622,813 872,997 6,533 -- U.S. Dollar Canadian Dollar Sept. 2, 2003 4,228,016 3,879,982 31,815 -- U.S. Dollar European Monetary Unit Sept. 2, 2003 601,986 142,110,780 2,895 -- U.S. Dollar Hungarian Forint Sept. 24, 2003 5,862,647 700,000,000 140,714 -- U.S. Dollar Japanese Yen Oct. 2, 2003 1,532,304 2,400,000 16,549 -- U.S. Dollar Australian Dollar - ---------------------------------------------------------------------------------------------------------------------------- $ 201,527 $ -- - ----------------------------------------------------------------------------------------------------------------------------
6. LENDING OF PORTFOLIO SECURITIES Presented below is information regarding securities on loan as of Aug. 31, 2003.
AXP VP - AXP VP - AXP VP - AXP VP - DIVERSIFIED BOND DIVERSIFIED EQUITY GLOBAL BOND MANAGED FUND INCOME FUND FUND FUND - ------------------------------------------------------------------------------------------------------------------------------- Value of securities on loan to brokers $ 70,628,180 $ 2,837,600 $ 4,916,400 $ 24,397,031 - ------------------------------------------------------------------------------------------------------------------------------- Collateral received for securities loaned: Cash $ 68,747,726 $ 2,858,000 $ 5,037,500 $ 24,896,500 U.S. government securities, at value 3,116,537 -- -- -- - ------------------------------------------------------------------------------------------------------------------------------- Total collateral received for securities loaned $ 71,864,263 $ 2,858,000 $ 5,037,500 $ 24,896,500 - -------------------------------------------------------------------------------------------------------------------------------
AXP VP - AXP VP - NEW STRATEGY DIMENSIONS AGGRESSIVE FUND FUND - ------------------------------------------------------------------------------------------------------------------------------- Value of securities on loan to brokers $ 42,274,460 $ 7,171,125 - ------------------------------------------------------------------------------------------------------------------------------- Collateral received for securities loaned: Cash $ 39,698,400 $ 7,475,000 U.S. government securities, at value 3,319,751 -- - ------------------------------------------------------------------------------------------------------------------------------- Total collateral received for securities loaned $ 43,018,151 $ 7,475,000 - -------------------------------------------------------------------------------------------------------------------------------
Income from securities lending amounted to $6,837, $255,949, $27,611, $3,756, $7,501, $364,960, $135,467, $31,473, $13,595 and $56,618 for AXP VP - Capital Resource Fund, AXP VP - Diversified Bond Fund, AXP VP - Diversified Equity Income Fund, AXP VP - Global Bond Fund, AXP VP - Growth Fund, AXP VP - International Fund, AXP VP - Managed Fund, AXP VP - New Dimensions Fund, AXP VP - - Small Cap Advantage Fund and AXP VP - Strategy Aggressive Fund, respectively, for the year ended Aug. 31, 2003. 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. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 83 7. FUTURES CONTRACTS As of Aug. 31, 2003, AXP VP - Blue Chip Advantage Fund's investments in securities included securities valued at $333,562 that were pledged as collateral to cover initial margin deposits on 47 open purchase stock index futures contracts. The notional market value of the open purchase stock index futures contracts as of Aug. 31, 2003 was $2,368,095 with a net unrealized gain of $40,987. See "Summary of significant accounting policies." As of Aug. 31, 2003, AXP VP - Diversified Bond Fund's investments in securities included securities valued at $4,076,171 that were pledged as collateral to cover initial margin deposits on 743 open purchase interest rate futures contracts and 1,621 open sale interest rate futures contracts. The notional market value of the open purchase interest rate futures contracts as of Aug. 31, 2003 was $179,523,813 with a net unrealized loss of $1,398,297. The notional market value of the open sale interest rate futures contracts as of Aug. 31, 2003 was $178,611,251 with a net unrealized gain of $2,364,814. See "Summary of significant accounting policies." As of Aug. 31, 2003, AXP VP - Global Bond Fund's investments in securities included securities valued at $458,265 that were pledged as collateral to cover initial margin deposits on 28 open purchase interest rate futures contracts denominated in Euros and 125 open purchase interest rate futures contracts. The notional market value of the open purchase interest rate futures contracts denominated in Euros as of Aug. 31, 2003 was $3,513,103 with a net unrealized loss of $110,615. The notional market value of the open purchase interest rate futures contracts as of Aug. 31, 2003 was $30,203,219 with a net unrealized loss of $235,031. See "Summary of significant accounting policies." As of Aug. 31, 2003, AXP VP - Managed Fund's investments in securities included securities valued at $1,032,402 that were pledged as collateral to cover initial margin deposits on 544 open purchase interest rate futures contracts and 460 open sale interest rate futures contracts. The notional market value of the open purchase interest rate futures contracts as of Aug. 31, 2003 was $103,637,925 with a net unrealized loss of $642,418. The notional market value of the open sale interest rate futures contracts as of Aug. 31, 2003 was $50,667,626 with a net unrealized gain of $590,152. See "Summary of significant accounting policies." As of Aug. 31, 2003, AXP VP - S&P 500 Index Fund's investments in securities included securities valued at $727,460 that were pledged as collateral to cover initial margin deposits on 63 open purchase stock index futures contracts. The notional market value of the open purchase stock index futures contracts as of Aug. 31, 2003 was $3,174,255 with a net unrealized gain of $43,842. See "Summary of significant accounting policies." As of Aug. 31, 2003, AXP VP - Short Duration U.S. Government Fund's investments in securities included securities valued at $1,366,369 that were pledged as collateral to cover initial margin deposits on 367 open purchase interest rate futures contracts and 864 open sale interest rate futures contracts. The notional market value of the open purchase interest rate futures contracts as of Aug. 31, 2003 was $84,154,513 with a net unrealized loss of $247,093. The notional market value of the open sale interest rate futures contracts as of Aug. 31, 2003 was $94,977,175 with a net unrealized loss of $9,388. See "Summary of significant accounting policies." 8. OPTIONS CONTRACTS WRITTEN Contracts and premiums associated with options contracts written by AXP VP - Diversified Bond Fund during the year ended Aug. 31, 2003 are as follows:
CALLS PUTS - ------------------------------------------------------------------------------------------------------------------------- CONTRACTS PREMIUMS CONTRACTS PREMIUMS - ------------------------------------------------------------------------------------------------------------------------- Balance Aug. 31, 2002 -- $ -- -- $ -- Opened 4,684 3,469,760 3,835 1,581,732 Closed (3,987) (3,054,872) (3,038) (1,314,089) Exercised -- -- -- -- Expired (500) (37,065) (600) (86,821) - ------------------------------------------------------------------------------------------------------------------------- Balance Aug. 31, 2003 197 $ 377,823 197 $ 180,822 - -------------------------------------------------------------------------------------------------------------------------
See "Summary of significant accounting policies." Contracts and premiums associated with options contracts written by AXP VP - Global Bond Fund during the year ended Aug. 31, 2003 are as follows:
CALLS PUTS - ------------------------------------------------------------------------------------------------------------------------- CONTRACTS PREMIUMS CONTRACTS PREMIUMS - ------------------------------------------------------------------------------------------------------------------------- Balance Aug. 31, 2002 -- $ -- -- $ -- Opened 547 501,500 225 148,960 Closed (514) (438,210) (192) (118,670) - ------------------------------------------------------------------------------------------------------------------------- Balance Aug. 31, 2003 33 $ 63,290 33 $ 30,290 - -------------------------------------------------------------------------------------------------------------------------
See "Summary of significant accounting policies." AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 84 Contracts and premiums associated with options on futures contracts written by AXP VP - Managed Fund during the year ended Aug. 31, 2003 are as follows:
CALLS PUTS - ------------------------------------------------------------------------------------------------------------------------- CONTRACTS PREMIUMS CONTRACTS PREMIUMS - ------------------------------------------------------------------------------------------------------------------------- Balance Aug. 31, 2002 -- $ -- -- $ -- Opened 2,110 1,573,815 1,788 729,800 Closed (1,808) (1,387,334) (1,444) (611,222) Exercised -- -- -- -- Expired (213) (15,789) (255) (36,887) - ------------------------------------------------------------------------------------------------------------------------- Balance Aug. 31, 2003 89 $ 170,692 89 $ 81,691 - -------------------------------------------------------------------------------------------------------------------------
See "Summary of significant accounting policies." Contracts and premiums associated with options contracts written by AXP VP - New Dimensions Fund during the year ended Aug. 31, 2003 are as follows:
CALLS - ------------------------------------------------------------------------------------------------------------------------- CONTRACTS PREMIUMS - ------------------------------------------------------------------------------------------------------------------------- Balance Aug. 31, 2002 -- $ -- Opened 1,800 180,000 Closed -- -- Exercised -- -- Expired (1,800) (180,000) - ------------------------------------------------------------------------------------------------------------------------- Balance Aug. 31, 2003 -- $ -- - -------------------------------------------------------------------------------------------------------------------------
See "Summary of significant accounting policies." Contracts and premiums associated with options contracts written by AXP VP - Short Duration U.S. Government Fund during the year ended Aug. 31, 2003 are as follows:
CALLS PUTS - ------------------------------------------------------------------------------------------------------------------------- CONTRACTS PREMIUMS CONTRACTS PREMIUMS - ------------------------------------------------------------------------------------------------------------------------- Balance Aug. 31, 2002 89 $ 99,503 -- $ -- Opened 989 683,483 698 278,960 Closed (939) (627,276) (469) (194,423) Exercised (75) (87,747) (25) (8,884) Expired (14) (15,038) (144) (21,518) - ------------------------------------------------------------------------------------------------------------------------- Balance Aug. 31, 2003 50 $ 52,925 60 $ 54,135 - -------------------------------------------------------------------------------------------------------------------------
See "Summary of significant accounting policies." Contracts and premiums associated with options contracts written by AXP VP - Strategy Aggressive Fund during the year ended Aug. 31, 2003 are as follows:
PUTS - ------------------------------------------------------------------------------------------------------------------------- CONTRACTS PREMIUMS - ------------------------------------------------------------------------------------------------------------------------- Balance Aug. 31, 2002 1,050 $ 170,095 Opened -- -- Closed (1,050) (170,095) Exercised -- -- Expired -- -- - ------------------------------------------------------------------------------------------------------------------------- Balance Aug. 31, 2003 -- $ -- - -------------------------------------------------------------------------------------------------------------------------
See "Summary of significant accounting policies." AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 85 9. CAPITAL LOSS CARRY-OVER For federal income tax purposes, capital loss carry-overs as of Aug. 31, 2003 are as follows:
FUND CARRY-OVER EXPIRATION DATE - ---------------------------------------------------------------------------------------------------- AXP VP - Blue Chip Advantage Fund $ 33,756,009 2008-2012 AXP VP - Capital Resource Fund 571,842,581 2010-2012 AXP VP - Cash Management Fund 3,091 2008 AXP VP - Diversified Bond Fund 139,636,838 2007-2011 AXP VP - Diversified Equity Income Fund 21,848,621 2010-2012 AXP VP - Emerging Markets Fund 1,685,173 2009-2012 AXP VP - Equity Select Fund 929,452 2011 AXP VP - Global Bond Fund 5,792,969 2008-2010 AXP VP - Growth Fund 164,893,812 2008-2012 AXP VP - High Yield Bond Fund 300,351,153 2007-2012 AXP VP - International Fund 794,731,098 2010-2012 AXP VP - Managed Fund 149,722,831 2011-2012 AXP VP - New Dimensions Fund 512,441,380 2010-2012 AXP VP - Partners Small Cap Value Fund 231,273 2012 AXP VP - S&P 500 Index Fund 2,590,558 2009-2011 AXP VP - Small Cap Advantage Fund 9,684,863 2009-2012 AXP VP - Stock Fund 764,578 2009-2012 AXP VP - Strategy Aggressive Fund 1,346,618,303 2009-2012
It is unlikely the board will authorize a distribution of any net realized capital gains 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, 2003 2002 2001 2000(b) PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $ 6.57 $ 8.14 $ 11.62 $ 9.78 - ---------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .06 .05 .07 .02 Net gains (losses) (both realized and unrealized) .57 (1.57) (3.47) 1.85 - ---------------------------------------------------------------------------------------------------------------------- Total from investment operations .63 (1.52) (3.40) 1.87 - ---------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.06) (.05) (.08) (.03) - ---------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 7.14 $ 6.57 $ 8.14 $ 11.62 - ---------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 66 $ 63 $ 81 $ 71 - ---------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c) .80% .79% .78% .95%(d),(f) - ---------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets .96% .68% .81% .34%(f) - ---------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 87% 143% 124% 226% - ---------------------------------------------------------------------------------------------------------------------- Total return(e) 9.60% (18.67%) (29.40%) 19.13%(g) - ----------------------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL HIGHLIGHTS (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) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratio of expenses would have been 0.96% for the period ended Aug. 31, 2000. (e) Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges. (f) Adjusted to an annual basis. (g) Not annualized. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 86 AXP VP - CAPITAL RESOURCE FUND
FISCAL PERIOD ENDED AUG. 31, 2003 2002 2001 2000 1999 PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $ 16.48 $ 20.87 $ 37.21 $ 34.62 $ 26.80 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .10 .10 .05 .01 .06 Net gains (losses) (both realized and unrealized) 1.56 (2.83) (12.96) 6.20 10.28 - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations 1.66 (2.73) (12.91) 6.21 10.34 - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) (.09) (.04) (.01) (.06) Distributions from realized gains -- (1.57) (3.39) (3.61) (2.46) - --------------------------------------------------------------------------------------------------------------------------- Total distributions (.10) (1.66) (3.43) (3.62) (2.52) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 18.04 $ 16.48 $ 20.87 $ 37.21 $ 34.62 - --------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 1,982 $ 2,227 $ 3,270 $ 5,920 $ 5,621 - --------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) .85% .80% .78% .77% .66% - --------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets .62% .52% .13% (.02%) .17% - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 115% 146% 62% 52% 56% - --------------------------------------------------------------------------------------------------------------------------- Total return(c) 10.16% (14.08%) (36.48%) 19.26% 40.12% - ---------------------------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL HIGHLIGHTS (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, 2003 2002 2001 2000 1999 PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .01 .02 .05 .05 .05 - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.01) (.02) (.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) $ 868 $ 1,123 $ 1,063 $ 783 $ 690 - --------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) .70% .69% .68% .68% .56% - --------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets .72% 1.61% 4.76% 5.38% 4.60% - --------------------------------------------------------------------------------------------------------------------------- Total return(c) .72% 1.59% 4.94% 5.52% 4.72% - ---------------------------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL HIGHLIGHTS (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. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 87 AXP VP - DIVERSIFIED BOND FUND
FISCAL PERIOD ENDED AUG. 31, 2003 2002 2001 2000 1999 PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $ 10.38 $ 10.61 $ 10.29 $ 10.56 $ 11.08 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .44 .56 .70 .75 .79 Net gains (losses) (both realized and unrealized) .02 (.23) .30 (.27) (.52) - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations .46 .33 1.00 .48 .27 - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.44) (.56) (.68) (.75) (.77) Distributions from realized gains -- -- -- -- (.02) - --------------------------------------------------------------------------------------------------------------------------- Total distributions (.44) (.56) (.68) (.75) (.79) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 10.40 $ 10.38 $ 10.61 $ 10.29 $ 10.56 - --------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 1,765 $ 1,814 $ 1,626 $ 1,468 $ 1,750 - --------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) .81% .80% .80% .79% .68% - --------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 4.23% 5.41% 6.72% 7.30% 7.22% - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 251% 167% 122% 70% 68% - --------------------------------------------------------------------------------------------------------------------------- Total return(c) 4.50% 3.20% 10.07% 4.69% 2.40% - ---------------------------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL HIGHLIGHTS (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, 2003 2002 2001 2000(b) PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $ 8.41 $ 10.20 $ 10.05 $ 9.76 - ---------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .17 .13 .11 .10 Net gains (losses) (both realized and unrealized) 1.24 (1.75) .15 .30 - ---------------------------------------------------------------------------------------------------------------------- Total from investment operations 1.41 (1.62) .26 .40 - ---------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.17) (.13) (.11) (.11) Distributions from realized gains -- (.04) -- -- - ---------------------------------------------------------------------------------------------------------------------- Total distributions (.17) (.17) (.11) (.11) - ---------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 9.65 $ 8.41 $ 10.20 $ 10.05 - ---------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 370 $ 267 $ 106 $ 23 - ---------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c) .76% .87% .91%(d) .95%(d),(f) - ---------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.13% 1.59% 1.49% 1.42%(f) - ---------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 39% 35% 68% 53% - ---------------------------------------------------------------------------------------------------------------------- Total return(e) 17.00% (16.16%) 2.56% 4.21%(g) - ----------------------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL HIGHLIGHTS (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) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses would have been 1.17% and 1.49% for the periods ended Aug. 31, 2001 and 2000, respectively. (e) Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges. (f) Adjusted to an annual basis. (g) Not annualized. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 88 AXP VP - EMERGING MARKETS FUND
FISCAL PERIOD ENDED AUG. 31, 2003 2002 2001 2000(b) PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $ 7.04 $ 6.68 $ 9.61 $ 10.23 - ---------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .04 .02 .01 (.01) Net gains (losses) (both realized and unrealized) 1.38 .34 (2.94) (.60) - ---------------------------------------------------------------------------------------------------------------------- Total from investment operations 1.42 .36 (2.93) (.61) - ---------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.02) -- -- -- Tax return of capital -- -- -- (.01) - ---------------------------------------------------------------------------------------------------------------------- Total distributions (.02) -- -- (.01) - ---------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 8.44 $ 7.04 $ 6.68 $ 9.61 - ---------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 16 $ 10 $ 6 $ 6 - ---------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c),(d) 1.75% 1.68% 1.75% 1.69%(f) - ---------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets .67% .31% .20% (.36%)(f) - ---------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 191% 215% 203% 37% - ---------------------------------------------------------------------------------------------------------------------- Total return(e) 20.25% 5.45% (30.49%) (6.03%)(g) - ----------------------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL HIGHLIGHTS (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) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses would have been 2.04%, 2.36%, 3.49% and 2.42% for the periods ended Aug. 31, 2003, 2002, 2001 and 2000, respectively. (e) Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges. (f) Adjusted to an annual basis. (g) Not annualized. AXP VP - EQUITY SELECT FUND
FISCAL PERIOD ENDED AUG. 31, 2003 2002 2001(b) PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $ 8.54 $ 9.57 $ 10.27 - ------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (.05) (.04) (.01) Net gains (losses) (both realized and unrealized) 1.60 (.99) (.69) - ------------------------------------------------------------------------------------------------------ Total from investment operations 1.55 (1.03) (.70) - ------------------------------------------------------------------------------------------------------ Net asset value, end of period $ 10.09 $ 8.54 $ 9.57 - ------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 170 $ 72 $ 14 - ------------------------------------------------------------------------------------------------------ Ratio of expenses to average daily net assets(c) 1.06% 1.10%(d) 1.10%(d),(f) - ------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average daily net assets (.71%) (.76%) (.45%)(f) - ------------------------------------------------------------------------------------------------------ Portfolio turnover rate (excluding short-term securities) 19% 20% 19% - ------------------------------------------------------------------------------------------------------ Total return(e) 18.20% (10.77%) (6.82%)(g) - ------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL HIGHLIGHTS (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from May 1, 2001 (date the Fund became available) to Aug. 31, 2001. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses would have been 1.39% and 2.99% for the periods ended Aug. 31, 2002 and 2001, respectively. (e) Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges. (f) Adjusted to an annual basis. (g) Not annualized. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 89 AXP VP - GLOBAL BOND FUND
FISCAL PERIOD ENDED AUG. 31, 2003 2002 2001 2000 1999 PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $ 10.02 $ 9.76 $ 9.34 $ 9.84 $ 10.09 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .34 .38 .43 .32 .55 Net gains (losses) (both realized and unrealized) .61 .36 .23 (.51) (.29) - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations .95 .74 .66 (.19) .26 - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.57) (.48) (.24) (.31) (.51) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 10.40 $ 10.02 $ 9.76 $ 9.34 $ 9.84 - --------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 312 $ 233 $ 191 $ 177 $ 197 - --------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) 1.09% 1.08% 1.07% 1.07% .96% - --------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.08% 3.92% 4.54% 4.81% 5.36% - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 102% 46% 34% 50% 56% - --------------------------------------------------------------------------------------------------------------------------- Total return(c) 9.56% 7.83% 7.14% (1.90%) 2.50% - ---------------------------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL HIGHLIGHTS (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 - GROWTH FUND
FISCAL PERIOD ENDED AUG. 31, 2003 2002 2001 2000(b) PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $ 5.00 $ 6.48 $ 13.46 $ 9.72 - ---------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .01 -- (.01) -- Net gains (losses) (both realized and unrealized) .45 (1.48) (6.97) 3.75 - ---------------------------------------------------------------------------------------------------------------------- Total from investment operations .46 (1.48) (6.98) 3.75 - ---------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.01) -- -- -- Tax return of capital -- -- -- (.01) - ---------------------------------------------------------------------------------------------------------------------- Total distributions (.01) -- -- (.01) - ---------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.45 $ 5.00 $ 6.48 $ 13.46 - ---------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 223 $ 144 $ 177 $ 195 - ---------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c) .99% .81% .90%(d) .95%(d),(f) - ---------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets .20% --% (.19%) (.09%)(f) - ---------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 199% 272% 41% 17% - ---------------------------------------------------------------------------------------------------------------------- Total return(e) 9.29% (22.80%) (51.87%) 38.59%(g) - ----------------------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL HIGHLIGHTS (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) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses would have been 0.91% and 0.97% for the periods ended Aug 31, 2001 and 2000, respectively. (e) Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges. (f) Adjusted to an annual basis. (g) Not annualized. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 90 AXP VP - HIGH YIELD BOND FUND
FISCAL PERIOD ENDED AUG. 31, 2003 2002 2001 2000 1999 PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $ 5.66 $ 6.83 $ 7.76 $ 8.75 $ 9.54 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .48 .56 .79 .85 .92 Net gains (losses) (both realized and unrealized) .54 (1.17) (.95) (.99) (.69) - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations 1.02 (.61) (.16) (.14) .23 - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.46) (.56) (.77) (.85) (.92) Distributions from realized gains -- -- -- -- (.10) - --------------------------------------------------------------------------------------------------------------------------- Total distributions (.46) (.56) (.77) (.85) (1.02) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 6.22 $ 5.66 $ 6.83 $ 7.76 $ 8.75 - --------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 843 $ 577 $ 609 $ 595 $ 638 - --------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) .83% .83% .82% .82% .70% - --------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 8.31% 8.91% 11.04% 10.35% 10.17% - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 141% 135% 86% 63% 50% - --------------------------------------------------------------------------------------------------------------------------- Total return(c) 18.81% (9.33%) (1.89%) (1.59%) 2.61% - ---------------------------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL HIGHLIGHTS (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 - INTERNATIONAL FUND
FISCAL PERIOD ENDED AUG. 31, 2003 2002 2001 2000 1999 PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $ 7.00 $ 8.39 $ 16.98 $ 17.26 $ 14.25 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .08 .07 .03 .06 .12 Net gains (losses) (both realized and unrealized) .16 (1.35) (5.57) 2.50 3.04 - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations .24 (1.28) (5.54) 2.56 3.16 - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.05) (.07) (.03) (.01) (.07) Distributions from realized gains -- (.01) (2.97) (2.83) (.08) Excess distributions from net investment income -- (.03) (.05) -- -- - --------------------------------------------------------------------------------------------------------------------------- Total distributions (.05) (.11) (3.05) (2.84) (.15) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 7.19 $ 7.00 $ 8.39 $ 16.98 $ 17.26 - --------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 738 $ 873 $ 1,310 $ 2,389 $ 2,221 - --------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) 1.06% 1.07% 1.04% 1.02% .94% - --------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 1.19% .83% .31% .27% .70% - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 102% 140% 278% 118% 102% - --------------------------------------------------------------------------------------------------------------------------- Total return(c) 3.48% (15.38%) (36.90%) 14.74% 22.18% - ---------------------------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL HIGHLIGHTS (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. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 91 AXP VP - MANAGED FUND
FISCAL PERIOD ENDED AUG. 31, 2003 2002 2001 2000 1999 PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $ 12.32 $ 15.30 $ 20.81 $ 18.84 $ 17.25 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .31 .33 .44 .47 .50 Net gains (losses) (both realized and unrealized) .82 (1.88) (4.32) 2.85 3.29 - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations 1.13 (1.55) (3.88) 3.32 3.79 - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.31) (.34) (.39) (.48) (.49) Distributions from realized gains (.14) (1.09) (1.24) (.87) (1.71) - --------------------------------------------------------------------------------------------------------------------------- Total distributions (.45) (1.43) (1.63) (1.35) (2.20) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 13.00 $ 12.32 $ 15.30 $ 20.81 $ 18.84 - --------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 2,416 $ 2,709 $ 3,759 $ 5,223 $ 5,046 - --------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) .80% .77% .76% .75% .63% - --------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.48% 2.31% 2.46% 2.37% 2.62% - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 119% 103% 63% 49% 44% - --------------------------------------------------------------------------------------------------------------------------- Total return(c) 9.40% (10.91%) (19.37%) 18.42% 22.98% - ---------------------------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL HIGHLIGHTS (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, 2003 2002 2001 2000 1999 PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $ 13.06 $ 15.49 $ 25.03 $ 18.87 $ 13.29 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .08 .07 .02 .03 .06 Net gains (losses) (both realized and unrealized) 1.23 (2.42) (8.01) 6.34 5.60 - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations 1.31 (2.35) (7.99) 6.37 5.66 - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.08) (.07) (.02) (.04) (.06) Distributions from realized gains -- (.01) (1.53) (.17) (.02) - --------------------------------------------------------------------------------------------------------------------------- Total distributions (.08) (.08) (1.55) (.21) (.08) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 14.29 $ 13.06 $ 15.49 $ 25.03 $ 18.87 - --------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 3,115 $ 3,045 $ 3,892 $ 5,564 $ 3,538 - --------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) .82% .79% .79% .78% .68% - --------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets .64% .47% .12% .15% .34% - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 23% 27% 27% 28% 27% - --------------------------------------------------------------------------------------------------------------------------- Total return(c) 10.11% (15.17%) (33.05%) 34.01% 42.61% - ---------------------------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL HIGHLIGHTS (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 credit on cash balances. (c) Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 92 AXP VP - PARTNERS SMALL CAP VALUE FUND
FISCAL PERIOD ENDED AUG. 31, 2003 2002 2001(b) PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $ 9.52 $ 9.84 $ 10.01 - ------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (.03) (.03) (.01) Net gains (losses) (both realized and unrealized) 1.95 (.29) (.16) - ------------------------------------------------------------------------------------------------------ Total from investment operations 1.92 (.32) (.17) - ------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.01) -- -- Distributions from realized gains (.04) -- -- - ------------------------------------------------------------------------------------------------------ Total distributions (.05) -- -- - ------------------------------------------------------------------------------------------------------ Net asset value, end of period $ 11.39 $ 9.52 $ 9.84 - ------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 134 $ 63 $ 5 - ------------------------------------------------------------------------------------------------------ Ratio of expenses to average daily net assets(c) 1.55% 1.48% 1.50%(d),(f) - ------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average daily net assets (.43%) (.67%) (1.15%)(f) - ------------------------------------------------------------------------------------------------------ Portfolio turnover rate (excluding short-term securities) 87% 12% --% - ------------------------------------------------------------------------------------------------------ Total return(e) 20.24% (3.19%) (1.77%)(g) - ------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL HIGHLIGHTS (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 14, 2001 (date the Fund became available) to Aug. 31, 2001. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratio of expenses would have been 6.86% for the period ended Aug. 31, 2001. (e) Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges. (f) Adjusted to an annual basis. (g) Not annualized. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 93 AXP VP - S&P 500 INDEX FUND
FISCAL PERIOD ENDED AUG. 31, 2003 2002 2001 2000(b) PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $ 6.24 $ 7.71 $ 10.38 $ 10.06 - ---------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .08 .07 .06 .02 Net gains (losses) (both realized and unrealized) .64 (1.47) (2.65) .33 - ---------------------------------------------------------------------------------------------------------------------- Total from investment operations .72 (1.40) (2.59) .35 - ---------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.08) (.07) (.06) (.03) Distributions from realized gains -- -- (.02) -- - ---------------------------------------------------------------------------------------------------------------------- Total distributions (.08) (.07) (.08) (.03) - ---------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 6.88 $ 6.24 $ 7.71 $ 10.38 - ---------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 171 $ 99 $ 56 $ 21 - ---------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c),(d) .50% .50% .49% .48%(f) - ---------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 1.31% 1.01% .85% .72%(f) - ---------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 5% 72% 137% 44% - ---------------------------------------------------------------------------------------------------------------------- Total return(e) 11.51% (18.29%) (24.96%) 3.49%(g) - ----------------------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL HIGHLIGHTS (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) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses would have been 0.64%, 0.82%, 1.31% and 1.57% for the periods ended Aug. 31, 2003, 2002, 2001 and 2000, respectively. (e) Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges. (f) Adjusted to an annual basis. (g) Not annualized. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 94 AXP VP - SHORT DURATION U.S. GOVERNMENT FUND
FISCAL PERIOD ENDED AUG. 31, 2003 2002 2001 2000(b) PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $ 10.55 $ 10.34 $ 9.95 $ 10.02 - ---------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .27 .34 .52 .51 Net gains (losses) (both realized and unrealized) (.05) .23 .39 (.06) - ---------------------------------------------------------------------------------------------------------------------- Total from investment operations .22 .57 .91 .45 - ---------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.27) (.34) (.52) (.52) Distributions from realized gains (.04) (.02) -- -- - ---------------------------------------------------------------------------------------------------------------------- Total distributions (.31) (.36) (.52) (.52) - ---------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 10.46 $ 10.55 $ 10.34 $ 9.95 - ---------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 479 $ 276 $ 106 $ 37 - ---------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c) .82% .83% .84%(d) .87%(d),(f) - ---------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.47% 3.24% 4.94% 5.49%(f) - ---------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 179% 292% 95% 67% - ---------------------------------------------------------------------------------------------------------------------- Total return(e) 2.06% 5.42% 9.29% 4.64%(g) - ----------------------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL HIGHLIGHTS (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) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses would have been 0.87% and 0.89% for the periods ended Aug. 31, 2001 and 2000, respectively. (e) Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges. (f) Adjusted to an annual basis. (g) Not annualized. AXP VP - SMALL CAP ADVANTAGE FUND
FISCAL PERIOD ENDED AUG. 31, 2003 2002 2001 2000(b) PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $ 8.79 $ 10.13 $ 12.58 $ 9.90 - ---------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (.02) (.02) (.01) (.02) Net gains (losses) (both realized and unrealized) 2.48 (1.32) (2.09) 2.78 - ---------------------------------------------------------------------------------------------------------------------- Total from investment operations 2.46 (1.34) (2.10) 2.76 - ---------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Distributions from realized gains -- -- (.35) (.08) - ---------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 11.25 $ 8.79 $ 10.13 $ 12.58 - ---------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 102 $ 59 $ 49 $ 31 - ---------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c) 1.19% 1.11% 1.16%(d) 1.19%(d),(f) - ---------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets (.20%) (.21%) (.08%) (.24%)(f) - ---------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 124% 156% 152% 169% - ---------------------------------------------------------------------------------------------------------------------- Total return(e) 27.96% (13.28%) (16.68%) 28.19%(g) - ----------------------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL HIGHLIGHTS (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) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses would have been 1.26% and 1.43% for the periods ended Aug. 31, 2001 and 2000, respectively. (e) Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges. (f) Adjusted to an annual basis. (g) Not annualized. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 95 AXP VP - STOCK FUND
FISCAL PERIOD ENDED AUG. 31, 2003 2002 2001(b) PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $ 8.00 $ 9.52 $ 9.82 - ------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .05 .05 .01 Net gains (losses) (both realized and unrealized) .48 (1.52) (.30) - ------------------------------------------------------------------------------------------------------------- Total from investment operations .53 (1.47) (.29) - ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.05) (.05) (.01) - ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 8.48 $ 8.00 $ 9.52 - ------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 12 $ 5 $ 2 - ------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c),(d) 1.10% 1.10% 1.10%(f) - ------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets .62% .56% .90%(f) - ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 76% 93% 4% - ------------------------------------------------------------------------------------------------------------- Total return(e) 6.65% (15.53%) (2.97%)(g) - -------------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL HIGHLIGHTS (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Aug. 13, 2001 (date the Fund became available) to Aug. 31, 2001. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so, the annual ratios of expenses would have been 1.81%, 2.44% and 11.36% for the periods ended Aug. 31, 2003, 2002 and 2001, respectively. (e) Total return does not reflect payment of the expenses that apply to the variable accounts or any annuity charges. (f) Adjusted to an annual basis. (g) Not annualized. AXP VP - STRATEGY AGGRESSIVE FUND
FISCAL PERIOD ENDED AUG. 31, 2003 2002 2001 2000 1999 PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $ 5.72 $ 8.29 $ 27.82 $ 16.46 $ 13.10 - ------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (.03) (.04) .01 .01 .05 Net gains (losses) (both realized and unrealized) 1.30 (2.53) (13.01) 13.17 4.36 - ------------------------------------------------------------------------------------------------------------------- Total from investment operations 1.27 (2.57) (13.00) 13.18 4.41 - ------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income -- -- (.02) -- (.05) Distributions from realized gains -- -- (6.51) (1.82) (1.00) - ------------------------------------------------------------------------------------------------------------------- Total distributions -- -- (6.53) (1.82) (1.05) - ------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 6.99 $ 5.72 $ 8.29 $ 27.82 $ 16.46 - ------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 969 $ 991 $ 1,815 $ 4,197 $ 2,327 - ------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) .83% .81% .78% .77% .67% - ------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets (.54%) (.50%) .10% .04% .31% - ------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 27% 180% 166% 143% 207% - ------------------------------------------------------------------------------------------------------------------- Total return(c) 22.16% (30.97%) (53.61%) 84.97% 35.27% - -------------------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL HIGHLIGHTS (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. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 96 INVESTMENTS IN SECURITIES AXP VP - BLUE CHIP ADVANTAGE FUND AUG. 31, 2003 (PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS)
