DEF 14A 1 proxy-definitive.txt AMERICAN EXPRESS FUNDS PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [X] Filed by a party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Materials Under Section 240.14a-12 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 Partners Series, Inc. AXP Partners International Series, 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. AXP Variable Portfolio - Income Series, Inc. AXP Variable Portfolio - Investment Series, Inc. AXP Variable Portfolio - Managed Series, Inc. AXP Variable Portfolio - Money Market Series, Inc. AXP Variable Portfolio - Partners Series, Inc. -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) -------------------------------------------------------------------------------- (Name(s) of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11 (1) Title of each class of securities to which transaction applies: ---------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: ---------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined); ---------------------------------------------------------------------- (4) Proposed maximum aggregated value of transaction: ---------------------------------------------------------------------- (5) Total fee paid: ---------------------------------------------------------------------- [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: ---------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: ---------------------------------------------------------------------- (3) Filing Party: ---------------------------------------------------------------------- (4) Date Filed: ---------------------------------------------------------------------- AMERICAN EXPRESS(R) FUNDS Principal Executive Office 901 Marquette Avenue South, Suite 2810 Minneapolis, MN 55402-3268 NOTICE OF REGULAR MEETING OF SHAREHOLDERS To be held November 13, 2002 Retail Funds AXP(R) Bond Fund, Inc. AXP California Tax-Exempt Trust - AXP California Tax-Exempt Fund AXP Discovery Fund, Inc. AXP Equity Select Fund, Inc. AXP Extra Income Fund, Inc. AXP Federal Income Fund, Inc. - AXP Federal Income Fund - AXP U.S. Government Mortgage Fund AXP Global Series, Inc. - AXP Emerging Markets Fund - AXP Global Balanced Fund - AXP Global Bond Fund - AXP Global Growth Fund - AXP Global Technology Fund AXP Growth Series, Inc. - AXP Growth Fund - AXP Large Cap Equity Fund - AXP Large Cap Value Fund - AXP Research Opportunities Fund AXP High Yield Tax-Exempt Fund, Inc. AXP International Fund, Inc. - AXP European Equity Fund - AXP International Fund AXP Investment Series, Inc. - AXP Diversified Equity Income Fund - AXP Mid Cap Value Fund - AXP Mutual AXP Managed Series, Inc. - AXP Managed Allocation Fund AXP Market Advantage Series, Inc. - AXP Blue Chip Advantage Fund - AXP International Equity Index Fund - AXP Mid Cap Index Fund - AXP S&P 500 Index Fund - AXP Small Company Index Fund AXP Money Market Series, Inc. - AXP Cash Management Fund AXP New Dimensions Fund(R), Inc. - AXP Growth Dimensions Fund - AXP New Dimensions Fund AXP Partners Series, Inc. - AXP Partners Fundamental Value Fund - AXP Partners Select Value Fund - AXP Partners Small Cap Core Fund - AXP Partners Small Cap Value Fund - AXP Partners Value Fund AXP Partners International Series, Inc. - AXP Partners International Aggressive Growth Fund - AXP Partners International Select Value Fund AXP Precious Metals Fund, Inc. AXP Progressive Fund, Inc. AXP Selective Fund, Inc. -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 1 NOTICE OF REGULAR MEETING OF SHAREHOLDERS (CONTINUED) Retail Funds (continued) AXP Special Tax-Exempt Series Trust - AXP Insured Tax-Exempt Fund - AXP Massachusetts Tax-Exempt Fund - AXP Michigan Tax-Exempt Fund - AXP Minnesota Tax-Exempt Fund - AXP New York