-----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, EKW8TT1EWboiGxuU1aGG3qLjqt0/RCwLf5nBh4k+jyB+sVrZ9APl4MbgTcvyg0Yf if3GNkbWGN3NrKCwNneasg== /in/edgar/work/20000615/0000820027-00-000516/0000820027-00-000516.txt : 20000919 0000820027-00-000516.hdr.sgml : 20000919 ACCESSION NUMBER: 0000820027-00-000516 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20000615 EFFECTIVENESS DATE: 20000615 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP STOCK FUND INC CENTRAL INDEX KEY: 0000052423 STANDARD INDUSTRIAL CLASSIFICATION: [0000 ] IRS NUMBER: 410839317 STATE OF INCORPORATION: MN FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 002-11358 FILM NUMBER: 655448 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-00498 FILM NUMBER: 655449 BUSINESS ADDRESS: STREET 1: 80 SOUTH 8TH ST STREET 2: T33/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55440 BUSINESS PHONE: 6126712727 FORMER COMPANY: FORMER CONFORMED NAME: IDS STOCK FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: INVESTORS STOCK FUND INC DATE OF NAME CHANGE: 19831221 485BPOS 1 0001.txt AXP STOCK FUND, INC. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Post-Effective Amendment No. 100 (File Number 2-11358) [X] -------- and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 44 (File Number 811-498) [X] ------ AXP Stock Fund, Inc. 200 AXP Financial Center Minneapolis, Minnesota 55474 Leslie L. Ogg - 901 S. Marquette Avenue, Suite 2810, Minneapolis, MN 55402-3268 (612) 330-9283 Approximate Date of Proposed Public Offering: It is proposed that this filing will become effective (check appropriate box) [ ] immediately upon filing pursuant to paragraph (b) [X] on June 26, 2000 pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [ ] on (date) pursuant to paragraph (a)(1) [ ] 75 days after filing pursuant to paragraph (a)(2) [ ] on (date) pursuant to paragraph (a)(2) of rule 485. If appropriate, check the following box: [ ] this post-effective amendment designates a new effective date for a previously filed post-effective amendment. AXP Stock Fund, Inc. has adopted a master/feeder operating structure. This Post-Effective Amendment includes a signature page for Growth and Income Trust, the master fund. AXP(SM) Stock Fund NOV. 29, 1999 PROSPECTUS REVISED AS OF JUNE 26, 2000 AMERICAN EXPRESS-Registered Trademark- FUNDS AXP STOCK FUND SEEKS TO PROVIDE SHAREHOLDERS WITH CURRENT INCOME AND GROWTH OF CAPITAL. Please note that this Fund: - - is not a bank deposit - - is not federally insured - - is not endorsed by any bank or government agency - - is not guaranteed to achieve its goal Like all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. [GRAPHIC] [LOGO] Table of Contents TAKE A CLOSER LOOK AT:
THE FUND............................. 3p Goal................................. 3p Investment Strategy.................. 3p Risks................................ 5p Past Performance..................... 6p Fees and Expenses.................... 8p Management........................... 9p BUYING AND SELLING SHARES............ 9p Valuing Fund Shares.................. 9p Investment Options................... 10p Purchasing Shares.................... 12p Transactions through Third Parties... 15p Sales Charges........................ 15p Exchanging/Selling Shares............ 19p DISTRIBUTIONS AND TAXES.............. 24p MASTER/FEEDER STRUCTURE.............. 26p OTHER INFORMATION.................... 27p FINANCIAL HIGHLIGHTS................. 28p
FUND INFORMATION KEY [GRAPHIC] GOAL AND INVESTMENT STRATEGY The Fund's particular investment goal and the strategies it intends to use in pursuing its goal. [GRAPHIC] RISKS The major risk factors associated with the Fund. [GRAPHIC] FEES AND EXPENSES The overall costs incurred by an investor in the Fund, including sales charges and annual expenses. [GRAPHIC] MANAGEMENT The individual or group designated by the investment manager to handle the Fund's day-to-day management. [GRAPHIC] MASTER/FEEDER STRUCTURE Describes the Fund's investment structure. [GRAPHIC] FINANCIAL HIGHLIGHTS Tables showing the Fund's financial performance. - ------------------------------------------------------------------------------- 2p AXP STOCK FUND The Fund [GRAPHIC] GOAL AXP Stock Fund (the Fund) seeks to provide shareholders with current income and growth of capital. Because any investment involves risk, achieving this goal cannot be guaranteed. The Fund seeks to achieve its goal by investing all of its assets in a master portfolio rather than by directly investing in and managing its own portfolio of securities. The master portfolio has the same goal and investment policies as the Fund. INVESTMENT STRATEGY The Fund's assets primarily are invested in common stocks and securities convertible into common stocks. Under normal market conditions, at least 65% of the Fund's total assets are invested in these securities. 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. The selection of common stocks is the primary decision in building the investment portfolio. In pursuit of the Fund's goal, American Express Financial Corporation (AEFC), the Fund's investment manager, chooses equity investments by: - - Considering opportunities and risks by reviewing overall market conditions and industry outlook. - - Identifying market trends that AEFC believes will lead to good long-term growth potential. - - Identifying large companies with strong, sustainable earnings growth based on: -- effective management (considering overall performance), -- competitive market position, and -- financial strength. - - Focusing on those companies that AEFC considers to be "blue chips." 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. - ------------------------------------------------------------------------------- PROSPECTUS -- JUNE 26, 2000 3p - - Identifying investments that contribute to portfolio diversification. - - Identifying income-producing securities. In evaluating whether to sell a security, AEFC considers, among other factors, whether: -- the security is overvalued relative to other potential investments, -- the security has reached AEFC's price objective, -- the company has met AEFC's earnings and/or growth expectations, -- political, economic or other events could affect the company's performance, -- AEFC wishes to minimize potential losses (I.E., in a market down-turn), -- AEFC wishes to lock-in profits, -- AEFC identifies a more attractive opportunity, and -- the company or the security fails to meet the other standards described above. Although not a primary investment strategy, the Fund also may invest in other instruments such as debt obligations (rated C or higher), and money market securities. Additionally, the Fund may utilize derivative instruments (such as: futures, options and forward contracts) to produce incremental earnings, to hedge existing positions and to increase flexibility. During weak or declining markets, the Fund may invest more of its assets in money market securities. Although the Fund primarily will invest in these securities to avoid losses, this type of investing also could prevent the Fund from achieving its investment objective. During these times, AEFC may make frequent securities trades that could result in increased fees, expenses, and taxes. For more information on strategies and holdings, see the Fund's Statement of Additional Information (SAI) and the annual/semiannual reports. - ------------------------------------------------------------------------------- 4p AXP STOCK FUND [GRAPHIC] RISKS Please remember that with any mutual fund investment you may lose money. Principal risks associated with an investment in the Fund include: MARKET RISK INFLATION 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. INFLATION RISK Also known as purchasing power risk, inflation risk measures the effects of continually rising prices on investments. If an investment's yield is lower than the rate of inflation, your money will have less purchasing power as time goes on. FOREIGN RISK The following are all components of foreign risk: COUNTRY RISK includes the political, economic, and other conditions of a country. These conditions include lack of publicly available information, less government oversight (including lack of accounting, auditing, and financial reporting standards), the possibility of government-imposed restrictions, and even the nationalization of assets. CURRENCY RISK results from the constantly changing exchange rate between local currency and the U.S. dollar. Whenever the Fund holds securities valued in a foreign currency or holds the currency, changes in the exchange rate add or subtract from the value of the investment. CUSTODY RISK refers to the process of clearing and settling trades. It also covers holding securities with local agents and depositories. Low trading volumes and volatile prices in less developed markets make trades harder to complete and settle. Local agents are held only to the standard of care of the local market. Governments or trade groups may compel local agents to hold securities in designated depositories that are not subject to independent evaluation. The less developed a country's securities market is, the greater the likelihood of problems occurring. - ------------------------------------------------------------------------------- PROSPECTUS -- JUNE 26, 2000 5p PAST PERFORMANCE The following bar chart and table indicate the risks and variability of investing in the Fund by showing: - - how the Fund's performance has varied for each full calendar year shown on the chart below, and - - how the Fund's average annual total returns compare to other recognized indexes. How the Fund has performed in the past does not indicate how the Fund will perform in the future. [GRAPH]
CLASS A PERFORMANCE (BASED ON CALENDAR YEARS) 1990 +1.74% 1991 +27.66% 1992 +6.82% 1993 +16.67% 1994 -2.86% 1995 +25.73% 1996 +19.41% 1997 +25.27% 1998 +19.28% 1999 +16.61%
During the period shown in the bar chart, the highest return for a calendar quarter was +19.31% (quarter ending December 1998) and the lowest return for a calendar quarter was -11.55% (quarter ending September 1998). The 5.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart; if reflected, returns would be lower than those shown. The performance of Class B, Class C and Class Y may vary from that shown above because of differences in sales charges and fees. The Fund's year to date return as of March 31, 2000 was +3.94%. - ------------------------------------------------------------------------------- 6p AXP STOCK FUND AVERAGE ANNUAL TOTAL RETURNS (AS OF DEC. 31, 1999)
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION Stock: Class A +9.90% +19.78% +14.51% --% Class B +11.72% --% --% +19.70%(a) Class Y +16.77% --% --% +20.98%(a) S&P 500 Index +21.04% +28.56% +18.21% +27.74%(b) Lipper Large-Cap Core Index +19.35% +25.32% +16.67% +24.81%(b)
(a) Inception date was March 20, 1995. (b) Measurement period started April 1, 1995. This table shows total returns from hypothetical investments in Class A, Class B and Class Y shares of the Fund. These returns are compared to the indexes shown for the same periods. The performance of Classes A, B and Y vary because of differences in sales charges and fees. Past performance for Class Y for the periods prior to March 20, 1995 may be calculated based on the performance of Class A, adjusted to reflect differences in sales charges, although not for other differences in expenses. Class C is new as of the date of this prospectus and therefore performance information is not available. FOR PURPOSES OF THIS CALCULATION WE ASSUMED: - - The maximum sales charge for Class A shares, - - sales at the end of the period and deduction of the applicable contingent deferred sales charge (CDSC) for Class B shares, - - no sales charge for Class Y shares, and - - no adjustments for taxes paid by an investor on the reinvested income and capital gains. Standard &Poor's 500 Index (S&P 500 Index), an unmanaged list of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. However, the S&P 500 companies may be generally larger than those in which the Fund invests. Lipper Large-Cap Core Index, an unmanaged index published by Lipper Inc., includes the 30 largest funds that are generally similar to the Fund, although some funds in the index may have somewhat different investment policies or objectives. - ------------------------------------------------------------------------------- PROSPECTUS -- JUNE 26, 2000 7p [GRAPHIC] FEES AND EXPENSES Fund investors pay various expenses. The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A CLASS B CLASS C CLASS Y Maximum sales charge (load) imposed on purchases(a) (as a percentage of offering price) 5.75%(b) none none none - --------------------------------------------------------------------------------------------------------------------- Maximum deferred sales charge (load) imposed on sales (as a percentage of offering price at time of purchase) none 5% 1%(c) none - ---------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES(d) (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS: CLASS A CLASS B CLASS C CLASS Y Management fees(c) 0.48% 0.48% 0.48% 0.48% Distribution (12b-1) fees 0.25% 1.00% 1.00% 0.00% Other expenses(f) 0.15% 0.17% 0.17% 0.24% Total 0.88% 1.65% 1.65% 0.72%
(a) This charge may be reduced depending on the value of your total investments in American Express mutual funds. See "Sales Charges." (b) For Class A purchases over $500,000 on which the sales charge is waived, a 1% sales charge applies if you sell your shares less than one year after purchase. (c) For Class C purchases, a 1% sales charge applies if you sell your shares less than one year after purchase. (d) Both in this table and the following example fund operating expenses include expenses charged by both the Fund and its Master Portfolio as described under "Management." Expenses for Class A, Class B and Class Y are based on actual expenses for the last fiscal year, restated to reflect current fees. Expenses for Class C are based on estimates for the current fiscal year. (e) Includes the impact of a performance adjustment fee that increased the management fee by 0.01% for the most recent fiscal year. (f) Other expenses include an administrative services fee, a shareholder services fee for Class Y, a transfer agency fee and other nonadvisory expenses. - ------------------------------------------------------------------------------- 8p AXP STOCK FUND 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 hold your shares until the end of the years shown, your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A(a) $660 $840 $1,035 $1,601 Class B(b) $568 $821 $ 998 $1,753(d) Class B(c) $168 $521 $ 898 $1,753(d) Class C $168 $521 $ 898 $1,960 Class Y $ 74 $230 $ 401 $ 898
(a) Includes a 5.75% sales charge. (b) Assumes you sold your Class B shares at the end of the period and incurred the applicable CDSC. (c) Assumes you did not sell your Class B shares at the end of the period. (d) Based on conversion of Class B shares to Class A shares in the ninth year of ownership. THIS EXAMPLE DOES NOT REPRESENT ACTUAL EXPENSES, PAST OR FUTURE. ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE SHOWN. [GRAPHIC] MANAGEMENT The Fund's assets are invested in Equity Portfolio (the Portfolio), which is managed by AEFC. Mike Kennedy, vice president and senior equity portfolio manager, joined AEFC in 1985. In 1993 he became director of research at AEFC. In 1996 he was promoted to vice president and director of global research. He has managed the assets of the Portfolio since July 1999. Buying and Selling Shares VALUING FUND SHARES The public offering price for Class A is the net asset value (NAV) adjusted for the sales charge. For Class B. Class C and Class Y, it is the NAV. The NAV is the value of a single Fund share. The NAV usually changes daily, and is calculated at the close of business of the New York Stock Exchange, normally 3 p.m. Central Time (CT), each business day (any day the New York Stock Exchange is open). - ------------------------------------------------------------------------------- PROSPECTUS -- JUNE 26, 2000 9p Fund shares may be purchased through various third-party organizations, including 401(k) plans, banks, brokers and investment advisers. Where authorized by the Fund, orders will be priced at the NAV next computed after receipt by the organization or their selected agent. The Fund's investments are valued based on market quotations, or where market quotations are not readily available, based on methods selected in good faith by the board. If the Fund's investment policies permit it to invest in securities that are listed on foreign stock exchanges that trade on weekends or other days when the Fund does not price its shares, the value of the Fund's underlying investments may change on days when you could not buy or sell shares of the Fund. Please see the SAI for further information. INVESTMENT OPTIONS 1. CLASS A shares are sold to the public with a sales charge at the time of purchase and an annual distribution (12b-1) fee of 0.25%. 2. CLASS B shares are sold to the public with a contingent deferred sales charge (CDSC) and an annual distribution fee of 1.00%. 3. CLASS C shares are sold to the public without a sales charge at the time of purchase and with an annual distribution fee of 1.00%. 4. CLASS Y shares are sold to qualifying institutional investors without a sales charge or distribution fee. Please see the SAI for information on eligibility to purchase Class Y shares. - ------------------------------------------------------------------------------- 10p AXP STOCK FUND INVESTMENT OPTIONS SUMMARY: The Fund offers four different classes of shares. There are differences among the fees and expenses for each class. Not everyone is eligible to buy every class. After determining which classes you are eligible to buy, decide which class best suits your needs. Your financial advisor can help you with this decision. The following table shows the key features of each class:
CLASS A CLASS B CLASS C CLASS Y - --------------------------------------------------------------------------------------------------------------------------- AVAILABILITY Available to Available to Available to Limited to qualifying all investors. all investors. all investors. institutional investors. - --------------------------------------------------------------------------------------------------------------------------- INITIAL SALES CHARGE Yes.Payable at time No. Entire purchase No. Entire purchase No. Entire purchase of purchase. Lower price is invested in price is invested in price is invested in sales charge for shares of the Fund. shares of the Fund. shares of the Fund. larger investments. - --------------------------------------------------------------------------------------------------------------------------- DEFERRED SALES CHARGE On purchases over Maximum 5% 1% CDSC applies if None. $500,000, 1% CDSC during the first year you sell your shares applies if you sell decreasing to 0% less than 1 year your shares less than after six years. after purchase. 1 year after purchase. - --------------------------------------------------------------------------------------------------------------------------- DISTRIBUTION AND/OR Yes.* Yes.* Yes.* Yes. SHAREHOLDER SERVICE FEE 0.25% 1.00% 1.00% 0.10% - --------------------------------------------------------------------------------------------------------------------------- CONVERSION TO CLASS A N/A Yes, automatically in No. No. ninth calendar year of ownership. - ---------------------------------------------------------------------------------------------------------------------------
* The Fund has adopted a plan under Rule 12b-1 of the Investment Company Act of 1940 that allows it to pay distribution and servicing-related expenses for the sale of Class A, Class B and Class C shares. Because these fees are paid out of the Fund's assets on an on-going basis, the fees may cost long-term shareholders more than paying other types of sales charges imposed by some mutual funds. SHOULD YOU PURCHASE CLASS A, CLASS B OR CLASS C SHARES? If your investments in American Express mutual funds total $250,000 or more, Class A shares may be the better option because the sales charge is reduced for larger purchases. If you qualify for a waiver of the sales charge, Class A shares will be the best option. If you invest less than $250,000, consider how long you plan to hold your shares. Class B shares have a higher annual distribution fee than Class A shares and a CDSC for six years. Class B shares convert to Class A shares in the ninth calendar year of ownership. Class B shares purchased through reinvested dividends and distributions also will convert to Class A shares in the same proportion as the other Class B shares. - ------------------------------------------------------------------------------- PROSPECTUS -- JUNE 26, 2000 11p Class C shares also have a higher annual distribution fee than Class A shares. Class C shares have no sales charge if you hold the shares for one year or longer. Unlike Class B shares, Class C shares do not convert to Class A. As a result, you will pay a 1% distribution fee for as long as you hold Class C shares. If you choose a deferred sales charge option (Class B or Class C), generally you should consider Class B shares if you intend to hold your shares for more than six years. Consider Class C shares if you intend to hold your shares less than six years. To help you determine what investment is best for you, consult your financial advisor. PURCHASING SHARES TO PURCHASE SHARES THROUGH A BROKERAGE ACCOUNT OR FROM ENTITIES OTHER THAN AMERICAN EXPRESS FINANCIAL ADVISORS INC., PLEASE CONSULT YOUR SELLING AGENT. THE FOLLOWING SECTION EXPLAINS HOW YOU CAN PURCHASE SHARES FROM AMERICAN EXPRESS FINANCIAL ADVISORS (THE DISTRIBUTOR). If you do not have a mutual fund account, you need to establish one. Your financial advisor will help you fill out and submit an application. Once your account is set up, you can choose among several convenient ways to invest. When you purchase shares for a new or existing account, your order will be priced at the next NAV calculated after your order is accepted by the Fund. If your application does not specify which class of shares you are purchasing, we will assume you are investing in Class A shares. IMPORTANT: When you open an account, you must provide your correct Taxpayer Identification Number (TIN), which is either your Social Security or Employer Identification number. If you do not provide the correct TIN, you could be subject to backup withholding of 31% of taxable distributions and proceeds from certain sales and exchanges. You also could be subject to further penalties, such as: - - a $50 penalty for each failure to supply your correct TIN, - - a civil penalty of $500 if you make a false statement that results in no backup withholding, and - - criminal penalties for falsifying information. You also could be subject to backup withholding, if the IRS notifies us to do so, because you failed to report required interest or dividends on your tax return. - ------------------------------------------------------------------------------- 12p AXP STOCK FUND HOW TO DETERMINE THE CORRECT TIN
FOR THIS TYPE OF ACCOUNT: USE THE SOCIAL SECURITY OR EMPLOYER IDENTIFICATION NUMBER OF: Individual or joint account The individual or one of the owners listed on the joint account - --------------------------------------------------------------------------------------------------------------------------------- Custodian account of a minor The minor (Uniform Gifts/Transfers to Minors Act) - --------------------------------------------------------------------------------------------------------------------------------- A revocable living trust The grantor-trustee (the person who puts the money into the trust) - --------------------------------------------------------------------------------------------------------------------------------- An irrevocable trust, pension trust or estate The legal entity (not the personal representative or trustee, unless no legal entity is designated in the account title) - --------------------------------------------------------------------------------------------------------------------------------- Sole proprietorship The owner - --------------------------------------------------------------------------------------------------------------------------------- Partnership The partnership - --------------------------------------------------------------------------------------------------------------------------------- Corporate The corporation - --------------------------------------------------------------------------------------------------------------------------------- Association, club or tax-exempt organization The organization - ---------------------------------------------------------------------------------------------------------------------------------
For details on TIN requirements, contact your financial advisor to obtain a copy of federal Form W-9, "Request for Taxpayer Identification Number and Certification." You also may obtain the form on the Internet at (http://www.irs.gov/prod/forms_pubs/). THREE WAYS TO INVEST 1 BY MAIL: [GRAPHIC] Once your account has been established, send your check with the account number on it to: AMERICAN EXPRESS FUNDS 70200 AXP FINANCIAL CENTER MINNEAPOLIS, MN 55474
MINIMUM AMOUNTS Initial investment: $2,000 Additional investments: $100 Account balances: $300 Qualified accounts: none
If your account balance falls below $300, you will be asked to increase it to $300 or establish a scheduled investment plan. If you do not do so within 30 days, your shares can be sold and the proceeds mailed to you. - ------------------------------------------------------------------------------- PROSPECTUS -- JUNE 26, 2000 13p 2 BY SCHEDULED INVESTMENT PLAN: [GRAPHIC] Contact your financial advisor for assistance in setting up one of the following scheduled plans: - - automatic payroll deduction, - - bank authorization, - - direct deposit of Social Security check, or - - other plan approved by the Fund.
MINIMUM AMOUNTS Initial investment: $100 Additional investments: $50/mo. for qualified accounts; $100/mo. for nonqualified accounts Account balances: none (on active plans with monthly payments)
If your account balance is below $2,000, you must make payments at least monthly. 3 BY WIRE OR ELECTRONIC FUNDS TRANSFER: [GRAPHIC] If you have an established account, you may wire money to: NORWEST BANK MINNESOTA (UNTIL JULY 2000) WELLS FARGO BANK MINNESOTA N. A. (AFTER JULY 2000) ROUTING TRANSIT NO. 091000019 Give these instructions: Credit American Express Financial Advisors Account #0000030015 for personal account # (your account number) for (your name). Please remember that you need to provide all 10 digits. If this information is not included, the order may be rejected, and all money received by the Fund, less any costs the Fund or American Express Client Service Corporation (AECSC) incurs, will be returned promptly.
MINIMUM AMOUNTS Each wire investment: $1,000
- ------------------------------------------------------------------------------- 14p AXP STOCK FUND TRANSACTIONS THROUGH THIRD PARTIES You may buy or sell shares through certain 401(k) plans, banks, broker-dealers, financial advisors or other investment professionals. These organizations may charge you a fee for this service and may have different policies. Some policy differences may include different minimum investment amounts, exchange privileges, fund choices and cutoff times for investments. The Fund and the Distributorare not responsible for the failure of one of these organizations to carry out its obligations to its customers. Some organizations may receive compensation from the Distributoror its affiliates for shareholder recordkeeping and similar services. Where authorized by the Fund, some organizations may designate selected agents to accept purchase or sale orders on the Fund's behalf. To buy or sell shares through third parties or determine if there are policy differences, please consult your selling agent. For other pertinent information related to buying or selling shares, please refer to the appropriate section in the prospectus. SALES CHARGES CLASS A -- INITIAL SALES CHARGE ALTERNATIVE When you purchase Class A shares, you pay a sales charge as shown in the following table:
TOTAL INVESTMENT SALES CHARGE AS PERCENTAGE OF: PUBLIC OFFERING PRICE(a) NET AMOUNT INVESTED Up to $50,000 5.75% 6.10% $50,000 - $99,999 4.75 4.99 $100,000 - $249,999 3.75 3.90 $250,000 - $499,999 2.50 2.56 $500,000 - $999,999 2.00* 2.04* $1,000,000 or more 0.00 0.00
(a) Offering price includes the sales charge. * The sales charge will be waived until Dec. 31, 2000. THE SALES CHARGE ON CLASS A SHARES MAY BE LOWER THAN 5.75%, BASED ON THE COMBINED MARKET VALUE OF: - - your current investment in this Fund, - - your previous investment in this Fund, and - ------------------------------------------------------------------------------- PROSPECTUS -- JUNE 26, 2000 15p - - investments you and your primary household group have made in other American Express mutual funds that have a sales charge. (The primary household group consists of accounts in any ownership for spouses or domestic partners and their unmarried children under 21. For purposes of this policy, domestic partners are individuals who maintain a shared primary residence and have joint property or other insurable interests.) AXP Tax-Free Money Fund and Class A shares of AXP Cash Management Fund do not have sales charges. OTHER CLASS A SALES CHARGE POLICIES: - - IRA purchases or other employee benefit plan purchases made through a payroll deduction plan or through a plan sponsored by an employer, association of employers, employee organization or other similar group, may be added together to reduce sales charges for all shares purchased through that plan, and - - if you intend to invest more than $50,000 over a period of 13 months, you can reduce the sales charges in Class A by filing a letter of intent. For more details, please contact your financial advisor or see the SAI. WAIVERS OF THE SALES CHARGE FOR CLASS A SHARES Sales charges do not apply to: - - current or retired board members, officers or employees of the Fund or AEFC or its subsidiaries, their spouses or domestic partners, children and parents. - - current or retired American Express financial advisors, employees of financial advisors, their spouses or domestic partners, children and parents. - - registered representatives and other employees of brokers, dealers or other financial institutions having a sales agreement with the Distributor, including their spouses, domestic partners, children and parents. - - investors who have a business relationship with a newly associated financial advisor who joined the Distributor from another investment firm provided that (1) the purchase is made within six months of the advisor's appointment date with the Distributor, (2) the purchase is made with proceeds of shares sold that were sponsored by the financial advisor's previous broker-dealer, and (3) the proceeds are the result of a sale of an equal or greater value where a sales load was assessed. - - qualified employee benefit plans offering participants daily access to American Express mutual funds. Eligibility must be determined in advance. For assistance, please contact your financial advisor. (Participants in certain qualified plans where the initial sales charge is waived may be subject to a deferred sales charge of up to 4%.) - ------------------------------------------------------------------------------- 16p AXP STOCK FUND - - shareholders who have at least $1 million invested in American Express mutual funds. Until Dec. 31, 2000, the sales charge does not apply to shareholders who have at least $500,000 invested in American Express mutual fund. If the investment is sold less than one year after purchase, a CDSC of 1% will be charged. During that year, the CDSC will be waived only in the circumstances described for waivers for Class B and Class C shares. - - purchases made within 90 days after a sale of shares (up to the amount sold): -- of American Express mutual funds in a qualified plan subject to a deferred sales charge, or -- in a qualified plan or account where American Express Trust Company has a recordkeeping, trustee, investment management, or investment servicing relationship. Send the Fund a written request along with your payment, indicating the date and the amount of the sale. - - purchases made: -- with dividend or capital gain distributions from this Fund or from the same class of another American Express mutual fund, -- through or under a wrap fee product or other investment product sponsored by the Distributor or another authorized broker-dealer, investment advisor, bank or investment professional, -- within the University of Texas System ORP, -- within a segregated separate account offered by Nationwide Life Insurance Company or Nationwide Life and Annuity Insurance Company, -- within the University of Massachusetts After-Tax Savings Program, or -- through or under a subsidiary of AEFC offering Personal Trust Services' Asset-Based pricing alternative. - - shareholders whose original purchase was in a Strategist fund merged into an American Express fund in 2000. - ------------------------------------------------------------------------------- PROSPECTUS -- JUNE 26, 2000 17p CLASS B AND CLASS C -- CONTINGENT DEFERRED SALES CHARGE (CDSC) ALTERNATIVE FOR CLASS B, the CDSC is based on the sale amount and the number of calendar years--including the year of purchase--between purchase and sale. The following table shows how CDSC percentages on sales decline after a purchase:
IF THE SALE IS MADE DURING THE: THE CDSC PERCENTAGE RATE IS: First year 5% Second year 4% Third year 4% Fourth year 3% Fifth year 2% Sixth year 1% Seventh year 0%
FOR CLASS C, a 1% CDSC is charged if you sell your shares less than 1 year after purchase. For both Class B and Class C, if the amount you are selling causes the value of your investment to fall below the cost of the shares you have purchased, the CDSC is based on the lower of the cost of those shares purchased or market value. Because the CDSC is imposed only on sales that reduce your total purchase payments, you never have to pay a CDSC on any amount that represents appreciation in the value of your shares, income earned by your shares, or capital gains. In addition, the CDSC on your sale, if any, will be based on your oldest purchase payment. The CDSC on the next amount sold will be based on the next oldest purchase payment. EXAMPLE: Assume you had invested $10,000 in Class B shares and that your investment had appreciated in value to $12,000 after 15 months, including reinvested dividends and capital gain distributions. You could sell up to $2,000 worth of shares without paying a CDSC ($12,000 current value less $10,000 purchase amount). If you sold $2,500 worth of shares, the CDSC would apply to the $500 representing part of your original purchase price. The CDSC rate would be 4% because the sale was made during the second year after the purchase. WAIVERS OF THE SALES CHARGE FOR CLASS B AND CLASS C SHARES The CDSC will be waived on sales of shares: - - in the event of the shareholder's death, - - held in trust for an employee benefit plan, or - ------------------------------------------------------------------------------- 18p AXP STOCK FUND - - held in IRAs or certain qualified plans if American Express Trust Company is the custodian, such as Keogh plans, tax-sheltered custodial accounts or corporate pension plans, provided that the shareholder is: -- at least 59 1/2 years old AND -- taking a retirement distribution (if the sale is part of a transfer to an IRA or qualified plan, or a custodian-to-custodian transfer, the CDSC will not be waived) OR -- selling under an approved substantially equal periodic payment arrangement. EXCHANGING/SELLING SHARES EXCHANGES You can exchange your Fund shares at no charge for shares of the same class of any other publicly offered American Express mutual fund. Exchanges into AXP Tax-Free Money Fund may only be made from Class A shares. For complete information on the other fund, including fees and expenses, read that fund's prospectus carefully. Your exchange will be priced at the next NAV calculated after it is accepted by that fund. YOU MAY MAKE UP TO THREE EXCHANGES (1 1/2 ROUND TRIPS) WITHIN ANY 30-DAY PERIOD. These limits do not apply to scheduled exchange programs and certain employee benefit plans. Exceptions may be allowed with pre-approval of the Fund. Other exchange policies: - - Exchanges must be made into the same class of shares of the new fund. - - If your exchange creates a new account, it must satisfy the minimum investment amount for new purchases. - - Once we receive your exchange request, you cannot cancel it. - - Shares of the new fund may not be used on the same day for another exchange. - - If your shares are pledged as collateral, the exchange will be delayed until AECSC receives written approval from the secured party. AECSC and the Fund reserve the right to reject any exchange, limit the amount, or modify or discontinue the exchange privilege, to prevent abuse or adverse effects on the Fund and its shareholders. For example, if exchanges are too numerous or too large, they may disrupt the Fund's investment strategies or increase its costs. - ------------------------------------------------------------------------------- PROSPECTUS -- JUNE 26, 2000 19p SELLING SHARES You can sell your shares at any time. The payment will be mailed within seven days after accepting your request. When you sell shares, 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 accepted by the Fund, minus any applicable CDSC. You can change your mind after requesting a sale and use all or part of the proceeds to purchase new shares in the same account from which you sold. If you reinvest in Class A, you will purchase the new shares at NAV rather than the offering price on the date of a new purchase. If you reinvest in Class B or Class C, any CDSC you paid on the amount you are reinvesting also will be reinvested. To take advantage of this option, send a request within 90 days of the date your sale request was received and include your account number. This privilege may be limited or withdrawn at any time and may have tax consequences. The Fund reserves the right to redeem in kind. For more details and a description of other sales policies, please see the SAI. - ------------------------------------------------------------------------------- 20p AXP STOCK FUND TO SELL OR EXCHANGE SHARES HELD THROUGH A BROKERAGE ACCOUNT OR WITH ENTITIES OTHER THAN AMERICAN EXPRESS FINANCIAL ADVISORS, PLEASE CONSULT YOUR SELLING AGENT. THE FOLLOWING SECTION EXPLAINS HOW YOU CAN EXCHANGE OR SELL SHARES HELD WITH AMERICAN EXPRESS FINANCIAL ADVISORS. Requests to sell shares of the Fund are not allowed within 30 days of a telephoned-in address change. IMPORTANT: If you request a sale of shares you recently purchased by a check or money order that is not guaranteed, the Fund will wait for your check to clear. It may take up to 10 days from the date of purchase before payment is made. (Payment may be made earlier if your bank provides evidence satisfactory to the Fund and AECSC that your check has cleared.) TWO WAYS TO REQUEST AN EXCHANGE OR SALE OF SHARES 1 BY LETTER: [GRAPHIC] Include in your letter: - - the name of the fund(s), - - the class of shares to be exchanged or sold, - - your mutual fund account number(s) (for exchanges, both funds must be registered in the same ownership), - - your Social Security number or Employer Identification number, - - the dollar amount or number of shares you want to exchange or sell, - - signature(s) of all registered account owners, o for sales, indicate how you want your money delivered to you, and o any paper certificates of shares you hold. REGULAR OR EXPRESS MAIL: AMERICAN EXPRESS FUNDS 70100 AXP FINANCIAL CENTER MINNEAPOLIS, MN 55474 - ------------------------------------------------------------------------------- PROSPECTUS -- JUNE 26, 2000 21p 2 BY TELEPHONE: [GRAPHIC] American Express Client Service Corporation Telephone Transaction Service 800-437-3133 - - The Fund and AECSC will use reasonable procedures to confirm authenticity of telephone exchange or sale requests. - - Telephone exchange and sale privileges automatically apply to all accounts except custodial, corporate or qualified retirement accounts. You may request that these privileges NOT apply by writing AECSC. Each registered owner must sign the request. - - Acting on your instructions, your financial advisor may conduct telephone transactions on your behalf. - - Telephone privileges may be modified or discontinued at any time. MINIMUM SALE AMOUNT: $100 MAXIMUM SALE AMOUNT: $50,000 - ------------------------------------------------------------------------------- 22p AXP STOCK FUND THREE WAYS TO RECEIVE PAYMENT WHEN YOU SELL SHARES 1 BY REGULAR OR EXPRESS MAIL: [GRAPHIC] - - Mailed to the address on record. - - Payable to names listed on the account. NOTE: The express mail delivery charges you pay will vary depending on the courier you select. 2 BY WIRE OR ELECTRONIC FUNDS TRANSFER: [GRAPHIC] - - Minimum wire: $1,000. - - Request that money be wired to your bank. - - Bank account must be in the same ownership as the American Express mutual fund account. NOTE: Pre-authorization required. For instructions, contact your financial advisor or AECSC. 3 BY SCHEDULED PAYOUT PLAN: [GRAPHIC] - - Minimum payment: $50. - - Contact your financial advisor or AECSC to set up regular payments on a monthly, bimonthly, quarterly, semiannual or annual basis. - - Purchasing new shares while under a payout plan may be disadvantageous because of the sales charges. - ------------------------------------------------------------------------------- PROSPECTUS -- JUNE 26, 2000 23p Distributions and Taxes As a shareholder you are entitled to your share of the Fund's net income and net gains. The Fund distributes dividends and capital gains to qualify as a regulated investment company and to avoid paying corporate income and excise taxes. DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS The Fund's net investment income is distributed to you as DIVIDENDS. Capital gains are realized when a security is sold for a higher price than was paid for it. Each realized capital gain or loss is long-term or short-term depending on the length of time the Fund held the security. Realized capital gains and 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. REINVESTMENTS Dividends and capital gain distributions are automatically reinvested in additional shares in the same class of the Fund, unless: - - you request distributions in cash, or - - you direct the Fund to invest your distributions in the same class of any publicly offered American Express mutual fund for which you have previously opened an account. We reinvest the distributions for you at the next calculated NAV after the distribution is paid. If you choose cash distributions, you will receive cash only for distributions declared after your request has been processed. - ------------------------------------------------------------------------------- 24p AXP STOCK FUND TAXES Distributions are subject to federal income tax and may be subject to state and local taxes in the year they are declared. You must report distributions on your tax returns, even if they are reinvested in additional shares. If you buy shares shortly before the record date of a distribution you may pay taxes on money earned by the Fund before you were a shareholder. You will pay the full pre-distribution price for the shares, then receive a portion of your investment back as a distribution, which may be taxable. For tax purposes, an exchange is considered a sale and purchase, and may result in a gain or loss. A sale is a taxable transaction. If you sell shares for less than their cost, the difference is a capital loss. If you sell shares for more than their cost, the difference is a capital gain. Your gain may be short term (for shares held for one year or less) or long term (for shares held for more than one year). If you buy Class A shares and within 91 days exchange into another fund, you may not include the sales charge in your calculation of tax gain or loss on the sale of the first fund you purchased. The sales charge may be included in the calculation of your tax gain or loss on a subsequent sale of the second fund you purchased. Selling shares held in an IRA or qualified retirement account may subject you to federal taxes, penalties and reporting requirements. Please consult your tax advisor. IMPORTANT: This information is a brief and selective summary of some of the tax rules that apply to this Fund. Because tax matters are highly individual and complex, you should consult a qualified tax advisor. - ------------------------------------------------------------------------------- PROSPECTUS -- JUNE 26, 2000 25p [GRAPHIC] Master/Feeder Structure This Fund uses a master/feeder structure. This means that the Fund (a feeder fund) invests all of its assets in the Portfolio (the master fund). The master/feeder structure offers the potential for reduced costs because it spreads fixed costs of portfolio management over a larger pool of assets. The Fund may withdraw its assets from the Portfolio at any time if the Fund's board determines that it is best. In that event, the board would consider what action should be taken, including whether to hire an investment advisor to manage the Fund's assets directly or to invest all of the Fund's assets in another pooled investment entity. Here is an illustration of the structure: Investors buy shares in the Fund The Fund buys units in the Portfolio The Portfolio invests in securities, such as stocks or bonds Other feeders may include mutual funds and institutional accounts. These feeders buy the Portfolio's securities on the same terms and conditions as the Fund and pay their proportionate share of the Portfolio's expenses. However, their operating costs and sales charges are different from those of the Fund. Therefore, the investment returns for other feeders are different from the returns of the Fund. - ------------------------------------------------------------------------------- 26p AXP STOCK FUND Other Information INVESTMENT MANAGER The investment manager of the Portfolio is AEFC, 200 AXP Financial Center, Minneapolis, MN 55474. The Portfolio pays AEFC a fee for managing its assets. The Fund pays its proportionate share of the fee. Under the Investment Management Services Agreement, the fee for the most recent fiscal year was 0.48% of its average daily net assets. Under the agreement, the Portfolio also pays taxes, brokerage commissions and nonadvisory expenses. AEFC or an affiliate may make payments from its own resources, which include management fees paid by the Fund, to compensate broker-dealers or other persons for providing distribution assistance. AEFC is a wholly-owned subsidiary of American Express Company, a financial services company with headquarters at American Express Tower, World Financial Center, New York, NY 10285. - ------------------------------------------------------------------------------- PROSPECTUS -- JUNE 26, 2000 27p [GRAPHIC] Financial Highlights FISCAL PERIOD ENDED SEPT. 30,
PER SHARE INCOME AND CAPITAL CHANGES(a) CLASS A 2000(f) 1999 1998 1997 1996(b) 1995 Net asset value, beginning of period $26.14 $24.18 $27.44 $22.49 $19.96 $19.48 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07 .24 .29 .39 .43 .52 Net gains (losses) (both realized and unrealized) 5.69 4.00 .22 6.11 3.17 1.96 - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations 5.76 4.24 .51 6.50 3.60 2.48 - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.08) (.24) (.30) (.43) (.39) (.49) Distributions from realized gains (3.13) (2.04) (3.47) (1.12) (.68) (1.51) - --------------------------------------------------------------------------------------------------------------------------- Total distributions (3.21) (2.28) (3.77) (1.55) (1.07) (2.00) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $28.69 $26.14 $24.18 $27.44 $22.49 $19.96 - --------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $3,644 $3,105 $2,783 $2,877 $2,307 $1,984 - --------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c) .86%(d) .82% .77% .78% .80%(d) .79% - --------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets .54%(d) .90% 1.14% 1.58% 2.19%(d) 2.61% - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 22% 76% 79% 82% 71% 69% - --------------------------------------------------------------------------------------------------------------------------- Total return(e) 22.85% 17.71% 2.04% 30.22% 18.60% 14.44% - ---------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) The Fund's fiscal year-end was changed from Oct. 31 to Sept. 30, effective 1996. (c) Effective fiscal period 1996, expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Six months ended March 31, 2000 (Unaudited). - ------------------------------------------------------------------------------- 28p AXP STOCK FUND FISCAL PERIOD ENDED SEPT. 30,
PER SHARE INCOME AND CAPITAL CHANGES(a) CLASS B 2000(g) 1999 1998 1997 1996(b) 1995(c) Net asset value, beginning of period $25.97 $24.05 $27.32 $22.42 $19.91 $18.03 - ------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) -- .06 .10 .22 .28 .27 Net gains (losses) (both realized and unrealized) 5.61 3.96 .21 6.05 3.17 1.92 - ------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 5.61 4.02 .31 6.27 3.45 2.19 - ------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income -- (.06) (.11) (.25) (.26) (.31) Distributions from realized gains (3.13) (2.04) (3.47) (1.12) (.68) -- - ------------------------------------------------------------------------------------------------------------------------------- Total distributions (3.13) (2.10) (3.58) (1.37) (.94) (.31) - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $28.45 $25.97 $24.05 $27.32 $22.42 $19.91 - ------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $442 $349 $258 $203 $107 $29 - ------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(d) 1.63%(e) 1.59% 1.53% 1.55% 1.57%(e) 1.61%(e) - ------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets (.22%)(e) .12% .39% .85% 1.61%(e) 1.37%(e) - ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 22% 76% 79% 82% 71% 69% - ------------------------------------------------------------------------------------------------------------------------------- Total return(f) 22.39% 16.81% 1.27% 29.23% 17.78% 12.10% - -------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) The Fund's fiscal year-end was changed from Oct. 31 to Sept. 30, effective 1996. (c) Inception date was March 20, 1995. (d) Effective fiscal period 1996, expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Six months ended March 31, 2000 (Unaudited). - ------------------------------------------------------------------------------- PROSPECTUS -- JUNE 26, 2000 29p FISCAL PERIOD ENDED SEPT. 30,