ISSUER SHARES VALUE(a) COMMON STOCKS (95.6%) AEROSPACE & DEFENSE (1.8%) General Dynamics 1,350 $ 116,249 Lockheed Martin 1,500 76,845 Northrop Grumman 1,250 119,350 Raytheon 7,800 250,068 Rockwell Automation 7,200 195,984 Rockwell Collins 3,600 97,380 United Defense Inds 3,850(b) 108,955 United Technologies 3,150 252,787 ------------------ Total 1,217,618 - ----------------------------------------------------------------------------------------------------------------- AIRLINES (0.1%) Southwest Airlines 5,250 89,723 - ----------------------------------------------------------------------------------------------------------------- AUTOMOTIVE & RELATED (1.7%) Autoliv 2,900(c) 87,609 Delphi 24,100 218,346 Eaton 2,300 215,372 Ford Motor 25,850 298,826 PACCAR 1,550 132,060 Snap-On 4,700 138,650 ------------------ Total 1,090,863 - ----------------------------------------------------------------------------------------------------------------- BANKS AND SAVINGS & LOANS (7.9%) AmSouth Bancorporation 5,350 115,239 Bank of America 14,050 1,113,462 Charter One Financial 6,500 201,500 FleetBoston Financial 12,150 359,519 Golden West Financial 2,500 215,675 GreenPoint Financial 11,025(d) 373,527 KeyCorp 4,500 122,310 Natl City 13,600 430,848 Regions Financial 3,250 114,595 U.S. Bancorp 18,050 431,395 Wachovia 16,150 680,722 Washington Mutual 15,650 610,037 Wells Fargo 8,550 428,697 ------------------ Total 5,197,526 - ----------------------------------------------------------------------------------------------------------------- BEVERAGES & TOBACCO (2.4%) Altria Group 13,650 562,653 Coca-Cola 15,950 694,144 Fortune Brands 1,000 56,400 PepsiCo 5,700 253,878 ------------------ Total 1,567,075 - ----------------------------------------------------------------------------------------------------------------- BROKER DEALERS (2.5%) Bear Stearns Companies 2,450 171,451 E*TRADE Group 9,900(b) 91,377 J.P. Morgan Chase 24,700 845,234 Lehman Brothers Holdings 2,600 170,898 Morgan Stanley 7,350 358,607 ------------------ Total 1,637,567 - ----------------------------------------------------------------------------------------------------------------- BUILDING MATERIALS & CONSTRUCTION (0.2%) Sherwin-Williams 4,450 133,856 - ----------------------------------------------------------------------------------------------------------------- CABLE (0.7%) Comcast Cl A 15,200(b) $ 452,200 - ----------------------------------------------------------------------------------------------------------------- CELLULAR TELECOMMUNICATIONS (0.4%) AT&T Wireless Services 18,300(b) 157,746 Nextel Communications Cl A 6,950(b) 133,996 ------------------ Total 291,742 - ----------------------------------------------------------------------------------------------------------------- CHEMICALS (0.6%) Dow Chemical 6,200 214,086 Rohm & Haas 3,250 118,073 Sigma-Aldrich 1,600 87,600 ------------------ Total 419,759 - ----------------------------------------------------------------------------------------------------------------- COMPUTER HARDWARE (4.6%) Cisco Systems 31,800(b) 608,970 Dell 20,450(b) 667,283 EMC 28,350(b) 361,463 Hewlett-Packard 20,600 410,352 Lexmark Intl Cl A 3,500(b) 234,640 NVIDIA 13,050(b) 236,988 SanDisk 2,950(b) 178,357 Storage Technology 9,500(b) 243,295 Sun Microsystems 21,800(b) 84,148 ------------------ Total 3,025,496 - ----------------------------------------------------------------------------------------------------------------- COMPUTER SOFTWARE & SERVICES (10.5%) BMC Software 10,650(b) 156,342 Citrix Systems 18,450(b) 379,886 Computer Associates Intl 10,900 279,367 Computer Sciences 2,900(b) 123,453 Comverse Technology 12,700(b) 209,423 Convergys 8,600(b) 154,800 Electronic Arts 4,550(b) 408,363 Fair, Isaac & Co 2,450 143,570 First Data 5,850 224,640 Intl Business Machines 13,650 1,119,436 Macromedia 7,200(b) 171,648 Microsoft 77,250 2,048,669 Oracle 60,750(b) 776,385 Siebel Systems 9,900(b) 99,792 SunGard Data Systems 4,250(b) 119,850 Symantec 6,500(b) 373,295 VERITAS Software 5,950(b) 205,156 ------------------ Total 6,994,075 - ----------------------------------------------------------------------------------------------------------------- ELECTRONICS (3.0%) Altera 15,300(b) 343,332 Avnet 5,800(b) 104,690 Intel 47,900 1,370,898 Xerox 16,800(b) 181,104 ------------------ Total 2,000,024 - ----------------------------------------------------------------------------------------------------------------- ENERGY (5.4%) Anadarko Petroleum 5,400 $ 234,900 Burlington Resources 2,700 130,734 ChevronTexaco 8,200 597,534 ConocoPhillips 4,800 268,032 Exxon Mobil 45,050 1,698,385 Kerr-McGee 2,800 123,060 Occidental Petroleum 7,500 257,475 Pogo Producing 3,250 149,370 Unocal 3,700 113,294 ------------------ Total 3,572,784 - ----------------------------------------------------------------------------------------------------------------- ENERGY EQUIPMENT & SERVICES (0.2%) Transocean 5,000(b) 105,600 - ----------------------------------------------------------------------------------------------------------------- FINANCE COMPANIES (2.5%) Citigroup 38,150 1,653,803 - ----------------------------------------------------------------------------------------------------------------- FINANCIAL SERVICES (2.0%) Countrywide Financial 6,300 427,455 Fannie Mae 2,900 187,891 Freddie Mac 7,700 409,255 MBNA 12,500 291,750 ------------------ Total 1,316,351 - ----------------------------------------------------------------------------------------------------------------- FOOD (1.2%) ConAgra Foods 17,850 392,700 Heinz (HJ) 3,950 127,822 Sara Lee 13,900 263,822 ------------------ Total 784,344 - ----------------------------------------------------------------------------------------------------------------- HEALTH CARE PRODUCTS (10.3%) Amgen 9,400(b) 619,460 Bard (CR) 1,250 83,750 Bausch & Lomb 2,600 109,616 Beckman Coulter 7,100 314,885 Becton, Dickinson & Co 4,150 151,641 Biogen 1,000(b) 39,460 Boston Scientific 3,750(b) 225,375 Chiron 1,250(b) 63,525 Genzyme 1,450(b) 68,368 Guidant 8,550 429,210 Johnson & Johnson 15,800 783,363 Lilly (Eli) 3,150 209,570 Medco Health Solutions 1(b) 21 Medicis Pharmaceutical Cl A 2,100 128,268 MedImmune 1,700(b) 59,279 Medtronic 4,150 205,757 Merck & Co 17,950 903,243 Mylan Laboratories 4,400 160,160 Pfizer 53,300 1,594,735 St. Jude Medical 5,600(b) 291,592 Wyeth 7,750 332,088 ------------------ Total 6,773,366 - -----------------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 97 AXP VP - BLUE CHIP ADVANTAGE FUND
ISSUER SHARES VALUE(a) COMMON STOCKS (CONTINUED) HEALTH CARE SERVICES (3.7%) Aetna 7,050 $ 401,850 Anthem 5,500(b) 402,600 Coventry Health Care 4,200(b) 197,148 DaVita 2,950(b) 89,680 Fisher Scientific Intl 7,650(b) 300,033 Humana 7,500(b) 131,925 UnitedHealth Group 11,200 553,616 WellPoint Health Networks 5,050(b) 393,900 ------------------ Total 2,470,752 - ----------------------------------------------------------------------------------------------------------------- HOME BUILDING (0.7%) KB HOME 1,900 108,718 NVR 800(b) 346,800 ------------------ Total 455,518 - ----------------------------------------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS (2.6%) Energizer Holdings 11,300(b) 415,614 Gillette 16,450 533,966 Kimberly-Clark 5,950 304,105 Procter & Gamble 5,650 493,189 ------------------ Total 1,746,874 - ----------------------------------------------------------------------------------------------------------------- INDUSTRIAL TRANSPORTATION (0.9%) Burlington Northern Santa Fe 13,850 392,648 United Parcel Service Cl B 3,200 200,832 ------------------ Total 593,480 - ----------------------------------------------------------------------------------------------------------------- INSURANCE (5.9%) ACE 11,100(c) 357,420 Allstate 15,050 538,037 American Intl Group 13,200 786,323 Berkley (WR) 2,925 96,759 Fidelity Natl Financial 11,687 337,754 John Hancock Financial Services 4,500 137,385 Lincoln Natl 11,500 407,330 Marsh & McLennan 3,600 180,000 MetLife 4,550 129,311 Principal Financial Group 2,400 75,504 Prudential Financial 6,450 234,845 St. Paul Companies 8,100 281,556 Travelers Property Casualty Cl B 7,800 120,822 UnumProvident 14,400 203,040 ------------------ Total 3,886,086 - ----------------------------------------------------------------------------------------------------------------- LEISURE TIME & ENTERTAINMENT (1.9%) AOL Time Warner 17,300(b) 283,028 Hasbro 4,950 91,575 Mattel 22,050 426,006 Viacom Cl B 9,450 425,250 ------------------ Total 1,225,859 - ----------------------------------------------------------------------------------------------------------------- LODGING & GAMING (0.3%) GTECH Holdings 4,550 192,829 - ----------------------------------------------------------------------------------------------------------------- MACHINERY (0.3%) Caterpillar 1,550 111,337 Ingersoll-Rand Cl A 1,150(c) 68,448 ------------------ Total 179,785 - ----------------------------------------------------------------------------------------------------------------- MEDIA (1.8%) Cendant 19,000(b) $ 341,620 InterActiveCorp 4,500(b) 166,545 Interpublic Group of Companies 12,900 195,435 McGraw-Hill Companies 7,600 463,600 ------------------ Total 1,167,200 - ----------------------------------------------------------------------------------------------------------------- METALS (0.5%) Alcoa 8,000 228,480 United States Steel 4,800 88,368 ------------------ Total 316,848 - ----------------------------------------------------------------------------------------------------------------- MULTI-INDUSTRY (4.2%) 3M 1,050 149,594 Carlisle Companies 1,800 81,882 Cooper Inds Cl A 4,050 206,105 Emerson Electric 2,850 158,916 General Electric 57,650 1,704,710 Pentair 3,850 164,780 Tyco Intl 13,500(c) 277,830 ------------------ Total 2,743,817 - ----------------------------------------------------------------------------------------------------------------- PAPER & PACKAGING (0.4%) Pactiv 4,150(b) 83,332 Sealed Air 3,800(b) 184,908 ------------------ Total 268,240 - ----------------------------------------------------------------------------------------------------------------- PRECIOUS METALS (0.2%) Newmont Mining 2,700 106,002 - ----------------------------------------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUST (0.3%) Equity Office Properties Trust 2,700 75,114 Equity Residential 1,850 53,798 Simon Property Group 1,300 55,523 ------------------ Total 184,435 - ----------------------------------------------------------------------------------------------------------------- RESTAURANTS (0.4%) CBRL Group 2,950 102,896 Starbucks 4,750(b) 135,090 ------------------ Total 237,986 - ----------------------------------------------------------------------------------------------------------------- RETAIL -- DRUGSTORES (0.3%) CVS 6,150 200,490 - ----------------------------------------------------------------------------------------------------------------- RETAIL -- GENERAL (5.7%) Abercrombie & Fitch 3,000(b) 91,320 AutoZone 2,500(b) 229,500 Clarie's Stores 3,300 114,015 Family Dollar Stores 1,750 70,210 Gap 9,800 204,722 Home Depot 7,450 239,592 Limited Brands 10,650 180,624 Lowe's Companies 11,850(d) 650,091 Staples 19,600(b) 482,748 Wal-Mart Stores 25,050 1,482,208 ------------------ Total 3,745,030 - ----------------------------------------------------------------------------------------------------------------- RETAIL -- GROCERY (1.0%) Kroger 27,950(b) 536,919 Safeway 5,750(b) 140,358 ------------------ Total 677,277 - ----------------------------------------------------------------------------------------------------------------- TELECOM EQUIPMENT & SERVICES (0.1%) JDS Uniphase 9,650(b) $ 33,196 Lucent Technologies 27,900(b) 53,289 ------------------ Total 86,485 - ----------------------------------------------------------------------------------------------------------------- TEXTILES & APPAREL (0.9%) Coach 7,350(b) 426,594 Jones Apparel Group 5,850 180,707 ------------------ Total 607,301 - ----------------------------------------------------------------------------------------------------------------- UTILITIES -- ELECTRIC (2.2%) AES 4,150(b) 26,892 Ameren 1,450 61,625 American Electric Power 3,250 92,008 Calpine 2,550(b) 14,382 CenterPoint Energy 2,050 17,405 Consolidated Edison 1,900 75,107 Dominion Resources 2,350 142,363 Duke Energy 7,000 119,560 Entergy 1,850 97,033 Exelon 2,450 144,304 FirstEnergy 2,550 74,613 FPL Group 1,500 92,790 PG&E 3,500(b) 77,595 PPL 1,550 61,489 Progress Energy 2,000 80,980 Public Service Enterprise Group 1,900 80,446 Southern Co 5,450 154,670 TXU 2,950 64,900 ------------------ Total 1,478,162 - ----------------------------------------------------------------------------------------------------------------- UTILITIES -- NATURAL GAS (0.4%) Dynegy Cl A 2,500(b) 7,725 El Paso 4,050 29,727 KeySpan 1,050 35,438 Kinder Morgan 800 42,599 Nicor 300 10,197 NiSource 1,750 33,845 Peoples Energy 250 10,038 Sempra Energy 1,400 41,650 Williams Companies 3,500 31,955 ------------------ Total 243,174 - ----------------------------------------------------------------------------------------------------------------- UTILITIES -- TELEPHONE (2.9%) ALLTEL 2,100 96,180 AT&T 5,300 118,190 BellSouth 12,450 313,740 CenturyTel 950 33,022 Citizens Communications 1,900(b) 21,660 Qwest Communications Intl 11,450(b) 50,953 SBC Communications 22,400 503,776 Sprint (FON Group) 6,050 89,359 Sprint (PCS Group) 6,900(b) 35,811 Verizon Communications 18,550 655,185 ------------------ Total 1,917,876 - ----------------------------------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $62,464,285) $ 63,055,278 - -----------------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 98 AXP VP - BLUE CHIP ADVANTAGE FUND SHORT-TERM SECURITIES (4.1%)
ANNUALIZED AMOUNT YIELD ON DATE PAYABLE AT ISSUER OF PURCHASE MATURITY VALUE(a) U.S. GOVERNMENT AGENCY Federal Natl Mtge Assn Disc Nts 09-17-03 1.00% $ 500,000 $ 499,761 09-24-03 0.98 800,000 799,466 10-01-03 0.98 500,000 499,547 10-22-03 1.03 400,000 399,407 11-19-03 1.05 500,000 498,874 ------------------- TOTAL SHORT-TERM SECURITIES (Cost: $2,696,982) $ 2,697,055 ------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $65,161,267)(e) $ 65,752,333 ===================
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, 2003, the value of foreign securities represented 1.2% 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 E-Mini S&P 500 Index, Sept. 2003 47 (e) At Aug. 31, 2003, the cost of securities for federal income tax purposes was $66,165,535 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 4,610,358 Unrealized depreciation (5,023,560) ---------------------------------------------- Net unrealized depreciation $ (413,202) ---------------------------------------------- AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 99 INVESTMENTS IN SECURITIES AXP VP - CAPITAL RESOURCE FUND AUG. 31, 2003 (PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS)
ISSUER SHARES VALUE(a) COMMON STOCKS (95.9%) AEROSPACE & DEFENSE (3.4%) Boeing 240,000 $ 8,973,600 Lockheed Martin 404,500 20,722,535 Northrop Grumman 114,900 10,970,652 Rockwell Automation 152,500 4,151,050 United Technologies 290,000 23,272,500 ------------------ Total 68,090,337 - ----------------------------------------------------------------------------------------------------------------- BANKS AND SAVINGS & LOANS (0.9%) FleetBoston Financial 231,800 6,858,962 U.S. Bancorp 429,300 10,260,270 ------------------ Total 17,119,232 - ----------------------------------------------------------------------------------------------------------------- BEVERAGES & TOBACCO (5.7%) Altria Group 1,336,000 55,069,920 Anheuser-Busch 194,200 10,009,068 PepsiCo 1,095,000 48,771,300 ------------------ Total 113,850,288 - ----------------------------------------------------------------------------------------------------------------- BROKER DEALERS (1.5%) J.P. Morgan Chase 277,700 9,502,894 Merrill Lynch 139,200 7,486,176 Morgan Stanley 258,200 12,597,578 ------------------ Total 29,586,648 - ----------------------------------------------------------------------------------------------------------------- BUILDING MATERIALS & CONSTRUCTION (0.8%) American Standard 202,100(b) 16,206,399 - ----------------------------------------------------------------------------------------------------------------- CABLE (1.2%) Comcast Special Cl A 278,400(b) 7,895,424 EchoStar Communications Cl A 447,100(b) 16,497,990 ------------------ Total 24,393,414 - ----------------------------------------------------------------------------------------------------------------- CHEMICALS (1.8%) Dow Chemical 708,000 24,447,240 Lyondell Chemical 805,000 11,511,500 ------------------ Total 35,958,740 - ----------------------------------------------------------------------------------------------------------------- COMPUTER HARDWARE (2.8%) Cisco Systems 621,450(b) 11,900,768 Dell 943,700(b) 30,792,931 Sun Microsystems 3,427,800(b) 13,231,308 ------------------ Total 55,925,007 - ----------------------------------------------------------------------------------------------------------------- COMPUTER SOFTWARE & SERVICES (6.4%) Affiliated Computer Services Cl A 324,300(b) 16,088,523 First Data 714,900 27,452,160 Microsoft 3,109,500 82,463,940 ------------------ Total 126,004,623 - ----------------------------------------------------------------------------------------------------------------- ELECTRONICS (2.6%) Analog Devices 170,000(b) $ 6,970,000 Applied Materials 530,000(b) 11,448,000 Intel 852,000 24,384,240 Taiwan Semiconductor Mfg ADR 753,900(b),(c) 8,880,942 ------------------ Total 51,683,182 - ----------------------------------------------------------------------------------------------------------------- ENERGY (6.4%) ChevronTexaco 236,000 17,197,320 ConocoPhillips 1,080,000 60,307,200 Exxon Mobil 1,313,000 49,500,100 ------------------ Total 127,004,620 - ----------------------------------------------------------------------------------------------------------------- ENERGY EQUIPMENT & SERVICES (1.9%) Transocean 1,276,900(b) 26,968,128 Weatherford Intl 258,200(b) 9,703,156 ------------------ Total 36,671,284 - ----------------------------------------------------------------------------------------------------------------- FINANCE COMPANIES (3.9%) Citigroup 1,770,000 76,729,500 - ----------------------------------------------------------------------------------------------------------------- FINANCIAL SERVICES (4.3%) Capital One Financial 429,200 22,919,280 Fannie Mae 685,000 44,381,150 MBNA 788,600 18,405,924 ------------------ Total 85,706,354 - ----------------------------------------------------------------------------------------------------------------- HEALTH CARE PRODUCTS (13.3%) Amgen 300,000(b) 19,770,000 Medtronic 837,800 41,538,124 Mylan Laboratories 281,000 10,228,400 Pfizer 4,531,500 135,582,480 Wyeth 1,313,000 56,262,050 ------------------ Total 263,381,054 - ----------------------------------------------------------------------------------------------------------------- HEALTH CARE SERVICES (7.4%) AmerisourceBergen 1,204,200 70,096,482 Cardinal Health 1,030,100 58,643,593 McKesson 489,800 16,036,052 Select Medical 46,200(b) 1,330,560 ------------------ Total 146,106,687 - ----------------------------------------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS (3.7%) Kimberly-Clark 396,000 20,239,560 Procter & Gamble 606,300 52,923,927 ------------------ Total 73,163,487 - ----------------------------------------------------------------------------------------------------------------- INDUSTRIAL TRANSPORTATION (0.9%) Expeditors Intl of Washington 201,500 7,598,565 United Parcel Service Cl B 157,000 9,853,320 ------------------ Total 17,451,885 - ----------------------------------------------------------------------------------------------------------------- INSURANCE (3.9%) ACE 124,050(c) $ 3,994,410 Allstate 270,300 9,663,225 American Intl Group 369,600 22,017,072 Chubb 471,900 32,060,886 Montpelier Re Holdings 378,241(b),(c),(e) 10,437,182 ------------------ Total 78,172,775 - ----------------------------------------------------------------------------------------------------------------- LEISURE TIME & ENTERTAINMENT (3.3%) Mattel 963,100 18,607,092 Viacom Cl B 1,049,700 47,236,500 ------------------ Total 65,843,592 - ----------------------------------------------------------------------------------------------------------------- MACHINERY (2.1%) Caterpillar 309,800 22,252,934 Illinois Tool Works 160,000 11,566,400 SPX 153,700(b) 7,585,095 ------------------ Total 41,404,429 - ----------------------------------------------------------------------------------------------------------------- MEDIA (5.5%) Cendant 3,145,700(b) 56,559,686 Disney (Walt) 1,303,000 26,711,500 Gannett 127,200 9,975,024 InterActiveCorp 145,600(b) 5,388,656 Tribune 208,000 9,620,000 ------------------ Total 108,254,866 - ----------------------------------------------------------------------------------------------------------------- METALS (0.9%) Freeport McMoRan Cooper & Gold Cl B 621,000 18,630,000 - ----------------------------------------------------------------------------------------------------------------- MULTI-INDUSTRY (4.4%) General Electric 2,295,000 67,863,150 ITT Inds 40,235 2,618,494 Tyco Intl 771,900(c) 15,885,702 ------------------ Total 86,367,346 - ----------------------------------------------------------------------------------------------------------------- PAPER & PACKAGING (1.1%) Avery Dennison 400,400 21,921,900 - ----------------------------------------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUST (0.1%) Equity Office Properties Trust 91,800 2,553,876 - ----------------------------------------------------------------------------------------------------------------- RETAIL -- GENERAL (4.8%) Best Buy 295,000(b) 15,342,950 Dollar General 540,000 12,382,200 Home Depot 933,600 30,024,576 Staples 214,200(b) 5,275,746 Wal-Mart Stores 555,900 32,892,603 ------------------ Total 95,918,075 - ----------------------------------------------------------------------------------------------------------------- RETAIL -- GROCERY (0.6%) Kroger 627,200(b) 12,048,512 - ----------------------------------------------------------------------------------------------------------------- UTILITIES -- ELECTRIC (0.2%) FirstEnergy 144,600 4,230,996 - ----------------------------------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $1,793,802,756) $ 1,900,379,108 - -----------------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 100 AXP VP - CAPITAL RESOURCE FUND SHORT-TERM SECURITIES (4.3%)
ANNUALIZED AMOUNT YIELD ON DATE PAYABLE AT ISSUER OF PURCHASE MATURITY VALUE(a) U.S. GOVERNMENT AGENCY (--%) Federal Home Loan Bank Disc Nt 10-24-03 1.02% $ 700,000 $ 698,886 - -------------------------------------------------------------------------------------------------------------------------- COMMERCIAL PAPER (4.3%) AEGON Funding 10-15-03 1.03 4,219,000(d) 4,213,066 Amsterdam Funding 10-03-03 1.06 7,200,000(d) 7,192,580 ANZ (Delaware) Funding 10-03-03 1.03 16,200,000 16,182,758 Barton Capital 09-12-03 1.04% $ 6,042,000(d) $ 6,039,557 CIESCO LLC 09-02-03 1.07 18,100,000 18,097,847 CRC Funding LLC 09-15-03 1.05 7,500,000(d) 7,496,282 10-10-03 1.04 8,800,000(d) 8,788,761 Fleet Funding 09-16-03 1.04 7,875,000(d) 7,870,905 Greyhawk Funding LLC 09-22-03 1.04 2,100,000(d) 2,098,558 ING US Funding 10-02-03 1.03% $ 3,600,000 $ 3,596,337 Park Avenue Receivables 09-22-03 1.05 3,700,000(d) 3,697,410 ------------------- Total 85,274,061 - -------------------------------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM SECURITIES (Cost:$85,977,439) $ 85,972,947 - -------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $1,879,780,195)(f) $ 1,986,352,055 ==========================================================================================================================
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, 2003, the value of foreign securities represented 2.0% 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) 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, 2003, is as follows:
ACQUISITION SECURITY DATES COST ------------------------------------------------------------------------------------------- Montpelier Re Holdings 12-10-01 thru 9-27-02 $ 6,304,017
(f) At Aug. 31, 2003, the cost of securities for federal income tax purposes was $1,890,417,170 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 160,113,852 Unrealized depreciation (64,178,967) --------------------------------------------------------------------- Net unrealized appreciation $ 95,934,885 --------------------------------------------------------------------- AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 101 INVESTMENTS IN SECURITIES AXP VP - CASH MANAGEMENT FUND AUG. 31, 2003 (PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS)
ANNUALIZED AMOUNT YIELD ON DATE PAYABLE AT ISSUER OF PURCHASE MATURITY VALUE(a) U.S. GOVERNMENT AGENCIES (8.0%) Federal Home Loan Bank Nt 04-08-04 1.20% $ 10,000,000 $ 10,000,000 Federal Natl Mtge Assn Nts 10-29-03 1.06 8,000,000 7,985,867 11-05-03 1.07 6,500,000 6,487,116 07-20-04 1.06 9,000,000 9,000,000 07-26-04 1.03 7,500,000 7,500,000 07-27-04 1.18 7,500,000 7,500,000 08-13-04 1.20 7,500,000 7,500,000 08-30-04 1.30 6,000,000 6,000,000 09-24-04 1.53 7,500,000 7,500,000 - -------------------------------------------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT AGENCIES (Cost: $69,472,983) $ 69,472,983 - --------------------------------------------------------------------------------------------------------------------------
ANNUALIZED AMOUNT YIELD ON DATE PAYABLE AT ISSUER OF PURCHASE MATURITY VALUE(a) CERTIFICATES OF DEPOSIT (23.4%) Abbey Natl Yankee 03-03-04 1.04% $ 10,000,000(c) $ 9,999,232 Bank One 04-16-04 1.03 10,000,000(c) 9,999,372 Banque Nationale de Paris Yankee 06-07-04 1.04 7,500,000(c) 7,498,535 Bayerische Landesbank Girozentrale Yankee 04-16-04 1.29 10,000,000 9,999,055 Canadian Imperial Bank of Commerce Yankee 03-05-04 1.30 10,000,000 10,000,000 05-28-04 1.07 6,000,000(c) 5,999,550 06-18-04 1.00 6,000,000 6,000,000 Credit Agricole Yankee 10-08-03 1.03 2,500,000 2,500,000 10-15-03 1.06 5,000,000 5,000,000 Credit Suisse First Boston NY Yankee 10-07-03 1.05 6,000,000 6,000,000 01-16-04 1.12 10,000,000(c) 10,000,000 07-06-04 1.09 7,000,000(c) 7,000,000 Danske Bank NY Yankee 07-15-04 1.11 3,000,000 3,000,000 KBC Bank Yankee 09-08-03 1.04 7,000,000 7,000,000 Lloyds TBS Bank Yankee 04-01-04 1.09 6,000,000 6,000,000 Nordea Bank NY Yankee 01-15-04 1.05 6,000,000 5,999,886 Royal Bank of Scotland Yankee 04-19-04 1.34 10,000,000 9,999,043 Societe Generale Yankee 02-26-04 1.05 10,000,000(c) 9,999,504 03-03-04 1.05 10,000,000(c) 9,999,492 Svenska Handelsbanken Yankee 09-03-03 1.04 6,000,000 6,000,000 09-30-03 1.06 5,000,000 5,000,000 Toronto Dominion Yankee 10-14-03 1.02% $ 10,200,000 $ 10,200,125 Wells Fargo Bank 09-22-03 1.06 4,500,000 4,500,000 09-26-03 1.05 10,000,000 10,000,000 09-29-03 1.06 8,000,000 8,000,000 Westdeutsche Landesbank Yankee 11-21-03 1.05 8,000,000(c) 8,000,000 02-19-04 1.36 9,000,000 9,000,000 - -------------------------------------------------------------------------------------------------------------------------- TOTAL CERTIFICATES OF DEPOSIT (Cost: $202,693,794) $ 202,693,794 - --------------------------------------------------------------------------------------------------------------------------
ANNUALIZED AMOUNT YIELD ON DATE PAYABLE AT ISSUER OF PURCHASE MATURITY VALUE(a) COMMERCIAL PAPER (69.5%) ASSET-BACKED (34.6%) Amsterdam Funding 09-05-03 1.06% $ 5,000,000(b) $ 4,999,117 09-11-03 1.06 8,300,000(b) 8,297,067 09-17-03 1.06 3,600,000(b) 3,598,092 Barton Capital 10-16-03 1.06 5,000,000(b) 4,993,081 CAFCO LLC 09-02-03 1.04 6,000,000(b) 5,999,480 09-17-03 1.04 8,200,000(b) 8,195,736 CHARTA LLC 10-02-03 1.07 5,500,000(b) 5,494,605 10-06-03 1.07 10,000,000(b) 9,989,004 10-10-03 1.07 5,000,000(b) 4,993,907 10-15-03 1.08 3,500,000(b) 3,495,170 CIESCO LLC 10-03-03 1.07 6,000,000(b) 5,993,937 10-28-03 1.07 6,500,000(b) 6,488,602 CRC Funding LLC 09-04-03 1.04 8,000,000(b) 7,998,844 10-02-03 1.08 5,000,000(b) 4,995,050 10-06-03 1.08 5,000,000(b) 4,994,450 CXC LLC 09-02-03 1.04 8,000,000(b) 7,999,307 10-17-03 1.07 6,400,000(b) 6,390,869 10-21-03 1.07 3,000,000(b) 2,995,363 Edison Asset Securitization 09-15-03 1.06 5,000,000(b) 4,997,644 10-20-03 1.06 4,000,000(b) 3,993,993 Fairway Finance 09-15-03 1.00 5,100,000(b) 5,097,733 09-17-03 1.07 5,000,000(b) 4,997,325 09-19-03 1.07 4,000,000(b) 3,997,622 09-25-03 0.94 5,000,000(b) 4,996,606 Falcon Asset Securitization 09-22-03 1.06 7,000,000(b) 6,995,259 Fleet Funding 10-09-03 1.03% $ 7,400,000(b) $ 7,391,531 10-27-03 1.07 8,000,000(b) 7,986,209 11-04-03 1.09 8,700,000(b) 8,682,615 Galaxy Funding 09-11-03 0.94 5,000,000(b) 4,998,433 09-24-03 1.03 4,000,000(b) 3,997,139 10-21-03 1.07 2,000,000(b) 1,996,909 11-18-03 1.09 3,500,000(b) 3,491,522 11-19-03 1.09 1,800,000(b) 1,795,586 Greyhawk Funding LLC 10-07-03 1.08 6,800,000(b) 6,792,248 10-14-03 1.06 6,600,000(b) 6,591,255 10-24-03 1.08 5,500,000(b) 5,490,925 Old Line Funding 10-01-03 1.06 5,000,000(b) 4,995,289 10-07-03 1.06 2,000,000(b) 1,997,762 Park Avenue Receivables 10-22-03 1.06 9,700,000(b) 9,684,863 Preferred Receivables Funding 09-16-03 1.06 4,000,000(b) 3,997,998 Receivables Capital 09-12-03 1.07 6,500,000(b) 6,497,488 Sheffield Receivables 09-05-03 1.08 13,200,000(b) 13,197,625 09-15-03 1.06 5,000,000(b) 4,997,644 09-29-03 1.07 5,000,000(b) 4,995,542 Sigma Finance 05-06-04 1.07 7,500,000(b),(c) 7,499,744 05-10-04 1.07 7,500,000(b),(c) 7,499,234 06-09-04 1.06 7,000,000(b),(c) 6,998,928 Variable Funding Capital 09-09-03 1.06 5,600,000(b) 5,598,351 Windmill Funding 10-03-03 1.07 2,000,000(b) 1,997,979 10-10-03 1.04 4,900,000(b) 4,894,196 12-18-03 1.03 6,400,000(b) 6,379,858 12-22-03 1.03 7,000,000(b) 6,977,168 ------------------- Total 300,411,904 - -------------------------------------------------------------------------------------------------------------------------- BANKS AND SAVINGS & LOANS (22.2%) Allied Irish Bank North America 09-18-03 0.93 10,000,000 9,995,092 ANZ (Delaware) 12-11-03 1.03 7,500,000 7,477,898 Bank of Ireland 09-08-03 1.09 6,000,000(b) 5,998,373 09-08-03 1.10 6,000,000(b) 5,998,358 09-22-03 0.93 5,000,000(b) 4,997,029 09-25-03 1.04 3,000,000(b) 2,997,747 Barclays U.S. Funding 10-31-03 1.07 5,000,000 4,990,786 12-19-03 1.04 7,000,000 6,977,553
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 102 AXP VP - CASH MANAGEMENT FUND
ANNUALIZED AMOUNT YIELD ON DATE PAYABLE AT ISSUER OF PURCHASE MATURITY VALUE(a) COMMERCIAL PAPER (CONTINUED) BANKS AND SAVINGS & LOANS (CONT.) Danske Bank 09-30-03 1.04% $ 15,000,000 $ 14,986,566 10-15-03 1.06 6,200,000 6,191,602 12-23-03 1.03 2,000,000 1,993,419 HBOS Treasury Services 09-18-03 1.07 2,000,000 1,998,871 09-23-03 1.04 7,600,000 7,594,731 10-14-03 1.08 5,000,000 4,993,250 11-03-03 1.04 12,000,000 11,977,467 Landesbank Baden-Wuerttemberg Girozentrale 10-10-03 1.03 4,000,000 3,995,308 Nordea North America 09-24-03 1.04 7,000,000 6,994,944 10-24-03 1.06 13,000,000 12,978,946 10-24-03 1.07 7,000,000 6,988,557 Northern Rock 09-11-03 1.06 2,000,000(b) 1,999,293 10-27-03 1.06 8,500,000(b) 8,485,484 11-25-03 0.92 6,000,000(b) 5,986,660 11-26-03 1.05 4,700,000(b) 4,687,937 Societe Generale North America 09-10-03 1.10 5,000,000 4,998,327 Svenska Handelsbanken 10-01-03 1.04 9,000,000 8,991,680 10-03-03 1.03 4,000,000 3,996,109 Toronto Dominion Holdings 09-09-03 1.09 6,000,000 5,998,183 UBS Finance (Delaware) LLC 09-18-03 0.93 10,000,000 9,995,092 Westdeutsche Landesbank Girozentrale 01-27-04 1.36 7,500,000(b) 7,457,813 ------------------- Total 192,723,075 - -------------------------------------------------------------------------------------------------------------------------- BROKER DEALERS (4.8%) Citigroup Global Markets Holdings 10-08-03 1.04% $ 9,000,000 $ 8,989,909 Goldman Sachs Group 11-17-03 1.30 7,000,000 6,980,031 11-18-03 1.30 4,900,000 4,885,844 11-20-03 0.92 8,400,000 8,382,397 Lehman Brothers Holdings 09-22-04 1.16 7,500,000(c) 7,500,000 Merrill Lynch 11-19-03 1.15 5,000,000(c) 5,000,000 ------------------- Total 41,738,181 - -------------------------------------------------------------------------------------------------------------------------- FINANCE COMPANIES (1.8%) Household Finance 09-04-03 1.04 7,500,000 7,498,917 09-12-03 1.00 5,000,000 4,998,194 11-17-03 1.10 3,000,000 2,992,758 ------------------- Total 15,489,869 - -------------------------------------------------------------------------------------------------------------------------- FINANCIAL SERVICES (3.8%) American Honda Finance 10-23-03 1.09 5,000,000(b),(c) 5,003,611 BP Capital Markets 09-02-03 1.10 15,000,000 14,998,625 Toyota Motor Credit 09-16-03 0.93 4,000,000(b) 3,998,243 10-09-03 1.03 9,200,000(b) 9,189,471 ------------------- Total 33,189,950 - -------------------------------------------------------------------------------------------------------------------------- MULTI-INDUSTRY (2.3%) GE Capital Intl Funding 10-16-03 1.06% $ 3,000,000(b) $ 2,995,848 12-11-03 1.05 4,400,000(b) 4,386,782 12-17-03 1.06 4,500,000(b) 4,485,558 General Electric Capital 09-12-03 1.02 3,500,000 3,498,711 11-07-03 1.02 4,500,000 4,491,203 ------------------- Total 19,858,102 - -------------------------------------------------------------------------------------------------------------------------- TOTAL COMMERCIAL PAPER (Cost: $603,411,081) $ 603,411,081 - -------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $875,577,858)(d) $ 875,577,858 ==========================================================================================================================
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 on Aug. 31, 2003. (d) Also represents the cost of securities for federal income tax purposes at Aug. 31, 2003. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 103 INVESTMENTS IN SECURITIES AXP VP - DIVERSIFIED BOND FUND AUG. 31, 2003 (PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS)
COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) BONDS (99.9%) FOREIGN GOVERNMENT (1.6%) Dominican Republic (U.S. Dollar) 01-23-13 9.04% $ 2,000,000(c),(d) $ 1,890,000 Federal Republic of Brazil (U.S. Dollar) 03-12-08 11.50 850,000(c) 901,000 04-15-10 12.00 2,150,000(c) 2,259,650 04-15-14 8.00 1,108,269(c) 997,775 Federation of Russia (U.S. Dollar) 03-31-30 5.00 620,000(c),(j) 567,300 03-31-30 5.00 1,000,000(c),(d),(j) 913,750 Govt of Ukraine (U.S. Dollar) 06-11-13 7.65 1,000,000(c),(d) 980,000 Republic of Colombia (U.S. Dollar) 04-23-09 9.75 2,000,000(c) 2,210,000 01-23-12 10.00 1,300,000(c) 1,404,000 Republic of El Salvador (U.S. Dollar) 01-24-23 7.75 1,370,000(c),(d) 1,411,100 Republic of Peru (U.S. Dollar) 02-06-15 9.88 2,290,000(c) 2,519,000 Republic of Philippines (U.S. Dollar) 01-15-19 9.88 505,000(c) 527,725 United Mexican States (U.S. Dollar) 03-03-15 6.63 11,840,000(c) 11,780,800 ------------------- Total 28,362,100 - -------------------------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS & AGENCIES (21.3%) Federal Home Loan Mtge Corp 07-15-13 4.50 44,500,000 42,707,985 Federal Natl Mtge Assn 04-15-06 2.13 16,500,000 16,313,006 08-15-08 3.25 69,000,000 67,324,679 U.S. Treasury 01-31-05 1.63 12,150,000(m) 12,161,871 05-31-05 1.25 10,150,000 10,061,188 06-30-05 1.13 15,310,000(m) 15,119,222 11-15-05 5.75 5,035,000 5,432,881 02-15-06 5.63 15,150,000 16,393,361 05-15-06 2.00 4,119,000 4,088,108 08-15-06 2.38 2,200,000(m) 2,193,297 11-15-07 3.00 7,510,000 7,472,157 08-15-13 4.25 43,748,000 43,016,533 11-15-16 7.50 890,000(m) 1,109,684 08-15-21 8.13 12,000,000 16,004,532 08-15-22 7.25 2,940,000(m) 3,623,091 08-15-23 6.25 47,200,000(m) 52,393,840 08-15-27 6.38% $ 22,930,000 $ 26,005,853 02-15-31 5.38 34,160,000(m) 34,893,893 ------------------- Total 376,315,181 - -------------------------------------------------------------------------------------------------------------------------- MORTGAGE-BACKED SECURITIES (41.7%)(F) Federal Home Loan Mtge Corp 05-01-07 9.00 360,407 364,945 09-27-12 3.61 3,800,000 3,763,618 05-01-13 4.50 2,429,419 2,406,311 08-01-18 5.00 8,250,000 8,286,842 02-01-23 6.00 13,771,064 14,165,130 08-01-24 8.00 586,821 634,815 01-01-25 9.00 166,052 185,150 09-01-28 6.00 3,822,191 3,894,142 12-01-30 5.50 2,563,427 2,563,170 07-01-32 7.00 24,715,054 26,008,261 09-01-32 6.50 3,964,003 4,105,611 10-01-32 6.50 17,727,939 18,361,243 04-01-33 6.00 961,236 979,983 05-01-33 5.50 4,970,065 4,951,380 06-01-33 5.50 4,895,570 4,877,165 Collateralized Mtge Obligation 10-15-18 5.00 3,700,000 3,741,625 11-15-18 5.00 9,300,000 9,375,563 03-15-22 7.00 5,178,749 5,343,950 07-15-22 7.00 5,139,735 5,313,869 Interest Only 02-15-14 9.85 2,700,000(i) 314,128 06-15-18 24.49 2,607,640(i) 158,671 Federal Natl Mtge Assn 09-01-07 8.50 599,518 630,304 11-01-12 4.79 10,000,000 9,955,662 01-01-13 4.78 5,360,000 5,437,400 01-01-13 4.92 2,779,271 2,754,548 02-01-13 4.83 3,227,847 3,177,790 02-01-13 4.87 7,281,260 7,250,038 04-01-13 7.00 6,852,742 7,273,171 06-01-13 4.54 6,892,581 6,678,464 06-01-13 4.85 4,539,837 4,453,743 10-01-13 4.50 5,000,000(h) 4,939,050 12-01-13 5.50 5,917,720 6,073,481 04-01-14 5.50 62,927 64,583 08-01-16 6.00 2,097,959 2,174,123 08-01-16 6.50 2,466,849 2,595,316 02-01-17 7.00 3,524,192 3,746,362 03-01-17 6.50 2,933,864 3,091,145 08-01-17 6.00 4,158,948 4,332,122 08-01-17 6.50 7,235,305 7,612,340 09-01-17 6.00 1,529,420 1,584,881 09-01-17 6.50 6,668,032 7,060,753 02-01-18 5.50 14,428,155 14,745,538 03-01-18 5.50 3,741,347 3,833,748 04-01-18 5.00 4,479,897 4,528,716 09-01-18 4.50% $ 3,100,000 $ 3,046,234 09-01-18 5.00 54,325,000(h) 54,477,654 09-01-18 5.50 23,000,000(h) 23,488,750 11-01-21 8.00 77,299 84,038 04-01-22 8.00 334,172 363,164 04-01-23 8.50 1,041,507 1,138,123 08-01-23 5.50 10,470,740(h) 10,565,532 09-01-23 5.00 4,700,000(h) 4,600,125 09-01-23 5.50 8,000,000(h) 8,072,424 06-01-24 9.00 1,005,960 1,116,020 02-01-27 7.50 1,831,294 1,950,212 07-01-28 5.50 2,959,668 2,965,856 08-01-28 5.50 3,500,000 3,507,317 10-01-28 6.00 7,206,401 7,337,110 11-01-28 6.50 5,900,858 6,118,796 01-01-29 6.50 5,968,197 6,188,622 06-01-29 7.00 1,741,240(h) 1,836,779 08-01-32 6.50 7,868,739 8,142,493 08-01-32 7.00 1,783,827 1,880,721 09-01-32 6.00 29,733,501 30,238,270 10-01-32 6.50 6,989,305 7,274,086 11-01-32 7.00 3,608,458(h) 3,800,149 12-01-32 6.00 2,363,822 2,401,905 01-01-33 6.00 24,132,541 24,568,528 02-01-33 4.75 2,775,642(g) 2,829,769 02-01-33 5.50 5,513,353 5,494,348 02-15-33 5.50 6,597,641 6,853,696 02-28-33 6.00 2,174,250 2,218,183 03-01-33 4.93 4,666,387(g) 4,790,248 03-01-33 5.50 15,297,639 15,254,952 03-01-33 6.00 14,840,386 15,117,464 03-01-33 6.50 26,619,375 27,553,632 04-01-33 5.50 19,513,095 19,462,531 04-01-33 6.00 18,281,040 18,648,388 05-01-33 5.50 20,059,649 19,986,855 05-01-33 6.50 1,591,414 1,647,279 06-01-33 5.50 5,934,734 5,918,571 06-01-33 6.00 6,926,109 7,041,741 07-01-33 5.50 7,137,105 7,112,504 07-01-33 7.00 4,127,929(h) 4,347,225 09-01-33 5.00 25,685,000(h) 24,834,313 09-01-33 5.50 1,000,000(h) 995,000 09-01-33 6.00 6,500,000(h) 6,607,653 10-01-33 5.50 17,600,000(h) 17,457,000 10-01-33 6.50 17,500,000(h) 18,046,875 11-01-33 5.00 7,000,000(g),(h) 6,899,375 Collateralized Mtge Obligation 11-25-12 4.49 6,500,000 6,278,986 09-25-42 5.00 3,280,000 3,314,286 10-25-42 7.50 4,578,951 4,946,698 12-25-42 4.75 5,000,000 4,989,779 Interest Only 12-25-12 12.05 2,700,000(i) 256,543
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 104 AXP VP - DIVERSIFIED BOND FUND
COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) BONDS (CONTINUED) MORTGAGE-BACKED SECURITIES (CONT.) Govt Natl Mtge Assn 03-15-33 7.00% $ 3,276,084 $ 3,464,183 05-15-33 6.00 5,713,212 5,837,377 09-01-33 5.50 15,150,000(h) 15,126,367 Collateralized Mtge Obligation Interest Only 01-20-32 10.48 3,200,000(i) 487,481 08-20-32 8.01 11,717,022(i) 3,406,632 ------------------- Total 736,177,692 - -------------------------------------------------------------------------------------------------------------------------- AEROSPACE & DEFENSE (0.4%) Alliant Techsystems 05-15-11 8.50 1,000,000 1,080,000 L-3 Communications 06-15-12 7.63 1,395,000 1,454,288 Raytheon 04-01-13 5.38 3,100,000 3,057,712 TD Funding Sr Sub Nts 07-15-11 8.38 750,000(d) 781,875 ------------------- Total 6,373,875 - -------------------------------------------------------------------------------------------------------------------------- AIRLINES (--%) Northwest Airlines 02-01-20 6.81 756,800 611,948 - -------------------------------------------------------------------------------------------------------------------------- AUTOMOTIVE & RELATED (0.8%) DaimlerChrysler North America Holding 01-15-08 4.75 1,250,000 1,238,925 06-04-08 4.05 9,680,000 9,268,503 Ford Motor 10-01-28 6.63 1,015,000 828,578 02-01-29 6.38 2,670,000 2,096,433 ------------------- Total 13,432,439 - -------------------------------------------------------------------------------------------------------------------------- BANKS AND SAVINGS & LOANS (2.2%) AmSouth Bank NA Sub Nts 04-01-13 4.85 3,550,000 3,441,548 Bank of America Sub Nts 02-15-10 7.80 8,000,000 9,376,656 Banknorth Group 05-01-08 3.75 1,570,000 1,539,872 Credit Suisse First Boston USA 01-15-12 6.50 2,820,000 3,033,629 Fifth Third Bank 08-15-08 3.38 1,250,000 1,219,200 Marshall & Ilsley Series E 09-01-06 5.75 4,900,000 5,315,030 Wachovia 08-15-08 3.50 2,560,000 2,496,538 Washington Mutual Bank 06-15-11 6.88 10,700,000 11,933,581 ------------------- Total 38,356,054 - -------------------------------------------------------------------------------------------------------------------------- BEVERAGES & TOBACCO (0.4%) Cott Beverages 12-15-11 8.00% $ 960,000 $ 1,003,200 Diageo Capital (U.S. Dollar) 03-20-08 3.38 6,850,000(c) 6,724,714 ------------------- Total 7,727,914 - -------------------------------------------------------------------------------------------------------------------------- BROKER DEALERS (2.5%) Goldman Sachs Group 01-15-11 6.88 1,715,000 1,906,406 04-01-13 5.25 1,580,000 1,557,387 07-15-13 4.75 2,460,000 2,329,866 LaBranche Sr Sub Nts 03-02-07 12.00 750,000 817,500 Lehman Brothers Holdings 08-07-08 3.50 4,830,000 4,683,506 Merrill Lynch 11-15-07 4.00 3,150,000 3,147,792 Morgan Stanley 04-15-06 6.10 6,000,000 6,480,510 04-15-11 6.75 1,250,000 1,378,036 03-01-13 5.30 5,300,000 5,211,013 Morgan Stanley Capital I Series 2003-IQ4 Cl A1 05-15-40 3.27 6,939,078 6,555,541 Series 2003-T11 Cl A2 06-13-41 4.34 5,170,000 5,120,850 Morgan Stanley, Dean Witter Capital 1 Series 2002-IQ2 Cl A2 12-15-35 5.16 850,000 885,875 Series 2002-IQ2 Cl A3 12-15-35 5.52 1,550,000 1,613,690 Series 2002-TOP7 Cl A2 01-15-39 5.98 2,860,000 3,030,088 ------------------- Total 44,718,060 - -------------------------------------------------------------------------------------------------------------------------- BUILDING MATERIALS & CONSTRUCTION (0.7%) Louisiana Pacific Sr Nts 08-15-10 8.88 1,440,000 1,652,400 Masco 05-03-04 6.00 9,800,000 10,065,217 Ryland Group Sr Nts 06-01-08 5.38 1,250,000 1,240,625 ------------------- Total 12,958,242 - -------------------------------------------------------------------------------------------------------------------------- CABLE (1.0%) Comcast 03-15-11 5.50 12,235,000 12,302,414 Comcast Cable Communications Sr Nts 06-15-13 7.13 1,980,000 2,177,537 Cox Communications 06-01-13 4.63 1,610,000 1,490,973 DirectTV Holdings/Finance Sr Nts 03-15-13 8.38 750,000(d) 819,375 Rogers Cable (U.S. Dollar) 06-15-13 6.25% $ 1,000,000(c) $ 938,750 Veninfotel (U.S. Dollar) Cv Pay-in-kind 12-31-05 13.00 9,773,312(c),(k),(l) 97,733 ------------------- Total 17,826,782 - -------------------------------------------------------------------------------------------------------------------------- CELLULAR TELECOMMUNICATIONS (0.4%) AT&T Wireless Services Sr Nts 03-01-11 7.88 5,650,000 6,382,008 Nextel Communications Sr Nts 08-01-15 7.38 520,000 520,000 ------------------- Total 6,902,008 - -------------------------------------------------------------------------------------------------------------------------- CHEMICALS (0.4%) Airgas 10-01-11 9.13 750,000 825,000 Compass Minerals Group 08-15-11 10.00 1,250,000 1,381,250 Dow Chemical 02-01-11 6.13 2,795,000 2,902,228 MacDermid 07-15-11 9.13 260,000 286,000 Praxair 06-15-08 2.75 1,470,000 1,386,592 Rhodia (U.S. Dollar) 06-01-10 7.63 190,000(c),(d) 193,800 06-01-11 8.88 115,000(c),(d) 115,575 ------------------- Total 7,090,445 - -------------------------------------------------------------------------------------------------------------------------- ELECTRONICS (--%) Flextronics Intl (U.S. Dollar) Sr Sub Nts 05-15-13 6.50 500,000(c),(d) 478,750 - -------------------------------------------------------------------------------------------------------------------------- ENERGY (0.9%) Amerada Hess 08-15-11 6.65 770,000 828,291 Conoco Funding (U.S. Dollar) 10-15-11 6.35 7,810,000(c) 8,500,216 Devon Financing 09-30-11 6.88 1,610,000 1,778,665 Gulfterra Energy Partner Sr Nts 06-01-10 6.25 500,000(d) 485,000 Newfield Exploration Sr Nts 03-01-11 7.63 1,500,000 1,605,000 Westport Resources 11-01-11 8.25 750,000 802,500 XTO Energy Sr Nts 04-15-12 7.50 1,260,000 1,354,500 04-15-13 6.25 705,000 705,000 ------------------- Total 16,059,172 - --------------------------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 105 AXP VP - DIVERSIFIED BOND FUND
COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) BONDS (CONTINUED) ENERGY EQUIPMENT & SERVICES (0.1%) Grant Prideco Escrow 12-15-09 9.00% $ 1,000,000 $ 1,052,500 Key Energy Services Sr Nts 03-01-08 8.38 190,000 198,550 05-01-13 6.38 540,000 513,000 Offshore Logistics 06-15-13 6.13 365,000(d) 346,750 ------------------- Total 2,110,800 - -------------------------------------------------------------------------------------------------------------------------- FINANCE COMPANIES (2.7%) Citigroup Sub Nts 10-01-10 7.25 23,030,000 26,371,745 GMAC 09-15-11 6.88 11,580,000 11,584,285 Household Finance 01-24-06 6.50 4,250,000 4,610,999 10-15-11 6.38 4,000,000 4,281,472 ------------------- Total 46,848,501 - -------------------------------------------------------------------------------------------------------------------------- FINANCIAL SERVICES (5.4%) Bank of America First Union NB Commercial Mtge Series 2001-3 Cl A2 04-11-37 5.46 2,050,000 2,115,781 Bear Stearns Commercial Mtge Securities Series 2003-T10 Cl A1 03-13-40 4.00 4,327,471 4,244,470 Capital One Bank Sr Nts 02-01-06 6.88 880,000 943,595 Chase Manhattan Bank-First Union Natl Series 1999-1 C1 A2 08-15-31 7.44 7,100,000 8,102,993 Citibank Credit Card Issuance Trust Series 2003-A5 Cl A5 04-07-08 2.50 5,000,000 4,970,800 Series 2003-A6 Cl A6 05-17-10 2.90 4,500,000 4,521,825 Commercial Mtge Acceptance Series 1998-C1 C1 A2 07-15-31 6.49 8,000,000 8,795,638 General Electric Capital 03-15-07 5.38 3,750,000 3,983,250 06-15-12 6.00 1,070,000 1,126,582 Greenwich Capital Commercial Funding Series 2002-C1 Cl A3 01-11-17 4.50 3,000,000 2,976,059 Series 2002-C1 Cl A4 01-11-35 4.95 3,300,000 3,245,656 HSBC Holdings (U.S. Dollar) Sub Nts 12-12-12 5.25 4,700,000(c) 4,687,305 LB-UBS Commercial Mtge Trust Series 2002-C2 Cl A3 06-15-26 5.39% $ 3,590,000 $ 3,705,286 Series 2002-C2 Cl A4 06-15-31 5.59 2,395,000 2,468,619 Series 2002-C4 Cl A4 09-15-26 4.56 5,000,000 4,916,861 Series 2002-C4 Cl A5 09-15-31 4.85 3,000,000 2,937,397 Series 2003-C3 Cl A2 05-15-27 3.09 7,500,000 7,181,827 MBNA Credit Card Master Note Trust Series 2003-A1 Cl A1 07-15-10 3.30 2,850,000 2,808,476 Nissan Auto Receivables Owner Trust Series 2003-A Cl A4 07-15-08 2.61 1,250,000 1,241,894 Residential Asset Securities Series 2002-KS1 Cl A14 11-25-29 5.86 3,800,000 3,937,446 Residential Funding Mtge 10-25-17 5.50 2,900,902 2,928,838 SLM 03-17-08 3.63 2,700,000 2,661,414 TIAA Global Markets 01-22-08 3.88 8,570,000(d) 8,589,625 Toyota Motor Credit 08-01-08 2.88 2,260,000 2,166,413 ------------------- Total 95,258,050 - -------------------------------------------------------------------------------------------------------------------------- FOOD (0.8%) Burns Philp Capital Property (U.S. Dollar) Sr Sub Nts 02-15-11 10.75 250,000(c),(d) 256,250 Chiquita Brands Intl Sr Nts 03-15-09 10.56 250,000 272,500 General Mills 02-15-07 5.13 4,000,000 4,273,308 Kellogg Series B 04-01-11 6.60 5,110,000 5,637,097 Kraft Foods 11-01-11 5.63 3,825,000 3,840,912 ------------------- Total 14,280,067 - -------------------------------------------------------------------------------------------------------------------------- HEALTH CARE PRODUCTS (0.1%) Apogent Technologies Sr Sub Nts 05-15-13 6.50 750,000(d) 736,875 Kinetic Concepts Sr Sub Nts 05-15-13 7.38 375,000(d) 375,000 ------------------- Total 1,111,875 - -------------------------------------------------------------------------------------------------------------------------- HEALTH CARE SERVICES (0.2%) AmerisourceBergen 11-15-12 7.25% $ 1,000,000 $ 1,009,999 Fisher Scientific Intl Sr Sub Nts 09-01-13 8.00 375,000(d) 385,313 Omnicare Sr Sub Nts 06-01-13 6.13 825,000 785,813 Province Healthcare Sr Sub Nts 06-01-13 7.50 250,000 240,625 Tenet Healthcare Sr Nts 06-01-12 6.50 500,000 465,000 ------------------- Total 2,886,750 - -------------------------------------------------------------------------------------------------------------------------- HOME BUILDING (0.2%) D.R. Horton 07-01-13 5.88 750,000 676,875 Meritage 06-01-11 9.75 1,140,000 1,215,525 NVR Sr Nts 06-15-10 5.00 1,250,000 1,168,750 ------------------- Total 3,061,150 - -------------------------------------------------------------------------------------------------------------------------- INDUSTRIAL TRANSPORTATION (1.0%) Burlington North Santa Fe 12-15-05 6.38 3,000,000 3,255,558 Canadian Natl Railways (U.S. Dollar) 10-15-11 6.38 4,190,000(c) 4,568,960 CSX 03-15-11 6.75 2,910,000 3,197,601 Greater Beijing First Expressways (U.S. Dollar) Sr Nts 06-15-07 9.50 2,290,000(b),(c) 1,471,325 Interpool 08-01-07 7.35 200,000 195,000 Union Pacific 02-01-08 6.63 310,000 340,642 01-15-11 6.65 2,450,000 2,692,281 04-15-12 6.50 2,100,000 2,297,866 ------------------- Total 18,019,233 - -------------------------------------------------------------------------------------------------------------------------- INSURANCE (1.2%) Allstate 06-01-33 5.35 1,230,000 1,076,582 Sr Nts 02-15-12 6.13 820,000 881,280 ASIF Global Financing 01-17-13 4.90 10,190,000(d) 9,928,321 MassMutual Global Funding II 07-15-08 2.55 3,430,000(d) 3,213,313 Met Life Global Funding I 06-19-08 2.60 4,740,000(d) 4,435,929 Travelers Property Casualty Sr Nts 03-15-13 5.00 2,380,000 2,330,615 ------------------- Total 21,866,040 - --------------------------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 106 AXP VP - DIVERSIFIED BOND FUND
COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) BONDS (CONTINUED) LEISURE TIME & ENTERTAINMENT (0.6%) AOL Time Warner 05-01-12 6.88% $ 795,000 $ 864,059 05-01-32 7.70 870,000 954,332 KSL Resorts Series 2003-1A Cl C 05-15-13 2.04 1,700,000 1,699,868 Viacom 05-15-11 6.63 6,485,000 7,169,822 ------------------- Total 10,688,081 - -------------------------------------------------------------------------------------------------------------------------- LODGING & GAMING (0.2%) Choctaw Resort Development Enterprises Sr Nts 04-01-09 9.25 750,000 803,438 Coast Hotels & Casino 04-01-09 9.50 500,000 532,500 Hilton Hotels 12-01-12 7.63 375,000 396,563 Mohegan Tribal Gaming Sr Sub Nts 04-01-12 8.00 975,000 1,038,374 Park Place Entertainment Sr Sub Nts 03-15-10 7.88 250,000 266,875 ------------------- Total 3,037,750 - -------------------------------------------------------------------------------------------------------------------------- MACHINERY (--%) Joy Global Series B 03-15-12 8.75 750,000 810,000 - -------------------------------------------------------------------------------------------------------------------------- MEDIA (2.0%) Alliance Atlantis Communications (U.S. Dollar) Sr Sub Nts 12-15-09 13.00 500,000(c) 559,375 AOA Holdings LLC Sr Nts 06-15-08 12.00 2,500,000(l) 2,692,500 AOL Time Warner 04-15-06 6.13 2,907,000 3,108,516 Belo (AH) 11-01-08 8.00 3,800,000 4,378,094 CanWest Media (U.S. Dollar) Sr Sub Nts 05-15-11 10.63 750,000(c) 836,250 CBD Media/Finance Sr Sub Nts 06-01-11 8.63 970,000(d) 1,018,500 Corus Entertainment (U.S. Dollar) Sr Sub Nts 03-01-12 8.75 295,000(c) 311,963 Dex Media West/Finance Sr Nts 08-15-10 8.50 350,000(d) 380,625 Sr Sub Nts 08-15-13 9.88 305,000(d) 340,075 Hollinger Intl Publishing Sr Nts 12-15-10 9.00% $ 600,000 $ 622,500 Lamar Media Corp 09-15-07 8.63 930,000 960,225 Morris Publishing Sr Sub Nts 08-01-13 7.00 675,000(d) 675,000 Nexstar Finance LLC 04-01-08 12.00 500,000 560,000 Quebecor Media (U.S. Dollar) Sr Nts 07-15-11 11.13 385,000(c) 425,425 Radio One Series B 07-01-11 8.88 500,000 546,250 Sinclair Broadcast Group 03-15-12 8.00 600,000 625,500 Sun Media (U.S. Dollar) Sr Nts 02-15-13 7.63 750,000(c) 774,375 Susquehanna Media Sr Sub Nts 04-15-13 7.38 330,000 336,188 TCI Communications 02-15-06 6.88 2,362,000 2,559,903 Time Warner 08-15-04 7.98 1,500,000 1,574,790 08-15-07 8.18 3,000,000 3,410,766 01-15-28 6.95 5,000,000 5,030,474 United Artists Theatre 07-01-15 9.30 3,750,106 3,656,353 ------------------- Total 35,383,647 - -------------------------------------------------------------------------------------------------------------------------- METALS (--%) Euramax Intl Sr Sub Nts 08-15-11 8.50 355,000(d) 358,550 Jorgensen Earle M 06-01-12 9.75 250,000 263,750 Peabody Energy Series B 03-15-13 6.88 250,000 250,000 ------------------- Total 872,300 - -------------------------------------------------------------------------------------------------------------------------- MULTI-INDUSTRY (1.1%) General Electric 02-01-13 5.00 17,390,000 17,057,503 SPX Sr Nts 06-15-11 6.25 315,000 308,700 Tyco Intl Group (U.S. Dollar) 02-15-11 6.75 980,000(c) 997,150 Vivendi Universal (U.S. Dollar) Sr Nts 07-15-08 6.25 750,000(c),(d) 750,000 ------------------- Total 19,113,353 - -------------------------------------------------------------------------------------------------------------------------- PAPER & PACKAGING (1.1%) Ball 12-15-12 6.88% $ 730,000 $ 737,300 Cascades (U.S. Dollar) Sr Nts 02-15-13 7.25 1,000,000(c),(d) 983,070 Crown Euro Holdings (U.S. Dollar) 03-01-13 10.88 250,000(c),(d) 273,750 Crown Paper Sr Sub Nts 09-01-05 11.00 3,450,000(b) 345 Domtar (U.S. Dollar) 10-15-11 7.88 535,000(c) 614,201 Georgia-Pacific Sr Nts 02-01-10 8.88 500,000(d) 525,000 Graphic Packaging Intl Sr Nts 08-15-11 8.50 270,000(d) 282,150 Intl Paper 10-30-12 5.85 920,000 937,541 Norampac (U.S. Dollar) Sr Nts 06-01-13 6.75 1,000,000(c),(d) 987,500 Packaging Corp of America 08-01-13 5.75 1,980,000(d) 1,920,303 Stone Container Sr Nts 07-01-12 8.38 750,000 795,000 Weyerhaeuser 03-15-07 6.13 11,030,000 11,896,086 ------------------- Total 19,952,246 - -------------------------------------------------------------------------------------------------------------------------- RETAIL -- GENERAL (0.4%) Sonic Automotive Sr Sub Nts 08-15-13 8.63 250,000(d) 252,500 Wal-Mart CRAVE 401 07-17-06 7.00 5,661,454(d) 6,124,108 William Carter Series B 08-15-11 10.88 500,000 550,000 ------------------- Total 6,926,608 - -------------------------------------------------------------------------------------------------------------------------- RETAIL -- GROCERY (0.2%) Kroger Sr Nts 07-15-06 8.15 3,000,000 3,372,750 - -------------------------------------------------------------------------------------------------------------------------- TELECOM EQUIPMENT & SERVICES (1.0%) Qwest 11-01-04 7.20 1,000,000 1,015,000 Sprint Capital 03-15-12 8.38 3,895,000 4,423,622 Telus (U.S. Dollar) 06-01-07 7.50 3,570,000(c) 3,896,805
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 107 AXP VP - DIVERSIFIED BOND FUND
COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) BONDS (CONTINUED) TELECOM EQUIPMENT & SERVICES (CONT.) Verizon Maryland 03-01-12 6.13% $ 2,955,000 $ 3,139,877 Verizon Virginia Cl A 03-15-13 4.63 3,400,000 3,215,414 Vodafone Group (U.S. Dollar) 02-15-10 7.75 1,860,000(c) 2,153,675 ------------------- Total 17,844,393 - -------------------------------------------------------------------------------------------------------------------------- UTILITIES -- ELECTRIC (4.8%) American Electric Power Sr Nts 06-01-15 5.25 2,370,000 2,194,051 Carolina Power & Light 07-15-12 6.50 500,000 538,055 Cincinnati Gas & Electric 09-15-12 5.70 800,000 826,216 Cleveland Electric Illuminating 1st Mtge Series B 05-15-05 9.50 11,000,000 11,073,281 Columbus Southern Power 03-01-13 5.50 1,850,000(d) 1,841,888 Commonwealth Edison 02-01-08 3.70 3,600,000 3,571,452 Consolidated Natural Gas Sr Nts 04-15-11 6.85 830,000 925,093 Consumers Energy 1st Mtge 04-15-08 4.25 8,650,000(d) 8,543,865 Dominion Resources Sr Nts 09-17-12 5.70 7,150,000 7,325,232 Sr Nts Series F 08-01-33 5.25 830,000 783,994 Duke Energy 01-15-12 6.25 5,700,000 5,989,304 1st Mtge 03-05-08 3.75 5,800,000(d) 5,769,840 Duke Energy Field Services 08-16-05 7.50 2,500,000 2,729,450 Exelon Sr Nts 05-01-11 6.75 760,000 833,089 FirstEnergy Series B 11-15-11 6.45 4,700,000 4,594,532 Florida Power 1st Mtge 03-01-13 4.80 5,460,000 5,350,145 FPL Group Capital 04-11-06 3.25 1,040,000 1,044,638 Indianapolis Power & Light 07-01-13 6.30 1,040,000(d) 1,034,779 IPALCO Enterprises 11-14-08 8.38% $ 190,000 $ 199,500 11-14-11 8.63 1,400,000 1,470,000 Midamerican Energy 01-15-13 5.13 4,000,000 3,971,872 NiSource Finance Sr Nts 03-01-13 6.15 1,770,000 1,810,940 Northern States Power 1st Mtge 08-01-10 4.75 1,440,000 1,423,354 Northern States Power - Minnesota 1st Mtge Series B 08-29-12 8.00 1,560,000 1,850,556 Ohio Power 02-15-13 5.50 510,000(d) 507,757 PG&E 07-15-08 6.88 1,010,000(d) 1,027,645 PowerGen US Funding LLC 10-15-04 4.50 4,000,000 4,099,412 Public Service Colorado 1st Mtge 03-01-13 4.88 760,000(d) 730,159 Tampa Electric 08-15-07 5.38 460,000 471,282 Teco Energy Sr Nts 06-15-10 7.50 465,000 453,375 Xcel Energy Sr Nts 07-01-08 3.40 1,190,000(d) 1,131,404 ------------------- Total 84,116,160 - -------------------------------------------------------------------------------------------------------------------------- UTILITIES -- NATURAL GAS (0.5%) ANR Pipeline 03-15-10 8.88 1,095,000 1,155,225 Duke Energy 09-15-03 7.38 2,071,000 2,073,744 El Paso Production Holding 06-01-13 7.75 500,000(d) 480,000 NiSource Finance 07-15-14 5.40 1,620,000 1,535,760 Northwest Pipeline 03-01-10 8.13 245,000 254,800 Panhandle Eastern Pipeline 08-15-08 4.80 1,270,000(d) 1,264,628 Southern Natural Gas 03-15-10 8.88 750,000 791,250 Transcontinental Gas Pipeline Series B 08-15-11 7.00 1,000,000 981,250 ------------------- Total 8,536,657 - -------------------------------------------------------------------------------------------------------------------------- UTILITIES -- TELEPHONE (1.9%) AT&T Sr Nts 11-15-06 7.00% $ 510,000(j) $ 565,575 British Telecom (U.S. Dollar) 12-15-10 8.38 6,370,000(c) 7,559,132 Citizens Communications 05-15-11 9.25 1,900,000 2,341,438 Deutsche Telekom Intl Finance (U.S. Dollar) 07-22-13 5.25 2,760,000(c) 2,646,923 06-15-30 8.25 1,500,000(c) 1,801,329 France Telecom (U.S. Dollar) 03-01-11 8.25 670,000(c),(j) 799,771 03-01-31 10.00 750,000(c),(j) 966,749 SBC Communications 03-15-11 6.25 1,935,000 2,090,992 08-15-12 5.88 2,240,000 2,366,762 Verizon Global Funding 06-15-12 6.88 980,000 1,079,625 Verizon New England Sr Nts 09-15-11 6.50 7,460,000 8,084,998 Verizon Pennsylvania Cl A 11-15-11 5.65 3,470,000 3,570,595 ------------------- Total 33,873,889 - -------------------------------------------------------------------------------------------------------------------------- TOTAL BONDS (Cost: $1,789,425,998) $ 1,763,360,962 - --------------------------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE(a) COMMON STOCKS (--%) BayCorp Holdings 28(b) $ 364 Davel Communications 1,087,416(b) 8,699 - ----------------------------------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $7,144,987) $ 9,063 - -----------------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE(a) PREFERRED STOCK (--%) Intermedia Communications 13.50% Pay-in-kind Series B 1 $ 8 - ----------------------------------------------------------------------------------------------------------------- TOTAL PREFERRED STOCK (Cost: $496) $ 8 - -----------------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 108 AXP VP - DIVERSIFIED BOND FUND
ANNUALIZED AMOUNT YIELD ON DATE PAYABLE AT ISSUER OF PURCHASE MATURITY VALUE(a) SHORT-TERM SECURITIES (15.2%)(n) U.S. GOVERNMENT AGENCY (7.0%) Federal Natl Mtge Assn Disc Nts 10-01-03 0.98% $ 39,700,000 $ 39,664,005 10-15-03 1.06 17,700,000 17,677,143 11-12-03 1.07 25,000,000 24,948,725 11-19-03 1.05 17,300,000 17,261,023 12-01-03 1.07 24,500,000 24,435,688 ------------------- Total 123,986,584 - -------------------------------------------------------------------------------------------------------------------------- COMMERCIAL PAPER (8.2%) AEGON Funding 11-25-03 1.08% $ 10,000,000(e) $ 9,973,844 BASF 11-24-03 1.06 9,700,000(e) 9,674,917 11-24-03 1.07 7,700,000(e) 7,680,089 CAFCO LLC 10-21-03 1.07 5,000,000(e) 4,992,124 Charta LLC 09-19-03 1.07 11,400,000(e) 11,392,884 11-18-03 1.08 10,000,000(e) 9,975,925 Citigroup 09-02-03 1.10 4,500,000 4,499,450 Dexia Bank (Delaware) LLC 09-03-03 1.03 10,800,000 10,798,455 Fairway Finance 09-02-03 1.10 13,400,000(e) 13,398,362 Fleet Funding 09-03-03 1.04% $ 14,936,000(e) $ 14,934,274 Galaxy Funding 10-17-03 1.07 3,800,000(e) 3,794,466 10-22-03 1.07 8,600,000(e) 8,586,197 Old Line Funding 09-05-03 1.04 18,100,000(e) 18,096,341 Park Avenue Receivables 09-09-03 1.03 5,200,000(e) 5,198,363 09-22-03 1.05 11,800,000(e) 11,791,740 Total 144,787,431 - -------------------------------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM SECURITIES (Cost: $268,769,014) $ 268,774,015 - -------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $2,065,340,495)(o) $ 2,032,144,048 ==========================================================================================================================
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 109 AXP VP - DIVERSIFIED BOND FUND 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, 2003, the value of foreign securities represented 4.7% of net assets. (d) Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security has been determined to be liquid under guidelines established by the board. (e) Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This security has been determined to be liquid under guidelines established by the board. (f) 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. These securities may be issued or guaranteed by U.S. government agencies or instrumentalities, or by private issuers, generally originators and investors in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers and special purpose entities. The maturity dates shown represent the original maturity of the underlying obligation. Actual maturity may vary based upon prepayment activity on these obligations. Unless otherwise noted, the coupon rates presented are fixed rates. (g) Adjustable rate mortgage; interest rate varies to reflect current market conditions; rate shown is the effective rate on Aug. 31, 2003. (h) At Aug. 31, 2003, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $207,512,889. (i) Interest only represents securities that entitle holders to receive only interest payments on the underlying mortgages. The yield to maturity of an interest only is extremely sensitive to the rate of principal payments on the underlying mortgage assets. A rapid (slow) rate of principal repayments may have an adverse (positive) effect on yield to maturity. The principal amount shown is the notional amount of the underlying mortgages. Interest rate disclosed represents yield based upon the estimated timing of future cash flows as of Aug. 31, 2003. (j) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Aug. 31, 2003. (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) 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, 2003, is as follows:
ACQUISITION SECURITY DATES COST --------------------------------------------------------------------------------------------------------- AOA Holdings LLC 12.00% Sr Nts 2008 06-02-02 $ 2,500,000 Veninfotel (U.S. Dollar) 13.00% Cv Pay-in-kind 2005 05-01-02 thru 3-10-03 9,009,157
(m) 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 --------------------------------------------------------------------------------------------------------- PURCHASE CONTRACTS Eurodollar, Sept. 2003, 90-day $ 96,500,000 Eurodollar, Sept. 2007, 90-day 89,250,000 SALE CONTRACTS U.S. Treasury Notes, Sept. 2003, 5-year 400,000 U.S. Treasury Notes, Sept. 2003, 10-year 40,500,000 U.S. Treasury Notes, Dec. 2003, 5-year 11,400,000 U.S. Treasury Notes, Dec. 2003, 10-year 109,800,000
(n) At Aug. 31, 2003, cash or short-term securities were held to cover open call options on futures written as follows (see Note 8 to the financial statements):
NOTIONAL EXERCISE EXPIRATION ISSUER AMOUNT PRICE DATE VALUE(a) ---------------------------------------------------------------------------------------------------------------------------- U.S. Treasury Notes, Dec. 2003, 10-year $ 19,700,000 $ 110 Nov. 2003 $ 366,296
At Aug. 31, 2003, cash or short-term securities were designated to cover open put options on futures written as follows (see Note 8 to the financial statements):
NOTIONAL EXERCISE EXPIRATION ISSUER AMOUNT PRICE DATE VALUE(a) ---------------------------------------------------------------------------------------------------------------------------- U.S. Treasury Notes, Dec. 2003, 10-year $ 19,700,000 $ 110 Nov. 2003 $ 421,702
(o) At Aug. 31, 2003, the cost of securities for federal income tax purposes was $2,066,631,709 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 18,021,259 Unrealized depreciation (52,508,920) ---------------------------------------------------------------------------------------------------------------------------- Net unrealized depreciation $ (34,487,661) ----------------------------------------------------------------------------------------------------------------------------
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 110 INVESTMENTS IN SECURITIES AXP VP - DIVERSIFIED EQUITY INCOME FUND AUG. 31, 2003 (PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS)
ISSUER SHARES VALUE(a) COMMON STOCKS (96.5%) AEROSPACE & DEFENSE (4.0%) Goodrich 223,517 $ 5,818,148 Honeywell Intl 168,200 4,876,118 Rockwell Automation 83,600 2,275,592 United Technologies 23,800 1,909,950 ------------------ Total 14,879,808 - ----------------------------------------------------------------------------------------------------------------- AIRLINES (2.5%) AMR 369,800(b) 4,067,800 Continental Airlines Cl B 172,500(b) 2,632,350 Delta Air Lines 100,200 1,289,574 Northwest Airlines Cl A 135,300(b) 1,213,641 ------------------ Total 9,203,365 - ----------------------------------------------------------------------------------------------------------------- AUTOMOTIVE & RELATED (2.2%) Eaton 36,699 3,436,494 General Motors 111,514 4,583,226 ------------------ Total 8,019,720 - ----------------------------------------------------------------------------------------------------------------- BANKS AND SAVINGS & LOANS (3.2%) Bank of America 54,600 4,327,050 FleetBoston Financial 92,673 2,742,194 Washington Mutual 125,910 4,907,972 ------------------ Total 11,977,216 - ----------------------------------------------------------------------------------------------------------------- BEVERAGES & TOBACCO (0.4%) Altria Group 34,400 1,417,968 - ----------------------------------------------------------------------------------------------------------------- BROKER DEALERS (3.4%) J.P. Morgan Chase 52,820 1,807,500 Lehman Brothers Holdings 28,423 1,868,244 Merrill Lynch 81,200 4,366,936 Morgan Stanley 92,368 4,506,635 ------------------ Total 12,549,315 - ----------------------------------------------------------------------------------------------------------------- BUILDING MATERIALS & CONSTRUCTION (0.6%) Fluor 64,955 2,392,942 - ----------------------------------------------------------------------------------------------------------------- CELLULAR TELECOMMUNICATIONS (0.5%) Vodafone Group ADR 91,100(c) 1,667,130 - ----------------------------------------------------------------------------------------------------------------- CHEMICALS (1.5%) Dow Chemical 143,111 4,941,623 Imperial Chemical Inds ADR 62,400(c) 773,760 ------------------ Total 5,715,383 - ----------------------------------------------------------------------------------------------------------------- COMPUTER HARDWARE (0.8%) Hewlett-Packard 140,500 2,798,760 - ----------------------------------------------------------------------------------------------------------------- COMPUTER SOFTWARE & SERVICES (1.0%) Electronic Data Systems 163,900 3,577,937 - ----------------------------------------------------------------------------------------------------------------- ENERGY (8.8%) BP ADR 103,121(c) $ 4,302,208 Burlington Resources 15,900 769,878 ChevronTexaco 85,885 6,258,439 ConocoPhillips 78,050 4,358,312 Kerr-McGee 113,728 4,998,346 Marathon Oil 184,000 5,131,760 Petroleo Brasileiro ADR 158,400(c) 3,500,640 Unocal 107,200 3,282,464 ------------------ Total 32,602,047 - ----------------------------------------------------------------------------------------------------------------- ENERGY EQUIPMENT & SERVICES (2.9%) Baker Hughes 23,000 769,580 Halliburton 64,700 1,564,446 McDermott Intl 406,250(b) 2,055,625 Schlumberger 34,400 1,703,144 Tidewater 156,649 4,498,959 ------------------ Total 10,591,754 - ----------------------------------------------------------------------------------------------------------------- ENGINEERING & CONSTRUCTION (1.4%) Hanson ADR 156,694(c) 5,100,390 - ----------------------------------------------------------------------------------------------------------------- FINANCE COMPANIES (2.4%) Citigroup 204,461 8,863,384 - ----------------------------------------------------------------------------------------------------------------- FINANCIAL SERVICES (1.9%) Capital One Financial 68,900 3,679,260 MBNA 148,100 3,456,654 ------------------ Total 7,135,914 - ----------------------------------------------------------------------------------------------------------------- FOOD (0.6%) Archer-Daniels-Midland 152,490 2,115,036 - ----------------------------------------------------------------------------------------------------------------- FURNITURE & APPLIANCES (2.1%) Stanley Works 61,500 1,861,605 Whirlpool 86,925 6,048,242 ------------------ Total 7,909,847 - ----------------------------------------------------------------------------------------------------------------- HEALTH CARE PRODUCTS (0.5%) Schering-Plough 112,100 1,702,799 - ----------------------------------------------------------------------------------------------------------------- HEALTH CARE SERVICES (3.7%) PacifiCare Health Systems 226,784(b) 11,293,843 Tenet Healthcare 142,700(b) 2,290,335 ------------------ Total 13,584,178 - ----------------------------------------------------------------------------------------------------------------- INDUSTRIAL TRANSPORTATION (1.9%) Burlington Northern Santa Fe 254,120 7,204,302 - ----------------------------------------------------------------------------------------------------------------- INSURANCE (12.1%) ACE 152,500(c) $ 4,910,500 Hartford Financial Services Group 35,600 1,894,632 Jefferson-Pilot 75,448 3,340,083 Lincoln Natl 75,515 2,674,741 Loews 107,156 4,410,541 SAFECO 142,122 5,124,919 St. Paul Companies 164,500 5,718,020 Torchmark 74,566 3,009,484 Travelers Property Casualty Cl A 440,582 6,780,557 UnumProvident 79,700 1,123,770 XL Capital Cl A 82,919(c) 6,281,114 ------------------ Total 45,268,361 - ----------------------------------------------------------------------------------------------------------------- LEISURE TIME & ENTERTAINMENT (2.1%) Royal Caribbean Cruises 253,400 7,893,410 - ----------------------------------------------------------------------------------------------------------------- MACHINERY (8.0%) Caterpillar 169,766 12,194,291 Ingersoll-Rand Cl A 145,690(c) 8,671,468 Parker-Hannifin 100,330 4,968,342 Tomkins ADR 227,200(c) 3,794,240 ------------------ Total 29,628,341 - ----------------------------------------------------------------------------------------------------------------- MEDIA (1.1%) Donnelley (RR) & Sons 157,811 3,967,369 - ----------------------------------------------------------------------------------------------------------------- METALS (1.1%) Alcoa 139,617 3,987,462 - ----------------------------------------------------------------------------------------------------------------- MULTI-INDUSTRY (9.8%) Cooper Inds Cl A 48,400 2,463,076 Crane 135,222 3,460,331 Diebold 50,790 2,483,631 Dover 63,341 2,408,225 Eastman Kodak 96,931 2,703,406 Martin Marietta Materials 43,869 1,677,112 Monsanto 156,300 4,018,473 Pentair 47,300 2,024,440 Pitney Bowes 69,009 2,691,351 Textron 148,395 6,677,774 YORK Intl 180,831 5,837,224 ------------------ Total 36,445,043 - ----------------------------------------------------------------------------------------------------------------- PAPER & PACKAGING (2.6%) Abitibi-Consolidated 341,050(c) 2,581,749 Intl Paper 173,090 7,018,799 ------------------ Total 9,600,548 - ----------------------------------------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUST (2.3%) Crescent Real Estate Equities 434,287 6,301,504 Starwood Hotels & Resorts Worldwide 61,700 2,087,311 ------------------ Total 8,388,815 - -----------------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 111 AXP VP - DIVERSIFIED EQUITY INCOME FUND
ISSUER SHARES VALUE(a) COMMON STOCKS (CONTINUED) RETAIL -- GENERAL (1.6%) Limited Brands 227,200 $ 3,853,312 Penney (JC) 97,200 2,062,584 ------------------ Total 5,915,896 - ----------------------------------------------------------------------------------------------------------------- RETAIL -- GROCERY (1.3%) SUPERVALU 207,035 4,989,544 TELECOM EQUIPMENT & SERVICES (1.3%) Motorola 184,600 1,980,758 Nokia ADR 162,800(c) 2,652,012 ------------------ Total 4,632,770 - ----------------------------------------------------------------------------------------------------------------- UTILITIES -- NATURAL GAS (0.5%) El Paso 244,500 1,794,630 UTILITIES -- TELEPHONE (6.4%) AT&T 178,800 3,987,240 BellSouth 217,600 5,483,520 SBC Communications 186,300 4,189,887 Sprint (FON Group) 279,600 4,129,692 Verizon Communications 164,786 5,820,242 ------------------ Total 23,610,581 - ----------------------------------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $332,290,792) $ 357,131,965 - -----------------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE(a) PREFERRED STOCKS (0.6%) Baxter Intl 7.00% Cv 17,800 $ 920,794 Xerox Cv 6,250(b) 668,438 7.50% Cv 9,000(d) 601,875 - ----------------------------------------------------------------------------------------------------------------- TOTAL PREFERRED STOCKS (Cost: $1,965,000) $ 2,191,107 - -----------------------------------------------------------------------------------------------------------------
ISSUER ANNUALIZED AMOUNT YIELD ON DATE PAYABLE AT OF PURCHASE MATURITY VALUE(a) SHORT-TERM SECURITIES (4.3%) U.S. GOVERNMENT AGENCY (2.6%) Federal Natl Mtge Assn Disc Nts 10-22-03 1.03% $ 5,000,000 $ 4,992,582 10-29-03 0.99 1,600,000 1,597,416 11-12-03 1.07 3,000,000 2,993,847 Total 9,583,845 - -------------------------------------------------------------------------------------------------------------------------- COMMERCIAL PAPER (1.7%) Credit Suisse First Boston 10-21-03 1.06 1,800,000(e) 1,797,191 Fairway Finance 09-02-03 1.10 4,600,000(e) 4,599,438 ------------------- Total 6,396,629 - -------------------------------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM SECURITIES (Cost: $15,980,002) $ 15,980,474 - -------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $350,235,794)(f) $ 375,303,546 ==========================================================================================================================
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, 2003, the value of foreign securities represented 12.0% of net assets. (d) Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security has been determined to be liquid under guidelines established by the board. (e) Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This security has been determined to be liquid under guidelines established by the board. (f) At Aug. 31, 2003, the cost of securities for federal income tax purposes was $354,536,643 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 40,621,398 Unrealized depreciation (19,854,495) ---------------------------------------------------------------------------------------------------------------------------- Net unrealized appreciation $ 20,766,903 ----------------------------------------------------------------------------------------------------------------------------
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 112 INVESTMENTS IN SECURITIES AXP VP - EMERGING MARKETS FUND AUG. 31, 2003 (PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS)
ISSUER SHARES VALUE(a) COMMON STOCKS (89.3%)(C) BRAZIL (7.0%) BEVERAGES & TOBACCO (0.6%) Companhia de Bebidas das Americas ADR 4,434 $ 98,390 - ----------------------------------------------------------------------------------------------------------------- ENERGY (2.5%) Petroleo Brasileiro ADR 7,879 174,126 Petroleo Brasileiro ADR 11,158 227,623 ------------------ Total 401,749 - ----------------------------------------------------------------------------------------------------------------- METALS (0.7%) Companhia Vale do Rio Doce ADR 3,100 116,095 - ----------------------------------------------------------------------------------------------------------------- PAPER & PACKAGING (1.1%) Aracruz Celulose ADR 6,367 174,010 - ----------------------------------------------------------------------------------------------------------------- UTILITIES -- TELEPHONE (2.1%) Brasil Telecom Participacoes 9,122 345,724 - ----------------------------------------------------------------------------------------------------------------- CHILE (1.7%) BANKS AND SAVINGS & LOANS Banco Santander Chile ADR 6,300 131,985 - ----------------------------------------------------------------------------------------------------------------- METALS (0.9%) Antofagasta 12,304 151,802 - ----------------------------------------------------------------------------------------------------------------- CHINA (9.7%) AUTOMOTIVE & RELATED (1.5%) Denway Motors Limited 438,000 247,097 - ----------------------------------------------------------------------------------------------------------------- BANKS AND SAVINGS & LOANS (1.1%) BOC Hong Kong Holdings 138,500 177,579 - ----------------------------------------------------------------------------------------------------------------- CHEMICALS (0.7%) Sinopec Shanghai Petrochemical 484,000 117,287 - ----------------------------------------------------------------------------------------------------------------- COMPUTER SOFTWARE & SERVICES (1.1%) Legend Group 398,000 170,950 - ----------------------------------------------------------------------------------------------------------------- ENERGY (1.3%) CNOOC 109,000 204,043 - ----------------------------------------------------------------------------------------------------------------- METALS (0.7%) Yanzhou Coal Mining Cl H 196,000 116,856 - ----------------------------------------------------------------------------------------------------------------- MULTI-INDUSTRY (1.1%) Cosco Pacific 66,000 73,622 Zhejiang Expressway 224,000 109,136 ------------------ Total 182,758 - ----------------------------------------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUST (0.6%) Sun Hung Kai Properties 14,000 100,970 - ----------------------------------------------------------------------------------------------------------------- UTILITIES -- TELEPHONE (1.6%) China Mobile 102,000 262,214 - ----------------------------------------------------------------------------------------------------------------- HUNGARY (1.3%) BANKS AND SAVINGS & LOANS OTP Bank 18,300(b) $ 208,362 - ----------------------------------------------------------------------------------------------------------------- INDIA (5.7%) BANKS AND SAVINGS & LOANS (1.9%) Housing Development Finance 30,146(b) 317,342 - ----------------------------------------------------------------------------------------------------------------- BEVERAGES & TOBACCO (1.2%) ITC Limited 10,843(b) 196,896 - ----------------------------------------------------------------------------------------------------------------- COMPUTER SOFTWARE & SERVICES (1.7%) Infosys Technologies 3,203 273,234 - ----------------------------------------------------------------------------------------------------------------- HEALTH CARE PRODUCTS (0.9%) Cipla Limited 6,525 143,830 - ----------------------------------------------------------------------------------------------------------------- INDONESIA (1.2%) BANKS AND SAVINGS & LOANS (0.3%) PT Bank Danamon Indonesia 272,000 47,283 - ----------------------------------------------------------------------------------------------------------------- BEVERAGES & TOBACCO (0.9%) Hanjiya Mandala Sampoerna 321,000 153,217 - ----------------------------------------------------------------------------------------------------------------- ISRAEL (2.2%) BANKS AND SAVINGS & LOANS (0.7%) Bank Hapoalim 60,007(b) 117,070 - ----------------------------------------------------------------------------------------------------------------- COMPUTER SOFTWARE & SERVICES (0.5%) Check Point Software Technologies 4,575(b) 79,925 - ----------------------------------------------------------------------------------------------------------------- HEALTH CARE PRODUCTS (1.0%) Teva Pharmaceutical Inds ADR 2,846 167,095 - ----------------------------------------------------------------------------------------------------------------- MALAYSIA (5.1%) BANKS AND SAVINGS & LOANS (1.8%) Malayan Banking Berhad 121,900 296,730 - ----------------------------------------------------------------------------------------------------------------- BEVERAGES & TOBACCO (0.8%) British American Tobacco Malaysia Berhad 11,800 127,316 - ----------------------------------------------------------------------------------------------------------------- CELLULAR TELECOMMUNICATIONS (1.4%) Maxis Communications Berhad 136,000 230,842 - ----------------------------------------------------------------------------------------------------------------- LEISURE TIME & ENTERTAINMENT (1.1%) Resorts World Berhad 67,300 182,418 - ----------------------------------------------------------------------------------------------------------------- MEXICO (7.7%) BEVERAGES & TOBACCO (1.4%) Grupo Modelo Series C 93,877 $ 224,631 - ----------------------------------------------------------------------------------------------------------------- CELLULAR TELECOMMUNICATIONS (1.9%) America Movil ADR Series L 13,657 314,111 - ----------------------------------------------------------------------------------------------------------------- MULTI-INDUSTRY (0.9%) Grupo Aeroportuario del Sureste ADR 9,900 147,213 - ----------------------------------------------------------------------------------------------------------------- RETAIL -- GENERAL (0.8%) Wal-Mart de Mexico 49,356 135,234 - ----------------------------------------------------------------------------------------------------------------- UTILITIES -- TELEPHONE (2.7%) Telefonos de Mexico ADR Cl L 14,390 436,161 - ----------------------------------------------------------------------------------------------------------------- RUSSIA (5.2%) ENERGY (4.4%) Lukoil Holding ADR 5,062 394,835 YUKOS ADR 5,650 323,463 ------------------ Total 718,298 - ----------------------------------------------------------------------------------------------------------------- TELECOM EQUIPMENT & SERVICES (0.8%) VimpelCom ADR 2,344(b) 126,365 - ----------------------------------------------------------------------------------------------------------------- SINGAPORE (1.0%) BANKS AND SAVINGS & LOANS United Overseas Bank 22,000 159,393 - ----------------------------------------------------------------------------------------------------------------- SOUTH AFRICA (5.9%) BANKS AND SAVINGS & LOANS (2.3%) Standard Bank Group 81,333 365,055 - ----------------------------------------------------------------------------------------------------------------- INSURANCE (1.0%) Old Mutual 102,700(b) 155,948 - ----------------------------------------------------------------------------------------------------------------- MULTI-INDUSTRY (0.9%) Imperial Holdings 17,700(b) 141,866 - ----------------------------------------------------------------------------------------------------------------- PAPER & PACKAGING (1.8%) Sappi 23,492 299,659 - ----------------------------------------------------------------------------------------------------------------- SOUTH KOREA (17.1%) AUTOMOTIVE & RELATED (0.5%) Hyundai Motor 2,530 84,172 - ----------------------------------------------------------------------------------------------------------------- BANKS AND SAVINGS & LOANS (3.4%) Kookmin Bank 14,920 543,869 - ----------------------------------------------------------------------------------------------------------------- BEVERAGES & TOBACCO (0.9%) KT&G 9,140 151,267 - ----------------------------------------------------------------------------------------------------------------- BUILDING MATERIALS & CONSTRUCTION (0.8%) Kumgang Korea Chemical 1,490 122,159 - ----------------------------------------------------------------------------------------------------------------- CHEMICALS (1.7%) LG Chem 6,350 278,629 - -----------------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 113 AXP VP - EMERGING MARKETS FUND
ISSUER SHARES VALUE(a) COMMON STOCKS (CONTINUED) SOUTH KOREA (CONT.) ELECTRONICS (8.6%) LG Electronics 5,990 $ 325,364 Samsung Electronics 2,850 1,052,196 ------------------ Total 1,377,560 - ----------------------------------------------------------------------------------------------------------------- TELECOM EQUIPMENT & SERVICES (1.3%) SK Telecom 1,275 217,505 - ----------------------------------------------------------------------------------------------------------------- TAIWAN (13.3%) AUTOMOTIVE & RELATED (0.9%) China Motor 85,750 150,624 - ----------------------------------------------------------------------------------------------------------------- BANKS AND SAVINGS & LOANS (3.7%) Chinatrust Financial Holding 425,130 345,999 Taishin Financial Holdings 443,000 252,899 Total 598,898 - ----------------------------------------------------------------------------------------------------------------- CHEMICALS (1.5%) Formosa Chemicals & Fibre 185,480 242,181 - ----------------------------------------------------------------------------------------------------------------- COMPUTER HARDWARE (3.4%) Compal Electronics 162,000 246,619 Hon Hai Precision Inds 73,600 303,811 ------------------ Total 550,430 - ----------------------------------------------------------------------------------------------------------------- ELECTRONICS (2.9%) Taiwan Semiconductor Mfg 218,560 428,700 United Microelectronics 48,000 45,751 ------------------ Total 474,451 - ----------------------------------------------------------------------------------------------------------------- INDUSTRIAL TRANSPORTATION (0.9%) Evergreen Marine 207,060 142,453 - ----------------------------------------------------------------------------------------------------------------- THAILAND (3.8%) BANKS AND SAVINGS & LOANS (1.9%) Bangkok Bank 149,300 $ 307,030 - ----------------------------------------------------------------------------------------------------------------- BUILDING MATERIALS & CONSTRUCTION (0.9%) Siam Cement 35,900 148,528 - ----------------------------------------------------------------------------------------------------------------- HOME BUILDING (1.0%) Land & Houses Public 653,400 170,148 - ----------------------------------------------------------------------------------------------------------------- TURKEY (1.3%) FOOD (0.7%) Migros Turk T.A.S 10,693,589 115,194 - ----------------------------------------------------------------------------------------------------------------- MULTI-INDUSTRY (0.6%) Koc Holding 9,422,000 92,758 - ----------------------------------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $12,431,134) $ 14,532,859 - -----------------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE(a) PREFERRED STOCK (3.6%) BRAZIL Banco Itau Holding Financeira 4,353,000 $ 329,599 - ----------------------------------------------------------------------------------------------------------------- SOUTH KOREA Samsung Electronics 1,380 249,472 - ----------------------------------------------------------------------------------------------------------------- TOTAL PREFERRED STOCK (Cost: $506,188) $ 579,071 - -----------------------------------------------------------------------------------------------------------------
ANNUALIZED AMOUNT YIELD ON DATE PAYABLE AT ISSUER OF PURCHASE MATURITY VALUE(a) SHORT-TERM SECURITIES (6.1%) U.S. GOVERNMENT AGENCY Federal Natl Mtge Assn Disc Nts 10-08-03 0.99% $ 500,000 $ 499,456 11-26-03 1.07 500,000 498,772 - -------------------------------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM SECURITIES (Cost: $998,156) $ 998,228 - -------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $13,935,478)(d) $ 16,110,158 ==========================================================================================================================
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) At Aug. 31, 2003, the cost of securities for federal income tax purposes was $14,119,848 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 2,063,264 Unrealized depreciation (72,954) ---------------------------------------------------------------------------------------------------------------------------- Net unrealized appreciation $ 1,990,310 ----------------------------------------------------------------------------------------------------------------------------
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 114 INVESTMENTS IN SECURITIES AXP VP - EQUITY SELECT FUND AUG. 31, 2003 (PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS)