Tax-Exempt Fund - AXP Ohio Tax-Exempt Fund AXP Stock Fund, Inc. AXP Strategy Series, Inc. - AXP Equity Value Fund - AXP Focused Growth Fund - AXP Partners Small Cap Growth Fund - AXP Small Cap Advantage Fund - AXP Strategy Aggressive Fund AXP Tax-Exempt Series, Inc. - AXP Intermediate Tax-Exempt Fund - AXP Tax-Exempt Bond Fund AXP Tax-Free Money Fund, Inc. AXP Utilities Income Fund, Inc. - AXP Utilities Fund Variable Portfolio Funds AXP Variable Portfolio - Income Series, Inc. - AXP Variable Portfolio - Bond Fund - AXP Variable Portfolio - Extra Income Fund - AXP Variable Portfolio - Federal Income Fund - AXP Variable Portfolio - Global Bond Fund AXP Variable Portfolio - Investment Series, Inc. - AXP Variable Portfolio - Blue Chip Advantage Fund - AXP Variable Portfolio - Capital Resource Fund - AXP Variable Portfolio - Emerging Markets Fund - AXP Variable Portfolio - Equity Select Fund - AXP Variable Portfolio - Growth Fund - AXP Variable Portfolio - International Fund - AXP Variable Portfolio - New Dimensions Fund(R) - AXP Variable Portfolio - S&P 500 Index Fund - AXP Variable Portfolio - Small Cap Advantage Fund - AXP Variable Portfolio - Stock Fund - AXP Variable Portfolio - Strategy Aggressive Fund AXP Variable Portfolio - Managed Series, Inc. - AXP Variable Portfolio - Diversified Equity Income Fund - AXP Variable Portfolio - Managed Fund AXP Variable Portfolio - Money Market Series, Inc. - AXP Variable Portfolio - Cash Management Fund AXP Variable Portfolio - Partners Series, Inc. - AXP Variable Portfolio - Partners Small Cap Value Fund -------------------------------------------------------------------------------- 2 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Your fund will hold a shareholders' meeting at 11:00 a.m. on November 13, 2002, at The Marquette Hotel, 701 Marquette Avenue, Minneapolis, MN in the Red River Room on the third floor. This will be a joint meeting of the funds listed above. The purpose of the meeting is to consider the issues described in the following pages. You are entitled to vote at the meeting if you were a shareholder on September 14, 2002. Please read the proxy statement and vote immediately by mail, telephone or internet, even if you plan to attend the meeting. Just follow the instructions on the enclosed proxy card. It is important that you vote. The Board recommends that you vote FOR each proposal. By Order of the Board of Directors/Trustees Leslie L. Ogg, Secretary September 14, 2002 -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 3 PROXY STATEMENT This is a combined proxy statement for all of the funds listed on the first page. There are five sections to this proxy statement: Section Page A -- Overview 5 B -- Fund Proposals 8 C -- Proxy Voting and Shareholder Meeting Information 37 D -- Fund Information 40 E -- Board Member Information 86 Please be sure to read the proxy statement before you vote. Enclosed is a proxy voting card listing the proposals for each of the funds you own. It is important that you vote for each fund. If you have questions, please call your advisor or call client services toll free at (866) 208-5310. This proxy statement was first mailed to shareholders the week of September 15, 2002. -------------------------------------------------------------------------------- PLEASE VOTE IMMEDIATELY. Your prompt response will save your fund the cost of additional mailings. Your vote is important no matter how many shares you own. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 4 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT SECTION A -- OVERVIEW The Boards of Directors/Trustees (the "Board") of the American Express Funds are asking you to vote on the following proposals. The proposals are described in detail in Section B.