PER SHARE INCOME AND CAPITAL CHANGES(a) CLASS Y 2000(g) 1999 1998 1997 1996(b) 1995(c) Net asset value, beginning of period $26.14 $24.18 $27.44 $22.49 $19.96 $18.03 - ------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .10 .27 .31 .42 .47 .29 Net gains (losses) (both realized and unrealized) 5.68 4.00 .22 6.11 3.17 2.01 - ------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 5.78 4.27 .53 6.53 3.64 2.30 - ------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) (.27) (.32) (.46) (.43) (.37) Distributions from realized gains (3.13) (2.04) (3.47) (1.12) (.68) -- - ------------------------------------------------------------------------------------------------------------------------------- Total distributions (3.23) (2.31) (3.79) (1.58) (1.11) (.37) - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $28.69 $26.14 $24.18 $27.44 $22.49 $19.96 - ------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $1,081 $1,063 $1,027 $1,082 $870 $738 - ------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(d) .71%(e) .72% .70% .66% .63%(e) .64%(e) - ------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets .70%(e) 1.00% 1.21% 1.71% 2.36%(e) 2.38%(e) - ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 22% 76% 79% 82% 71% 69% - ------------------------------------------------------------------------------------------------------------------------------- Total return(f) 22.93% 17.81% 2.12% 30.38% 18.79% 12.80% - -------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) The Fund's fiscal year-end was changed from Oct. 31 to Sept. 30, effective 1996. (c) Inception date was March 20, 1995. (d) Effective fiscal period 1996, expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Six months ended March 31, 2000 (Unaudited). The information in these tables has been audited by KPMG LLP, independent auditors. The independent auditors' report and additional information about the performance of the Fund are contained in the Fund's annual report which, if not included with this prospectus, may be obtained without charge. - ------------------------------------------------------------------------------- 30p AXP STOCK FUND THIS PAGE LEFT BLANK INTENTIONALLY AMERICAN EXPRESS-Registered Trademark- FUNDS This Fund, along with the other American Express mutual funds, is distributed by American Express Financial Advisors Inc. and can be purchased from an American Express financial advisor or from other authorized broker-dealers or third parties. The Funds can be found under the "Amer Express" banner in most mutual fund quotations. Additional information about the Fund and its investments is available in the Fund's Statement of Additional Information (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 its 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 contact your selling agent or American Express Client Service Corporation. American Express Funds 70100 AXP Financial Center, Minneapolis, MN 55474 800-862-7919 TTY: 800-846-4852 Web site address: http://www.americanexpress.com/advisors 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 #811-498 TICKER SYMBOL CLASS A: INSTX CLASS B: IDSBX CLASS C: N/A CLASS Y: IDSYX [LOGO] S-6351-99 T (6/00) STATEMENT OF ADDITIONAL INFORMATION FOR AXPSM STOCK FUND (the Fund) Nov. 29, 1999 Revised as of June 26, 2000 This Statement of Additional Information (SAI) is not a prospectus. It should be read together with the prospectus and the financial statements contained in the most recent Annual Report to shareholders (Annual Report) that may be obtained from your American Express financial advisor or by writing to American Express Client Service Corporation, P.O. Box 534, Minneapolis, MN 55440-0534 or by calling 800-862-7919. The Independent Auditors' Report and the Financial Statements, including Notes to the Financial Statements and the Schedule of Investments in Securities, contained in the Annual Report are incorporated in this SAI by reference. No other portion of the Annual Report, however, is incorporated by reference. The prospectus for the Fund, dated the same date as this SAI, also is incorporated in this SAI by reference. TABLE OF CONTENTS Mutual Fund Checklist.................................................p. 3 Fundamental Investment Policies.......................................p. 5 Investment Strategies and Types of Investments........................p. 7 Information Regarding Risks and Investment Strategies.................p. 9 Security Transactions.................................................p. 31 Brokerage Commissions Paid to Brokers Affiliated with American Express Financial Corporation................................p. 32 Performance Information...............................................p. 33 Valuing Fund Shares...................................................p. 34 Investing in the Fund.................................................p. 35 Selling Shares........................................................p. 37 Pay-out Plans.........................................................p. 38 Taxes.................................................................p. 39 Agreements............................................................p. 41 Organizational Information............................................p. 44 Board Members and Officers............................................p. 47 Compensation for Board Members........................................p. 49 Independent Auditors..................................................p. 49 Appendix: Description of Ratings.....................................p. 50 MUTUAL FUND CHECKLIST - ------------------------------------------------------------------------------- |X| Mutual funds are NOT guaranteed or insured by any bank or government agency. You can lose money. |X| Mutual funds ALWAYS carry investment risks. Some types carry more risk than others. |X| A higher rate of return typically involves a higher risk of loss. |X| Past performance is not a reliable indicator of future performance. |X| ALL mutual funds have costs that lower investment return. |X| You can buy some mutual funds by contacting them directly. Others, like this one, are sold mainly through brokers, banks, financial planners, or insurance agents. If you buy through these financial professionals, you generally will pay a sales charge. |X| Shop around. Compare a mutual fund with others of the same type before you buy. OTHER IDEAS FOR SUCCESSFUL MUTUAL FUND INVESTING: Develop a Financial Plan Have a plan - even a simple plan can help you take control of your financial future. Review your plan with your advisor at least once a year or more frequently if your circumstances change. Dollar-Cost Averaging An investment technique that works well for many investors is one that eliminates random buy and sell decisions. One such system is dollar-cost averaging. Dollar-cost averaging involves building a portfolio through the investment of fixed amounts of money on a regular basis regardless of the price or market condition. This may enable an investor to smooth out the effects of the volatility of the financial markets. By using this strategy, more shares will be purchased when the price is low and less when the price is high. As the accompanying chart illustrates, dollar-cost averaging tends to keep the average price paid for the shares lower than the average market price of shares purchased, although there is no guarantee. While this does not ensure a profit and does not protect against a loss if the market declines, it is an effective way for many shareholders who can continue investing through changing market conditions to accumulate shares to meet long-term goals. Dollar-cost averaging: - ------------------------------------------------------------- Regular Market Price Shares Investment of a Share Acquired - ------------------------------------------------------------- $100 $6.00 16.7 100 4.00 25.0 100 4.00 25.0 100 6.00 16.7 100 5.00 20.0 ----- -------- ------ $500 $25.00 103.4 Average market price of a share over 5 periods: $5.00 ($25.00 divided by 5) The average price you paid for each share: $4.84 ($500 divided by 103.4) Diversify Diversify your portfolio. By investing in different asset classes and different economic environments you help protect against poor performance in one type of investment while including investments most likely to help you achieve your important goals. Understand Your Investment Know what you are buying. Make sure you understand the potential risks, rewards, costs, and expenses associated with each of your investments. FUNDAMENTAL INVESTMENT POLICIES - ------------------------------------------------------------------------------- The Fund pursues its investment objective by investing all of its assets in Equity Portfolio (the Portfolio) of Growth and Income Trust (the Trust), a separate investment company, rather than by directly investing in and managing its own portfolio of securities. The Portfolio has the same investment objectives, policies, and restrictions as the Fund. References to "Fund" in this SAI, where applicable, refer to the Fund and Portfolio, collectively, to the Fund, singularly, or to the Portfolio, singularly. Fundamental investment policies adopted by the Fund cannot be changed without the approval of a majority of the outstanding voting securities of the Fund as defined in the Investment Company Act of 1940, as amended (the 1940 Act). Notwithstanding any of the Fund's other investment policies, the Fund may invest its assets in an open-end management investment company having substantially the same investment objectives, policies, and restrictions as the Fund for the purpose of having those assets managed as part of a combined pool. The policies below are fundamental policies that apply to the Fund and may be changed only with shareholder approval. Unless holders of a majority of the outstanding voting securities agree to make the change, the Fund will not: o Act as an underwriter (sell securities for others). However, under the securities laws, the Fund may be deemed to be an underwriter when it purchases securities directly from the issuer and later resells them. o Borrow money or property, except as a temporary measure for extraordinary or emergency purposes, in an amount not exceeding one-third of the market value of its total assets (including borrowings) less liabilities (other than borrowings) immediately after the borrowing. o Make cash loans if the total commitment amount exceeds 5% of the Fund's total assets. o Concentrate in any one industry. According to the present interpretation by the Securities and Exchange Commission (SEC), this means no more than 25% of the Fund's total assets, based on current market value at time of purchase, can be invested in any one industry. o Purchase more than 10% of the outstanding voting securities of an issuer. o Invest more than 5% of its total assets in securities of any one company, government, or political subdivision thereof, except the limitation will not apply to investments in securities issued by the U.S. government, its agencies, or instrumentalities, and except that up to 25% of the Fund's total assets may be invested without regard to this 5% limitation. o Buy or sell real estate, unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the Fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business or real estate investment trusts. For purposes of this policy, real estate includes real estate limited partnerships. o Buy or sell physical commodities unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the Fund from buying or selling options and futures contracts or from investing in securities or other instruments backed by, or whose value is derived from, physical commodities. o Lend Fund securities in excess of 30% of its net assets. Except for the fundamental investment policies listed above, the other investment policies described in the prospectus and in this SAI are not fundamental and may be changed by the board at any time. INVESTMENT STRATEGIES AND TYPES OF INVESTMENTS - ------------------------------------------------------------------------------- This table shows various investment strategies and investments that many funds are allowed to engage in and purchase. It is intended to show the breadth of investments that the investment manager may make on behalf of the Fund. For a description of principal risks, please see the prospectus. Notwithstanding the Fund's ability to utilize these strategies and techniques, the investment manager is not obligated to use them at any particular time. For example, even though the investment manager is authorized to adopt temporary defensive positions and is authorized to attempt to hedge against certain types of risk, these practices are left to the investment manager's sole discretion. - --------------------------------------------------- -------------------------- AXP Stock Fund Investment strategies & types of investments: Allowable for the Fund? - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Agency and Government Securities yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Borrowing yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Cash/Money Market Instruments yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Collateralized Bond Obligations yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Commercial Paper yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Common Stock yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Convertible Securities yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Corporate Bonds yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Debt Obligations yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Depositary Receipts yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Derivative Instruments yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Foreign Currency Transactions yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Foreign Securities yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- High-Yield (High-Risk) Securities (Junk Bonds) yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Illiquid and Restricted Securities yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Indexed Securities yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Inverse Floaters no - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Investment Companies yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Lending of Portfolio Securities yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Loan Participations yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Mortgage- and Asset-Backed Securities yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Mortgage Dollar Rolls no - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Municipal Obligations yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Preferred Stock yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Real Estate Investment Trusts yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Repurchase Agreements yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Reverse Repurchase Agreements yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Short Sales no - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Sovereign Debt ye - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Structured Products yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Variable- or Floating-Rate Securities yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Warrants yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- When-Issued Securities yes - --------------------------------------------------- -------------------------- - --------------------------------------------------- -------------------------- Zero-Coupon, Step-Coupon, and Pay-in-Kind Securities yes - --------------------------------------------------- -------------------------- The following are guidelines that may be changed by the board at any time: o Under normal market conditions, at least 65% of the Fund's total assets will be invested in common stocks and securities convertible into common stock of U.S. and foreign companies. o The Fund will not invest more than 5% of its net assets in bonds below investment grade. o The Fund will not purchase securities rated below C by Moody's Investors Service, Inc. or Standard & Poor's Corporation or the equivalent. o The Fund may invest up to 25% of its total assets in foreign investments. o No more than 5% of the Fund's net assets can be used at any one time for god faith deposits on futures and premiums for options on futures that do not offset existing investment positions. o No more than 10% of the Fund's net assets will be held in securities and other instruments that are illiquid. o Ordinarily, less than 25% of the Fund's total assets are invested in money market instruments. o The Fund will not invest more than 10% of its net assets in securities of investment companies. o The Fund will not buy on margin or sell short, except the Fund may make margin payments in connection with transactions in stock index futures contracts. o The Fund will not invest in a company to control or manage it. INFORMATION REGARDING RISKS AND INVESTMENT STRATEGIES - ------------------------------------------------------------------------------- RISKS The following is a summary of common risk characteristics. Following this summary is a description of certain investments and investment strategies and the risks most commonly associated with them (including certain risks not described below and, in some cases, a more comprehensive discussion of how the risks apply to a particular investment or investment strategy). Please remember that a mutual fund's risk profile is largely defined by the fund's primary securities and investment strategies. However, most mutual funds are allowed to use certain other strategies and investments that may have different risk characteristics. Accordingly, one or more of the following types of risk will be associated with the Fund at any time (for a description of principal risks, please see the prospectus): Call/Prepayment Risk The risk that a bond or other security might be called (or otherwise converted, prepaid, or redeemed) before maturity. This type of risk is closely related to "reinvestment risk." Correlation Risk The risk that a given transaction may fail to achieve its objectives due to an imperfect relationship between markets. Certain investments may react more negatively than others in response to changing market conditions. Credit Risk The risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable to honor a financial obligation (such as payments due on a bond or a note). The price of junk bonds may react more to the ability of the issuing company to pay interest and principal when due than to changes in interest rates. Junk bonds have greater price fluctuations and are more likely to experience a default than investment grade bonds. Event Risk Occasionally, the value of a security may be seriously and unexpectedly changed by a natural or industrial accident or occurrence. Foreign/Emerging Markets Risk The following are all components of foreign/emerging markets risk: Country risk includes the political, economic, and other conditions of a country. These conditions include lack of publicly available information, less government oversight (including lack of accounting, auditing, and financial reporting standards), the possibility of government-imposed restrictions, and even the nationalization of assets. Currency risk results from the constantly changing exchange rate between local currency and the U.S. dollar. Whenever the Fund holds securities valued in a foreign currency or holds the currency, changes in the exchange rate add or subtract from the value of the investment. Custody risk refers to the process of clearing and settling trades. It also covers holding securities with local agents and depositories. Low trading volumes and volatile prices in less developed markets make trades harder to complete and settle. Local agents are held only to the standard of care of the local market. Governments or trade groups may compel local agents to hold securities in designated depositories that are not subject to independent evaluation. The less developed a country's securities market is, the greater the likelihood of problems occurring. Emerging markets risk includes the dramatic pace of change (economic, social, and political) in emerging market countries as well as the other considerations listed above. These markets are in early stages of development and are extremely volatile. They can be marked by extreme inflation, devaluation of currencies, dependence on trade partners, and hostile relations with neighboring countries. Inflation Risk Also known as purchasing power risk, inflation risk measures the effects of continually rising prices on investments. If an investment's yield is lower than the rate of inflation, your money will have less purchasing power as time goes on. Interest Rate Risk The risk of losses attributable to changes in interest rates. This term is generally associated with bond prices (when interest rates rise, bond prices fall). In general, the longer the maturity of a bond, the higher its yield and the greater its sensitivity to changes in interest rates. Issuer Risk The risk that an issuer, or the value of its stocks or bonds, will perform poorly. Poor performance may be caused by poor management decisions, competitive pressures, breakthroughs in technology, reliance on suppliers, labor problems or shortages, corporate restructurings, fraudulent disclosures, or other factors. Legal/Legislative Risk Congress and other governmental units have the power to change existing laws affecting securities. A change in law might affect an investment adversely. Leverage Risk Some derivative investments (such as options, futures, or options on futures) require little or no initial payment and base their price on a security, a currency, or an index. A small change in the value of the underlying security, currency, or index may cause a sizable gain or loss in the price of the instrument. Liquidity Risk Securities may be difficult or impossible to sell at the time that the Fund would like. The Fund may have to lower the selling price, sell other investments, or forego an investment opportunity. Management Risk The risk that a strategy or selection method utilized by the investment manager may fail to produce the intended result. When all other factors have been accounted for and the investment manager chooses an investment, there is always the possibility that the choice will be a poor one. Market Risk The market may drop and you may lose money. Market risk may affect a single issuer, sector of the economy, industry, or the market as a whole. The market value of all securities may move up and down, sometimes rapidly and unpredictably. Reinvestment Risk The risk that an investor will not be able to reinvest income or principal at the same rate it currently is earning. Sector/Concentration Risk Investments that are concentrated in a particular issuer, geographic region, or industry will be more susceptible to changes in price (the more you diversify, the more you spread risk). Small Company Risk Investments in small and medium companies often involve greater risks than investments in larger, more established companies because small and medium companies may lack the management experience, financial resources, product diversification, and competitive strengths of larger companies. In addition, in many instances the securities of small and medium companies are traded only over-the-counter or on regional securities exchanges and the frequency and volume of their trading is substantially less than is typical of larger companies. INVESTMENT STRATEGIES The following information supplements the discussion of the Fund's investment objectives, policies, and strategies that are described in the prospectus and in this SAI. The following describes many strategies that many mutual funds use and types of securities that they purchase. Please refer to the section entitled Investment Strategies and Types of Investments to see which are applicable to the Fund. Agency and Government Securities The U.S. government and its agencies issue many different types of securities. U.S. Treasury bonds, notes, and bills and securities including mortgage pass through certificates of the Government National Mortgage Association (GNMA) are guaranteed by the U.S. government. Other U.S. government securities are issued or guaranteed by federal agencies or government-sponsored enterprises but are not guaranteed by the U.S. government. This may increase the credit risk associated with these investments. Government-sponsored entities issuing securities include privately owned, publicly chartered entities created to reduce borrowing costs for certain sectors of the economy, such as farmers, homeowners, and students. They include the Federal Farm Credit Bank System, Farm Credit Financial Assistance Corporation, Federal Home Loan Bank, FHLMC, FNMA, Student Loan Marketing Association (SLMA), and Resolution Trust Corporation (RTC). Government-sponsored entities may issue discount notes (with maturities ranging from overnight to 360 days) and bonds. Agency and government securities are subject to the same concerns as other debt obligations. (See also Debt Obligations and Mortgage- and Asset-Backed Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with agency and government securities include: Call/Prepayment Risk, Inflation Risk, Interest Rate Risk, Management Risk, and Reinvestment Risk. Borrowing The Fund may borrow money from banks for temporary or emergency purposes and make other investments or engage in other transactions permissible under the 1940 Act that may be considered a borrowing (such as derivative instruments). Borrowings are subject to costs (in addition to any interest that may be paid) and typically reduce the Fund's total return. Except as qualified above, however, the Fund will not buy securities on margin. Although one or more of the other risks described in this SAI may apply, the largest risks associated with borrowing include: Inflation Risk and Management Risk. Cash/Money Market Instruments The Fund may maintain a portion of its assets in cash and cash-equivalent investments. Cash-equivalent investments include short-term U.S. and Canadian government securities and negotiable certificates of deposit, non-negotiable fixed-time deposits, bankers' acceptances, and letters of credit of banks or savings and loan associations having capital, surplus, and undivided profits (as of the date of its most recently published annual financial statements) in excess of $100 million (or the equivalent in the instance of a foreign branch of a U.S. bank) at the date of investment. The Fund also may purchase short-term notes and obligations of U.S. and foreign banks and corporations and may use repurchase agreements with broker-dealers registered under the Securities Exchange Act of 1934 and with commercial banks. (See also Commercial Paper, Debt Obligations, Repurchase Agreements, and Variable- or Floating-Rate Securities.) These types of instruments generally offer low rates of return and subject the Fund to certain costs and expenses. See the appendix for a discussion of securities ratings. Although one or more of the other risks described in this SAI may apply, the largest risks associated with cash/money market instruments include: Credit Risk, Inflation Risk, and Management Risk. Collateralized Bond Obligations Collateralized bond obligations (CBOs) are investment grade bonds backed by a pool of junk bonds. CBOs are similar in concept to collateralized mortgage obligations (CMOs), but differ in that CBOs represent different degrees of credit quality rather than different maturities. (See also Mortgage- and Asset-Backed Securities.) Underwriters of CBOs package a large and diversified pool of high-risk, high-yield junk bonds, which is then separated into "tiers." Typically, the first tier represents the higher quality collateral and pays the lowest interest rate; the second tier is backed by riskier bonds and pays a higher rate; the third tier represents the lowest credit quality and instead of receiving a fixed interest rate receives the residual interest payments--money that is left over after the higher tiers have been paid. CBOs, like CMOs, are substantially overcollateralized and this, plus the diversification of the pool backing them, earns them investment-grade bond ratings. Holders of third-tier CBOs stand to earn high yields or less money depending on the rate of defaults in the collateral pool. (See also High-Yield (High-Risk) Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with CBOs include: Call/Prepayment Risk, Credit Risk, Interest Rate Risk, and Management Risk. Commercial Paper Commercial paper is a short-term debt obligation with a maturity ranging from 2 to 270 days issued by banks, corporations, and other borrowers. It is sold to investors with temporary idle cash as a way to increase returns on a short-term basis. These instruments are generally unsecured, which increases the credit risk associated with this type of investment. (See also Debt Obligations and Illiquid and Restricted Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with commercial paper include: Credit Risk, Liquidity Risk, and Management Risk. Common Stock Common stock represents units of ownership in a corporation. Owners typically are entitled to vote on the selection of directors and other important matters as well as to receive dividends on their holdings. In the event that a corporation is liquidated, the claims of secured and unsecured creditors and owners of bonds and preferred stock take precedence over the claims of those who own common stock. The price of common stock is generally determined by corporate earnings, type of products or services offered, projected growth rates, experience of management, liquidity, and general market conditions for the markets on which the stock trades. Although one or more of the other risks described in this SAI may apply, the largest risks associated with common stock include: Issuer Risk, Management Risk, Market Risk, and Small Company Risk. Convertible Securities Convertible securities are bonds, debentures, notes, preferred stocks, or other securities that may be converted into common stock of the same or a different issuer within a particular period of time at a specified price. Some convertible securities, such as preferred equity-redemption cumulative stock (PERCs), have mandatory conversion features. Others are voluntary. A convertible security entitles the holder to receive interest normally paid or accrued on debt or the dividend paid on preferred stock until the convertible security matures or is redeemed, converted, or exchanged. Convertible securities have unique investment characteristics in that they generally (i) have higher yields than common stocks but lower yields than comparable non-convertible securities, (ii) are less subject to fluctuation in value than the underlying stock since they have fixed income characteristics, and (iii) provide the potential for capital appreciation if the market price of the underlying common stock increases. The value of a convertible security is a function of its "investment value" (determined by its yield in comparison with the yields of other securities of comparable maturity and quality that do not have a conversion privilege) and its "conversion value" (the security's worth, at market value, if converted into the underlying common stock). The investment value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also may have an effect on the convertible security's investment value. The conversion value of a convertible security is determined by the market price of the underlying common stock. If the conversion value is low relative to the investment value, the price of the convertible security is governed principally by its investment value. Generally, the conversion value decreases as the convertible security approaches maturity. To the extent the market price of the underlying common stock approaches or exceeds the conversion price, the price of the convertible security will be increasingly influenced by its conversion value. A convertible security generally will sell at a premium over its conversion value by the extent to which investors place value on the right to acquire the underlying common stock while holding a fixed income security. Although one or more of the other risks described in this SAI may apply, the largest risks associated with convertible securities include: Call/Prepayment Risk, Interest Rate Risk, Issuer Risk, Management Risk, Market Risk, and Reinvestment Risk. Corporate Bonds Corporate bonds are debt obligations issued by private corporations, as distinct from bonds issued by a government agency or a municipality. Corporate bonds typically have four distinguishing features: (1) they are taxable; (2) they have a par value of $1,000; (3) they have a term maturity, which means they come due all at once; and (4) many are traded on major exchanges. Corporate bonds are subject to the same concerns as other debt obligations. (See also Debt Obligations and High-Yield (High-Risk) Securities.) Corporate bonds may be either secured or unsecured. Unsecured corporate bonds are generally referred to as "debentures." See the appendix for a discussion of securities ratings. Although one or more of the other risks described in this SAI may apply, the largest risks associated with corporate bonds include: Call/Prepayment Risk, Credit Risk, Interest Rate Risk, Issuer Risk, Management Risk, and Reinvestment Risk. Debt Obligations Many different types of debt obligations exist (for example, bills, bonds, or notes). Issuers of debt obligations have a contractual obligation to pay interest at a specified rate on specified dates and to repay principal on a specified maturity date. Certain debt obligations (usually intermediate- and long-term bonds) have provisions that allow the issuer to redeem or "call" a bond before its maturity. Issuers are most likely to call these securities during periods of falling interest rates. When this happens, an investor may have to replace these securities with lower yielding securities, which could result in a lower return. The market value of debt obligations is affected primarily by changes in prevailing interest rates and the issuers perceived ability to repay the debt. The market value of a debt obligation generally reacts inversely to interest rate changes. When prevailing interest rates decline, the price usually rises, and when prevailing interest rates rise, the price usually declines. In general, the longer the maturity of a debt obligation, the higher its yield and the greater the sensitivity to changes in interest rates. Conversely, the shorter the maturity, the lower the yield but the greater the price stability. As noted, the values of debt obligations also may be affected by changes in the credit rating or financial condition of their issuers. Generally, the lower the quality rating of a security, the higher the degree of risk as to the payment of interest and return of principal. To compensate investors for taking on such increased risk, those issuers deemed to be less creditworthy generally must offer their investors higher interest rates than do issuers with better credit ratings. (See also Agency and Government Securities, Corporate Bonds, and High-Yield (High-Risk) Securities.) All ratings limitations are applied at the time of purchase. Subsequent to purchase, a debt security may cease to be rated or its rating may be reduced below the minimum required for purchase by the Fund. Neither event will require the sale of such a security, but it will be a factor in considering whether to continue to hold the security. To the extent that ratings change as a result of changes in a rating organization or their rating systems, the Fund will attempt to use comparable ratings as standards for selecting investments. See the appendix for a discussion of securities ratings. Although one or more of the other risks described in this SAI may apply, the largest risks associated with debt obligations include: Call/Prepayment Risk, Credit Risk, Interest Rate Risk, Issuer Risk, Management Risk, and Reinvestment Risk. Depositary Receipts Some foreign securities are traded in the form of American Depositary Receipts (ADRs). ADRs are receipts typically issued by a U.S. bank or trust company evidencing ownership of the underlying securities of foreign issuers. European Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs) are receipts typically issued by foreign banks or trust companies, evidencing ownership of underlying securities issued by either a foreign or U.S. issuer. Generally, depositary receipts in registered form are designed for use in the U.S. and depositary receipts in bearer form are designed for use in securities markets outside the U.S. Depositary receipts may not necessarily be denominated in the same currency as the underlying securities into which they may be converted. Depositary receipts involve the risks of other investments in foreign securities. In addition, ADR holders may not have all the legal rights of shareholders and may experience difficulty in receiving shareholder communications. (See also Common Stock and Foreign Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with depositary receipts include: Foreign/Emerging Markets Risk, Issuer Risk, Management Risk, and Market Risk. Derivative Instruments Derivative instruments are commonly defined to include securities or contracts whose values depend, in whole or in part, on (or "derive" from) the value of one or more other assets, such as securities, currencies, or commodities. A derivative instrument generally consists of, is based upon, or exhibits characteristics similar to options or forward contracts. Such instruments may be used to maintain cash reserves while remaining fully invested, to offset anticipated declines in values of investments, to facilitate trading, to reduce transaction costs, or to pursue higher investment returns. Derivative instruments are characterized by requiring little or no initial payment. Their value changes daily based on a security, a currency, a group of securities or currencies, or an index. A small change in the value of the underlying security, currency, or index can cause a sizable percentage gain or loss in the price of the derivative instrument. Options and forward contracts are considered to be the basic "building blocks" of derivatives. For example, forward-based derivatives include forward contracts, swap contracts, and exchange-traded futures. Forward-based derivatives are sometimes referred to generically as "futures contracts." Option-based derivatives include privately negotiated, over-the-counter (OTC) options (including caps, floors, collars, and options on futures) and exchange-traded options on futures. Diverse types of derivatives may be created by combining options or futures in different ways, and by applying these structures to a wide range of underlying assets. Options. An option is a contract. A person who buys a call option for a security has the right to buy the security at a set price for the length of the contract. A person who sells a call option is called a writer. The writer of a call option agrees for the length of the contract to sell the security at the set price when the buyer wants to exercise the option, no matter what the market price of the security is at that time. A person who buys a put option has the right to sell a security at a set price for the length of the contract. A person who writes a put option agrees to buy the security at the set price if the purchaser wants to exercise the option during the length of the contract, no matter what the market price of the security is at that time. An option is covered if the writer owns the security (in the case of a call) or sets aside the cash or securities of equivalent value (in the case of a put) that would be required upon exercise. The price paid by the buyer for an option is called a premium. In addition to the premium, the buyer generally pays a broker a commission. The writer receives a premium, less another commission, at the time the option is written. The premium received by the writer is retained whether or not the option is exercised. A writer of a call option may have to sell the security for a below-market price if the market price rises above the exercise price. A writer of a put option may have to pay an above-market price for the security if its market price decreases below the exercise price. When an option is purchased, the buyer pays a premium and a commission. It then pays a second commission on the purchase or sale of the underlying security when the option is exercised. For record keeping and tax purposes, the price obtained on the sale of the underlying security is the combination of the exercise price, the premium, and both commissions. One of the risks an investor assumes when it buys an option is the loss of the premium. To be beneficial to the investor, the price of the underlying security must change within the time set by the option contract. Furthermore, the change must be sufficient to cover the premium paid, the commissions paid both in the acquisition of the option and in a closing transaction or in the exercise of the option and sale (in the case of a call) or purchase (in the case of a put) of the underlying security. Even then, the price change in the underlying security does not ensure a profit since prices in the option market may not reflect such a change. Options on many securities are listed on options exchanges. If the Fund writes listed options, it will follow the rules of the options exchange. Options are valued at the close of the New York Stock Exchange. An option listed on a national exchange, CBOE, or NASDAQ will be valued at the last quoted sales price or, if such a price is not readily available, at the mean of the last bid and ask prices. Options on certain securities are not actively traded on any exchange, but may be entered into directly with a dealer. These options may be more difficult to close. If an investor is unable to effect a closing purchase transaction, it will not be able to sell the underlying security until the call written by the investor expires or is exercised. Futures Contracts. A futures contract is a sales contract between a buyer (holding the "long" position) and a seller (holding the "short" position) for an asset with delivery deferred until a future date. The buyer agrees to pay a fixed price at the agreed future date and the seller agrees to deliver the asset. The seller hopes that the market price on the delivery date is less than the agreed upon price, while the buyer hopes for the contrary. Many futures contracts trade in a manner similar to the way a stock trades on a stock exchange and the commodity exchanges. Generally, a futures contract is terminated by entering into an offsetting transaction. An offsetting transaction is effected by a buyer taking an opposite position. At the time a futures contract is made, a good faith deposit called initial margin is set up. Daily thereafter, the futures contract is valued and the payment of variation margin is required so that each day a buyer would pay out cash in an amount equal to any decline in the contract's value or receive cash equal to any increase. At the time a futures contract is closed out, a nominal commission is paid, which is generally lower than the commission on a comparable transaction in the cash market. Futures contracts may be based on various securities, securities indices (such as the S&P 500 Index), foreign currencies and other financial instruments and indices. Options on Futures Contracts. Options on futures contracts give the holder a right to buy or sell futures contracts in the future. Unlike a futures contract, which requires the parties to the contract to buy and sell a security on a set date (some futures are settled in cash), an option on a futures contract merely entitles its holder to decide on or before a future date (within nine months of the date of issue) whether to enter into a contract. If the holder decides not to enter into the contract, all that is lost is the amount (premium) paid for the option. Further, because the value of the option is fixed at the point of sale, there are no daily payments of cash to reflect the change in the value of the underlying contract. However, since an option gives the buyer the right to enter into a contract at a set price for a fixed period of time, its value does change daily. One of the risks in buying an option on a futures contract is the loss of the premium paid for the option. The risk involved in writing options on futures contracts an investor owns, or on securities held in its portfolio, is that there could be an increase in the market value of these contracts or securities. If that occurred, the option would be exercised and the asset sold at a lower price than the cash market price. To some extent, the risk of not realizing a gain could be reduced by entering into a closing transaction. An investor could enter into a closing transaction by purchasing an option with the same terms as the one previously sold. The cost to close the option and terminate the investor's obligation, however, might still result in a loss. Further, the investor might not be able to close the option because of insufficient activity in the options market. Purchasing options also limits the use of monies that might otherwise be available for long-term investments. Options on Stock Indexes. Options on stock indexes are securities traded on national securities exchanges. An option on a stock index is similar to an option on a futures contract except all settlements are in cash. A fund exercising a put, for example, would receive the difference between the exercise price and the current index level. Tax Treatment. As permitted under federal income tax laws and to the extent the Fund is allowed to invest in futures contacts, the Fund intends to identify futures contracts as mixed straddles and not mark them to market, that is, not treat them as having been sold at the end of the year at market value. If the Fund is using short futures contracts for hedging purposes, the Fund may be required to defer recognizing losses incurred on short futures contracts and on underlying securities. Federal income tax treatment of gains or losses from transactions in options on futures contracts and indexes will depend on whether the option is a section 1256 contract. If the option is a non-equity option, the Fund will either make a 1256(d) election and treat the option as a mixed straddle or mark to market the option at fiscal year end and treat the gain/loss as 40% short-term and 60% long-term. The IRS has ruled publicly that an exchange-traded call option is a security for purposes of the 50%-of-assets test and that its issuer is the issuer of the underlying security, not the writer of the option, for purposes of the diversification requirements. Accounting for futures contracts will be according to generally accepted accounting principles. Initial margin deposits will be recognized as assets due from a broker (the Fund's agent in acquiring the futures position). During the period the futures contract is open, changes in value of the contract will be recognized as unrealized gains or losses by marking to market on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments will be made or received depending upon whether gains or losses are incurred. All contracts and options will be valued at the last-quoted sales price on their primary exchange. Other Risks of Derivatives. The primary risk of derivatives is the same as the risk of the underlying asset, namely that the value of the underlying asset may go up or down. Adverse movements in the value of an underlying asset can expose an investor to losses. Derivative instruments may include elements of leverage and, accordingly, the fluctuation of the value of the derivative instrument in relation to the underlying asset may be magnified. The successful use of derivative instruments depends upon a variety of factors, particularly the investment manager's ability to predict movements of the securities, currencies, and commodity markets, which requires different skills than predicting changes in the prices of individual securities. There can be no assurance that any particular strategy will succeed. Another risk is the risk that a loss may be sustained as a result of the failure of a counterparty to comply with the terms of a derivative instrument. The counterparty risk for exchange-traded derivative instruments is generally less than for privately-negotiated or OTC derivative instruments, since generally a clearing agency, which is the issuer or counterparty to each exchange-traded instrument, provides a guarantee of performance. For privately-negotiated instruments, there is no similar clearing agency guarantee. In all transactions, an investor will bear the risk that the counterparty will default, and this could result in a loss of the expected benefit of the derivative transaction and possibly other losses. When a derivative transaction is used to completely hedge another position, changes in the market value of the combined position (the derivative instrument plus the position being hedged) result from an imperfect correlation between the price movements of the two instruments. With a perfect hedge, the value of the combined position remains unchanged for any change in the price of the underlying asset. With an imperfect hedge, the values of the derivative instrument and its hedge are not perfectly correlated. For example, if the value of a derivative instrument used in a short hedge (such as writing a call option, buying a put option, or selling a futures contract) increased by less than the decline in value of the hedged investment, the hedge would not be perfectly correlated. Such a lack of correlation might occur due to factors unrelated to the value of the investments being hedged, such as speculative or other pressures on the markets in which these instruments are traded. Derivatives also are subject to the risk that they cannot be sold, closed out, or replaced quickly at or very close to their fundamental value. Generally, exchange contracts are very liquid because the exchange clearinghouse is the counterparty of every contract. OTC transactions are less liquid than exchange-traded derivatives since they often can only be closed out with the other party to the transaction. Another risk is caused by the legal unenforcibility of a party's obligations under the derivative. A counterparty that has lost money in a derivatives may try to avoid payment by exploiting various legal uncertainties about certain derivative products. (See also Foreign Currency Transactions.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with derivative instruments include: Leverage Risk, Liquidity Risk, and Management Risk. Foreign Currency Transactions Since investments in foreign countries usually involve currencies of foreign countries, the value of the Fund's assets as measured in U.S. dollars may be affected favorably or unfavorably by changes in currency exchange rates and exchange control regulations. Also, the Fund may incur costs in connection with conversions between various currencies. Currency exchange rates may fluctuate significantly over short periods of time causing the Fund's NAV to fluctuate. Currency exchange rates are generally determined by the forces of supply and demand in the foreign exchange markets, actual or anticipated changes in interest rates, and other complex factors. Currency exchange rates also can be affected by the intervention of U.S. or foreign governments or central banks, or the failure to intervene, or by currency controls or political developments. Spot Rates and Derivative Instruments. The Fund conducts its foreign currency exchange transactions either at the spot (cash) rate prevailing in the foreign currency exchange market or by entering into forward currency exchange contracts (forward contracts) as a hedge against fluctuations in future foreign exchange rates. (See also Derivative Instruments). These contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. Because foreign currency transactions occurring in the interbank market might involve substantially larger amounts than those involved in the use of such derivative instruments, the Fund could be disadvantaged by having to deal in the odd lot market for the underlying foreign currencies at prices that are less favorable than for round lots. The Fund may enter into forward contracts to settle a security transaction or handle dividend and interest collection. When the Fund enters into a contract for the purchase or sale of a security denominated in a foreign currency or has been notified of a dividend or interest payment, it may desire to lock in the price of the security or the amount of the payment in dollars. By entering into a forward contract, the Fund will be able to protect itself against a possible loss resulting from an adverse change in the relationship between different currencies from the date the security is purchased or sold to the date on which payment is made or received or when the dividend or interest is actually received. The Fund also may enter into forward contracts when management of the Fund believes the currency of a particular foreign country may change in relationship to another currency. The precise matching of forward contract amounts and the value of securities involved generally will not be possible since the future value of securities in foreign currencies more than likely will change between the date the forward contract is entered into and the date it matures. The projection of short-term currency market movements is extremely difficult and successful execution of a short-term hedging strategy is highly uncertain. The Fund will not enter into such forward contracts or maintain a net exposure to such contracts when consummating the contracts would obligate the Fund to deliver an amount of foreign currency in excess of the value of the Fund's securities or other assets denominated in that currency. The Fund will designate cash or securities in an amount equal to the value of the Fund's total assets committed to consummating forward contracts entered into under the second circumstance set forth above. If the value of the securities declines, additional cash or securities will be designated on a daily basis so that the value of the cash or securities will equal the amount of the Fund's commitments on such contracts. At maturity of a forward contract, the Fund may either sell the security and make delivery of the foreign currency or retain the security and terminate its contractual obligation to deliver the foreign currency by purchasing an offsetting contract with the same currency trader obligating it to buy, on the same maturity date, the same amount of foreign currency. If the Fund retains the security and engages in an offsetting transaction, the Fund will incur a gain or loss (as described below) to the extent there has been movement in forward contract prices. If the Fund engages in an offsetting transaction, it may subsequently enter into a new forward contract to sell the foreign currency. Should forward prices decline between the date the Fund enters into a forward contract for selling foreign currency and the date it enters into an offsetting contract for purchasing the foreign currency, the Fund will realize a gain to the extent that the price of the currency it has agreed to sell exceeds the price of the currency it has agreed to buy. Should forward prices increase, the Fund will suffer a loss to the extent the price of the currency it has agreed to buy exceeds the price of the currency it has agreed to sell. It is impossible to forecast what the market value of securities will be at the expiration of a contract. Accordingly, it may be necessary for the Fund to buy additional foreign currency on the spot market (and bear the expense of that purchase) if the market value of the security is less than the amount of foreign currency the Fund is obligated to deliver and a decision is made to sell the security and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received on the sale of the portfolio security if its market value exceeds the amount of foreign currency the Fund is obligated to deliver. The Fund's dealing in forward contracts will be limited to the transactions described above. This method of protecting the value of the Fund's securities against a decline in the value of a currency does not eliminate fluctuations in the underlying prices of the securities. It simply establishes a rate of exchange that can be achieved at some point in time. Although forward contracts tend to minimize the risk of loss due to a decline in value of hedged currency, they tend to limit any potential gain that might result should the value of such currency increase. Although the Fund values its assets each business day in terms of U.S. dollars, it does not intend to convert its foreign currencies into U.S. dollars on a daily basis. It will do so from time to time, and shareholders should be aware of currency conversion costs. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference (spread) between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. Options on Foreign Currencies. The Fund may buy options on foreign currencies for hedging purposes. For example, a decline in the dollar value of a foreign currency in which securities are denominated will reduce the dollar value of such securities, even if their value in the foreign currency remains constant. In order to protect against the diminutions in the value of securities, the Fund may buy options on the foreign currency. If the value of the currency does decline, the Fund will have the right to sell the currency for a fixed amount in dollars and will offset, in whole or in part, the adverse effect on its portfolio that otherwise would have resulted. As in the case of other types of options, however, the benefit to the Fund derived from purchases of foreign currency options will be reduced by the amount of the premium and related transaction costs. In addition, where currency exchange rates do not move in the direction or to the extent anticipated, the Fund could sustain losses on transactions in foreign currency options that would require it to forego a portion or all of the benefits of advantageous changes in rates. The Fund may write options on foreign currencies for the same types of hedging purposes. For example, when the Fund anticipates a decline in the dollar value of foreign-denominated securities due to adverse fluctuations in exchange rates it could, instead of purchasing a put option, write a call option on the relevant currency. If the expected decline occurs, the option will most likely not be exercised and the diminution in value of securities will be fully or partially offset by the amount of the premium received. As in the case of other types of options, however, the writing of a foreign currency option will constitute only a partial hedge up to the amount of the premium, and only if rates move in the expected direction. If this does not occur, the option may be exercised and the Fund would be required to buy or sell the underlying currency at a loss that may not be offset by the amount of the premium. Through the writing of options on foreign currencies, the Fund also may be required to forego all or a portion of the benefits that might otherwise have been obtained from favorable movements on exchange rates. All options written on foreign currencies will be covered. An option written on foreign currencies is covered if the Fund holds currency sufficient to cover the option or has an absolute and immediate right to acquire that currency without additional cash consideration upon conversion of assets denominated in that currency or exchange of other currency held in its portfolio. An option writer could lose amounts substantially in excess of its initial investments, due to the margin and collateral requirements associated with such positions. Options on foreign currencies are traded through financial institutions acting as market-makers, although foreign currency options also are traded on certain national securities exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to SEC regulation. In an over-the-counter trading environment, many of the protections afforded to exchange participants will not be available. For example, there are no daily price fluctuation limits, and adverse market movements could therefore continue to an unlimited extent over a period of time. Although the purchaser of an option cannot lose more than the amount of the premium plus related transaction costs, this entire amount could be lost. Foreign currency option positions entered into on a national securities exchange are cleared and guaranteed by the Options Clearing Corporation (OCC), thereby reducing the risk of counterparty default. Further, a liquid secondary market in options traded on a national securities exchange may be more readily available than in the over-the-counter market, potentially permitting the Fund to liquidate open positions at a profit prior to exercise or expiration, or to limit losses in the event of adverse market movements. The purchase and sale of exchange-traded foreign currency options, however, is subject to the risks of availability of a liquid secondary market described above, as well as the risks regarding adverse market movements, margining of options written, the nature of the foreign currency market, possible intervention by governmental authorities and the effects of other political and economic events. In addition, exchange-traded options on foreign currencies involve certain risks not presented by the over-the-counter market. For example, exercise and settlement of such options must be made exclusively through the OCC, which has established banking relationships in certain foreign countries for that purpose. As a result, the OCC may, if it determines that foreign governmental restrictions or taxes would prevent the orderly settlement of foreign currency option exercises, or would result in undue burdens on OCC or its clearing member, impose special procedures on exercise and settlement, such as technical changes in the mechanics of delivery of currency, the fixing of dollar settlement prices or prohibitions on exercise. Foreign Currency Futures and Related Options. The Fund may enter into currency futures contracts to sell currencies. It also may buy put options and write covered call options on currency futures. Currency futures contracts are similar to currency forward contracts, except that they are traded on exchanges (and have margin requirements) and are standardized as to contract size and delivery date. Most currency futures call for payment of delivery in U.S. dollars. The Fund may use currency futures for the same purposes as currency forward contracts, subject to Commodity Futures Trading Commission (CFTC) limitations. Currency futures and options on futures values can be expected to correlate with exchange rates, but will not reflect other factors that may affect the value of the Fund's investments. A currency hedge, for example, should protect a Yen-denominated bond against a decline in the Yen, but will not protect the Fund against price decline if the issuer's creditworthiness deteriorates. Because the value of the Fund's investments denominated in foreign currency will change in response to many factors other than exchange rates, it may not be possible to match the amount of a forward contract to the value of the Fund's investments denominated in that currency over time. The Fund will hold securities or other options or futures positions whose values are expected to offset its obligations. The Fund will not enter into an option or futures position that exposes the Fund to an obligation to another party unless it owns either (i) an offsetting position in securities or (ii) cash, receivables and short-term debt securities with a value sufficient to cover its potential obligations. (See also Derivative Instruments and Foreign Securities.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with foreign currency transactions include: Correlation Risk, Interest Rate Risk, Leverage Risk, Liquidity Risk, and Management Risk. Foreign Securities Foreign securities, foreign currencies, and securities issued by U.S. entities with substantial foreign operations involve special risks, including those set forth below, which are not typically associated with investing in U.S. securities. Foreign companies are not generally subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic companies. Additionally, many foreign stock markets, while growing in volume of trading activity, have substantially less volume than the New York Stock Exchange, and securities of some foreign companies are less liquid and more volatile than securities of domestic companies. Similarly, volume and liquidity in most foreign bond markets are less than the volume and liquidity in the U.S. and, at times, volatility of price can be greater than in the U.S. Further, foreign markets have different clearance, settlement, registration, and communication procedures and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions making it difficult to conduct such transactions. Delays in such procedures could result in temporary periods when assets are uninvested and no return is earned on them. The inability of an investor to make intended security purchases due to such problems could cause the investor to miss attractive investment opportunities. Payment for securities without delivery may be required in certain foreign markets and, when participating in new issues, some foreign countries require payment to be made in advance of issuance (at the time of issuance, the market value of the security may be more or less than the purchase price). Some foreign markets also have compulsory depositories (i.e., an investor does not have a choice as to where the securities are held). Fixed commissions on some foreign stock exchanges are generally higher than negotiated commissions on U.S. exchanges. Further, an investor may encounter difficulties or be unable to pursue legal remedies and obtain judgments in foreign courts. There is generally less government supervision and regulation of business and industry practices, stock exchanges, brokers, and listed companies than in the U.S. It may be more difficult for an investor's agents to keep currently informed about corporate actions such as stock dividends or other matters that may affect the prices of portfolio securities. Communications between the U.S. and foreign countries may be less reliable than within the U.S., thus increasing the risk of delays or loss of certificates for portfolio securities. In addition, with respect to certain foreign countries, there is the possibility of nationalization, expropriation, the imposition of additional withholding or confiscatory taxes, political, social, or economic instability, diplomatic developments that could affect investments in those countries, or other unforeseen actions by regulatory bodies (such as changes to settlement or custody procedures). The risks of foreign investing may be magnified for investments in emerging markets, which may have relatively unstable governments, economies based on only a few industries, and securities markets that trade a small number of securities. The introduction of a single currency, the euro, on January 1, 1999 for participating European nations in the Economic and Monetary Union ("EU") presents unique uncertainties, including whether the payment and operational systems of banks and other financial institutions will be ready by the scheduled launch date; the creation of suitable clearing and settlement payment systems for the new currency; the legal treatment of certain outstanding financial contracts after January 1, 1999 that refer to existing currencies rather than the euro; the establishment and maintenance of exchange rates; the fluctuation of the euro relative to non-euro currencies during the transition period from January 1, 1999 to December 31, 2000 and beyond; whether the interest rate, tax or labor regimes of European countries participating in the euro will converge over time; and whether the conversion of the currencies of other EU countries such as the United Kingdom, Denmark, and Greece into the euro and the admission of other non-EU countries such as Poland, Latvia, and Lithuania as members of the EU may have an impact on the euro. Although one or more of the other risks described in this SAI may apply, the largest risks associated with foreign securities include: Foreign/Emerging Markets Risk, Issuer Risk, and Management Risk. High-Yield (High-Risk) Securities (Junk Bonds) High yield (high-risk) securities are sometimes referred to as "junk bonds." They are non-investment grade (lower quality) securities that have speculative characteristics. Lower quality securities, while generally offering higher yields than investment grade securities with similar maturities, involve greater risks, including the possibility of default or bankruptcy. They are regarded as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal. The special risk considerations in connection with investments in these securities are discussed below. See the appendix for a discussion of securities ratings. (See also Debt Obligations.) The lower-quality and comparable unrated security market is relatively new and its growth has paralleled a long economic expansion. As a result, it is not clear how this market may withstand a prolonged recession or economic downturn. Such conditions could severely disrupt the market for and adversely affect the value of such securities. All interest-bearing securities typically experience appreciation when interest rates decline and depreciation when interest rates rise. The market values of lower-quality and comparable unrated securities tend to reflect individual corporate developments to a greater extent than do higher rated securities, which react primarily to fluctuations in the general level of interest rates. Lower-quality and comparable unrated securities also tend to be more sensitive to economic conditions than are higher-rated securities. As a result, they generally involve more credit risks than securities in the higher-rated categories. During an economic downturn or a sustained period of rising interest rates, highly leveraged issuers of lower-quality securities may experience financial stress and may not have sufficient revenues to meet their payment obligations. The issuer's ability to service its debt obligations also may be adversely affected by specific corporate developments, the issuer's inability to meet specific projected business forecast, or the unavailability of additional financing. The risk of loss due to default by an issuer of these securities is significantly greater than issuers of higher-rated securities because such securities are generally unsecured and are often subordinated to other creditors. Further, if the issuer of a lower quality security defaulted, an investor might incur additional expenses to seek recovery. Credit ratings issued by credit rating agencies are designed to evaluate the safety of principal and interest payments of rated securities. They do not, however, evaluate the market value risk of lower-quality securities and, therefore, may not fully reflect the true risks of an investment. In addition, credit rating agencies may or may not make timely changes in a rating to reflect changes in the economy or in the condition of the issuer that affect the market value of the securities. Consequently, credit ratings are used only as a preliminary indicator of investment quality. An investor may have difficulty disposing of certain lower-quality and comparable unrated securities because there may be a thin trading market for such securities. Because not all dealers maintain markets in all lower quality and comparable unrated securities, there is no established retail secondary market for many of these securities. To the extent a secondary trading market does exist, it is generally not as liquid as the secondary market for higher-rated securities. The lack of a liquid secondary market may have an adverse impact on the market price of the security. The lack of a liquid secondary market for certain securities also may make it more difficult for an investor to obtain accurate market quotations. Market quotations are generally available on many lower-quality and comparable unrated issues only from a limited number of dealers and may not necessarily represent firm bids of such dealers or prices for actual sales. Legislation may be adopted from time to time designed to limit the use of certain lower quality and comparable unrated securities by certain issuers. Although one or more of the other risks described in this SAI may apply, the largest risks associated with high-yield (high-risk) securities include: Call/Prepayment Risk, Credit Risk, Currency Risk, Interest Rate Risk, and Management Risk. Illiquid and Restricted Securities The Fund may invest in illiquid securities (i.e., securities that are not readily marketable). These securities may include, but are not limited to, certain securities that are subject to legal or contractual restrictions on resale, certain repurchase agreements, and derivative instruments. To the extent the Fund invests in illiquid or restricted securities, it may encounter difficulty in determining a market value for such securities. Disposing of illiquid or restricted securities may involve time- consuming negotiations and legal expense, and it may be difficult or impossible for the Fund to sell such an investment promptly and at an acceptable price. Although one or more of the other risks described in this SAI may apply, the largest risks associated with illiquid and restricted securities include: Liquidity Risk and Management Risk. Indexed Securities The value of indexed securities is linked to currencies, interest rates, commodities, indexes, or other financial indicators. Most indexed securities are short- to intermediate-term fixed income securities whose values at maturity or interest rates rise or fall according to the change in one or more specified underlying instruments. Indexed securities may be more volatile than the underlying instrument itself and they may be less liquid than the securities represented by the index. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with indexed securities include: Liquidity Risk, Management Risk, and Market Risk. Inverse Floaters Inverse floaters are created by underwriters using the interest payment on securities. A portion of the interest received is paid to holders of instruments based on current interest rates for short-term securities. The remainder, minus a servicing fee, is paid to holders of inverse floaters. As interest rates go down, the holders of the inverse floaters receive more income and an increase in the price for the inverse floaters. As interest rates go up, the holders of the inverse floaters receive less income and a decrease in the price for the inverse floaters. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with inverse floaters include: Interest Rate Risk and Management Risk. Investment Companies The Fund may invest in securities issued by registered and unregistered investment companies. These investments may involve the duplication of advisory fees and certain other expenses. Although one or more of the other risks described in this SAI may apply, the largest risk associated with the securities of other investment companies includes: Management Risk and Market Risk. Lending of Portfolio Securities The Fund may lend certain of its portfolio securities to broker-dealers. The current policy of the Fund's board is to make these loans, either long- or short-term, to broker-dealers. In making loans, the Fund receives the market price in cash, U.S. government securities, letters of credit, or such other collateral as may be permitted by regulatory agencies and approved by the board. If the market price of the loaned securities goes up, the Fund will get additional collateral on a daily basis. The risks are that the borrower may not provide additional collateral when required or return the securities when due. During the existence of the loan, the Fund receives cash payments equivalent to all interest or other distributions paid on the loaned securities. The Fund may pay reasonable administrative and custodial fees in connection with a loan and may pay a negotiated portion of the interest earned on the cash or money market instruments held as collateral to the borrower or placing broker. The Fund will receive reasonable interest on the loan or a flat fee from the borrower and amounts equivalent to any dividends, interest, or other distributions on the securities loaned. Although one or more of the other risks described in this SAI may apply, the largest risks associated with the lending of portfolio securities include: Credit Risk and Management Risk. Loan Participations Loans, loan participations, and interests in securitized loan pools are interests in amounts owed by a corporate, governmental, or other borrower to a lender or consortium of lenders (typically banks, insurance companies, investment banks, government agencies, or international agencies). Loans involve a risk of loss in case of default or insolvency of the borrower and may offer less legal protection to an investor in the event of fraud or misrepresentation. Although one or more of the other risks described in this SAI may apply, the largest risks associated with loan participations include: Credit Risk and Management Risk. Mortgage- and Asset-Backed Securities Mortgage-backed securities represent direct or indirect participations in, or are secured by and payable from, mortgage loans secured by real property, and include single- and multi-class pass-through securities and Collateralized Mortgage Obligations (CMOs). These securities may be issued or guaranteed by U.S. government agencies or instrumentalities (see also Agency and Government Securities), or by private issuers, generally originators and investors in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers, and special purpose entities. Mortgage-backed securities issued by private lenders may be supported by pools of mortgage loans or other mortgage-backed securities that are guaranteed, directly or indirectly, by the U.S. government or one of its agencies or instrumentalities, or they may be issued without any governmental guarantee of the underlying mortgage assets but with some form of non-governmental credit enhancement. Stripped mortgage-backed securities are a type of mortgage-backed security that receive differing proportions of the interest and principal payments from the underlying assets. Generally, there are two classes of stripped mortgage-backed securities: Interest Only (IO) and Principal Only (PO). IOs entitle the holder to receive distributions consisting of all or a portion of the interest on the underlying pool of mortgage loans or mortgage-backed securities. POs entitle the holder to receive distributions consisting of all or a portion of the principal of the underlying pool of mortgage loans or mortgage-backed securities. The cash flows and yields on IOs and POs are extremely sensitive to the rate of principal payments (including prepayments) on the underlying mortgage loans or mortgage-backed securities. A rapid rate of principal payments may adversely affect the yield to maturity of IOs. A slow rate of principal payments may adversely affect the yield to maturity of POs. If prepayments of principal are greater than anticipated, an investor in IOs may incur substantial losses. If prepayments of principal are slower than anticipated, the yield on a PO will be affected more severely than would be the case with a traditional mortgage-backed security. CMOs are hybrid mortgage-related instruments secured by pools of mortgage loans or other mortgage-related securities, such as mortgage pass through securities or stripped mortgage-backed securities. CMOs may be structured into multiple classes, often referred to as "tranches," with each class bearing a different stated maturity and entitled to a different schedule for payments of principal and interest, including prepayments. Principal prepayments on collateral underlying a CMO may cause it to be retired substantially earlier than its stated maturity. The yield characteristics of mortgage-backed securities differ from those of other debt securities. Among the differences are that interest and principal payments are made more frequently on mortgage-backed securities, usually monthly, and principal may be repaid at any time. These factors may reduce the expected yield. Asset-backed securities have structural characteristics similar to mortgage-backed securities. Asset-backed debt obligations represent direct or indirect participation in, or secured by and payable from, assets such as motor vehicle installment sales contracts, other installment loan contracts, home equity loans, leases of various types of property, and receivables from credit card or other revolving credit arrangements. The credit quality of most asset-backed securities depends primarily on the credit quality of the assets underlying such securities, how well the entity issuing the security is insulated from the credit risk of the originator or any other affiliated entities, and the amount and quality of any credit enhancement of the securities. Payments or distributions of principal and interest on asset-backed debt obligations may be supported by non-governmental credit enhancements including letters of credit, reserve funds, overcollateralization, and guarantees by third parties. The market for privately issued asset-backed debt obligations is smaller and less liquid than the market for government sponsored mortgage-backed securities. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with mortgage- and asset-backed securities include: Call/Prepayment Risk, Credit Risk, Interest Rate Risk, Liquidity Risk, and Management Risk. Mortgage Dollar Rolls Mortgage dollar rolls are investments whereby an investor would sell mortgage-backed securities for delivery in the current month and simultaneously contract to purchase substantially similar securities on a specified future date. While an investor would forego principal and interest paid on the mortgage-backed securities during the roll period, the investor would be compensated by the difference between the current sales price and the lower price for the future purchase as well as by any interest earned on the proceeds of the initial sale. The investor also could be compensated through the receipt of fee income equivalent to a lower forward price. Although one or more of the other risks described in this SAI may apply, the largest risks associated with mortgage dollar rolls include: Credit Risk, Interest Rate Risk, and Management Risk. Municipal Obligations Municipal obligations include debt obligations issued by or on behalf of states, territories, possessions, or sovereign nations within the territorial boundaries of the United States (including the District of Columbia and Puerto Rico). The interest on these obligations is generally exempt from federal income tax. Municipal obligations are generally classified as either "general obligations" or "revenue obligations." General obligation bonds are secured by the issuer's pledge of its full faith, credit, and taxing power for the payment of interest and principal. Revenue bonds are payable only from the revenues derived from a project or facility or from the proceeds of a specified revenue source. Industrial development bonds are generally revenue bonds secured by payments from and the credit of private users. Municipal notes are issued to meet the short-term funding requirements of state, regional, and local governments. Municipal notes include tax anticipation notes, bond anticipation notes, revenue anticipation notes, tax and revenue anticipation notes, construction loan notes, short-term discount notes, tax-exempt commercial paper, demand notes, and similar instruments. Municipal lease obligations may take the form of a lease, an installment purchase, or a conditional sales contract. They are issued by state and local governments and authorities to acquire land, equipment, and facilities. An investor may purchase these obligations directly, or it may purchase participation interests in such obligations. Municipal leases may be subject to greater risks than general obligation or revenue bonds. State constitutions and statutes set forth requirements that states or municipalities must meet in order to issue municipal obligations. Municipal leases may contain a covenant by the state or municipality to budget for and make payments due under the obligation. Certain municipal leases may, however, provide that the issuer is not obligated to make payments on the obligation in future years unless funds have been appropriated for this purpose each year. Yields on municipal bonds and notes depend on a variety of factors, including money market conditions, municipal bond market conditions, the size of a particular offering, the maturity of the obligation, and the rating of the issue. The municipal bond market has a large number of different issuers, many having smaller sized bond issues, and a wide choice of different maturities within each issue. For these reasons, most municipal bonds do not trade on a daily basis and many trade only rarely. Because many of these bonds trade infrequently, the spread between the bid and offer may be wider and the time needed to develop a bid or an offer may be longer than other security markets. See the appendix for a discussion of securities ratings. (See also Debt Obligations.) Taxable Municipal Obligations. There is another type of municipal obligation that is subject to federal income tax for a variety of reasons. These municipal obligations do not qualify for the federal income exemption because (a) they did not receive necessary authorization for tax-exempt treatment from state or local government authorities, (b) they exceed certain regulatory limitations on the cost of issuance for tax-exempt financing or (c) they finance public or private activities that do not qualify for the federal income tax exemption. These non-qualifying activities might include, for example, certain types of multi-family housing, certain professional and local sports facilities, refinancing of certain municipal debt, and borrowing to replenish a municipality's underfunded pension plan. Although one or more of the other risks described in this SAI may apply, the largest risks associated with municipal obligations include: Credit Risk, Event Risk, Inflation Risk, Interest Rate Risk, Legal/Legislative Risk, and Market Risk. Preferred Stock Preferred stock is a type of stock that pays dividends at a specified rate and that has preference over common stock in the payment of dividends and the liquidation of assets. Preferred stock does not ordinarily carry voting rights. The price of a preferred stock is generally determined by earnings, type of products or services, projected growth rates, experience of management, liquidity, and general market conditions of the markets on which the stock trades. Although one or more of the other risks described in this SAI may apply, the largest risks associated with preferred stock include: Issuer Risk, Management Risk, and Market Risk. Real Estate Investment Trusts Real estate investment trusts (REITs) are entities that manage a portfolio of real estate to earn profits for their shareholders. REITs can make investments in real estate such as shopping centers, nursing homes, office buildings, apartment complexes, and hotels. REITs can be subject to extreme volatility due to fluctuations in the demand for real estate, changes in interest rates, and adverse economic conditions. Additionally, the failure of a REIT to continue to qualify as a REIT for tax purposes can materially affect its value. Although one or more of the other risks described in this SAI may apply, the largest associated with REITs include: Issuer Risk, Management Risk, and Market Risk. Repurchase Agreements The Fund may enter into repurchase agreements with certain banks or non-bank dealers. In a repurchase agreement, the Fund buys a security at one price, and at the time of sale, the seller agrees to repurchase the obligation at a mutually agreed upon time and price (usually within seven days). The repurchase agreement thereby determines the yield during the purchaser's holding period, while the seller's obligation to repurchase is secured by the value of the underlying security. Repurchase agreements could involve certain risks in the event of a default or insolvency of the other party to the agreement, including possible delays or restrictions upon the Fund's ability to dispose of the underlying securities. Although one or more of the other risks described in this SAI may apply, the largest risks associated with repurchase agreements include: Credit Risk and Management Risk. Reverse Repurchase Agreements In a reverse repurchase agreement, the investor would sell a security and enter into an agreement to repurchase the security at a specified future date and price. The investor generally retains the right to interest and principal payments on the security. Since the investor receives cash upon entering into a reverse repurchase agreement, it may be considered a borrowing. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with reverse repurchase agreements include: Credit Risk, Interest Rate Risk, and Management Risk. Short Sales With short sales, an investor sells a security that it does not own in anticipation of a decline in the market value of the security. To complete the transaction, the investor must borrow the security to make delivery to the buyer. The investor is obligated to replace the security that was borrowed by purchasing it at the market price at the time of replacement. The price at such time may be more or less than the price at which the investor sold the security. A fund that is allowed to utilize short sales will designate cash or liquid securities to cover its open short positions. Those funds also may engage in "short sales against the box," a form of short-selling that involves selling a security that an investor owns (or has an unconditioned right to purchase) for delivery at a specified date in the future. This technique allows an investor to hedge protectively against anticipated declines in the market of its securities. If the value of the securities sold short increased between the date of the short sale and the date on which the borrowed security is replaced, the investor loses the opportunity to participate in the gain. A "short sale against the box" will result in a constructive sale of appreciated securities thereby generating capital gains to the Fund. Although one or more of the other risks described in this SAI may apply, the largest risks associated with short sales include: Management Risk and Market Risk. Sovereign Debt A sovereign debtor's willingness or ability to repay principal and pay interest in a timely manner may be affected by a variety of factors, including its cash flow situation, the extent of its reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the sovereign debtor's policy toward international lenders, and the political constraints to which a sovereign debtor may be subject. (See also Foreign Securities.) With respect to sovereign debt of emerging market issuers, investors should be aware that certain emerging market countries are among the largest debtors to commercial banks and foreign governments. At times, certain emerging market countries have declared moratoria on the payment of principal and interest on external debt. Certain emerging market countries have experienced difficulty in servicing their sovereign debt on a timely basis that led to defaults and the restructuring of certain indebtedness. Sovereign debt includes Brady Bonds, which are securities issued under the framework of the Brady Plan, an initiative announced by former U.S. Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to restructure their outstanding external commercial bank indebtedness. Although one or more of the other risks described in this SAI may apply, the largest risks associated with sovereign debt include: Credit Risk, Foreign/Emerging Markets Risk, and Management Risk. Structured Products Structured products are over-the-counter financial instruments created specifically to meet the needs of one or a small number of investors. The instrument may consist of a warrant, an option, or a forward contract embedded in a note or any of a wide variety of debt, equity, and/or currency combinations. Risks of structured products include the inability to close such instruments, rapid changes in the market, and defaults by other parties. (See also Derivative Instruments.) Although one or more of the other risks described in this SAI may apply, the largest risks associated with structured products include: Credit Risk, Liquidity Risk, and Management Risk. Variable- or Floating-Rate Securities The Fund may invest in securities that offer a variable- or floating-rate of interest. Variable-rate securities provide for automatic establishment of a new interest rate at fixed intervals (e.g., daily, monthly, semi-annually, etc.). Floating-rate securities generally provide for automatic adjustment of the interest rate whenever some specified interest rate index changes. Variable- or floating-rate securities frequently include a demand feature enabling the holder to sell the securities to the issuer at par. In many cases, the demand feature can be exercised at any time. Some securities that do not have variable or floating interest rates may be accompanied by puts producing similar results and price characteristics. Variable-rate demand notes include master demand notes that are obligations that permit the Fund to invest fluctuating amounts, which may change daily without penalty, pursuant to direct arrangements between the Fund as lender, and the borrower. The interest rates on these notes fluctuate from time to time. The issuer of such obligations normally has a corresponding right, after a given period, to prepay in its discretion the outstanding principal amount of the obligations plus accrued interest upon a specified number of days' notice to the holders of such obligations. Because these obligations are direct lending arrangements between the lender and borrower, it is not contemplated that such instruments generally will be traded. There generally is not an established secondary market for these obligations. Accordingly, where these obligations are not secured by letters of credit or other credit support arrangements, the Fund's right to redeem is dependent on the ability of the borrower to pay principal and interest on demand. Such obligations frequently are not rated by credit rating agencies and may involve heightened risk of default by the issuer. Although one or more of the other risks described in this SAI may apply, the largest risks associated with variable- or floating-rate securities include: Credit Risk and Management Risk. Warrants Warrants are securities giving the holder the right, but not the obligation, to buy the stock of an issuer at a given price (generally higher than the value of the stock at the time of issuance) during a specified period or perpetually. Warrants may be acquired separately or in connection with the acquisition of securities. Warrants do not carry with them the right to dividends or voting rights and they do not represent any rights in the assets of the issuer. Warrants may be considered to have more speculative characteristics than certain other types of investments. In addition, the value of a warrant does not necessarily change with the value of the underlying securities, and a warrant ceases to have value if it is not exercised prior to its expiration date. Although one or more of the other risks described in this SAI may apply, the largest risks associated with warrants include: Management Risk and Market Risk. When-Issued Securities These instruments are contracts to purchase securities for a fixed price at a future date beyond normal settlement time (when-issued securities or forward commitments). The price of debt obligations purchased on a when-issued basis, which may be expressed in yield terms, generally is fixed at the time the commitment to purchase is made, but delivery and payment for the securities take place at a later date. Normally, the settlement date occurs within 45 days of the purchase although in some cases settlement may take longer. The investor does not pay for the securities or receive dividends or interest on them until the contractual settlement date. Such instruments involve a risk of loss if the value of the security to be purchased declines prior to the settlement date, which risk is in addition to the risk of decline in value of the investor's other assets. In addition, when the Fund engages in forward commitment and when-issued transactions, it relies on the counterparty to consummate the transaction. The failure of the counterparty to consummate the transaction may result in the Fund losing the opportunity to obtain a price and yield considered to be advantageous. Although one or more of the other risks described in this SAI may apply, the largest risks associated with when-issued securities include: Credit Risk and Management Risk. Zero-Coupon, Step-Coupon, and Pay-in-Kind Securities These securities are debt obligations that do not make regular cash interest payments (see also Debt Obligations). Zero-coupon and step-coupon securities are sold at a deep discount to their face value because they do not pay interest until maturity. Pay-in-kind securities pay interest through the issuance of additional securities. Because these securities do not pay current cash income, the price of these securities can be extremely volatile when interest rates fluctuate. See the appendix for a discussion of securities ratings. Although one or more of the other risks described in this SAI may apply, the largest risks associated with zero-coupon, step-coupon, and pay-in-kind securities include: Credit Risk, Interest Rate Risk, and Management Risk. SECURITY TRANSACTIONS - ------------------------------------------------------------------------------- Subject to policies set by the board, AEFC is authorized to determine, consistent with the Fund's investment goal and policies, which securities will be purchased, held, or sold. In determining where the buy and sell orders are to be placed, AEFC has been directed to use its best efforts to obtain the best available price and the most favorable execution except where otherwise authorized by the board. In selecting broker-dealers to execute transactions, AEFC may consider the price of the security, including commission or mark-up, the size and difficulty of the order, the reliability, integrity, financial soundness, and general operation and execution capabilities of the broker, the broker's expertise in particular markets, and research services provided by the broker. The Fund, AEFC and American Express Financial Advisors Inc. (the Distributor) each have a strict Code of Ethics that prohibits its affiliated personnel from engaging in personal investment activities that compete with or attempt to take advantage of planned portfolio transactions for any fund or trust for which it acts as investment manager. The Fund's securities may be traded on a principal rather than an agency basis. In other words, AEFC will trade directly with the issuer or with a dealer who buys or sells for its own account, rather than acting on behalf of another client. AEFC does not pay the dealer commissions. Instead, the dealer's profit, if any, is the difference, or spread, between the dealer's purchase and sale price for the security. On occasion, it may be desirable to compensate a broker for research services or for brokerage services by paying a commission that might not otherwise be charged or a commission in excess of the amount another broker might charge. The board has adopted a policy authorizing AEFC to do so to the extent authorized by law, if AEFC determines, in good faith, that such commission is reasonable in relation to the value of the brokerage or research services provided by a broker or dealer, viewed either in the light of that transaction or AEFC's overall responsibilities with respect to the Fund and the other American Express funds for which it acts as investment manager. Research provided by brokers supplements AEFC's own research activities. Such services include economic data on, and analysis of, U.S. and foreign economies; information on specific industries; information about specific companies, including earnings estimates; purchase recommendations for stocks and bonds; portfolio strategy services; political, economic, business, and industry trend assessments; historical statistical information; market data services providing information on specific issues and prices; and technical analysis of various aspects of the securities markets, including technical charts. Research services may take the form of written reports, computer software, or personal contact by telephone or at seminars or other meetings. AEFC has obtained, and in the future may obtain, computer hardware from brokers, including but not limited to personal computers that will be used exclusively for investment decision-making purposes, which include the research, portfolio management, and trading functions and other services to the extent permitted under an interpretation by the SEC. When paying a commission that might not otherwise be charged or a commission in excess of the amount another broker might charge, AEFC must follow procedures authorized by the board. To date, three procedures have been authorized. One procedure permits AEFC to direct an order to buy or sell a security traded on a national securities exchange to a specific broker for research services it has provided. The second procedure permits AEFC, in order to obtain research, to direct an order on an agency basis to buy or sell a security traded in the over-the-counter market to a firm that does not make a market in that security. The commission paid generally includes compensation for research services. The third procedure permits AEFC, in order to obtain research and brokerage services, to cause the Fund to pay a commission in excess of the amount another broker might have charged. AEFC has advised the Fund that it is necessary to do business with a number of brokerage firms on a continuing basis to obtain such services as the handling of large orders, the willingness of a broker to risk its own money by taking a position in a security, and the specialized handling of a particular group of securities that only certain brokers may be able to offer. As a result of this arrangement, some portfolio transactions may not be effected at the lowest commission, but AEFC believes it may obtain better overall execution. AEFC has represented that under all three procedures the amount of commission paid will be reasonable and competitive in relation to the value of the brokerage services performed or research provided. All other transactions will be placed on the basis of obtaining the best available price and the most favorable execution. In so doing, if in the professional opinion of the person responsible for selecting the broker or dealer, several firms can execute the transaction on the same basis, consideration will be given by such person to those firms offering research services. Such services may be used by AEFC in providing advice to all American Express funds even though it is not possible to relate the benefits to any particular fund. Each investment decision made for the Fund is made independently from any decision made for another portfolio, fund, or other account advised by AEFC or any of its subsidiaries. When the Fund buys or sells the same security as another portfolio, fund, or account, AEFC carries out the purchase or sale in a way the Fund agrees in advance is fair. Although sharing in large transactions may adversely affect the price or volume purchased or sold by the Fund, the Fund hopes to gain an overall advantage in execution. On a periodic basis, AEFC makes a comprehensive review of the broker-dealers and the overall reasonableness of their commissions. The review evaluates execution, operational efficiency, and research services. The Fund paid total brokerage commissions of $5,913,765 for fiscal year ended Sept. 30, 1999, $6,267,759 for fiscal year 1998, and $6,147,059 for fiscal year 1997. Substantially all firms through whom transactions were executed provide research services. No transactions were directed to brokers because of research services they provided to the Fund except for the affiliates as noted below. As of the end of the most recent fiscal year, the Fund held securities of its regular brokers or dealers or of the parent of those brokers or dealers that derived more than 15% of gross revenue from securities-related activities as presented below: Value of Securities Name of Issuer owned at End of Fiscal Year ------------------- ----------------------------- Bank of America $ 38,981,250 Merrill Lynch 27,705,058 Morgan Stanley 22,296,875 The portfolio turnover rate was 76% in the most recent fiscal year, and 79% in the year before. BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH AMERICAN EXPRESS FINANCIAL CORPORATION - ------------------------------------------------------------------------------- Affiliates of American Express Company (of which AEFC is a wholly-owned subsidiary) may engage in brokerage and other securities transactions on behalf of the Fund according to procedures adopted by the board and to the extent consistent with applicable provisions of the federal securities laws. AEFC will use an American Express affiliate only if (i) AEFC determines that the Fund will receive prices and executions at least as favorable as those offered by qualified independent brokers performing similar brokerage and other services for the Fund and (ii) the affiliate charges the Fund commission rates consistent with those the affiliate charges comparable unaffiliated customers in similar transactions and if such use is consistent with terms of the Investment Management Services Agreement. Information about brokerage commissions paid by the Fund for the last three fiscal years to brokers affiliated with AEFC is contained in the following table:
As of the end of Fiscal Year, 1999 1998 1997 ------------------------------------------------ --------------- -------------- Percent of --------------- --------------- -------------- Aggregate --------------- -------------- Dollar Amount of Aggregate Percent of Transactions Aggregate Aggregate Dollar amount Aggregate Involving Dollar Amount Dollar Amount Broker Nature of of Commissions Brokerage Payment of of Commissions of Commissions Affiliation Paid to Broker Commissions Commissions Paid to Broker Paid to Broker American Wholly-owned $321,979 5.44% 17.76% $171,639 $404,603 Enterprise subsidiary of Investment AEFC Services Inc. - ------------------
PERFORMANCE INFORMATION - ------------------------------------------------------------------------------- The Fund may quote various performance figures to illustrate past performance. Average annual total return and current yield quotations, if applicable, used by the Fund are based on standardized methods of computing performance as required by the SEC. An explanation of the methods used by the Fund to compute performance follows below. AVERAGE ANNUAL TOTAL RETURN The Fund may calculate average annual total return for a class for certain periods by finding the average annual compounded rates of return over the period that would equate the initial amount invested to the ending redeemable value, according to the following formula: P(1+T)n = ERV where: P = a hypothetical initial payment of $1,000 T = average annual total return n = number of years ERV = ending redeemable value of a hypothetical $1,000 payment, made at the beginning of a period, at the end of the period (or fractional portion thereof) AGGREGATE TOTAL RETURN The Fund may calculate aggregate total return for a class for certain periods representing the cumulative change in the value of an investment in the Fund over a specified period of time according to the following formula: ERV - P ------- P where: P = a hypothetical initial payment of $1,000 ERV = ending redeemable value of a hypothetical $1,000 payment, made at the beginning of a period, at the end of the period (or fractional portion thereof) In its sales material and other communications, the Fund may quote, compare or refer to rankings, yields, or returns as published by independent statistical services or publishers and publications such as The Bank Rate Monitor National Index, Barron's, Business Week, CDA Technologies, Donoghue's Money Market Fund Report, Financial Services Week, Financial Times, Financial World, Forbes, Fortune, Global Investor, Institutional Investor, Investor's Business Daily, Kiplinger's Personal Finance, Lipper Analytical Services, Money, Morningstar, Mutual Fund Forecaster, Newsweek, The New York Times, Personal Investor, Shearson Lehman Aggregate Bond Index, Stanger Report, Sylvia Porter's Personal Finance, USA Today, U.S. News and World Report, The Wall Street Journal, and Wiesenberger Investment Companies Service. The Fund also may compare its performance to a wide variety of indexes or averages. There are similarities and differences between the investments that the Fund may purchase and the investments measured by the indexes or averages and the composition of the indexes or averages will differ from that of the Fund. Ibbotson Associates provides historical returns of the capital markets in the United States, including common stocks, small capitalization stocks, long-term corporate bonds, intermediate-term government bonds, long-term government bonds, Treasury bills, the U.S. rate of inflation (based on the CPI) and combinations of various capital markets. The performance of these capital markets is based on the returns of different indexes. The Fund may use the performance of these capital markets in order to demonstrate general risk-versus-reward investment scenarios. The Fund may quote various measures of volatility in advertising. Measures of volatility seek to compare a fund's historical share price fluctuations or returns to those of a benchmark. The Distributor may provide information designed to help individuals understand their investment goals and explore various financial strategies. Materials may include discussions of asset allocation, retirement investing, brokerage products and services, model portfolios, saving for college or other goals, and charitable giving. VALUING FUND SHARES - ------------------------------------------------------------------------------- As of the end of the most recent fiscal year, the computation looked like this:
Shares Net asset value Net assets outstanding of one share ----------------- ----------------- ----------------- ----------------- ----------------- Class A $3,104,847,594 divided by 118,788,450 equals $26.14 Class B 348,597,349 13,424,410 25.97 Class C* Class Y 1,063,484,606 40,685,460 26.14
*Class C is new as of the date as of this SAI and therefore NAV information is not available. In determining net assets before shareholder transactions, the Fund's securities are valued as follows as of the close of business of the New York Stock Exchange (the Exchange): o Securities traded on a securities exchange for which a last-quoted sales price is readily available are valued at the last-quoted sales price on the exchange where such security is primarily traded. o Securities traded on a securities exchange for which a last-quoted sales price is not readily available are valued at the mean of the closing bid and asked prices, looking first to the bid and asked prices on the exchange where the security is primarily traded and, if none exist, to the over-the-counter market. o Securities included in the NASDAQ National Market System are valued at the last-quoted sales price in this market. o Securities included in the NASDAQ National Market System for which a last-quoted sales price is not readily available, and other securities traded over-the-counter but not included in the NASDAQ National Market System are valued at the mean of the closing bid and asked prices. o Futures and options traded on major exchanges are valued at the last-quoted sales price on their primary exchange. o Foreign securities traded outside the United States are generally valued as of the time their trading is complete, which is usually different from the close of the Exchange. Foreign securities quoted in foreign currencies are translated into U.S. dollars at the current rate of exchange. Occasionally, events affecting the value of such securities may occur between such times and the close of the Exchange that will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, these securities will be valued at their fair value according to procedures decided upon in good faith by the board. o Short-term securities maturing more than 60 days from the valuation date are valued at the readily available market price or approximate market value based on current interest rates. Short-term securities maturing in 60 days or less that originally had maturities of more than 60 days at acquisition date are valued at amortized cost using the market value on the 61st day before maturity. Short-term securities maturing in 60 days or less at acquisition date are valued at amortized cost. Amortized cost is an approximation of market value determined by systematically increasing the carrying value of a security if acquired at a discount, or reducing the carrying value if acquired at a premium, so that the carrying value is equal to maturity value on the maturity date. o Securities without a readily available market price and other assets are valued at fair value as determined in good faith by the board. The board is responsible for selecting methods it believes provide fair value. When possible, bonds are valued by a pricing service independent from the Fund. If a valuation of a bond is not available from a pricing service, the bond will be valued by a dealer knowledgeable about the bond if such a dealer is available. INVESTING IN THE FUND - ------------------------------------------------------------------------------- SALES CHARGE Investors should understand that the purpose and function of the initial sales charge and distribution fee for Class A shares is the same as the purpose and function of the CDSC and distribution fee for Class B and Class C shares. The sales charges and distribution fees applicable to each class pay for the distribution of shares of the Fund. Shares of the Fund are sold at the public offering price. The public offering price is the NAV of one share adjusted for the sales charge for Class A. For Class B, Class C and Class Y, there is no initial sales charge so the public offering price is the same as the NAV. Using the sales charge schedule in the table below, for Class A, the public offering price for an investment of less than $50,000, made on the last day of the most recent fiscal year, was determined by dividing the NAV of one share, $26.14, by 0.9425 (1.00-0.0575) for a maximum 5.75% sales charge for a public offering price of $27.73. The sales charge is paid to the Distributor by the person buying the shares. Class A - Calculation of the Sales Charge Sales charges are determined as follows:
Sales charge as a percentage of: ------------------------------------------------------------ Public Net Amount of Investment Offering Price Amount Invested - -------------------- -------------- --------------- Up to $50,000 5.75% 6.10% $50,000 - $99,999 4.75 4.99 $100,000 - $249,999 3.75 3.90 $250,000 - $499,999 2.50 2.56 $500,000 - $999,999 2.00* 2.04* $1,000,000 or more 0.00 0.00 *The sales charge will be waived until Dec. 31, 2000.