ISSUER SHARES VALUE(a) COMMON STOCKS (96.2%) BROKER DEALERS (2.2%) Legg Mason 51,985 $ 3,734,083 - ----------------------------------------------------------------------------------------------------------------- CHEMICALS (1.9%) Sigma-Aldrich 58,586 3,207,584 - ----------------------------------------------------------------------------------------------------------------- COMPUTER HARDWARE (1.6%) Network Appliance 112,500(b) 2,521,125 NVIDIA 12,400(b) 225,184 ------------------ Total 2,746,309 - ----------------------------------------------------------------------------------------------------------------- COMPUTER SOFTWARE & SERVICES (23.9%) Acxiom 122,295(b) 1,976,287 Advent Software 47,614(b) 804,677 BMC Software 225,067(b) 3,303,984 Citrix Systems 18,800(b) 387,092 Dendrite Intl 212,305(b) 3,089,038 Digital River 26,000(b) 693,680 DST Systems 32,962(b) 1,305,295 Electronic Arts 11,450(b) 1,027,638 Fair, Isaac & Co 77,905 4,565,232 Fiserv 122,613(b) 4,763,514 Intuit 29,672(b) 1,344,735 Investors Financial Services 56,945 1,702,086 Juniper Networks 56,300(b) 969,486 Kronos 8,650(b) 499,909 Magma Design Automation 21,600(b) 455,760 Manugistics Group 134,265(b) 617,619 McData Cl B 147,934(b) 1,488,216 Mercury Interactive 10,900(b) 478,401 NetScreen Technologies 68,100(b) 1,629,633 Paychex 121,155 4,361,580 QLogic 13,500(b) 661,770 Reynolds & Reynolds Cl A 13,600 395,080 SunGard Data Systems 133,000(b) 3,750,600 Symantec 3,200(b) 183,776 Synopsys 2,450(b) 167,115 ------------------ Total 40,622,203 - ----------------------------------------------------------------------------------------------------------------- ELECTRONICS (9.9%) Altera 51,300(b) 1,151,172 American Power Conversion 122,850 2,201,472 Broadcom Cl A 28,900(b) 794,172 Integrated Circuit Systems 14,900(b) 514,348 KLA-Tencor 23,130(b) 1,372,997 Maxim Integrated Products 79,924 3,589,387 Microchip Technology 121,137 3,393,047 Micron Technology 39,000(b) 560,040 Novellus Systems 77,926(b) 3,113,923 Symbol Technologies 12,100 163,834 ------------------ Total 16,854,392 - ----------------------------------------------------------------------------------------------------------------- ENERGY (6.3%) Apache 37,573 $ 2,591,786 Murphy Oil 63,288 3,653,616 Newfield Exploration 43,239(b) 1,698,860 Pogo Producing 59,193 2,720,510 ------------------ Total 10,664,772 - ----------------------------------------------------------------------------------------------------------------- ENERGY EQUIPMENT & SERVICES (1.6%) ENSCO Intl 70,362 1,966,618 Nabors Inds 20,600(b),(c) 827,090 ------------------ Total 2,793,708 - ----------------------------------------------------------------------------------------------------------------- FINANCIAL SERVICES (0.1%) CapitalSource 11,900(b) 209,440 - ----------------------------------------------------------------------------------------------------------------- FOOD (0.4%) Performance Food Group 17,243(b) 676,098 - ----------------------------------------------------------------------------------------------------------------- HEALTH CARE PRODUCTS (14.8%) American Pharmaceutical Partners 34,600(b) 1,648,344 Applera-Applied Biosystems Group 81,119 1,765,149 Biogen 51,639(b) 2,037,675 Biomet 121,408 3,609,459 Diagnostic Products 80,435 3,048,487 Esperion Therapeutics 17,300(b) 312,957 Gen-Probe 17,300(b) 1,094,052 IDEC Pharmaceuticals 57,345(b) 1,992,739 Invitrogen 55,816(b) 3,218,909 MedImmune 93,810(b) 3,271,154 St. Jude Medical 15,300(b) 796,671 Techne 67,255(b) 2,255,733 ------------------ Total 25,051,329 - ----------------------------------------------------------------------------------------------------------------- HEALTH CARE SERVICES (6.9%) AmerisourceBergen 13,050 759,641 Express Scripts Cl A 49,509(b) 3,208,678 First Health Group 44,665(b) 1,171,116 Health Management Associates Cl A 167,650 3,735,243 Lincare Holdings 81,296(b) 2,815,280 ------------------ Total 11,689,958 - ----------------------------------------------------------------------------------------------------------------- INDUSTRIAL SERVICES (3.4%) Cintas 44,281 1,768,140 Fastenal 101,112 4,087,958 ------------------ Total 5,856,098 - ----------------------------------------------------------------------------------------------------------------- INSURANCE (0.2%) Axis Capital Holdings 15,300(b),(c) 375,615 - ----------------------------------------------------------------------------------------------------------------- MEDIA (3.9%) Catalina Marketing 45,880(b) $ 638,191 Citadel Broadcasting 19,500(b) 430,560 Univision Communications Cl A 94,166(b) 3,530,283 Westwood One 64,009(b) 2,054,689 ------------------ Total 6,653,723 - ----------------------------------------------------------------------------------------------------------------- MULTI-INDUSTRY (6.1%) Danaher 39,807 3,075,092 DeVry 98,475(b) 2,555,426 Martin Marietta Materials 44,536 1,702,611 Robert Half Intl 86,577(b) 1,925,472 Strayer Education 11,750 1,122,125 ------------------ Total 10,380,726 - ----------------------------------------------------------------------------------------------------------------- RESTAURANTS (5.1%) Brinker Intl 90,450(b) 3,093,390 CBRL Group 43,201 1,506,851 Cheesecake Factory (The) 49,448(b) 1,801,885 Starbucks 82,252(b) 2,339,247 ------------------ Total 8,741,373 - ----------------------------------------------------------------------------------------------------------------- RETAIL -- GENERAL (7.3%) 99 Cents Only Stores 93,420(b) 3,347,239 Whole Foods Market 78,539(b) 4,267,024 Williams-Sonoma 160,222(b) 4,904,395 ------------------ Total 12,518,658 - ----------------------------------------------------------------------------------------------------------------- TELECOM EQUIPMENT & SERVICES (0.6%) Corning 46,700(b) 385,275 JDS Uniphase 209,000(b) 718,960 ------------------ Total 1,104,235 - ----------------------------------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $147,828,652) $ 163,880,304 - -----------------------------------------------------------------------------------------------------------------
ANNUALIZED AMOUNT YIELD ON DATE PAYABLE AT ISSUER OF PURCHASE MATURITY VALUE(a) SHORT-TERM SECURITIES (4.1%) U.S. GOVERNMENT AGENCY (3.0%) Federal Natl Mtge Assn Disc Nts 10-01-03 0.98% $ 1,000,000 $ 999,093 10-22-03 1.00 1,300,000 1,298,071 11-12-03 1.07 2,900,000 2,894,053 ------------------- Total 5,191,217 - -------------------------------------------------------------------------------------------------------------------------- COMMERCIAL PAPER (1.1%) Societe Generale North America 09-02-03 1.05 1,800,000 1,799,790 - -------------------------------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM SECURITIES (Cost: $6,990,680) $ 6,991,007 - -------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $154,819,332)(d) $ 170,871,311 ==========================================================================================================================
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 115 AXP VP - EQUITY SELECT FUND 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, 2003, the value of foreign securities represented 0.7% of net assets. (d) At Aug. 31, 2003, the cost of securities for federal income tax purposes was $155,653,190 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 18,633,071 Unrealized depreciation (3,414,950) - -------------------------------------------------------------------------------------------------------------------------------- Net unrealized appreciation $ 15,218,121 - --------------------------------------------------------------------------------------------------------------------------------
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 116 INVESTMENTS IN SECURITIES AXP VP - GLOBAL BOND FUND AUG. 31, 2003 (PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS)
COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) BONDS (94.7%)(c) AUSTRALIA (1.7%) Burns Philp Capital Property (U.S. Dollar) Sr Sub Nts 02-15-11 10.75% $ 50,000(d) $ 51,250 New South Wales Treasury (Australian Dollar) 03-01-08 8.00 4,150,000 2,959,263 Telstra (U.S. Dollar) 04-01-12 6.38 250,000 272,739 Westpac Banking (Japanese Yen) 09-22-03 0.88 220,000,000 1,886,591 ------------------- Total 5,169,843 - -------------------------------------------------------------------------------------------------------------------------- AUSTRIA (2.9%) Oesterreich Kontrollbank (Japanese Yen) 03-22-10 1.80 530,000,000 4,795,391 Republic of Austria (European Monetary Unit) 10-20-07 5.50 3,500,000 4,153,339 ------------------- Total 8,948,730 - -------------------------------------------------------------------------------------------------------------------------- BRAZIL (1.0%) Federal Republic of Brazil (U.S. Dollar) 03-12-08 11.50 700,000 742,000 04-15-10 12.00 1,700,000 1,786,700 04-15-14 8.00 714,217 643,010 ------------------- Total 3,171,710 - -------------------------------------------------------------------------------------------------------------------------- CANADA (3.4%) Canadian Pacific Railway (Canadian Dollar) 06-15-10 4.90 195,000(d) 137,641 CanWest Media (U.S. Dollar) Series B 04-15-13 7.63 125,000 129,375 Cascades (U.S. Dollar) Sr Nts 02-15-13 7.25 100,000(d) 98,196 Conoco Funding (U.S. Dollar) 10-15-11 6.35 300,000 326,513 Corus Entertainment (U.S. Dollar) Sr Sub Nts 03-01-12 8.75 80,000 84,600 Govt of Canada (Canadian Dollar) 11-05-08 5.25 1,000,000 1,073,974 Norampac (U.S. Dollar) Sr Nts 06-01-13 6.75 150,000(d) 148,125 Province of British Columbia (Canadian Dollar) 08-23-10 6.38% 3,900,000 $ 3,070,405 Province of Ontario (Canadian Dollar) 03-08-06 5.90 2,000,000 1,524,594 (Japanese Yen) 01-25-10 1.88 180,000,000 1,626,341 Province of Quebec (Japanese Yen) (MBIA Insured) 05-09-13 1.60 80,000,000(f) 696,094 (U.S. Dollar) 12-01-05 6.50 2,000,000 1,536,662 Rogers Cable (U.S. Dollar) 06-15-13 6.25 165,000 154,894 Sun Media (U.S. Dollar) Sr Nts 02-15-13 7.63 100,000 103,250 ------------------- Total 10,710,664 - -------------------------------------------------------------------------------------------------------------------------- COLOMBIA (0.5%) Republic of Colombia (U.S. Dollar) 01-23-12 10.00 1,500,000 1,620,000 - -------------------------------------------------------------------------------------------------------------------------- CROATIA (0.1%) Croatia (European Monetary Unit) 03-14-11 6.75 340,000 411,921 - -------------------------------------------------------------------------------------------------------------------------- DENMARK (0.9%) Kingdom of Denmark (Danish Krone) 03-15-06 8.00 8,000,000 1,321,974 Realkredit Danmark (Danish Krone) 01-01-05 4.00 9,000,000 1,353,969 ------------------- Total 2,675,943 - -------------------------------------------------------------------------------------------------------------------------- DOMINICAN REPUBLIC (0.4%) Dominican Republic (U.S. Dollar) 01-23-13 9.04 1,300,000(d) 1,228,500 - -------------------------------------------------------------------------------------------------------------------------- EL SALVADOR (0.3%) Republic of El Salvador (U.S. Dollar) 01-24-23 7.75 1,010,000(d) 1,040,300 - -------------------------------------------------------------------------------------------------------------------------- FINLAND (2.2%) Republic of Finland (European Monetary Unit) 07-04-06 2.75 6,380,000 6,966,446 - -------------------------------------------------------------------------------------------------------------------------- FRANCE (5.8%) Cie Financement Foncier (European Monetary Unit) 06-24-05 5.00% 900,000 $ 1,027,593 Crown Euro Holdings (U.S. Dollar) 03-01-13 10.88 25,000(d) 27,375 Dexia Municipal Agency (European Monetary Unit) 04-26-07 5.38 2,200,000 2,582,620 France Telecom (U.S. Dollar) 03-01-06 8.70 350,000 388,986 Govt of France (European Monetary Unit) 04-25-05 7.50 2,800,000 3,311,134 01-12-07 3.75 6,700,000 7,495,176 10-25-11 5.00 2,300,000 2,689,540 Michelin Finance Luxembourg (European Monetary Unit) 04-16-09 6.13 250,000 298,157 Rhodia (U.S. Dollar) 06-01-10 7.63 10,000(d) 10,200 06-01-11 8.88 5,000(d) 5,025 Vivendi Universal (U.S. Dollar) Sr Nts 07-15-08 6.25 85,000(d) 85,000 ------------------- Total 17,920,806 - -------------------------------------------------------------------------------------------------------------------------- GERMANY (14.1%) Allgemeine Hypo Bank (European Monetary Unit) 09-02-09 5.00 1,410,000(d) 1,635,684 Bayerische Landesbank (Japanese Yen) Sr Nts 04-22-13 1.40 80,000,000 684,848 DaimlerChrysler North American Holding (European Monetary Unit) 01-16-07 5.63 330,000 379,549 Depfa Pfandbriefbank (European Monetary Unit) 01-15-10 5.50 1,200,000 1,431,616 Deutsche Bank (European Monetary Unit) 07-28-09 4.25 250,000 276,818 Deutsche Telekom Intl Finance (European Monetary Unit) 05-29-07 7.50 250,000 305,813 (U.S. Dollar) 07-22-13 5.25 700,000 671,321 Eurohypo AG (European Monetary Unit) 07-05-10 5.75 1,500,000 1,816,762
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 117 AXP VP - GLOBAL BOND FUND
COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) BONDS (CONTINUED) GERMANY (CONT.) Federal Republic of Germany (European Monetary Unit) 08-19-05 5.00% 4,400,000 $ 5,038,974 07-04-08 4.13 5,400,000 6,089,278 07-04-09 4.50 5,500,000 6,290,251 01-04-10 5.38 4,240,000 5,066,628 06-20-16 6.00 2,914,364 3,678,847 07-04-27 6.50 3,570,000 4,821,803 Hypothekenbk In Essen (European Monetary Unit) 07-06-09 4.25 1,400,000 1,567,100 KFW Intl Finance (British Pound) 12-07-05 6.38 1,600,000 2,641,756 Westfaelische Hypobank (European Monetary Unit) 04-24-06 4.75 1,200,000 1,372,289 ------------------- Total 43,769,337 - -------------------------------------------------------------------------------------------------------------------------- GREECE (3.3%) Hellenic Republic (European Monetary Unit) 06-21-06 2.75 4,700,000 5,117,392 05-18-11 5.35 4,300,000 5,106,200 ------------------- Total 10,223,592 - -------------------------------------------------------------------------------------------------------------------------- HUNGARY (1.8%) Govt of Hungary (Hungarian Forint) 04-12-05 7.75 970,000,000 4,062,840 02-12-11 7.50 390,000,000 1,674,078 ------------------- Total 5,736,918 - -------------------------------------------------------------------------------------------------------------------------- IRELAND (--%) JSG Funding (U.S. Dollar) Sr Nts 10-01-12 9.63 60,000 64,800 - -------------------------------------------------------------------------------------------------------------------------- ITALY (2.8%) Buoni Poliennali Del Tes (European Monetary Unit) 11-01-26 7.25 3,075,191 4,458,785 Republic of Italy (Japanese Yen) 03-27-08 3.80 400,000,000 3,908,687 Telecom Italia (European Monetary Unit) 02-01-07 5.63 250,000 287,924 ------------------- Total 8,655,396 - -------------------------------------------------------------------------------------------------------------------------- JAPAN (2.4%) Development Bank of Japan (Japanese Yen) 06-20-12 1.40 770,000,000 6,623,628 Toyota Motor Credit (Japanese Yen) 06-09-08 .75 113,000,000 963,617 ------------------- Total 7,587,245 - -------------------------------------------------------------------------------------------------------------------------- MALAYSIA (0.2%) Petronas Capital (U.S. Dollar) 05-22-12 7.00% $ 700,000(d) $ 765,774 - -------------------------------------------------------------------------------------------------------------------------- MEXICO (1.0%) United Mexican States (U.S. Dollar) 03-03-15 6.63 3,060,000 3,044,700 - -------------------------------------------------------------------------------------------------------------------------- NETHERLANDS (2.2%) Bank of Nederlandse Gemeenten (British Pound) 08-06-07 7.38 760,000 1,317,264 Govt of Netherlands (European Monetary Unit) 07-15-12 5.00 4,500,000 5,259,110 Intl Nederland Bank (European Monetary Unit) Sr Nts 01-29-09 4.25 300,000 336,488 ------------------- Total 6,912,862 - -------------------------------------------------------------------------------------------------------------------------- NETHERLANDS ANTILLES (0.2%) RWE Finance (European Monetary Unit) 10-26-07 5.50 250,000 292,663 Vodafone Finance (European Monetary Unit) 05-27-09 4.75 360,000 405,634 ------------------- Total 698,297 - -------------------------------------------------------------------------------------------------------------------------- NEW ZEALAND (1.0%) Govt of New Zealand (New Zealand Dollar) 11-15-06 8.00 5,100,000 3,153,208 - -------------------------------------------------------------------------------------------------------------------------- NORWAY (1.7%) A/S Eksportfinans (Japanese Yen) 06-21-10 1.80 180,000,000 1,610,614 Govt of Norway (Norwegian Krone) 05-16-11 6.00 27,000,000 3,850,377 ------------------- Total 5,460,991 - -------------------------------------------------------------------------------------------------------------------------- PERU (0.4%) Republic of Peru (U.S. Dollar) 02-21-12 9.13 250,000 267,500 02-06-15 9.88 950,000 1,045,000 ------------------- Total 1,312,500 - -------------------------------------------------------------------------------------------------------------------------- PHILIPPINE ISLANDS (0.1%) Republic of Philippines (U.S. Dollar) 01-15-19 9.88 370,000 386,650 - -------------------------------------------------------------------------------------------------------------------------- POLAND (0.4%) Republic of Poland (Polish Zloty) 02-12-06 8.50 4,850,000 1,315,747 - -------------------------------------------------------------------------------------------------------------------------- ROMANIA (0.1%) Govt of Romania (European Monetary Unit) 05-08-12 8.50% 240,000 $ 293,007 - -------------------------------------------------------------------------------------------------------------------------- RUSSIA (0.5%) Federation of Russia (U.S. Dollar) 03-31-30 5.00 1,300,000(d),(k) 1,187,875 03-31-30 5.00 300,000(k) 274,500 ------------------- Total 1,462,375 - -------------------------------------------------------------------------------------------------------------------------- SINGAPORE (--%) Flextronics Intl (U.S. Dollar) Sr Sub Nts 05-15-13 6.50 100,000(d) 95,750 - -------------------------------------------------------------------------------------------------------------------------- SOUTH KOREA (0.1%) Korea Development Bank (Japanese Yen) 06-25-08 0.98 40,000,000 332,388 - -------------------------------------------------------------------------------------------------------------------------- SPAIN (5.2%) Govt of Spain (European Monetary Unit) 10-31-07 4.25 7,300,000 8,293,619 01-31-10 4.00 5,800,000 6,433,496 La Caixa De Barcelona (European Monetary Unit) 03-04-10 3.50 1,500,000 1,602,964 ------------------- Total 16,330,079 - -------------------------------------------------------------------------------------------------------------------------- SUPRA-NATIONAL (1.9%) European Investment Bank (British Pound) 12-07-06 7.63 1,500,000 2,586,091 Inter-American Development Bank (Japanese Yen) 07-08-09 1.90 361,000,000 3,290,618 ------------------- Total 5,876,709 - -------------------------------------------------------------------------------------------------------------------------- SWEDEN (0.4%) Govt of Sweden (Swedish Krona) 04-20-06 3.50 10,300,000 1,227,569 - -------------------------------------------------------------------------------------------------------------------------- UKRAINE (0.2%) Govt of Ukraine (U.S. Dollar) 06-11-13 7.65 550,000(d) 539,000 - -------------------------------------------------------------------------------------------------------------------------- UNITED KINGDOM (2.0%) British Telecom (U.S. Dollar) 12-15-10 8.38 350,000 415,337 GE Financial Assurance (Japanese Yen) 06-20-11 1.60 80,000,000 662,367 HSBC Holdings (U.S. Dollar) Sub Nts 12-12-12 5.25 300,000 299,190
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 118 AXP VP - GLOBAL BOND FUND
COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) BONDS (CONTINUED) UNITED KINGDOM (CONT.) United Kingdom Treasury (British Pound) 12-07-06 7.50% 350,000 $ 606,483 12-07-07 7.25 2,350,000 4,122,278 ------------------- Total 6,105,655 - -------------------------------------------------------------------------------------------------------------------------- UNITED STATES (33.6%) Airgas (U.S. Dollar) 10-01-11 9.13 75,000 82,500 Allied Waste North America (U.S. Dollar) Series B 04-01-08 8.88 100,000 107,250 AmerisourceBergen (U.S. Dollar) Sr Nts 11-15-12 7.25 25,000 25,250 ANR Pipeline (U.S. Dollar) Sr Nts 03-15-10 8.88 100,000 105,500 AOL Time Warner (U.S. Dollar) 05-01-12 6.88 600,000 652,120 Apogent Technologies (U.S. Dollar) Sr Sub Nts 05-15-13 6.50 100,000(d) 98,250 ASIF Global Financing (U.S. Dollar) 01-17-13 4.90 900,000(d) 876,888 AT&T (U.S. Dollar) 03-15-09 6.00 5,000 5,188 (U.S. Dollar) Sr Nts 11-15-06 7.00 250,000 277,243 AT&T Broadband (U.S. Dollar) 03-15-13 8.38 48,000 57,013 AT&T Wireless Services (U.S. Dollar) Sr Nts 03-01-11 7.88 300,000 338,868 Ball (U.S. Dollar) 12-15-12 6.88 145,000 146,450 Bank of America (U.S. Dollar) Sr Nts 02-01-07 5.25 500,000 532,010 (U.S. Dollar) Sub Nts 08-15-13 4.75 500,000 479,717 Bayerische Landesbank (U.S. Dollar) Sub Nts 12-01-08 5.88 800,000 860,646 Bear Stearns Commercial Mtge Securities (U.S. Dollar) Series 2003-T10 Cl A1 03-13-40 4.00 393,406 385,861 CBD Media/Finance (U.S. Dollar) Sr Sub Nts 06-01-11 8.63 60,000(d) 63,000 Chiquita Brands Intl (U.S. Dollar) Sr Nts 03-15-09 10.56 75,000 81,750 Choctaw Resort Development Enterprises (U.S. Dollar) Sr Nts 04-01-09 9.25% $ 85,000 $ 91,056 Citibank Credit Card Issuance Trust (U.S. Dollar) Series 2003-A5 Cl A5 04-07-08 2.50 200,000 198,832 (U.S. Dollar) Series 2003-A6 Cl A6 05-17-10 2.90 200,000 200,970 Citicorp (Deutsche Mark) 09-19-09 6.25 3,000,000 1,829,479 Coast Hotels & Casino (U.S. Dollar) 04-01-09 9.50 90,000 95,850 Comcast (U.S. Dollar) 03-15-11 5.50 600,000 603,305 Compass Minerals Group (U.S. Dollar) 08-15-11 10.00 115,000 127,075 Cott Beverages (U.S. Dollar) 12-15-11 8.00 50,000 52,250 D.R. Horton (U.S. Dollar) Sr Nts 05-01-13 6.88 75,000 72,375 DaimlerChrysler North American Holding (U.S. Dollar) 06-04-08 4.05 500,000 478,744 Del Monte (U.S. Dollar) Series B 05-15-11 9.25 100,000 106,000 Dex Media West/Finance (U.S. Dollar) Sr Nts 08-15-10 8.50 35,000(d) 38,063 (U.S. Dollar) Sr Sub Nts 08-15-13 9.88 30,000(d) 33,450 DirectTV Holdings/Finance (U.S. Dollar) Sr Nts 03-15-13 8.38 75,000(d) 81,938 El Paso Production Holding (U.S. Dollar) 06-01-13 7.75 90,000(d) 86,400 Emmis Communications (U.S. Dollar) Series B 03-15-09 8.13 110,000 113,575 Euramax Intl (U.S. Dollar) Sr Sub Nts 08-15-11 8.50 25,000(d) 25,250 Federal Home Loan Mtge Corp (European Monetary Unit) 01-15-06 5.25 900,000 1,038,675 (U.S. Dollar) 07-01-17 6.00 686,863 710,451 09-01-17 6.50 443,529 465,248 08-01-32 6.50 451,636 467,770 04-01-33 6.00 1,518,753 1,548,374 Federal Natl Mtge Assn (U.S. Dollar) 08-15-04 6.50% $ 1,000,000 $ 1,048,165 05-15-08 6.00 3,000,000 3,293,711 01-01-13 4.92 317,631 314,806 02-01-13 4.87 820,634 817,115 04-01-17 6.50 879,548 931,343 08-01-17 6.00 1,267,626 1,320,692 09-01-17 6.00 983,938 1,024,668 08-01-18 4.50 500,000 491,328 09-01-18 5.00 1,940,000(h) 1,945,451 10-01-18 5.00 1,500,000(h) 1,499,532 10-01-18 5.50 2,500,000(h) 2,544,530 09-01-23 5.00 850,000(h) 831,938 03-01-29 6.50 620,198 642,685 07-01-29 6.50 1,100,000(h) 1,137,125 08-01-29 6.50 2,500,000(h) 2,578,125 05-01-32 7.50 698,379 742,313 07-01-32 6.50 600,249 621,320 08-01-32 6.50 667,933 691,380 11-01-32 7.50 1,195,121 1,270,305 03-01-33 5.50 1,482,390 1,478,037 03-01-33 6.00 2,128,511 2,164,046 04-01-33 6.00 3,304,138 3,367,561 07-01-33 7.00 2,800,000(h) 2,948,750 09-01-33 5.00 900,000(h) 870,192 10-01-32 5.50 5,100,000(h) 5,058,562 Collateralized Mtge Obligation (U.S. Dollar) 10-25-42 7.50 457,895(l) 494,670 Fisher Scientific Intl (U.S. Dollar) Sr Sub Nts 09-01-13 8.00 35,000(d) 35,963 Ford Motor (U.S. Dollar) 10-01-28 6.63 326,000 266,125 General Electric (U.S. Dollar) 02-01-13 5.00 550,000 539,484 General Electric Capital (European Monetary Unit) 06-20-07 5.13 250,000 289,449 Georgia-Pacific (U.S. Dollar) Sr Nts 02-01-10 8.88 65,000(d) 68,250 02-01-13 9.38 25,000(d) 26,750 GMAC (U.S. Dollar) 09-15-06 6.13 1,000,000 1,043,427 Goldman Sachs Group (U.S. Dollar) 05-15-09 6.65 250,000 277,528 07-15-13 4.75 300,000 284,130
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 119 AXP VP - GLOBAL BOND FUND
COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) BONDS (CONTINUED) UNITED STATES (CONT.) Govt Natl Mtge Assn (U.S. Dollar) 03-15-33 7.00% $ 349,449 $ 369,513 09-01-33 5.50 1,200,000(h) 1,198,128 Collateralized Mtge Obligation Interest Only (U.S. Dollar) 01-20-32 10.48 3,000,000(b),(l) 457,013 Grant Prideco Escrow (U.S. Dollar) 12-15-09 9.00 125,000 131,563 Graphic Packaging Intl (U.S. Dollar) Sr Nts 08-15-11 8.50 25,000(d) 26,125 Greenwich Capital Commercial Funding (U.S. Dollar) Series 2002-C1 Cl A4 01-11-35 4.95 375,000 368,825 Gulfterra Energy Partner (U.S. Dollar) Sr Nts 06-01-10 6.25 50,000(d) 48,500 Hilton Hotels (U.S. Dollar) 12-01-12 7.63 100,000 105,750 Household Finance (U.S. Dollar) 10-15-11 6.38 800,000 856,294 Intl Paper (European Monetary Unit) 08-11-06 5.38 350,000 399,767 IPALCO Enterprises (U.S. Dollar) 11-14-08 8.38 140,000 147,000 J.P. Morgan Chase (U.S. Dollar) Sub Nts 02-01-11 6.75 300,000 332,158 Jorgensen Earle M. (U.S. Dollar) 06-01-12 9.75 30,000 31,650 Joy Global (U.S. Dollar) Series B 03-15-12 8.75 35,000 37,800 Key Energy Services (U.S. Dollar) Sr Nts 03-01-08 8.38 65,000 67,925 05-01-13 6.38 45,000 42,750 Kinetic Concepts (U.S. Dollar) Sr Sub Nts 05-15-13 7.38 60,000(d) 60,000 L-3 Communications (U.S. Dollar) 06-15-12 7.63 150,000 156,375 LaBranche (U.S. Dollar) Sr Sub Nts 03-02-07 12.00 175,000 190,750 Lamar Media (U.S. Dollar) 09-15-07 8.63 165,000 170,362 (U.S. Dollar) Sr Sub Nts 01-01-13 7.25 40,000(d) 41,500 Lehman Brothers Holdings (U.S. Dollar) 08-07-08 3.50% $ 300,000 $ 290,901 MacDermid (U.S. Dollar) 07-15-11 9.13 20,000 22,000 MBNA Credit Card Master Note Trust (U.S. Dollar) Series 2003-A1 Cl A1 07-15-10 3.30 200,000 197,086 Merisant (U.S. Dollar) Sr Sub Nts 07-15-13 9.50 60,000(d) 63,600 Meritage (U.S. Dollar) Sr Nts 06-01-11 9.75 55,000 58,644 Metris Master Trust (U.S. Dollar) Series 2001-1 Cl C 12-20-07 2.85 300,000(d) 255,000 (U.S. Dollar) Series 2001-3 Cl C 07-21-08 2.80 200,000(d) 156,000 Mohegan Tribal Gaming (U.S. Dollar) Sr Sub Nts 07-15-09 6.38 25,000(d) 24,938 Morgan Stanley, Dean Witter (European Monetary Unit) 03-16-06 5.25 1,100,000 1,264,685 Morris Publishing (U.S. Dollar) Sr Sub Nts 08-01-13 7.00 35,000(d) 35,000 Newfield Exploration (U.S. Dollar) Sr Sub Nts 08-15-12 8.38 170,000 180,200 Nextel Communications (U.S. Dollar) Sr Nts 08-01-15 7.38 80,000 80,000 Nissan Auto Receivables Owner Trust (U.S. Dollar) Series 2003-A Cl A4 07-15-08 2.61 200,000 198,703 Northwest Pipeline (U.S. Dollar) Sr Nts 03-01-10 8.13 5,000 5,200 NVR (U.S. Dollar) Sr Nts 06-15-10 5.00 210,000 196,350 Offshore Logistics (U.S. Dollar) 06-15-13 6.13 15,000(d) 14,250 Omnicare (U.S. Dollar) Sr Sub Nts 06-01-13 6.13 110,000 104,775 Owens-Brockway Glass (U.S. Dollar) 05-15-11 7.75 70,000(d) 70,350 Park Place Entertainment (U.S. Dollar) Sr Nts 04-15-13 7.00 20,000 20,650 (U.S. Dollar) Sr Sub Nts 05-15-11 8.13 40,000 43,200 Peabody Energy (U.S. Dollar) Series B 03-15-13 6.88% $ 95,000 $ 95,000 Qwest (U.S. Dollar) 11-01-04 7.20 85,000 86,275 Ryland Group (U.S. Dollar) Sr Nts 06-01-08 5.38 170,000 168,725 SBC Communications (U.S. Dollar) 08-15-12 5.88 200,000 211,318 Schuler Homes (U.S. Dollar) 07-15-09 9.38 40,000 43,000 Smurfit-Stone Container (U.S. Dollar) 10-01-12 8.25 40,000 41,400 Sonic Automotive (U.S. Dollar) Sr Sub Nts 08-15-13 8.63 30,000(d) 30,300 Southern Natural Gas (U.S. Dollar) Sr Nts 03-15-10 8.88 105,000 110,775 Sprint Capital (U.S. Dollar) 03-15-12 8.38 200,000 227,144 SPX (U.S. Dollar) Sr Nts 06-15-11 6.25 155,000 151,900 Stone Container (U.S. Dollar) Sr Nts 07-01-12 8.38 90,000 95,400 Susquehanna Media (U.S. Dollar) Sr Sub Nts 04-15-13 7.38 15,000 15,281 TD Funding (U.S. Dollar) Sr Sub Nts 07-15-11 8.38 100,000(d) 104,250 Teco Energy (U.S. Dollar) Sr Nts 06-15-10 7.50 25,000 24,375 Tenet Healthcare (U.S. Dollar) Sr Nts 12-01-11 6.38 115,000 106,950 Toll (U.S. Dollar) 02-01-09 8.13 35,000 36,838 TRAINS 10-2002 (U.S. Dollar) 01-15-12 6.96 1,368,000(d),(e) 1,530,724 Transcontinental Gas Pipeline (U.S. Dollar) Series B 08-15-11 7.00 100,000 98,125
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 120 AXP VP - GLOBAL BOND FUND
COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) BONDS (CONTINUED) UNITED STATES (CONT.) U.S. Treasury (U.S. Dollar) 02-15-05 7.50% $ 5,700,000(g) $ 6,183,166 11-15-05 5.75 125,000 134,878 05-15-06 2.00 626,000 621,305 08-15-06 2.38 310,000 309,055 08-15-07 3.25 1,968,000 1,985,067 08-15-13 4.25 5,405,000 5,314,628 11-15-16 7.50 13,000,000(g) 16,208,867 02-15-31 5.38 3,030,000(g) 3,095,097 Verizon Global Funding (U.S. Dollar) 06-15-07 6.13 500,000 542,035 Wachovia (U.S. Dollar) 08-15-08 3.50 200,000 195,042 Washington Mutual (U.S. Dollar) Sr Nts 01-15-07 5.63 1,000,000 1,070,557 Wells Fargo (U.S. Dollar) Sr Nts 02-15-07 5.13 500,000 529,043 William Carter (U.S. Dollar) Series B 08-15-11 10.88% $ 60,000 $ 66,000 XTO Energy (U.S. Dollar) Sr Nts 04-15-12 7.50 130,000 139,750 04-15-13 6.25 80,000 80,000 ------------------- Total 104,773,640 - -------------------------------------------------------------------------------------------------------------------------- TOTAL BONDS (Cost: $288,181,764) $ 295,989,052 - --------------------------------------------------------------------------------------------------------------------------
ANNUALIZED AMOUNT YIELD ON DATE PAYABLE AT ISSUER OF PURCHASE MATURITY VALUE(a) SHORT-TERM SECURITIES (13.9%)(j) U.S. GOVERNMENT AGENCIES (4.2%) Federal Home Loan Bank Disc Nt 09-26-03 1.02% $ 3,800,000 $ 3,796,886 Federal Natl Mtge Assn Disc Nt 09-24-03 0.98 9,400,000 9,393,737 ------------------- Total 13,190,623 - -------------------------------------------------------------------------------------------------------------------------- COMMERCIAL PAPER (9.6%) BP Capital Markets 09-02-03 1.10 10,500,000 10,498,716 Citigroup 09-02-03 1.10 14,000,000 13,998,289 Receivables Capital 09-18-03 1.06 3,300,000(i) 3,298,057 Societe Generale North America 09-02-03 1.05 2,300,000 2,299,732 ------------------- Total 30,094,794 - -------------------------------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM SECURITIES (Cost: $43,286,404) $ 43,285,417 - -------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $331,468,168)(m) $ 339,274,469 ==========================================================================================================================
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 121 AXP VP - GLOBAL BOND FUND NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Interest-only represents securities that entitle holders to receive only interest payments on the underlying mortgages. The yield to maturity of an interest-only is extremely sensitive to the rate of principal payments on the underlying mortgage assets. A rapid (slow) rate of principal repayments may have an adverse (positive) effect on yield to maturity. The principal amount shown is the notional amount of the underlying mortgages. Interest rate disclosed represents yield based upon the estimated timing of future cash flows as of Aug. 31, 2003. (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) Represents ownership in a cash TRAINS (Targeted Return Index Securities) comprised of a portfolio of 23 corporate bonds selected to target a maturity range of 7 to 15 years in the corresponding Lehman Brothers Credit Index with a current maturity date of Jan 15, 2012. (f) The following abbreviation is used in the portfolio security description to identify the insurer of the issue: MBIA -- Municipal Bond Investors Assurance (g) 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 - --------------------------------------------------------------------------------------------------------------------------------- PURCHASE CONTRACTS Eurodollar, Sept. 2003, 90-day $ 16,250,000 Eurodollar, Sept. 2007, 90-day 15,000,000 German bund, Sept. 2003, 10-year 2,800,000
(h) At Aug. 31, 2003, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $20,736,065. (i) 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. (j) At Aug. 31, 2003, cash or short-term securities were held to cover open call options on futures written as follows (see Note 8 to the financial statements):
NOTIONAL EXERCISE EXPIRATION ISSUER AMOUNT PRICE DATE VALUE(a) ---------------------------------------------------------------------------------------------------------------------------- U.S. Treasury Bonds, 10-year $ 3,300,000 $ 110.00 Dec. 2003 $ 61,360
At Aug. 31, 2003, cash or short-term securities were designated to cover open put options on futures written as follows (see Note 8 to the financial statements):
NOTIONAL EXERCISE EXPIRATION ISSUER AMOUNT PRICE DATE VALUE(a) ---------------------------------------------------------------------------------------------------------------------------- U.S. Treasury Bonds, 10-year $ 3,300,000 $ 110.00 Dec. 2003 $ 70,640
(k) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Aug. 31, 2003. (l) 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. These securities may be issued or guaranteed by U.S. government agencies or instrumentalities, or by private issuers, generally originators and investors in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers and special purpose entities. The maturity dates shown represent the original maturity of the underlying obligation. Actual maturity may vary based upon prepayment activity on these obligations. Unless otherwise noted, the coupon rates presented are fixed rates. (m) At Aug. 31, 2003, the cost of securities for federal income tax purposes was $331,532,298 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 11,438,789 Unrealized depreciation (3,696,618) ---------------------------------------------------------------------------------------------------------------------------- Net unrealized appreciation $ 7,742,171 ----------------------------------------------------------------------------------------------------------------------------
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 122 INVESTMENTS IN SECURITIES AXP VP - GROWTH FUND AUG. 31, 2003 (PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS)
ISSUER SHARES VALUE(a) COMMON STOCKS (86.6%) AEROSPACE & DEFENSE (2.9%) Boeing 18,300 $ 684,237 Lockheed Martin 88,500 4,533,855 Northrop Grumman 4,800 458,304 United Technologies 8,700 698,175 ------------------ Total 6,374,571 - ----------------------------------------------------------------------------------------------------------------- AIRLINES (0.4%) JetBlue Airways 15,100(b) 813,890 - ----------------------------------------------------------------------------------------------------------------- BANKS AND SAVINGS & LOANS (0.3%) U.S. Bancorp 27,600 659,640 - ----------------------------------------------------------------------------------------------------------------- BEVERAGES & TOBACCO (4.4%) Altria Group 78,500 3,235,770 Anheuser-Busch 20,500 1,056,570 Coca-Cola 37,730 1,642,010 Pepsi Bottling Group 49,700 1,198,764 PepsiCo 58,317 2,597,439 ------------------ Total 9,730,553 - ----------------------------------------------------------------------------------------------------------------- BUILDING MATERIALS & CONSTRUCTION (0.2%) American Standard 4,500(b) 360,855 - ----------------------------------------------------------------------------------------------------------------- CABLE (3.4%) Comcast Cl A 40,400(b) 1,201,900 EchoStar Communications Cl A 61,600(b) 2,273,040 NTL 103,900(b) 4,180,936 ------------------ Total 7,655,876 - ----------------------------------------------------------------------------------------------------------------- CELLULAR TELECOMMUNICATIONS (1.0%) Vodafone Group 642,300(c) 1,175,972 Vodafone Group ADR 53,200(c) 973,560 ------------------ Total 2,149,532 - ----------------------------------------------------------------------------------------------------------------- CHEMICALS (0.5%) Dow Chemical 13,300 459,249 Eastman Chemical 15,600 558,636 ------------------ Total 1,017,885 - ----------------------------------------------------------------------------------------------------------------- COMPUTER HARDWARE (2.5%) Cisco Systems 86,300(b) 1,652,645 Dell 49,100(b) 1,602,133 Sun Microsystems 589,000(b) 2,273,540 ------------------ Total 5,528,318 - ----------------------------------------------------------------------------------------------------------------- COMPUTER SOFTWARE & SERVICES (6.3%) Affiliated Computer Services Cl A 16,100(b) 798,721 First Data 74,300 2,853,120 Microsoft 353,846 9,383,996 Network Associates 16,100(b) 224,112 Oracle 64,100(b) 819,198 ------------------ Total 14,079,147 - ----------------------------------------------------------------------------------------------------------------- ELECTRONICS (0.4%) Taiwan Semiconductor Mfg ADR 79,204(b),(c) $ 933,023 - ----------------------------------------------------------------------------------------------------------------- ENERGY (3.4%) Anadarko Petroleum 44,300 1,927,050 Apache 30,794 2,124,170 Burlington Resources 38,500 1,864,170 Devon Energy 12,791 661,934 Newfield Exploration 11,500(b) 451,835 XTO Energy 22,200 465,978 ------------------ Total 7,495,137 - ----------------------------------------------------------------------------------------------------------------- ENERGY EQUIPMENT & SERVICES (3.1%) ENSCO Intl 22,645 632,928 Halliburton 31,500 761,670 Rowan Companies 26,680(b) 668,067 Schlumberger 67,674 3,350,540 Transocean 66,500(b) 1,404,480 ------------------ Total 6,817,685 - ----------------------------------------------------------------------------------------------------------------- FINANCIAL SERVICES (2.7%) Capital One Financial 4,700 250,980 Fannie Mae 22,473 1,456,026 Freddie Mac 17,644 937,779 MBNA 40,400 942,936 Nomura Holdings 130,000(c) 1,891,840 Nomura Holdings ADR 31,200(c) 457,080 ------------------ Total 5,936,641 - ----------------------------------------------------------------------------------------------------------------- FOOD (1.3%) General Mills 8,600 398,696 Kellogg 22,600 757,778 Kraft Foods Cl A 61,300 1,820,610 ------------------ Total 2,977,084 - ----------------------------------------------------------------------------------------------------------------- HEALTH CARE PRODUCTS (16.8%) Allergan 6,446 512,199 Amgen 58,595(b) 3,861,411 Bard (CR) 5,400 361,800 Becton, Dickinson & Co 15,050 549,927 Bristol-Myers Squibb 31,400 796,618 Gilead Sciences 11,500(b) 767,050 GlaxoSmithKline ADR 34,000(c) 1,320,220 Guidant 43,750 2,196,250 Johnson & Johnson 79,600 3,946,568 Lilly (Eli) 13,500 898,155 Medco Health Solutions 7,725(b) 206,272 Medtronic 44,900 2,226,142 Merck & Co 64,100 3,225,512 Millennium Pharmaceuticals 57,400(b) 797,860 Mylan Laboratories 19,200 698,880 Pfizer 293,506 8,781,699 Schering-Plough 149,100 2,264,829 Teva Pharmaceutical Inds ADR 7,200(c) 422,726 Wyeth 92,100 3,946,485 ------------------ Total 37,780,603 - ----------------------------------------------------------------------------------------------------------------- HEALTH CARE SERVICES (6.7%) AmerisourceBergen 7,600 $ 442,396 Anthem 6,481(b) 474,409 Cardinal Health 27,800 1,582,654 Caremark Rx 89,600(b) 2,251,648 IMS Health 81,500 1,586,805 Lincare Holdings 21,500(b) 744,545 McKesson 68,000 2,226,320 Select Medical 56,100(b) 1,615,680 Tenet Healthcare 114,900(b) 1,844,145 WebMD 242,900(b) 2,501,870 ------------------ Total 15,270,472 - ----------------------------------------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS (5.0%) Avon Products 9,900 634,590 Colgate-Palmolive 41,700 2,305,176 Gillette 82,800 2,687,688 Kimberly-Clark 47,800 2,443,058 Procter & Gamble 35,600 3,107,524 ------------------ Total 11,178,036 - ----------------------------------------------------------------------------------------------------------------- INSURANCE (1.8%) ACE 20,500(c) 660,100 Allstate 37,100 1,326,325 Chubb 28,600 1,943,084 ------------------ Total 3,929,509 - ----------------------------------------------------------------------------------------------------------------- INVESTMENT COMPANIES (1.1%) iShares MSCI Japan Index Fund 292,100 2,424,430 - ----------------------------------------------------------------------------------------------------------------- LEISURE TIME & ENTERTAINMENT (1.0%) Viacom Cl B 47,200 2,124,000 - ----------------------------------------------------------------------------------------------------------------- MEDIA (4.7%) Cendant 127,100(b) 2,285,258 Disney (Walt) 78,750 1,614,375 InterActiveCorp 113,830(b) 4,212,844 Liberty Media Cl A 50,950(b) 616,495 Omnicom Group 18,150 1,417,515 Tribune 8,600 397,750 ------------------ Total 10,544,237 - ----------------------------------------------------------------------------------------------------------------- METALS (0.9%) Freeport McMoRan Cooper & Gold Cl B 63,800 1,914,000 - ----------------------------------------------------------------------------------------------------------------- MULTI-INDUSTRY (2.2%) General Electric 74,400 2,200,008 Harman Intl Inds 10,900 1,086,185 Sony 19,000(c) 625,300 Tyco Intl 52,900(c) 1,088,682 ------------------ Total 5,000,175 - -----------------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 123 AXP VP - GROWTH FUND
ISSUER SHARES VALUE(a) COMMON STOCKS (CONTINUED) PRECIOUS METALS (3.1%) Barrick Gold 171,200(c) $ 3,459,952 Glamis Gold 16,100(b) 227,171 Newmont Mining 84,000 3,297,840 ------------------ Total 6,984,963 - ----------------------------------------------------------------------------------------------------------------- RESTAURANTS (1.8%) McDonald's 183,200 4,107,344 - ----------------------------------------------------------------------------------------------------------------- RETAIL -- GENERAL (3.8%) Circuit City Stores 249,500 2,602,285 Home Depot 89,509 2,878,609 Kohl's 13,100(b) 828,575 Staples 35,450(b) 873,134 Wal-Mart Stores 20,200 1,195,234 ------------------ Total 8,377,837 - ----------------------------------------------------------------------------------------------------------------- RETAIL -- GROCERY (0.4%) Kroger 35,300(b) 678,113 Safeway 12,250(b) 299,023 ------------------ Total 977,136 - ----------------------------------------------------------------------------------------------------------------- TELECOM EQUIPMENT & SERVICES (3.6%) China Mobile 900(c) 24,336 Motorola 346,300 3,715,799 Nokia ADR 191,400(c) 3,117,906 QUALCOMM 28,900 1,192,992 ------------------ Total 8,051,033 - ----------------------------------------------------------------------------------------------------------------- TEXTILES & APPAREL (0.9%) Polo Ralph Lauren 70,300 2,059,790 - ----------------------------------------------------------------------------------------------------------------- UTILITIES -- NATURAL GAS (--%) Kinder Morgan Management LLC 1 36 - ----------------------------------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $174,224,900) $ 193,253,438 - -----------------------------------------------------------------------------------------------------------------
EXERCISE EXPIRATION ISSUER CONTRACTS PRICE DATE VALUE(a) OPTIONS PURCHASED (0.5%) PUTS Mini 100 1,225 $ 130 Sept. 2003 $ 186,812 Index Nasdaq 100 Index 6,895 28 Sept. 2003 17,238 Nasdaq 100 Index 4,945 32 Oct. 2003 407,962 S&P 500 Index 111 975 Sept. 2003 60,495 S&P 500 Index 188 980 Sept. 2003 122,200 S&P 500 Index 281 975 Oct. 2003 407,450 - --------------------------------------------------------------------------------------------------- TOTAL OPTIONS PURCHASED (Cost: $3,224,688) $ 1,202,157 - ---------------------------------------------------------------------------------------------------
ANNUALIZED AMOUNT YIELD ON DATE PAYABLE AT ISSUER OF PURCHASE MATURITY VALUE(a) SHORT-TERM SECURITIES (14.4%) U.S. GOVERNMENT AGENCY (10.4%) Federal Natl Mtge Assn Disc Nts 09-30-03 1.04% $ 3,000,000 $ 2,997,325 10-01-03 0.97 3,200,000 3,197,099 10-08-03 0.99 3,000,000 2,996,737 10-17-03 1.05 3,100,000 3,095,685 10-22-03 1.00 3,000,000 2,995,549 11-12-03 1.07 500,000 498,975 11-19-03 1.01 3,900,000 3,891,212 11-26-03 1.07 3,500,000 3,491,403 ------------------- Total 23,163,985 - -------------------------------------------------------------------------------------------------------------------------- COMMERCIAL PAPER (4.0%) AEGON Funding 10-15-03 1.03 2,000,000(d) 1,997,232 11-25-03 1.08 2,600,000(d) 2,593,200 Ciesco LLC 09-02-03 1.07 1,600,000 1,599,810 Galaxy Funding 10-17-03 1.07 800,000(d) 798,835 Receivables Capital 09-18-03 1.06 2,000,000(d) 1,998,822 ------------------- Total 8,987,899 - -------------------------------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM SECURITIES (Cost: $32,151,656) $ 32,151,884 - -------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $209,601,244)(e) $ 226,607,479 ==========================================================================================================================
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, 2003, the value of foreign securities represented 7.2% 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, 2003, the cost of securities for federal income tax purposes was $215,630,514 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 15,216,063 Unrealized depreciation (4,239,098) - -------------------------------------------------------------------------------------------------------------------------- Net unrealized appreciation $ 10,976,965 - --------------------------------------------------------------------------------------------------------------------------
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 124 INVESTMENTS IN SECURITIES AXP VP - HIGH YIELD BOND FUND AUG. 31, 2003 (PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS)
COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) BONDS (94.3%) AEROSPACE & DEFENSE (1.6%) Alliant Techsystems 05-15-11 8.50% $ 2,900,000 $ 3,132,000 Armor Holdings Sr Sub Nts 08-15-13 8.25 1,505,000(d) 1,557,675 L-3 Communications 06-15-12 7.63 5,885,000 6,135,113 TD Funding Sr Sub Nts 07-15-11 8.38 2,560,000(d) 2,668,800 ------------------- Total 13,493,588 - -------------------------------------------------------------------------------------------------------------------------- AIRLINES (0.2%) United Air Lines 01-01-14 7.78 2,014,237 1,471,319 - -------------------------------------------------------------------------------------------------------------------------- AUTOMOTIVE & RELATED (2.2%) Advanced Accessory System Sr Nts 06-15-11 10.75 2,170,000(d) 2,256,800 Dana 08-15-11 9.00 1,600,000 1,680,000 Delco Remy Intl Sr Nts 12-15-07 8.63 760,000 733,400 LDM Technologies Series B 01-15-07 10.75 3,385,000 3,368,075 RJ Tower 06-01-13 12.00 3,150,000(d) 3,071,250 Tenneco Automotive 07-15-13 10.25 3,555,000(d) 3,679,425 Series B 10-15-09 11.63 1,600,000 1,464,000 TRW Automotive Sr Sub Nts 02-15-13 11.00 1,980,000(d) 2,267,100 ------------------- Total 18,520,050 - -------------------------------------------------------------------------------------------------------------------------- BROKER DEALERS (0.6%) LaBranche Sr Sub Nts 03-02-07 12.00 4,880,000 5,319,200 - -------------------------------------------------------------------------------------------------------------------------- BUILDING MATERIALS & CONSTRUCTION (1.0%) Associated Materials 04-15-12 9.75 2,655,000 2,781,113 Interface 04-01-08 7.30 3,265,000 2,807,900 Nortek Sr Sub Nts Series B 06-15-11 9.88 2,335,000 2,440,075 ------------------- Total 8,029,088 - -------------------------------------------------------------------------------------------------------------------------- CABLE (6.2%) Charter Communications Holdings LLC/Capital Sr Disc Nts (Zero coupon through 01-15-07, thereafter 12.13%) 01-15-12 18.76% $ 14,730,000(h) $ 6,923,100 Sr Nts 11-15-09 9.63 1,600,000 1,224,000 05-15-11 10.00 5,610,000 4,235,550 Coaxial Communications/Phoenix 08-15-06 10.00 2,610,000 2,717,663 CSC Holdings Sr Nts 07-15-08 7.25 4,450,000 4,450,000 Sr Sub Deb 05-15-16 10.50 4,800,000 5,232,000 DirecTV Holdings/Finance Sr Nts 03-15-13 8.38 7,030,000(d) 7,680,274 EchoStar DBS Sr Nts 01-15-09 9.13 1,752,000 1,940,340 Lodgenet Entertainment Sr Sub Deb 06-15-13 9.50 2,060,000 2,142,400 Mediacom Broadband LLC 07-15-13 11.00 1,620,000 1,765,800 Mediacom LLC/Mediacom Capital Sr Nts 01-15-13 9.50 4,600,000 4,645,999 Pegasus Satellite Sr Disc Nts (Zero coupon through 03-01-04, thereafter 13.50%) 03-01-07 22.27 440,000(h) 283,800 Sr Nts 08-01-06 12.38 3,660,000 3,001,200 01-15-10 11.25 5,402,000(d) 4,375,620 Rogers Cable (U.S. Dollar) 06-15-13 6.25 2,045,000(c) 1,919,744 Veninfotel (U.S. Dollar) Cv Pay-in-kind 12-31-05 13.00 1,699,707(c),(f),(i) 16,997 ------------------- Total 52,554,487 - -------------------------------------------------------------------------------------------------------------------------- CELLULAR TELECOMMUNICATIONS (8.9%) ACC Escrow Sr Nts 08-01-11 10.00 6,530,000(d) 6,954,450 Alamosa Delaware 02-01-11 12.50 4,600,000 4,232,000 Alamosa Holdings (Zero coupon through 02-15-05, thereafter 12.88%) 02-15-10 17.08 1,900,000(h) 1,396,500 American Tower Sr Nts 02-01-09 9.38% $ 4,639,000 $ 4,696,988 American Tower Escrow Zero Coupon 08-01-08 14.66 455,000(j) 300,300 Crown Castle Intl Sr Nts 05-15-11 9.00 2,635,000 2,674,525 08-01-11 9.38 2,335,000 2,434,238 08-01-11 9.50 1,600,000 1,656,000 Dobson/Sygnet Communications Sr Nts 12-15-08 12.25 10,020,000 10,721,399 Nextel Communications Sr Disc Nts 10-31-07 9.75 6,510,000 6,705,300 Sr Nts 08-01-15 7.38 8,695,000 8,695,000 Nextel Partners Sr Nts 03-15-10 11.00 1,505,000 1,617,875 Rural Cellular Sr Nts 02-01-10 9.88 2,710,000(d) 2,696,450 Sr Sub Nts Series B 05-15-08 9.63 5,545,000 4,935,050 Triton PCS Sr Nts 06-01-13 8.50 2,705,000(d) 2,894,350 US Unwired Series B (Zero coupon through 11-01-04, thereafter 13.38%) 11-01-09 23.27 5,555,000(h) 3,083,025 Western Wireless Sr Nts 07-15-13 9.25 9,380,000(d) 9,380,000 ------------------- Total 75,073,450 - -------------------------------------------------------------------------------------------------------------------------- CHEMICALS (4.3%) Arco Chemical 02-01-20 9.80 3,435,000 2,988,450 Avecia Group (U.S. Dollar) 07-01-09 11.00 740,000(c) 629,000 Huntsman ICI Chemicals LLC 07-01-09 10.13 2,420,000 2,286,900 Huntsman Intl LLC Sr Nts 03-01-09 9.88 2,805,000(d) 2,889,150 03-01-09 9.88 250,000 257,500
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 125 AXP VP - HIGH YIELD BOND FUND
COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) BONDS (CONTINUED) CHEMICALS (CONT.) IMC Global Series B 06-01-08 10.88% $ 790,000 $ 817,650 Sr Nts 08-01-13 10.88 2,250,000(d) 2,306,250 Lyondell Chemical Series A 05-01-07 9.63 2,860,000 2,831,400 Noveon Pay-in-kind Series B 08-31-11 13.00 3,740,000(f),(i) 3,852,200 Series B 02-28-11 11.00 2,785,000 3,091,350 Resolution Performance Sr Sub Nts 11-15-10 13.50 6,565,000 5,678,724 Resolution Performance Products LLC/RPP Capital Sr Nts 04-15-10 9.50 2,555,000 2,529,450 Rhodia (U.S. Dollar) 06-01-11 8.88 3,285,000(c),(d) 3,301,425 Rockwood Specialties Sr Sub Nts 05-15-11 9.63 2,305,000(d) 2,402,963 Sovereign Specialty Chemicals 03-15-10 11.88 490,000 475,300 ------------------- Total 36,337,712 - -------------------------------------------------------------------------------------------------------------------------- ELECTRONICS (0.8%) Flextronics Intl (U.S. Dollar) Sr Sub Nts 05-15-13 6.50 3,550,000(c),(d) 3,399,125 Worldspan LP/WS Financing Sr Nts 06-15-11 9.63 3,530,000(d) 3,653,550 ------------------- Total 7,052,675 - -------------------------------------------------------------------------------------------------------------------------- ENERGY (5.1%) Chesapeake Energy Sr Nts Series B 03-15-12 8.50 1,620,000 1,701,000 Encore Acquisition 06-15-12 8.38 1,200,000 1,248,000 Eott Energy Partners LP/Energy Finance 10-01-09 11.00 11,570,000(b) 11,627,850 Forest Oil 05-01-14 7.75 2,250,000 2,210,625 Gulfterra Energy Partner Sr Nts 06-01-10 6.25 5,815,000(d) 5,640,550 Hanover Equipment Trust Series B 09-01-11 8.75 4,595,000 4,572,025 Hilcorp Energy/Finance Sr Nts 09-01-10 10.50 9,000,000(d) 9,472,500 Newfield Exploration Sr Nts 03-01-11 7.63% $ 700,000 $ 749,000 Sr Sub Nts 08-15-12 8.38 2,938,000 3,114,280 Westport Resources 11-01-11 8.25 2,105,000 2,252,350 ------------------- Total 42,588,180 - -------------------------------------------------------------------------------------------------------------------------- ENERGY EQUIPMENT & SERVICES (1.8%) Dresser 04-15-11 9.38 3,640,000 3,712,800 Grant Prideco Series B 12-01-07 9.63 3,150,000 3,354,750 Grant Prideco Escrow 12-15-09 9.00 1,795,000 1,889,238 Key Energy Services Sr Nts 05-01-13 6.38 1,075,000 1,021,250 Sr Nts Series C 03-01-08 8.38 2,545,000 2,659,525 Offshore Logistics 06-15-13 6.13 1,350,000(d) 1,282,500 Plains All American Pipeline 10-15-12 7.75 1,150,000 1,219,000 ------------------- Total 15,139,063 - -------------------------------------------------------------------------------------------------------------------------- FINANCIAL SERVICES (0.8%) Metris Companies 11-01-04 10.00 3,955,000 2,728,950 07-15-06 10.13 2,650,000 1,828,500 Metris Master Trust Series 2001-1 Cl C 12-20-07 2.86 1,850,000(d) 1,572,500 Series 2001-3 Cl C 07-21-08 2.81 1,100,000(d) 858,000 ------------------- Total 6,987,950 - -------------------------------------------------------------------------------------------------------------------------- FOOD (3.0%) B&G Foods Series D 08-01-07 9.63 2,030,000 2,060,450 Burns Philp Capital Property (U.S. Dollar) 07-15-12 9.75 5,590,000(c),(d) 5,422,300 (U.S. Dollar) Sr Sub Nts 02-15-11 10.75 6,125,000(c),(d) 6,278,125 Chiquita Brands Intl Sr Nts 03-15-09 10.56 5,000,000 5,450,000 Del Monte Series B 05-15-11 9.25 4,680,000 4,960,800 Merisant Sr Sub Nts 07-15-13 9.50 1,400,000(d) 1,484,000 ------------------- Total 25,655,675 - -------------------------------------------------------------------------------------------------------------------------- FURNITURE & APPLIANCES (0.2%) Falcon Products Series B 06-15-09 11.38% $ 1,855,000 $ 1,409,800 - -------------------------------------------------------------------------------------------------------------------------- HEALTH CARE PRODUCTS (0.7%) Apogent Technologies Sr Sub Nts 05-15-13 6.50 1,905,000(d) 1,871,663 Kinetic Concepts Sr Sub Nts 05-15-13 7.38 4,350,000(d) 4,350,000 ------------------- Total 6,221,663 - -------------------------------------------------------------------------------------------------------------------------- HEALTH CARE SERVICES (3.5%) AmerisourceBergen 11-15-12 7.25 1,430,000 1,444,300 Ardent Health Services Sr Sub Nts 08-15-13 10.00 4,965,000(d) 5,033,269 Iasis Healthcare 10-15-09 8.50 3,345,000 3,370,088 10-15-09 13.00 2,210,000 2,469,675 Province Healthcare Sr Sub Nts 06-01-13 7.50 3,845,000 3,700,813 Tenet Healthcare Sr Nts 12-01-11 6.38 1,540,000 1,432,200 06-01-12 6.50 2,310,000 2,148,300 Triad Hospitals Series B 05-01-09 8.75 2,195,000 2,337,675 Vanguard Health Systems 08-01-11 9.75 7,170,000 7,313,399 ------------------- Total 29,249,719 - -------------------------------------------------------------------------------------------------------------------------- HOME BUILDING (2.3%) KB HOME Sr Sub Nts 02-01-10 7.75 1,290,000 1,315,800 Lyon (William) Homes 04-01-13 10.75 3,435,000 3,649,688 Meritage 06-01-11 9.75 3,420,000 3,646,575 Schuler Homes 07-15-11 10.50 3,930,000 4,342,650 Standard Pacific Sr Nts 04-01-09 8.50 1,250,000 1,281,250 09-15-10 9.50 380,000 408,500 Sr Sub Nts 04-15-12 9.25 500,000 525,000 WCI Communities 02-15-11 10.63 3,805,000 4,042,812 ------------------- Total 19,212,275 - --------------------------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 126 AXP VP - HIGH YIELD BOND FUND
COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) BONDS (CONTINUED) HOUSEHOLD PRODUCTS (0.4%) Jafra Cosmetics/Distribution Sr Sub Nts 05-15-11 10.75% $ 2,005,000(d) $ 2,105,250 Revlon Consumer Products 12-01-05 12.00 1,480,000 1,420,800 ------------------- Total 3,526,050 - -------------------------------------------------------------------------------------------------------------------------- INDUSTRIAL SERVICES (3.9%) Alliance Laundry System Series B 05-01-08 9.63 190,000 185,250 Allied Waste North America 09-01-12 9.25 2,705,000 2,921,400 Series B 01-01-09 7.88 1,170,000 1,197,788 08-01-09 10.00 3,600,000 3,897,000 Sr Nts 04-15-13 7.88 5,600,000 5,711,999 Interline Brands Sr Sub Nts 05-15-11 11.50 5,250,000(d) 5,433,750 Intl Wire Group Series B 06-01-05 11.75 780,000 397,800 Sr Sub Nts 06-01-05 11.75 775,000 395,250 Motors & Gears Sr Nts Series D 11-15-06 10.75 4,522,000 3,911,530 Natl Waterworks Series B 12-01-12 10.50 3,075,000 3,351,750 United Rentals North America Series B 04-15-08 10.75 770,000 847,000 Williams Scotsman 06-01-07 9.88 2,000,000 1,960,000 08-15-08 10.00 2,900,000(d) 3,074,000 ------------------- Total 33,284,517 - -------------------------------------------------------------------------------------------------------------------------- INDUSTRIAL TRANSPORTATION (0.3%) Interpool 08-01-07 7.20 1,700,000 1,649,000 08-01-07 7.35 1,085,000 1,057,875 ------------------- Total 2,706,875 - -------------------------------------------------------------------------------------------------------------------------- LEISURE TIME & ENTERTAINMENT (0.4%) Remington Arms 02-01-11 10.50 2,990,000 3,019,900 - -------------------------------------------------------------------------------------------------------------------------- LODGING & GAMING (4.6%) Choctaw Resort Development Enterprises Sr Nts 04-01-09 9.25% $ 2,530,000 $ 2,710,263 Extended Stay America Sr Sub Nts 06-15-11 9.88 1,970,000 2,093,125 Hammons (John Q) Hotels 1st Mtge Series B 05-15-12 8.88 1,070,000 1,118,150 Hilton Hotels 12-01-12 7.63 1,310,000 1,385,325 HMH Properties Series B 08-01-08 7.88 1,830,000 1,839,150 MeriStar Hospitality 01-15-08 9.00 1,605,000 1,588,950 Sr Sub Nts 08-15-07 8.75 1,420,000 1,292,200 Mohegan Tribal Gaming Sr Sub Nts 07-01-11 8.38 2,525,000 2,720,688 Old Evangeline Downs 03-01-10 13.00 2,420,000(d) 2,465,375 Park Place Entertainment Sr Sub Nts 05-15-11 8.13 3,670,000 3,963,600 Prime Hospitality Sr Sub Nts Series B 05-01-12 8.38 2,270,000 2,190,550 RFS Partnership LP 03-01-12 9.75 1,490,000 1,512,350 Riviera Holdings 06-15-10 11.00 1,600,000 1,560,000 Starwood Hotels Resorts 05-01-12 7.88 1,470,000 1,536,150 Trump Atlantic City Assn/Funding 1st Mtge 05-01-06 11.25 1,920,000 1,526,400 Venetian Casino/LV Sands 06-15-10 11.00 1,915,000 2,178,313 Wheeling Island Gaming 12-15-09 10.13 2,575,000 2,626,500 Wynn Las Vegas LLC 2nd Mtge 11-01-10 12.00 3,770,000 4,278,949 ------------------- Total 38,586,038 - -------------------------------------------------------------------------------------------------------------------------- MACHINERY (0.8%) Columbus McKinnon 08-01-10 10.00 1,700,000(d) 1,755,250 Joy Global Series B 03-15-12 8.75 2,150,000 2,322,000 Terex 07-15-11 9.25 2,890,000 3,085,075 ------------------- Total 7,162,325 - -------------------------------------------------------------------------------------------------------------------------- MEDIA (9.5%) Alliance Atlantis Communications (U.S. Dollar) Sr Sub Nts 12-15-09 13.00% $ 3,550,000(c) $ 3,971,563 American Media 01-15-11 8.88 2,245,000 2,390,925 AOA Holdings LLC Sr Nts 06-15-08 12.00 6,500,000(i) 7,000,499 Canwest Media (U.S. Dollar) Series B 04-15-13 7.63 1,290,000(c) 1,335,150 (U.S. Dollar) Sr Sub Nts 05-15-11 10.63 1,720,000(c) 1,917,800 CBD Media/Finance Sr Sub Nts 06-01-11 8.63 1,990,000(d) 2,089,500 Corus Entertainment (U.S. Dollar) Sr Sub Nts 03-01-12 8.75 2,910,000(c) 3,077,325 Dex Media East LLC/Finance Sr Nts 11-15-09 9.88 3,590,000 4,065,675 Dex Media West/Finance Sr Nts 08-15-10 8.50 3,690,000(d) 4,012,875 Sr Sub Nts 08-15-13 9.88 5,795,000(d) 6,461,424 Hollinger Intl Publishing Sr Nts 12-15-10 9.00 2,225,000 2,308,438 03-01-11 11.88 1,445,000(c),(d) 1,578,663 Lamar Media 09-15-07 8.63 955,000 986,038 01-01-13 7.25 2,265,000 2,349,938 Nexstar Finance Holdings LLC (Zero coupon through 04-01-08, thereafter 11.38%) 04-01-13 11.21 3,820,000(h) 2,635,800 Nexstar Finance LLC 04-01-08 12.00 3,638,000 4,074,560 Paxson Communications (Zero coupon through 01-15-06, thereafter 12.25%) 01-15-09 11.71 3,215,000(h) 2,572,000 Quebecor Media (U.S. Dollar) Sr Nts 07-15-11 11.13 4,105,000(c) 4,536,025 Radio One Series B 07-01-11 8.88 2,495,000 2,725,788 Sinclair Broadcast Group 03-15-12 8.00 4,820,000 5,024,849 Sun Media (U.S. Dollar) Sr Nts 02-15-13 7.63 1,410,000(c) 1,455,825
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 127 AXP VP - HIGH YIELD BOND FUND
COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) BONDS (CONTINUED) MEDIA (CONT.) Susquehanna Media Sr Sub Nts 05-15-09 8.50% $ 3,150,000 $ 3,307,500 04-15-13 7.38 795,000 809,906 United Artists Theatre 07-01-15 9.30 3,818,203 3,722,748 Von Hoffman 03-15-09 10.25 2,895,000 3,083,175 Von Hoffman Press 05-15-07 10.38 1,300,000 1,300,000 ------------------- Total 78,793,989 - -------------------------------------------------------------------------------------------------------------------------- METALS (1.9%) Euramax Intl Sr Sub Nts 08-15-11 8.50 3,355,000(d) 3,388,550 Fastentech Sr Nts 05-01-11 11.50 500,000(d) 505,000 Jorgensen Earle M 06-01-12 9.75 3,150,000 3,323,250 Koppers Inds 12-01-07 9.88 3,430,000 3,498,600 Peabody Energy Series B 03-15-13 6.88 3,360,000 3,360,000 United States Steel Sr Nts 05-15-10 9.75 2,100,000 2,131,500 ------------------- Total 16,206,900 - -------------------------------------------------------------------------------------------------------------------------- MISCELLANEOUS (1.5%) Alderwoods Group 01-02-09 12.25 5,108,000 5,465,560 Corrections Corp of America Sr Nts 05-01-11 7.50 2,970,000(d) 3,029,400 Rent-Way 06-15-10 11.88 2,560,000(d) 2,649,600 United Rentals Series B 01-15-09 9.25 1,545,000 1,537,275 ------------------- Total 12,681,835 - -------------------------------------------------------------------------------------------------------------------------- MULTI-INDUSTRY (2.4%) Jordan Inds Sr Nts Series D 08-01-07 10.38 3,390,000 1,525,500 SPX Sr Nts 06-15-11 6.25 2,935,000 2,876,300 01-01-13 7.50 1,605,000 1,685,250 Vivendi Universal (U.S. Dollar) Sr Nts 07-15-08 6.25 12,315,000(c),(d) 12,315,000 04-15-10 9.25 1,950,000(c),(d) 2,174,250 ------------------- Total 20,576,300 - -------------------------------------------------------------------------------------------------------------------------- PAPER & PACKAGING (5.8%) Cascades (U.S. Dollar) Sr Nts 02-15-13 7.25% $ 2,255,000(c),(d) $ 2,226,813 Crown Euro Holdings (U.S. Dollar) 03-01-11 9.50 2,755,000(c),(d) 2,934,075 03-01-13 10.88 3,875,000(c),(d) 4,243,124 Crown Paper Sr Sub Nts 09-01-05 11.00 4,785,000(b) 479 Doman Inds (U.S. Dollar) Sr Nts Series B 11-15-07 9.25 3,810,000(b),(c) 685,800 Georgia-Pacific 06-15-15 7.70 2,940,000 2,712,150 Sr Nts 02-01-10 8.88 2,540,000(d) 2,667,000 02-01-13 9.38 3,495,000(d) 3,739,650 Graphic Packaging Intl Sr Nts 08-15-11 8.50 2,520,000(d) 2,633,400 Jefferson Smurfit 06-01-13 7.50 1,705,000 1,726,313 JSG Funding (U.S. Dollar) Sr Nts 10-01-12 9.63 6,400,000(c) 6,911,999 Norampac (U.S. Dollar) Sr Nts 06-01-13 6.75 1,750,000(c),(d) 1,728,125 Norske Skog Canada (U.S. Dollar) 06-15-11 8.63 300,000(c) 305,250 Owens Brockway Glass 02-15-09 8.88 520,000 546,000 05-15-11 7.75 475,000(d) 477,375 11-15-12 8.75 2,220,000 2,331,000 Sr Nts 05-15-13 8.25 3,185,000(d) 3,232,775 Plastipak Holdings 09-01-11 10.75 2,875,000 3,119,375 Smurfit-Stone Container 10-01-12 8.25 3,070,000 3,177,450 Stone Container Sr Nts 07-01-12 8.38 3,260,000 3,455,600 ------------------- Total 48,853,753 - -------------------------------------------------------------------------------------------------------------------------- RESTAURANTS (0.4%) Domino's Sr Sub Nts 07-01-11 8.25 3,605,000(d) 3,785,250 - -------------------------------------------------------------------------------------------------------------------------- RETAIL -- DRUGSTORES (0.6%) Rite Aid 07-01-08 11.25 1,560,000 1,669,200 12-15-08 6.13 500,000(d) 445,000 05-01-10 8.13 3,010,000(d) 3,085,250 ------------------- Total 5,199,450 - -------------------------------------------------------------------------------------------------------------------------- RETAIL -- GENERAL (1.2%) Finlay Enterprises 05-01-08 9.00% $ 495,000 $ 491,288 Flooring America Series B 10-15-07 9.25 1,109,000(b) 111 PCA LLC/PCA Finance Sr Nts 08-01-09 11.88 4,391,000 4,764,234 Sonic Automotive Sr Sub Nts 08-15-13 8.63 1,725,000(d) 1,742,250 United Auto Group 03-15-12 9.63 2,680,000 2,870,950 ------------------- Total 9,868,833 - -------------------------------------------------------------------------------------------------------------------------- RETAIL -- GROCERY (0.1%) Dairy Mart Convenience Stores Sr Sub Nts 03-15-04 10.25 3,850,000(b) 693,000 - -------------------------------------------------------------------------------------------------------------------------- TELECOM EQUIPMENT & SERVICES (3.4%) Alaska Communications Systems Hldgs Sr Nts 08-15-11 9.88 4,000,000(d) 4,020,000 Avaya 04-01-09 11.13 475,000 532,000 Cincinnati Bell 07-15-13 7.25 5,985,000(d) 5,856,861 Fairpoint Communications Sr Sub Nts 05-01-10 12.50 2,475,000 2,623,500 Sr Sub Nts Series B 05-01-08 9.50 2,810,000 2,669,500 Marconi (U.S. Dollar) 04-30-08 8.00 2,200,000(c),(d) 2,013,000 NATG Holdings LLC/Orius Capital Series B 02-01-10 12.75 4,600,000(b) 9,200 Qwest Capital Funding 07-15-05 6.25 1,585,000 1,497,825 Qwest Services 12-15-10 13.50 8,238,000(d) 9,432,510 ------------------- Total 28,654,396 - -------------------------------------------------------------------------------------------------------------------------- UTILITIES -- ELECTRIC (4.8%) AES 05-15-13 8.75 5,370,000(d) 5,477,401 Aquila Sr Nts 11-15-09 7.63 1,535,000 1,274,050 02-01-11 9.95 4,435,000 4,035,850 CMS Energy Sr Nts 07-15-08 8.90 375,000 376,406 08-01-10 7.75 4,790,000(d) 4,622,350
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 128 AXP VP - HIGH YIELD BOND FUND
COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) BONDS (CONTINUED) UTILITIES -- ELECTRIC (CONT.) FirstEnergy Series B 11-15-11 6.45% $ 2,000,000 $ 1,955,120 IPALCO Enterprises 11-14-08 8.38 1,940,000 2,037,000 11-14-11 8.63 3,405,000 3,575,250 Midwest Generation LLC Series A 07-02-09 8.30 2,200,000 2,023,859 PG&E 07-15-08 6.88 2,905,000(d) 2,955,750 PG&E Gas Transmission Sr Nts 06-01-05 7.10 3,910,000 3,910,000 Southern Star Central 08-01-10 8.50 5,000,000(d) 5,100,000 Teco Energy Sr Nts 06-15-10 7.50 3,150,000 3,071,250 ------------------- Total 40,414,286 - -------------------------------------------------------------------------------------------------------------------------- UTILITIES -- NATURAL GAS (5.8%) ANR Pipeline 03-15-10 8.88 4,515,000 4,763,325 Calpine Canada Energy Finance (U.S. Dollar) 05-01-08 8.50 1,060,000(c) 805,600 Colorado Interstate Gas 06-15-05 10.00 1,525,000 1,635,563 Dynegy Holdings 07-15-10 9.88 1,370,000(d) 1,390,550 07-15-13 10.13 1,600,000(d) 1,656,000 El Paso 06-15-12 7.88 5,700,000(d) 5,016,000 El Paso Production Holding 06-01-13 7.75 9,950,000(d) 9,551,999 Northwest Pipeline 12-01-07 6.63 1,455,000 1,447,725 03-01-10 8.13 1,715,000 1,783,600 Sonat 06-01-05 6.88 3,125,000 3,046,875 07-15-11 7.63 2,810,000 2,444,700 Southern Natural Gas 03-15-10 8.88 3,700,000 3,903,500 Transcontinental Gas Pipeline 01-15-08 6.25 1,700,000 1,649,000 Series B 08-15-11 7.00 3,980,000 3,905,375 Sr Nts Series B 07-15-12 8.88 2,030,000 2,187,325 Williams Companies Sr Nts 06-01-10 8.63 3,910,000 4,105,500 ------------------- Total 49,292,637 - -------------------------------------------------------------------------------------------------------------------------- VARIABLE RATE SENIOR LOAN INTERESTS (3.2%)(L) American Commercial Lines LLC Term Loan A 06-30-05 5.13% $ 1,643,110 $ 1,371,997 Term Loan B 06-30-06 5.38 2,377,711 1,997,277 Charter Communications Term Loan B 03-18-08 3.88 2,188,917 2,038,429 Eott Energy Term Loan A 03-31-03 9.00 1,333,333 1,320,000 Term Loan B 03-31-03 10.00 666,667 660,000 Metris Companies Term Loan 06-30-04 12.00 2,214,000 2,147,580 Qwest Term Loan B 06-30-10 6.95 15,720,000(k) 15,012,600 Rural Cellular Term Loan A 04-03-08 6.00 2,450,239 2,339,978 ------------------- Total 26,887,861 - -------------------------------------------------------------------------------------------------------------------------- TOTAL BONDS (Cost: $776,189,698) $ 794,510,089 - --------------------------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE(a) COMMON STOCKS (--%)(b) Davel Communications 272,729 $ 2,182 PFB Telecom Cl B 204,171(g) -- Stellex Aerostructures 268(g) -- - ----------------------------------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $8,533,931) $ 2,182 - -----------------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE(a) PREFERRED STOCKS & OTHER (2.3%) CSC Holdings 11.13% Cm Series M 16,767 $ 1,752,152 11.75% Cm Series H 40,975 4,302,374 Dobson Communications 12.25% Pay-in-kind 750(f) 753,750 13.00% Pay-in-kind 1,771(f) 1,779,855 HMP Equity Holdings 1,840(b) 892,400 Intermedia Communications 13.50% Pay-in-kind Series B 1(f) 9 NTL Warrants 1(b) 2 Pegasus Satellite 12.75% Cm Series B -- 338 SGW Holding Cm Pay-in-kind Series B 20,650(f),(g),(i) -- Cv Series A 9,677(b),(g),(i) -- Warrants 250(b),(g),(i) -- Varde Fund V LP 5,000,000(b),(e),(i) 7,681,056 Wayland Investment Fund LLC 6,000,000(b),(e),(i) 2,255,220 - ----------------------------------------------------------------------------------------------------------------- TOTAL PREFERRED STOCKS & OTHER (Cost: $21,081,427) $ 19,417,156 - -----------------------------------------------------------------------------------------------------------------
ANNUALIZED AMOUNT YIELD ON DATE PAYABLE AT ISSUER OF PURCHASE MATURITY VALUE(a) SHORT-TERM SECURITIES (3.6%) U.S. GOVERNMENT AGENCY (3.0%) Federal Natl Mtge Assn Disc Nts 09-17-03 1.00% $ 5,600,000 $ 5,597,330 11-12-03 1.07 10,000,000 9,979,490 11-26-03 1.07 10,000,000 9,975,440 Total 25,552,260 - -------------------------------------------------------------------------------------------------------------------------- COMMERCIAL PAPER (0.6%) BP Capital Markets 09-02-03 1.10 5,100,000 5,099,377 - -------------------------------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM SECURITIES (Cost: $30,648,583) $ 30,651,637 - -------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $836,453,639)(m) $ 844,581,064 ==========================================================================================================================
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 129 AXP VP - HIGH YIELD BOND FUND 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, 2003, the value of foreign securities represented 8.9% 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) The share amount for Limited Liability Companies (LLC) or Limited Partnerships (LP) represents capital contributions. (f) 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. (g) Negligible market value. (h) 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 maturity. (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, 2003, is as follows:
ACQUISITION SECURITY DATES COST ----------------------------------------------------------------------------------------- AOA Holdings LLC 12.00% Sr Nts 2008 06-02-02 $ 6,500,000 Noveon 13.00% Pay-in-kind Series B 2011 03-10-03 3,740,000 SGW Holding Cm Pay-in-kind Series B 08-12-97 thru 08-26-03 271,392 Cv Series A 08-12-97 100,002 Warrants 08-12-97 78,900 Varde Fund V LP 04-27-00 thru 06-19-00 5,000,000 Veninfotel (U.S. Dollar) 13.00% Cv Pay-in-kind 2005 05-01-02 thru 03-10-03 1,566,810 Wayland Investment Fund LLC 05-17-00 6,671,880
(j) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (k) At Aug. 31, 2003, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $2,105,625. (l) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Aug. 31, 2003. (m) At Aug 31, 2003, the cost of securities for federal income tax purposes was $834,878,765 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 45,353,273 Unrealized depreciation (35,650,974) ----------------------------------------------------------------------------------------- Net unrealized appreciation $ 9,702,299 -----------------------------------------------------------------------------------------
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 130 INVESTMENTS IN SECURITIES AXP VP - INTERNATIONAL FUND AUG. 31, 2003 (PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS)
ISSUER SHARES VALUE(a) COMMON STOCKS (96.1%)(c) BRAZIL (0.8%) ENERGY Petroleo Brasileiro ADR 298,222 $ 6,083,729 - --------------------------------------------------------------------------------- DENMARK (2.4%) BANKS AND SAVINGS & LOANS (0.9%) Danske Bank 354,576 6,500,739 - --------------------------------------------------------------------------------- HEALTH CARE PRODUCTS (0.7%) Novo Nordisk Cl B 147,850 5,246,435 - --------------------------------------------------------------------------------- MISCELLANEOUS (0.8%) A P Moller - Maersk 896 5,881,969 - --------------------------------------------------------------------------------- FINLAND (2.3%) PAPER & PACKAGING (0.8%) Stora Enso 438,876 5,714,644 - --------------------------------------------------------------------------------- TELECOM EQUIPMENT & SERVICES (1.6%) Nokia 705,007 11,548,483 - --------------------------------------------------------------------------------- FRANCE (9.1%) AUTOMOTIVE & RELATED (1.1%) Renault 137,230 8,271,496 - --------------------------------------------------------------------------------- BANKS AND SAVINGS & LOANS (1.9%) BNP Paribas 286,831 14,290,692 - --------------------------------------------------------------------------------- ENERGY (3.0%) TotalFinaElf 142,584 21,869,047 - --------------------------------------------------------------------------------- ENGINEERING & CONSTRUCTION (0.7%) Compagnie de Saint-Gobain 129,364 5,054,801 - --------------------------------------------------------------------------------- INSURANCE (0.7%) AXA 289,244 5,128,609 - --------------------------------------------------------------------------------- MACHINERY (1.7%) Schneider Electric 230,272 12,433,469 - --------------------------------------------------------------------------------- GERMANY (5.7%) CHEMICALS (1.1%) BASF 178,690 8,227,944 - --------------------------------------------------------------------------------- COMPUTER SOFTWARE & SERVICES (0.7%) SAP 45,296 5,435,540 - --------------------------------------------------------------------------------- ELECTRONICS (1.2%) Infineon Technologies 228,448(b) 3,345,845 Siemens 89,093 5,516,776 --------------- Total 8,862,621 - --------------------------------------------------------------------------------- INSURANCE (0.7%) Allianz 59,760 5,328,228 - --------------------------------------------------------------------------------- TEXTILES & APPAREL (0.6%) Adidas-Salomon 55,597 4,655,516 - --------------------------------------------------------------------------------- UTILITIES -- ELECTRIC (0.5%) E.ON 65,948 3,410,242 - --------------------------------------------------------------------------------- UTILITIES -- TELEPHONE (0.9%) Deutsche Telekom 442,391(b) $ 6,314,112 - --------------------------------------------------------------------------------- HONG KONG (1.2%) FINANCIAL SERVICES Cheung Kong 1,146,000 8,889,587 - --------------------------------------------------------------------------------- INDIA (0.7%) HOUSEHOLD PRODUCTS Reckitt Benckiser 271,635 5,112,940 - --------------------------------------------------------------------------------- IRELAND (0.7%) BANKS AND SAVINGS & LOANS Anglo Irish Bank 526,523 5,208,406 - --------------------------------------------------------------------------------- ITALY (2.4%) BANKS AND SAVINGS & LOANS (1.4%) UniCredito Italiano 2,211,279 10,269,436 - --------------------------------------------------------------------------------- ENERGY (1.0%) Eni 495,327 7,482,955 - --------------------------------------------------------------------------------- JAPAN (22.5%) AUTOMOTIVE & RELATED (1.9%) Nissan Motor 550,000 5,906,325 Toyota Motor 290,000 8,003,085 --------------- Total 13,909,410 - --------------------------------------------------------------------------------- BANKS AND SAVINGS & LOANS (1.6%) Mitsubishi Tokyo Financial Group 1,063 6,195,063 Mitsui Fudosan 730,000 5,887,299 --------------- Total 12,082,362 - --------------------------------------------------------------------------------- BUILDING MATERIALS & CONSTRUCTION (0.8%) Asahi Glass 800,000 5,622,215 - --------------------------------------------------------------------------------- CELLULAR TELECOMMUNICATIONS (1.1%) NTT DoCoMo 3,092 7,949,949 - --------------------------------------------------------------------------------- CHEMICALS (1.0%) Shin-Etsu Chemical 65,400 2,567,124 Sumitomo Chemical 1,350,000 4,882,585 --------------- Total 7,449,709 - --------------------------------------------------------------------------------- ELECTRONICS (3.7%) Alps Electric 133,000 2,261,502 Hitachi 538,000 2,932,533 Hitachi Maxell 244,800 3,543,600 Keyence 29,700 6,203,197 Murata Manufacturing 17,200 967,021 Rohm 19,200 2,507,782 Tokyo Electron 120,000 8,453,891 --------------- Total 26,869,526 - --------------------------------------------------------------------------------- ENGINEERING & CONSTRUCTION (0.3%) Daiwa House Inds 278,000 2,165,770 - --------------------------------------------------------------------------------- FINANCIAL SERVICES (1.4%) Nomura Holdings 450,000 $ 6,548,680 Sumitomo Trust & Banking 882,000 3,976,106 --------------- Total 10,524,786 - --------------------------------------------------------------------------------- FURNITURE & APPLIANCES (1.0%) Matsushita Electric Industrial 590,000 7,524,169 - --------------------------------------------------------------------------------- HEALTH CARE PRODUCTS (1.0%) Chugai Pharmaceutical 193,600 2,050,819 Yamanouchi Pharmaceutical 207,200 5,433,939 --------------- Total 7,484,758 - --------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS (0.4%) Kao 146,000 2,752,828 - --------------------------------------------------------------------------------- INDUSTRIAL TRANSPORTATION (1.5%) East Japan Railway 1,900 8,027,939 Yamato Transport 268,000 3,190,367 --------------- Total 11,218,306 - --------------------------------------------------------------------------------- INSURANCE (0.4%) Millea Holdings 291 3,017,741 - --------------------------------------------------------------------------------- MACHINERY (1.1%) Amada 600,000 2,591,704 SMC 48,500 5,395,355 --------------- Total 7,987,059 - --------------------------------------------------------------------------------- MEDIA (1.2%) Dai Nippon Printing 244,000 3,109,599 Dentsu 387 1,701,500 Nippon Telegraph & Telephone 922 4,061,604 --------------- Total 8,872,703 - --------------------------------------------------------------------------------- MULTI-INDUSTRY (1.8%) Canon 193,000 9,279,483 Mitsubishi 500,000 4,225,231 --------------- Total 13,504,714 - --------------------------------------------------------------------------------- PAPER & PACKAGING (0.9%) Nippon Unipac Holding 1,500 6,864,930 - --------------------------------------------------------------------------------- RETAIL -- GENERAL (0.6%) Seven-Eleven Japan 167,000 4,565,735 - --------------------------------------------------------------------------------- UTILITIES -- ELECTRIC (0.8%) Tokyo Electric Power 298,900 5,815,076 - --------------------------------------------------------------------------------- LUXEMBORG (1.5%) METALS Arcelor 868,914 11,209,270 - --------------------------------------------------------------------------------- MEXICO (1.0%) FINANCIAL SERVICES Grupo Financiero BBVA Bancomer Cl B 8,681,260(b) 7,073,736 - ---------------------------------------------------------------------------------
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 131 AXP VP - INTERNATIONAL FUND
ISSUER SHARES VALUE(a) COMMON STOCKS (CONTINUED) NETHERLANDS (3.0%) ENERGY (1.7%) Royal Dutch Petroleum 281,595 $ 12,567,479 - --------------------------------------------------------------------------------- INDUSTRIAL SERVICES (1.3%) Koninklijke (Royal) Electronics 396,140 9,655,268 - --------------------------------------------------------------------------------- SINGAPORE (1.7%) BANKS AND SAVINGS & LOANS (0.9%) United Overseas Bank 927,000 6,716,242 - --------------------------------------------------------------------------------- INDUSTRIAL TRANSPORTATION (0.8%) Keppel 1,896,000 5,678,590 - --------------------------------------------------------------------------------- SOUTH KOREA (2.3%) BEVERAGES & TOBACCO (1.0%) KT&G 465,750 7,708,148 - --------------------------------------------------------------------------------- ELECTRONICS (1.3%) Samsung Electronics 25,310 9,344,239 - --------------------------------------------------------------------------------- SWEDEN (2.6%) BANKS AND SAVINGS & LOANS (0.6%) Skandinaviska Enskilda AB Cl A 475,477 4,549,366 - --------------------------------------------------------------------------------- FURNITURE & APPLIANCES (0.8%) Electrolux Cl B 263,273 5,872,412 - --------------------------------------------------------------------------------- MACHINERY (1.2%) Atlas Copco Cl A 284,780 8,514,926 - --------------------------------------------------------------------------------- SWITZERLAND (6.9%) BANKS AND SAVINGS & LOANS (1.4%) UBS 197,214(b) 10,638,333 - --------------------------------------------------------------------------------- ENGINEERING & CONSTRUCTION (1.1%) Holcim 211,047 8,363,221 - --------------------------------------------------------------------------------- FOOD (1.1%) Nestle 38,727 8,433,640 - --------------------------------------------------------------------------------- HEALTH CARE PRODUCTS (3.2%) Novartis 516,616 18,996,625 Roche Holding 57,212 4,381,127 --------------- Total 23,377,752 - --------------------------------------------------------------------------------- TAIWAN (2.4%) BANKS AND SAVINGS & LOANS (0.8%) Chinatrust Financial Holding 6,966,360 $ 5,669,676 - --------------------------------------------------------------------------------- COMPUTER HARDWARE (0.5%) Hon Hai Precision Inds 882,000 3,640,787 - --------------------------------------------------------------------------------- ELECTRONICS (1.1%) Taiwan Semiconductor Mfg 4,432,040 8,693,327 - --------------------------------------------------------------------------------- UNITED KINGDOM (26.9%) BANKS AND SAVINGS & LOANS (3.8%) HBOS 1,028,309 11,450,758 Royal Bank of Scotland Group 673,106 16,758,153 --------------- Total 28,208,911 - --------------------------------------------------------------------------------- BEVERAGES & TOBACCO (2.1%) British American Tobacco 756,254 7,643,750 Diageo 728,828 7,816,147 --------------- Total 15,459,897 - --------------------------------------------------------------------------------- CELLULAR TELECOMMUNICATIONS (3.1%) Vodafone Group 12,397,108 22,697,568 - --------------------------------------------------------------------------------- ENERGY (2.5%) BP 2,698,603 18,311,935 - --------------------------------------------------------------------------------- FINANCIAL SERVICES (3.2%) HSBC Holdings 1,841,169 23,676,753 - --------------------------------------------------------------------------------- HEALTH CARE PRODUCTS (4.1%) AstraZeneca 197,212 7,580,146 GlaxoSmithKline 1,207,145 23,046,484 --------------- Total 30,626,630 - --------------------------------------------------------------------------------- INSURANCE (1.1%) Prudential 1,124,926 7,766,871 - --------------------------------------------------------------------------------- LEISURE TIME & ENTERTAINMENT (2.1%) Carnival 317,527 10,321,206 Granda 3,331,058 5,400,625 --------------- Total 15,721,831 - --------------------------------------------------------------------------------- LODGING & GAMING (0.4%) William Hill 657,112 3,227,297 - --------------------------------------------------------------------------------- MEDIA (1.9%) British Sky Broadcasting Group 721,270(b) $ 7,552,554 United Business Media 978,498 6,810,054 --------------- Total 14,362,608 - --------------------------------------------------------------------------------- RETAIL -- GROCERY (0.9%) Tesco 1,904,623 6,507,298 - --------------------------------------------------------------------------------- TELECOM EQUIPMENT & SERVICES (1.6%) mm02 14,285,048(b) 11,975,551 - --------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $672,651,750) $ 709,652,948 - --------------------------------------------------------------------------------- ANNUALIZED AMOUNT YIELD ON DATE PAYABLE AT ISSUER OF PURCHASE MATURITY VALUE(a) - ---------------------------------------------------------------------------------------------- SHORT-TERM SECURITIES (3.3%) U.S. GOVERNMENT AGENCY (2.6%) Federal Natl Mtge Assn Disc Nts 10-01-03 0.97% $ 300,000 $ 299,728 11-12-03 1.07 10,300,000 10,278,874 11-17-03 1.00 8,400,000 8,381,554 -------------- Total 18,960,156 - ---------------------------------------------------------------------------------------------- COMMERCIAL PAPER (0.7%) Fairway Finance 09-02-03 1.10 5,100,000(d) 5,099,377 - ---------------------------------------------------------------------------------------------- TOTAL SHORT-TERM SECURITIES (Cost: $24,058,188) $ 24,059,533 - ---------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $696,709,938)(e) $ 733,712,481 ==============================================================================================
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) At Aug. 31, 2003, the cost of securities for federal income tax purposes was $707,502,069 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 47,389,973 Unrealized depreciation (21,179,561) ----------------------------------------------------------------------------------------- Net unrealized appreciation $ 26,210,412 -----------------------------------------------------------------------------------------
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 132 INVESTMENTS IN SECURITIES AXP VP - MANAGED FUND AUG. 31, 2003 (PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS)
ISSUER SHARES VALUE(a) COMMON STOCKS (61.4%) AEROSPACE & DEFENSE (2.1%) Boeing 216,800 $ 8,106,152 General Dynamics 57,000 4,908,270 Lockheed Martin 308,000 15,778,840 Northrop Grumman 151,000 14,417,480 Stellex Aerostructures 290(b),(h) -- United Technologies 100,000 8,025,000 --------------- Total 51,235,742 - ----------------------------------------------------------------------------------------- AIRLINES (--%) Northwest Airlines Cl A 120,000(b) 1,076,400 - ----------------------------------------------------------------------------------------- AUTOMOTIVE & RELATED (0.2%) General Motors 145,000 5,959,500 - ----------------------------------------------------------------------------------------- BANKS AND SAVINGS & LOANS (7.4%) Bank of America 472,400 37,437,699 Bank of New York 450,000 13,239,000 Bank One 260,000 10,262,200 FleetBoston Financial 473,400 14,007,906 Golden West Financial 65,000 5,607,550 Mellon Financial 319,700 10,022,595 PNC Financial Services Group 233,000 11,090,800 U.S. Bancorp 1,045,400 24,985,060 Wachovia 342,000 14,415,300 Washington Mutual 281,000 10,953,380 Wells Fargo 481,800 24,157,452 --------------- Total 176,178,942 - ----------------------------------------------------------------------------------------- BEVERAGES & TOBACCO (2.6%) Altria Group 617,300 25,445,106 Coca-Cola 354,000 15,406,080 Pepsi Bottling Group 315,000 7,597,800 PepsiCo 314,900 14,025,646 --------------- Total 62,474,632 - ----------------------------------------------------------------------------------------- BROKER DEALERS (2.6%) J.P. Morgan Chase 722,000 24,706,840 Merrill Lynch 356,800 19,188,704 Morgan Stanley 405,000 19,759,950 --------------- Total 63,655,494 - ----------------------------------------------------------------------------------------- BUILDING MATERIALS & CONSTRUCTION (0.6%) American Standard 59,700(b) 4,787,343 Masco 198,000 4,908,420 Temple-Inland 110,000 5,475,800 --------------- Total 15,171,563 - ----------------------------------------------------------------------------------------- CABLE (1.2%) Comcast Cl A 277,814(b) 8,264,967 Comcast Special Cl A 188,200(b) 5,337,352 EchoStar Communications Cl A 180,000(b) 6,642,000 NTL 246,700(b) 9,927,208 --------------- Total 30,171,527 - ----------------------------------------------------------------------------------------- CELLULAR TELECOMMUNICATIONS (0.1%) Vodafone Group ADR 198,000(c) $ 3,623,400 - ----------------------------------------------------------------------------------------- CHEMICALS (1.6%) Dow Chemical 581,300 20,072,289 du Pont (EI) de Nemours 177,400 7,936,876 Eastman Chemical 89,300 3,197,833 Lyondell Chemical 370,000 5,291,000 RPM Intl 245,000 3,341,800 --------------- Total 39,839,798 - ----------------------------------------------------------------------------------------- COMPUTER HARDWARE (1.9%) Apple Computer 353,900(b) 8,008,757 Cisco Systems 72,400(b) 1,386,460 Dell 198,800(b) 6,486,844 Hewlett-Packard 1,043,800 20,792,496 Sun Microsystems 2,246,750(b) 8,672,455 --------------- Total 45,347,012 - ----------------------------------------------------------------------------------------- COMPUTER SOFTWARE & SERVICES (1.3%) Affiliated Computer Services Cl A 128,100(b) 6,355,041 Cadence Design Systems 338,300(b) 4,810,626 First Data 76,000 2,918,400 Microsoft 679,400 18,017,688 --------------- Total 32,101,755 - ----------------------------------------------------------------------------------------- ELECTRONICS (1.2%) ChipPAC Cl A 695,800(b) 4,376,582 Micron Technology 360,000(b) 5,169,600 Natl Semiconductor 215,000(b) 6,265,100 Solectron 403,200(b) 2,390,976 Teradyne 177,000(b) 3,155,910 Texas Instruments 290,000 6,916,500 --------------- Total 28,274,668 - ----------------------------------------------------------------------------------------- ENERGY (4.9%) Anadarko Petroleum 88,000 3,828,000 Burlington Resources 153,000 7,408,260 ChevronTexaco 496,000 36,143,520 ConocoPhillips 578,000 32,275,520 Exxon Mobil 959,600 36,176,919 --------------- Total 115,832,219 - ----------------------------------------------------------------------------------------- ENERGY EQUIPMENT & SERVICES (1.0%) Schlumberger 175,000 8,664,250 Transocean 475,000(b) 10,032,000 Weatherford Intl 125,000(b) 4,697,500 --------------- Total 23,393,750 - ----------------------------------------------------------------------------------------- ENVIRONMENTAL SERVICES (0.4%) Allied Waste Inds 882,950(b) 9,765,427 - ----------------------------------------------------------------------------------------- FINANCE COMPANIES (3.0%) Citigroup 1,627,400 70,547,790 - ----------------------------------------------------------------------------------------- FINANCIAL SERVICES (2.8%) Capital One Financial 234,600 $ 12,527,640 Fannie Mae 276,000 17,882,040 Freddie Mac 319,300 16,970,795 MBNA 874,500 20,410,830 --------------- Total 67,791,305 - ----------------------------------------------------------------------------------------- FOOD (0.6%) General Mills 203,200 9,420,352 Kraft Foods Cl A 188,100 5,586,570 --------------- Total 15,006,922 - ----------------------------------------------------------------------------------------- FURNITURE & APPLIANCES (0.1%) Leggett & Platt 145,000 3,358,200 - ----------------------------------------------------------------------------------------- HEALTH CARE PRODUCTS (2.9%) Bristol-Myers Squibb 165,000 4,186,050 Medco Health Solutions 149,441(b) 3,990,073 Merck & Co 428,200 21,547,024 Pfizer 442,000 13,224,640 Schering-Plough 951,800 14,457,842 Wyeth 288,900 12,379,365 --------------- Total 69,784,994 - ----------------------------------------------------------------------------------------- HEALTH CARE SERVICES (1.2%) AmerisourceBergen 40,000 2,328,400 HCA 127,000 4,824,730 Lincare Holdings 105,000(b) 3,636,150 McKesson 157,000 5,140,180 Select Medical 147,600(b) 4,250,880 Tenet Healthcare 545,700(b) 8,758,485 --------------- Total 28,938,825 - ----------------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS (1.3%) Clorox 77,000 3,299,450 Kimberly-Clark 267,000 13,646,370 Procter & Gamble 168,200 14,682,178 --------------- Total 31,627,998 - ----------------------------------------------------------------------------------------- INDUSTRIAL TRANSPORTATION (0.3%) Union Pacific 131,300 8,001,422 - ----------------------------------------------------------------------------------------- INSURANCE (3.9%) ACE 212,800(c) 6,852,160 Allstate 571,600 20,434,700 American Intl Group 389,600 23,208,472 Chubb 211,500 14,369,310 CIGNA 99,500 4,744,160 Hartford Financial Services Group 115,000 6,120,300 Montpelier Re Holdings 85,900(b),(c) 2,633,694 Prudential Financial 171,000 6,226,110 Travelers Property Casualty Cl A 295,000 4,540,050 Travelers Property Casualty Cl B 161,997 2,509,334 --------------- Total 91,638,290 - -----------------------------------------------------------------------------------------