---------------------------------------------------------------- -------------------------------------------------------------- PROPOSAL FUNDS AFFECTED ---------------------------------------------------------------- -------------------------------------------------------------- 1. Elect Board members All Funds ---------------------------------------------------------------- -------------------------------------------------------------- 2. Amend the Articles of Incorporation/ Declaration of Trust to: A. Allow one vote/dollar instead of one vote/share A. All Funds B. Change the name of the corporation B. Bond, Discovery, Equity Select, European Equity, Extra Income, Federal Income, Growth Dimensions, High Yield Tax-Exempt, International, New Dimensions, Precious Metals, Progressive, Selective, Stock, Tax-Free Money, U.S. Government Mortgage, Utilities ---------------------------------------------------------------- -------------------------------------------------------------- 3. Approve a policy authorizing Blue Chip Advantage, Diversified Equity Income, Emerging American Express Financial Corporation ("AEFC"), subject to Markets, Equity Select, Equity Value, European Equity, Board approval, to retain and replace subadvisers, or to Focused Growth, Global Balanced, Global Growth, Global modify subadvisory agreements, without shareholder approval Technology, Growth, Growth Dimensions, International, Managed Allocation, Mid Cap Index, Mutual, New Dimensions, Precious Metals, Research Opportunities, S&P 500 Index, Small Cap Advantage, Small Company Index, Stock, Strategy Aggressive, Utilities and all Variable Portfolio Funds except VP-Partners Small Cap Value ---------------------------------------------------------------- -------------------------------------------------------------- -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 5
---------------------------------------------------------------- -------------------------------------------------------------- PROPOSAL FUNDS AFFECTED ---------------------------------------------------------------- -------------------------------------------------------------- 4. Approve changes to the Investment Management Services Agreement: A. Add a performance incentive adjustment ("PIA") A. Global Technology, VP-Capital Resource, VP-International, VP-Managed, VP-New Dimensions, VP-Strategy Aggressive B. Modify the PIA calculation B. Blue Chip Advantage, Discovery, Diversified Equity Income, Emerging Markets, Equity Select, Equity Value, European Equity, Focused Growth, Global Balanced, Global Growth, Growth, Growth Dimensions, International, Large Cap Equity, Large Cap Value, Managed Allocation, Mid Cap Value, Mutual, New Dimensions, Partners Fundamental Value, Partners International Aggressive Growth, Partners International Select Value, Partners Select Value, Partners Small Cap Core, Partners Small Cap Growth, Partners Small Cap Value, Partners Value, Precious Metals, Progressive, Research Opportunities, Small Cap Advantage, Stock, Strategy Aggressive, Utilities, VP-Blue Chip Advantage, VP-Diversified Equity Income, VP-Emerging Markets, VP-Equity Select, VP-Growth, VP-Partners Small Cap Value, VP-Small Cap Advantage, VP-Stock C. Eliminate the PIA C. Small Company Index D. Change the investment manager from IDS Life Insurance D. All Variable Portfolio Funds Company ("IDS Life") to AEFC ---------------------------------------------------------------- --------------------------------------------------------------
6 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT
---------------------------------------------------------------- -------------------------------------------------------------- PROPOSAL FUNDS AFFECTED ---------------------------------------------------------------- -------------------------------------------------------------- 5. Change the fund's classification from diversified to Global Technology non-diversified ---------------------------------------------------------------- -------------------------------------------------------------- 6. Add a Plan and Agreement of Distribution Cash Management (Class A and Class B), Tax-Free Money ---------------------------------------------------------------- -------------------------------------------------------------- 7. Approve a Plan of Liquidation International Equity Index ---------------------------------------------------------------- -------------------------------------------------------------- 8. Transact other business All Funds ---------------------------------------------------------------- --------------------------------------------------------------
-------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 7 SECTION B -- FUND PROPOSALS PROPOSAL 1: ELECTION OF BOARD MEMBERS (Applies to: All Funds) Nominees for the Board. Nominees are listed below. Each person is a nominee for each of the 78 American Express Funds. Each nominee was elected a member of the Board at the last shareholders' meeting except for Mr. Carroll, Mr. DeSimone, Ms. Fraser, Mr. Hall, Dr. Lewis, Mr. Quasha, Mr. Roszell, Dr. Taunton-Rigby and Mr. Truscott. Each Board member is elected to serve until the next regular shareholders' meeting or until he or she reaches mandatory retirement. Under the current Board policy, a member must retire at the end of the first Board meeting after his or her 72nd birthday or after 15 years from the date of his or her first Board meeting. This policy does not apply to Mr. Hutter or Ms. Jones who must retire after his or her 75th birthday or to Mr. Hall who must retire after August 2016. All nominees have agreed to serve. If an unforeseen event prevents a nominee from serving, your votes will be cast for the election of a substitute selected by the Board. Information on each nominee follows. Election requires a vote by a majority of the fund's shares voted at the meeting.