The initial sales charge is waived for certain qualified plans. Participants in these qualified plans may be subject to a deferred sales charge on certain redemptions. The Fund will waive the deferred sales charge on certain redemptions if the redemption is a result of a participant's death, disability, retirement, attaining age 59 1/2, loans, or hardship withdrawals. The deferred sales charge varies depending on the number of participants in the qualified plan and total plan assets as follows: Deferred Sales Charge Number of Participants Total Plan Assets 1-99 100 or more - ----------------- ---- ----------- Less than $1 million 4% 0% $1 million or more 0% 0% - ------------------------------------------------------------------------------ Class A - Reducing the Sales Charge The market value of your investments in the Fund determines your sales charge. For example, suppose you have made an investment that now has a value of $20,000 and you later decide to invest $40,000 more. The value of your investments would be $60,000. As a result, your $40,000 investment qualifies for the lower 4.75% sales charge that applies to investments of more than $50,000 and up to $100,000. Class A - Letter of Intent (LOI) If you intend to invest more than $50,000 over a period of time, you can reduce the sales charge in Class A by filing a LOI and committing to invest a certain amount. The agreement can start at any time and will remain in effect for 13 months. The LOI start date can be backdated by 90 days. Your investments will be charged the sales charge that applies to the amount you have committed to invest. Five percent of the commitment amount will be placed in escrow. If your commitment amount is reached within the 13-month period, the shares will be released from escrow. If you do not invest the commitment amount by the end of the 13 months, the remaining unpaid sales charge will be redeemed from the escrowed shares and the remaining balance released from escrow. The commitment amount does not include purchases in any class of American Express funds other than Class A; purchases in American Express funds held within a wrap product; and purchases of AXP Cash Management Fund and AXP Tax-Free Money Fund unless they are subsequently exchanged to Class A shares of an American Express mutual fund within the 13 month period. A LOI is not an option (absolute right) to buy shares. Class Y Shares Class Y shares are offered to certain institutional investors. Class Y shares are sold without a front-end sales charge or a CDSC and are not subject to a distribution fee. The following investors are eligible to purchase Class Y shares: o Qualified employee benefit plans* if the plan: - uses a daily transfer recordkeeping service offering participants daily access to American Express mutual funds and has - at least $10 million in plan assets or - 500 or more participants; or - does not use daily transfer recordkeeping and has - at least $3 million invested in American Express mutual funds or - 500 or more participants. o Trust companies or similar institutions, and charitable organizations that meet the definition in Section 501(c)(3) of the Internal Revenue Code.* These institutions must have at least $10 million in American Express mutual funds. o Nonqualified deferred compensation plans* whose participants are included in a qualified employee benefit described above. * Eligibility must be determined in advance. To do so, contact your financial advisor. SYSTEMATIC INVESTMENT PROGRAMS After you make your initial investment of $100 or more, you must make additional payments of $100 or more on at least a monthly basis until your balance reaches $2,000. These minimums do not apply to all systematic investment programs. You decide how often to make payments - monthly, quarterly, or semiannually. You are not obligated to make any payments. You can omit payments or discontinue the investment program altogether. The Fund also can change the program or end it at any time. AUTOMATIC DIRECTED DIVIDENDS Dividends, including capital gain distributions, paid by another American Express fund subject to a sales charge, may be used to automatically purchase shares in the same class of this Fund. Dividends may be directed to existing accounts only. Dividends declared by a fund are exchanged to this Fund the following day. Dividends can be exchanged into the same class of another American Express fund but cannot be split to make purchases in two or more funds. Automatic directed dividends are available between accounts of any ownership except: o Between a non-custodial account and an IRA, or 401(k) plan account or other qualified retirement account of which American Express Trust Company acts as custodian; o Between two American Express Trust Company custodial accounts with different owners (for example, you may not exchange dividends from your IRA to the IRA of your spouse); and o Between different kinds of custodial accounts with the same ownership (for example, you may not exchange dividends from your IRA to your 401(k) plan account, although you may exchange dividends from one IRA to another IRA). Dividends may be directed from accounts established under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) only into other UGMA or UTMA accounts with identical ownership. The Fund's investment goal is described in its prospectus along with other information, including fees and expense ratios. Before exchanging dividends into another fund, you should read that fund's prospectus. You will receive a confirmation that the automatic directed dividend service has been set up for your account. REJECTION OF BUSINESS The Fund and AECSC reserves the right to reject any business, in its sole discretion. SELLING SHARES - ------------------------------------------------------------------------------ You have a right to sell your shares at any time. For an explanation of sales procedures, please see the prospectus. During an emergency, the board can suspend the computation of NAV, stop accepting payments for purchase of shares, or suspend the duty of the Fund to redeem shares for more than seven days. Such emergency situations would occur if: o The Exchange closes for reasons other than the usual weekend and holiday closings or trading on the Exchange is restricted, or o Disposal of the Fund's securities is not reasonably practicable or it is not reasonably practicable for the Fund to determine the fair value of its net assets, or o The SEC, under the provisions of the 1940 Act, declares a period of emergency to exist. Should the Fund stop selling shares, the board may make a deduction from the value of the assets held by the Fund to cover the cost of future liquidations of the assets so as to distribute fairly these costs among all shareholders. The Fund has elected to be governed by Rule 18f-1 under the 1940 Act, which obligates the Fund to redeem shares in cash, with respect to any one shareholder during any 90-day period, up to the lesser of $250,000 or 1% of the net assets of the Fund at the beginning of the period. Although redemptions in excess of this limitation would normally be paid in cash, the Fund reserves the right to make these payments in whole or in part in securities or other assets in case of an emergency, or if the payment of a redemption in cash would be detrimental to the existing shareholders of the Fund as determined by the board. In these circumstances, the securities distributed would be valued as set forth in this SAI. Should the Fund distribute securities, a shareholder may incur brokerage fees or other transaction costs in converting the securities to cash. PAY-OUT PLANS - ------------------------------------------------------------------------------ You can use any of several pay-out plans to redeem your investment in regular installments. If you redeem Class B shares you may be subject to a contingent deferred sales charge as discussed in the prospectus. While the plans differ on how the pay-out is figured, they all are based on the redemption of your investment. Net investment income dividends and any capital gain distributions will automatically be reinvested, unless you elect to receive them in cash. If you are redeeming a tax-qualified plan account for which American Express Trust Company acts as custodian, you can elect to receive your dividends and other distributions in cash when permitted by law. If you redeem an IRA or a qualified retirement account, certain restrictions, federal tax penalties, and special federal income tax reporting requirements may apply. You should consult your tax advisor about this complex area of the tax law. Applications for a systematic investment in a class of the Fund subject to a sales charge normally will not be accepted while a pay-out plan for any of those funds is in effect. Occasional investments, however, may be accepted. To start any of these plans, please write American Express Client Service Corporation, P.O. Box 534, Minneapolis, MN 55440-0534, or call American Express Financial Advisors Telephone Transaction Service at 800-437-3133. Your authorization must be received in the Minneapolis headquarters at least five days before the date you want your payments to begin. The initial payment must be at least $50. Payments will be made on a monthly, bimonthly, quarterly, semiannual, or annual basis. Your choice is effective until you change or cancel it. The following pay-out plans are designed to take care of the needs of most shareholders in a way AEFC can handle efficiently and at a reasonable cost. If you need a more irregular schedule of payments, it may be necessary for you to make a series of individual redemptions, in which case you will have to send in a separate redemption request for each pay-out. The Fund reserves the right to change or stop any pay-out plan and to stop making such plans available. Plan #1: Pay-out for a fixed period of time If you choose this plan, a varying number of shares will be redeemed at regular intervals during the time period you choose. This plan is designed to end in complete redemption of all shares in your account by the end of the fixed period. Plan #2: Redemption of a fixed number of shares If you choose this plan, a fixed number of shares will be redeemed for each payment and that amount will be sent to you. The length of time these payments continue is based on the number of shares in your account. Plan #3: Redemption of a fixed dollar amount If you decide on a fixed dollar amount, whatever number of shares is necessary to make the payment will be redeemed in regular installments until the account is closed. Plan #4: Redemption of a percentage of net asset value Payments are made based on a fixed percentage of the net asset value of the shares in the account computed on the day of each payment. Percentages range from 0.25% to 0.75%. For example, if you are on this plan and arrange to take 0.5% each month, you will get $50 if the value of your account is $10,000 on the payment date. TAXES - ------------------------------------------------------------------------------- For tax purposes, an exchange is considered a sale and purchase, and may result in a gain or loss. A sale is a taxable transaction. If you sell shares for less than their cost, the difference is a capital loss. If you sell shares for more than their cost, the difference is a capital gain. Your gain may be short term (for shares held for one year or less) or long term (for shares held more than one year). If you buy Class A shares and within 91 days exchange into another fund, you may not include the sales charge in your calculation of tax gain or loss on the sale of the first fund you purchased. The sales charge may be included in the calculation of your tax gain or loss on a subsequent sale of the second fund you purchased. For example: You purchase 100 shares of one fund having a public offering price of $10.00 per share. With a sales load of 5.75%, you pay $57.50 in sales load. With a NAV of $9.425 per share, the value of your investment is $942.50. Within 91 days of purchasing that fund, you decide to exchange out of that fund, now at a NAV of $11.00 per share, up from the original NAV of $9.425, and purchase into a second fund, at a NAV of $15.00 per share. The value of your investment is now $1,100.00 ($11.00 x 100 shares). You cannot use the $57.50 paid as a sales load when calculating your tax gain or loss in the sale of the first fund shares. So instead of having a $100.00 gain ($1,100.00 - $1,000.00), you have a $157.50 gain ($1,100.00 - $942.50). You can include the $57.50 sales load in the basis of your shares in the second fund. If you have a nonqualified investment in the Fund and you wish to move part or all of those shares to an IRA or qualified retirement account in the Fund, you can do so without paying a sales charge. However, this type of exchange is considered a redemption of shares and may result in a gain or loss for tax purposes. In addition, this type of exchange may result in an excess contribution under IRA or qualified plan regulations if the amount exchanged plus the amount of the initial sales charge applied to the amount exchanged exceeds annual contribution limitations. For example: If you were to exchange $2,000 in Class A shares from a nonqualified account to an IRA without considering the 5.75% ($115) initial sales charge applicable to that $2,000, you may be deemed to have exceeded current IRA annual contribution limitations. You should consult your tax advisor for further details about this complex subject. Net investment income dividends received should be treated as dividend income for federal income tax purposes. Corporate shareholders are generally entitled to a deduction equal to 70% of that portion of the Fund's dividend that is attributable to dividends the Fund received from domestic (U.S.) securities. For the most recent fiscal year, 100% of the Fund's net investment income dividends qualified for the corporate deduction. The Fund may be subject to U.S. taxes resulting from holdings in a passive foreign investment company (PFIC). A foreign corporation is a PFIC when 75% or more of its gross income for the taxable year is passive income or 50% or more of the average value of its assets consists of assets that produce or could produce passive income. Income earned by the Fund may have had foreign taxes imposed and withheld on it in foreign countries. Tax conventions between certain countries and the U.S. may reduce or eliminate such taxes. If more than 50% of the Fund's total assets at the close of its fiscal year consists of securities of foreign corporations, the Fund will be eligible to file an election with the Internal Revenue Service under which shareholders of the Fund would be required to include their pro rata portions of foreign taxes withheld by foreign countries as gross income in their federal income tax returns. These pro rata portions of foreign taxes withheld may be taken as a credit or deduction in computing the shareholders' federal income taxes. If the election is filed, the Fund will report to its shareholders the per share amount of such foreign taxes withheld and the amount of foreign tax credit or deduction available for federal income tax purposes. Capital gain distributions, if any, received by shareholders should be treated as long-term capital gains regardless of how long they owned their shares. Short-term capital gains earned by the Fund are paid to shareholders as part of their ordinary income dividend and are taxable. A special 28% rate on capital gains may apply to sales of precious metals, if any, owned directly by the Fund. A special 25% rate on capital gains may apply to investments in REITs. Under the Internal Revenue Code of 1986 (the Code), gains or losses attributable to fluctuations in exchange rates that occur between the time the Fund accrues interest or other receivables, or accrues expenses or other liabilities denominated in a foreign currency and the time the Fund actually collects such receivables or pays such liabilities generally are treated as ordinary income or ordinary loss. Similarly, gains or losses on disposition of debt securities denominated in a foreign currency attributable to fluctuations in the value of the foreign currency between the date of acquisition of the security and the date of disposition also are treated as ordinary gains or losses. These gains or losses, referred to under the Code as "section 988" gains or losses, may increase or decrease the amount of the Fund's investment company taxable income to be distributed to its shareholders as ordinary income. Under federal tax law, by the end of a calendar year the Fund must declare and pay dividends representing 98% of ordinary income for that calendar year and 98% of net capital gains (both long-term and short-term) for the 12-month period ending Oct. 31 of that calendar year. The Fund is subject to an excise tax equal to 4% of the excess, if any, of the amount required to be distributed over the amount actually distributed. The Fund intends to comply with federal tax law and avoid any excise tax. For purposes of the excise tax distributions, "section 988" ordinary gains and losses are distributable based on an Oct. 31 year end. This is an exception to the general rule that ordinary income is paid based on a calendar year end. If a mutual fund is the holder of record of any share of stock on the record date for any dividend payable with respect to such stock, such dividend shall be included in gross income by the Fund as of the later of (1) the date such share became ex-dividend or (2) the date the Fund acquired such share. Because the dividends on some foreign equity investments may be received some time after the stock goes ex-dividend, and in certain rare cases may never be received by the Fund, this rule may cause the Fund to take into income dividend income that it has not received and pay such income to its shareholders. To the extent that the dividend is never received, the Fund will take a loss at the time that a determination is made that the dividend will not be received. This is a brief summary that relates to federal income taxation only. Shareholders should consult their tax advisor as to the application of federal, state, and local income tax laws to Fund distributions. AGREEMENTS - ------------------------------------------------------------------------------- INVESTMENT MANAGEMENT SERVICES AGREEMENT AEFC, a wholly-owned subsidiary of American Express Company, is the investment manager for the Fund. Under the Investment Management Services Agreement, AEFC, subject to the policies set by the board, provides investment management services. For its services, AEFC is paid a fee based on the following schedule. Each class of the Fund pays its proportionate share of the fee. Assets Annual rate at (billions) each asset level - ------------------ ----------------- First $0.50 0.530% Next 0.50 0.505 Next 1.00 0.480 Next 1.00 0.455 Next 3.00 0.430 Over 6.00 0.400 On the last day of the most recent fiscal year, the daily rate applied to the Fund's net assets was equal to 0.466% on an annual basis. The fee is calculated for each calendar day on the basis of net assets as of the close of business two business days prior to the day for which the calculation is made. Before the fee based on the asset charge is paid, it is adjusted for investment performance. The adjustment, determined monthly, will be calculated using the percentage point difference between the change in the net asset value of one Class A share of the Fund and the change in the Lipper Large-Cap Core Index (Index). The performance of one Class A share of the Fund is measured by computing the percentage difference between the opening and closing net asset value of one Class A share of the Fund, as of the last business day of the period selected for comparison, adjusted for dividend or capital gain distributions which are treated as reinvested at the end of the month during which the distribution was made. The performance of the Index for the same period is established by measuring the percentage difference between the beginning and ending Index for the comparison period. The performance is adjusted for dividend or capital gain distributions (on the securities which comprise the Index), which are treated as reinvested at the end of the month during which the distribution was made. One percentage point will be subtracted from the calculation to help assure that incentive adjustments are attributable to AEFC's management abilities rather than random fluctuations and the result multiplied by 0.01%. That number will be multiplied times the Fund's average net assets for the comparison period and then divided by the number of months in the comparison period to determine the monthly adjustment. Where the Fund's Class A share performance exceeds that of the Index, the base fee will be increased. Where the performance of the Index exceeds the performance of the Fund's Class A share, the base fee will be decreased. The maximum monthly increase or decrease will be 0.08% of the Fund's average net assets on an annual basis. The 12 month comparison period rolls over with each succeeding month, so that it always equals 12 months, ending with the month for which the performance adjustment is being computed. The adjustment increased the fee by $612,579 for fiscal year 1999. The management fee is paid monthly. Under the agreement, the total amount paid was $22,255,457 for fiscal year 1999, $20,321,279 for fiscal year 1998, and $16,849,365 for fiscal year 1997. Under the agreement, the Fund also pays taxes, brokerage commissions and nonadvisory expenses, which include custodian fees; audit and certain legal fees; fidelity bond premiums; registration fees for shares; office expenses; postage of confirmations except purchase confirmations; consultants' fees; compensation of board members, officers and employees; corporate filing fees; organizational expenses; expenses incurred in connection with lending securities; and expenses properly payable by the Fund, approved by the board. Under the agreement, nonadvisory expenses, net of earnings credits, paid by the Fund were $1,120,732 for fiscal year 1999, $815,343 for fiscal year 1998, and $925,431 for fiscal year 1997. Administrative Services Agreement The Fund has an Administrative Services Agreement with AEFC. Under this agreement, the Fund pays AEFC for providing administration and accounting services. The fee is calculated as follows: Assets Annual rate (billions) each asset level - ------------------- ---------------- First $0.50 0.040% Next 0.50 0.035 Next 1.00 0.030 Next 1.00 0.025 Next 3.00 0.020 Over 6.00 0.020 On the last day of the most recent fiscal year, the daily rate applied to the Fund's net assets was equal to 0.027% on an annual basis. The fee is calculated for each calendar day on the basis of net assets as of the close of business two business days prior to the day for which the calculation is made. Under the agreement, the Fund paid fees of $1,276,069 for fiscal year 1999, $1,219,880 for fiscal year 1998, and $1,073,735 for fiscal year 1997. Transfer Agency Agreement The Fund has a Transfer Agency Agreement with American Express Client Service Corporation (AECSC). This agreement governs AECSC's responsibility for administering and/or performing transfer agent functions, for acting as service agent in connection with dividend and distribution functions and for performing shareholder account administration agent functions in connection with the issuance, exchange and redemption or repurchase of the Fund's shares. Under the agreement, AECSC will earn a fee from the Fund determined by multiplying the number of shareholder accounts at the end of the day by a rate determined for each class per year and dividing by the number of days in the year. The rate for Class A is $19.00 per year, for Class B is $20.00 per year, for Class C is $19.50 per year and for Class Y is $17.00 per year. The fees paid to AECSC may be changed by the board without shareholder approval. DISTRIBUTION AGREEMENT American Express Financial Advisors Inc. is the Fund's principal underwriter (distributor). The Fund's shares are offered on a continuous basis. Under a Distribution Agreement, sales charges deducted for distributing Fund shares are paid to the Distributor daily. These charges amounted to $3,243,430 for fiscal year 1999. After paying commissions to personal financial advisors, and other expenses, the amount retained was $290,288. The amounts were $3,225,433 and $217,661 for fiscal year 1998, and $2,758,791 and $199,043 for fiscal year 1997. Part of the sales charge may be paid to selling dealers who have agreements with the Distributor. The Distributor will retain the balance of the sales charge. At times the entire sales charge may be paid to selling dealers. SHAREHOLDER SERVICE AGREEMENT With respect to Class Y shares, the Fund pays a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.10% of average daily net assets. During the most recent fiscal year, the Fund also paid a shareholder service fee with respect to Class A and Class B shares at a rate of 0.175% of average daily net assets. The Shareholder Service Agreement for Class A and Class B shares was converted to a Plan and Agreement of Distribution effective July 1, 1999. PLAN AND AGREEMENT OF DISTRIBUTION For Class A, Class B and Class C shares, to help defray the cost of distribution and servicing not covered by the sales charges received under the Distribution Agreement, the Fund and the Distributor entered into a Plan and Agreement of Distribution (Plan) pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Fund pays a fee up to actual expenses incurred at an annual rate of up to 0.25% of the Fund's average daily net assets attributable to Class A shares and up to 1.00% for Class B and Class C shares. Each class has exclusive voting rights on the Plan as it applies to that class. In addition, because Class B shares convert to Class A shares, Class B shareholders have the right to vote on any material change to expenses charged under the Class A plan. Expenses covered under this Plan include sales commissions, business, employee and financial advisor expenses charged to distribution of Class A, Class B and Class C shares; and overhead appropriately allocated to the sale of Class A, Class B and Class C shares. These expenses also include costs of providing personal service to shareholders. A substantial portion of the costs are not specifically identified to any one of the American Express funds. The Plan must be approved annually by the board, including a majority of the disinterested board members, if it is to continue for more than a year. At least quarterly, the board must review written reports concerning the amounts expended under the Plan and the purposes for which such expenditures were made. The Plan and any agreement related to it may be terminated at any time by vote of a majority of board members who are not interested persons of the Fund and have no direct or indirect financial interest in the operation of the Plan or in any agreement related to the Plan, or by vote of a majority of the outstanding voting securities of the relevant class of shares or by the Distributor. The Plan (or any agreement related to it) will terminate in the event of its assignment, as that term is defined in the 1940 Act. The Plan may not be amended to increase the amount to be spent for distribution without shareholder approval, and all material amendments to the Plan must be approved by a majority of the board members, including a majority of the board members who are not interested persons of the Fund and who do not have a financial interest in the operation of the Plan or any agreement related to it. The selection and nomination of disinterested board members is the responsibility of the other disinterested board members. No board member who is not an interested person, has any direct or indirect financial interest in the operation of the Plan or any related agreement. For the most recent fiscal year, the Fund paid fees of $2,066,212 for Class A shares and $2,703,193 for Class B shares. For Class A shares, these fees were based on the 0.25% fee in effect as of July 1, 1999. The Plan was not effective with respect to Class A shares prior to July 1, 1999. For Class B shares, these fees were based on the 1.00% fee in effect as of July 1, 1999 and the 0.75% fee in effect prior thereto. The fee is not allocated to any one service (such as advertising, payments to underwriters, or other uses). However, a significant portion of the fee is generally used for sales and promotional expenses. Custodian Agreement The Fund's securities and cash are held by American Express Trust Company, 1200 Northstar Center West, 625 Marquette Ave., Minneapolis, MN 55402-2307, through a custodian agreement. The custodian is permitted to deposit some or all of its securities in central depository systems as allowed by federal law. For its services, the Fund pays the custodian a maintenance charge and a charge per transaction in addition to reimbursing the custodian's out-of-pocket expenses. The custodian has entered into a sub-custodian agreement with the Bank of New York 90 Washington Street, New York, NY 10286. As part of this arrangement, securities purchased outside the United States are maintained in the custody of various foreign branches of Bank of New York or in other financial institutions as permitted by law and by the Fund's sub-custodian agreement. ORGANIZATIONAL INFORMATION - ------------------------------------------------------------------------------- The Fund is an open-end management investment company. The Fund headquarters are at 901 S. Marquette Ave., Suite 2810, Minneapolis, MN 55402-3268. SHARES The shares of the Fund represent an interest in that fund's assets only (and profits or losses), and, in the event of liquidation, each share of the Fund would have the same rights to dividends and assets as every other share of that Fund. VOTING RIGHTS As a shareholder in the Fund, you have voting rights over the Fund's management and fundamental policies. You are entitled to one vote for each share you own. Each class, if applicable, has exclusive voting rights with respect to matters for which separate class voting is appropriate under applicable law. All shares have cumulative voting rights with respect to the election of board members. This means that you have as many votes as the number of shares you own, including fractional shares, multiplied by the number of members to be elected. Dividend Rights Dividends paid by the Fund, if any, with respect to each class of shares, if applicable, will be calculated in the same manner, at the same time, on the same day, and will be in the same amount, except for differences resulting from differences in fee structures. AMERICAN EXPRESS FINANCIAL CORPORATION AEFC has been a provider of financial services since 1894. Its family of companies offers not only mutual funds but also insurance, annuities, investment certificates and a broad range of financial management services. In addition to managing assets of more than $105 billion for the American Express Funds, AEFC manages investments for itself and its subsidiaries, IDS Certificate Company and IDS Life Insurance Company. Total assets under management as of the end of the most recent fiscal year were more than $180 billion. The Distributor serves individuals and businesses through its nationwide network of more than 600 supervisory offices, more than 3,800 branch offices and more than 9,400 financial advisors.
FUND HISTORY TABLE FOR ALL PUBLICLY OFFERED AMERICAN EXPRESS FUNDS* Date of Form of State of Fiscal Fund Organization Organization Organization Year End Diversified AXP Bond Fund, Inc. 6/27/74, 6/31/86*** Corporation NV/MN 8/31 Yes AXP Discovery Fund, Inc. 4/29/81, 6/13/86*** Corporation NV/MN 7/31 Yes AXP Equity Select Fund, Inc.** 3/18/57, 6/13/86*** Corporation NV/MN 11/30 Yes AXP Extra Income Fund, Inc. 8/17/83 Corporation MN 5/31 Yes AXP Federal Income Fund, Inc. 3/12/85 Corporation MN 5/31 Yes AXP Global Series, Inc. 10/28/88 Corporation MN 10/31 AXP Emerging Markets Fund Yes AXP Global Balanced Fund Yes AXP Global Bond Fund No AXP Global Growth Fund Yes AXP Innovations Fund Yes AXP Growth Series, Inc. 5/21/70, 6/13/86*** Corporation NV/MN 7/31 AXP Growth Fund Yes AXP Research Opportunities Fund Yes AXP High Yield Tax-Exempt Fund, 12/21/78, 6/13/86** Corporation NV/MN 11/30 Yes Inc. AXP International Fund, Inc. 7/18/84 Corporation MN 10/31 AXP European Equity Fund No AXP International Fund Yes AXP Investment Series, Inc. 1/18/40, 6/13/86*** Corporation NV/MN 9/30 AXP Diversified Equity Income Fund Yes AXP Mutual Yes AXP Managed Series, Inc. 10/9/84 Corporation MN 9/30 AXP Managed Allocation Fund Yes AXP Market Advantage Series, Inc. 8/25/89 Corporation MN 1/31 AXP Blue Chip Advantage Fund Yes AXP International Equity Index Fund No AXP Mid Cap Index Fund No AXP Nasdaq 100 Index Fund No AXP S&P 500 Index Fund No AXP Small Company Index Fund Yes AXP Total Stock Market Index Fund No AXP Money Market Series, Inc. 8/22/75, 6/13/86*** Corporation NV/MN 7/31 AXP Cash Management Fund Yes AXP New Dimensions Fund, Inc. 2/20/68, 6/13/86*** Corporation NV/MN 7/31 AXP Growth Dimensions Fund Yes AXP New Dimensions Fund Yes AXP Precious Metals Fund, Inc. 10/5/84 Corporation MN 3/31 No AXP Progressive Fund, Inc. 4/23/68, 6/13/86*** Corporation NV/MN 9/30 Yes AXP Selective Fund, Inc. 2/10/45, 6/13/86*** Corporation NV/MN 5/31 Yes AXP Stock Fund, Inc. 2/10/45, 6/13/86*** Corporation NV/MN 9/30 Yes AXP Strategy Series, Inc. 1/24/84 Corporation MN 3/31 AXP Equity Value Fund** Yes AXP Focus 20 Fund No AXP Small Cap Advantage Fund Yes AXP Strategy Aggressive Fund** Yes AXP Tax-Exempt Series, Inc. 9/30/76, 6/13/86*** Corporation NV/MN 11/31 AXP Intermediate Tax-Exempt Fund Yes AXP Tax-Exempt Bond Fund Yes AXP Tax-Free Money Fund, Inc. 2/29/80, 6/13/86*** Corporation NV/MN 12/31 Yes AXP Utilities Income Fund, Inc. 3/25/88 Corporation MN 6/30 Yes AXP California Tax-Exempt Trust 4/7/86 Business MA 6/30 Trust**** AXP California Tax-Exempt Fund No AXP Special Tax-Exempt Series Trust 4/7/86 Business MA 6/30 Trust**** AXP Insured Tax-Exempt Fund Yes AXP Massachusetts Tax-Exempt Fund No AXP Michigan Tax-Exempt Fund No AXP Minnesota Tax-Exempt Fund No AXP New York Tax-Exempt Fund No AXP Ohio Tax-Exempt Fund No
* At the shareholders meeting held on June 16, 1999, shareholders of the existing funds (except for AXP Small Cap Advantage Fund) approved the name change from IDS to AXP. In addition to substituting AXP for IDS, the following series changed their names: IDS Growth Fund, Inc. to AXP Growth Series, Inc., IDS Managed Retirement Fund, Inc. to AXP Managed Series, Inc., IDS Strategy Fund, Inc. to AXP Strategy Series, Inc., and IDS Tax-Exempt Bond Fund, Inc. to AXP Tax-Exempt Series, Inc. ** At the shareholders meeting held on Nov. 9, 1994, IDS Equity Plus Fund, Inc. changed its name to IDS Equity Select Fund, Inc. At that same time IDS Strategy Aggressive Equity Fund changed its name to IDS Strategy Aggressive Fund, and IDS Strategy Equity Fund changed its name to IDS Equity Value Fund. *** Date merged into a Minnesota corporation incorporated on 4/7/86. **** Under Massachusetts law, shareholders of a business trust may, under certain circumstances, be held personally liable as partners for its obligations. However, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the trust itself is unable to meet its obligations. BOARD MEMBERS AND OFFICERS - ------------------------------------------------------------------------------- Shareholders elect a board that oversees the Fund's operations. The board appoints officers who are responsible for day-to-day business decisions based on policies set by the board. The following is a list of the Fund's board members. They serve 15 Master Trust portfolios and 60 American Express mutual funds. Peter J. Anderson** Born in 1942 200 AXP Financial Center Minneapolis, MN Senior vice president - investments and director of AEFC. Vice president - investments of the Fund. H. Brewster Atwater, Jr.' Born in 1931 4900 IDS Tower Minneapolis, MN Retired chairman and chief executive officer, General Mills, Inc. Director, Merck & Co., Inc. Arne H. Carlson+'* Born in 1934 901 S. Marquette Ave. Minneapolis, MN Chairman and chief executive officer of the Fund. Chairman, Board Services Corporation (provides administrative services to boards). Former Governor of Minnesota. Lynne V. Cheney Born in 1941 American Enterprise Institute for Public Policy Research (AEI) 1150 17th St., N.W. Washington, D.C. Distinguished Fellow AEI. Former Chair of National Endowment of the Humanities. Director, The Reader's Digest Association Inc., Lockheed-Martin, Union Pacific Resources and EXCIDE Corporation (auto parts and batteries). David R. Hubers** Born in 1943 2900 IDS Tower Minneapolis, MN President, chief executive officer and director of AEFC. Heinz F. Hutter' Born in 1929 P.O. Box 2187 Minneapolis, MN Retired president and chief operating officer, Cargill, Incorporated (commodity merchants and processors). Anne P. Jones Born in 1935 5716 Bent Branch Rd. Bethesda, MD Attorney and telecommunications consultant. Former partner, law firm of Sutherland, Asbill & Brennan. Director, Motorola, Inc. (electronics), and Amnex, Inc. (communications). William R. Pearce+' Born in 1927 2050 One Financial Plaza Minneapolis, MN RII Weyerhaeuser World Timberfund, L.P. (develops timber resources) - management committee. Retired vice chairman of the board, Cargill, Incorporated (commodity merchants and processors). Former chairman, American Express Funds. Alan K. Simpson Born in 1931 1201 Sunshine Ave. Cody, WY Visiting lecturer and Director of The Institute of Politics, Harvard University. Former three-term United States Senator for Wyoming. Former Assistant Republican Leader, U.S. Senate. Director, Biogen (bio-pharmaceuticals). John R. Thomas+'** Born in 1937 2900 IDS Tower Minneapolis, MN Senior vice president of AEFC. President of the Fund. C. Angus Wurtele' Born in 1934 Valspar Corporation Suite 1700 Foshay Tower Minneapolis, MN Retired chairman of the board and chief executive officer, The Valspar Corporation (paints). Director, Valspar, Bemis Corporation (packaging) and General Mills, Inc. (consumer foods). + Member of executive committee. ' Member of investment review committee. * Interested person by reason of being an officer and employee of the Fund. **Interested person by reason of being an officer, board member, employee and/or shareholder of AEFC or American Express. The board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. In addition to Mr. Carlson, who is chairman of the board, Mr. Thomas, who is president and Mr. Anderson who is vice president, the Fund's other officers are: Leslie L. Ogg Born in 1938 901 S. Marquette Ave. Minneapolis, MN President of Board Services Corporation. Vice president, general counsel and secretary for the Fund. Officers who also are officers and employees of AEFC: Frederick C. Quirsfeld Born in 1947 200 AXP Financial Center Minneapolis, MN Vice president - taxable mutual fund investments of AEFC. Vice president - fixed income investments for the Fund. John M. Knight Born in 1952 200 AXP Financial Center Minneapolis, MN Vice president - investment accounting of AEFC. Treasurer for the Fund. COMPENSATION FOR BOARD MEMBERS - ------------------------------------------------------------------------------- During the most recent fiscal year, the independent members of the Fund and Portfolio boards, for attending up to 28 meetings, received the following compensation:
Compensation Table Total cash compensation from American Express Aggregate compensation Aggregate compensation Funds and Preferred Board member from the Fund from the Portfolio Master Trust Group - ------------------------ ------------------------- ------------------------ ------------------------ H. Brewster Atwater, Jr. $1,850 $2,725 $121,000 Lynne V. Cheney 1,547 2,484 103,500 Heinz F. Hutter 1,525 2,400 101,500 Anne P. Jones 1,803 2,751 119,000 William R. Pearce 750 1,150 49,300 Alan K. Simpson 1,547 2,484 103,500 C. Angus Wurtele 1,950 2,825 127,000 As of 30 days prior to the date of this SAI, the Fund's board members and officers as a group owned less than 1% of the outstanding shares of any class.