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 133 AXP VP - MANAGED FUND
ISSUER SHARES VALUE(a) COMMON STOCKS (CONTINUED) LEISURE TIME & ENTERTAINMENT (1.3%) AOL Time Warner 432,000(b) $ 7,067,520 Mattel 327,300 6,323,436 Viacom Cl B 384,900 17,320,500 --------------- Total 30,711,456 - ----------------------------------------------------------------------------------------- MACHINERY (0.7%) Caterpillar 99,600 7,154,268 Illinois Tool Works 75,000 5,421,750 SPX 87,100(b) 4,298,385 --------------- Total 16,874,403 - ----------------------------------------------------------------------------------------- MEDIA (2.6%) Cendant 624,200(b) 11,223,116 Disney (Walt) 1,012,300 20,752,150 InterActiveCorp 116,300(b) 4,304,263 Liberty Media Cl A 977,600(b) 11,828,960 McGraw-Hill Companies 50,000 3,050,000 Scripps (EW) Cl A 40,000 3,463,600 Tribune 168,000 7,770,000 --------------- Total 62,392,089 - ----------------------------------------------------------------------------------------- METALS (0.6%) Alcan 90,000(c) 3,273,300 Alcoa 230,000 6,568,800 Phelps Dodge 110,000(b) 5,278,900 --------------- Total 15,121,000 - ----------------------------------------------------------------------------------------- MULTI-INDUSTRY (1.5%) Dover 270,000 10,265,400 General Electric 530,000 15,672,100 ITT Inds 50,000 3,254,000 Tyco Intl 390,000(c) 8,026,200 --------------- Total 37,217,700 - ----------------------------------------------------------------------------------------- PAPER & PACKAGING (1.0%) Avery Dennison 172,900 9,466,275 Bowater 145,000 6,279,950 Intl Paper 135,000 5,474,250 Weyerhaeuser 66,900 3,980,550 --------------- Total 25,201,025 - ----------------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUST (0.6%) Apartment Investment & Management Cl A 90,000 3,469,500 Equity Office Properties Trust 288,000 8,012,160 Starwood Hotels & Resorts Worldwide 96,000 3,247,680 --------------- Total 14,729,340 - ----------------------------------------------------------------------------------------- RESTAURANTS (0.7%) Brinker Intl 196,000(b) 6,703,200 McDonald's 478,200 10,721,244 --------------- Total 17,424,444 - ----------------------------------------------------------------------------------------- RETAIL -- GENERAL (1.9%) BJ's Wholesale Club 150,000(b) $ 3,276,000 Circuit City Stores 419,500 4,375,385 Costco Wholesale 156,000(b) 5,006,040 Dollar General 79,000 1,811,470 Home Depot 315,000 10,130,400 Sonic Automotive 205,000(b) 5,637,500 Staples 106,550(b) 2,624,327 Target 166,300 6,751,780 Wal-Mart Stores 119,000 7,041,230 --------------- Total 46,654,132 - ----------------------------------------------------------------------------------------- RETAIL -- GROCERY (0.5%) Kroger 317,000(b) 6,089,570 Safeway 200,000(b) 4,882,000 --------------- Total 10,971,570 - ----------------------------------------------------------------------------------------- TELECOM EQUIPMENT & SERVICES (0.6%) Motorola 584,300 6,269,539 Nokia ADR 576,600(c) 9,392,814 --------------- Total 15,662,353 - ----------------------------------------------------------------------------------------- UTILITIES -- ELECTRIC (1.6%) Dominion Resources 207,200 12,552,179 DTE Energy 60,000 2,094,600 Exelon 185,000 10,896,500 FirstEnergy 200,000 5,852,000 FPL Group 37,900 2,344,494 Pepco Holdings 267,800 4,651,686 --------------- Total 38,391,459 - ----------------------------------------------------------------------------------------- UTILITIES -- TELEPHONE (2.6%) BellSouth 895,800 22,574,160 Davel Communications 383,987(b) 3,072 KT ADR 365,000(c) 6,880,250 SBC Communications 560,000 12,594,400 Verizon Communications 558,600 19,729,752 --------------- Total 61,781,634 - ----------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $1,404,456,387) $ 1,483,930,180 - ----------------------------------------------------------------------------------------- ISSUER SHARES VALUE(a) PREFERRED STOCKS & OTHER (--%) Intermedia Communications 13.50% Pay-in-kind Series B --(b),(e),(h) $ -- Mexico Value Recovery Series B Rights 2,000,000(b),(c),(h) -- Mexico Value Recovery Series C Rights 2,000,000(b),(c),(h) -- Mexico Value Recovery Series D Rights 2,000,000(b),(c),(h) -- Mexico Value Recovery Series E Rights 2,000,000(b),(c),(h) -- Paxson Communications 13.25% Pay-in-kind --(e) 1,167 Pegasus Satellite 12.75% Cm Series B 1 566 - ----------------------------------------------------------------------------------------- TOTAL PREFERRED STOCKS & OTHER (Cost: $981) $ 1,733 - ----------------------------------------------------------------------------------------- COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) - ----------------------------------------------------------------------------------------- BONDS (32.6%) FOREIGN GOVERNMENT (0.2%) United Mexican States (U.S. Dollar) 03-03-15 6.63% $ 4,940,000(c) $ 4,915,300 - ----------------------------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS & AGENCIES (6.9%) Federal Home Loan Mtge Corp 07-15-13 4.50 30,200,000 28,983,847 Federal Natl Mtge Assn 05-15-08 6.00 22,985,000 25,235,323 U.S. Treasury 07-31-04 2.25 3,650,000(i) 3,683,076 05-31-05 1.25 4,400,000 4,361,500 06-30-05 1.13 28,320,000 27,967,104 11-15-05 5.75 12,800,000 13,811,494 05-15-06 2.00 7,418,000 7,362,365 08-15-06 2.38 3,700,000 3,688,726 08-15-07 3.25 290,000 292,515 08-15-08 3.25 3,150,000 3,122,192 08-15-13 4.25 9,970,000 9,803,302 08-15-22 7.25 2,450,000(i) 3,019,243 02-15-26 6.00 9,200,000(i) 9,949,653 08-15-27 6.38 10,440,000(i) 11,840,432 11-15-28 5.25 7,600,000 7,470,861 02-15-31 5.38 5,848,000(i) 5,973,638 --------------- Total 166,565,271 - ----------------------------------------------------------------------------------------- MORTGAGE-BACKED SECURITIES (13.6%)(f) Federal Home Loan Mtge Corp 09-27-12 3.61 1,700,000 1,683,724 05-01-13 4.50 1,943,535 1,925,049 04-01-17 6.00 9,408,706 9,731,811 08-01-18 5.00 8,487,387 8,535,955 04-01-22 6.50 15,471,016 16,197,885 10-01-22 6.50 1,637,546 1,714,482 08-01-24 8.00 324,857 351,425 12-01-30 5.50 5,899,394 5,898,803 05-01-32 6.50 10,788,994 11,245,572 07-01-32 7.00 4,759,960 5,009,023 08-01-32 6.50 3,540,352 3,666,825 09-01-32 6.50 1,016,721 1,053,041 04-01-33 6.00 3,844,944 3,919,933 05-01-33 5.50 3,976,052 3,961,104 Collateralized Mtge Obligation 10-15-18 5.00 1,700,000 1,719,125 11-15-18 5.00 4,400,000 4,435,750 02-15-33 5.50 2,418,136 2,511,983 Interest Only 02-15-14 9.85 1,200,000(l) 139,612 06-15-18 24.49 1,095,148(l) 66,638 Federal Natl Mtge Assn 06-01-10 6.50 1,517,491 1,604,994 08-01-11 8.50 918,027 997,524 01-01-13 4.92 2,952,976 2,926,708 02-01-13 4.87 7,748,773 7,715,546 06-01-13 4.54 3,196,559 3,097,259 06-01-13 4.85 2,145,198 2,104,516 10-01-13 4.50 2,000,000(k) 1,975,620 04-01-14 5.50 11,872,787 12,173,822 08-01-14 5.50 9,300,000(k) 9,497,625 08-01-16 6.50 1,096,377 1,153,474
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 134 AXP VP - MANAGED FUND
COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) - ----------------------------------------------------------------------------------------- BONDS (CONTINUED) MORTGAGE-BACKED SECURITIES (CONT.) Federal Natl Mtge Assn (cont.) 03-01-17 6.50% $ 2,823,103 $ 2,970,123 08-01-17 6.50 2,825,370 2,972,601 08-01-18 4.50 4,000,000 3,930,625 09-01-18 5.00 16,050,000(k) 16,095,102 04-01-22 8.00 362,492 393,941 08-01-22 7.00 1,094,289 1,155,165 02-01-23 7.00 990,361 1,045,456 04-01-23 8.50 694,362 758,775 07-01-23 5.50 3,509,891(k) 3,541,666 08-01-23 5.50 3,555,656(k) 3,587,845 09-01-23 5.00 2,250,000(k) 2,202,188 09-01-23 5.50 4,100,000(k) 4,137,117 05-01-24 6.00 1,806,633 1,848,065 06-01-24 9.00 389,513 432,129 02-01-25 8.50 370,760 403,013 05-01-25 8.50 341,461 371,165 11-01-25 7.50 780,352 832,935 03-01-26 7.00 1,092,058 1,154,673 07-01-28 5.50 1,479,834 1,482,928 02-01-29 7.00 1,805,882(k) 1,909,425 03-01-29 6.50 221,555 229,737 05-01-29 6.50 4,867,893 5,044,393 07-01-29 7.00 3,306,387(k) 3,487,804 07-01-29 6.00 5,000,000(k) 5,082,810 08-01-29 7.00 1,079,706 1,138,948 05-01-32 7.00 1,358,380 1,430,541 08-01-32 6.50 6,281,098 6,501,587 08-01-32 7.00 820,560 865,132 09-01-32 6.00 7,052,102 7,173,557 09-01-32 6.50 1,089,916 1,128,176 10-01-32 5.50 8,400,000(k) 8,331,750 10-01-32 7.00 2,346,942 2,471,618 11-01-32 7.50 1,448,544 1,539,670 12-01-32 7.00 4,101,090 4,318,950 02-01-33 5.50 2,479,957 2,471,409 02-01-33 6.00 3,235,562 3,289,580 02-01-33 7.00 1,149,740 1,210,817 02-28-33 6.00 5,938,621 6,058,617 03-01-33 5.50 10,770,726 10,747,494 03-31-33 5.50 1,976,273 1,969,059 04-01-33 5.50 4,822,623 4,806,000 04-01-33 6.00 11,458,844 11,676,316 05-01-33 5.50 3,361,441 3,349,798 05-01-33 6.00 16,137,682 16,447,430 07-01-33 5.50 8,304,210 8,281,620 09-01-33 5.00 9,550,000(k) 9,233,704 Collateralized Mtge Obligation 09-25-42 5.00 1,140,000 1,151,917 10-25-42 7.50 1,831,580 1,978,679 12-25-42 4.75 3,000,000 2,993,867 Interest Only 12-25-12 12.05 1,200,000(l) 114,019 Govt Natl Mtge Assn 12-15-08 7.00 2,694,476 2,873,750 03-15-33 7.00 1,528,839 1,616,619 05-15-33 6.00 2,618,556 2,675,465 09-01-33 5.50 7,200,000(k) 7,188,768 --------------- Total 327,119,366 - ----------------------------------------------------------------------------------------- AEROSPACE & DEFENSE (0.1%) Alliant Techsystems 05-15-11 8.50% $ 300,000 $ 324,000 L-3 Communications 06-15-12 7.63 400,000 417,000 Raytheon 04-01-13 5.38 1,450,000 1,430,221 TD Funding Sr Sub Nts 07-15-11 8.38 200,000(d) 208,500 --------------- Total 2,379,721 - ----------------------------------------------------------------------------------------- AIRLINES (--%) Northwest Airlines 02-01-20 6.81 334,400 270,396 - ----------------------------------------------------------------------------------------- AUTOMOTIVE & RELATED (0.2%) DaimlerChrysler North American Holding 06-04-08 4.05 5,200,000 4,978,948 Ford Motor 02-01-29 6.38 370,000 290,517 --------------- Total 5,269,465 - ----------------------------------------------------------------------------------------- BANKS AND SAVINGS & LOANS (0.9%) AmSouth Bank NA Sub Nts 04-01-13 4.85 1,620,000 1,570,509 Bank of America Sub Nts 02-15-10 7.80 4,700,000 5,508,786 Bank United 03-15-09 8.00 3,500,000 4,061,512 Banknorth Group 05-01-08 3.75 700,000 686,567 Credit Suisse First Boston USA 01-15-12 6.50 1,260,000 1,355,451 Fifth Third Bank 08-15-08 3.38 590,000 575,462 Fleet Natl Bank Sub Nts 01-15-09 5.75 560,000 599,738 Wachovia 08-15-08 3.50 1,200,000 1,170,252 Wells Fargo Bank NA Sub Nts 02-01-11 6.45 5,000,000 5,498,785 --------------- Total 21,027,062 - ----------------------------------------------------------------------------------------- BEVERAGES & TOBACCO (0.2%) Diageo Capital (U.S. Dollar) 11-19-07 3.50 3,500,000(c) 3,467,954 03-20-08 3.38 590,000(c) 579,209 --------------- Total 4,047,163 - ----------------------------------------------------------------------------------------- BROKER DEALERS (0.6%) Goldman Sachs Group 01-15-11 6.88% $ 770,000 $ 855,937 04-01-13 5.25 720,000 709,695 07-15-13 4.75 1,170,000 1,108,107 LaBranche Sr Sub Nts 03-02-07 12.00 150,000 163,500 Lehman Brothers Holdings 08-07-08 3.50 2,300,000 2,230,241 Merrill Lynch 11-15-07 4.00 1,200,000 1,199,159 Morgan Stanley 04-15-11 6.75 1,930,000 2,127,688 03-01-13 5.30 2,320,000 2,281,047 Morgan Stanley Capital I Series 2003-IQ4 Cl A1 05-15-40 3.27 2,973,890 2,809,519 Series 2003-T11 Cl A2 06-13-41 4.34 2,420,000 2,396,994 Morgan Stanley, Dean Witter Capital 1 Series 2002-IQ2 Cl A2 12-15-35 5.16 380,000 396,038 Series 2002-IQ2 Cl A3 12-15-35 5.52 670,000 697,530 --------------- Total 16,975,455 - ----------------------------------------------------------------------------------------- BUILDING MATERIALS & CONSTRUCTION (--%) Ryland Group Sr Nts 06-01-08 5.38 730,000 724,525 - ----------------------------------------------------------------------------------------- CABLE (0.4%) Comcast 03-15-11 5.50 5,790,000 5,821,902 Comcast Cable Communications 11-15-08 6.20 2,100,000 2,250,079 Cox Communications 06-01-13 4.63 770,000 713,074 DirectTV Holdings/Finance Sr Nts 03-15-13 8.38 250,000(d) 273,125 Rogers Cable (U.S. Dollar) 06-15-13 6.25 440,000(c) 413,050 --------------- Total 9,471,230 - ----------------------------------------------------------------------------------------- CELLULAR TELECOMMUNICATIONS (0.1%) AT&T Wireless Services Sr Nts 03-01-11 7.88 2,650,000 2,993,331 Nextel Communications Sr Nts 08-01-15 7.38 150,000 150,000 --------------- Total 3,143,331 - -----------------------------------------------------------------------------------------
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 135 AXP VP - MANAGED FUND
COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) - --------------------------------------------------------------------------------------------- BONDS (CONTINUED) CHEMICALS (0.1%) Airgas 10-01-11 9.13% $ 225,000 $ 247,500 Compass Minerals Group 08-15-11 10.00 225,000 248,625 Dow Chemical 02-01-11 6.13 1,205,000 1,251,228 MacDermid 07-15-11 9.13 200,000 220,000 Praxair 06-15-08 2.75 660,000 622,552 Rhodia (U.S. Dollar) 06-01-10 7.63 48,000(c,d) 48,960 06-01-11 8.88 30,000(c,d) 30,150 --------------- Total 2,669,015 - --------------------------------------------------------------------------------------------- ELECTRONICS (--%) Flextronics Intl (U.S. Dollar) Sr Sub Nts 05-15-13 6.50 100,000(c,d) 95,750 - --------------------------------------------------------------------------------------------- ENERGY (0.4%) Amerada Hess 08-15-11 6.65 360,000 387,253 Conoco Funding (U.S. Dollar) 10-15-06 5.45 2,000,000(c) 2,145,968 10-15-11 6.35 4,970,000(c) 5,409,229 Devon Financing 09-30-11 6.88 740,000 817,523 Gulfterra Energy Partner Sr Nts 06-01-10 6.25 215,000(d) 208,550 Newfield Exploration Sr Sub Nts 08-15-12 8.38 550,000 583,000 Westport Resources 11-01-11 8.25 350,000 374,500 XTO Energy Sr Nts 04-15-12 7.50 320,000 344,000 04-15-13 6.25 180,000 180,000 --------------- Total 10,450,023 - --------------------------------------------------------------------------------------------- ENERGY EQUIPMENT & SERVICES (--%) Grant Prideco Escrow 12-15-09 9.00 400,000 421,000 Key Energy Services Sr Nts 03-01-08 8.38 180,000 188,100 05-01-13 6.38 110,000 104,500 Offshore Logistics 06-15-13 6.13 60,000(d) 57,000 --------------- Total 770,600 - --------------------------------------------------------------------------------------------- FINANCE COMPANIES (1.0%) Citigroup Sub Nts 10-01-10 7.25% $ 11,050,000 $ 12,653,399 Ford Motor Credit 10-28-09 7.38 2,500,000 2,574,800 GMAC 09-15-11 6.88 5,540,000 5,542,050 Household Finance 05-15-11 6.75 2,410,000 2,644,493 --------------- Total 23,414,742 - --------------------------------------------------------------------------------------------- FINANCIAL SERVICES (1.8%) Banc of America Commerical Mtge Obligation Series 2002-2 Cl A3 07-11-43 5.12 3,000,000 3,012,402 Bank of America First Union NB Commercial Mtge Series 2001-3 Cl A2 04-11-37 5.46 910,000 939,201 Bear Stearns Commercial Mtge Securities Series 2003-T10 Cl A1 03-13-40 4.00 3,230,851 3,168,883 Capital One Bank Sr Nts 02-01-06 6.88 390,000 418,184 Chase Manhattan Bank-First Union Natl Series 1999-1 C1 A2 08-15-31 7.44 1,750,000 1,997,217 Citibank Credit Card Issuance Trust Series 2003-A3 Cl A3 03-10-10 3.10 2,400,000 2,329,800 Series 2003-A6 Cl A6 05-17-10 2.90 2,000,000 2,009,700 Commerical Mtge Acceptance Series 1998-C1 C1 A2 07-15-31 6.49 3,600,000 3,958,036 Greenwich Capital Commercial Funding Series 2002-C1 Cl A4 01-11-35 4.95 3,505,000 3,447,279 HSBC Holdings (U.S. Dollar) Sub Nts 12-12-12 5.25 2,000,000(c) 1,994,598 LB-UBS Commercial Mtge Trust Series 2002-C4 Cl A2 09-15-26 4.02 3,000,000 2,992,609 Series 2002-C4 Cl A5 09-15-31 4.85 1,000,000 979,132 Series 2003-C3 Cl A2 06-15-36 3.09 3,300,000 3,160,004 MBNA Credit Card Master Note Trust Series 2003-A1 Cl A1 07-15-10 3.30 1,285,000 1,266,278 Nissan Auto Receivables Owner Trust Series 2003-A Cl A4 07-15-08 2.61 550,000 546,433 Residential Asset Securities Series 2002-KS1 Cl A14 11-25-29 5.86% $ 1,800,000 $ 1,865,106 SLM 03-17-08 3.63 1,180,000 1,163,137 TIAA Global Markets 11-15-07 4.13 4,300,000(d) 4,351,767 01-22-08 3.88 730,000(d) 731,672 Toyota Motor Credit 08-01-08 2.88 1,050,000 1,006,520 --------------- Total 41,337,958 - --------------------------------------------------------------------------------------------- FOOD (0.3%) Burns Philp Capital Property (U.S. Dollar) Sr Sub Nts 02-15-11 10.75 75,000(c),(d) 76,875 Chiquita Brands Intl Sr Nts 03-15-09 10.56 200,000 218,000 Del Monte Sr Sub Nts 12-15-12 8.63 150,000(d) 156,750 General Mills 02-15-12 6.00 1,950,000 2,056,899 Kellogg Series B 04-01-11 6.60 2,350,000 2,592,402 Kraft Foods 11-01-11 5.63 1,810,000 1,817,530 Merisant Sr Sub Nts 07-15-13 9.50 155,000(d) 164,300 --------------- Total 7,082,756 - --------------------------------------------------------------------------------------------- HEALTH CARE PRODUCTS (--%) Apogent Technologies Sr Sub Nts 05-15-13 6.50 200,000(d) 196,500 Kinetic Concepts Sr Sub Nts 05-15-13 7.38 100,000(d) 100,000 --------------- Total 296,500 - --------------------------------------------------------------------------------------------- HEALTH CARE SERVICES (--%) AmerisourceBergen 11-15-12 7.25 200,000 202,000 Fisher Scientific Intl Sr Sub Nts 09-01-13 8.00 100,000(d) 102,750 Omnicare Series B 03-15-11 8.13 200,000 212,000 Province Healthcare Sr Sub Nts 06-01-13 7.50 100,000 96,250 --------------- Total 613,000 - ---------------------------------------------------------------------------------------------
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 136 AXP VP - MANAGED FUND
COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) - --------------------------------------------------------------------------------------------- BONDS (CONTINUED) HOME BUILDING (--%) D.R. Horton 07-01-13 5.88% $ 330,000 $ 297,825 NVR Sr Nts 06-15-10 5.00 800,000 748,000 --------------- Total 1,045,825 - --------------------------------------------------------------------------------------------- INDUSTRIAL TRANSPORTATION (0.3%) Burlington North Santa Fe 12-15-05 6.38 240,000 260,445 Canadian Natl Railways (U.S. Dollar) 10-15-11 6.38 1,830,000(c) 1,995,513 CSX 11-01-09 4.88 3,000,000 3,002,729 Interpool 08-01-07 7.35 50,000 48,750 Union Pacific 02-01-08 6.63 450,000 494,480 01-15-11 6.65 1,100,000 1,208,779 04-15-12 6.50 990,000 1,083,280 --------------- Total 8,093,976 - --------------------------------------------------------------------------------------------- INSURANCE (0.4%) Allstate 06-01-33 5.35 560,000 490,151 Sr Nts 02-15-12 6.13 380,000 408,398 ASIF Global Financing 01-17-13 4.90 4,880,000(d) 4,754,682 MassMutual Global Funding II 07-15-08 2.55 1,580,000(d) 1,480,185 Met Life Global Funding I 06-19-08 2.60 2,280,000(d) 2,133,738 Travelers Property Casualty Sr Nts 03-15-13 5.00 1,020,000 998,835 --------------- Total 10,265,989 - --------------------------------------------------------------------------------------------- LEISURE TIME & ENTERTAINMENT (0.4%) AOL Time Warner 05-01-12 6.88 4,735,000 5,146,315 05-01-32 7.70 915,000 1,003,694 Viacom 05-15-11 6.63 2,950,000 3,261,523 --------------- Total 9,411,532 - --------------------------------------------------------------------------------------------- LODGING & GAMING (0.1%) Choctaw Resort Development Enterprises Sr Nts 04-01-09 9.25 250,000 267,813 Coast Hotels & Casino 04-01-09 9.50 175,000 186,375 Hilton Hotels 12-01-12 7.63 150,000 158,625 Mohegan Tribal Gaming Sr Sub Nts 07-15-09 6.38% $ 225,000(d) $ 224,438 Park Place Entertainment Sr Sub Nts 05-15-11 8.13 375,000 404,999 --------------- Total 1,242,250 - --------------------------------------------------------------------------------------------- MACHINERY (--%) Joy Global Series B 03-15-12 8.75 150,000 162,000 - --------------------------------------------------------------------------------------------- MEDIA (0.3%) Belo (AH) 11-01-08 8.00 1,900,000 2,189,047 CanWest Media (U.S. Dollar) Sr Sub Nts 05-15-11 10.63 250,000(c) 278,750 CBD Media/Finance Sr Sub Nts 06-01-11 8.63 350,000(d) 367,500 Corus Entertainment (U.S. Dollar) Sr Sub Nts 03-01-12 8.75 150,000(c) 158,625 Dex Media West/Finance Sr Nts 08-15-10 8.50 100,000(d) 108,750 Sr Sub Nts 08-15-13 9.88 85,000(d) 94,775 Hollinger Intl Publishing Sr Nts 12-15-10 9.00 160,000 166,000 Lamar Media 01-01-13 7.25 500,000(d) 518,750 09-15-07 8.63 240,000 247,800 Morris Publishing Sr Sub Nts 08-01-13 7.00 155,000(d) 155,000 Nexstar Finance LLC 04-01-08 12.00 200,000 224,000 Quebecor Media (U.S. Dollar) Sr Nts 07-15-11 11.13 125,000(c) 138,125 Radio One Series B 07-01-11 8.88 300,000 327,750 Sinclair Broadcast Group 12-15-11 8.75 205,000 220,888 Sun Media (U.S. Dollar) Sr Nts 02-15-13 7.63 250,000(c) 258,125 Susquehanna Media Sr Sub Nts 04-15-13 7.38% $ 80,000 $ 81,500 United Artists Theatre 07-01-15 9.30 1,500,042 1,462,541 --------------- Total 6,997,926 - --------------------------------------------------------------------------------------------- METALS (--%) Euramax Intl Sr Sub Nts 08-15-11 8.50 120,000(d) 121,200 Jorgensen Earle M. 06-01-12 9.75 100,000 105,500 Peabody Energy Series B 03-15-13 6.88 400,000 400,000 --------------- Total 626,700 - --------------------------------------------------------------------------------------------- MULTI-INDUSTRY (0.4%) General Electric 02-01-13 5.00 10,000,000 9,808,800 SPX Sr Nts 06-15-11 6.25 200,000 196,000 Tyco Intl Group (U.S. Dollar) 02-15-11 6.75 470,000(c) 478,225 Vivendi Universal (U.S. Dollar) Sr Nts 07-15-08 6.25 225,000(c),(d) 225,000 --------------- Total 10,708,025 - --------------------------------------------------------------------------------------------- PAPER & PACKAGING (0.6%) Ball 12-15-12 6.88 305,000 308,050 Cascades (U.S. Dollar) Sr Nts 02-15-13 7.25 655,000(c),(d) 646,813 Crown Euro Holdings (U.S. Dollar) 03-01-13 10.88 65,000(c),(d) 71,175 Crown Paper Sr Sub Nts 09-01-05 11.00 1,000,000(b) 100 Domtar (U.S. Dollar) 10-15-11 7.88 260,000(c) 298,490 Georgia-Pacific Sr Nts 02-01-10 8.88 150,000(d) 157,500 Graphic Packaging Intl Sr Nts 08-15-11 8.50 210,000(d) 219,450 Intl Paper 07-08-05 8.13 4,500,000 4,945,995 10-30-12 5.85 100,000 101,907 Norampac (U.S. Dollar) Sr Nts 06-01-13 6.75 260,000(c),(d) 256,750
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 137 AXP VP - MANAGED FUND
COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) - --------------------------------------------------------------------------------------------- BONDS (CONTINUED) PAPER & PACKAGING (CONT.) Packaging Corp of America 08-01-13 5.75% $ 935,000(d) $ 906,810 Stone Container Sr Nts 02-01-08 9.25 175,000 189,000 Weyerhaeuser 03-15-07 6.13 5,250,000 5,662,234 --------------- Total 13,764,274 - --------------------------------------------------------------------------------------------- RETAIL -- GENERAL (0.1%) Flooring America 10-15-07 9.25 1,849,000(b) 185 Sonic Automotive Sr Sub Nts 08-15-13 8.63 70,000(d) 70,700 Wal-Mart CRAVE 401 07-17-06 7.00 1,887,151(d) 2,041,369 William Carter Series B 08-15-11 10.88 150,000 165,000 --------------- Total 2,277,254 - --------------------------------------------------------------------------------------------- RETAIL -- GROCERY (0.1%) Kroger 03-01-08 7.45 2,575,000 2,886,369 - --------------------------------------------------------------------------------------------- TELECOM EQUIPMENT & SERVICES (0.3%) NATG Holdings LLC/Orius Capital Series B 02-01-10 12.75 825,000(b) 1,650 Qwest 11-01-04 7.20 835,000 847,525 Sprint Capital 03-15-12 8.38 1,790,000 2,032,935 Telus (U.S. Dollar) 06-01-07 7.50 1,690,000(c) 1,844,706 Verizon Maryland 03-01-12 6.13 1,260,000 1,338,831 Vodafone Group (U.S. Dollar) 02-15-10 7.75 880,000(c) 1,018,943 --------------- Total 7,084,590 - --------------------------------------------------------------------------------------------- UTILITIES -- ELECTRIC (1.4%) American Electric Power Sr Nts 06-01-15 5.25 1,130,000 1,046,109 Carolina Power & Light 07-15-12 6.50 220,000 236,744 Cincinnati Gas & Electric 09-15-12 5.70 360,000 371,797 Cleveland Electric Illuminating 1st Mtge Series B 05-15-05 9.50 6,000,000 6,039,971 Columbus Southern Power 03-01-13 5.50 890,000(d) 886,097 Commonwealth Edison 02-01-08 3.70 1,560,000 1,547,629 Consolidated Natural Gas Sr Nts 04-15-11 6.85% $ 380,000 $ 423,537 Consumers Energy 1st Mtge 04-15-08 4.25 4,170,000(d) 4,118,834 Dominion Resources Sr Nts Series B 06-30-12 6.25 2,400,000 2,532,151 Sr Nts Series F 08-01-33 5.25 400,000 377,828 Duke Energy 03-05-08 3.75 2,780,000(d) 2,765,544 01-15-12 6.25 3,000,000 3,152,265 Exelon Sr Nts 05-01-11 6.75 340,000 372,698 FirstEnergy Series B 11-15-11 6.45 2,270,000 2,219,061 Florida Power 1st Mtge 03-01-13 4.80 2,460,000 2,410,505 FPL Group Capital 04-11-06 3.25 450,000 452,007 Indianapolis Power & Light 07-01-13 6.30 670,000(d) 666,637 IPALCO Enterprises 11-14-08 8.38 300,000 315,000 11-14-11 8.63 300,000 315,000 Midamerican Energy 01-15-13 5.13 1,250,000 1,241,210 Northern States Power 1st Mtge 08-01-10 4.75 700,000 691,908 Northern States Power - Minnesota 1st Mtge Series B 08-29-12 8.00 730,000 865,965 Ohio Power 02-15-13 5.50 250,000(d) 248,900 PG&E 07-15-08 6.88 250,000(d) 254,368 Public Service Colorado 1st Mtge 03-01-13 4.88 360,000(d) 345,865 Tampa Electric 08-15-07 5.38 210,000 215,151 Teco Energy Sr Nts 06-15-10 7.50 125,000 121,875 Xcel Energy Sr Nts 07-01-08 3.40 560,000(d) 532,426 --------------- Total 34,767,082 - --------------------------------------------------------------------------------------------- UTILITIES -- NATURAL GAS (0.4%) ANR Pipeline 03-15-10 8.88% $ 425,000 $ 448,375 Columbia Energy Group Series E 11-28-10 7.32 5,000,000 5,373,970 El Paso Production Holding 06-01-13 7.75 270,000(d) 259,200 NiSource Finance 07-15-14 5.40 770,000 729,960 Northwest Pipeline 03-01-10 8.13 115,000 119,600 Panhandle Eastern Pipeline 08-15-08 4.80 600,000(d) 597,462 Southern Natural Gas 03-15-10 8.88 525,000 553,875 Transcontinental Gas Pipeline Series B 08-15-11 7.00 425,000 417,031 --------------- Total 8,499,473 - --------------------------------------------------------------------------------------------- UTILITIES -- TELEPHONE (0.9%) AT&T Sr Nts 11-15-06 7.00 2,000,000(g) 2,217,940 British Telecom (U.S. Dollar) 12-15-10 8.38 2,840,000(c) 3,370,162 Citizens Communications 05-15-06 8.50 850,000 962,587 05-15-11 9.25 240,000 295,761 Deutsche Telekom Intl Finance (U.S. Dollar) 07-22-13 5.25 2,640,000(c) 2,531,839 France Telecom (U.S. Dollar) 03-01-11 9.25 370,000(c),(g) 441,665 03-01-31 10.00 330,000(c),(g) 425,369 SBC Communcations 03-15-11 6.25 920,000 994,167 08-15-12 5.88 1,060,000 1,119,985 Verizon Global Funding 06-15-07 6.13 3,270,000 3,544,908 06-15-12 6.88 1,960,000 2,159,250 06-15-32 7.75 400,000 455,996 Verizon New England Sr Nts 09-15-11 6.50 210,000 227,594 Verizon Pennsylvania Cl A 11-15-11 5.65 2,250,000 2,315,228 --------------- Total 21,062,451 - --------------------------------------------------------------------------------------------- TOTAL BONDS (Cost: $798,531,564) $ 787,534,345 - ---------------------------------------------------------------------------------------------
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 138 AXP VP - MANAGED FUND
ANNUALIZED AMOUNT YIELD ON DATE PAYABLE AT ISSUER OF PURCHASE MATURITY VALUE(a) - ------------------------------------------------------------------------------------------------- SHORT-TERM SECURITIES (11.8%)(m) U.S. GOVERNMENT AGENCY (2.9%) Federal Natl Mtge Assn Disc Nts 11-12-03 1.07% $ 25,000,000 $ 24,948,725 11-17-03 1.00 14,600,000 14,567,938 12-01-03 1.07 30,000,000 29,921,250 ---------------- Total 69,437,913 - ------------------------------------------------------------------------------------------------- COMMERCIAL PAPER (8.9%) AEGON Funding 10-06-03 1.03 19,900,000(j) 19,877,945 12-01-03 1.09 13,700,000(j) 13,659,935 Amsterdam Funding 11-06-03 1.06 5,000,000(j) 4,989,746 Bank of Ireland 10-20-03 1.06 36,100,000(j) 36,044,726 BASF 11-24-03 1.07 4,700,000(j) 4,687,847 Charta LLC 09-19-03 1.04% $ 15,000,000(j) $ 14,990,901 Ciesco LLC 11-04-03 1.07 5,000,000(j) 4,990,043 Citigroup 09-02-03 1.10 8,100,000 8,099,010 Citigroup Global Markets 09-15-03 1.03 18,700,000 18,690,905 CRC Funding LLC 09-15-03 1.05 5,100,000(j) 5,097,471 10-10-03 1.04 9,400,000(j) 9,387,994 Delaware Funding 09-02-03 1.03 15,000,000(j) 14,998,283 09-04-03 1.06 8,400,000(j) 8,398,516 Greyhawk Funding LLC 09-08-03 1.05 4,900,000(j) 4,898,571 HBOS Treasury Services 09-18-03 1.03% $ 6,600,000 $ 6,596,199 Receivables Capital 09-18-03 1.06 25,000,000(j) 24,985,277 Windmill Funding 11-07-03 1.06 15,000,000(j) 14,968,792 ---------------- Total 215,362,161 - ------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM SECURITIES (Cost: $284,801,021) $ 284,800,074 - ------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $2,487,789,953)(n) $ 2,556,266,332 =================================================================================================
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 139 AXP VP - MANAGED FUND 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, 2003, the value of foreign securities represented 3.1% 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) 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. (f) 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. These securities may be issued or guaranteed by U.S. government agencies or instrumentalities, or by private issuers, generally originators and investors in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers and special purpose entities. The maturity dates shown represent the original maturity of the underlying obligation. Actual maturity may vary based upon prepayment activity on these obligations. Unless otherwise noted, the coupon rates presented are fixed rates. (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, 2003. (h) Negligible market value. (i) 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 -------------------------------------------------------------------------------------------- PURCHASE CONTRACTS Eurodollar, Sept. 2003, 90-day $ 44,000,000 Eurodollar, Sept. 2007, 90-day 40,750,000 U.S. Treasury Bonds, Dec. 2003, 20-year 20,500,000 SALE CONTRACTS U.S. Treasury Notes, Sept. 2003, 5-year 600,000 U.S. Treasury Notes, Sept. 2003, 10-year 9,400,000 U.S. Treasury Notes, Dec. 2003, 5-year 11,400,000 U.S. Treasury Notes, Dec. 2003, 10-year 24,600,000
(j) 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. (k) At Aug. 31, 2003, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $76,764,966 (l) Interest only represents securities that entitle holders to receive only interest payments on the underlying mortgages. The yield to maturity of an interest only is extremely sensitive to the rate of principal payments on the underlying mortgage assets. A rapid (slow) rate of principal repayments may have an adverse (positive) effect on yield to maturity. The principal amount shown is the notional amount of the underlying mortgages. Interest rate disclosed represents yield based upon the estimated timing of future cash flows as of Aug. 31, 2003. (m) At Aug. 31, 2003, cash or short-term securities were designated to cover open call options on futures written as follows (see Note 8 to the financial statements):
NOTIONAL EXERCISE EXPIRATION ISSUER AMOUNT PRICE DATE VALUE(a) --------------------------------------------------------------------------------------------- U.S Treasury Notes Dec. 2003, 10-year $ 8,900,000 $ 110 Nov. 2003 $ 165,484
At Aug. 31, 2003, cash or short-term securities were designated to cover open put options on futures written as follows (see Note 8 to the financial statements):
NOTIONAL EXERCISE EXPIRATION ISSUER AMOUNT PRICE DATE VALUE(a) --------------------------------------------------------------------------------------------- U.S Treasury Notes Dec. 2003, 10-year $ 8,900,000 $ 110 Nov. 2003 $ 190,515
(n) At Aug. 31, 2003, the cost of securities for federal income tax purposes was $2,514,683,229 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 138,578,688 Unrealized depreciation (96,995,585) -------------------------------------------------------------------------------------------- Net unrealized appreciation $ 41,583,103 --------------------------------------------------------------------------------------------
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 140 INVESTMENTS IN SECURITIES AXP VP - NEW DIMENSIONS FUND AUG. 31, 2003 (PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS)
ISSUER SHARES VALUE(a) COMMON STOCKS (97.4%) AEROSPACE & DEFENSE (0.7%) Northrop Grumman 80,600 $ 7,695,688 United Technologies 186,000 14,926,500 --------------- Total 22,622,188 - ----------------------------------------------------------------------------------------- AIRLINES (1.2%) Southwest Airlines 2,213,225 37,824,015 - ----------------------------------------------------------------------------------------- BANKS AND SAVINGS & LOANS (5.4%) Bank of America 1,500,000 118,875,000 Fifth Third Bancorp 219,600 12,868,560 Wells Fargo 738,300 37,018,362 --------------- Total 168,761,922 - ----------------------------------------------------------------------------------------- BEVERAGES & TOBACCO (3.7%) Altria Group 1,559,900 64,299,078 Anheuser-Busch 363,200 18,719,328 PepsiCo 728,400 32,442,936 --------------- Total 115,461,342 - ----------------------------------------------------------------------------------------- BROKER DEALERS (0.7%) Morgan Stanley 454,180 22,159,442 - ----------------------------------------------------------------------------------------- CELLULAR TELECOMMUNICATIONS (0.5%) Vodafone Group ADR 818,900(c) 14,985,870 - ----------------------------------------------------------------------------------------- CHEMICALS (0.5%) Air Products & Chemicals 348,700 16,500,484 - ----------------------------------------------------------------------------------------- COMPUTER HARDWARE (3.5%) Cisco Systems 2,186,500(b) 41,871,475 Dell 1,664,900(b) 54,325,687 Hewlett-Packard 695,500 13,854,360 --------------- Total 110,051,522 - ----------------------------------------------------------------------------------------- COMPUTER SOFTWARE & SERVICES (8.7%) Electronic Arts 36,400(b) 3,266,900 Intl Business Machines 546,400 44,810,264 Microsoft 4,315,500 114,447,060 Oracle 1,453,200(b) 18,571,896 Paychex 364,200 13,111,200 State Street 551,800 24,251,610 Symantec 368,500(b) 21,162,955 VERITAS Software 910,700(b) 31,400,936 --------------- Total 271,022,821 - ----------------------------------------------------------------------------------------- ELECTRONICS (5.6%) Analog Devices 368,000(b) 15,088,000 Applied Materials 1,470,500(b) 31,762,800 Intel 2,116,100 60,562,782 Maxim Integrated Products 474,200 21,296,322 Texas Instruments 1,876,000 44,742,600 --------------- Total 173,452,504 - ----------------------------------------------------------------------------------------- ENERGY (5.4%) Burlington Resources 141,600 $ 6,856,272 ChevronTexaco 914,600 66,646,902 ConocoPhillips 728,900 40,701,776 Exxon Mobil 1,456,096 54,894,819 --------------- Total 169,099,769 - ----------------------------------------------------------------------------------------- ENERGY EQUIPMENT & SERVICES (1.5%) Schlumberger 785,500 38,890,105 Weatherford Intl 183,800(b) 6,907,204 --------------- Total 45,797,309 - ----------------------------------------------------------------------------------------- FINANCE COMPANIES (3.2%) Citigroup 2,275,933 98,661,696 - ----------------------------------------------------------------------------------------- FINANCIAL SERVICES (2.8%) MBNA 819,225 19,120,712 SLM 1,680,900 67,538,562 --------------- Total 86,659,274 - ----------------------------------------------------------------------------------------- HEALTH CARE PRODUCTS (9.6%) Amgen 1,542,900(b) 101,677,109 Genzyme 158,100(b) 7,454,415 Johnson & Johnson 736,550 36,518,149 Medtronic 1,286,500 63,784,670 Pfizer 2,209,550 66,109,736 Stryker 127,400 9,656,920 Teva Pharmaceutical Inds ADR 238,900(c) 14,026,297 --------------- Total 299,227,296 - ----------------------------------------------------------------------------------------- HEALTH CARE SERVICES (2.6%) UnitedHealth Group 1,639,800 81,055,314 - ----------------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS (0.6%) Procter & Gamble 221,100 19,299,819 - ----------------------------------------------------------------------------------------- INDEXES (1.6%) Nasdaq-100 Index Tracking 1,470,800(b) 49,051,180 - ----------------------------------------------------------------------------------------- INDUSTRIAL TRANSPORTATION (1.3%) Union Pacific 552,100 33,644,974 United Parcel Service Cl B 128,500 8,064,660 --------------- Total 41,709,634 - ----------------------------------------------------------------------------------------- INSURANCE (2.9%) American Intl Group 729,360 43,447,975 Marsh & McLennan 911,200 45,560,000 --------------- Total 89,007,975 - ----------------------------------------------------------------------------------------- LEISURE TIME & ENTERTAINMENT (3.4%) Viacom Cl B 2,379,917 107,096,265 - ----------------------------------------------------------------------------------------- LODGING & GAMING (2.3%) Intl Game Technology 1,238,400 $ 32,000,256 Marriott Intl Cl A 962,700 39,307,041 --------------- Total 71,307,297 - ----------------------------------------------------------------------------------------- MACHINERY (4.6%) Caterpillar 1,097,000 78,797,510 Deere & Co 460,500 26,022,855 Illinois Tool Works 551,500 39,867,935 --------------- Total 144,688,300 - ----------------------------------------------------------------------------------------- MEDIA (5.8%) Amazon.com 645,200(b) 29,963,088 Cendant 1,650,300(b) 29,672,394 eBay 653,400(b) 36,283,302 Gannett 364,386 28,575,150 InterActiveCorp 1,493,100(b) 55,252,231 --------------- Total 179,746,165 - ----------------------------------------------------------------------------------------- METALS (0.6%) Nucor 364,400 18,733,804 - ----------------------------------------------------------------------------------------- MULTI-INDUSTRY (5.6%) 3M 543,900 77,489,433 General Electric 2,735,400 80,885,778 Tyco Intl 731,700(c) 15,058,386 --------------- Total 173,433,597 - ----------------------------------------------------------------------------------------- PAPER & PACKAGING (0.7%) Intl Paper 552,900 22,420,095 - ----------------------------------------------------------------------------------------- RESTAURANTS (0.8%) McDonald's 1,088,200 24,397,444 - ----------------------------------------------------------------------------------------- RETAIL -- GENERAL (8.6%) Best Buy 441,700(b) 22,972,817 Costco Wholesale 367,200(b) 11,783,448 Home Depot 799,050 25,697,448 Target 1,950,200 79,178,120 Wal-Mart Stores 2,174,700 128,676,999 --------------- Total 268,308,832 - ----------------------------------------------------------------------------------------- TELECOM EQUIPMENT & SERVICES (0.4%) Nokia ADR 737,600(c) 12,015,504 - ----------------------------------------------------------------------------------------- UTILITIES -- ELECTRIC (2.1%) Dominion Resources 1,086,000 65,789,880 - ----------------------------------------------------------------------------------------- UTILITIES -- TELEPHONE (0.4%) Verizon Communications 368,700 13,022,484 - ----------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $2,845,305,711) $ 3,033,371,043 - -----------------------------------------------------------------------------------------
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 141 AXP VP - NEW DIMENSIONS FUND
ANNUALIZED AMOUNT YIELD ON DATE PAYABLE AT ISSUER OF PURCHASE MATURITY VALUE(a) - ------------------------------------------------------------------------------------------------- SHORT-TERM SECURITIES (4.0%) U.S. GOVERNMENT AGENCY (2.1%) Federal Natl Mtge Assn Disc Nts 09-17-03 1.02% $ 23,600,000 $ 23,587,295 10-15-03 1.00 15,000,000 14,980,630 10-15-03 1.06 7,800,000 7,789,928 11-26-03 1.06 3,500,000 3,490,828 12-01-03 1.07 15,600,000 15,559,050 ---------------- Total 65,407,731 - ------------------------------------------------------------------------------------------------- COMMERCIAL PAPER (1.9%) BASF AG 11-24-03 1.07% $ 1,000,000(d) $ 997,414 CAFCO LLC 10-02-03 1.07 9,400,000(d) 9,390,500 CRC Funding LLC 10-06-03 1.08 3,600,000(d) 3,596,010 Credit Suisse First Boston 10-21-03 1.06 8,600,000(d) 8,586,579 Edison Asset Securitization 11-03-03 1.07% $ 8,200,000(d) $ 8,183,914 Greyhawk Funding LLC 09-02-03 1.04 9,000,000(d) 8,998,960 10-24-03 1.07 7,800,000(d) 7,786,592 Societe Generale North America 09-02-03 1.05 12,300,000 12,298,566 ---------------- Total 59,838,535 - ------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM SECURITIES (Cost: $125,246,704) $ 125,246,266 - -------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $2,970,552,415)(e) $ 3,158,617,309 =================================================================================================
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, 2003, the value of foreign securities represented 1.8% 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, 2003, the cost of securities for federal income tax purposes was $2,972,796,237 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 376,432,210 Unrealized depreciation (190,611,138) -------------------------------------------------------------------------------------------- Net unrealized appreciation $ 185,821,072 --------------------------------------------------------------------------------------------
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 142 INVESTMENTS IN SECURITIES AXP VP - PARTNERS SMALL CAP VALUE FUND AUG. 31, 2003 (PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS)
ISSUER SHARES VALUE(a) COMMON STOCKS (86.3%) AEROSPACE & DEFENSE (1.0%) Curtiss-Wright 7,000 $ 476,000 Ducommun 12,261(b) 208,314 EDO 4,031 82,716 Herley Inds 5,837(b) 115,281 MTC Technologies 15,154(b) 347,178 REMEC 15,800(b) 143,148 --------------- Total 1,372,637 - --------------------------------------------------------------------------------- AIRLINES (0.2%) AirTran Holdings 24,435(b) 328,162 - --------------------------------------------------------------------------------- AUTOMOTIVE & RELATED (1.2%) American Axle & Mfg Holdings 9,054(b) 294,255 Spartan Motors 8,600 70,004 Strattec Security 7,700(b) 399,630 Superior Inds Intl 2,235 96,708 Wescast Inds Cl A 15,600(c) 440,388 Winnebago Inds 7,500 369,375 --------------- Total 1,670,360 - --------------------------------------------------------------------------------- BANKS AND SAVINGS & LOANS (2.7%) Bank of Hawaii 2,757 93,462 BankUnited Financial Cl A 10,382(b) 225,705 Berkshire Hills Bancorp 2,382 77,177 Brookline Bancorp 15,639 239,120 Community First Bankshares 7,646 216,000 Corus Bankshares 2,574 133,333 Fidelity Bankshares 6,155 146,181 First Community Bancorp 2,848 96,974 First Niagara Financial Group 16,271 244,553 Fulton Financial 7,138 144,188 Greater Bay Bancorp 20,047 412,368 IBERIABANK 4,439 213,072 IndyMac Bancorp 11,019 254,098 Main Street Banks 6,704 164,449 NetBank 4,811 58,165 PFF Bancorp 6,160 247,078 Republic Bancorp 7,112 97,719 Republic Bancshares 4,073 110,500 United Community Banks 2,142 58,905 Washington Federal 5,662 143,588 Westamerica Bancorporation 1,806 79,608 Wintrust Financial 3,926 138,823 --------------- Total 3,595,066 - --------------------------------------------------------------------------------- BROKER DEALERS (1.1%) Affiliated Managers Group 4,204(b) 285,031 E*TRADE Group 41,400(b) 382,122 Instinet Group 184,500 747,225 --------------- Total 1,414,378 - --------------------------------------------------------------------------------- BUILDING MATERIALS & CONSTRUCTION (2.5%) ElkCorp 1,229 $ 29,619 Florida Rock Inds 15,200 789,640 Hughes Supply 10,236 363,378 LNR Property 26,500 1,060,000 Simpson Mfg 17,800(b) 847,280 Standard Pacific 8,502 302,161 --------------- Total 3,392,078 - --------------------------------------------------------------------------------- CHEMICALS (2.0%) Agrium 88,922(c) 1,080,401 Albemarle 22,164 619,484 Cytec Inds 4,081(b) 152,997 Minerals Technologies 3,913 197,802 TETRA Technologies 30,225(b) 680,063 --------------- Total 2,730,747 - --------------------------------------------------------------------------------- COMPUTER HARDWARE (1.0%) Black Box 10,600 499,260 Hutchinson Technology 12,011(b) 379,908 Komag 6,474(b) 93,549 Qualstar 6,800(b) 38,080 Synaptics 10,628(b) 127,536 Varian 4,199(b) 142,766 --------------- Total 1,281,099 - --------------------------------------------------------------------------------- COMPUTER SOFTWARE & SERVICES (5.4%) American Management Systems 17,700(b) 253,995 Brooktrout 43,500(b) 326,250 Comverse Technology 39,500(b) 651,355 Digimarc 1,068(b) 17,622 eFunds 53,800(b) 687,026 Enterasys Networks 38,350(b) 221,280 First Consulting Group 41,000(b) 192,700 Geac Computer 27,900(b),(c) 105,795 Informatica 16,109(b) 143,209 Lionbridge Technologies 29,250(b) 247,163 MAXIMUS 15,900(b) 569,538 Natl Processing 22,200(b) 459,096 NDCHealth 5,344 113,186 NetIQ 11,006(b) 148,141 OPNET Technologies 8,638(b) 103,656 PC-Tel 6,700(b) 76,112 Perot Systems Cl A 50,400(b) 517,104 Pervasive Software 41,600(b) 282,506 Pinnacle Systems 12,915(b) 117,139 PLATO Learning 13,600(b) 96,832 Plumtree Software 15,500(b) 63,550 PRG-Schultz Intl 23,931(b) 150,765 Rimage 7,400(b) 97,680 SeeBeyond Technology 682(b) 1,582 SPSS 8,000(b) 155,120 Sybase 26,600(b) 449,806 Transaction Systems Architects Cl A 37,000(b) $ 526,880 Ulticom 20,200(b) 210,080 VitalWorks 38,700(b) 193,887 --------------- Total 7,179,055 - --------------------------------------------------------------------------------- ELECTRONICS (9.0%) Actel 4,544(b) 133,094 Advanced Power Technology 50,900(b) 410,000 American Power Conversion 12,100 216,832 Analogic 7,500 386,325 Anaren 13,400(b) 160,666 AVX 49,200 687,816 Bel Fuse Cl B 35,100 937,521 Belden 5,326 97,679 C&D Technologies 12,400 247,256 Cable Design Technologies 27,100(b) 203,250 Credence Systems 78,203(b) 898,552 CyberOptics 27,400(b) 271,808 Electro Scientific Inds 50,500(b) 1,024,645 Entegris 31,594(b) 465,064 ESS Technology 22,800(b) 238,488 Fairchild Semiconductor Intl Cl A 15,100(b) 267,270 Fargo Electronics 11,370(b) 131,778 Franklin Electric 2,632 162,000 GrafTech Intl 24,384(b) 195,072 KEMET 99,000(b) 1,213,739 LoJack 2,050(b) 14,412 Nu Horizons Electronics 70,200(b) 520,182 Park Electrochemical 37,400 857,208 ParthusCeva 13,100(b) 104,276 Power Integrations 5,246(b) 168,816 ScanSource 6,445(b) 244,846 Tektronix 22,200(b) 524,808 TriQuint Semiconductor 104,500(b) 581,020 TTM Technologies 60,800(b) 525,920 Universal Electronics 11,400(b) 151,381 --------------- Total 12,041,724 - --------------------------------------------------------------------------------- ENERGY (2.1%) Brown (Tom) 16,400(b) 450,836 Fording Canadian Coal Trust 25,000(c) 504,500 Frontier Oil 8,558 131,879 Houston Exploration 15,300(b) 524,637 Patina Oil & Gas 9,003 333,561 Remington Oil & Gas 19,700(b) 366,223 South Jersey Inds 312 11,965 St. Mary Land & Exploration 16,000 452,800 --------------- Total 2,776,401 - ---------------------------------------------------------------------------------