Independent Nominees -------------------------------------- ------------------ --------------------- ---------------------------- ----------------------- Name, Position held Principal Other directorships Committee memberships address, with fund and occupation during age length of service past five years -------------------------------------- ------------------ --------------------- ---------------------------- ----------------------- Arne H. Carlson Board member Chair, Board Joint Audit, 901 S. Marquette Ave. since 1999 Services Contracts, Executive, Minneapolis, MN 55402 Corporation Investment Review, Age 67 (provides Board Effectiveness administrative services to boards). Former Governor of Minnesota -------------------------------------- ------------------ --------------------- ---------------------------- -----------------------
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Independent Nominees (continued) -------------------------------------- ------------------ --------------------- ---------------------------- ----------------------- Name, Position held Principal Other directorships Committee memberships address, with fund and occupation during age length of service past five years -------------------------------------- ------------------ --------------------- ---------------------------- ----------------------- Philip J. Carroll, Jr. Retired Chairman Boise Cascade Corporation 901 S. Marquette Ave. and CEO, Fluor (forest products), Minneapolis, MN 55402 Corporation Scottish Power PLC, Vulcan Age 64 (engineering and Materials Company, Inc. construction) since (construction 1998. Former materials/chemicals) President and CEO, Shell Oil Company -------------------------------------- ------------------ --------------------- ---------------------------- ----------------------- Livio D. DeSimone Board member Retired Chair of Cargill, Incorporated Joint Audit, Contracts 30 Seventh Street East since 2001 the Board and Chief (commodity merchants and Suite 3050 Executive Officer, processors), Target St. Paul, MN 55101-4901 Minnesota Mining Corporation (department Age 65 and Manufacturing stores), General Mills, (3M) Inc. (consumer foods), Vulcan Materials Company (construction materials/chemicals), Milliken & Company (textiles and chemicals), and Nexia Biotechnologies, Inc. -------------------------------------- ------------------ --------------------- ---------------------------- ----------------------- Ira D. Hall Texaco, Inc. Board member Private investor; Imagistics International, Contracts, 2000 Westchester Avenue since 2001 formerly with Inc. (office equipment), Investment Review White Plains, NY 10650 Texaco Inc., Reynolds & Reynolds Age 57 Treasurer, Company (information 1999-2001 and services), TECO Energy, General Manager, Inc. (energy holding Alliance Management company), The Williams Operations, Companies, Inc. (energy 1998-1999. Prior to distribution company) that, Director, International Operations IBM Corp. -------------------------------------- ------------------ --------------------- ---------------------------- -----------------------
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Independent Nominees (continued) -------------------------------------- ------------------ --------------------- ---------------------------- ----------------------- Name, Position held Principal Other directorships Committee memberships address, with fund and occupation during age length of service past five years -------------------------------------- ------------------ --------------------- ---------------------------- ----------------------- Heinz F. Hutter Board member Retired President Board Effectiveness, P.O. Box 2187 since 1994 and Chief Operating Executive, Minneapolis, MN 55402 Officer, Cargill, Investment Review Age 72 Incorporated (commodity merchants and processors) -------------------------------------- ------------------ --------------------- ---------------------------- ----------------------- Anne P. Jones Board member Attorney and Motorola, Inc. Joint Audit, Board 5716 Bent Branch Rd since 1985 Consultant (electronics) Effectiveness, Bethesda, MD 20816 Executive Age 67 -------------------------------------- ------------------ --------------------- ---------------------------- ----------------------- Stephen R. Lewis, Jr.* Board member Retired President Contracts, Investment 901 S. Marquette Ave. since 2002 and Professor of Review Minneapolis, MN 55402 Economics, Carleton Age 63 College -------------------------------------- ------------------ --------------------- ---------------------------- ----------------------- Alan G. Quasha Board member President, Quadrant Compagnie Financiere Joint Audit, 720 Fifth Avenue since 2002 Management, Inc. Richemont AG (luxury goods) Investment Review New York, NY 10019 (management of Age 52 private equities) -------------------------------------- ------------------ --------------------- ---------------------------- ----------------------- Alan K. Simpson Board member Former three-term Biogen, Inc. Joint Audit, Contracts 1201 Sunshine Ave. since 1997 United States (biopharmaceuticals) Cody, WY 82414 Senator for Wyoming Age 70 -------------------------------------- ------------------ --------------------- ---------------------------- -----------------------