INDEPENDENT AUDITORS - ------------------------------------------------------------------------------- The financial statements contained in the Annual Report were audited by independent auditors, KPMG LLP, 4200 Norwest Center, 90 S. Seventh St., Minneapolis, MN 55402-3900. The independent auditors also provide other accounting and tax-related services as requested by the Fund. APPENDIX DESCRIPTION OF RATINGS Standard & Poor's Debt Ratings A Standard & Poor's corporate or municipal debt rating is a current assessment of the creditworthiness of an obligor with respect to a specific obligation. This assessment may take into consideration obligors such as guarantors, insurers, or lessees. The debt rating is not a recommendation to purchase, sell, or hold a security, inasmuch as it does not comment as to market price or suitability for a particular investor. The ratings are based on current information furnished by the issuer or obtained by S&P from other sources it considers reliable. S&P does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of such information or based on other circumstances. The ratings are based, in varying degrees, on the following considerations: o Likelihood of default capacity and willingness of the obligor as to the timely payment of interest and repayment of principal in accordance with the terms of the obligation. o Nature of and provisions of the obligation. o Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights. Investment Grade Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in a small degree. Debt rated A has a strong capacity to pay interest and repay principal, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher-rated categories. Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher-rated categories. Speculative grade Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least degree of speculation and C the highest. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major exposures to adverse conditions. Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions that could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category also is used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating. Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category also is used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating. Debt rated CCC has a currently identifiable vulnerability to default and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The CCC rating category also is used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating. Debt rated CC typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating. Debt rated C typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. The rating CI is reserved for income bonds on which no interest is being paid. Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. Moody's Long-Term Debt Ratings Aaa - Bonds that are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk. Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa - Bonds that are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present that make the long-term risk appear somewhat larger than in Aaa securities. A - Bonds that are rated A possess many favorable investment attributes and are to be considered as upper-medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment some time in the future. Baa - Bonds that are rated Baa are considered as medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba - Bonds that are rated Ba are judged to have speculative elements--their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B - Bonds that are rated B generally lack characteristics of a desirable investment. Assurance of interest and principal payments or maintenance of other terms of the contract over any long period of time may be small. Caa - Bonds that are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca - Bonds that are rated Ca represent obligations that are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C - Bonds that are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. SHORT-TERM RATINGS Standard & Poor's Commercial Paper Ratings A Standard & Poor's commercial paper rating is a current assessment of the likelihood of timely payment of debt considered short-term in the relevant market. Ratings are graded into several categories, ranging from A-1 for the highest quality obligations to D for the lowest. These categories are as follows: A-1 This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. A-3 Issues carrying this designation have adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. B Issues are regarded as having only speculative capacity for timely payment. C This rating is assigned to short-term debt obligations with doubtful capacity for payment. D Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. Standard & Poor's Note Ratings An S&P note rating reflects the liquidity factors and market-access risks unique to notes. Notes maturing in three years or less will likely receive a note rating. Notes maturing beyond three years will most likely receive a long-term debt rating. Note rating symbols and definitions are as follows: SP-1 Strong capacity to pay principal and interest. Issues determined to possess very strong characteristics are given a plus (+) designation. SP-2 Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes. SP-3 Speculative capacity to pay principal and interest. Moody's Short-Term Ratings Moody's short-term debt ratings are opinions of the ability of issuers to repay punctually senior debt obligations. These obligations have an original maturity not exceeding one year, unless explicitly noted. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers: Issuers rated Prime-l (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-l repayment ability will often be evidenced by many of the following characteristics: (i) leading market positions in well-established industries, (ii) high rates of return on funds employed, (iii) conservative capitalization structure with moderate reliance on debt and ample asset protection, (iv) broad margins in earnings coverage of fixed financial charges and high internal cash generation, and (v) well established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. Issuers rated Not Prime do not fall within any of the Prime rating categories. Moody's & S&P's Short-Term Muni Bonds and Notes Short-term municipal bonds and notes are rated by Moody's and by S&P. The ratings reflect the liquidity concerns and market access risks unique to notes. Moody's MIG 1/VMIG 1 indicates the best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. Moody's MIG 2/VMIG 2 indicates high quality. Margins of protection are ample although not so large as in the preceding group. Moody's MIG 3/VMIG 3 indicates favorable quality. All security elements are accounted for but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established. Moody' s MIG 4/VMIG 4 indicates adequate quality. Protection commonly regarded as required of an investment security is present and although not distinctly or predominantly speculative, there is specific risk. Standard & Poor's rating SP-1 indicates very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus (+) designation. Standard & Poor's rating SP-2 indicates satisfactory capacity to pay principal and interest. Standard & Poor's rating SP-3 indicates speculative capacity to pay principal and interest. INDEPENDENT AUDITORS' REPORT THE BOARD AND SHAREHOLDERS AXP STOCK FUND, INC. We have audited the accompanying statement of assets and liabilities of AXP Stock Fund, Inc. as of September 30, 1999, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the financial highlights for the three-year period ended September 30, 1999, the eleven month period ended September 30, 1996 and for the year ended October 31, 1995. These financial statements and the financial highlights are the responsibility of fund management. 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 generally accepted auditing standards. 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. 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 referred to above present fairly, in all material respects, the financial position of AXP Stock Fund, Inc. as of September 30, 1999, and the results of its operations, changes in its net assets and the financial highlights for the periods stated in the first paragraph above, in conformity with generally accepted accounting principles. KPMG LLP Minneapolis, Minnesota November 5, 1999 FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES AXP STOCK FUND, INC.
SEPT. 30, 1999 - ------------------------------------------------------------------------------------------------------------- ASSETS - ------------------------------------------------------------------------------------------------------------- Investments in Equity Portfolio (Note 1) $4,518,629,617 - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- LIABILITIES - ------------------------------------------------------------------------------------------------------------- Accrued distribution fee 30,729 Accrued service fee 2,907 Accrued transfer agency fee 10,568 Accrued administrative services fee 3,360 Payable to Equity Portfolio 1,293,021 Other accrued expenses 359,483 - ------------------------------------------------------------------------------------------------------------- Total liabilities 1,700,068 - ------------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $4,516,929,549 - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- REPRESENTED BY - ------------------------------------------------------------------------------------------------------------- Capital stock -- $.01 par value (Note 1) $ 1,728,983 Additional paid-in capital 3,116,202,209 Undistributed net investment income 1,406,860 Accumulated net realized gain (loss) 510,200,996 Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 887,390,501 - ------------------------------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $4,516,929,549 ============================================================================================================= Net assets applicable to outstanding shares: Class A $3,104,847,594 Class B $ 348,597,349 Class Y $1,063,484,606 Net asset value per share of outstanding capital stock: Class A shares 118,788,450 $ 26.14 Class B shares 13,424,410 $ 25.97 Class Y shares 40,685,460 $ 26.14 - -------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. STATEMENT OF OPERATIONS AXP STOCK FUND, INC.
YEAR ENDED SEPT. 30, 1999 - ---------------------------------------------------------------------------------------- INVESTMENT INCOME - ---------------------------------------------------------------------------------------- Income: Dividends $ 62,888,472 Interest 17,362,966 Less foreign taxes withheld (669,431) - ---------------------------------------------------------------------------------------- Total income 79,582,007 - ---------------------------------------------------------------------------------------- Expenses (Note 2): Expenses allocated from Equity Portfolio $ 22,721,026 Distribution fee Class A 2,066,212 Class B 2,703,193 Transfer agency fee 4,054,270 Incremental transfer agency fee Class A 194,887 Class B 72,662 Service fee Class A 4,049,236 Class B 415,956 Class Y 1,122,814 Administrative services fees and expenses 1,276,069 Compensation of board members 13,047 Printing and postage 490,701 Registration fees 244,064 Audit fees 10,250 Other 20,952 - ----------------------------------------------------------------------------------------- Total expenses 39,455,339 Earnings credits on cash balances (Note 2) (129,327) - ----------------------------------------------------------------------------------------- Total net expenses 39,326,012 - ---------------------------------------------------------------------------------------- Investment income (loss) -- net 40,255,995 - ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET - ----------------------------------------------------------------------------------------- Net realized gain (loss) on: Security transactions 510,473,789 Foreign currency transactions (20,401) - ----------------------------------------------------------------------------------------- Net realized gain (loss) on investments 510,453,388 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 169,648,445 - ----------------------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies 680,101,833 - ---------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $720,357,828 =========================================================================================
See accompanying notes to financial statements. STATEMENTS OF CHANGES IN NET ASSETS AXP STOCK FUND, INC.
YEAR ENDED SEPT. 30, 1999 1998 - --------------------------------------------------------------------------------------------------------------- OPERATIONS AND DISTRIBUTIONS - --------------------------------------------------------------------------------------------------------------- Investment income (loss) -- net $ 40,255,995 $ 49,153,951 Net realized gain (loss) on investments 510,453,388 401,321,846 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 169,648,445 (356,905,833) - ---------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 720,357,828 93,569,964 - ---------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (28,984,586) (34,053,523) Class B (727,808) (1,035,340) Class Y (11,296,077) (13,773,535) Net realized gain Class A (231,636,044) (361,177,439) Class B (22,611,501) (27,613,854) Class Y (85,949,857) (141,133,199) - ---------------------------------------------------------------------------------------------------------------- Total distributions (381,205,873) (578,786,890) - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS (NOTE 3) - ---------------------------------------------------------------------------------------------------------------- Proceeds from sales Class A shares (Note 2) 185,607,226 209,142,594 Class B shares 97,231,333 83,702,125 Class Y shares 228,149,726 287,113,337 Reinvestment of distributions at net asset value Class A shares 238,871,722 363,515,355 Class B shares 23,120,523 28,398,853 Class Y shares 87,032,183 136,978,202 Payments for redemptions Class A shares (334,985,548) (337,312,915) Class B shares (Note 2) (48,879,891) (29,364,342) Class Y shares (366,362,193) (351,776,526) - ---------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions 109,785,081 390,396,683 - ---------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 448,937,036 (94,820,243) Net assets at beginning of year 4,067,992,513 4,162,812,756 - ---------------------------------------------------------------------------------------------------------------- Net assets at end of year $ 4,516,929,549 $ 4,067,992,513 ================================================================================================================ Undistributed net investment income $ 1,406,860 $ 2,192,100 - ----------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. NOTES TO FINANCIAL STATEMENTS AXP STOCK FUND, INC. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Fund is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. The Fund has 10 billion authorized shares of capital stock. The Fund offers Class A, Class B and Class Y shares. - - Class A shares are sold with a front-end sales charge. - - Class B shares may be subject to a contingent deferred sales charge and automatically convert to Class A shares during the ninth calendar year of ownership. - - Class Y shares have no sales charge and are offered only to qualifying institutional investors. All classes of shares have identical voting, dividend and liquidation rights. The distribution fee, incremental transfer agency fee and service fee (class specific expenses) differs among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. INVESTMENT IN EQUITY PORTFOLIO The Fund invests all of its assets in Equity Portfolio (the Portfolio), a series of Growth and Income Trust (the Trust), an open-end investment company that has the same objectives as the Fund. The Portfolio invests primarily in common stocks and securities convertible into common stocks. The Fund records daily its share of the Portfolio's income, expenses and realized and unrealized gains and losses. The financial statements of the Portfolio are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. The Fund records its investment in the Portfolio at the value that is equal to the Fund's proportionate ownership interest in the Portfolio's net assets. The percentage of the Portfolio owned by the Fund as of Sept. 30, 1999 was 99.97%. Valuation of securities held by the Portfolio is discussed in Note 1 of the Portfolio's "Notes to financial statements" (included elsewhere in this report). USE OF ESTIMATES Preparing financial statements that conform to generally accepted accounting principles requires management to make estimates (e.g., on assets and liabilities) that could differ from actual results. FEDERAL TAXES The Fund's policy is to comply with all sections of the Internal Revenue Code that apply to regulated investment companies and to distribute all of its taxable income to the shareholders. No provision for income or excise taxes is thus required. 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, 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. 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) were recorded by the Fund. On the statement of assets and liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been decreased by $32,764 and accumulated net realized gain has been increased by $32,764. DIVIDENDS TO SHAREHOLDERS Dividends from net investment income, declared and paid each calendar quarter, are reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the last income dividend of the calendar year. 2. EXPENSES AND SALES CHARGES In addition to the expenses allocated from the Portfolio, the Fund accrues its own expenses as follows: The Fund has an agreement with American Express Financial Corporation (AEFC) to provide administrative services. Under an Administrative Services Agreement, the Fund pays AEFC a fee for administration and accounting services at a percentage of the Fund's average daily net assets in reducing percentages from 0.04% to 0.02% annually. Additional administrative service expenses paid by the Fund are office expenses, consultants' fees and compensation of officers and employees. Under this agreement, the Fund also pays 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 Fund and approved by the board. Under a separate Transfer Agency Agreement, American Express Client Service Corporation (AECSC) maintains shareholder accounts and records. The Fund pays AECSC an annual fee per shareholder account for this service as follows: - - Class A $19 - - Class B $20 - - Class Y $17 Under terms of a prior agreement that ended Jan. 31, 1999, the Fund paid a transfer agency fee at an annual rate per shareholder account of $15 for Class A and $16 for Class B. Under terms of a prior agreement that ended March 31, 1999, the Fund paid a transfer agency fee at an annual rate per shareholder account of $15 for Class Y. The Fund has agreements with American Express Financial Advisors Inc. for distribution and shareholder services. Under a Plan and Agreement of Distribution (the Plan), the Fund pays a distribution fee at an annual rate up to 0.25% of the Fund's average daily net assets attributable to Class A shares and up to 1.00% for Class B shares. The Plan went into effect July 1, 1999. Under terms of a prior Plan and Agreement of Distribution (the Prior Plan) that ended June 30, 1999, the Fund paid a distribution fee for Class B shares at an annual rate up to 0.75% of average daily net assets. The Prior Plan was not effective with respect to Class A shares. Under a Shareholder Service Agreement, the Fund's Class Y shares pay a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net assets attributable to Class Y shares. Under terms of a prior agreement that ended June 30, 1999, the Fund paid a shareholder service fee for Class A and Class B shares at a rate of 0.175% of average daily net assets. Effective July 1, 1999, the agreement for Class A and Class B shares was converted to the Plan and Agreement of Distribution discussed above. Sales charges received by American Express Financial Advisors Inc. for distributing Fund shares were $2,981,757 for Class A and $261,673 for Class B for the year ended Sept. 30, 1999. During the year ended Sept. 30, 1999, the Fund's transfer agency fees were reduced by $129,327 as a result of earnings credits from overnight cash balances. 3. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the years indicated are as follows:
YEAR ENDED SEPT. 30, 1999 CLASS A CLASS B CLASS Y - -------------------------------------------------------------------------------------- Sold 6,892,360 3,642,250 8,518,604 Issued for reinvested distributions 9,237,814 901,335 3,365,176 Redeemed (12,452,760) (1,828,161) (13,675,361) - -------------------------------------------------------------------------------------- Net increase (decrease) 3,677,414 2,715,424 (1,791,581) - -------------------------------------------------------------------------------------- YEAR ENDED SEPT. 30, 1998 CLASS A CLASS B CLASS Y - -------------------------------------------------------------------------------------- Sold 7,948,725 3,199,817 10,902,147 Issued for reinvested distributions 15,104,728 1,189,453 5,689,092 Redeemed (12,795,608) (1,118,982) (13,550,987) - -------------------------------------------------------------------------------------- Net increase (decrease) 10,257,845 3,270,288 3,040,252 - --------------------------------------------------------------------------------------
4. BANK BORROWINGS The Fund has a revolving credit agreement with U.S. Bank, N.A., whereby the Fund is permitted to have bank borrowings for temporary or emergency purposes to fund shareholder redemptions. The Fund must have asset coverage for borrowings not to exceed the aggregate of 333% of advances equal to or less than five business days plus 367% of advances over five business days. The agreement, which enables the Fund to participate with other American Express funds, permits borrowings up to $200 million, collectively. Interest is charged to each Fund based on its borrowings at a rate equal to the Federal Funds Rate plus 0.30% or the Eurodollar Rate (Reserve Adjusted) plus 0.20%. Borrowings are payable up to 90 days after such loan is executed. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.05% per annum. The Fund had no borrowings outstanding during the year ended Sept. 30, 1999. 5. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating the Fund's results.
FISCAL PERIOD ENDED SEPT. 30, - ---------------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ---------------------------------------------------------------------------------------------------------------------- CLASS A 1999 1998 1997 1996(b) 1995 Net asset value, beginning of period $ 24.18 $ 27.44 $ 22.49 $ 19.96 $ 19.48 - ---------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .24 .29 .39 .43 .52 Net gains (losses) (both realized and unrealized) 4.00 .22 6.11 3.17 1.96 - ---------------------------------------------------------------------------------------------------------------------- Total from investment operations 4.24 .51 6.50 3.60 2.48 - ---------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.24) (.30) (.43) (.39) (.49) Distributions from realized gains (2.04) (3.47) (1.12) (.68) (1.51) - ---------------------------------------------------------------------------------------------------------------------- Total distributions (2.28) (3.77) (1.55) (1.07) (2.00) - ---------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 26.14 $ 24.18 $ 27.44 $ 22.49 $ 19.96 - ---------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $ 3,105 $ 2,783 $ 2,877 $ 2,307 $ 1,984 ====================================================================================================================== Ratio of expenses to average daily net assets(c) .82% .77% .78% .80%(d) .79% - ---------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets .90% 1.14% 1.58% 2.19%(d) 2.61% - ---------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 76% 79% 82% 71% 69% - ---------------------------------------------------------------------------------------------------------------------- Total return(e) 17.71% 2.04% 30.22% 18.60% 14.44% - ----------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) The Fund's fiscal year-end was changed from Oct. 31 to Sept. 30, effective 1996. (c) Effective fiscal period 1996, expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge.
FISCAL PERIOD ENDED SEPT. 30, - ----------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ----------------------------------------------------------------------------------------------------- CLASS B 1999 1998 1997 1996(b) 1995(c) Net asset value, beginning of period $24.05 $27.32 $22.42 $19.91 $18.03 - ----------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .06 .10 .22 .28 .27 Net gains (losses) (both realized and unrealized) 3.96 .21 6.05 3.17 1.92 - ----------------------------------------------------------------------------------------------------- Total from investment operations 4.02 .31 6.27 3.45 2.19 - ----------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.06) (.11) (.25) (.26) (.31) Distributions from realized gains (2.04) (3.47) (1.12) (.68) -- - ----------------------------------------------------------------------------------------------------- Total distributions (2.10) (3.58) (1.37) (.94) (.31) - ----------------------------------------------------------------------------------------------------- Net asset value, end of period $25.97 $24.05 $27.32 $22.42 $19.91 ===================================================================================================== RATIOS/SUPPLEMENTAL DATA - ----------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $ 349 $ 258 $ 203 $ 107 $ 29 - ----------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(d) 1.59% 1.53% 1.55% 1.57%(e) 1.61%(e) - ----------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets .12% .39% .85% 1.61%(e) 1.37%(e) - ----------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 76% 79% 82% 71% 69% - ----------------------------------------------------------------------------------------------------- Total return(f) 16.81% 1.27% 29.23% 17.78% 12.10% - ----------------------------------------------------------------------------------------------------- CLASS Y 1999 1998 1997 1996(b) 1995(c) Net asset value, beginning of period $24.18 $27.44 $22.49 $19.96 $18.03 - ----------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .27 .31 .42 .47 .29 Net gains (losses) (both realized and unrealized) 4.00 .22 6.11 3.17 2.01 - ----------------------------------------------------------------------------------------------------- Total from investment operations 4.27 .53 6.53 3.64 2.30 - ----------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.27) (.32) (.46) (.43) (.37) Distributions from realized gains (2.04) (3.47) (1.12) (.68) -- - ----------------------------------------------------------------------------------------------------- Total distributions (2.31) (3.79) (1.58) (1.11) (.37) - ----------------------------------------------------------------------------------------------------- Net asset value, end of period $26.14 $24.18 $27.44 $22.49 $19.96 - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ----------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $1,063 $1,027 $1,082 $ 870 $ 738 - ----------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(d) .72% .70% .66% .63%(e) .64%(e) - ----------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 1.00% 1.21% 1.71% 2.36%(e) 2.38%(e) - ----------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 76% 79% 82% 71% 69% - ----------------------------------------------------------------------------------------------------- Total return(f) 17.81% 2.12% 30.38% 18.79% 12.80% - -----------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) The Fund's fiscal year-end was changed from Oct. 31 to Sept. 30, effective 1996. (c) Inception date was March 20, 1995. (d) Effective fiscal period 1996, expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. INDEPENDENT AUDITORS' REPORT THE BOARD OF TRUSTEES AND UNITHOLDERS GROWTH AND INCOME TRUST We have audited the accompanying statement of assets and liabilities, including the schedule of investments in securities, of Equity Portfolio (a series of Growth and Income Trust) as of September 30, 1999, the related statement of operations for the year then ended and the statements of changes in net assets for each of the years in the two-year period ended September 30, 1999. These financial statements are the responsibility of portfolio management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements 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 September 30, 1999, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Equity Portfolio as of September 30, 1999, and the results of its operations and the changes in its net assets for the periods stated in the first paragraph above, in conformity with generally accepted accounting principles. KPMG LLP Minneapolis, Minnesota November 5, 1999 FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES EQUITY PORTFOLIO
SEPT. 30, 1999 - --------------------------------------------------------------------------------------- ASSETS - --------------------------------------------------------------------------------------- Investments in securities, at value (Note 1): Investments in securities of unaffiliated issuers (identified cost $3,633,860,824) $4,509,891,730 Investments in securities of affiliated issuers (identified cost $13,992,918) 25,531,250 - --------------------------------------------------------------------------------------- Total investments in securities (identified cost $3,647,853,742) 4,535,422,980 Cash in bank on demand deposit 2,092,313 Dividends and accrued interest receivable 5,214,283 U.S. government securities held as collateral (Note 4) 35,752,492 - --------------------------------------------------------------------------------------- Total assets 4,578,482,068 - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- LIABILITIES - --------------------------------------------------------------------------------------- Payable upon return of securities loaned (Note 4) 58,462,492 Accrued investment management services fee 57,595 Other accrued expenses 197,676 - --------------------------------------------------------------------------------------- Total liabilities 58,717,763 - --------------------------------------------------------------------------------------- Net assets $4,519,764,305 =======================================================================================
See accompanying notes to financial statements. STATEMENT OF OPERATIONS EQUITY PORTFOLIO
YEAR ENDED SEPT. 30, 1999 - --------------------------------------------------------------------------------------- INVESTMENT INCOME - --------------------------------------------------------------------------------------- Income: Dividends (including $51,900 earned from affiliates) $ 62,903,635 Interest 17,337,853 Less foreign taxes withheld (669,597) - --------------------------------------------------------------------------------------- Total income 79,571,891 - --------------------------------------------------------------------------------------- Expenses (Note 2): Investment management services fee 22,255,457 Compensation of board members 20,244 Custodian fees 354,569 Audit fees 30,750 Other 77,239 - --------------------------------------------------------------------------------------- Total expenses 22,738,259 Earnings credits on cash balances (Note 2) (11,757) - --------------------------------------------------------------------------------------- Total net expenses 22,726,502 - --------------------------------------------------------------------------------------- Investment income (loss) -- net 56,845,389 - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET - --------------------------------------------------------------------------------------- Net realized gain (loss) on: Security transactions (including $32,338,894 realized gain on sales of affiliated issuers) (Note 3) 510,565,028 Foreign currency transactions (20,409) - --------------------------------------------------------------------------------------- Net realized gain (loss) on investments 510,544,619 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 169,713,139 - --------------------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies 680,257,758 - --------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 737,103,147 =======================================================================================
See accompanying notes to financial statements. STATEMENTS OF CHANGES IN NET ASSETS EQUITY PORTFOLIO
YEAR ENDED SEPT. 30, 1999 1998 - -------------------------------------------------------------------------------------------------------- OPERATIONS - -------------------------------------------------------------------------------------------------------- Investment income (loss) -- net $ 56,845,389 $ 62,955,925 Net realized gain (loss) on security transactions 510,544,619 401,372,703 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 169,713,139 (356,961,919) - -------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 737,103,147 107,366,709 Net contributions (withdrawals) from partners (286,491,766) (202,014,550) - -------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 450,611,381 (94,647,841) Net assets at beginning of year 4,069,152,924 4,163,800,765 - -------------------------------------------------------------------------------------------------------- Net assets at end of year $ 4,519,764,305 $ 4,069,152,924 - -------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. NOTES TO FINANCIAL STATEMENTS EQUITY PORTFOLIO 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Equity Portfolio (the Portfolio) is a series of Growth and Income Trust (the Trust) and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. Equity Portfolio invests primarily in common stocks and securities convertible into common stocks. The Declaration of Trust permits the Trustees to issue non-transferable interests in the Portfolio. The Portfolio's significant accounting policies are summarized below: USE OF ESTIMATES Preparing financial statements that conform to generally accepted accounting principles requires management to make estimates (e.g., on assets and liabilities) that could differ from actual results. VALUATION OF SECURITIES All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. Securities for which market quotations are not readily available are valued at fair value according to methods selected in good faith by the board. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost. OPTION TRANSACTIONS To produce incremental earnings, protect gains and facilitate buying and selling of securities for investments, the Portfolio 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 Portfolio 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 Portfolio gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Portfolio 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 Portfolio pays a premium whether or not the option is exercised. The Portfolio also has 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 Portfolio 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 Portfolio may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Portfolio also may buy and 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 Portfolio is 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 Portfolio each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Portfolio recognizes 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. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Portfolio 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 Portfolio and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Portfolio is subject to the credit risk that the other party will not complete its contract obligations. FEDERAL TAXES For federal income tax purposes the Portfolio qualifies as a partnership and each investor in the Portfolio is treated as the owner of its proportionate share of the net assets, income, expenses and realized and unrealized gains and losses of the Portfolio. As a "pass-through" entity, the Portfolio therefore does not pay any income dividends or capital gain distributions. OTHER Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date and interest income, including level-yield amortization of premium and discount, is accrued daily. 2. FEES AND EXPENSES The Trust, on behalf of the Portfolio, has an Investment Management Services Agreement with AEFC to manage its portfolio. Under this agreement, AEFC determines which securities will be purchased, held or sold. The management fee is a percentage of the portfolio's average daily net assets in reducing percentages from 0.53% to 0.4% annually. The fees may be increased or decreased by a performance adjustment based on a comparison of the performance of Class A shares of AXP Stock Fund to the Lipper Growth and Income Fund Index. The maximum adjustment is 0.08% of the Portfolio's average daily net assets on an annual basis. The adjustment increased the fee by $612,579 for the year ended Sept. 30, 1999. Under the agreement, the Trust also pays taxes, brokerage commissions and nonadvisory expenses, which include custodian fees, audit and certain legal fees, fidelity bond premiums, registration fees for units, office expenses, consultants' fees, compensation of trustees, corporate filing fees, expenses incurred in connection with lending securities of the Portfolio and any other expenses properly payable by the Trust or Portfolio and approved by the board. During the year ended Sept. 30, 1999, the Portfolio's custodian fees were reduced by $11,757 as a result of earnings credits from overnight cash balances. The Portfolio also pays custodian fees to American Express Trust Company, an affiliate of AEFC. According to a Placement Agency Agreement, American Express Financial Advisors Inc. acts as placement agent of the Trust's units. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $3,264,783,239 and $3,430,662,175, respectively, for the year ended Sept. 30, 1999. For the same period, the portfolio turnover rate was 76%. Realized gains and losses are determined on an identified cost basis. Brokerage commissions paid to brokers affiliated with AEFC were $321,979 for the year ended Sept. 30, 1999. 4. LENDING OF PORTFOLIO SECURITIES As of Sept. 30, 1999, securities valued at $61,276,850 were on loan to brokers. For collateral, the Portfolio received $22,710,000 in cash and U.S. government securities valued at $35,752,492. As of Sept. 30, 1999, due to fluctuating market conditions, the Fund requested additional collateral which was received on Oct. 1, 1999. Income from securities lending amounted to $351,523 for the year ended Sept. 30, 1999. The risks to the Portfolio of securities lending are that the borrower may not provide additional collateral when required or return the securities when due. INVESTMENTS IN SECURITIES EQUITY PORTFOLIO SEPT. 30, 1999 (Percentages represent value of investments compared to net assets)
- ---------------------------------------------------------------------------------------- COMMON STOCKS (86.6%) - ---------------------------------------------------------------------------------------- ISSUER SHARES VALUE(a) AEROSPACE & DEFENSE (1.1%) AlliedSignal 650,000 $38,959,375 United Technologies 200,000 11,862,500 ------------ Total 50,821,875 - ---------------------------------------------------------------------------------------- AIRLINES (0.5%) Southwest Airlines 1,500,000 22,781,250 - ---------------------------------------------------------------------------------------- AUTOMOTIVE & RELATED (0.6%) Ford Motor 500,000 25,093,750 - ---------------------------------------------------------------------------------------- BANKS AND SAVINGS & LOANS (3.2%) Bank of America 700,000 38,981,250 Bank of New York 875,000 29,257,813 First Union 1,000,000 35,562,500 Wells Fargo 1,100,000 43,587,500 ------------ Total 147,389,063 - ---------------------------------------------------------------------------------------- BEVERAGES & TOBACCO (1.3%) Coca-Cola 1,200,000 57,675,000 - ---------------------------------------------------------------------------------------- BUILDING MATERIALS & CONSTRUCTION (0.3%) Martin Marietta Materials 324,000 12,939,750 - ---------------------------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT & SERVICES (4.0%) Lucent Technologies 1,072,500 69,578,438 Motorola 500,000 44,000,000 Nokia Oyj ADR Cl A 500,000(c) 44,906,250 Tellabs 400,000(b) 22,775,000 ------------ Total 181,259,688 - ---------------------------------------------------------------------------------------- See accompanying notes to investments in securities. - ---------------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) - ---------------------------------------------------------------------------------------- ISSUER SHARES VALUE(a) COMPUTERS & OFFICE EQUIPMENT (17.4%) America Online 550,000(b) $57,200,000 Cisco Systems 1,200,000(b) 82,275,000 Data General 800,000(b) 16,850,000 EMC 500,000(b) 35,718,750 EQUANT 400,000(b,c) 32,550,000 First Data 900,000 39,487,500 Intl Business Machines 1,000,000 121,375,000 Microsoft 2,000,000(b) 181,124,999 Oracle 1,000,000(b) 45,500,000 Pitney Bowes 850,000 51,796,875 Solectron 996,449(b) 71,557,494 Unisys 1,200,000(b) 54,150,000 ------------ Total 789,585,618 - ---------------------------------------------------------------------------------------- ELECTRONICS (5.5%) Altera 695,652(b) 30,173,906 Corning 900,000 61,706,250 Intel 1,000,000 74,312,500 Texas Instruments 1,000,000 82,250,000 ------------ Total 248,442,656 - ---------------------------------------------------------------------------------------- ENERGY (4.8%) BP Amoco ADR 400,000(c) 44,325,000 Chevron 400,000 35,500,000 Conoco Cl A 1,700,000(f) 47,175,000 Exxon 600,000 45,562,500 Mobil 450,000 45,337,500 ------------ Total 217,900,000 - ---------------------------------------------------------------------------------------- ENERGY EQUIPMENT & SERVICES (1.6%) Halliburton 1,000,000 41,000,000 Schlumberger 525,000(c) 32,714,063 ------------ Total 73,714,063 - ---------------------------------------------------------------------------------------- FINANCIAL SERVICES (1.8%) Citigroup 1,350,000 59,400,000 Morgan Stanley, Dean Witter, Discover & Co 250,000 22,296,875 ------------ Total 81,696,875 - ---------------------------------------------------------------------------------------- See accompanying notes to investments in securities. - ---------------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) - ---------------------------------------------------------------------------------------- ISSUER SHARES VALUE(a) FOOD (1.9%) Bestfoods 900,000 $43,650,000 Ralston-Ralston Purina Group 1,500,000 41,718,750 ------------ Total 85,368,750 - ---------------------------------------------------------------------------------------- HEALTH CARE (7.6%) Amgen 500,000(b) 40,750,000 Bausch & Lomb 600,000 39,562,500 Baxter Intl 700,000 42,175,000 Biogen 550,000(b) 43,346,875 Bristol-Myers Squibb 800,000 53,999,999 Guidant 500,000 26,812,500 Medtronic 800,000 28,400,000 Mylan Laboratories 1,300,000 23,887,500 Schering-Plough 1,000,000 43,625,000 ------------ Total 342,559,374 - ---------------------------------------------------------------------------------------- HEALTH CARE SERVICES (0.8%) Cardinal Health 700,000 38,150,000 - ---------------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS (2.1%) Colgate-Palmolive 850,000 38,887,500 Procter & Gamble 600,000 56,250,000 Unilever 1(c) 68 ------------ Total 95,137,568 - ---------------------------------------------------------------------------------------- INDUSTRIAL EQUIPMENT & SERVICES (1.6%) Illinois Tool Works 1,000,000 74,562,500 - ---------------------------------------------------------------------------------------- INSURANCE (3.0%) American General 570,000 36,016,875 American Intl Group 1,130,625 98,293,711 ------------ Total 134,310,586 - ---------------------------------------------------------------------------------------- LEISURE TIME & ENTERTAINMENT (1.4%) Royal Caribbean Cruises 867,000 39,015,000 Time Warner 400,000 24,300,000 ------------ Total 63,315,000 - ---------------------------------------------------------------------------------------- See accompanying notes to investments in securities. - ---------------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) - ---------------------------------------------------------------------------------------- ISSUER SHARES VALUE(a) MEDIA (4.5%) Clear Channel Communications 800,000(b) $63,900,000 Hispanic Broadcasting Cl A 300,000(b) 22,837,500 Infinity Broadcasting Cl A 1,317,000(b,f) 38,604,563 MediaOne Group 500,000(b) 34,156,250 USA Networks 1,200,000(b) 46,500,000 ------------ Total 205,998,313 - ---------------------------------------------------------------------------------------- METALS (1.4%) Alcoa 600,000 37,237,500 Stillwater Mining 950,000(b,h) 25,531,250 ------------ Total 62,768,750 - ---------------------------------------------------------------------------------------- MULTI-INDUSTRY CONGLOMERATES (5.6%) General Electric 1,500,000 177,843,750 Grainger (WW) 800,000 38,450,000 Minnesota Mining & Mfg 400,000 38,425,000 ------------ Total 254,718,750 - ---------------------------------------------------------------------------------------- PAPER & PACKAGING (1.1%) Intl Paper 1,000,000 48,062,500 - ---------------------------------------------------------------------------------------- RETAIL (4.7%) Circuit City Stores 1,000,000 42,187,500 Dayton Hudson 500,000 30,031,250 Home Depot 500,000 34,312,500 Safeway 500,000(b) 19,031,250 Wal-Mart Stores 1,800,000 85,612,500 ------------ Total 211,175,000 - ---------------------------------------------------------------------------------------- UTILITIES -- ELECTRIC (1.7%) Carolina Power & Light 350,000 12,381,250 CMS Energy 300,000 10,181,250 Duke Energy 200,000 11,025,000 New Century Energies 500,000 16,718,750 Texas Utilities 350,000 13,059,375 Unicom 400,000 14,775,000 ------------ Total 78,140,625 - ---------------------------------------------------------------------------------------- See accompanying notes to investments in securities. - ---------------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) - ---------------------------------------------------------------------------------------- ISSUER SHARES VALUE(a) UTILITIES -- GAS (0.9%) Coastal 1,000,000 $40,937,500 - ---------------------------------------------------------------------------------------- UTILITIES -- TELEPHONE (5.9%) Ameritech 800,000 53,750,000 AT&T 750,000 32,625,022 BellSouth 750,000 33,750,000 Global TeleSystems Group 1,200,000(b) 23,662,500 MCI WorldCom 800,000(b) 57,499,999 SBC Communications 439,200 22,426,650 U S WEST Communications Group 800,000 45,650,000 ------------ Total 269,364,171 - ---------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $3,031,062,748) $3,913,868,975 - ----------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------- PREFERRED STOCKS & OTHER (4.9%) - ---------------------------------------------------------------------------------------- ISSUER SHARES VALUE(a) Adelphia Communications 5.50% Cv Series D 73,500 $12,936,000 CVS 6.00% Cv ACES 200,000(i) 15,137,500 Finova Finance Trust 5.50% Cv 325,000 16,696,875 Georgia-Pacific Group 7.50% Cv 625,000(b) 27,656,250 Global TeleSystems Group 7.25% Cv 300,000(d) 12,300,000 Host Marriott Financial Trust 6.75% Cv 300,000(d) 10,162,500 Ingersoll-Rand 6.75% Cv PRIDES 800,000(j) 21,000,000 Kerr-McGee 5.50% Cv 600,000(b) 23,400,000 MS-Applied Material 6.00% Cv 180,000 10,102,500 MS-Gillette 5.25% Cv 186,795 13,262,445 Newell Financial Trust 5.25% Cm Cv 250,000(d) 10,062,500 Wendys Financing 5.00% Cm Cv Series A 340,000 19,210,000 See accompanying notes to investments in securities. - --------------------------------------------------------------------------------------- PREFERRED STOCKS & OTHER (CONTINUED) - ---------------------------------------------------------------------------------------- ISSUER SHARES VALUE(a) SBH-Cincinnati Bell 6.25% 216,200 $14,701,600 Sprint 8.25% Cv 206,925 16,217,747 - ---------------------------------------------------------------------------------------- TOTAL PREFERRED STOCKS & OTHER (Cost: $238,583,776) $222,845,917 - ----------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------- BONDS (2.3%) - ---------------------------------------------------------------------------------------- ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT COLT Telecom Group (European Monetary Unit) Cv 08-06-05 2.00% 25,000,000(c) $21,796,639 Costco Zero Coupon Cv Sub Nts 08-19-17 3.50 21,000,000(d,g) 18,060,000 Devon Energy Cv Deb 08-15-08 4.90 15,000,000 14,700,000 Exodus Communications Cv Sub Nts 03-15-06 5.00 6,000,000(d) 19,548,119 Network Associates Zero Coupon Cv Sub Deb 02-13-18 4.09 20,000,000(d,g) 6,700,000 Office Depot Zero Coupon Cv Nts 11-01-08 4.00 7,300,000(g) 4,795,954 Telewest Communication (British Pound) Cv 02-19-07 5.25 12,240,000(c,d) 18,639,400 - ---------------------------------------------------------------------------------------- TOTAL BONDS (Cost: $83,663,792) $104,240,112 - ----------------------------------------------------------------------------------------
See accompanying notes to investments in securities.