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 143 AXP VP - PARTNERS SMALL CAP VALUE FUND
ISSUER SHARES VALUE(a) COMMON STOCKS (CONTINUED) ENERGY EQUIPMENT & SERVICES (2.8%) Cimarex Energy 21,826(b) $ 474,716 Evergreen Resources 5,668(b) 316,671 Hydril 7,227(b) 169,112 Oil States Intl 21,000(b) 253,890 Patterson-UTI Energy 6,200(b) 185,008 Precision Drilling 20,300(b,c) 810,172 Range Resources 9,034(b) 60,528 RPC 7,300 87,965 Spinnaker Exploration 6,900(b) 153,318 Unit Corp 27,700(b) 597,212 Willbros Group 61,200(b,c) 615,060 --------------- Total 3,723,652 - --------------------------------------------------------------------------------- ENGINEERING & CONSTRUCTION (0.8%) Avatar Holdings 3,300(b) 102,924 Keith Companies 24,700(b) 280,098 Modtech Holdings 36,400(b) 289,744 Quanta Services 38,900(b) 369,939 --------------- Total 1,042,705 - --------------------------------------------------------------------------------- ENVIRONMENTAL SERVICES (0.2%) TRC Companies 4,568(b) 88,756 Waste Connections 4,075(b) 143,562 --------------- Total 232,318 - --------------------------------------------------------------------------------- FINANCE COMPANIES (0.2%) Financial Federal 8,867(b) 284,985 - --------------------------------------------------------------------------------- FINANCIAL SERVICES (1.4%) American Capital Strategies 4,714 117,001 BOK Financial 5,712 226,309 Irwin Financial 7,941 178,752 Jones Lang LaSalle 24,200(b) 438,020 Sky Financial Group 8,325 194,972 SWS Group 15,000 283,500 Westwood Holdings Group 22,850 422,497 --------------- Total 1,861,051 - --------------------------------------------------------------------------------- FOOD (0.2%) American Italian Pasta Cl A 4,405(b) 183,776 Corn Products Intl 1,915 60,380 Sensient Technologies 2,382 49,546 --------------- Total 293,702 - --------------------------------------------------------------------------------- FURNITURE & APPLIANCES (1.0%) Aaron Rents 12,356 259,229 American Woodmark 3,994 203,454 Natuzzi ADR 49,600(c) 479,136 Thomas Inds 16,600 461,480 --------------- Total 1,403,299 - --------------------------------------------------------------------------------- HEALTH CARE PRODUCTS (3.4%) Antigenics 35,800(b) $ 506,212 Coherent 27,300(b) 715,260 Datascope 8,500 252,450 Endo Pharmaceuticals Holdings 29,800(b) 505,110 Kos Pharmaceuticals 5,161(b) 194,570 Lexicon Genetics 32,600(b) 170,824 Ocular Sciences 17,200(b) 388,892 Perrigo 48,017 674,639 Serologicals 21,800(b) 303,020 Sybron Dental Specialists 4,381(b) 104,881 Theragenics 84,000(b) 373,800 United Therapeutics 5,451(b) 124,937 Viasys Healthcare 7,900(b) 174,590 Vital Signs 4,500 123,795 --------------- Total 4,612,980 - --------------------------------------------------------------------------------- HEALTH CARE SERVICES (3.9%) Applera - Cerera Genomics Group 33,400(b) 340,012 Centene 16,650(b) 466,200 Covance 25,042(b) 522,126 Cross Country Healthcare 50,900(b) 794,040 Curative Health Services 15,700(b) 269,255 Healthcare Services Group 14,300(b) 236,665 Horizon Health 25,400(b) 477,520 Molina Healthcare 9,100(b) 216,125 Option Care 26,200(b) 305,230 PAREXEL Intl 44,400(b) 748,584 Priority Healthcare Cl B 6,152(b) 129,930 Radiologix 37,123(b) 135,499 RehabCare Group 10,700(b) 169,060 U.S. Physical Therapy 13,200(b) 198,660 United Surgical Partners Intl 8,544(b) 221,802 --------------- Total 5,230,708 - --------------------------------------------------------------------------------- HOME BUILDING (0.8%) Alexander & Baldwin 28,900 846,192 Beazer Homes USA 2,911(b) 241,962 --------------- Total 1,088,154 - --------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS (1.6%) Elizabeth Arden 16,108(b) 271,903 Helen of Troy 668(b) 14,495 JAKKS Pacific 43,400(b) 520,800 Jarden 9,413(b) 309,405 Nu Skin Enterprises Cl A 38,200 431,660 Oneida 13,605 75,644 Tupperware 6,215 101,491 Yankee Candle 19,600(b) 459,620 --------------- Total 2,185,018 - --------------------------------------------------------------------------------- INDUSTRIAL TRANSPORTATION (1.1%) ArvinMeritor 8,420 $ 158,464 Heartland Express 9,365(b) 239,276 Landstar System 3,262(b) 201,298 OMI 32,567(b) 232,854 SCS Transportation 5,480(b) 82,200 Wabash Natl 34,990(b) 624,572 --------------- Total 1,538,664 - --------------------------------------------------------------------------------- INSURANCE (7.1%) AMERIGROUP 7,500(b) 305,400 AmerUs Group 15,265 491,991 Arch Capital Group 8,000(b,c) 272,000 Argonaut Group 13,500 183,600 CNA Surety 43,200 412,560 E-L Financial 3,400(c) 692,427 Erie Indemnity Cl A 7,700 313,621 FBL Financial Group Cl A 23,200 562,832 Hooper Holmes 24,800 168,392 Horace Mann Educators 7,153 107,867 Hub Intl 7,998 140,605 Leucadia Natl 15,100 576,065 MONY Group 29,200 818,768 Ohio Casualty 15,700(b) 216,660 Phoenix Companies 69,283 735,785 PMA Capital Cl A 10,500 131,565 ProAssurance 29,159(b) 750,553 Protective Life 6,600 191,994 Reinsurance Group of America 9,000 340,380 RLI 11,532 380,095 Scottish Annuity & Life Holdings 22,800(c) 523,944 Selective Insurance Group 2,664 78,375 StanCorp Financial Group 3,469 196,658 U.S.I. Holdings 9,443(b) 111,900 United Fire & Casualty 7,400 291,856 Universal American Financial 69,700(b) 526,235 --------------- Total 9,522,128 - --------------------------------------------------------------------------------- INVESTMENT COMPANIES (1.7%) iShares Russell 2000 Value Index Fund 7,338(b) 1,032,897 SFK Pulp Fund 200,000(c) 1,304,834 --------------- Total 2,337,731 - --------------------------------------------------------------------------------- LEISURE TIME & ENTERTAINMENT (2.3%) Arctic Cat 22,000 480,480 Argosy Gaming 7,248(b) 175,039 Callaway Golf 40,500 608,715 Concord Camera 16,305(b) 195,334 Multimedia Games 17,000(b) 460,530 Radica Games 8,900(b,c) 64,436 RC2 28,600(b) 489,060 Thor Inds 5,300 287,207 Topps 33,594 300,330 --------------- Total 3,061,131 - ---------------------------------------------------------------------------------
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 144 AXP VP - PARTNERS SMALL CAP VALUE FUND
ISSUER SHARES VALUE(a) COMMON STOCKS (CONTINUED) LODGING & GAMING (0.7%) Dover Downs Gaming & Entertainment 42,500 $ 398,650 GTECH Holdings 5,684 240,888 Station Casinos 9,820 292,145 --------------- Total 931,683 - --------------------------------------------------------------------------------- MACHINERY (3.9%) Alamo Group 45,100 654,852 Blyth 13,700 384,696 Denison Intl ADR 24,000(b,c) 528,000 FLIR Systems 2,566(b) 67,383 Harsco 6,948 270,903 IDEX 3,247 125,919 Lincoln Electric Holdings 25,300 574,715 Lydall 24,307(b) 279,531 Semitool 71,000(b) 632,468 SureBeam Cl A 12,656(b) 17,465 Terex 12,253(b) 283,044 Trinity Inds 53,300 1,402,855 --------------- Total 5,221,831 - --------------------------------------------------------------------------------- MEDIA (0.7%) ADVO 4,213(b) 186,004 Courier 2,400 125,400 Harland (John H) 2,702 68,063 Journal Register 8,497(b) 152,351 Macrovision 8,000(b) 148,960 Regent Communications 28,450(b) 169,278 Saga Communications Cl A 3,763(b) 71,309 --------------- Total 921,365 - --------------------------------------------------------------------------------- METALS (2.2%) Apex Silver Mines 28,700(b,c) 453,460 ASA 8,800(c) 381,920 Commercial Metals 21,318 421,670 Eldorado Gold 61,400(c) 161,482 Gibraltar Steel 1,700 37,910 Goldcorp 45,200(c) 588,504 Kinross Gold 40,650(b,c) 304,875 Maverick Tube 7,602(b) 129,158 Mueller Inds 8,759(b) 252,960 Schnitzer Steel Inds Cl A 9,231 228,929 --------------- Total 2,960,868 - --------------------------------------------------------------------------------- MULTI-INDUSTRY (3.0%) Actuant Cl A 4,729(b) $ 243,496 AMN Healthcare Services 67,300(b) 1,110,450 Baldor Electric 5,867 130,365 Brascan Cl A 30,800(c) 799,876 Cornell Companies 8,800(b) 140,008 Imation 2,232 80,240 Lancaster Colony 4,500 178,965 Medical Staffing Network Holdings 21,550(b) 183,175 On Assignment 57,100(b) 274,080 SOURCECORP 4,700(b) 123,986 Wesco Financial 280 88,483 Woodward Governor 12,800 625,664 --------------- Total 3,978,788 - --------------------------------------------------------------------------------- PAPER & PACKAGING (0.9%) Caraustar Inds 47,015(b) 401,038 TimberWest Forest 89,400(b,c) 759,435 --------------- Total 1,160,473 - --------------------------------------------------------------------------------- PRECIOUS METALS (1.9%) Glamis Gold 48,700(b) 687,157 Gold Fields ADR 25,000(c) 335,500 Golden Star Resources 62,000(b) 236,220 Hecla Mining 100,100(b) 670,670 Meridian Gold 35,700(b) 466,242 Minefinders 21,600(b,c) 155,952 --------------- Total 2,551,741 - --------------------------------------------------------------------------------- REAL ESTATE (3.0%) American Financial Realty Trust 10,579 152,338 Catellus Development 37,200(b) 872,340 Forest City Enterprises Cl A 31,500 1,341,900 Trammell Crow 83,100(b) 976,425 Wellsford Real Properties 41,000(b) 680,600 --------------- Total 4,023,603 - --------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUST (1.8%) Brandywine Realty Trust 5,982 145,961 Commercial Net Lease Realty 11,340 190,852 Correctional Properties Trust 10,708 272,947 Entertainment Properties Trust 6,739 210,594 Healthcare Realty Trust 6,193 196,070 Highwoods Properties 3,517 80,715 Lexington Corporate Properties Trust 7,183 132,598 MFA Mtge Investments 8,577 89,973 Parkway Properties 5,746 257,708 Post Properties 2,977 83,951 Prentiss Properties Trust 9,395 282,320 RAIT Investment Trust 8,550 202,464 Summit Properties 14,693 323,540 --------------- Total 2,469,693 - --------------------------------------------------------------------------------- RESTAURANTS (1.0%) Buca 24,066(b) $ 163,143 CEC Entertainment 6,500(b) 254,930 Jack in the Box 16,700(b) 353,873 Ryan's Family Steak Houses 32,500(b) 434,850 Total Entertainment Restaurant 7,207(b) 78,917 --------------- Total 1,285,713 - --------------------------------------------------------------------------------- RETAIL -- GENERAL (3.3%) AnnTaylor Stores 15,016(b) 510,544 Big Lots 23,700(b) 433,710 Brookstone 6,563(b) 185,405 Buckle 21,000(b) 419,790 Cato Cl A 16,600 394,250 Department 56 12,100(b) 168,190 Dress Barn 48,900(b) 630,810 Electronics Boutique Holdings 6,600(b) 219,318 Fossil 16,420(b) 460,745 Galyan's Trading 4,800(b) 51,989 Gymboree 4,987(b) 81,238 Linens 'N Things 5,227(b) 151,060 Pier 1 Imports 4,179 85,962 School Specialty 4,948(b) 139,286 Too 8,637(b) 140,092 Tuesday Morning 4,261(b) 147,516 Wilsons The Leather Experts 6,525(b) 52,331 Zale 2,391(b) 121,821 --------------- Total 4,394,057 - --------------------------------------------------------------------------------- TELECOM EQUIPMENT & SERVICES (2.6%) Andrew Corp 9,731(b) 120,470 Catapult Communications 33,500(b) 445,885 CIENA 30,000(b) 195,000 CommScope 120,400(b) 1,237,711 ECtel 50,700(b),(c) 308,307 Scientific-Atlanta 7,500 255,000 Somera Communications 92,400(b) 154,308 Sycamore Networks 22,000(b) 92,840 West 24,662(b) 611,618 --------------- Total 3,421,139 - --------------------------------------------------------------------------------- TEXTILES & APPAREL (2.8%) Charlotte Russe Holdings 7,011(b) 86,235 Cutter & Buck 37,300(b) 235,363 Kellwood 7,283 265,902 Madden (Steven) 20,300(b) 424,270 Maxwell Shoes Cl A 97,850(b) 1,456,008 Oakley 27,700(b) 301,653 Oshkosh B'Gosh Cl A 11,829 284,961 Polo Ralph Lauren 18,000 527,400 Tropical Sportswear Intl 23,620(b) 95,189 Unifi 7,997(b) 55,099 --------------- Total 3,732,080 - ---------------------------------------------------------------------------------
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 145 AXP VP - PARTNERS SMALL CAP VALUE FUND
ISSUER SHARES VALUE(a) COMMON STOCKS (CONTINUED) UTILITIES -- ELECTRIC (0.5%) Avista 2,561 $ 39,875 Central Vermont Public Service 882 19,034 CH Energy Group 1,365 60,401 El Paso Electric 23,057(b) 257,085 Empire District Electric 2,653 57,199 MGE Energy 299 9,500 PNM Resources 7,835 214,679 --------------- Total 657,773 - --------------------------------------------------------------------------------- UTILITIES -- NATURAL GAS (0.8%) AGL Resources 4,162 115,828 Atmos Energy 4,037 98,301 Energen 2,225 79,388 Northwest Natural Gas 9,870 281,196 Piedmont Natural Gas 1,894 73,298 Syntel 12,100 308,176 WGL Holdings 5,090 136,870 --------------- Total 1,093,057 - --------------------------------------------------------------------------------- UTILITIES -- TELEPHONE (0.3%) Lightbridge 40,900(b) 425,769 - --------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $102,126,965) $ 115,429,566 - --------------------------------------------------------------------------------- PREFERRED STOCK (0.1%) United Fire & Casualty Insurance 6.38% Cv Series A 4,500 $ 132,750 - --------------------------------------------------------------------------------- TOTAL PREFERRED STOCK (Cost: $113,500) $ 132,750 - --------------------------------------------------------------------------------- ANNUALIZED AMOUNT YIELD ON DATE PAYABLE AT ISSUER OF PURCHASE MATURITY VALUE(a) - ---------------------------------------------------------------------------------------------- SHORT-TERM SECURITIES (14.1%) COMMERCIAL PAPER Citigroup 09-02-03 1.10% $ 46,700,000 $ 6,699,181 General Electric Capital 09-02-03 1.09 6,100,000 6,099,261 Fairway Finance 09-02-03 1.10 2,000,000(d) 1,999,756 Morgan Stanley 09-02-03 1.10 4,100,000 4,099,499 - ---------------------------------------------------------------------------------------------- TOTAL SHORT-TERM SECURITIES (Cost: $18,898,273) $ 18,897,697 - ---------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $121,138,738)(e) $ 134,460,013 ==============================================================================================
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, 2003, the value of foreign securities represented 8.7% 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, 2003, the cost of securities for federal income tax purposes was $121,632,986 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 15,637,098 Unrealized depreciation (2,810,071) -------------------------------------------------------------------------- Net unrealized appreciation $ 12,827,027 --------------------------------------------------------------------------
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 146 INVESTMENTS IN SECURITIES AXP VP - S&P 500 INDEX FUND AUG. 31, 2003 (PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS)
ISSUER SHARES VALUE(a) COMMON STOCKS (98.3%) AEROSPACE & DEFENSE (1.9%) Boeing 15,226 $ 569,300 General Dynamics 3,576 307,929 Goodrich 2,118 55,132 Honeywell Intl 15,527 450,128 Lockheed Martin 8,154 417,729 Northrop Grumman 3,310 316,039 Raytheon 7,438 238,462 Rockwell Automation 3,354 91,296 Rockwell Collins 3,222 87,155 United Technologies 8,471 679,798 --------------- Total 3,212,968 - ---------------------------------------------------------------------------------- AIRLINES (0.2%) Delta Air Lines 2,224 28,623 Southwest Airlines 14,104 241,037 --------------- Total 269,660 - ---------------------------------------------------------------------------------- AUTOMOTIVE & RELATED (1.0%) AutoNation 5,090(b) 95,641 Cooper Tire & Rubber 1,324 23,832 Cummins 743 37,031 Dana 2,689 41,464 Delphi 10,133 91,805 Eaton 1,351 126,508 Ford Motor 33,137 383,064 General Motors 10,152 417,247 Genuine Parts 3,146 100,735 Goodyear Tire & Rubber 3,165 22,535 Johnson Controls 1,618 160,182 Navistar Intl 1,229(b) 54,973 PACCAR 2,100 178,920 Snap-On 1,051 31,005 Visteon 2,359 15,923 --------------- Total 1,780,865 - ---------------------------------------------------------------------------------- BANKS AND SAVINGS & LOANS (7.0%) AmSouth Bancorporation 6,358 136,951 Bank of America 27,118 2,149,101 Bank of New York 13,964 410,821 Bank One 20,678 816,161 BB&T 10,095 368,669 Charter One Financial 4,068 126,108 Comerica 3,167 156,260 Fifth Third Bancorp 10,396 609,206 First Tennessee Natl 2,286 94,526 FleetBoston Financial 19,040 563,394 Golden West Financial 2,768 238,795 Huntington Bancshares 4,132 82,640 KeyCorp 7,655 208,063 Marshall & Ilsley 4,100 127,100 Mellon Financial 7,810 244,844 Natl City 11,075 350,856 North Fork Bancorporation 2,831 95,603 Northern Trust 3,987 168,411 PNC Financial Services Group 5,124 243,902 Regions Financial 4,020 $ 141,745 SouthTrust 6,158 178,520 SunTrust Banks 5,069 309,868 Synovus Financial 5,497 134,402 U.S. Bancorp 34,749 830,501 Union Planters 3,596 114,712 Wachovia 24,350 1,026,353 Washington Mutual 16,843 656,540 Wells Fargo 30,323 1,520,394 Zions Bancorp 1,628 90,680 --------------- Total 12,195,126 - ---------------------------------------------------------------------------------- BEVERAGES & TOBACCO (3.7%) Altria Group 36,651 1,510,754 Anheuser-Busch 15,107 778,615 Brown-Forman Cl B 1,087 85,916 Coca-Cola 44,594 1,940,731 Coca-Cola Enterprises 8,180 151,248 Coors (Adolph) Cl B 650 35,848 Fortune Brands 2,629 148,276 Pepsi Bottling Group 4,964 119,732 PepsiCo 31,108 1,385,550 RJ Reynolds Tobacco Holdings 1,520 51,908 UST 3,025 101,035 --------------- Total 6,309,613 - ---------------------------------------------------------------------------------- BROKER DEALERS (2.3%) Bear Stearns Companies 1,792 125,404 Franklin Resources 4,585 198,026 J.P. Morgan Chase 36,767 1,258,166 Lehman Brothers Holdings 4,389 288,489 Merrill Lynch 16,847 906,032 Morgan Stanley 19,687 960,529 Schwab (Charles) 24,446 265,484 --------------- Total 4,002,130 - ---------------------------------------------------------------------------------- BUILDING MATERIALS & CONSTRUCTION (0.4%) American Standard 1,299(b) 104,167 Fluor 1,469 54,118 Louisiana-Pacific 1,890(b) 24,854 Masco 8,629 213,912 Plum Creek Timber 3,309 86,530 Sherwin-Williams 2,657 79,923 Temple-Inland 975 48,536 --------------- Total 612,040 - ---------------------------------------------------------------------------------- CABLE (0.7%) Comcast Cl A 40,708(b) 1,211,063 - ---------------------------------------------------------------------------------- CELLULAR TELECOMMUNICATIONS (0.5%) AT&T Wireless Services 49,087(b) 423,130 Nextel Communications Cl A 18,614(b) 358,878 --------------- Total 782,008 - ---------------------------------------------------------------------------------- CHEMICALS (1.4%) Air Products & Chemicals 4,115 $ 194,722 Dow Chemical 16,573 572,266 du Pont (EI) de Nemours 18,032 806,751 Eastman Chemical 1,397 50,027 Ecolab 4,754 122,606 Engelhard 2,277 63,915 Great Lakes Chemical 905 19,177 Hercules 1,985(b) 22,232 Pall 2,217 55,425 PPG Inds 3,073 168,738 Praxair 2,944 187,886 Rohm & Haas 4,019 146,010 Sigma-Aldrich 1,278 69,971 --------------- Total 2,479,726 - ---------------------------------------------------------------------------------- COMPUTER HARDWARE (3.7%) Apple Computer 6,617(b) 149,743 Cisco Systems 127,046(b) 2,432,931 Dell 46,491(b) 1,517,001 EMC 39,586(b) 504,722 Gateway 5,857(b) 33,795 Hewlett-Packard 55,253 1,100,640 Lexmark Intl Cl A 2,311(b) 154,929 Network Appliance 6,139(b) 137,575 NVIDIA 2,871(b) 52,137 Sun Microsystems 58,461(b) 225,659 --------------- Total 6,309,132 - ---------------------------------------------------------------------------------- COMPUTER SOFTWARE & SERVICES (7.7%) Adobe Systems 4,193 162,814 Autodesk 2,016 36,086 Automatic Data Processing 10,832 432,305 BMC Software 4,221(b) 61,964 Citrix Systems 2,985(b) 61,461 Computer Associates Intl 10,462 268,141 Computer Sciences 3,384(b) 144,057 Compuware 6,834(b) 40,662 Comverse Technology 3,398(b) 56,033 Concord EFS 8,804(b) 121,935 Convergys 2,677(b) 48,186 Deluxe 998 42,615 Electronic Arts 2,637(b) 236,671 Electronic Data Systems 8,660 189,048 Equifax 2,550 58,497 First Data 13,538 519,859 Fiserv 3,501(b) 136,014 Intl Business Machines 31,278(d) 2,565,109 Intuit 3,716(b) 168,409 Mercury Interactive 1,537(b) 67,459 Microsoft 194,334 5,153,738 NCR 1,722(b) 49,955 Novell 6,664(b) 33,520 Oracle 94,910(b) 1,212,950 Parametric Technology 4,783(b) 15,927 Paychex 6,819 245,484 PeopleSoft 6,675(b) 120,818
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 147 AXP VP - S&P 500 INDEX FUND
ISSUER SHARES VALUE(a) COMMON STOCKS (CONTINUED) COMPUTER SOFTWARE & SERVICES (CONT.) QLogic 1,694(b) $ 83,040 SABRE Holdings Cl A 2,586 58,495 Siebel Systems 8,854(b) 89,248 State Street 6,022 264,667 SunGard Data Systems 5,152(b) 145,286 Symantec 2,670(b) 153,338 Unisys 5,923(b) 76,881 VERITAS Software 7,508(b) 258,876 --------------- Total 13,379,548 - ---------------------------------------------------------------------------------- ELECTRONICS (4.6%) Advanced Micro Devices 6,250(b) 70,563 Agilent Technologies 8,533(b) 207,523 Altera 6,929(b) 155,487 American Power Conversion 3,557 63,741 Analog Devices 6,613(b) 271,133 Applied Materials 30,006(b) 648,130 Applied Micro Circuits 5,498(b) 31,943 Broadcom Cl A 5,069(b) 139,296 Intel 118,277 3,385,087 Jabil Circuit 3,595(b) 101,199 KLA-Tencor 3,443(b) 204,376 Linear Technology 5,668 233,635 LSI Logic 6,789(b) 78,345 Maxim Integrated Products 5,875 263,846 Micron Technology 11,019(b) 158,233 Millipore 870(b) 39,498 Molex 3,453 101,587 Natl Semiconductor 3,304(b) 96,279 Novellus Systems 2,710(b) 108,292 PMC-Sierra 3,054(b) 43,550 Power-One 1,493(b) 17,632 Sanmina-SCI 9,228(b) 82,867 Solectron 15,015(b) 89,039 Symbol Technologies 4,172 56,489 Tektronix 1,533(b) 36,240 Teradyne 3,344(b) 59,624 Texas Instruments 31,303 746,577 Thomas & Betts 1,049(b) 17,917 Xerox 14,150(b) 152,537 Xilinx 6,111(b) 188,463 --------------- Total 7,849,128 - ---------------------------------------------------------------------------------- ENERGY (4.9%) Amerada Hess 1,624 76,572 Anadarko Petroleum 4,517 196,490 Apache 2,927 201,904 Ashland 1,229 40,631 Burlington Resources 3,631 175,813 ChevronTexaco 19,342 1,409,451 ConocoPhillips 12,289 686,218 Devon Energy 4,183 216,470 EOG Resources 2,074 87,938 Exxon Mobil 120,908 4,558,231 Kerr-McGee 1,821 80,033 Marathon Oil 5,610 156,463 Occidental Petroleum 6,871 235,881 Sunoco 1,383 56,191 Unocal 4,667 142,904 --------------- Total 8,321,190 - ---------------------------------------------------------------------------------- ENERGY EQUIPMENT & SERVICES (0.8%) Baker Hughes 6,091 $ 203,805 BJ Services 2,854(b) 106,654 Halliburton 7,917 191,433 Nabors Inds 2,635(b),(c) 105,795 Noble 2,412(b) 87,266 Rowan Companies 1,685(b) 42,192 Schlumberger 10,546 522,133 Transocean 5,789(b) 122,264 --------------- Total 1,381,542 - ---------------------------------------------------------------------------------- ENVIRONMENTAL SERVICES (0.2%) Allied Waste Inds 3,782(b) 41,829 Waste Management 10,710 284,993 --------------- Total 326,822 - ---------------------------------------------------------------------------------- FINANCE COMPANIES (2.4%) Citigroup 93,191 4,039,830 MGIC Investment 1,783 100,508 --------------- Total 4,140,338 - ---------------------------------------------------------------------------------- FINANCIAL SERVICES (3.2%) American Express 23,484 1,057,954 Capital One Financial 4,100 218,940 Countrywide Financial 2,367 160,601 Fannie Mae 17,743 1,149,569 Federated Investors Cl B 1,970 57,839 Freddie Mac 12,444 661,399 Goldman Sachs Group 8,505 752,607 H&R Block 3,241 142,928 Janus Capital Group 4,323 74,658 MBNA 23,128 539,808 Moody's 2,685 139,244 Providian Financial 5,244(b) 53,751 SLM 8,187 328,954 T. Rowe Price Group 2,210 93,925 --------------- Total 5,432,177 - ---------------------------------------------------------------------------------- FOOD (1.4%) Archer-Daniels-Midland 11,665 161,794 Campbell Soup 7,434 179,903 ConAgra Foods 9,722 213,884 General Mills 6,694 310,333 Heinz (HJ) 6,357(d) 205,713 Hershey Foods 2,375 166,013 Kellogg 7,361 246,814 McCormick 2,510 67,017 Sara Lee 14,065 266,954 Sysco 11,757 369,874 Wrigley (Wm) Jr 4,079 216,391 --------------- Total 2,404,690 - ---------------------------------------------------------------------------------- FURNITURE & APPLIANCES (0.2%) Black & Decker 1,402 59,978 Leggett & Platt 3,487(d) 80,759 Maytag 1,417 38,401 Stanley Works 1,541 46,646 Whirlpool 1,239 86,209 --------------- Total 311,993 - ---------------------------------------------------------------------------------- HEALTH CARE PRODUCTS (11.6%) Abbott Laboratories 28,254 $ 1,138,636 Allergan 2,360 187,526 Amgen 22,800(b) 1,502,520 Applera-Applied Biosystems Group 3,782 82,296 Bard (CR) 936 62,712 Bausch & Lomb 958 40,389 Baxter Intl 10,814 303,873 Becton, Dickinson & Co 4,610 168,449 Biogen 2,686(b) 105,990 Biomet 4,673 138,928 Boston Scientific 7,426(b) 446,303 Bristol-Myers Squibb 35,091 890,259 Chiron 3,376(b) 171,568 Forest Laboratories 6,570(b) 308,790 Genzyme 3,907(b) 184,215 Guidant 5,599 281,070 Johnson & Johnson 53,745 2,664,677 King Pharmaceuticals 4,355(b) 61,188 Lilly (Eli) 20,338 1,353,087 Medco Health Solutions 4,896(b) 130,711 MedImmune 4,560(b) 159,007 Medtronic 22,079 1,094,677 Merck & Co 40,589 2,042,438 PerkinElmer 2,276 37,645 Pfizer 142,908 4,275,808 Schering-Plough 26,595 403,978 St. Jude Medical 3,092(b) 161,000 Stryker 3,594 272,425 Waters 2,246(b) 68,503 Watson Pharmaceuticals 1,932(b) 79,405 Wyeth 24,043 1,030,243 Zimmer Holdings 3,553(b) 183,832 --------------- Total 20,032,148 - ---------------------------------------------------------------------------------- HEALTH CARE SERVICES (1.6%) Aetna 2,747 156,579 AmerisourceBergen 1,999 116,362 Anthem 2,499(b) 182,927 Cardinal Health 8,083 460,165 HCA 9,267 352,053 Health Management Associates Cl A 4,322 96,294 Humana 2,921(b) 51,380 IMS Health 4,395 85,571 Manor Care 1,624 44,822 McKesson 5,244 171,689 Quest Diagnostics 1,900(b) 114,000 Quintiles Transnational 2,135(b) 30,402 Tenet Healthcare 8,449(b) 135,606 UnitedHealth Group 10,734 530,583 WellPoint Health Networks 2,632(b) 205,296 --------------- Total 2,733,729 - ---------------------------------------------------------------------------------- HOME BUILDING (0.1%) Centex 1,126 84,923 KB HOME 853 48,809 Pulte Homes 1,100 73,216 --------------- Total 206,948 - ----------------------------------------------------------------------------------
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 148 AXP VP - S&P 500 INDEX FUND
ISSUER SHARES VALUE(a) COMMON STOCKS (CONTINUED) HOUSEHOLD PRODUCTS (2.5%) Alberto-Culver Cl B 1,057 $ 60,334 Avon Products 4,248 272,297 Clorox 3,924 168,143 Colgate-Palmolive 9,740 538,427 Gillette 18,486 600,056 Intl Flavors/Fragrances 1,696 53,424 Kimberly-Clark 9,214 470,928 Newell Rubbermaid 4,960 117,800 Procter & Gamble 23,442 2,046,251 Tupperware 1,050 17,147 --------------- Total 4,344,807 - ---------------------------------------------------------------------------------- INDUSTRIAL SERVICES (0.1%) Cintas 3,083 123,104 - ---------------------------------------------------------------------------------- INDUSTRIAL TRANSPORTATION (1.4%) Burlington Northern Santa Fe 6,749 191,334 CSX 3,866 124,794 FedEx 5,404 362,608 Norfolk Southern 7,056 134,346 Ryder System 1,127 33,844 Union Pacific 4,602 280,446 United Parcel Service Cl B 20,373 1,278,610 --------------- Total 2,405,982 - ---------------------------------------------------------------------------------- INSURANCE (4.6%) ACE 4,794(c) 154,367 AFLAC 9,299 297,661 Allstate 12,746 455,670 Ambac Financial Group 1,920 124,646 American Intl Group 47,215 2,812,599 Aon 5,646 125,341 Chubb 3,356 228,007 CIGNA 2,540 121,107 Cincinnati Financial 2,911 117,459 Hartford Financial Services Group 5,063 269,453 Jefferson-Pilot 2,568 113,685 John Hancock Financial Services 5,232 159,733 Lincoln Natl 3,210 113,698 Loews 3,358 138,215 Marsh & McLennan 9,693 484,650 MBIA 2,601 146,852 MetLife 13,763 391,144 Principal Financial Group 5,928 186,495 Progressive 3,943 278,928 Prudential Financial 9,952 362,352 SAFECO 2,503 90,258 St. Paul Companies 4,115 143,037 Torchmark 2,095 84,554 Travelers Property Casualty Cl B 18,215 282,150 UnumProvident 5,201 73,334 XL Capital Cl A 2,470(c) 187,103 --------------- Total 7,942,498 - ---------------------------------------------------------------------------------- LEISURE TIME & ENTERTAINMENT (2.2%) AOL Time Warner 81,403(b) 1,331,753 Brunswick 1,627 43,896 Carnival 11,377 393,530 Harley-Davidson 5,476 $ 272,814 Hasbro 3,135 57,998 Mattel 7,959 153,768 Viacom Cl B 31,786 1,430,371 --------------- Total 3,684,130 - ---------------------------------------------------------------------------------- LODGING & GAMING (0.3%) Harrah's Entertainment 1,982 82,094 Hilton Hotels 6,822 104,240 Intl Game Technology 6,186 159,846 Marriott Intl Cl A 4,194 171,242 --------------- Total 517,422 - ---------------------------------------------------------------------------------- MACHINERY (0.8%) Caterpillar 6,240 448,220 Deere & Co 4,336 245,027 Illinois Tool Works 5,570 402,655 Ingersoll-Rand Cl A 3,069(c) 182,667 Parker-Hannifin 2,140 105,973 Thermo Electron 2,919(b) 66,524 --------------- Total 1,451,066 - ---------------------------------------------------------------------------------- MEDIA (2.6%) American Greetings Cl A 1,185(b) 21,923 Cendant 18,436(b) 331,479 Clear Channel Communications 11,117(b) 501,599 Disney (Walt) 36,989 758,275 Donnelley (RR) & Sons 2,043 51,361 Dow Jones 1,469 62,388 eBay 11,504(b) 638,817 Gannett 4,869 381,827 Interpublic Group of Companies 7,053 106,853 Knight-Ridder 1,478 100,297 McGraw-Hill Companies 3,456 210,816 Meredith 897 42,536 Monster Worldwide 2,023(b) 55,268 New York Times Cl A 2,730 121,185 Omnicom Group 3,415 266,712 Tribune 5,596 258,815 Univision Communications Cl A 4,152(b) 155,658 Yahoo! 10,920(b) 364,728 --------------- Total 4,430,537 - ---------------------------------------------------------------------------------- METALS (0.4%) Alcoa 15,303 437,053 Allegheny Technologies 1,463 10,899 Freeport McMoRan Cooper & Gold Cl B 3,027 90,810 Nucor 1,409 72,437 Phelps Dodge 1,610(b) 77,264 United States Steel 1,858 34,206 Worthington Inds 1,555 23,481 --------------- Total 746,150 - ---------------------------------------------------------------------------------- MULTI-INDUSTRY (5.3%) 3M 7,078 1,008,403 Apollo Group Cl A 3,173(b) 203,294 Cooper Inds Cl A 1,685 85,750 Crane 1,067 27,305 Danaher 2,763 213,442 Dover 3,665 139,343 Eastman Kodak 5,183 $ 144,554 Emerson Electric 7,622 425,003 General Electric 180,911 5,349,538 Grainger (WW) 1,656 82,518 ITT Inds 1,661 108,098 Monsanto 4,726(d) 121,505 Pitney Bowes 4,236 165,204 Robert Half Intl 3,077(b) 68,432 Textron 2,443 109,935 Tyco Intl 36,148(c) 743,926 Vulcan Materials 1,837 76,070 --------------- Total 9,072,320 - ---------------------------------------------------------------------------------- PAPER & PACKAGING (0.7%) Avery Dennison 1,994 109,172 Ball 1,029 54,331 Bemis 954 43,188 Boise Cascade 1,049 28,585 Georgia-Pacific 4,526 104,867 Intl Paper 8,676 351,812 MeadWestvaco 3,623 91,843 Pactiv 2,878(b) 57,790 Sealed Air 1,520(b) 73,963 Weyerhaueser 3,969 236,156 --------------- Total 1,151,707 - ---------------------------------------------------------------------------------- PRECIOUS METALS (0.2%) Newmont Mining 7,279 285,774 - ---------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUST (0.5%) Apartment Investment & Management Cl A 1,690 65,150 Equity Office Properties Trust 7,289 202,780 Equity Residential 4,929 143,335 ProLogis 3,235 91,195 Simon Property Group 3,419 146,025 Starwood Hotels & Resorts Worldwide 3,635 122,972 --------------- Total 771,457 - ---------------------------------------------------------------------------------- RESTAURANTS (0.6%) Darden Restaurants 3,043 66,337 McDonald's 23,030 516,333 Starbucks 7,071(b) 201,099 Wendy's Intl 2,052(d) 64,741 Yum! Brands 5,296(b) 157,026 --------------- Total 1,005,536 - ---------------------------------------------------------------------------------- RETAIL -- DRUGSTORES (0.5%) CVS 7,136 232,634 Walgreen 18,554 604,303 --------------- Total 836,937 - ---------------------------------------------------------------------------------- RETAIL -- GENERAL (6.5%) AutoZone 1,616(b) 148,349 Bed Bath & Beyond 5,345(b) 229,995 Best Buy 5,832(b) 303,322 Big Lots 2,112(b) 38,650 Circuit City Stores 3,744 39,050 Costco Wholesale 8,259(b) 265,031 Dillard's Cl A 1,530 23,149
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 149 AXP VP - S&P 500 INDEX FUND
ISSUER SHARES VALUE(a) COMMON STOCKS (CONTINUED) RETAIL -- GENERAL (CONT.) Dollar General 6,036 $ 138,405 Family Dollar Stores 3,112 124,853 Federated Dept Stores 3,388 148,056 Gap 16,120 336,747 Home Depot 41,597 1,337,760 Kohl's 6,132(b) 387,849 Limited Brands 9,453 160,323 Lowe's Companies 14,115 774,349 May Dept Stores 5,224 144,078 Nordstrom 2,454 63,976 Office Depot 5,589(b),(d) 101,943 Penney (JC) 4,868 103,299 RadioShack 3,048 92,659 Sears, Roebuck & Co 5,123 225,514 Staples 8,818(b) 217,187 Target 16,485 669,291 Tiffany 2,625 102,165 TJX Companies 9,238 200,095 Toys "R" Us 3,847(b) 52,396 Wal-Mart Stores 79,263(d) 4,689,993 --------------- Total 11,118,484 - ---------------------------------------------------------------------------------- RETAIL -- GROCERY (0.4%) Albertson's 6,642 139,615 Kroger 13,654(b) 262,293 Safeway 7,993(b) 195,109 SUPERVALU 2,419 58,298 Winn-Dixie Stores 2,539 25,517 --------------- Total 680,832 - ---------------------------------------------------------------------------------- TELECOM EQUIPMENT & SERVICES (1.1%) ADC Telecommunications 14,511(b) 36,858 Andrew Corp 2,759(b) 34,156 Avaya 6,899(b) 72,095 CIENA 8,525(b) 55,413 Corning 22,914(b) 189,041 JDS Uniphase 25,883(b) 89,038 Lucent Technologies 74,878(b) 143,017 Motorola 41,919 449,791 QUALCOMM 14,291 589,931 Scientific-Atlanta 2,690 91,460 Tellabs 7,453(b) 48,668 --------------- Total 1,799,468 - ---------------------------------------------------------------------------------- TEXTILES & APPAREL (0.3%) Jones Apparel Group 2,312 $ 71,418 Liz Claiborne 1,942 66,941 Nike Cl B 4,781 272,421 Reebok Intl 1,063 35,557 VF 1,948 78,115 --------------- Total 524,452 - ---------------------------------------------------------------------------------- UTILITIES -- ELECTRIC (2.3%) AES 11,083(b) 71,818 Allegheny Energy 2,267 21,015 Ameren 2,920 124,100 American Electric Power 7,155 202,558 Calpine 6,895(b) 38,888 CenterPoint Energy 5,526 46,916 Cinergy 3,187 109,059 CMS Energy 2,606 17,382 Consolidated Edison 4,044 159,859 Constellation Energy Group 2,986 108,661 Dominion Resources 5,631 341,126 DTE Energy 3,035 105,952 Duke Energy 16,309 278,558 Edison Intl 5,891(b) 111,104 Entergy 4,092 214,625 Exelon 5,872(d) 345,860 FirstEnergy 5,386 157,594 FPL Group 3,317 205,190 PG&E 7,411(b) 164,302 Pinnacle West Capital 1,642 56,321 PPL 3,053 121,113 Progress Energy 4,361 176,577 Public Service Enterprise Group 4,088 173,086 Southern Co 13,064 370,755 TECO Energy 3,190 37,738 TXU 5,830 128,260 Xcel Energy 7,217 105,729 --------------- Total 3,994,146 - ---------------------------------------------------------------------------------- UTILITIES -- NATURAL GAS (0.4%) Dynegy Cl A 6,742(b) 20,833 El Paso 10,843 79,588 KeySpan 2,842 95,918 Kinder Morgan 2,211 117,736 Nicor 788 26,784 NiSource 4,753 $ 91,923 Peoples Energy 648 26,017 Sempra Energy 3,751 111,592 Williams Companies 9,365 85,502 --------------- Total 655,893 - ---------------------------------------------------------------------------------- UTILITIES -- TELEPHONE (3.0%) ALLTEL 5,634 258,037 AT&T 14,234 317,418 BellSouth 33,437 842,612 CenturyTel 2,585 89,855 Citizens Communications 5,128(b) 58,459 Qwest Communications Intl 30,682(b) 136,535 SBC Communications 60,142 1,352,594 Sprint (FON Group) 16,280 240,456 Sprint (PCS Group) 18,520(b) 96,119 Verizon Communications 49,783 1,758,335 --------------- Total 5,150,420 - ---------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $181,098,340) $ 168,377,706 - ---------------------------------------------------------------------------------- ANNUALIZED AMOUNT YIELD ON DATE PAYABLE AT ISSUER OF PURCHASE MATURITY VALUE(a) - ---------------------------------------------------------------------------------------------- SHORT-TERM SECURITIES (1.6%) U.S. GOVERNMENT AGENCY (1.1%) Federal Natl Mtge Assn Disc Nts 09-24-03 0.98% $ 500,000 $ 499,667 10-09-03 1.04 500,000 499,398 10-15-03 1.00 500,000 499,354 11-19-03 1.05 500,000 498,874 -------------- Total 1,997,293 - ---------------------------------------------------------------------------------------------- COMMERCIAL PAPER (0.5%) Danske 11-12-03 1.07 800,000 798,217 - ---------------------------------------------------------------------------------------------- TOTAL SHORT-TERM SECURITIES (Cost: $2,795,502) $ 2,795,510 - ---------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $183,893,842)(e) $ 171,173,216 ==============================================================================================
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, 2003, the value of foreign securities represented 0.8% 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 E-Mini S&P 500 Index, Sept. 2003 63
(e) At Aug. 31, 2003, the cost of securities for federal income tax purposes was $184,166,312 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 8,222,891 Unrealized depreciation (21,215,987) ------------------------------------------------------------------ Net unrealized depreciation $ (12,993,096) ------------------------------------------------------------------
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 150 INVESTMENTS IN SECURITIES AXP VP - SHORT DURATION U.S. GOVERNMENT FUND AUG. 31, 2003 (PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS)
COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) - -------------------------------------------------------------------------------------------- BONDS (100.5%) MORTGAGE-BACKED SECURITIES (48.3%)(f) Federal Home Loan Mtge Corp 08-01-10 7.50% $ 2,066,348 $ 2,198,429 03-01-12 7.50 1,630,651 1,736,654 09-27-12 3.61 1,900,000 1,881,809 06-01-13 4.50 1,221,653 1,210,033 06-01-14 6.50 273,110 286,601 06-01-15 7.50 3,734,094 3,976,803 04-01-17 6.00 879,566 909,771 04-01-17 6.50 3,568,799 3,767,487 07-01-17 6.50 3,946,829 4,140,098 03-01-18 6.00 1,056,516 1,098,819 11-01-32 7.00 972,645 1,023,538 Collateralized Mtge Obligation 12-15-08 2.00 2,880,417 2,814,955 12-15-08 6.00 687,309 724,287 04-15-12 5.00 4,646,930 4,786,988 02-15-14 5.50 2,000,000 2,035,732 03-15-15 5.50 5,000,000 5,165,553 01-15-16 5.00 1,500,000 1,554,375 02-15-16 5.00 1,500,000 1,546,875 08-15-16 4.00 2,300,000 2,271,250 10-15-16 4.00 1,491,961 1,466,129 04-15-22 5.50 4,000,000 4,071,764 02-25-42 6.00 2,000,000 2,092,578 Interest Only 02-15-14 9.85 1,900,000(e) 221,053 06-15-18 22.32 1,835,006(e) 111,657 11-15-25 0.95 29,538(e) 21 Federal Natl Mtge Assn 10-01-09 7.11 483,380 533,574 08-01-10 7.50 1,302,064 1,390,135 01-01-13 5.00 2,490,887 2,545,366 04-01-13 5.50 2,630,385 2,732,480 05-01-13 5.00 2,332,351 2,363,698 05-01-13 5.50 2,157,763 2,224,071 08-01-13 4.50 2,379,697 2,392,711 10-01-13 4.50 3,500,000(b) 3,457,335 04-01-14 6.00 729,610 757,740 06-01-14 6.50 55,713 58,654 07-01-14 6.00 334,477 347,111 08-01-14 5.50 5,500,000(b) 5,616,874 12-01-14 5.50 441,047 452,230 01-01-17 6.00 1,389,172 1,439,605 03-01-17 6.50 590,999 625,799 06-01-17 6.00 2,862,103 2,965,891 06-01-17 6.50 7,847,690 8,256,635 06-01-17 7.00 1,290,373 1,371,665 07-01-17 6.00 3,135,682 3,270,477 08-01-17 5.50 4,051,086 4,180,785 08-01-17 6.00 5,479,435 5,698,773 11-01-17 5.50 6,458,201 6,621,425 02-01-18 5.50 5,532,907 5,665,062 02-01-18 6.00 922,834 956,299 03-01-18 5.50% $ 2,054,255 $ 2,098,964 05-01-18 5.50 2,735,925 2,808,444 03-01-29 6.50 4,885,392 5,108,895 09-01-31 7.00 1,566,457 1,669,306 09-01-31 7.50 1,492,805 1,589,742 10-01-31 7.00 365,651 385,507 09-01-32 6.00 881,513 896,695 09-01-32 6.50 1,631,239 1,688,501 09-01-32 7.00 767,469 808,239 11-01-32 7.00 2,256,508 2,376,380 02-01-33 4.66 975,537(b),(i) 979,349 02-01-33 4.87 3,724,292(i) 3,838,453 02-01-33 7.00 911,294 966,538 03-01-33 4.93 1,866,555(i) 1,916,099 04-01-33 4.38 2,453,858(i) 2,437,761 04-01-33 4.59 2,942,879(i) 3,031,135 04-01-33 4.65 3,880,662(i) 3,948,574 07-01-33 4.46 3,984,381 4,025,907 07-01-33 4.97 976,004(i) 1,006,185 09-01-33 4.24 3,600,000(b),(i) 3,526,875 Collateralized Mtge Obligation 01-25-12 5.50 966,733 979,353 03-25-13 4.50 1,906,716 1,932,281 10-25-13 5.00 4,650,606 4,801,198 08-25-22 5.00 3,000,000 3,062,308 11-25-32 5.00 3,677,435 3,741,796 06-25-33 5.35 987,025(i) 1,021,879 05-25-42 5.30 5,000,000 5,158,836 07-25-42 5.50 5,000,000 5,192,308 08-25-42 4.70 3,485,000 3,505,923 10-25-42 7.50 1,373,685 1,484,010 12-25-42 4.75 3,000,000 2,993,867 Interest Only 12-25-12 12.05 1,900,000(e) 180,530 Govt Natl Mtge Assn 04-15-13 7.00 618,098 659,500 08-15-13 6.00 4,000,000 4,174,989 09-15-14 6.00 2,777,534 2,896,071 05-15-16 6.00 2,801,444 2,916,078 03-15-18 7.00 2,002,282 2,135,902 07-15-32 7.50 861,663 916,739 03-15-33 6.00 1,326,884 1,355,721 03-15-33 7.00 3,276,084 3,464,183 06-15-33 7.00 1,940,808 2,070,599 Collateralized Mtge Obligation 10-16-13 4.54 864,438 900,088 10-16-17 2.21 1,984,454 1,906,687 07-16-18 2.58 1,965,852 1,924,371 10-16-20 2.93 2,820,813 2,777,805 06-16-21 2.75 2,469,727 2,431,888 04-16-31 6.00 4,000,000 4,247,966 --------------- Total 230,958,079 - -------------------------------------------------------------------------------------------- GOVERNMENT OBLIGATIONS & AGENCIES (47.0%) Federal Farm Credit Bank 10-01-04 2.38% $ 4,000,000 $ 4,037,360 12-15-04 3.88 2,000,000 2,055,170 03-15-06 2.50 12,000,000 12,008,352 06-19-07 6.75 2,440,000 2,738,478 Federal Home Loan Bank 02-15-05 4.38 5,000,000 5,188,005 08-15-05 3.00 5,000,000 5,089,185 08-15-05 6.88 3,000,000 3,279,711 11-25-05 2.00 3,000,000 2,963,537 Federal Home Loan Mtge Corp 04-15-06 2.38 15,000,000 14,899,875 Housing Urban Development 08-01-05 2.99 3,000,000 3,052,101 Student Loan Mtge Assn 09-30-04 3.63 5,000,000 5,115,850 03-15-05 2.00 4,500,000 4,507,425 03-15-06 5.25 4,000,000 4,271,568 12-15-32 2.25 5,000,000 4,990,350 03-15-33 2.16 5,200,000 5,192,689 U.S. Treasury 11-15-04 5.88 4,000,000(g) 4,211,092 12-31-04 1.75 5,000,000 5,016,795 02-15-05 7.50 10,000,000 10,847,660 05-15-05 6.75 32,350,000(g) 35,054,266 05-31-05 1.25 2,200,000 2,180,750 06-30-05 1.13 4,400,000(g) 4,345,172 08-15-05 10.75 13,560,000 15,847,721 11-15-05 5.75 5,000,000 5,395,115 02-15-06 5.63 15,500,000(g) 16,772,085 05-15-06 2.00 9,540,000 9,468,450 05-15-06 6.88 7,850,000 8,775,444 08-15-06 2.38 9,450,000 9,421,206 11-15-06 3.50 15,700,000 16,115,799 11-15-09 10.38 2,000,000(g) 2,208,516 --------------- Total 225,049,727 - -------------------------------------------------------------------------------------------- BANKS AND SAVINGS & LOANS (1.5%) Intl Bank for Reconstruction & Development (U.S. Dollar) 11-04-05 5.00 5,000,000(c) 5,280,420 Washington Mutual Series 2002-AR15 Cl A5 12-25-32 4.38 2,000,000 2,019,180 --------------- Total 7,299,600 - --------------------------------------------------------------------------------------------
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 151 AXP VP - SHORT DURATION U.S. GOVERNMENT FUND
COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) - ------------------------------------------------------------------------------------------ BONDS (CONTINUED) FINANCIAL SERVICES (3.2%) First Franklin Mtge Loan Series 2002-FF4 Cl 2A2 02-25-33 2.80% $ 1,500,000 $ 1,525,320 KFW Intl Finance 10-01-04 3.75 5,700,000 5,839,450 LB-UBS Commercial Mtge Trust Series 2003-C3 Cl A1 05-15-27 2.60 1,171,380 1,141,424 Residential Asset Securities Series 2002-KS1 Cl A14 11-25-29 5.86 3,500,000 3,626,595 Series 2003-KS5 Cl AI2 09-25-22 1.88 1,200,000 1,182,972 Vende Mtge Trust Series 2003-1 Cl D 12-15-25 5.75 2,000,000 2,071,160 --------------- Total 15,386,921 - ------------------------------------------------------------------------------------------ INSURANCE (0.3%) Conseco Finance Series 2000-D Cl A4 12-15-25 8.17% $ 1,518,365 $ 1,583,788 - ------------------------------------------------------------------------------------------ LEISURE TIME & ENTERTAINMENT (0.2%) KSL Resorts Series 2003-1A Cl A 05-15-13 1.69 1,000,000(d) 999,922 - ------------------------------------------------------------------------------------------ TOTAL BONDS (Cost: $481,641,613) $ 481,278,037 - ------------------------------------------------------------------------------------------ ANNUALIZED AMOUNT YIELD ON DATE PAYABLE AT ISSUER OF PURCHASE MATURITY VALUE(a) - ---------------------------------------------------------------------------------------------- SHORT-TERM SECURITIES (1.9%)(h) U.S. GOVERNMENT AGENCY (--%) Federal Natl Mtge Assn Disc Nt 09-24-03 0.88% $ 200,000 $ 199,867 - ---------------------------------------------------------------------------------------------- COMMERCIAL PAPER(1.9%) Fleet Funding 10-02-03 1.08 500,000(j) 499,491 HBOS Treasury Services 09-18-03 1.03 8,500,000 8,495,105 -------------- Total 8,994,596 - ---------------------------------------------------------------------------------------------- TOTAL SHORT-TERM SECURITIES (Cost: $9,194,764) $ 9,194,463 - ---------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $490,836,377)(k) $ 490,472,500 ==============================================================================================
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 152 AXP VP - SHORT DURATION U.S. GOVERNMENT FUND NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) At Aug. 31, 2003, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $13,580,449. (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, 2003, the value of foreign securities represented 1.1% 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) Interest only represents securities that entitle holders to receive only interest payments on the underlying mortgages. The yield to maturity of an interest only is extremely sensitive to the rate of principal payments on the underlying mortgage assets. A rapid (slow) rate of principal repayments may have an adverse (positive) effect on yield to maturity. The principal amount shown is the notional amount of the underlying mortgages. Interest rate disclosed represents yield based upon the estimated timing of future cash flows as of Aug. 31, 2003. (f) 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. These securities may be issued or guaranteed by U.S. government agencies or instrumentalities, or by private issuers, generally originators and investors in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers and special purpose entities. The maturity dates shown represent the original maturity of the underlying obligation. Actual maturity may vary based upon prepayment activity on these obligations. Unless otherwise noted, the coupon rates presented are fixed rates. (g) 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 ---------------------------------------------------------------------------------- PURCHASE CONTRACTS Eurodollar, March 2005, 90-day $ 6,000,000 Eurodollar, June 2005, 90-day 6,000,000 Eurodollar, Sept. 2004, 90-day 1,250,000 Eurodollar, Sept. 2005, 90-day 4,750,000 Eurodollar, Sept. 2007, 90-day 16,000,000 Eurodollar, Sept. 2013, 90-day 13,500,000 Eurodollar, Dec. 2004, 90-day 1,250,000 Eurodollar, Dec. 2005, 90-day 4,750,000 U.S. Treasury Notes, Sept. 2003, 2-year 3,000,000 U.S. Treasury Notes, Dec. 2003, 2-year 27,600,000 SALE CONTRACTS U.S. Treasury Bonds, Dec. 2003, 20-year 1,400,000 U.S. Treasury Notes, Sept. 2003, 5-year 1,800,000 U.S. Treasury Notes, Sept. 2003, 10-year 6,800,000 U.S. Treasury Notes, Dec. 2003, 5-year 54,900,000 U.S. Treasury Notes, Dec. 2003, 10-year 21,500,000
(h) At Aug. 31, 2003, cash or short-term securities were designated to cover open call options written as follows (see Note 8 to the financial statements):
NOTIONAL EXERCISE EXPIRATION ISSUER AMOUNT PRICE DATE VALUE(a) ----------------------------------------------------------------------------------------------------- U.S. Treasury Notes Dec. 2003, 10-year $ 5,000,000 $ 113 Nov. 2003 $ 37,500
At Aug. 31, 2003, cash or short-term securities were designated to cover open put options written as follows (see Note 8 to the financial statements):
NOTIONAL EXERCISE EXPIRATION ISSUER AMOUNT PRICE DATE VALUE(a) ----------------------------------------------------------------------------------------------------- U.S. Treasury Notes Dec. 2003, 10-year $ 6,000,000 $ 114 Nov. 2003 $ 286,875
(i) Adjustable rate mortgage; interest rate varies to reflect current market conditions; rate shown is the effective rate on Aug. 31, 2003. (j) 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. (k) At Aug. 31, 2003, the cost of securities for federal income tax purposes was $490,854,175 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 2,872,319 Unrealized depreciation (3,253,994) ------------------------------------------------------------------------------------- Net unrealized depreciation $ (381,675) -------------------------------------------------------------------------------------
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 153 INVESTMENTS IN SECURITIES AXP VP - SMALL CAP ADVANTAGE FUND AUG. 31, 2003 (PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS)
ISSUER SHARES VALUE(a) COMMON STOCKS (98.0%) AEROSPACE & DEFENSE (0.6%) Aviall 17,700(b) $ 224,790 MTC Technologies 7,200(b) 164,952 REMEC 28,633(b) 259,415 --------------- Total 649,157 - --------------------------------------------------------------------------------- AIRLINES (1.2%) AirTran Holdings 32,750(b) 439,833 America West Holdings Cl B 17,500(b) 148,750 Northwest Airlines Cl A 44,300(b) 397,371 SkyWest 12,300 215,004 --------------- Total 1,200,958 - --------------------------------------------------------------------------------- AUTOMOTIVE & RELATED (1.6%) Aftermarket Technology 17,600(b) 211,024 Asbury Automotive Group 19,500(b) 337,545 Bandag 5,700 199,386 Dura Automotive Systems Cl A 19,900(b) 209,746 Modine Mfg 8,800 217,360 Tenneco Automotive 23,100(b) 136,983 Tower Automotive 62,800(b) 273,808 --------------- Total 1,585,852 - --------------------------------------------------------------------------------- BANKS AND SAVINGS & LOANS (9.3%) Anchor BanCorp Wisconsin 14,100 338,400 Bank of the Ozarks 11,200 473,760 BankUnited Financial Cl A 14,000(b) 304,360 Capital Bancorp 6,900 189,750 Central Pacific Financial 10,450 277,134 City Holding 6,800 233,172 Commercial Capital Bancorp 19,300(b) 406,265 Commercial Federal 5,300 131,440 Community Bank System 7,200 315,360 Dime Community Bancshares 9,783 232,835 First BanCorp 16,500 506,714 First Federal Capital 14,400 297,072 First Republic Bank 11,200 350,896 FirstFed Financial 12,443(b) 493,987 Greater Bay Bancorp 17,100 351,747 Hawthorne Financial 5,800(b) 226,780 IBERIABANK 7,300 350,400 Independent Bank 12,961 371,333 MAF Bancorp 8,243 314,883 New Century Financial 14,850 361,895 Oak Hill Financial 3,200 93,216 Quaker City Bancorp 7,625 303,094 R & G Financial Cl B 13,231(c) 394,284 South Financial Group 17,300 425,407 Sterling Financial 18,088(b) 522,561 Texas Regional Bancshares Cl A 12,400 417,880 TierOne 10,900(b) 242,525 Wintrust Financial 5,900 208,624 WSFS Financial 7,000 305,900 --------------- Total 9,441,674 - --------------------------------------------------------------------------------- BEVERAGES & TOBACCO (0.4%) Standard Commercial 24,050 $ 432,900 - --------------------------------------------------------------------------------- BROKER DEALERS (0.4%) Affiliated Managers Group 5,500(b) 372,900 - --------------------------------------------------------------------------------- BUILDING MATERIALS & CONSTRUCTION (2.1%) Building Materials Holding 14,100 170,046 Griffon 19,750(b) 372,288 Hughes Supply 7,500 266,250 M/I Schottenstein Homes 8,800 381,744 NCI Building Systems 13,300(b) 255,360 Potlatch 14,400 424,656 Trex 5,500(b) 199,100 USG 6,200(b) 103,292 --------------- Total 2,172,736 - --------------------------------------------------------------------------------- CELLULAR TELECOMMUNICATIONS (1.0%) NII Holdings Cl B 8,500(b) 535,415 Western Wireless Cl A 24,600(b) 454,608 --------------- Total 990,023 - --------------------------------------------------------------------------------- CHEMICALS (1.8%) Aceto 10,500 199,815 FMC 16,100(b) 400,729 Hercules 29,000(b) 324,800 Immucor 9,100(b) 227,500 MacDermid 14,400 411,696 OM Group 18,800 253,424 --------------- Total 1,817,964 - --------------------------------------------------------------------------------- COMPUTER HARDWARE (1.8%) Artesyn Technologies 39,700(b) 319,585 Electronics for Imaging 6,600(b) 141,372 Gateway 24,800(b) 143,096 Hutchinson Technology 7,000(b) 221,410 Iomega 12,200(b) 141,276 RadiSys 16,200(b) 287,550 Rainbow Technologies 23,950(b) 190,403 Synaptics 17,600(b) 211,200 Western Digital 19,300(b) 221,757 --------------- Total 1,877,649 - --------------------------------------------------------------------------------- COMPUTER SOFTWARE & SERVICES (10.9%) ANSYS 12,100(b) 428,340 Ascential Software 6,250(b) 109,375 Avid Technology 3,900(b) 193,635 Avocent 7,100(b) 207,320 Centillium Communications 17,000(b) 163,370 Ciber 26,100(b) 278,226 CompuCom Systems 36,400(b) 176,176 Dendrite Intl 29,000(b) 421,950 Digitas 24,600(b) 168,510 Documentum 8,500(b) 174,420 Dot Hill Systems 12,100(b) 200,860 eSpeed Cl A 15,300(b) 348,840 F5 Networks 8,300(b) 162,763 FactSet Research Systems 3,400 165,070 Foundry Networks 15,500(b) $ 301,475 Hypercom 32,200(b) 159,390 Hyperion Solutions 7,800(b) 257,244 Informatica 22,600(b) 200,914 Inter-Tel 8,500 214,200 Intergraph 7,400(b) 176,046 Ixia 15,400(b) 123,200 j2 Global Communications 4,700(b) 294,784 Kronos 2,400(b) 138,703 Lawson Software 30,500(b) 215,025 Legato Systems 39,600(b) 448,272 Lexar Media 21,700(b) 361,956 ManTech Intl Cl A 10,100(b) 230,583 McDATA Cl A 19,100(b) 193,865 Mentor Graphics 9,500(b) 192,375 Micromuse 14,900(b) 121,882 NDCHealth 6,900 146,142 NetIQ 17,000(b) 228,820 OPNET Technologies 7,900(b) 94,800 Pinnacle Systems 13,400(b) 121,538 Quest Software 8,400(b) 89,124 Red Hat 18,000(b) 131,040 RSA Security 19,600(b) 236,768 SafeNet 6,300(b) 227,052 SeaChange Intl 28,200(b) 288,486 SM&A 10,300 97,139 SupportSoft 34,900(b) 310,610 Take-Two Interactive Software 14,700(b) 437,619 Tyler Technologies 33,200(b) 210,156 United Online 7,100(b) 270,581 ValueClick 26,100(b) 241,425 Vastera 14,100(b) 76,563 VitalWorks 40,000(b) 200,400 WebMethods 18,100(b) 163,262 Websense 10,600(b) 252,280 Wireless Facilities 33,600(b) 462,336 --------------- Total 11,114,910 - --------------------------------------------------------------------------------- ELECTRONICS (7.7%) Actel 7,651(b) 224,098 Aeroflex 22,974(b) 209,063 Artisan Components 4,100(b) 87,125 Axcelis Technologies 22,900(b) 199,230 Benchmark Electronics 7,250(b) 321,754 Brooks Automation 10,400(b) 254,280 Cabot Microelectronics 2,000(b) 130,380 Daktronics 16,700(b) 270,874 DSP Group 6,500(b) 176,930 Emerson Radio 63,900(b) 212,787 Entegris 19,373(b) 285,171 ESCO Technologies 6,800(b) 319,940 Exar 15,500(b) 253,425 Gerber Scientific 12,400(b) 90,768 GlobespanVirata 28,100(b) 213,841 GrafTech Intl 38,100(b) 304,800
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 154 AXP VP - SMALL CAP ADVANTAGE FUND
ISSUER SHARES VALUE(a) COMMON STOCKS (CONTINUED) ELECTRONICS (CONT.) Helix Technology 9,034 $ 165,864 II-VI 7,800(b) 192,894 Integrated Circuit Systems 5,500(b) 189,860 Integrated Electrical Services 32,900(b) 205,625 Kopin 29,000(b) 252,590 Micrel 15,000(b) 204,000 Moog Cl A 8,514(b) 320,978 Newport 15,250(b) 272,518 Photronics 9,800(b) 238,042 Pioneer-Standard Electronics 11,600 112,404 Pixelworks 13,300(b) 125,951 Plexus 10,200(b) 168,300 Power Integrations 6,500(b) 209,170 Rambus 9,900(b) 164,934 Rofin-Sinar Technologies 13,000(b) 270,790 Rudolph Technologies 8,226(b) 182,206 Skyworks Solutions 48,840(b) 553,845 Varian Semiconductor Equipment Associates 5,800(b) 235,306 Zoran 9,656(b) 241,014 --------------- Total 7,860,757 - --------------------------------------------------------------------------------- ENERGY (1.0%) Brown (Tom) 7,300(b) 200,677 Chesapeake Energy 18,800 203,792 Patina Oil & Gas 8,325 308,441 St. Mary Land & Exploration 11,700 331,110 --------------- Total 1,044,020 - --------------------------------------------------------------------------------- ENERGY EQUIPMENT & SERVICES (1.9%) CARBO Ceramics 7,900 306,125 Cimarex Energy 13,300(b) 289,275 Grey Wolf 81,600(b) 309,264 Offshore Logistics 4,500(b) 96,120 Oil States Intl 23,400(b) 282,906 Ultra Petroleum 33,900(b) 491,889 Unit Corp 9,100(b) 196,196 --------------- Total 1,971,775 - --------------------------------------------------------------------------------- ENGINEERING & CONSTRUCTION (0.5%) Dycom Inds 8,400(b) 190,260 URS 13,800(b) 315,054 --------------- Total 505,314 - --------------------------------------------------------------------------------- ENVIRONMENTAL SERVICES (0.2%) Stericycle 4,900(b) 235,151 - --------------------------------------------------------------------------------- FINANCE COMPANIES (0.3%) ITLA Capital 6,900(b) 310,500 - --------------------------------------------------------------------------------- FINANCIAL SERVICES (2.4%) AmeriCredit 34,200(b) 366,966 Charles River Associates 8,600(b) 289,304 Delphi Financial Group Cl A 11,300 543,078 Irwin Financial 15,494 348,770 Jefferies Group 8,800 261,360 Saxon Capital 17,500(b) 287,700 WFS Financial 7,700(b) 300,454 --------------- Total 2,397,632 - --------------------------------------------------------------------------------- FOOD (1.1%) Corn Products Intl 7,000 $ 220,710 Del Monte Foods 16,500(b) 148,170 J & J Snack Foods 4,300(b) 150,973 Ralcorp Holdings 10,800(b) 306,936 Sensient Technologies 13,300 276,640 --------------- Total 1,103,429 - --------------------------------------------------------------------------------- FURNITURE & APPLIANCES (0.7%) Briggs & Stratton 8,100 476,280 Select Comfort 9,975(b) 232,318 --------------- Total 708,598 - --------------------------------------------------------------------------------- HEALTH CARE PRODUCTS (8.7%) Abgenix 13,000(b) 169,000 Adolor 9,700(b) 138,128 ALARIS Medical Systems 19,300(b) 330,995 Alpharma Cl A 7,700 161,469 Amylin Pharmaceuticals 10,700(b) 305,485 AtheroGenics 21,800(b) 296,698 Bio-Rad Laboratories Cl A 2,000(b) 102,300 BioMarin Pharmaceutical 31,100(b) 293,895 Biosite 4,400(b) 204,160 Cantel Medical 6,950(b) 88,265 Coherent 8,000(b) 209,600 Conmed 7,300(b) 155,271 Cooper Companies 8,086 299,910 CV Therapeutics 9,000(b) 230,850 DeCODE genetics 48,200(b),(c) 152,312 Endo Pharmaceuticals Holdings 19,900(b) 337,305 EPIX Medical 9,200(b) 175,076 Esperion Therapeutics 13,600(b) 246,024 Exact Sciences 13,000(b) 218,920 Gen-Probe 6,000(b) 379,439 Kos Pharmaceuticals 7,000(b) 263,900 Kyphon 4,600(b) 108,790 Martek Biosciences 6,500(b) 335,335 Mentor 4,600 106,306 MIM 12,900(b) 90,300 Myriad Genetics 7,800(b) 97,656 Nabi Biopharmaceuticals 25,500(b) 163,455 Neurocrine Biosciences 3,800(b) 203,338 OSI Pharmaceuticals 7,000(b) 266,700 Perrigo 13,400 188,270 Pharmaceutical Resources 4,300(b) 240,542 Pharmacopeia 9,700(b) 118,825 PSS World Medical 32,800(b) 304,384 Respironics 4,150(b) 172,889 SciClone Pharmaceuticals 9,500(b) 75,620 Serologicals 9,060(b) 125,934 Tanox 10,000(b) 221,900 Techne 5,400(b) 181,116 Telik 14,000(b) 268,520 Therasense 17,600(b) 250,800 United Therapeutics 14,400(b) 330,048 Wilson Greatbatch Technologies 5,300(b) 209,721 --------------- Total 8,819,451 - --------------------------------------------------------------------------------- HEALTH CARE SERVICES (3.8%) aaiPharma 19,000(b) $ 341,430 Beverly Enterprises 35,000(b) 227,500 Cell Genesys 17,100(b) 205,713 Connetics 18,100(b) 339,194 Discovery Partners Intl 35,500(b) 169,868 Hanger Orthopedic Group 13,900(b) 193,905 Molina Healthcare 9,550(b) 226,813 Option Care 9,000(b) 104,850 Owens & Minor 14,200 330,860 Pediatrix Medical Group 6,700(b) 299,624 Select Medical 10,500(b) 302,400 Sierra Health Services 12,700(b) 247,777 Stewart Enterprises Cl A 38,600(b) 159,032 SurModics 3,000(b) 100,680 VCA Antech 25,400(b) 585,215 --------------- Total 3,834,861 - --------------------------------------------------------------------------------- HOME BUILDING (0.2%) Beazer Homes USA 3,000(b) 249,360 - --------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS (0.4%) Helen of Troy 10,200(b) 221,330 Jarden 4,300(b) 141,341 --------------- Total 362,671 - --------------------------------------------------------------------------------- INDUSTRIAL SERVICES (0.6%) United Rentals 18,300(b) 308,904 UNOVA 17,850(b) 284,708 --------------- Total 593,612 - --------------------------------------------------------------------------------- INDUSTRIAL TRANSPORTATION (1.8%) Forward Air 6,400(b) 194,304 Genesee & Wyoming Cl A 9,600(b) 232,512 Heartland Express 9,200(b) 235,060 Overseas Shipbuilding Group 4,000 103,640 P.A.M. Transportation Services 4,000(b) 91,000 Pacer Intl 16,700(b) 332,330 RailAmerica 13,800(b) 131,100 Wabash Natl 15,600(b) 278,460 Yellow Corp 8,100(b) 227,124 --------------- Total 1,825,530 - --------------------------------------------------------------------------------- INSURANCE (2.8%) AMERIGROUP 6,400(b) 260,608 IPC Holdings 7,700(c) 269,962 Navigators Group 6,800(b) 236,708 Odyssey Re Holdings 17,800 366,324 Penn-America Group 22,000 275,220 ProAssurance 14,900(b) 383,526 RLI 13,300 438,368 StanCorp Financial Group 3,200 181,408 Triad Guaranty 7,417(b) 344,668 United Fire & Casualty 3,400 134,096 --------------- Total 2,890,888 - --------------------------------------------------------------------------------- LEISURE TIME & ENTERTAINMENT (0.3%) Argosy Gaming 7,700(b) 185,955 Johnson Outdoors Cl A 10,400(b) 145,808 --------------- Total 331,763 - ---------------------------------------------------------------------------------
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 155 AXP VP - SMALL CAP ADVANTAGE FUND
ISSUER SHARES VALUE(a) COMMON STOCKS (CONTINUED) LODGING & GAMING (1.0%) Alliance Gaming 16,200(b) $ 364,986 Aztar 17,764(b) 306,429 Scientific Games Cl A 35,800(b) 317,904 --------------- Total 989,319 - --------------------------------------------------------------------------------- MACHINERY (2.8%) Albany Intl Cl A 12,610 385,362 Clarcor 8,300 355,572 Gardner Denver 16,800(b) 395,472 Global Power Equipment Group 27,800(b) 152,066 Joy Global 24,900(b) 427,782 Kadant 10,100(b) 190,890 Terex 19,000(b) 438,900 Toro 10,200 479,196 --------------- Total 2,825,240 - --------------------------------------------------------------------------------- MEDIA (3.3%) ADVO 3,900(b) 172,185 Banta 6,500 225,745 Consolidated Graphics 6,114(b) 151,199 Courier 4,100 214,225 Donnelley (RH) 11,300(b) 467,820 DoubleClick 22,700(b) 255,829 Journal Register 16,300(b) 292,259 Lin TV 7,450(b) 174,330 Regent Communications 23,950(b) 142,503 Sinclair Broadcast Group Cl A 22,800(b) 253,764 Spanish Broadcasting System Cl A 33,100(b) 256,525 TiVo 20,800(b) 226,096 XM Satellite Radio Holdings Cl A 14,400(b) 197,280 Young Broadcasting Cl A 12,000(b) 291,840 --------------- Total 3,321,600 - --------------------------------------------------------------------------------- METALS (1.2%) AMCOL Intl 8,300 90,138 Century Aluminum 20,100 185,925 Maverick Tube 12,100(b) 205,579 Reliance Steel & Aluminum 15,400 355,278 RTI Intl Metals 14,600(b) 153,300 United States Steel 11,200 206,192 --------------- Total 1,196,412 - --------------------------------------------------------------------------------- MISCELLANEOUS (0.5%) Gevity HR 14,100 220,947 SCP Pool 8,100(b) 332,100 --------------- Total 553,047 - --------------------------------------------------------------------------------- MULTI-INDUSTRY (3.1%) Acuity Brands 19,050 $ 341,186 Anixter Intl 5,300(b) 120,469 Applied Films 6,900(b) 215,970 Corinthian Colleges 2,500(b) 143,875 Cornell Companies 17,300(b) 275,243 Global Imaging Systems 9,400(b) 241,674 IKON Office Solutions 23,300 167,993 Imation 100 3,595 Jacuzzi Brands 55,000(b) 312,950 Labor Ready 31,800(b) 294,786 MPS Group 34,000(b) 324,700 NCO Group 14,600(b) 309,666 YORK Intl 11,200 361,536 --------------- Total 3,113,643 - --------------------------------------------------------------------------------- PAPER & PACKAGING (0.8%) Buckeye Technologies 23,600(b) 185,260 Crown Holdings 40,400(b) 299,768 Silgan Holdings 10,300(b) 328,570 --------------- Total 813,598 - --------------------------------------------------------------------------------- PRECIOUS METALS (--%) Coeur d'Alene Mines 16,000(b) 50,400 - --------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUST (2.7%) CBL & Associates Properties 5,100 249,747 Gables Residential Trust 9,400 304,372 Impac Mtge Holdings 27,700 416,608 Pan Pacific Retail Properties 7,900 332,590 Redwood Trust 9,400 406,080 SL Green Realty 8,500 298,945 Town & Country Trust 9,400 216,200 Universal Health Realty Income Trust 5,600 150,808 Ventas 22,100 373,711 --------------- Total 2,749,061 - --------------------------------------------------------------------------------- RESTAURANTS (1.2%) Bob Evans Farms 7,700 208,131 Jack in the Box 4,500(b) 95,355 Lone Star Steakhouse & Saloon 6,800 147,288 Panera Bread Cl A 6,600(b) 291,390 RARE Hospitality Intl 7,334(b) 279,279 Ryan's Family Steak Houses 13,950(b) 186,651 --------------- Total 1,208,094 - --------------------------------------------------------------------------------- RETAIL -- GENERAL (6.3%) 7-Eleven 25,400(b) $ 312,166 American Eagle Outfitters 23,600(b) 404,976 AnnTaylor Stores 8,100(b) 275,400 BJ's Wholesale Club 14,100(b) 307,944 Clarie's Stores 9,900 342,045 Department 56 15,600(b) 216,840 Dick's Sporting Goods 9,800(b) 370,636 Finish Line Cl A 15,700(b) 425,627 Guitar Center 9,000(b) 301,860 Hollywood Entertainment 18,100(b) 314,397 Jo-Ann Stores Cl A 14,100(b) 425,820 NBTY 16,900(b) 447,005 Pacific Sunwear of California 13,200(b) 446,160 Phillips-Van Heusen 11,400 173,280 School Specialty 10,100(b) 284,315 Sharper Image 16,600(b) 469,115 Sports Authority 12,049(b) 390,147 Tuesday Morning 9,700(b) 335,814 World Fuel Services 5,600 152,600 --------------- Total 6,396,147 - --------------------------------------------------------------------------------- TELECOM EQUIPMENT & SERVICES (3.5%) Aether Systems 18,200(b) 98,462 Andrew Corp 23,270(b) 288,083 Applied Signal Technology 15,250 283,955 Arris Group 27,928(b) 137,126 Boston Communications Group 15,100(b) 203,095 CommScope 13,200(b) 135,696 Crown Castle Intl 24,600(b) 264,450 Digi Intl 31,200(b) 198,744 Ditech Communications 17,200(b) 114,896 Interdigital Communications 11,900(b) 211,225 Nextel Partners Cl A 42,300(b) 348,129 Orbital Sciences 30,900(b) 270,993 Plantronics 6,390(b) 161,475 Sonus Networks 20,000(b) 142,000 Stratex Networks 30,100(b) 112,875 Sycamore Networks 41,100(b) 173,442 Tekelec 20,700(b) 361,836 --------------- Total 3,506,482 - --------------------------------------------------------------------------------- TEXTILES & APPAREL (2.0%) K-Swiss Cl A 7,400 294,076 Kellwood 12,100 441,771 Maxwell Shoes Cl A 22,775(b) 338,892 Mossimo 12,000(b) 76,200 Oakley 14,600(b) 158,994 Quiksilver 25,100(b) 455,565 Urban Outfitters 4,900(b) 240,247 --------------- Total 2,005,745 - ---------------------------------------------------------------------------------
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 156 AXP VP - SMALL CAP ADVANTAGE FUND
ISSUER SHARES VALUE(a) COMMON STOCKS (CONTINUED) UTILITIES -- ELECTRIC (1.3%) Black Hills 16,000 $ 518,560 PNM Resources 18,800 515,120 Unisource Energy 16,868 316,106 --------------- Total 1,349,786 - --------------------------------------------------------------------------------- UTILITIES -- NATURAL GAS (1.9%) Energen 15,786 563,244 New Jersey Resources 7,639 275,768 ONEOK 20,400 428,196 San Juan Basin Royalty Trust 900 16,110 UGI 13,389 409,034 Western Gas Resources 5,600 219,744 --------------- Total 1,912,096 - --------------------------------------------------------------------------------- UTILITIES -- TELEPHONE (0.8%) Cincinnati Bell 28,700(b) $ 162,155 Commonwealth Telephone Enterprise 4,400(b) 173,624 General Communication Cl A 37,370(b) 319,514 PTEK Holdings 25,100(b) 180,971 --------------- Total 836,264 - --------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $81,628,898) $ 99,528,969 - --------------------------------------------------------------------------------- ANNUALIZED AMOUNT YIELD ON DATE PAYABLE AT ISSUER OF PURCHASE MATURITY VALUE(a) - ---------------------------------------------------------------------------------------------- SHORT-TERM SECURITIES (2.5%) U.S. GOVERNMENT AGENCY Federal Natl Mtge Assn Disc Nts 11-12-03 1.07% $ 1,000,000 $ 997,950 11-19-03 1.01 1,500,000 1,496,620 - ---------------------------------------------------------------------------------------------- TOTAL SHORT-TERM SECURITIES (Cost: $2,494,392) $ 2,494,570 - ---------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $84,123,290)(d) $ 102,023,539 ==============================================================================================
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, 2003, the value of foreign securities represented 0.8% of net assets. (d) At Aug. 31, 2003, the cost of securities for federal income tax purposes was $84,747,837 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 18,244,155 Unrealized depreciation (968,453) --------------------------------------------------------------------------------------- Net unrealized appreciation $ 17,275,702 ---------------------------------------------------------------------------------------
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 157 INVESTMENTS IN SECURITIES AXP VP - STOCK FUND AUG. 31, 2003 (PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS)
ISSUER SHARES VALUE(a) COMMON STOCKS (88.5%) AEROSPACE & DEFENSE (4.4%) Lockheed Martin 2,844 $ 145,698 Northrop Grumman 1,921 183,417 Rockwell Automation 6,648 180,959 --------------- Total 510,074 - --------------------------------------------------------------------------------- AIRLINES (0.9%) Southwest Airlines 6,165 105,360 - --------------------------------------------------------------------------------- BANKS AND SAVINGS & LOANS (4.4%) Bank of America 1,920 152,160 Bank of New York 3,318 97,616 Bank One 2,370 93,544 U.S. Bancorp 6,681 159,675 --------------- Total 502,995 - --------------------------------------------------------------------------------- BEVERAGES & TOBACCO (1.1%) Coca-Cola 2,856 124,293 - --------------------------------------------------------------------------------- CELLULAR TELECOMMUNICATIONS (1.2%) Vodafone Group ADR 7,559(c) 138,330 - --------------------------------------------------------------------------------- CHEMICALS (3.9%) Dow Chemical 5,736 198,064 Ecolab 4,787 123,457 Praxair 1,920 122,534 --------------- Total 444,055 - --------------------------------------------------------------------------------- COMPUTER HARDWARE (3.4%) Cisco Systems 7,153(b) 136,980 EMC 11,398(b) 145,325 Hewlett-Packard 5,685 113,245 --------------- Total 395,550 - --------------------------------------------------------------------------------- COMPUTER SOFTWARE & SERVICES (4.9%) Intl Business Machines 1,917 157,213 Microsoft 15,182 402,627 --------------- Total 559,840 - --------------------------------------------------------------------------------- ELECTRONICS (6.4%) Flextronics Intl 11,900(b),(c) 160,531 Intel 9,976 285,513 KLA-Tencor 2,393(b) 142,048 Texas Instruments 6,189 147,608 --------------- Total 735,700 - --------------------------------------------------------------------------------- ENERGY (4.7%) Apache 2,481 171,139 BP ADR 4,726(c) 197,169 ConocoPhillips 2,205 123,127 EnCana 1,440(c) 53,928 --------------- Total 545,363 - --------------------------------------------------------------------------------- ENERGY EQUIPMENT & SERVICES (1.4%) GlobalSantaFe 2,857 $ 70,854 Schlumberger 1,888 93,474 --------------- Total 164,328 - --------------------------------------------------------------------------------- FINANCE COMPANIES (3.4%) Citigroup 6,646 288,105 MGIC Investment 1,920 108,230 --------------- Total 396,335 - --------------------------------------------------------------------------------- FOOD (1.5%) ConAgra Foods 4,788 105,336 Sara Lee 3,841 72,902 --------------- Total 178,238 - --------------------------------------------------------------------------------- HEALTH CARE PRODUCTS (10.4%) Abbott Laboratories 2,850 114,855 Amgen 1,920(b) 126,528 Baxter Intl 7,163 201,280 MedImmune 2,847(b) 99,275 Medtronic 4,742 235,108 Pfizer 11,412 341,448 St. Jude Medical 1,425(b) 74,200 --------------- Total 1,192,694 - --------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS (1.1%) Procter & Gamble 1,421 124,039 - --------------------------------------------------------------------------------- INDUSTRIAL TRANSPORTATION (1.2%) Union Pacific 2,363 144,001 - --------------------------------------------------------------------------------- INSURANCE (0.7%) American Intl Group 1,418 84,470 - --------------------------------------------------------------------------------- LEISURE TIME & ENTERTAINMENT (1.5%) Mattel 4,781 92,369 Viacom Cl B 1,885 84,825 --------------- Total 177,194 - --------------------------------------------------------------------------------- LODGING & GAMING (0.9%) MGM Mirage 2,857(b) 103,595 - --------------------------------------------------------------------------------- MACHINERY (3.2%) Caterpillar 2,844 204,284 Deere & Co 2,870 162,184 --------------- Total 366,468 - --------------------------------------------------------------------------------- MEDIA (5.0%) Disney (Walt) 9,485 194,443 InterActiveCorp 10,432(b) 386,088 --------------- Total 580,531 - --------------------------------------------------------------------------------- METALS (1.7%) Alcoa 4,739 $ 135,346 Freeport McMoRan Cooper & Gold Cl B 1,920 57,600 --------------- Total 192,946 - --------------------------------------------------------------------------------- MULTI-INDUSTRY (6.7%) 3M 1,422 202,592 Danaher 2,521 194,747 General Electric 12,315 364,155 --------------- Total 761,494 - --------------------------------------------------------------------------------- PAPER & PACKAGING (4.0%) Intl Paper 5,687 230,608 Weyerhaeuser 3,842 228,599 --------------- Total 459,207 - --------------------------------------------------------------------------------- RETAIL -- GENERAL (4.3%) Home Depot 3,318 106,707 Wal-Mart Stores 6,637 392,711 --------------- Total 499,418 - --------------------------------------------------------------------------------- TELECOM EQUIPMENT & SERVICES (1.0%) Corning 14,240(b) 117,480 - --------------------------------------------------------------------------------- UTILITIES -- ELECTRIC (4.2%) Dominion Resources 3,319 201,065 FPL Group 2,371 146,670 Public Service Enterprise Group 3,104 131,423 --------------- Total 479,158 - --------------------------------------------------------------------------------- UTILITIES -- TELEPHONE (1.0%) Verizon Communications 3,315 117,086 - --------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $9,367,156) $ 10,200,242 - --------------------------------------------------------------------------------- ANNUALIZED AMOUNT YIELD ON DATE PAYABLE AT ISSUER OF PURCHASE MATURITY VALUE(a) - ---------------------------------------------------------------------------------------------- SHORT-TERM SECURITIES (8.7%) U.S. GOVERNMENT AGENCY Federal Natl Mtge Assn Disc Nts 10-01-03 0.97% $ 500,000 $ 499,546 11-19-03 1.05 500,000 498,874 - ---------------------------------------------------------------------------------------------- TOTAL SHORT-TERM SECURITIES (Cost: $998,390) $ 998,420 - ---------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $10,365,546)(d) $ 11,198,662 ==============================================================================================
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 158 AXP VP - STOCK FUND 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, 2003, the value of foreign securities represented 4.8% of net assets. (d) At Aug. 31, 2003, the cost of securities for federal income tax purposes was $10,420,939 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 882,693 Unrealized depreciation (104,970) --------------------------------------------------------------------------------------- Net unrealized appreciation $ 777,723 ---------------------------------------------------------------------------------------
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 159 INVESTMENTS IN SECURITIES AXP VP - STRATEGY AGGRESSIVE FUND AUG. 31, 2003 (PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS)
ISSUER SHARES VALUE(a) COMMON STOCKS (97.0%) AIRLINES (0.7%) Ryanair Holdings ADR 165,000(b),(c) $ 6,977,850 - --------------------------------------------------------------------------------- AUTOMOTIVE & RELATED (1.6%) Gentex 425,000(b) 15,941,750 - --------------------------------------------------------------------------------- BANKS AND SAVINGS & LOANS (1.2%) New York Community Bancorp 215,000 6,613,400 TCF Financial 115,000 5,288,850 --------------- Total 11,902,250 - --------------------------------------------------------------------------------- CHEMICALS (2.0%) Rohm & Haas 325,000 11,807,250 Sigma-Aldrich 132,000 7,227,000 --------------- Total 19,034,250 - --------------------------------------------------------------------------------- COMPUTER HARDWARE (3.1%) Lexmark Intl Cl A 78,000(b) 5,229,120 Network Appliance 800,000(b) 17,928,000 SanDisk 110,000(b) 6,650,600 --------------- Total 29,807,720 - --------------------------------------------------------------------------------- COMPUTER SOFTWARE & SERVICES (14.2%) Affiliated Computer Services Cl A 245,000(b) 12,154,450 BISYS Group 515,000(b) 9,450,250 DST Systems 217,000(b) 8,593,200 Electronic Arts 193,000(b) 17,321,750 Fiserv 414,000(b) 16,083,900 Intuit 220,000(b) 9,970,400 iPass 130,000(b) 2,730,000 Knowledge Mechanics Group 1,436,310(b),(g) 144 Mercury Interactive 326,000(b) 14,308,140 NetScreen Technologies 480,000(b) 11,486,400 Paychex 327,000 11,772,000 SRA Intl Cl A 220,000(b) 8,001,400 SunGard Data Systems 550,000(b) 15,510,000 --------------- Total 137,382,034 - --------------------------------------------------------------------------------- ELECTRONICS (9.3%) Analog Devices 190,000(b) 7,790,000 Integrated Circuit Systems 490,000(b) 16,914,800 KLA-Tencor 245,000(b) 14,543,200 Maxim Integrated Products 110,000 4,940,100 Microchip Technology 760,000 21,287,600 Novellus Systems 215,000(b) 8,591,400 Teradyne 275,000(b) 4,903,250 Xilinx 355,000(b) 10,948,200 --------------- Total 89,918,550 - --------------------------------------------------------------------------------- ENERGY (2.0%) Apache 110,000 7,587,800 Devon Energy 225,630 11,676,353 --------------- Total 19,264,153 - --------------------------------------------------------------------------------- ENERGY EQUIPMENT & SERVICES (5.2%) BJ Services 265,000(b) $ 9,903,050 ENSCO Intl 185,000 5,170,750 Grant Prideco 439,000(b) 5,092,400 Nabors Inds 262,000(b),(c) 10,519,300 Noble 163,000(b) 5,897,340 Varco Intl 268,000(b) 4,623,000 Weatherford Intl 244,000(b) 9,169,520 --------------- Total 50,375,360 - --------------------------------------------------------------------------------- FINANCIAL SERVICES (1.3%) Alliance Data Systems 325,000(b) 9,620,000 CapitalSource 145,000(b) 2,552,000 --------------- Total 12,172,000 - --------------------------------------------------------------------------------- HEALTH CARE PRODUCTS (13.6%) Alcon 160,000(c) 8,360,000 Amylin Pharmaceuticals 550,000(b) 15,702,500 Barr Laboratories 251,500(b) 17,019,016 Biomet 330,000 9,810,900 Genzyme 163,000(b) 7,685,450 Gilead Sciences 432,000(b) 28,814,400 IDEC Pharmaceuticals 235,000(b) 8,166,250 MedImmune 594,000(b) 20,712,780 St. Jude Medical 107,000(b) 5,571,490 Zimmer Holdings 200,000(b) 10,348,000 --------------- Total 132,190,786 - --------------------------------------------------------------------------------- HEALTH CARE SERVICES (10.3%) Anthem 165,000(b) 12,078,000 Caremark Rx 634,000(b) 15,932,420 Charles River Laboratories Intl 380,000(b) 13,585,000 Community Health Systems 523,000(b) 12,023,770 Express Scripts Cl A 105,000(b) 6,805,050 First Health Group 330,000(b) 8,652,600 Lincare Holdings 285,000(b) 9,869,550 Mid Atlantic Medical Services 160,000(b) 7,849,600 Pharmaceutical Product Development 155,300(b) 3,961,703 WebMD 860,000(b) 8,858,000 --------------- Total 99,615,693 - --------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS (0.8%) Church & Dwight 248,000 7,923,600 - --------------------------------------------------------------------------------- INDUSTRIAL SERVICES (0.9%) Cintas 47,500 1,896,675 Fastenal 170,000 6,873,100 --------------- Total 8,769,775 - --------------------------------------------------------------------------------- INDUSTRIAL TRANSPORTATION (3.1%) C.H. Robinson Worldwide 175,000 6,644,750 Hunt (JB) Transport Services 400,000(b) 19,880,000 Pacer Intl 185,600(b) 3,693,440 --------------- Total 30,218,190 - --------------------------------------------------------------------------------- INSURANCE (2.9%) Axis Capital Holdings 234,950(b),(c) $ 5,768,023 Everest Re Group 65,000(c) 4,764,500 IPC Holdings 125,000(c) 4,382,500 WellChoice 110,000(b) 3,192,200 Willis Group Holdings 355,000(c) 10,291,450 --------------- Total 28,398,673 - --------------------------------------------------------------------------------- LODGING & GAMING (0.7%) Hilton Hotels 433,000 6,616,240 - --------------------------------------------------------------------------------- MEDIA (7.8%) Amazon.com 325,000(b) 15,093,000 Citadel Broadcasting 225,000(b) 4,968,000 Cox Radio Cl A 323,000(b) 7,797,220 Lin TV 375,000(b) 8,775,000 Scripps (EW) Cl A 80,000 6,927,200 Univision Communications Cl A 570,000(b) 21,369,300 Westwood One 317,000(b) 10,175,700 --------------- Total 75,105,420 - --------------------------------------------------------------------------------- MULTI-INDUSTRY (7.0%) Apollo Group Cl A 270,000(b) 17,298,900 Corporate Executive Board 248,000(b) 10,949,200 Danaher 138,000 10,660,500 Harman Intl Inds 85,000 8,470,250 Hewitt Associates Cl A 163,000(b) 4,066,850 Manpower 410,000 15,953,100 --------------- Total 67,398,800 - --------------------------------------------------------------------------------- PAPER & PACKAGING (0.7%) Smurfit-Stone Container 430,000(b) 6,785,400 - --------------------------------------------------------------------------------- RESTAURANTS (2.2%) Brinker Intl 218,000(b) 7,455,600 Krispy Kreme Doughnuts 164,000(b) 7,237,320 Starbucks 245,000(b) 6,967,800 --------------- Total 21,660,720 - --------------------------------------------------------------------------------- RETAIL -- GENERAL (4.6%) AutoZone 50,000(b) 4,590,000 Bed Bath & Beyond 320,000(b) 13,769,600 Dollar Tree Stores 218,000(b) 8,552,140 Family Dollar Stores 268,000 10,752,160 Talbots 177,000 6,490,590 --------------- Total 44,154,490 - --------------------------------------------------------------------------------- TEXTILES & APPAREL (1.8%) Chico's FAS 542,000(b) 17,609,580 - --------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $822,797,716) $ 939,223,284 - ---------------------------------------------------------------------------------
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 160 AXP VP - STRATEGY AGGRESSIVE FUND
ISSUER SHARES VALUE(a) PREFERRED STOCKS (1.8%)(B) Aurgin Systems 2,440,000(d),(e) $ -- Bluestream Ventures LP 5,225,000(e),(h) 1,773,187 Calient Network 2,076,124(e) 1,192,484 Dia Dexus Cv Series C 1,113,979(e) 4,316,669 Fibrogen Cv Series E 1,559,020(e) 4,200,000 Knowledge Mechanics Group Series B 287,262(d) -- Marketsoft Cv 762,295(e) 381,148 Mars Cv Series D 2,619,048(d),(e) -- Cv Series G 3,332,000(d),(e) -- Nobex Series E 2,800,000(e) 1,960,000 Paxonet Communications Series C 921,985(d),(e) -- Portera Series G 1,616,419(d),(e) -- Sun Hill Software Cv Series C 353,648(e) 17,682 Therox Cv Series H 921,580(e) 3,686,319 - --------------------------------------------------------------------------------- TOTAL PREFERRED STOCKS (Cost: $81,189,429) $ 17,527,489 - --------------------------------------------------------------------------------- COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) BONDS (0.2%) Federal Farm Credit Bank 03-15-06 2.50% $ 2,000,000 $ 2,001,392 Mars Cv 04-30-05 12.00 550,000(b),(d),(e) -- - ------------------------------------------------------------------------------------------------- TOTAL BONDS (Cost: $2,549,422) $ 2,001,392 - ------------------------------------------------------------------------------------------------- EXERCISE EXPIRATION ISSUER CONTRACTS PRICE DATE VALUE(a) OPTIONS PURCHASED (--%) CALLS Micron Tech 4,300 $ 15 Sept. 2003 $ 182,750 Micron Tech 2,970 14 Sept. 2003 267,300 - ------------------------------------------------------------------------------------- TOTAL OPTIONS PURCHASED (Cost: $842,295) $ 450,050 - ------------------------------------------------------------------------------------- ANNUALIZED AMOUNT YIELD ON DATE PAYABLE AT ISSUER OF PURCHASE MATURITY VALUE(a) - ---------------------------------------------------------------------------------------------- SHORT-TERM SECURITIES (1.7%) U.S. GOVERNMENT AGENCY (0.1%) Federal Natl Mtge Assn Disc Nt 09-10-03 1.02% $ 1,200,000 $ 1,199,592 - ---------------------------------------------------------------------------------------------- COMMERCIAL PAPER (1.6%) Sheffield Receivables 09-02-03 1.06 15,000,000(f) 14,998,233 - ---------------------------------------------------------------------------------------------- TOTAL SHORT-TERM SECURITIES (Cost: $16,198,301) $ 16,197,825 - ---------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $923,577,163)(i) $ 975,400,040 ==============================================================================================
See accompanying notes to investments in securities. AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 161 AXP VP - STRATEGY AGGRESSIVE FUND 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, 2003, the value of foreign securities represented 5.3% of net assets. (d) Negligible market value. (e) Identifies issues considered to be illiquid as to their marketability (see Note 1 to the financial statements). These securities are valued at fair value according to methods selected in good faith by the board. Information concerning such security holdings at Aug. 31, 2003, is as follows:
ACQUISITION SECURITY DATES COST --------------------------------------------------------------------------------------------------------- Aurgin Systems 12-16-99 $ 6,002,400 Bluestream Ventures LP 06-28-00 thru 02-18-03 4,959,427 Calient Network 12-06-00 14,999,996 Dia Dexus Cv Series C 04-03-00 8,633,337 Fibrogen Cv Series E 05-17-00 7,000,000 Marketsoft Cv 12-11-00 3,720,000 Mars 12.00% Cv 2005 08-22-01 thru 08-24-02 550,000 Cv Series D 06-16-00 5,500,001 Cv Series G 12-01-99 7,000,000 Nobex Series E 05-04-99 7,000,000 Paxonet Communications Series C 04-04-01 thru 04-23-01 2,599,998 Portera Series G 11-10-00 5,415,004 Sun Hill Software (formerly Vcommerce) CV Series C 07-21-00 4,119,999 Therox Cv Series H 09-05-00 4,239,268
(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) 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, 2003 are as follows:
BEGINNING PURCHASE SALES ENDING DIVIDEND ISSUER COST COST COST COST INCOME VALUE(a) ------------------------------------------------------------------------------------------------------------------- Knowledge Mechanics Group $ 3,300,002 $ -- $ -- $ 3,300,002 $ -- $ 144
(h) The share amount for Limited Liability Companies (LLC) or Limited Partnerships (LP) represents capital contributions. At Aug. 31, 2003, the amount of capital committed to the LLC or LP for future investment was $4,275,000. (i) At Aug. 31, 2003, the cost of securities for federal income tax purposes was $923,590,541 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 149,983,385 Unrealized depreciation (98,173,886) --------------------------------------------------------------------------------------------- Net unrealized appreciation $ 51,809,499 ---------------------------------------------------------------------------------------------
AMERICAN EXPRESS VARIABLE PORTFOLIO FUNDS -- ANNUAL REPORT 162 - -------------------------------------------------------------------------------- (logo) AMERICAN EXPRESS - -------------------------------------------------------------------------------- American Express Variable Portfolio Funds 70100 AXP Financial Center Minneapolis, MN 55474 S-6466 W (10/03) -----END PRIVACY-ENHANCED MESSAGE-----