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Independent Nominees (continued) -------------------------------------- ------------------ --------------------- ---------------------------- ------------------ Name, Position held Principal Other directorships Committee address, with fund and occupation during memberships age length of service past five years -------------------------------------- ------------------ --------------------- ---------------------------- ------------------ -------------------------------------- ------------------ --------------------- ---------------------------- ------------------ Alison Taunton-Rigby President, Forester Synaptic Pharmaceuticals 8 Farrar Road Biotech since 2000. Corporation Lincoln, MA 01773 Former President Age 58 and CEO, Aquila Biopharmaceuticals, Inc. -------------------------------------- ------------------ --------------------- ---------------------------- ------------------
* Interested person of Partners International Aggressive Growth by reason of being a securityholder of FleetBoston Financial Corporation, parent company of Liberty Wanger Asset Management, L.P., one of the fund's subadvisers. -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 11
Nominees Affiliated with AEFC* -------------------------------------- ------------------ --------------------- ---------------------------- ------------------ Name, Position held Principal Other directorships Committee address, with fund and occupation during memberships age length of service past five years -------------------------------------- ------------------ --------------------- ---------------------------- ------------------ Barbara H. Fraser Executive Vice 1546 AXP Financial Center President-- AEFA Minneapolis, MN 55474 Products and Age 52 Corporate Marketing of AEFC since 2002. President - Travelers Check Group, American Express Company, 2001-2002. Management Consultant, Reuters, 2000-2001. Managing Director - International Investments, Citibank Global, 1999-2000. Chairman and CEO, Citicorp Investment Services and Citigroup Insurance Group, U.S., 1998-1999. Head of Marketing and Strategic Planning - Investment Products and Distribution, Citibank Global, 1995-1998 -------------------------------------- ------------------ --------------------- ---------------------------- ------------------
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Nominees Affiliated with AEFC* (continued) -------------------------------------- ------------------ --------------------- ---------------------------- ------------------ Name, Position held Principal Other directorships Committee address, with fund and occupation during memberships age, length of service past five years -------------------------------------- ------------------ --------------------- ---------------------------- ------------------ Stephen W. Roszell Vice President Senior Vice 50238 AXP Financial Center since 2002 President - Minneapolis, MN 55474 Institutional Group Age 53 of AEFC -------------------------------------- ------------------ --------------------- ---------------------------- ------------------ William F. Truscott Board member Senior Vice 53600 AXP Financial Center N since 2001, Vice President - Chief Minneapolis, M55474 President since Investment Officer Age 41 2002 of AEFC since 2001. Former Chief Investment Officer and Managing Director, Zurich Scudder Investments -------------------------------------- ------------------ --------------------- ---------------------------- ------------------
* Interested person by reason of being an officer, director, securityholder and/or employee of AEFC. -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 13 Board Committees. The Board has several committees that facilitate the work of the Board. The Executive Committee has authority to act for the full Board between meetings. The Joint Audit Committee meets with the independent public accountant, internal auditors and corporate officers to review financial statements, reports and compliance matters. This Committee reports significant issues to the Board and makes recommendations to the independent Board members regarding the selection of the independent public accountant. The Contracts Committee receives and