- ---------------------------------------------------------------------------------------- SHORT-TERM SECURITIES (6.5%) - ---------------------------------------------------------------------------------------- ISSUER ANNUALIZED AMOUNT VALUE(a) YIELD ON DATE PAYABLE AT OF PURCHASE MATURITY U.S. GOVERNMENT AGENCIES (3.9%) Federal Home Loan Mtge Corp Disc Nts 10-07-99 5.16% $12,400,000 $12,387,582 10-07-99 5.19 6,500,000 6,493,453 10-14-99 5.17 15,800,000 15,767,773 10-15-99 5.19 30,000,000 29,935,250 10-28-99 5.22 35,200,000 35,049,735 Federal Natl Mtge Assn Disc Nts 10-21-99 5.22 4,400,000 4,386,653 12-02-99 5.29 50,000,000 49,526,625 12-10-99 5.29 25,000,000 24,733,257 ------------ Total 178,280,328 - ---------------------------------------------------------------------------------------- COMMERCIAL PAPER (2.6%) Alcoa 11-03-99 5.33 4,600,000 4,576,974 BellSouth Capital Funding 11-08-99 5.32 6,900,000(e) 6,860,457 11-08-99 5.33 12,000,000(e) 11,931,099 11-12-99 5.31 16,000,000(e) 15,899,092 BellSouth Telecommunications 10-21-99 5.32 9,600,000 9,570,320 Clorox 10-06-99 5.28 3,000,000 2,997,360 Delaware Funding 10-26-99 5.38 12,100,000(e) 12,053,159 Ford Motor Credit 10-18-99 5.27 5,000,000 4,986,850 GTE Funding 10-21-99 5.35 2,400,000 2,392,538 Merrill Lynch 10-21-99 5.31 13,100,000 13,059,575 10-25-99 5.31 14,200,000 14,147,834 11-01-99 5.31 500,000 497,649 Petrofina (Delaware) 10-27-99 5.31 7,100,000 7,071,830 See accompanying notes to investments in securities. - --------------------------------------------------------------------------------------- SHORT-TERM SECURITIES (CONTINUED) - ---------------------------------------------------------------------------------------- ISSUER ANNUALIZED AMOUNT VALUE(a) YIELD ON DATE PAYABLE AT OF PURCHASE MATURITY Pfizer 11-02-99 5.33% $1,400,000(e) $1,393,198 Procter & Gamble 11-01-99 5.31 6,300,000 6,270,376 SBC Communications Capital 11-24-99 5.34 2,500,000(e) 2,479,337 ------------ Total 116,187,648 - ---------------------------------------------------------------------------------------- TOTAL SHORT-TERM SECURITIES (Cost: $294,543,426) $294,467,976 - ---------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $3,647,853,742)(k) $4,535,422,980 ========================================================================================
- -------------------------------------------------------------------------------- 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. For debt securities, principal amounts are denominated in the currency indicated. As of Sept. 30, 1999, the value of foreign securities represented 4.31% 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) Security is partially or fully on loan. See Note 4 to the financial statements. (g) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (h) 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 Sept. 30, 1999 are as follows:
Issuer Beginning Purchase Sales Ending Dividend Value(a) cost cost cost cost income - -------------------------------------------------------------------------------------------- Mutual Risk Management* $21,682,783 $ 965,563 $22,648,346 $ -- $ 51,900 $ -- Stillwater Mining* 24,603,388 3,002,085 13,612,555 13,992,918 -- 25,531,250 - -------------------------------------------------------------------------------------------- Total $46,286,171 $ 3,967,648 $36,260,901 $13,992,918 $ 51,900 $25,531,250 - --------------------------------------------------------------------------------------------
*Issuer was not an affiliate for the entire year ended Sept. 30, 1999. (i) ACES (Automatically Convertible Equity Securities) are structured as convertible preferred securities. Investors receive an enhanced yield but based upon a specific formula, potential appreciation is limited. ACES pay dividends, have voting rights, are noncallable for at least three years and upon maturity, convert into shares of common stock. (j) PRIDES (Preferred Redeemable Increased Dividend Equity Securities) are structured as convertible preferred securities. Investors receive an enhanced yield but based upon a specific formula, potential appreciation is limited. PRIDES pay dividends, have voting rights, are noncallable for three years and upon maturity, convert into shares of common stock. (k) At Sept. 30, 1999, the cost of securities for federal income tax purposes was $3,648,352,148 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $1,074,898,362 Unrealized depreciation (187,827,530) - ----------------------------------------------------------------------------- Net unrealized appreciation $ 887,070,832 - -----------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION (UNAUDITED) The Fund is required by the Internal Revenue Code of 1986 to tell its shareholders about the tax treatment of the dividends it pays during its fiscal year. Some of the dividends listed below are reported to you on Form 1099-DIV, Dividends and Distributions. Shareholders should consult a tax advisor on how to report distributions for state and local tax purposes. AXP Stock Fund, Inc. Fiscal year ended Sept. 30, 1999 CLASS A INCOME DISTRIBUTIONS TAXABLE AS DIVIDEND INCOME, 100% QUALIFYING FOR DEDUCTION BY CORPORATIONS.
PAYABLE DATE PER SHARE Dec. 22, 1998 .............................. $0.13065 March 25, 1999 ............................. 0.04573 June 24, 1999 .............................. 0.07087 Sept. 23, 1999 ............................. 0.03753 TOTAL ...................................... $0.28478
CAPITAL GAIN DISTRIBUTION TAXABLE FOR LONG-TERM CAPITAL GAIN.
PAYABLE DATE PER SHARE Dec. 22, 1998 .............................. $1.99824 TOTAL DISTRIBUTIONS ........................ $2.28302
The distribution of $2.12889 per share, payable Dec. 22, 1998, consisted of $0.09211 derived from net investment income, $0.03854 from net short-term capital gains (a total of $0.13065 taxable as dividend income) and $1.99824 from net long-term capital gains. CLASS B INCOME DISTRIBUTIONS TAXABLE AS DIVIDEND INCOME, 100% QUALIFYING FOR DEDUCTION BY CORPORATIONS.
PAYABLE DATE PER SHARE Dec. 22, 1998 .............................. $0.08515 June 24, 1999 .............................. 0.01564 TOTAL ...................................... $0.10079
CAPITAL GAIN DISTRIBUTION TAXABLE FOR LONG-TERM CAPITAL GAIN.
PAYABLE DATE PER SHARE Dec. 22, 1998 .............................. $1.99824 TOTAL DISTRIBUTIONS ........................ $2.09903
The distribution of $2.08339 per share, payable Dec. 22, 1998, consisted of $0.04661 derived from net investment income, $0.03854 from net short-term capital gains (a total of $0.08515 taxable as dividend income) and $1.99824 from net long-term capital gains. CLASS Y INCOME DISTRIBUTIONS TAXABLE AS DIVIDEND INCOME, 100% QUALIFYING FOR DEDUCTION BY CORPORATIONS.
PAYABLE DATE PER SHARE Dec. 22, 1998 .............................. $0.13505 March 25, 1999 ............................. 0.05111 June 24, 1999 .............................. 0.07636 Sept. 23, 1999 ............................. 0.04784 TOTAL ...................................... $0.31036
CAPITAL GAIN DISTRIBUTION TAXABLE FOR LONG-TERM CAPITAL GAIN.
PAYABLE DATE PER SHARE Dec. 22, 1998 .............................. $1.99824 TOTAL DISTRIBUTIONS ........................ $2.30860
The distribution of $2.13329 per share, payable Dec. 22, 1998, consisted of $0.09651 derived from net investment income, $0.03854 from net short-term capital gains (a total of $0.13505 taxable as dividend income) and $1.99824 from net long-term capital gains.
Financial Statements Statement of assets and liabilities AXP Stock Fund, Inc. March 31, 2000 (Unaudited) Assets Investments in Equity Portfolio (Note 1) $5,166,834,031 Liabilities Accrued distribution fee 37,398 Accrued service fee 2,990 Accrued transfer agency fee 11,627 Accrued administrative services fee 3,746 Other accrued expenses 352,641 ------- Total liabilities 408,402 ------- Net assets applicable to outstanding capital stock $5,166,425,629 ============== Represented by Capital stock-- $.01 par value (Note 1) $ 1,802,097 Additional paid-in capital 3,301,790,303 Undistributed net investment income 906,223 Accumulated net realized gain (loss) 259,348,272 Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 1,602,578,734 ------------- Total -- representing net assets applicable to outstanding capital stock $5,166,425,629 ============== Net assets applicable to outstanding shares: Class A $3,644,064,164 Class B $ 441,734,589 Class Y $1,080,626,876 Net asset value per share of outstanding capital stock: Class A shares 127,019,504 $ 28.69 Class B shares 15,529,337 $ 28.45 Class Y shares 37,660,877 $ 28.69 See accompanying notes to financial statements.
Statement of operations AXP Stock Fund, Inc. Six months ended March 31, 2000 (Unaudited) Investment income Income: Dividends $ 28,296,259 Interest 5,822,091 Less foreign taxes withheld (50,843) ------- Total income 34,067,507 ---------- Expenses (Note 2): Expenses allocated from Equity Portfolio 11,862,546 Distribution fee Class A 4,262,807 Class B 1,981,917 Transfer agency fee 2,018,950 Incremental transfer agency fee Class A 117,469 Class B 44,302 Service fee-- Class Y 527,844 Administrative services fees and expenses 656,404 Compensation of board members 6,292 Printing and postage 117,135 Registration fees 75,414 Audit fees 5,125 Other 11,983 ------ Total expenses 21,688,188 Earnings credits on cash balances (Note 2) (148,358) -------- Total net expenses 21,539,830 ---------- Investment income (loss) -- net 12,527,677 Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions 270,180,760 Foreign currency transactions (29,794) ------- Net realized gain (loss) on investments 270,150,966 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 715,188,233 ----------- Net gain (loss) on investments and foreign currencies 985,339,199 ----------- Net increase (decrease) in net assets resulting from operations $997,866,876 ============ See accompanying notes to financial statements.
Statements of changes in net assets AXP Stock Fund, Inc. March 31, 2000 Sept. 30, 1999 Six months ended Year ended (Unaudited) Operations and distributions Investment income (loss)-- net $ 12,527,677 $ 40,255,995 Net realized gain (loss) on investments 270,150,966 510,453,388 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 715,188,233 169,648,445 ----------- ----------- Net increase (decrease) in net assets resulting from operations 997,866,876 720,357,828 ----------- ----------- Distributions to shareholders from: Net investment income Class A (9,412,003) (28,984,586) Class B -- (727,808) Class Y (3,616,311) (11,296,077) Net realized gain Class A (366,196,061) (231,636,044) Class B (42,601,015) (22,611,501) Class Y (112,206,614) (85,949,857) ------------ ----------- Total distributions (534,032,004) (381,205,873) ------------ ------------ Capital share transactions (Note 3) Proceeds from sales Class A shares (Note 2) 96,781,491 185,607,226 Class B shares 49,299,274 97,231,333 Class Y shares 123,839,599 228,149,726 Reinvestment of distributions at net asset value Class A shares 344,079,242 238,871,722 Class B shares 42,094,054 23,120,523 Class Y shares 103,757,569 87,032,183 Payments for redemptions Class A shares (223,698,481) (334,985,548) Class B shares (Note 2) (34,882,044) (48,879,891) Class Y shares (315,609,496) (366,362,193) ------------ ------------ Increase (decrease) in net assets from capital share transactions 185,661,208 109,785,081 ----------- ----------- Total increase (decrease) in net assets 649,496,080 448,937,036 Net assets at beginning of period 4,516,929,549 4,067,992,513 ------------- ------------- Net assets at end of period $5,166,425,629 $4,516,929,549 ============== ============== Undistributed net investment income $ 906,223 $ 1,406,860 -------------- -------------- See accompanying notes to financial statements.
Notes to Financial Statements AXP Stock Fund, Inc. (Unaudited as to March 31, 2000) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Fund is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. The Fund has 10 billion authorized shares of capital stock. The Fund offers Class A, Class B and Class Y shares. o Class A shares are sold with a front-end sales charge. o Class B shares may be subject to a contingent deferred sales charge and automatically convert to Class A shares during the ninth calendar year of ownership. o Class Y shares have no sales charge and are offered only to qualifying institutional investors. All classes of shares have identical voting, dividend and liquidation rights. The distribution fee, incremental transfer agency fee and service fee (class specific expenses) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. Investment in Equity Portfolio The Fund invests all of its assets in Equity Portfolio (the Portfolio), a series of Growth and Income Trust (the Trust), an open-end investment company that has the same objectives as the Fund. The Portfolio invests primarily in common stocks and securities convertible into common stocks. The Fund records daily its share of the Portfolio's income, expenses and realized and unrealized gains and losses. The financial statements of the Portfolio are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. The Fund records its investment in the Portfolio at the value that is equal to the Fund's proportionate ownership interest in the Portfolio's net assets. The percentage of the Portfolio owned by the Fund as of March 31, 2000 was 99.97%. Valuation of securities held by the Portfolio is discussed in Note 1 of the Portfolio's "Notes to financial statements" (included elsewhere in this report). Use of estimates Preparing financial statements that conform to accounting principles generally accepted in the United States of America requires management to make estimates (e.g., on assets and liabilities) that could differ from actual results. Federal taxes The 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 shareholders. No provision for income or excise taxes is thus required. 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, 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. 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) were recorded by the Fund. Dividends to shareholders Dividends from net investment income, declared and paid each calendar quarter, when available, are reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the last income dividend of the calendar year. 2. EXPENSES AND SALES CHARGES In addition to the expenses allocated from the Portfolio, the Fund accrues its own expenses as follows: The Fund has an agreement with American Express Financial Corporation (AEFC) to provide administrative services. Under an Administrative Services Agreement, the Fund pays AEFC a fee for administration and accounting services at a percentage of the Fund's average daily net assets in reducing percentages from 0.04% to 0.02% annually. A minor portion of additional administrative service expenses paid by the Fund are consultants' fees and fund office expenses. Under this agreement, the Fund also pays 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 Fund and approved by the board. Under a separate Transfer Agency Agreement, American Express Client Service Corporation (AECSC) maintains shareholder accounts and records. The Fund pays AECSC an annual fee per shareholder account for this service as follows: o Class A $19 o Class B $20 o Class Y $17 The Fund has agreements with American Express Financial Advisors Inc. (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution, the Fund pays a distribution fee at an annual rate up to 0.25% of the Fund's average daily net assets attributable to Class A shares and up to 1.00% for Class B shares. Under a Shareholder Service Agreement, the Fund's Class Y shares pay a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net assets attributable to Class Y shares. Sales charges received by the Distributor for distributing Fund shares were $1,271,974 for Class A and $185,620 for Class B for the six months ended March 31, 2000. During the six months ended March 31, 2000, the Fund's transfer agency fees were reduced by $148,358 as a result of earnings credits from overnight cash balances. 3. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows: Six months ended March 31, 2000 Class A Class B Class Y Sold 3,546,640 1,807,666 4,509,030 Issued for reinvested distributions 12,742,589 1,573,849 3,845,511 Redeemed (8,058,175) (1,276,588) (11,379,124) ---------- ---------- ----------- Net increase (decrease) 8,231,054 2,104,927 (3,024,583) Year ended Sept. 30, 1999 Class A Class B Class Y Sold 6,892,360 3,642,250 8,518,604 Issued for reinvested distributions 9,237,814 901,335 3,365,176 Redeemed (12,452,760) (1,828,161) (13,675,361) ----------- ---------- ----------- Net increase (decrease) 3,677,414 2,715,424 (1,791,581) 4. BANK BORROWINGS The Fund has a revolving credit agreement with U.S. Bank, N.A., whereby the Fund is permitted to have bank borrowings for temporary or emergency purposes to fund shareholder redemptions. The Fund must have asset coverage for borrowings not to exceed the aggregate of 333% of advances equal to or less than five business days plus 367% of advances over five business days. The agreement, which enables the Fund to participate with other American Express mutual funds, permits borrowings up to $200 million, collectively. Interest is charged to each Fund based on its borrowings at a rate equal to the Federal Funds Rate plus 0.30% or the Eurodollar Rate (Reserve Adjusted) plus 0.20%. Borrowings are payable up to 90 days after such loan is executed. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.05% per annum. The Fund had no borrowings outstanding during the six months ended March 31, 2000.
5. FINANCIAL HIGHLIGHTS The tables below show certain important finanicial information for evaluating the Fund's results. Fiscal period ended Sept. 30, Per share income and capital changesa Class A 2000b 1999 1998 1997 1996c Net asset value, beginning of period $26.14 $24.18 $27.44 $22.49 $19.96 Income from investment operations: Net investment income (loss) .07 .24 .29 .39 .43 Net gains (losses) (both realized and unrealized) 5.69 4.00 .22 6.11 3.17 Total from investment operations 5.76 4.24 .51 6.50 3.60 Less distributions: Dividends from net investment income (.08) (.24) (.30) (.43) (.39) Distributions from realized gains (3.13) (2.04) (3.47) (1.12) (.68) Total distributions (3.21) (2.28) (3.77) (1.55) (1.07) Net asset value, end of period $28.69 $26.14 $24.18 $27.44 $22.49 Ratios/supplemental data Net assets, end of period (in millions) $3,644 $3,105 $2,783 $2,877 $2,307 Ratio of expenses to average daily net assetsd .86%e .82% .77% .78% .80%e Ratio of net investment income (loss) to average daily net assets .54%e .90% 1.14% 1.58% 2.19%e Portfolio turnover rate (excluding short-term securities) 22% 76% 79% 82% 71% Total returnf 22.85% 17.71% 2.04% 30.22% 18.60% a For a share outstanding throughout the period. Rounded to the nearest cent. b Six months ended March 31, 2000 (Unaudited). c The Fund's fiscal year-end was changed from Oct. 31 to Sept. 30, effective 1996. d Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. e Adjusted to an annual basis. f Total return does not reflect payment of a sales charge.
Fiscal period ended Sept. 30, Per share income and capital changesa Class B Class Y 2000b 1999 1998 1997 1996c 2000b 1999 1998 1997 1996c Net asset value, beginning of period $25.97 $24.05 $27.32 $22.42 $19.91 $26.14 $24.18 $27.44 $22.49 $19.96 Income from investment operations: Net investment income (loss) -- .06 .10 .22 .28 .10 .27 .31 .42 .47 Net gains (losses) (both realized and unrealized) 5.61 3.96 .21 6.05 3.17 5.68 4.00 .22 6.11 3.17 Total from investment operations 5.61 4.02 .31 6.27 3.45 5.78 4.27 .53 6.53 3.64 Less distributions: Dividends from net investment income -- (.06) (.11) (.25) (.26) (.10) (.27) (.32) (.46) (.43) Distributions from realized gains (3.13) (2.04) (3.47) (1.12) (.68) (3.13) (2.04) (3.47) (1.12) (.68) Total distributions (3.13) (2.10) (3.58) (1.37) (.94) (3.23) (2.31) (3.79) (1.58) (1.11) Net asset value, end of period $28.45 $25.97 $24.05 $27.32 $22.42 $28.69 $26.14 $24.18 $27.44 $22.49 Ratios/supplemental data Net assets, end of period (in millions) $442 $349 $258 $203 $107 $1,081 $1,063 $1,027 $1,082 $870 Ratio of expenses to average daily net assetsd 1.63%e 1.59% 1.53% 1.55% 1.57%e .71%e .72% .70% .66% .63%e Ratio of net investment income (loss) to average daily net assets (.22%)e .12% .39% .85% 1.61%e .70%e 1.00% 1.21% 1.71% 2.36%e Portfolio turnover rate (excluding short-term securities) 22% 76% 79% 82% 71% 22% 76% 79% 82% 71% Total returnf 22.39% 16.81% 1.27% 29.23% 17.78% 22.93% 17.81% 2.12% 30.38% 18.79% a For a share outstanding throughout the period. Rounded to the nearest cent. b Six months ended March 31, 2000 (Unaudited). c The Fund's fiscal year-end was changed from Oct. 31 to Sept. 30, effective 1996. d Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. e Adjusted to an annual basis. f Total return does not reflect payment of a sales charge.
Financial Statements Statement of assets and liabilities Equity Portfolio March 31, 2000 (Unaudited) Assets Investments in securities, at value (Note 1): (identified cost, $3,657,834,553) $5,260,809,568 Cash in bank on demand deposit 750,186 Dividends and accrued interest receivable 5,391,705 Receivable for investment securities sold 14,149,127 U.S. government securities held as collateral (Note 4) 25,337,034 ---------- Total assets 5,306,437,620 ------------- Liabilities Payable for investment securities purchased 45,381,820 Payable upon return of securities loaned (Note 4) 92,633,834 Accrued investment management services fee 65,928 Other accrued expenses 167,518 ------- Total liabilities 138,249,100 ----------- Net assets $5,168,188,520 ============== See accompanying notes to financial statements.
Statement of operations Equity Portfolio Six months ended March 31, 2000 (Unaudited) Investment income Income: Dividends $ 28,303,600 Interest 5,809,984 Less foreign taxes withheld (50,856) ------- Total income 34,062,728 ---------- Expenses (Note 2): Investment management services fee 11,692,038 Compensation of board members 8,784 Custodian fees 127,571 Audit fees 15,375 Other 28,046 ------ Total expenses 11,871,814 Earnings credits on cash balances (Note 2) (6,188) ------ Total net expenses 11,865,626 ---------- Investment income (loss) -- net 22,197,102 ---------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (including $9,055,252 realized gain on sales of affiliated issuers) (Note 3) 270,235,459 Foreign currency transactions (29,802) ------- Net realized gain (loss) on investments 270,205,657 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 715,386,759 ----------- Net gain (loss) on investments and foreign currencies 985,592,416 ----------- Net increase (decrease) in net assets resulting from operations $1,007,789,518 ============== See accompanying notes to financial statements.
Statements of changes in net assets Equity Portfolio March 31, 2000 Sept. 30, 1999 Six month ended Year ended (Unaudited) Operations Investment income (loss)-- net $ 22,197,102 $ 56,845,389 Net realized gain (loss) on security transactions 270,205,657 510,544,619 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 715,386,759 169,713,139 ----------- ----------- Net increase (decrease) in net assets resulting from operations 1,007,789,518 737,103,147 Net contributions (withdrawals) from partners (359,365,303) (286,491,766) ------------ ------------ Total increase (decrease) in net assets 648,424,215 450,611,381 Net assets at beginning of period 4,519,764,305 4,069,152,924 ------------- ------------- Net assets at end of period $5,168,188,520 $4,519,764,305 ============== ============== See accompanying notes to financial statements.
Notes to Financial Statements Equity Portfolio (Unaudited as to March 31, 2000) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Equity Portfolio (the Portfolio) is a series of Growth and Income Trust (the Trust) and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. Equity Portfolio invests primarily in common stocks and securities convertible into common stocks. The Declaration of Trust permits the Trustees to issue non-transferable interests in the Portfolio. The Portfolio's significant accounting policies are summarized below: Use of estimates Preparing financial statements that conform to accounting principles generally accepted in the United States of America requires management to make estimates (e.g., on assets and liabilities) that could differ from actual results. Valuation of securities All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. Securities for which market quotations are not readily available are valued at fair value according to methods selected in good faith by the board. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost. Option transactions To produce incremental earnings, protect gains and facilitate buying and selling of securities for investments, the Portfolio 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 Portfolio 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 Portfolio gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Portfolio 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 Portfolio pays a premium whether or not the option is exercised. The Portfolio also has 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 Portfolio 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 Portfolio may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Portfolio also may buy and 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 Portfolio is 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 Portfolio each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Portfolio recognizes 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. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Portfolio 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 Portfolio and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Portfolio is subject to the credit risk that the other party will not complete its contract obligations. Securities purchased on a when-issued basis Delivery and payment for securities that have been purchased by the Portfolio on a forward-commitment or when-issued basis can take place one month or more after the transaction date. During this period, such securities are subject to market fluctuations, and they may affect the Portfolio's net assets the same as owned securities. The Portfolio designates cash or liquid high-grade debt securities at least equal to the amount of its commitment. As of March 31, 2000, the Portfolio had entered into outstanding when-issued or forward-commitments of $5,646,000. Federal taxes For federal income tax purposes the Portfolio qualifies as a partnership and each investor in the Portfolio is treated as the owner of its proportionate share of the net assets, income, expenses and realized and unrealized gains and losses of the Portfolio. As a "pass-through" entity, the Portfolio therefore does not pay any income dividends or capital gain distributions. Other Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date and interest income, including level-yield amortization of premium and discount, is accrued daily. 2. FEES AND EXPENSES The Trust, on behalf of the Portfolio, has an Investment Management Services Agreement with AEFC to manage its portfolio. Under this agreement, AEFC determines which securities will be purchased, held or sold. The management fee is a percentage of the portfolio's average daily net assets in reducing percentages from 0.53% to 0.4% annually. The fee may be adjusted upward or downward by a performance incentive adjustment based on a comparison of the performance of Class A shares of AXP Stock Fund to the Lipper Large-Cap Core Index. The maximum adjustment is 0.08% of the Portfolio's average daily net assets after deducting 1% from the performance difference. If the performance difference is less than 1% the adjustment will be zero. The adjustment increased the fee by $390,439 for the six months ended March 31, 2000. Under the agreement, the Trust also pays taxes, brokerage commissions and nonadvisory expenses, which include custodian fees, audit and certain legal fees, fidelity bond premiums, registration fees for units, office expenses, consultants' fees, compensation of trustees, corporate filing fees, expenses incurred in connection with lending securities of the Portfolio and any other expenses properly payable by the Trust or Portfolio and approved by the board. During the six months ended March 31, 2000, the Portfolio's custodian fees were reduced by $6,188 as a result of earnings credits from overnight cash balances. The Portfolio also pays custodian fees to American Express Trust Company, an affiliate of AEFC. According to a Placement Agency Agreement, American Express Financial Advisors Inc. acts as placement agent of the Trust's units. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $1,043,869,884 and $1,244,589,231, respectively, for the six months ended March 31, 2000. For the same period, the portfolio turnover rate was 22%. Realized gains and losses are determined on an identified cost basis. Brokerage commissions paid to brokers affiliated with AEFC were $191,700 for the six months ended March 31, 2000. 4. LENDING OF PORTFOLIO SECURITIES As of March 31, 2000, securities valued at $95,597,326 were on loan to brokers. For collateral, the Portfolio received $67,296,800 in cash and U.S. government securities valued at $25,337,034. As of March 31, 2000, due to fluctuating market conditions, the Fund requested additional collateral which was received on April 3, 2000. Income from securities lending amounted to $157,030 for the six months ended March 31, 2000. The risks to the Portfolio of securities lending are that the borrower may not provide additional collateral when required or return the securities when due.
Investments in Securities Equity Portfolio March. 31, 2000 (Unaudited) (Percentages represent value of investments compared to net assets) Common stocks (87.6%) Issuer Shares Value(a) Airlines (0.6%) Southwest Airlines 1,500,000 $31,218,750 Automotive & related (1.1%) Ford Motor 1,200,000 55,125,000 Banks and savings & loans (2.8%) Bank of America 500,000 26,218,750 Bank of New York 875,000 36,367,188 First Union 1,000,000 37,250,000 Wells Fargo 1,100,000 45,031,250 Total 144,867,188 Chemicals (0.7%) Dow Chemical 300,000 34,200,000 Communications equipment & services (5.2%) CIENA 500,000(b) 63,062,500 Motorola 500,000 71,187,500 Nokia ADR Cl A 500,000(c) 108,625,000 Tellabs 400,000(b) 25,193,750 Total 268,068,750 Computers & office equipment (19.2%) BMC Software 500,000(b) 24,687,500 Cisco Systems 2,400,000(b) 185,550,000 Compaq Computer 1,400,000 37,275,000 Electronic Arts 200,000(b) 14,237,500 EMC 400,000(b) 50,000,000 EQUANT 400,000(b,c) 34,025,000 First Data 900,000 39,825,000 Intl Business Machines 700,000 82,600,000 Lexmark Intl Group Cl A 300,000(b) 31,725,000 Microsoft 2,200,000(b) 233,749,999 Oracle 1,500,000(b) 117,093,750 SAP ADR 500,000(c,f) 29,875,000 Solectron 1,992,898(b) 79,840,476 Unisys 1,200,000(b) 30,600,000 Total 991,084,225 Electronics (11.0%) Corning 900,000 174,600,000 Flextronics Intl 1,200,000(b,c,f) 84,525,000 Intel 1,100,000 145,131,250 Texas Instruments 1,000,000 160,000,000 Total 564,256,250 Energy (4.8%) BP Amoco ADR 800,000(c) 42,450,000 Chevron 400,000 36,975,000 Conoco Cl A 1,700,000 41,862,500 Exxon Mobil 1,194,067 92,913,338 Kerr-McGee 600,000 34,650,000 Total 248,850,838 Energy equipment & services (1.8%) Halliburton 1,300,000 53,300,000 Schlumberger 525,000 40,162,500 Total 93,462,500 Financial services (2.3%) Citigroup 1,350,000 80,071,875 Morgan Stanley, Dean Witter, Discover & Co 500,000 40,781,250 Total 120,853,125 Food (2.0%) Bestfoods 1,200,000 56,175,000 ConAgra 700,000 12,687,500 Ralston-Ralston Purina Group 1,800,000(b,h) 35,775,000 Total 104,637,500 Health care (8.0%) Amgen 1,000,000(b) 61,375,000 Baxter Intl 700,000 41,737,500 Bristol-Myers Squibb 800,000 46,200,000 Guidant 500,000(b) 29,406,250 Medtronic 800,000 41,150,000 Merck & Co 300,000 18,637,500 Mylan Laboratories 1,300,000 35,750,000 Pfizer 1,200,000 43,875,000 Pharmacia & Upjohn 800,000 47,400,000 Schering-Plough 500,000 18,375,000 Warner-Lambert 300,000 29,250,000 Total 413,156,250 Household products (0.9%) Colgate-Palmolive 850,000 47,918,750 Industrial equipment & services (1.2%) Deere & Co 600,000 22,800,000 Illinois Tool Works 700,000 38,675,000 Total 61,475,000 Insurance (2.4%) American Intl Group 1,130,625 123,803,438 Leisure time & entertainment (0.5%) Royal Caribbean Cruises 1,000,000 28,000,000 Media (3.3%) Hispanic Broadcasting 300,000(b) 33,975,000 Infinity Broadcasting Cl A 1,317,000(b) 42,637,875 MediaOne Group 500,000(b) 40,500,000 USA Networks 2,400,000(b) 54,150,000 Total 171,262,875 Metals (0.8%) Alcoa 600,000 42,150,000 Multi-industry conglomerates (5.6%) General Electric 1,200,000 186,225,000 Grainger (WW) 800,000 43,400,000 Minnesota Mining & Mfg 400,000 35,425,000 Tyco Intl 500,000(c) 24,937,500 Total 289,987,500 Paper & packaging (0.8%) Intl Paper 1,000,000 42,750,000 Retail (4.5%) Circuit City Stores-Circuit City Group 887,400 54,020,475 Home Depot 750,000 48,375,000 Target 400,000 29,900,000 Wal-Mart Stores 1,800,000 99,900,000 Total 232,195,475 Transportation (0.3%) Burlington Northern Santa Fe 700,000 15,487,500 Utilities -- electric (1.4%) Carolina Power & Light 350,000 11,353,125 Duke Energy 200,000 10,500,000 New Century Energies 900,000(f) 27,056,250 Texas Utilities 350,000 10,390,625 Unicom 400,000 14,600,000 Total 73,900,000 Utilities -- gas (2.5%) Coastal 1,000,000 46,000,000 Enron 1,100,000 82,362,500 Total 128,362,500 Utilities -- telephone (3.9%) AT&T 1,050,000 59,062,528 BellSouth 500,000 23,500,000 Global TeleSystems Group 900,000(b) 18,450,000 MCI WorldCom 500,000(b) 22,656,250 SBC Communications 492,000 20,664,000 U S WEST Communications Group 800,000 58,100,000 Total 202,432,778 Total common stocks (Cost: $2,994,165,467) $4,529,506,192 Preferred stocks (5.4%) Issuer Shares Value(a) Adelphia Communications 5.50% Cv Series D 73,500 $11,263,875 CVS 6.00% Cv ACES 200,000(i) 13,512,500 Enron 7.00% Cv 745,000 16,436,563 Finova Finance Trust 5.50% Cv 325,000 10,725,000 Georgia-Pacific Group 7.50% Cv 625,000 26,796,875 Global Crossing 6.38% Cv 250,000(c,d) 26,937,499 Global TeleSystems Group 7.25% Cm Cv 300,000(d) 12,150,000 Ingersoll-Rand 6.75% Cv PRIDES 800,000(j) 18,800,000 Kerr-McGee 5.50% Cv 600,000 26,925,000 MediaOne Group 7.00% Cv 675,000 35,100,000 MS-Applied Material 6.00% Cv 180,000 12,487,500 MS-Gillette 5.25% Cv 186,795 14,464,938 SBH-Cincinnati Bell 6.25% 216,200 25,727,800 Sprint 8.25% Cv 206,925 $13,398,394 Wendys Financing 5.00% Cm Cv Series A 340,000 15,980,000 Total preferred stocks (Cost: $280,384,316) $280,705,944 Bonds (4.2%) Issuer Coupon Principal Value(a) rate amount COLT Telecom Group (European Monetary Unit) Cv 08-06-05 2.00% 25,000,000(c) $43,858,658 Costco Zero Coupon Cv Sub Nts 08-19-17 3.50 21,000,000(d,g) 24,990,000 Devon Energy Cv Deb 08-15-08 4.90 15,000,000 15,018,750 Exodus Communications 07-15-08 4.75 25,100,000(d) 51,611,875 Internet Capital Group Cv Sub Nts 12-21-04 5.50 15,000,000 13,200,000 Level 3 Communications 03-15-10 6.00 10,446,000 10,250,138 Network Associates Zero Coupon Cv Sub Deb 02-13-18 4.09 20,000,000(g) 7,600,000 NTL Cv Sub Nts 12-15-09 5.75 18,000,000(d) 18,427,500 Telewest Communication (British Pound) Cv 02-19-07 5.25 12,240,000(c,d) 30,741,234 Total bonds (Cost: $148,303,592) $215,698,155 Short-term securities (4.5%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agencies (2.9%) Federal Home Loan Bank Disc Nts 05-02-00 5.86% $6,800,000 $6,764,760 05-19-00 5.92 29,100,000 28,859,877 05-24-00 5.94 13,400,000 13,276,786 Federal Home Loan Mtge Corp Disc Nts 05-09-00 5.90 4,200,000 4,173,337 05-16-00 5.97 26,100,000 25,902,568 06-01-00 5.98 18,800,000 18,598,610 06-15-00 6.06 700,000 690,808 Federal Natl Mtge Assn Disc Nts 04-06-00 5.71 18,500,000 18,481,384 04-11-00 5.69 10,700,000 10,681,429 04-13-00 5.72 4,800,000 4,789,570 06-15-00 6.08 18,600,000 18,355,761 Total 150,574,890 Commercial paper (1.3%) Barclays U.S. Funding 05-12-00 6.04 5,700,000 5,660,099 Bell Atlantic Finance Services 05-31-00 6.06 9,100,000 9,004,091 Bell Atlantic Network Funding 05-10-00 5.95 3,200,000 3,178,986 Ciesco LP 04-27-00 5.91 3,900,000 3,882,340 Clorox 04-25-00 5.89 500,000 497,962 Fleet Funding 04-18-00 5.87 2,500,000(e) 2,492,600 Ford Motor Credit 04-13-00 5.83 7,900,000 7,882,835 06-02-00 6.10 7,900,000 7,816,497 Intl Lease Finance 04-25-00 5.84 10,000,000 9,958,750 05-30-00 6.08 4,300,000 4,255,710 Northern States Power 06-19-00 6.18 10,200,000 10,059,013 Toyota Motor Credit 05-11-00 6.00 4,700,000(e) 4,668,097 Total 69,356,980 Letter of credit (0.3%) Bank of America- AES Hawaii 04-13-00 5.83 15,000,000 14,967,407 Total short-term securities (Cost: $234,981,178) $234,899,277 Total investments in securities (Cost: $3,657,834,553)(k) $5,260,809,568 See accompanying notes to investments in securities.