analyzes reports covering the level and quality of services provided under contracts with the fund and advises the Board regarding actions taken on these contracts during the annual review process. The Investment Review Committee considers investment management policies and strategies; investment performance; risk management techniques; and securities trading practices and reports areas of concern to the Board. The Board Effectiveness Committee recommends to the Board the size, structure and composition for the Board; the compensation to be paid to members of the Board; and a process for evaluating the Board's performance. The committee also reviews candidates for Board membership including candidates recommended by shareholders. To be considered, recommendations must include a curriculum vita and be mailed to the Chairman of the Board, American Express Funds, 901 Marquette Avenue South, Suite 2810, Minneapolis, MN 55402-3268. During the year ended June 30, 2002, the Board met six times, Joint Audit four times, Contracts three times, Executive one time, Investment Review four times and Board Effectiveness four times. Average attendance at Board meetings was 93% and no nominee attended less than 75% of the meetings. Board Member Compensation. The following table shows the total compensation received by each Board member from all of the American Express Funds. The funds do not pay retirement benefits to Board members. Information on compensation paid to Board members by individual funds is shown in Section E. -------------------------------------------------------------------------------- 14 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Board Member Compensation from all American Express Funds* (for the year ended June 30, 2002) Aggregate Compensation from all Nominee American Express Funds DeSimone $118,025 Hall 129,625 Hutter 138,525 Jones 146,475 Lewis 56,350 Quasha 34,750 Simpson 117,775 * Mr. Carlson is paid $275,000 a year by Board Services Corporation and is not paid compensation by the funds. Ms. Fraser and Messrs. Roszell and Truscott are paid by AEFC. The dollar range of equity securities beneficially owned by each Board member is shown in Section E. Fund Officers. In addition to Mr. Roszell and Mr. Truscott, the fund's other officers are: Leslie L. Ogg, 64. Vice President and General Counsel since 1978. President of Board Services Corporation. Jeffrey P. Fox, 47. Treasurer since 2002. Vice President - Investment Accounting of AEFC since 2002. Vice President - Finance of American Express Company, 2000-2002. Vice President - Corporate Controller of AEFC, 1996-2000. Officers serve at the pleasure of the Board. Officers are paid by AEFC or Board Services Corporation. During the last fiscal year, no officer earned more than $60,000 from any fund. -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 15 PROPOSAL 2: APPROVE OR REJECT AN AMENDMENT TO THE ARTICLES OF INCORPORATION/DECLARATION OF TRUST (Applies to: All Funds) Every fund is subject to comprehensive federal laws and regulations. In addition, every fund is also subject to state law. AXP California Tax-Exempt Trust and AXP Special Tax-Exempt Series Trust are Massachusetts business trusts and the funds that are part of those trusts are subject to Massachusetts law. Each of the other funds is part of a Minnesota corporation and is subject to Minnesota law. Under Massachusetts law, a business trust generally operates under an organizational document called a declaration of trust. Under Minnesota law, a corporation generally operates under an organizational document called the articles of incorporation. The declaration of trust or articles of incorporation ("organizational document") sets forth various provisions relating to the authority of the fund to conduct business and the governance of the fund. The Board has approved, and recommends that shareholders approve, a proposal to amend the fund's organizational document (the "Amendment"). The fund's investments and investment policies will not change by virtue of the adoption of the Amendment. A. Dollar Based Voting (Applies to All Funds) The Amendment would provide voting rights based on a shareholder's total dollar interest in the fund ("dollar-based voting"), rather than on a number of shares owned, for all shareholder votes for the fund. As a result, voting power would be allocated in proportion to the value of each shareholder's investment. Dollar-based voting is important when a fund is part of a corporation or trust (an "entity") that has more than one series or when a fund has more than one class of shares. Shareholders of each class vote separately on matters concerning only that class. Shareholders of a fund vote separately on matters concerning only that fund. Shareholders