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. For debt securities, principal amounts are denominated in the currency indicated. As of March 31, 2000, the value of foreign securities represented 8.24% 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) Security is partially or fully on loan. See Note 4 to the financial statements. (g) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (h) At March 31, 2000, the cost of securities purchased, including interest purchased, on a when-issued basis was $5,646,000. (i) ACES (Automatically Convertible Equity Securities) are structured as convertible preferred securities. Investors receive an enhanced yield but based upon a specific formula, potential appreciation is limited. ACES pay dividends, have voting rights, are noncallable for at least three years and upon maturity, convert into shares of common stock. (j) PRIDES (Preferred Redeemable Increased Dividend Equity Securities) are structured as convertible preferred securities. Investors receive an enhanced yield but based upon a specific formula, potential appreciation is limited. PRIDES pay dividends, have voting rights, are noncallable for three years and upon maturity, convert into shares of common stock. (k) At March 31, 2000, the cost of securities for federal income tax purposes was approximately $3,657,835,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $1,755,062,000 Unrealized depreciation (152,087,000) ------------ Net unrealized appreciation $1,602,975,000 PART C. OTHER INFORMATION Item 23. Exhibits (a) Articles of Incorporation, as amended October 17, 1988, filed electronically as Exhibit 1 to Registrant's Post-Effective Amendment No. 78 to Registration Statement No. 2-11358, are incorporated by reference. (b) By-laws, as amended January 10, 1996, filed electronically as Exhibit 2 to Registrant's Post-Effective Amendment No. 95 to Registration Statement No. 2-11358, are incorporated by reference. (c) Stock certificate, filed as Exhibit 1 to Registrant's Form N-1Q for the calendar quarter ended December 31, 1976, is incorporated by reference. (d) Investment Management Services Agreement dated July 1, 1999 between Growth and Income Trust and American Express Financial Corporation will be filed electronically as Exhibit (d) to Growth and Income Trust Post-Effective Amendment No. 6 to Registration Statement No. 811-7393 on or about Nov. 29, 1999. (e) Distribution Agreement, dated July 8, 1999, between AXP Utilities Income Fund, Inc. and American Express Financial Advisors Inc. is incorporated by reference to Exhibit (e) to AXP Utilities Income Fund, Inc. Post-Effective Amendment No. 22, to Registration Statement File No. 33-20872 filed on or about August 27, 1999. Registrant's Distribution Agreement differs from the one incorporated by reference only by the fact that Registrant is one executing party. (f) All employees are eligible to participate in a profit sharing plan. Entry into the plan is Jan. 1 or July 1. The Registrant contributes each year an amount up to 15 percent of their annual salaries, the maximum deductible amount permitted under Section 404(a) of the Internal Revenue Code. (g)(1) Custodian Agreement between Registrant and American Express Trust Company, dated March 20, 1995, filed electronically as Exhibit 8(a) to Registrant's Post-Effective Amendment No. 92 to Registration Statement No. 2-11358, is incorporated by reference. (g)(2) Addendum to the Custodian Agreement among IDS Stock Fund, Inc., American Express Trust Company and American Express Financial Corporation dated May 13, 1996, filed electronically as Exhibit 8(b) to Registrant's Post-Effective Amendment No. 95 to Registration Statement No. 2 -11358, is incorporated by reference. (g)(3) Custodian Agreement, dated May 13, 1999, between American Express Trust Company and The Bank of New York is incorporated by reference to Exhibit (g)(3) to IDS Precious Metals Fund, Inc. Post-Effective Amendment No. 33 to Registration Statement File No. 2-93745 filed on or about May 24, 1999. (g)(4) Custodian Agreement Amendment between IDS International Fund, Inc. and American Express Trust Company, dated October 9, 1997, filed electronically on or about December 23, 1997 as Exhibit 8(c) to IDS International Fund, Inc.'s Post-Effective Amendment No. 26 to Registration Statement No. 2-92309, is incorporated by reference. Registrant's Custodian Agreement Amendment differs from the one incorporated by reference only by the fact that Registrant is one executing party. (h)(1) Administrative Services Agreement between Registrant and American Express Financial Corporation, dated March 20, 1995, filed electronically as Exhibit 9(e) to Registrant's Post-Effective Amendment No. 92 to Registration Statement No. 2-11358, is incorporated by reference. (h)(2) Agreement and Declaration of Unitholders between IDS Stock Fund, Inc. and Strategist Growth and Income Fund, Inc. dated May 13, 1996, filed electronically as Exhibit 9(f) to Registrant's Post-Effective Amendment No. 95 to Registration Statement No. 2 -11358, is incorporated by reference. (h)(3) License Agreement, dated Jan. 25, 1988, between Registrant and IDS Financial Corporation, filed electronically as Exhibit 9(c) to Post-Effective Amendment No. 83 to Registration Statement No. 2-11358, is incorporated by reference. (h)(4) License Agreement, dated June 17, 1999, between Registrant and American Express Company is incorporated by reference to Exhibit (h)(4) to Registrant's Post-Effective Amendment No. 98 filed on or about September 23, 1999. (h)(5) Plan and Agreement of Merger, dated April 10, 1986, filed electronically as Exhibit 9(a) to Registrant's Post-Effective Amendment No. 70 to Registration Statement No. 2-11358, is incorporated by reference. (h)(6) Class Y Shareholder Service Agreement between IDS Precious Metals Fund, Inc. and American Express Financial Advisors Inc., dated May 9, 1997, filed electronically on or about May 27, 1997 as Exhibit 9(e) to IDS Precious Metals Fund, Inc.'s Amendment No. 30 to Registration Statement No. 2-93745, is incorporated by reference. Registrant's Class Y Shareholder Service Agreement differs from the one incorporated by reference only by the fact that Registrant is one executing party. (h)(7) Transfer Agency Agreement between Registrant and American Express Client Service Corporation, dated March 9, 2000 is filed electronically herewith. (i) Opinion and consent of counsel as to the legality of the securities being registered, is filed electronically herewith. (j) Independent Auditors' Consent is filed electronically herewith. (k) Omitted Financial Statements: Not Applicable. (l) Initial Capital Agreements: Not Applicable. (m)(1) Plan and Agreement of Distribution dated July 1, 1999 between AXP Discovery Fund, Inc. and American Express Financial Advisors Inc. is incorporated by reference to Exhibit (m) to AXP Discovery Fund, Inc. Post-Effective Amendment No 36 to Registration Statement File No. 2-72174 filed on or about July 30, 1999. Registrant's Plan and Agreement of Distribution differs from the one incorporated by reference only by the fact that Registrant is one executing party. (m)(2) Plan and Agreement of Distribution For Class C Shares dated March 9, 2000 between AXP Bond Fund, Inc. and American Express Financial Advisors Inc. is incorporated by reference to Exhibit (m)(2) to AXP Bond Fund, Inc.'s Post-Effective Amendment No. 51 to Registration Statement File No. 2-51586 filed on or about June 26, 2000. Registrant's Plan and Agreement of Distribution for Class C Shares differs from the one incorporated by reference only by the fact that Registrant is one executing party. (n) Rule 18f-3 Plan, dated March 2000, is incorporated by reference to Exhibit (n) to AXP Bond Fund, Inc.'s Post-Effective Amendment No. 51 to Registration Statement File No. 2-51586 filed on or about June 26, 2000. (o) Reserved. (p)(1) Code of Ethics adopted under Rule 17j-1 for Registrant filed electronically on or about March 30, 2000 as Exhibit (p)(1) to AXP Market Advantage Series, Inc.'s Post-Effective Amendment No. 24 to Registration Statement No. 33-30770 is incorporated by reference. (p)(2) Code of Ethics adopted under Rule 17j-1 for Registrant's investment advisor and principal underwriter filed electronically on or about March 30, 2000 as Exhibit (p)(2) to AXP Market Advantage Series, Inc.'s Post-Effective Amendment No. 24 to Registration Statement No. 33-30770 is incorporated by reference. (q)(1) Directors' Power of Attorney to sign Amendments to this Registration Statement dated Jan. 13, 2000 is filed electronically herewith as Exhibit (q)(1). (q)(2) Officers' Power of Attorney to sign Amendments to this Registration Statement, dated Jan. 13, 2000 is filed electronically herewith as Exhibit (q)(2). (q)(3) Trustees' Power of Attorney to sign Amendments to this Registration Statement, dated Jan. 13, 2000 is filed electronically herewith as Exhibit (q)(3). (q)(4) Officers' Power of Attorney to sign Amendments to this Registration Statement, dated Jan. 13, 2000 is filed electronically herewith as Exhibit (q)(4). Item 24. Persons Controlled by or under Common Control with Registrant. None. Item 25. Indemnification The Articles of Incorporation of the registrant provide that the Fund shall indemnify any person who was or is a party or is threatened to be made a party, by reason of the fact that she or he is or was a director, officer, employee or agent of the Fund, or is or was serving at the request of the Fund as a director, officer, employee or agent of another company, partnership, joint venture, trust or other enterprise, to any threatened, pending or completed action, suit or proceeding, wherever brought, and the Fund may purchase liability insurance and advance legal expenses, all to the fullest extent permitted by the laws of the State of Minnesota, as now existing or hereafter amended. The By-laws of the registrant provide that present or former directors or officers of the Fund made or threatened to be made a party to or involved (including as a witness) in an actual or threatened action, suit or proceeding shall be indemnified by the Fund to the full extent authorized by the Minnesota Business Corporation Act, all as more fully set forth in the By-laws filed as an exhibit to this registration statement. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Any indemnification hereunder shall not be exclusive of any other rights of indemnification to which the directors, officers, employees or agents might otherwise be entitled. No indemnification shall be made in violation of the Investment Company Act of 1940.
Item 26. Business and Other Connections of Investment Adviser (American Express Financial Corporation) Directors and officers of American Express Financial Corporation who are directors and/or officers of one or more other companies: Name and Title Other company(s) Address Title within other company(s) Ronald G. Abrahamson, American Express Client IDS Tower 10 Director and Vice President Vice President Service Corporation Minneapolis, MN 55440 American Express Financial Vice President Advisors Inc. Public Employee Payment Director and Vice President Company Douglas A. Alger, American Express Financial IDS Tower 10 Senior Vice President Director and Senior Vice Advisors Inc. Minneapolis, MN 55440 President Peter J. Anderson, Advisory Capital IDS Tower 10 Director Director and Senior Vice Strategies Group Inc. Minneapolis, MN 55440 President American Express Asset Director and Chairman of Management Group Inc. the Board American Express Asset Director, Chairman of the Management International, Board and Executive Vice Inc. President American Express Financial Senior Vice President Advisors Inc. IDS Capital Holdings Inc. Director and President IDS Futures Corporation Director NCM Capital Management 2 Mutual Plaza Director Group, Inc. 501 Willard Street Durham, NC 27701 Ward D. Armstrong, American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 American Express Service Vice President Corporation American Express Trust Director and Chairman of Company the Board John M. Baker, American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 American Express Trust Senior Vice President Company Joseph M. Barsky III, American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 Timothy V. Bechtold, American Centurion Life IDS Tower 10 Director and President Vice President Assurance Company Minneapolis, MN 55440 American Express Financial Vice President Advisors Inc. IDS Life Insurance Company Executive Vice President IDS Life Insurance Company P.O. Box 5144 Director and President of New York Albany, NY 12205 IDS Life Series Fund, Inc. Director John C. Boeder, American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 IDS Futures Corporation Director and President IDS Life Insurance Company P.O. Box 5144 Director of New York Albany, NY 12205 Douglas W. Brewers, American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 Karl J. Breyer, American Express Financial IDS Tower 10 Senior Vice President Director, Corporate Senior Advisors Inc. Minneapolis, MN 55440 Vice President American Express Financial Director Advisors Japan Inc. American Express Minnesota Director Foundation Cynthia M. Carlson, American Enterprise IDS Tower 10 Director, President and Vice President Investment Services Inc. Minneapolis, MN 55440 Chief Executive Officer American Express Financial Vice President Advisors Inc. American Express Service Vice President Corporation Mark W. Carter, American Express Financial IDS Tower 10 Senior Vice President and Director, Senior Vice Advisors Inc. Minneapolis, MN 55440 Chief Marketing Officer President and Chief Marketing Officer IDS Life Insurance Company Executive Vice President Kenneth I. Chenaut American Express Company American Express Tower President and Chief Director World Financial Center Operating Officer New York, NY 10285 James E. Choat, American Centurion Life IDS Tower 10 Executive Vice President Director and Senior Vice Assurance Company Minneapolis, MN 55440 President American Enterprise Life Director, President and Insurance Company Chief Executive Officer American Express Financial Senior Vice President Advisors Inc. American Express Insurance Vice President Agency of Idaho Inc. American Express Insurance Vice President Agency of Nevada Inc. American Express Insurance Vice President Agency of Oregon Inc. American Express Property Vice President Casualty Insurance Agency of Kentucky Inc. American Express Property Vice President Casualty Insurance Agency of Maryland Inc. American Express Property Vice President Casualty Insurance Agency of Pennsylvania Inc. IDS Insurance Agency of Vice President Alabama Inc. IDS Insurance Agency of Vice President Arkansas Inc. IDS Insurance Agency of Vice President Massachusetts Inc. IDS Insurance Agency of Vice President New Mexico Inc. IDS Insurance Agency of Vice President North Carolina Inc. IDS Insurance Agency of Vice President Ohio Inc. IDS Insurance Agency of Vice President Wyoming Inc. IDS Life Insurance Company P.O. Box 5144 Executive Vice President of New York Albany, NY 12205 Kenneth J. Ciak, AMEX Assurance Company IDS Tower 10 Director and President Vice President and General Minneapolis, MN 55440 Manager American Express Financial Vice President and General Advisors Inc. Manager IDS Property Casualty 1 WEG Blvd. Director and President Insurance Company DePere, WI 54115 Paul A. Connolly, American Express Financial IDS Tower 10 Vice President - Retail Vice President - Retail Advisors Inc. Minneapolis, MN 55440 Distribution Services Distribution Services Colleen Curran, American Express Financial IDS Tower 10 Vice President and Vice President and Assistant Advisors Inc. Minneapolis, MN 55440 Assistant General Counsel General Counsel American Express Service Vice President and Chief Corporation Legal Counsel Luz Maria Davis American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 Douglas K. Dunning, American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 Gordon L. Eid, American Express Financial IDS Tower 10 Senior Vice President, Director, Senior Vice Advisors Inc. Minneapolis, MN 55440 General Counsel and Chief President, General Counsel Compliance Officer and Chief Compliance Officer American Express Financial Vice President and Chief Advisors Japan Inc. Compliance Officer American Express Insurance Director and Vice President Agency of Arizona Inc. American Express Insurance Director and Vice President Agency of Idaho Inc. American Express Insurance Director and Vice President Agency of Nevada Inc. American Express Insurance Director and Vice President Agency of Oregon Inc. American Express Property Director and Vice President Casualty Insurance Agency of Kentucky Inc. American Express Property Director and Vice President Casualty Insurance Agency of Maryland Inc. American Express Property Director and Vice President Casualty Insurance Agency of Pennsylvania Inc. IDS Insurance Agency of Director and Vice President Alabama Inc. IDS Insurance Agency of Director and Vice President Arkansas Inc. IDS Insurance Agency of Director and Vice President Massachusetts Inc. IDS Insurance Agency of Director and Vice President New Mexico Inc. IDS Insurance Agency of Director and Vice President North Carolina Inc. IDS Insurance Agency of Director and Vice President Ohio Inc. IDS Insurance Agency of Director and Vice President Wyoming Inc. IDS Real Estate Services, Vice President Inc. Investors Syndicate Director Development Corp. Robert M. Elconin, American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 IDS Life Insurance Company Vice President Gordon M. Fines, American Express Asset IDS Tower 10 Senior Vice President and Vice President Management Group Inc. Minneapolis, MN 55440 Chief Investment Officer American Express Financial Vice President Advisors Inc. Douglas L. Forsberg, American Centurion Life IDS Tower 10 Director Vice President Assurance Company Minneapolis, MN 55440 American Express Financial Vice President Advisors Inc. American Express Financial Director, President and Advisors Japan Inc. Chief Executive Officer Jeffrey P. Fox, American Enterprise Life IDS Tower 10 Vice President and Vice President and Corporate Insurance Company Minneapolis, MN 55440 Controller Controller American Express Financial Vice President and Advisors Inc. Corporate Controller Peter A. Gallus American Express Financial IDS Tower 10 Vice President-Investment Vice President-Investment Advisors Inc. Minneapolis, MN 55440 Administration Administration Harvey Golub, American Express Company American Express Tower Chairman and Chief Director World Financial Center Executive Officer New York, NY 10285 American Express Travel Chairman and Chief Related Services Company, Executive Officer Inc. David A. Hammer, American Express Financial IDS Tower 10 Vice President and Vice President and Marketing Advisors Inc. Minneapolis, MN 55440 Marketing Controller Controller IDS Plan Services of Director and Vice President California, Inc. Teresa A. Hanratty American Express Financial IDS Tower 10 Senior Vice Director and Senior Vice Advisors Inc. Minneapolis, MN 55440 President-Field Management President-Field Management Lorraine R. Hart, AMEX Assurance Company IDS Tower 10 Vice President Vice President Minneapolis, MN 55440 American Centurion Life Vice President Assurance Company American Enterprise Life Vice President Insurance Company American Express Financial Vice President Advisors Inc. American Partners Life Director and Vice Insurance Company President IDS Certificate Company Vice President IDS Life Insurance Company Vice President IDS Life Series Fund, Inc. Vice President IDS Life Variable Annuity Vice President Funds A and B Investors Syndicate Director and Vice Development Corp. President IDS Life Insurance Company P.O. Box 5144 Vice President of New York Albany, NY 12205 IDS Property Casualty 1 WEG Blvd. Vice President Insurance Company DePere, WI 54115 Scott A. Hawkinson, American Express Financial IDS Tower 10 Vice President and Vice President and Controller Advisors Inc. Minneapolis, MN 55440 Controller Janis K. Heaney, American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 Brian M. Heath American Express Financial IDS Tower 10 Senior Vice President and Director, Senior Vice Advisors Inc. Minneapolis, MN 55440 General Sales Manager President and General Sales Manager Darryl G. Horsman, American Express Trust IDS Tower 10 Director and President Vice President Company Minneapolis, MN 55440 American Express Asset Vice President Management International Inc. Jeffrey S. Horton, AMEX Assurance Company IDS Tower 10 Vice President, Treasurer Vice President and Corporate Minneapolis, MN 55440 and Assistant Secretary Treasurer American Centurion Life Vice President and Assurance Company Treasurer American Enterprise Vice President and Investment Services Inc. Treasurer American Enterprise Life Vice President and Insurance Company Treasurer American Express Asset Vice President and Management Group Inc. Treasurer American Express Asset Vice President and Management International Treasurer Inc. American Express Client Vice President and Service Corporation Treasurer American Express Vice President and Corporation Treasurer American Express Financial Vice President and Advisors Inc. Treasurer American Express Financial Vice President and Advisors Japan Inc. Treasurer American Express Insurance Vice President and Agency of Arizona Inc. Treasurer American Express Insurance Vice President and Agency of Idaho Inc. Treasurer American Express Insurance Vice President and Agency of Nevada Inc. Treasurer American Express Insurance Vice President and Agency of Oregon Inc. Treasurer American Express Minnesota Vice President and Foundation Treasurer American Express Property Vice President and Casualty Insurance Agency Treasurer of Kentucky Inc. American Express Property Vice President and Casualty Insurance Agency Treasurer of Maryland Inc. American Express Property Vice President and Casualty Insurance Agency Treasurer of Pennsylvania Inc. American Partners Life Vice President and Insurance Company Treasurer IDS Cable Corporation Director, Vice President and Treasurer IDS Cable II Corporation Director, Vice President and Treasurer IDS Capital Holdings Inc. Vice President, Treasurer and Assistant Secretary IDS Certificate Company Vice President and Treasurer IDS Insurance Agency of Vice President and Alabama Inc. Treasurer IDS Insurance Agency of Vice President and Arkansas Inc. Treasurer IDS Insurance Agency of Vice President and Massachusetts Inc. Treasurer IDS Insurance Agency of Vice President and New Mexico Inc. Treasurer IDS Insurance Agency of Vice President and North Carolina Inc. Treasurer IDS Insurance Agency of Vice President and Ohio Inc. Treasurer IDS Insurance Agency of Vice President and Wyoming Inc. Treasurer IDS Life Insurance Company Vice President, Treasurer and Assistant Secretary IDS Life Insurance Company P.O. Box 5144 Vice President and of New York Albany, NY 12205 Treasurer IDS Life Series Fund Inc. Vice President and Treasurer IDS Life Variable Annuity Vice President and Funds A & B Treasurer IDS Management Corporation Director, Vice President and Treasurer IDS Partnership Services Vice President and Corporation Treasurer IDS Plan Services of Vice President and California, Inc. Treasurer IDS Real Estate Services, Vice President and Inc. Treasurer IDS Realty Corporation Vice President and Treasurer IDS Sales Support Inc. Vice President and Treasurer Investors Syndicate Vice President and Development Corp. Treasurer IDS Property Casualty 1 WEG Blvd. Vice President, Treasurer Insurance Company DePere, WI 54115 and Assistant Secretary Public Employee Payment Vice President and Company Treasurer David R. Hubers, AMEX Assurance Company IDS Tower 10 Director Director, President and Chief Minneapolis, MN 55440 Executive Officer American Express Financial Chairman, President and Advisors Inc. Chief Executive Officer American Express Service Director and President Corporation IDS Certificate Company Director IDS Life Insurance Company Director IDS Plan Services of Director and President California, Inc. IDS Property Casualty 1 WEG Blvd. Director Insurance Company DePere, WI 54115 Debra A. Hutchinson American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 James M. Jensen, American Express Financial IDS Tower 10 Vice President and Vice President and Advisors Inc. Minneapolis, MN 55440 Controller-Advice and Controller-Advice and Retail Retail Distribution Group Distribution Group IDS Life Insurance Company Vice President Marietta L. Johns, American Express Financial IDS Tower 10 Senior Vice President Director and Senior Vice Advisors Inc. Minneapolis, MN 55440 President Nancy E. Jones, American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 American Express Service Vice President Corporation Ora J. Kaine, American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 Linda B. Keene, American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 Richard W. Kling, AMEX Assurance Company IDS Tower 10 Director Director and Senior Vice Minneapolis, MN 55440 President - Insurance Products American Centurion Life Director and Chairman of Assurance Company the Board American Enterprise Life Director and Chairman of Insurance Company the Board American Express Director and President Corporation American Express Financial Senior Vice President - Advisors Inc. Insurance Products American Express Insurance Director and President Agency of Arizona Inc. American Express Insurance Director and President Agency of Idaho Inc. American Express Insurance Director and President Agency of Nevada Inc. American Express Insurance Director and President Agency of Oregon Inc. American Express Property Director and President Casualty Insurance Agency of Kentucky Inc. American Express Property Director and President Casualty Insurance Agency of Maryland Inc. American Express Property Director and President Casualty Insurance Agency of Pennsylvania Inc. American Express Service Vice President Corporation American Partners Life Director and Chairman of Insurance Company the Board IDS Certificate Company Director and Chairman of the Board IDS Insurance Agency of Director and President Alabama Inc. IDS Insurance Agency of Director and President Arkansas Inc. IDS Insurance Agency of Director and President Massachusetts Inc. IDS Insurance Agency of Director and President New Mexico Inc. IDS Insurance Agency of Director and President North Carolina Inc. IDS Insurance Agency of Director and President Ohio Inc. IDS Insurance Agency of Director and President Wyoming Inc. IDS Life Insurance Company Director, Chief Executive Officer and President IDS Life Series Fund, Inc. Director and President IDS Life Variable Annuity Manager, Chairman of the Funds A and B Board and President IDS Property Casualty 1 WEG Blvd. Director Insurance Company DePere, WI 54115 IDS Life Insurance Company P.O. Box 5144 Director and Chairman of of New York Albany, NY 12205 the Board John M. Knight American Express Financial IDS Tower 10 Vice President Advisors Minneapolis, MN 55440 Paul F. Kolkman, American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 IDS Life Insurance Company Director and Executive Vice President IDS Life Series Fund, Inc. Vice President and Chief Actuary IDS Property Casualty 1 WEG Blvd. Director Insurance Company DePere, WI 54115 Claire Kolmodin, American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 Steve C. Kumagai, American Express Financial IDS Tower 10 Director and Senior Vice Director and Senior Vice Advisors Inc. Minneapolis, MN 55440 President-Direct and President-Direct and Interactive Group Interactive Group Kurt A Larson, American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 Lori J. Larson, American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 Daniel E. Laufenberg, American Express Financial IDS Tower 10 Vice President and Chief Vice President and Chief U.S. Advisors Inc. Minneapolis, MN 55440 U.S. Economist Economist Peter A. Lefferts, American Express Financial IDS Tower 10 Senior Vice President Director and Senior Vice Advisors Inc. Minneapolis, MN 55440 President American Express Trust Director Company IDS Plan Services of Director California, Inc. Douglas A. Lennick, American Express Financial IDS Tower 10 Director and Executive Director and Executive Vice Advisors Inc. Minneapolis, MN 55440 Vice President President Mary J. Malevich, American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 Fred A. Mandell, American Express Financial IDS Tower 10 Vice President - Vice President - Distribution Advisors Inc. Minneapolis, MN 55440 Distribution Channel Channel Marketing Marketing Timothy J. Masek American Express Financial IDS Tower 10 Vice President and Vice President and Director Advisors Inc. Minneapolis, MN 55440 Director of Global Research of Global Research Sarah A. Mealey, American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 Paula R. Meyer, American Enterprise Life IDS Tower 10 Vice President Vice President Insurance Company Minneapolis, MN 55440 American Express Director Corporation American Express Financial Vice President Advisors Inc. American Partners Life Director and President Insurance Company IDS Certificate Company Director and President IDS Life Insurance Company Director and Executive Vice President Investors Syndicate Director, Chairman of the Development Corporation Board and President Shashank B. Modak American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 Pamela J. Moret, American Express Financial IDS Tower 10 Senior Vice President - Director and Senior Vice Advisors Inc. Minneapolis, MN 55440 Investment Products President - Investment Products American Express Trust Vice President Company IDS Certificate Company Director IDS Life Insurance Company Executive Vice President Barry J. Murphy, American Express Client IDS Tower 10 Director and President Director and Senior Vice Service Corporation Minneapolis, MN 55440 President American Enterprise Director Investment Services, Inc. American Express Financial Senior Vice President Advisors Inc. IDS Life Insurance Company Director and Executive Vice President Mary Owens Neal, American Express Financial IDS Tower 10 Vice President-Consumer Vice President-Consumer Advisors Inc. Minneapolis, MN 55440 Marketing Marketing Michael J. O'Keefe, American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 James R. Palmer, American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 IDS Life Insurance Company Vice President Carla P. Pavone, American Express Financial IDS Tower 10 Vice Vice President-Compensation Advisors Inc. Minneapolis, MN 55440 President-Compensation Services and ARD Product Services and ARD Product Distribution Distribution Public Employee Payment Director and President Company Thomas P. Perrine, American Express Financial IDS Tower 10 Senior Vice President Director and Senior Vice Advisors Inc. Minneapolis, MN 55440 President Susan B. Plimpton, American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 Ronald W. Powell, American Express Financial IDS Tower 10 Vice President and Vice President and Assistant Advisors Inc. Minneapolis, MN 55440 Assistant General Counsel General Counsel IDS Cable Corporation Vice President and Assistant Secretary IDS Cable II Corporation Vice President and Assistant Secretary IDS Management Corporation Vice President and Assistant Secretary IDS Partnership Services Vice President and Corporation Assistant Secretary IDS Plan Services of Vice President and California, Inc. Assistant Secretary IDS Realty Corporation Vice President and Assistant Secretary James M. Punch, American Express Financial IDS Tower 10 Vice President - Branded Vice President - Branded Advisors Inc. Minneapolis, MN 55440 Platform Project Platform Project Frederick C. Quirsfeld, American Express Asset IDS Tower 10 Senior Vice President and Director and Senior Vice Management Group Inc. Minneapolis, MN 55440 Senior Portfolio Manager President American Express Financial Senior Vice President Advisors Inc. Rollyn C. Renstrom, American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 Rebecca K. Roloff, American Express Financial IDS Tower 10 Senior Vice President Director and Senior Vice Advisors Inc. Minneapolis, MN 55440 President Stephen W. Roszell, Advisory Capital IDS Tower 10 Director Director and Senior Vice Strategies Group Inc. Minneapolis, MN 55440 President American Express Asset Director, President and Management Group Inc. Chief Executive Officer American Express Asset Director Management International, Inc. American Express Asset Director Management Ltd. American Express Financial Senior Vice President Advisors Inc. American Express Trust Director Company Erven A. Samsel, American Express Financial IDS Tower 10 Senior Vice President Director and Senior Vice Advisors Inc. Minneapolis, MN 55440 President American Express Insurance Vice President Agency of Idaho Inc. American Express Insurance Vice President Agency of Nevada Inc. American Express Insurance Vice President Agency of Oregon Inc. American Express Property Vice President Casualty Insurance Agency of Kentucky Inc. American Express Property Vice President Casualty Insurance Agency of Maryland Inc. American Express Property Vice President Casualty Insurance Agency of Pennsylvania Inc. IDS Insurance Agency of Vice President Alabama Inc. IDS Insurance Agency of Vice President Arkansas Inc. IDS Insurance Agency of Vice President Massachusetts Inc. IDS Insurance Agency of Vice President New Mexico Inc. IDS Insurance Agency of Vice President North Carolina Inc. IDS Insurance Agency of Vice President Ohio Inc. IDS Insurance Agency of Vice President Wyoming Inc. Theresa M. Sapp American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 Stuart A. Sedlacek, AMEX Assurance Company IDS Tower 10 Director Director, Senior Vice Minneapolis, MN 55440 President and Chief Financial Officer American Enterprise Life Executive Vice President Insurance Company American Express Financial Senior Vice President and Advisors Inc. Chief Financial Officer American Express Trust Director Company American Partners Life Director and Vice President Insurance Agency IDS Certificate Company Director and President IDS Life Insurance Company Executive Vice President and Controller IDS Property Casualty 1 WEG Blvd. Director Insurance Company DePere, WI 54115 Donald K. Shanks, AMEX Assurance Company IDS Tower 10 Senior Vice President Vice President Minneapolis, MN 55440 American Express Financial Vice President Advisors Inc. IDS Property Casualty 1 WEG Blvd. Senior Vice President Insurance Company DePere, WI 54115 Judy P. Skoglund, American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 Bridget Sperl, American Express Client IDS Tower 10 Vice President Vice President Service Corporation Minneapolis, MN 55440 American Express Financial Vice President Advisors Inc. Public Employee Payment Director and President Company Lisa A. Steffes, American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 William A. Stoltzmann, American Enterprise Life IDS Tower 10 Director, Vice President, Vice President and Assistant Insurance Company Minneapolis, MN 55440 General Counsel and General Counsel Secretary American Express Director, Vice President Corporation and Secretary American Express Financial Vice President and Advisors Inc. Assistant General Counsel American Partners Life Director, Vice President, Insurance Company General Counsel and Secretary IDS Life Insurance Company Vice President, General Counsel and Secretary IDS Life Series Fund Inc. General Counsel and Assistant Secretary IDS Life Variable Annuity General Counsel and Funds A & B Assistant Secretary James J. Strauss, American Express Financial IDS Tower 10 Vice President Vice President and General Advisors Inc. Minneapolis, MN 55440 Auditor Jeffrey J. Stremcha, American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 Barbara Stroup Stewart, American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 Keith N. Tufte American Express Financial IDS Tower 10 Vice President and Vice President and Director Advisors Inc. Minneapolis, MN 55440 Director of Equity Research of Equity Research Norman Weaver Jr., American Express Financial IDS Tower 10 Senior Vice President Director and Senior Vice Advisors Inc. Minneapolis, MN 55440 President American Express Insurance Vice President Agency of Arizona Inc. American Express Insurance Vice President Agency of Idaho Inc. American Express Insurance Vice President Agency of Nevada Inc. American Express Insurance Vice President Agency of Oregon Inc. American Express Property Vice President Casualty Insurance Agency of Kentucky Inc. American Express Property Vice President Casualty Insurance Agency of Maryland Inc. American Express Property Vice President Casualty Insurance Agency of Pennsylvania Inc. IDS Insurance Agency of Vice President Alabama Inc. IDS Insurance Agency of Vice President Arkansas Inc. IDS Insurance Agency of Vice President Massachusetts Inc. IDS Insurance Agency of Vice President New Mexico Inc. IDS Insurance Agency of Vice President North Carolina Inc. IDS Insurance Agency of Vice President Ohio Inc. IDS Insurance Agency of Vice President Wyoming Inc. Michael L. Weiner, American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 IDS Capital Holdings Inc. Vice President IDS Futures Brokerage Group Vice President IDS Futures Corporation Vice President, Treasurer and Secretary IDS Sales Support Inc. Director, Vice President and Assistant Treasurer Jeffry F. Welter, American Express Financial IDS Tower 10 Vice President Vice President Advisors Inc. Minneapolis, MN 55440 Edwin M. Wistrand, American Express Financial IDS Tower 10 Vice President and Vice President and Assistant Advisors Inc. Minneapolis, MN 55440 Assistant General Counsel General Counsel American Express Financial Vice President and Chief Advisors Japan Inc. Legal Officer Michael D. Wolf, American Express Asset IDS Tower 10 Executive Vice President Vice President Management Group Inc. Minneapolis, MN 55440 and Senior Portfolio Manager American Express Financial Vice President Advisors Inc. Michael R. Woodward, American Express Financial IDS Tower 10 Senior Vice President Director and Senior Vice Advisors Inc. Minneapolis, MN 55440 President American Express Insurance Vice President Agency of Idaho Inc. American Express Insurance Vice President Agency of Nevada Inc. American Express Insurance Vice President Agency of Oregon Inc. American Express Property Vice President Casualty Insurance Agency of Kentucky Inc. American Express Property Vice President Casualty Insurance Agency of Maryland Inc. American Express Property Vice President Casualty Insurance Agency of Pennsylvania Inc. IDS Insurance Agency of Vice President Alabama Inc. IDS Insurance Agency of Vice President Arkansas Inc. IDS Insurance Agency of Vice President Massachusetts Inc. IDS Insurance Agency of Vice President New Mexico Inc. IDS Insurance Agency of Vice President North Carolina Inc. IDS Insurance Agency of Vice President Ohio Inc. IDS Insurance Agency of Vice President Wyoming Inc. IDS Life Insurance Company P.O. Box 5144 Director of New York Albany, NY 12205
Item 27. Principal Underwriters. (a) American Express Financial Advisors acts as principal underwriter for the following investment companies: AXP Bond Fund, Inc.; AXP California Tax-Exempt Trust; AXP Discovery Fund, Inc.; AXP Equity Select Fund, Inc.; AXP Extra Income Fund, Inc.; AXP Federal Income Fund, Inc.; AXP Global Series, Inc.; AXP Growth Series, Inc.; AXP High Yield Tax-Exempt Fund, Inc.; AXP International Fund, Inc.; AXP Investment Series, Inc.; AXP Managed Series, Inc.; AXP Market Advantage Series, Inc.; AXP Money Market Series, Inc.; AXP New Dimensions Fund, Inc.; AXP Precious Metals Fund, Inc.; AXP Progressive Fund, Inc.; AXP Selective Fund, Inc.; AXP Special Tax-Exempt Series Trust; AXP Stock Fund, Inc.; AXP Strategy Series, Inc.; AXP Tax-Exempt Series, Inc.; AXP Tax-Free Money Fund, Inc.; AXP Utilities Income Fund, Inc., Growth Trust; Growth and Income Trust; Income Trust; Tax-Free Income Trust; World Trust; IDS Certificate Company; Strategist Income Fund, Inc.; Strategist Growth Fund, Inc.; Strategist Growth and Income Fund, Inc.; Strategist World Fund, Inc. and Strategist Tax-Free Income Fund, Inc. (b) As to each director, officer or partner of the principal underwriter:
Name and Principal Business Address Position and Offices with Offices with Registrant Underwriter Ronald G. Abrahamson Vice President-Service Quality None IDS Tower 10 and Reengineering Minneapolis, MN 55440 Douglas A. Alger Senior Vice President-Human None IDS Tower 10 Resources Minneapolis, MN 55440 Peter J. Anderson Senior Vice President-Investment Vice President-Investments IDS Tower 10 Operations Minneapolis, MN 55440 Ward D. Armstrong Vice President-American Express None IDS Tower 10 Retirement Services Minneapolis, MN 55440 John M. Baker Vice President-Plan Sponsor None IDS Tower 10 Services Minneapolis, MN 55440 Joseph M. Barsky III Vice President - Mutual Fund None IDS Tower 10 Equities Minneapolis, MN 55440 Timothy V. Bechtold Vice President-Risk Management None IDS Tower 10 Products Minneapolis, MN 55440 John D. Begley Group Vice President-Ohio/Indiana None Suite 100 7760 Olentangy River Rd. Columbus, OH 43235 Brent L. Bisson Group Vice President-Los Angeles None Suite 900, E. Westside Twr Metro 11835 West Olympic Blvd. Los Angeles, CA 90064 John C. Boeder Vice President-Nonproprietary None IDS Tower 10 Products Minneapolis, MN 55440 Walter K. Booker Group Vice President-New Jersey None Suite 200, 3500 Market Street Camp Hill, NJ 17011 Bruce J. Bordelon Group Vice President - San None 1333 N. California Blvd., Suite 200 Francisco Area Walnut Creek, CA 94596 Charles R. Branch Group Vice President-Northwest None Suite 200 West 111 North River Dr. Spokane, WA 99201 Douglas W. Brewers Vice President-Sales Support None IDS Tower 10 Minneapolis, MN 55440 Karl J. Breyer Corporate Senior Vice President None IDS Tower 10 Minneapolis, MN 55440 Cynthia M. Carlson Vice President-American Express None IDS Tower 10 Securities Services Minneapolis, MN 55440 Mark W. Carter Senior Vice President and Chief None IDS Tower 10 Marketing Officer Minneapolis, MN 55440 James E. Choat Senior Vice President - Third None IDS Tower 10 Party Distribution Minneapolis, MN 55440 Kenneth J. Ciak Vice President and General None IDS Property Casualty Manager-IDS Property Casualty 1400 Lombardi Avenue Green Bay, WI 54304 Paul A. Connolly Vice President-Retail - Retail None IDS Tower 10 Distribution Services Minneapolis, MN 55440 Henry J. Cormier Group Vice President-Connecticut None Commerce Center One 333 East River Drive East Hartford, CT 06108 John M. Crawford Group Vice President-Arkansas/ None Suite 200 Springfield/Memphis 10800 Financial Ctr Pkwy Little Rock, AR 72211 Kevin F. Crowe Group Vice None Suite 312 President-Carolinas/Eastern 7300 Carmel Executive Pk Georgia Charlotte, NC 28226 Colleen Curran Vice President and Assistant None IDS Tower 10 General Counsel Minneapolis, MN 55440 Luz Maria Davis Vice President-Communications None IDS Tower 10 Minneapolis, MN 55440 Arthur E. Delorenzo Group Vice President - Upstate None 4 Atrium Drive, #100 New York Albany, NY 12205 Scott M. DiGiammarino Group Vice None Suite 500, 8045 Leesburg Pike President-Washington/Baltimore Vienna, VA 22182 Bradford L. Drew Group Vice President-Eastern None Two Datran Center Florida Penthouse One B 9130 S. Dadeland Blvd. Miami, FL 33156 Douglas K. Dunning Vice President-Assured Assets None IDS Tower 10 Product Development and Management Minneapolis, MN 55440 James P. Egge Group Vice President-Western None 4305 South Louise, Suite 202 Iowa, Nebraska, Dakotas Sioux Falls, SD 57103 Gordon L. Eid Senior Vice President, General None IDS Tower 10 Counsel and Chief Compliance Minneapolis, MN 55440 Officer Robert M. Elconin Vice President-Government None IDS Tower 10 Relations Minneapolis, MN 55440 Phillip W. Evans Group Vice President-Rocky None Suite 600 Mountain 6985 Union Park Center Midvale, UT 84047-4177 Gordon M. Fines Vice President-Mutual Fund Equity None IDS Tower 10 Investments Minneapolis, MN 55440 Douglas L. Forsberg Vice President - International None IDS Tower 10 Minneapolis, MN 55440 Jeffrey P. Fox Vice President and Corporate None IDS Tower 10 Controller Minneapolis, MN 55440 William P. Fritz Group Vice President-Gateway None Suite 160 12855 Flushing Meadows Dr St. Louis, MO 63131 Carl W. Gans Group Vice President-Twin City None 8500 Tower Suite 1770 Metro 8500 Normandale Lake Blvd. Bloomington, MN 55437 Peter A. Gallus Vice President-Investment None IDS Tower 10 Administration Minneapolis, MN 55440 David A. Hammer Vice President and Marketing None IDS Tower 10 Controller Minneapolis, MN 55440 Teresa A. Hanratty Senior Vice President-Field None Suites 6&7 Management 169 South River Road Bedford, NH 03110 Robert L. Harden Group Vice President-Boston Metro None Two Constitution Plaza Boston, MA 02129 Lorraine R. Hart Vice President-Insurance None IDS Tower 10 Investments Minneapolis, MN 55440 Scott A. Hawkinson Vice President and None IDS Tower 10 Controller-Private Client Group Minneapolis, MN 55440 Brian M. Heath Senior Vice President and General None Suite 150 Sales Manager 801 E. Campbell Road Richardson, TX 75081 Janis K. Heaney Vice President-Incentive None IDS Tower 10 Management Minneapolis, MN 55440 Jon E. Hjelm Group Vice President-Rhode None 319 Southbridge Street Island/Central-Western Auburn, MA 01501 Massachusetts David J. Hockenberry Group Vice President-Tennessee None 30 Burton Hills Blvd. Valley Suite 175 Nashville, TN 37215 Jeffrey S. Horton Vice President and Treasurer None IDS Tower 10 Minneapolis, MN 55440 David R. Hubers Chairman, President and Chief Board member IDS Tower 10 Executive Officer Minneapolis, MN 55440 Debra A. Hutchinson Vice President - Relationship None IDS Tower 10 Leader Minneapolis, MN 55440 James M. Jensen Vice President and None IDS Tower 10 Controller-Advice and Retail Minneapolis, MN 55440 Distribution Group Marietta L. Johns Senior Vice President-Field None IDS Tower 10 Management Minneapolis, MN 55440 Nancy E. Jones Vice President-Business None IDS Tower 10 Development Minneapolis, MN 55440 Ora J. Kaine Vice President-Financial Advisory None IDS Tower 10 Services Minneapolis, MN 55440 Linda B. Keene Vice President-Market Development None IDS Tower 10 Minneapolis, MN 55440 Raymond G. Kelly Group Vice President-North Texas None Suite 250 801 East Campbell Road Richardson, TX 75081 Richard W. Kling Senior Vice President-Insurance None IDS Tower 10 Products Minneapolis, MN 55440 John M. Knight Vice President-Investment Treasurer IDS Tower 10 Accounting Minneapolis, MN 55440 Paul F. Kolkman Vice President-Actuarial Finance None IDS Tower 10 Minneapolis, MN 55440 Claire Kolmodin Vice President-Service Quality None IDS Tower 10 Minneapolis, MN 55440 David S. Kreager Group Vice President-Greater None Suite 108 Michigan Trestle Bridge V 5136 Lovers Lane Kalamazoo, MI 49002 Steven C. Kumagai Director and Senior Vice None IDS Tower 10 President-Direct and Interactive Minneapolis, MN 55440 Group Mitre Kutanovski Group Vice President-Chicago Metro None Suite 680 8585 Broadway Merrillville, IN 48410 Kurt A. Larson Vice President-Senior Portfolio None IDS Tower 10 Manager Minneapolis, MN 55440 Lori J. Larson Vice President-Brokerage and None IDS Tower 10 Direct Services Minneapolis, MN 55440 Daniel E. Laufenberg Vice President and Chief U.S. None IDS Tower 10 Economist Minneapolis, MN 55440 Peter A. Lefferts Senior Vice President-Corporate None IDS Tower 10 Strategy and Development Minneapolis, MN 55440 Douglas A. Lennick Director and Executive Vice None IDS Tower 10 President-Private Client Group Minneapolis, MN 55440 Mary J. Malevich Vice President-Senior Portfolio None IDS Tower 10 Manager Minneapolis, MN 55440 Fred A. Mandell Vice President-Distribution None IDS Tower 10 Channel Marketing Minneapolis, MN 55440 Daniel E. Martin Group Vice President-Pittsburgh None Suite 650 Metro 5700 Corporate Drive Pittsburgh, PA 15237 Timothy J. Masek Vice President and Director of None IDS Tower 10 Global Research Minnapolis, MN 55440 Sarah A. Mealey Vice President-Mutual Funds None IDS Tower 10 Minneapolis, MN 55440 Paula R. Meyer Vice President-Assured Assets None IDS Tower 10 Minneapolis, MN 55440 Shashank B. Modak Vice President - Technology Leader None IDS Tower 10 Minneapolis, MN 55440 Pamela J. Moret Senior Vice President-Investment None IDS Tower 10 Products and Vice Minneapolis, MN 55440 President-Variable Assets Barry J. Murphy Senior Vice President-Client None IDS Tower 10 Service Minneapolis, MN 55440 Mary Owens Neal Vice President-Consumer Marketing None IDS Tower 10 Minneapolis, MN 55440 Thomas V. Nicolosi Group Vice President-New York None Suite 220 Metro Area 500 Mamaroneck Avenue Harrison, NY 10528 Michael J. O'Keefe Vice President-Advisory Business None IDS Tower 10 Systems Minneapolis, MN 55440 James R. Palmer Vice President-Taxes None IDS Tower 10 Minneapolis, MN 55440 Marc A. Parker Group Vice None 10200 SW Greenburg Road President-Portland/Eugene Suite 110 Portland, OR 97223 Carla P. Pavone Vice President-Compensation None IDS Tower 10 Services and ARD Product Minneapolis, MN 55440 Distribution Thomas P. Perrine Senior Vice President-Group None IDS Tower 10 Relationship Leader/American Minneapolis, MN 55440 Express Technologies Financial Services Susan B. Plimpton Vice President-Marketing Services None IDS Tower 10 Minneapolis, MN 55440 Larry M. Post Group Vice President-Philadelphia None One Tower Bridge Metro 100 Front Street 8th Fl West Conshohocken, PA 19428 Ronald W. Powell Vice President and Assistant None IDS Tower 10 General Counsel Minneapolis, MN 55440 Diana R. Prost Group Vice None 3030 N.W. Expressway President-Kansas/Oklahoma Suite 900 Oklahoma City, OK 73112 James M. Punch Vice President Branded Platform None IDS Tower 10 Project Minneapolis, MN 55440 Frederick C. Quirsfeld Senior Vice President-Fixed Income Vice President - Fixed Income IDS Tower 10 Investments Minneapolis, MN 55440 Rollyn C. Renstrom Vice President-Corporate Planning None IDS Tower 10 and Analysis Minneapolis, MN 55440 R. Daniel Richardson III Group Vice President-Southern None Suite 800 Texas Arboretum Plaza One 9442 Capital of Texas Hwy N. Austin, TX 78759 ReBecca K. Roloff Senior Vice President-Field None IDS Tower 10 Management and Financial Advisory Minneapolis, MN 55440 Service Stephen W. Roszell Senior Vice None IDS Tower 10 President-Institutional Minneapolis, MN 55440 Max G. Roth Group Vice None Suite 201 S IDS Ctr President-Wisconsin/Upper Michigan 1400 Lombardi Avenue Green Bay, WI 54304 Diane M. Ruebling Group Vice President-Central None Suite 200, Bldg. B California/Western Nevada 2200 Douglas Blvd. Roseville, CA 95661 Erven A. Samsel Senior Vice President-Field None 45 Braintree Hill Park Management Suite 402 Braintree, MA 02184 Theresa M. Sapp Vice President - Relationship None IDS Tower 10 Leader Minneapolis, MN 55440 Russell L. Scalfano Group Vice None Suite 201 President-Illinois/Indiana/Kentucky 101 Plaza East Blvd. Evansville, IN 47715 William G. Scholz Group Vice President-Arizona/Las None Suite 205 Vegas 7333 E Doubletree Ranch Rd Scottsdale, AZ 85258 Stuart A. Sedlacek Senior Vice President and Chief None IDS Tower 10 Financial Officer Minneapolis, MN 55440 Donald K. Shanks Vice President-Property Casualty None IDS Tower 10 Minneapolis, MN 55440 F. Dale Simmons Vice President-Senior Portfolio None IDS Tower 10 Manager, Insurance Investments Minneapolis, MN 55440 Judy P. Skoglund Vice President-Quality and None IDS Tower 10 Service Support Minneapolis, MN 55440 James B. Solberg Group Vice President-Eastern Iowa None 466 Westdale Mall Area Cedar RapIDS, IA 52404 Bridget Sperl Vice President-Geographic Service None IDS Tower 10 Teams Minneapolis, MN 55440 Paul J. Stanislaw Group Vice President-Southern None Suite 1100 California Two Park Plaza Irvine, CA 92714 Lisa A. Steffes Vice President - Marketing Offer None IDS Tower 10 Development Minneapolis, MN 55440 Lois A. Stilwell Group Vice President-Outstate None Suite 433 Minnesota Area/ North 9900 East Bren Road Dakota/Western Wisconsin Minnetonka, MN 55343 William A. Stoltzmann Vice President and Assistant None IDS Tower 10 General Counsel Minneapolis, MN 55440 James J. Strauss Vice President and General Auditor None IDS Tower 10 Minneapolis, MN 55440 Jeffrey J. Stremcha Vice President-Information None IDS Tower 10 Resource Management/ISD Minneapolis, MN 55440 Barbara Stroup Stewart Vice President-Channel Development None IDS Tower 10 Minneapolis, MN 55440 Craig P. Taucher Group Vice None Suite 150 President-Orlando/Jacksonville 4190 Belfort Road Jacksonville, FL 32216 Neil G. Taylor Group Vice None Suite 425 President-Seattle/Tacoma/Hawaii 101 Elliott Avenue West Seattle, WA 98119 John R. Thomas Senior Vice President Board Member IDS Tower 10 Minneapolis, MN 55440 Keith N. Tufte Vice President and Director of None IDS Tower 10 Equity Research Minneapolis, MN 55440 Peter S. Velardi Group Vice None Suite 180 President-Atlanta/Birmingham 1200 Ashwood Parkway Atlanta, GA 30338 Charles F. Wachendorfer Group Vice President-Detroit Metro None 8115 East Jefferson Avenue Detroit, MI 48214 Donald F. Weaver Group Vice President-Greater None 3500 Market Street, Suite 200 Pennsylvania Camp Hill, PA 17011 Norman Weaver Jr. Senior Vice President - Alliance None 1010 Main St. Suite 2B Group Huntington Beach, CA 92648 Michael L. Weiner Vice President-Tax Research and None IDS Tower 10 Audit Minneapolis, MN 55440 Jeffry M. Welter Vice President-Equity and Fixed None IDS Tower 10 Income Trading Minneapolis, MN 55440 Thomas L. White Group Vice President-Cleveland None Suite 200 Metro 28601 Chagrin Blvd. Woodmere, OH 44122 Eric S. Williams Group Vice President-Virginia None Suite 250 3951 Westerre Parkway Richmond, VA 23233 William J. Williams Group Vice President-Western None Two North Tamiami Trail Florida Suite 702 Sarasota, FL 34236 Edwin M. Wistrand Vice President and Assistant None IDS Tower 10 General Counsel Minneapolis, MN 55440 Michael D. Wolf Vice President-Senior Portfolio None IDS Tower 10 Manager Minneapolis, MN 55440 Michael R. Woodward Senior Vice President-Field None 32 Ellicott St Management Suite 100 Batavia, NY 14020 Rande L. Zellers Group Vice President-Gulf States None 1 Galleria Blvd., Suite 1900 Metairie, LA 70001
Item 27 (c). Not Applicable Item 28. Location of Accounts and Records American Express Financial Corporation IDS Tower 10 Minneapolis, MN 55440 Item 29. Management Services Not Applicable. Item 30. Undertakings Not Applicable. SIGNATURES Pursuant to the requirements of the Securities Act and the Investment Company Act, the Registrant, AXP Stock Fund, Inc., certifies that it meets all of the requirements for effectiveness of this registration statement under Rule 485(b) under the Securities Act and has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Minneapolis and State of Minnesota on the 13th day of June, 2000. AXP STOCK FUND, INC. By /s/ Arne H. Carlson** Arne H. Carlson By /s/ John M. Knight John M. Knight, Treasurer Pursuant to the requirements of the Securities Act, this Amendment to its Registration Statement has been signed below by the following persons in the capacities indicated on the 13th day of June, 2000. Signature Capacity ___________________________ Director Peter J. Anderson /s/ H. Brewster Atwater, Jr.* Director H. Brewster Atwater, Jr. /s/ Arne H. Carlson* Chairman of the Board Arne H. Carlson /s/ Lynne V. Cheney* Director Lynne V. Cheney /s/ David R. Hubers* Director David R. Hubers /s/ Heinz F. Hutter* Director Heinz F. Hutter /s/ Anne P. Jones* Director Anne P. Jones /s/ William R. Pearce* Director William R. Pearce /s/ Alan K. Simpson* Director Alan K. Simpson /s/ John R. Thomas* Director John R. Thomas /s/ C. Angus Wurtele* Director C. Angus Wurtele *Signed pursuant to Directors' Power of Attorney, dated Jan. 13, 2000, filed electronically herewith as Exhibit (q)(1), by: /s/ Leslie L. Ogg Leslie L. Ogg **Signed pursuant to Officers' Power of Attorney, dated Jan. 13 2000, filed electronically herewith as Exhibit (q)(2), by: /s/ Leslie L. Ogg Leslie L. Ogg SIGNATURES Pursuant to the requirements of the Securities Act and the Investment Company Act, GROWTH AND INCOME TRUST consents to the filing of this Amendment to the Registration Statement signed on its behalf by the undersigned, thereunto duly authorized, in the City of Minneapolis and State of Minnesota on the 13th day of June, 2000. GROWTH AND INCOME TRUST By /s/ Arne H. Carlson**** Arne H. Carlson By /s/ John M. Knight John M. Knight, Treasurer Pursuant to the requirements of the Securities Act, this Amendment to the Registration Statement has been signed below by the following persons in the capacities indicated on the 13th day of June, 2000. Signatures Capacity _____________________ Trustee Peter J. Anderson /s/ H. Brewster Atwater, Jr.*** Trustee H. Brewster Atwater, Jr. /s/ Arne H. Carlson*** Chairman of the Board Arne H. Carlson /s/ Lynne V. Cheney*** Trustee Lynne V. Cheney /s/ David R. Hubers*** Trustee David R. Hubers /s/ Heinz F. Hutter*** Trustee Heinz F. Hutter /s/ Anne P. Jones*** Trustee Anne P. Jones /s/ William R. Pearce*** Trustee William R. Pearce /s/ Alan K. Simpson*** Trustee Alan K. Simpson /s/ John R. Thomas*** Trustee John R. Thomas /s/ C. Angus Wurtele*** Trustee C. Angus Wurtele *** Signed pursuant to Trustees' Power of Attorney dated Jan. 13, 2000, filed electronically herewith as Exhibit (q)(3), by: /s/ Leslie L. Ogg Leslie L. Ogg **** Signed pursuant to Officers' Power of Attorney dated Jan. 13, 2000, filed electronically herewith as Exhibit (q)(4), by: /s/ Leslie L. Ogg Leslie L. Ogg CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 100 TO REGISTRATION STATEMENT NO. 2-11358 This post-effective amendment comprises the following papers and documents: The facing sheet. Part A. The prospectus. Part B. Statement of Additional Information. Financial Statements. Part C. Other Information. Exhibits. The Signatures. EX-99 2 0002.txt EXHIBIT INDEX AXP Stock Fund, Inc. File No. 2-11358/811-498 Exhibit (h)(7): Transfer Agency Agreement, dated March 9, 2000. Exhibit (i): Opinion and Consent of Counsel, dated June 13, 2000. Exhibit (j): Independent Auditors' Consent, dated June 13, 2000. Exhibit (q)(1): Directors' Power of Attorney, dated Jan. 13, 2000. Exhibit (q)(2): Officers' Power of Attorney, dated Jan. 13, 2000. Exhibit (q)(3): Trustees' Power of Attorney, dated Jan. 13, 2000. Exhibit (q)(4): Officers' Power of Attorney, dated Jan. 13, 2000. EX-99.(H)(7) 3 0003.txt TRANSFER AGENCY AGREEMENT TRANSFER AGENCY AGREEMENT AGREEMENT dated as of March 9, 2000 between AXP Stock Fund, Inc., a Minnesota corporation, (the "Company" or "Fund"), and American Express Client Service Corporation (the "Transfer Agent"), a Minnesota corporation. In consideration of the mutual promises set forth below, the Company and the Transfer Agent agree as follows: 1. Appointment of the Transfer Agent. The Company hereby appoints the Transfer Agent, as transfer agent for its shares and as shareholder servicing agent for the Company, and the Transfer Agent accepts such appointment and agrees to perform the duties set forth below. 2. Compensation. The Company will compensate the Transfer Agent for the performance of its obligations as set forth in Schedule A. Schedule A does not include out-of-pocket disbursements of the Transfer Agent for which the Transfer Agent shall be entitled to bill the Company separately. The Transfer Agent will bill the Company monthly. The fee provided for hereunder shall be paid in cash by the Company to the Transfer Agent within five (5) business days after the last day of each month. Out-of-pocket disbursements shall include, but shall not be limited to, the items specified in Schedule B. Reimbursement by the Company for expenses incurred by the Transfer Agent in any month shall be made as soon as practicable after the receipt of an itemized bill from the Transfer Agent. Any compensation jointly agreed to hereunder may be adjusted from time to time by attaching to this Agreement a revised Schedule A, dated and signed by an officer of each party. 3. Documents. The Company will furnish from time to time such certificates, documents or opinions as the Transfer Agent deems to be appropriate or necessary for the proper performance of its duties. 4. Representations of the Company and the Transfer Agent. (a) The Company represents to the Transfer Agent that all outstanding shares are validly issued, fully paid and non-assessable by the Company. When shares are hereafter issued in accordance with the terms of the Company's Articles of Incorporation and its By-laws, such shares shall be validly issued, fully paid and non-assessable by the Company. (b) The Transfer Agent represents that it is registered under Section 17A(c) of the Securities Exchange Act of 1934. The Transfer Agent agrees to maintain the necessary facilities, equipment and personnel to perform its duties and obligations under this agreement and to comply with all applicable laws. 5. Duties of the Transfer Agent. The Transfer Agent shall be responsible, separately and through its subsidiaries or affiliates, for the following functions: (a) Sale of Fund Shares. (1) On receipt of an application and payment, wired instructions and payment, or payment identified as being for the account of a shareholder, the Transfer Agent will deposit the payment, prepare and present the necessary report to the Custodian and record the purchase of shares in a timely fashion in accordance with the terms of the Fund's prospectus. All shares shall be held in book entry form and no certificate shall be issued unless the Fund is permitted to do so by its prospectus and the purchaser so requests. (2) On receipt of notice that payment was dishonored, the Transfer Agent shall stop redemptions of all shares owned by the purchaser related to that payment, place a stop payment on any checks that have been issued to redeem shares of the purchaser and take such other action as it deems appropriate. (b) Redemption of Fund Shares. On receipt of instructions to redeem shares in accordance with the terms of the Fund's prospectus, the Transfer Agent will record the redemption of shares of the Fund, prepare and present the necessary report to the Custodian and pay the proceeds of the redemption to the shareholder, an authorized agent or legal representative upon the receipt of the monies from the Custodian. (c) Transfer or Other Change Pertaining to Fund Shares. On receipt of instructions or forms acceptable to the Transfer Agent to transfer the shares to the name of a new owner, change the name or address of the present owner or take other legal action, the Transfer Agent will take such action as is requested. (d) Exchange of Fund Shares. On receipt of instructions to exchange the shares of the Fund for the shares of another American Express(R) Fund or other American Express Financial Corporation product in accordance with the terms of the prospectus, the Transfer Agent will process the exchange in the same manner as a redemption and sale of shares. (e) Right to Seek Assurance. The Transfer Agent may refuse to transfer, exchange or redeem shares of the Fund or take any action requested by a shareholder until it is satisfied that the requested transaction or action is legally authorized or until it is satisfied there is no basis for any claims adverse to the transaction or action. It may rely on the provisions of the Uniform Act for the Simplification of Fiduciary Security Transfers or the Uniform Commercial Code. The Company shall indemnify the Transfer Agent for any act done or omitted to be done in reliance on such laws or for refusing to transfer, exchange or redeem shares or taking any requested action if it acts on a good faith belief that the transaction or action is illegal or unauthorized. (f) Shareholder Records, Reports and Services. (1) The Transfer Agent shall maintain all shareholder accounts, which shall contain all required tax, legally imposed and regulatory information; shall provide shareholders, and file with federal and state agencies, all required tax and other reports pertaining to shareholder accounts; shall prepare shareholder mailing lists; shall cause to be printed and mailed all required prospectuses, annual reports, semiannual reports, statements of additional information (upon request), proxies and other mailings to shareholders; and shall cause proxies to be tabulated. (2) The Transfer Agent shall respond to all valid inquiries related to its duties under this Agreement. (3) The Transfer Agent shall create and maintain all records in accordance with all applicable laws, rules and regulations, including, but not limited to, the records required by Section 31(a) of the Investment Company Act of 1940. (g) Dividends and Distributions. The Transfer Agent shall prepare and present the necessary report to the Custodian and shall cause to be prepared and transmitted the payment of income dividends and capital gains distributions or cause to be recorded the investment of such dividends and distributions in additional shares of the Fund or as directed by instructions or forms acceptable to the Transfer Agent. (h) Confirmations and Statements. The Transfer Agent shall confirm each transaction either at the time of the transaction or through periodic reports as may be legally permitted. (i) Lost or Stolen Checks. The Transfer Agent will replace lost or stolen checks issued to shareholders upon receipt of proper notification and will maintain any stop payment orders against the lost or stolen checks as it is economically desirable to do. (j) Reports to Company. The Transfer Agent will provide reports pertaining to the services provided under this Agreement as the Company may request to ascertain the quality and level of services being provided or as required by law. (k) Other Duties. The Transfer Agent may perform other duties for additional compensation if agreed to in writing by the parties to this Agreement. 6. Ownership and Confidentiality of Records. The Transfer Agent agrees that all records prepared or maintained by it relating to the services to be performed by it under the terms of this Agreement are the property of the Company and may be inspected by the Company or any person retained by the Company at reasonable times. The Company and Transfer Agent agree to protect the confidentiality of those records. 7. Action by Board and Opinion of Counsel. The Transfer Agent may rely on resolutions of the Board of Directors (the "Board") or the Executive Committee of the Board and on opinion of counsel for the Company. 8. Duty of Care. It is understood and agreed that, in furnishing the Company with the services as herein provided, neither the Transfer Agent, nor any officer, director or agent thereof shall be held liable for any loss arising out of or in connection with their actions under this Agreement so long as they act in good faith and with due diligence, and are not negligent or guilty of any willful misconduct. It is further understood and agreed that the Transfer Agent may rely upon information furnished to it reasonably believed to be accurate and reliable. In the event the Transfer Agent is unable to perform its obligations under the terms of this Agreement because of an act of God, strike or equipment or transmission failure reasonably beyond its control, the Transfer Agent shall not be liable for any damages resulting from such failure. 9. Term and Termination. This Agreement shall become effective on the date first set forth above (the "Effective Date") and shall continue in effect from year to year thereafter as the parties may mutually agree; provided that either party may terminate this Agreement by giving the other party notice in writing specifying the date of such termination, which shall be not less than 60 days after the date of receipt of such notice. In the event such notice is given by the Company, it shall be accompanied by a vote of the Board, certified by the Secretary, electing to terminate this Agreement and designating a successor transfer agent or transfer agents. Upon such termination and at the expense of the Company, the Transfer Agent will deliver to such successor a certified list of shareholders of the Fund (with name, address and taxpayer identification or Social Security number), a historical record of the account of each shareholder and the status thereof, and all other relevant books, records, correspondence, and other data established or maintained by the Transfer Agent under this Agreement in the form reasonably acceptable to the Company, and will cooperate in the transfer of such duties and responsibilities, including provisions for assistance from the Transfer Agent's personnel in the establishment of books, records and other data by such successor or successors. 10. Amendment. This Agreement may not be amended or modified in any manner except by a written agreement executed by both parties. 11. Subcontracting. The Company agrees that the Transfer Agent may subcontract for certain of the services described under this Agreement with the understanding that there shall be no diminution in the quality or level of the services and that the Transfer Agent remains fully responsible for the services. Except for out-of-pocket expenses identified in Schedule B, the Transfer Agent shall bear the cost of subcontracting such services, unless otherwise agreed by the parties. 12. Miscellaneous. (a) This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided, however, that this Agreement shall not be assignable without the written consent of the other party. (b) This Agreement shall be governed by the laws of the State of Minnesota. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers as of the day and year written above. AXP STOCK FUND, INC. By: /s/ Leslie L. Ogg Leslie L. Ogg Vice President AMERICAN EXPRESS CLIENT SERVICE CORPORATION By: /s/ Barry J. Murphy Barry J. Murphy President Schedule A AXP STOCK FUND, INC. FEE The annual per account fee for services under this agreement, accrued daily and payable monthly, is as follows: Class A Class B Class C Class Y $19.00 $20.00 $19.50 $17.00 Schedule B OUT-OF-POCKET EXPENSES The Company shall reimburse the Transfer Agent monthly for the following out-of-pocket expenses: o typesetting, printing, paper, envelopes, postage and return postage for proxy soliciting material, and proxy tabulation costs o printing, paper, envelopes and postage for dividend notices, dividend checks, records of account, purchase confirmations, exchange confirmations and exchange prospectuses, redemption confirmations, redemption checks, confirmations on changes of address and any other communication required to be sent to shareholders o typesetting, printing, paper, envelopes and postage for prospectuses, annual and semiannual reports, statements of additional information, supplements for prospectuses and statements of additional information and other required mailings to shareholders o stop orders o outgoing wire charges o other expenses incurred at the request or with the consent of the Company EX-99.(I) 4 0004.txt OPINION AND CONSENT OF COUNSEL June 13, 2000 AXP Stock Fund, Inc. 200 AXP Financial Center Minneapolis, Minnesota 55474 Gentlemen: I have examined the Articles of Incorporation and the By-Laws of AXP Stock Fund, Inc. (the Company) and all necessary certificates, permits, minute books, documents and records of the Company, and the applicable statutes of the State of Minnesota, and it is my opinion that the shares sold in accordance with applicable federal and state securities laws will be legally issued, fully paid, and nonassessable. This opinion may be used in connection with the Post-Effective Amendment. Sincerely, /s/ Leslie L. Ogg Leslie L. Ogg Attorney at Law 901 S. Marquette Ave., Suite 2810 Minneapolis, MN 55402-3268 EX-99.(J) 5 0005.txt INDEPENDENT AUDITORS' CONSENT Independent Auditors' Consent The board and shareholders AXP Stock Fund, Inc.: We consent to the use of our report incorporated herein by reference and to the references to our Firm under the headings "Financial highlights" in Part A and "INDEPENDENT AUDITORS" in Part B of the Registration Statement. /s/ KPMG LLP KPMG LLP Minneapolis, Minnesota June 13, 2000 EX-99.(Q)(1) 6 0006.txt DIRECTORS' POWER OF ATTORNEY DIRECTORS/TRUSTEES POWER OF ATTORNEY City of Minneapolis State of Minnesota Each of the undersigned, as directors and trustees of the below listed open-end, diversified investment companies that previously have filed registration statements and amendments thereto pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940 with the Securities and Exchange Commission: 1933 Act 1940 Act Reg. Number Reg. Number AXP Bond Fund, Inc. 2-51586 811-2503 AXP California Tax-Exempt Trust 33-5103 811-4646 AXP Discovery Fund, Inc. 2-72174 811-3178 AXP Equity Select Fund, Inc. 2-13188 811-772 AXP Extra Income Fund, Inc. 2-86637 811-3848 AXP Federal Income Fund, Inc. 2-96512 811-4260 AXP Global Series, Inc. 33-25824 811-5696 AXP Growth Series, Inc. 2-38355 811-2111 AXP High Yield Tax-Exempt Fund, Inc. 2-63552 811-2901 AXP International Fund, Inc. 2-92309 811-4075 AXP Investment Series, Inc. 2-11328 811-54 AXP Managed Series, Inc. 2-93801 811-4133 AXP Market Advantage Series, Inc. 33-30770 811-5897 AXP Money Market Series, Inc. 2-54516 811-2591 AXP New Dimensions Fund, Inc. 2-28529 811-1629 AXP Precious Metals Fund, Inc. 2-93745 811-4132 AXP Progressive Fund, Inc. 2-30059 811-1714 AXP Selective Fund, Inc. 2-10700 811-499 AXP Special Tax-Exempt Series Trust 33-5102 811-4647 AXP Stock Fund, Inc. 2-11358 811-498 AXP Strategy Series, Inc. 2-89288 811-3956 AXP Tax-Exempt Series, Inc. 2-57328 811-2686 AXP Tax-Free Money Fund, Inc. 2-66868 811-3003 AXP Utilities Income Fund, Inc. 33-20872 811-5522 hereby constitutes and appoints William R. Pearce, Arne H. Carlson and Leslie L. Ogg or either one of them, as her or his attorney-in-fact and agent, to sign for her or him in her or his name, place and stead any and all further amendments to said registration statements filed pursuant to said Acts and any rules and regulations thereunder, and to file such amendments with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting to either of them the full power and authority to do and perform each and every act required and necessary to be done in connection therewith. Dated the 13th day of January, 2000. /s/ H. Brewster Atwater, Jr. /s/ Anne P. Jones H. Brewster Atwater, Jr. Anne P. Jones /s/ Arne H. Carlson /s/ William R. Pearce Arne H. Carlson William R. Pearce /s/ Lynne V. Cheney /s/ Alan K. Simpson Lynne V. Cheney Alan K. Simpson /s/ William H. Dudley /s/ John R. Thomas William H. Dudley John R. Thomas /s/ David R. Hubers /s/ C. Angus Wurtele David R. Hubers C. Angus Wurtele /s/ Heinz F. Hutter Heinz F. Hutter EX-99.(Q)(2) 7 0007.txt OFFICERS' POWER OF ATTORNEY Officers' Power of Attorney City of Minneapolis State of Minnesota Each of the undersigned, as officers of the below listed open-end, diversified investment companies that previously have filed registration statements and amendments thereto pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940 with the Securities and Exchange Commission: 1933 Act 1940 Act Reg. Number Reg. Number AXP Bond Fund, Inc. 2-51586 811-2503 AXP California Tax-Exempt Trust 33-5103 811-4646 AXP Discovery Fund, Inc. 2-72174 811-3178 AXP Equity Select Fund, Inc. 2-13188 811-772 AXP Extra Income Fund, Inc. 2-86637 811-3848 AXP Federal Income Fund, Inc. 2-96512 811-4260 AXP Global Series, Inc. 33-25824 811-5696 AXP Growth Series, Inc. 2-38355 811-2111 AXP High Yield Tax-Exempt Fund, Inc. 2-63552 811-2901 AXP International Fund, Inc. 2-92309 811-4075 AXP Investment Series, Inc. 2-11328 811-54 AXP Variable Portfolio-Investment Series, Inc. 2-73115 811-3218 AXP Variable Portfolio-Managed Series, Inc. 2-96367 811-4252 AXP Variable Portfolio-Money Market Series, Inc. 2-72584 811-3190 AXP Variable Portfolio-Income Series, Inc. 2-73113 811-3219 AXP Managed Series, Inc. 2-93801 811-4133 AXP Market Advantage Series, Inc. 33-30770 811-5897 AXP Money Market Series, Inc. 2-54516 811-2591 AXP New Dimensions Fund, Inc. 2-28529 811-1629 AXP Precious Metals Fund, Inc. 2-93745 811-4132 AXP Progressive Fund, Inc. 2-30059 811-1714 AXP Selective Fund, Inc. 2-10700 811-499 AXP Special Tax-Exempt Series Trust 33-5102 811-4647 AXP Stock Fund, Inc. 2-11358 811-498 AXP Strategy Series, Inc. 2-89288 811-3956 AXP Tax-Exempt Series, Inc. 2-57328 811-2686 AXP Tax-Free Money Fund, Inc. 2-66868 811-3003 AXP Utilities Income Fund, Inc. 33-20872 811-5522 hereby constitutes and appoints the other as his attorney-in-fact and agent, to sign for him in his name, place and stead any and all further amendments to said registration statement filed pursuant to said Acts and any rules and regulations thereunder, and to file such amendments with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting to either of them the full power and authority to do and perform each and every act required and necessary to be done in connection therewith. Dated the 13th day of January, 2000. /s/ Arne H. Carlson /s/ Leslie L. Ogg Arne H. Carlson Leslie L. Ogg /s/ John R. Thomas /s/ Peter J. Anderson John R. Thomas Peter J. Anderson /s/ Frederick C. Quirsfeld /s/ John M. Knight Frederick C. Quirsfeld John M. Knight EX-99.(Q)(3) 8 0008.txt TRUSTEES' POWER OF ATTORNEY TRUSTEES POWER OF ATTORNEY City of Minneapolis State of Minnesota Each of the undersigned, as trustees of the below listed open-end, diversified investment companies that previously have filed registration statements and amendments thereto pursuant to the requirements of the Investment Company Act of 1940 with the Securities and Exchange Commission: 1940 Act Reg. Number Growth Trust 811-07395 Growth and Income Trust 811-07393 Income Trust 811-07307 Tax-Free Income Trust 811-07397 World Trust 811-07399 hereby constitutes and appoints William R. Pearce, Arne H. Carlson and Leslie L. Ogg or either one of them, as her or his attorney-in-fact and agent, to sign for her or him in her or his name, place and stead any and all further amendments to said registration statements filed pursuant to said Act and any rules and regulations thereunder, and to file such amendments with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting to either of them the full power and authority to do and perform each and every act required and necessary to be done in connection therewith. Dated the 13th day of January, 2000. /s/ H. Brewster Atwater, Jr. /s/ Anne P. Jones H. Brewster Atwater, Jr. Anne P. Jones /s/ Arne H. Carlson /s/ William R. Pearce Arne H. Carlson William R. Pearce /s/ Lynne V. Cheney /s/ Alan K. Simpson Lynne V. Cheney Alan K. Simpson /s/ William H. Dudley /s/ John R. Thomas William H. Dudley John R. Thomas /s/ David R. Hubers /s/ C. Angus Wurtele David R. Hubers C. Angus Wurtele /s/ Heinz F. Hutter Heinz F. Hutter EX-99.(Q)(4) 9 0009.txt OFFICERS' POWER OF ATTORNEY OFFICERS' POWER OF ATTORNEY City of Minneapolis State of Minnesota Each of the undersigned, as officers of the below listed open-end, diversified investment companies that previously have filed registration statements and amendments thereto pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940 with the Securities and Exchange Commission: 1940 Act Reg. Number Growth Trust 811-07395 Growth and Income Trust 811-07393 Income Trust 811-07307 Tax-Free Income Trust 811-07397 World Trust 811-07399 hereby constitutes and appoints the other as his attorney-in-fact and agent, to sign for him in his name, place and stead any and all further amendments to said registration statements filed pursuant to said Acts and any rules and regulations thereunder, and to file such amendments with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting to either of them the full power and authority to do and perform each and every act required and necessary to be done in connection therewith. Dated the 13th day of January, 2000. /s/ Arne H. Carlson /s/ Leslie L. Ogg Arne H. Carlson Leslie L. Ogg /s/ John R. Thomas /s/ Peter J. Anderson John R. Thomas Peter J. Anderson /s/ Frederick C. Quirsfeld /s/ John M. Knight Frederick C. Quirsfeld John M. Knight -----END PRIVACY-ENHANCED MESSAGE-----