vote on an entity-wide basis on matters that affect the entity as a whole, such as electing the Board or amending the organizational document. Currently, under the organizational document, each share is entitled to one vote, regardless of the relative value of the shares of each fund in the entity. The original intent of the one-share, one-vote provision was to provide equitable voting rights to all shareholders. In the case where an entity has several series or funds, voting rights may have become disproportionate since the net asset value ("NAV") per share of the separate funds generally diverge over time. In the case where a fund has more than one class, voting rights may -------------------------------------------------------------------------------- 16 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT have become disproportionate because the NAV of the separate classes of the fund may also diverge over time. For example, if the fund's shares are selling for $5 per share, a $1,000 investment will purchase 200 shares of the fund. If another fund has shares that are selling for $10 per share, that same $1,000 investment will purchase only 100 shares of that fund. The organizational document allows one vote for each share owned. Therefore, under the organizational document, when the shareholders of the entity vote together on an issue affecting the entity, a shareholder of the first fund has twice the votes of a shareholder of the second fund, even though the economic interest of each shareholder is the same. The proposed change would match a shareholder's economic interest with the shareholder's voting power, and conversely would prevent a shareholder who holds many shares with a relatively low price per share from having disproportionately large voting power. If the change is approved, the organizational document will be amended as follows (additions are underlined, deletions are lined through): For funds organized under Massachusetts law, Article VII, Section 7.2 of the Declaration of Trust will be amended to read: (EDGAR NOTE: additions in all caps, deletions in [square brackets]) Section 7.2. NUMBER OF VOTES AND MANNER OF VOTING, PROXIES. On each matter submitted to a vote of the Shareholders, other than the election of any Trustee, each holder of Shares of any Series shall be entitled to ONE VOTE FOR EACH DOLLAR OF NET ASSET VALUE (NUMBER OF SHARES OWNED TIMES NET ASSET VALUE PER SHARE) AND EACH FRACTIONAL DOLLAR AMOUNT SHALL BE ENTITLED TO A PROPORTIONATE FRACTIONAL VOTE. [a number of votes equal to the number of Shares of such Series standing in his name on the books of the Trust. ] At all elections of Trustees, each holder of Shares of any Series shall be entitled to AS MANY VOTES AS SHALL EQUAL THE DOLLARS OF NET ASSET VALUE [as many votes as shall equal the number of shares of such Series standing in his name on the Books of the Trust] multiplied by the number of Trustees to be elected and may cast all of such votes for a single Trustee or may distribute them among the number to be voted for, or any two or more of them. Shares may be voted in person or by proxy. A proxy with respect to Shares held in the name of two (2) or more Persons shall be valid if executed by any one of them unless at or prior to exercise of the proxy the Trust receives a specific written notice to the contrary from any one of them. A proxy purporting to be executed by or on behalf of a Shareholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest on the challenger. Until Shares are issued, the Trustees may exercise all rights of Shareholders and may take any action required by law, this Declaration of Trust or the Bylaws to be taken by Shareholders. -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 17 For funds organized under Minnesota law, Article III, Section 2 of the Articles of Incorporation will be amended to read: Section 2. At all meetings of the shareholders, each shareholder of record entitled to vote thereat shall be entitled to one vote [(and a fractional vote for and equal to each fractional share)] for each DOLLAR OF NET ASSET VALUE (NUMBER OF SHARES OWNED TIMES NET ASSET VALUE PER SHARE) [share (or fractional share)] AND EACH FRACTIONAL DOLLAR AMOUNT SHALL BE ENTITLED TO A PROPORTIONATE FRACTIONAL VOTE [of stock standing in her or his name and entitled to vote at such meeting.] At all elections of directors, each shareholder shall be entitled to as many votes as shall equal the DOLLARS OF NET ASSET VALUE [number of shares owned] multiplied by the number of directors to be elected and may cast all of such votes for a single director or may distribute them among the number to be voted for, or any two or more of them. B. Name Change For certain funds, shown in Table 2-1, originally the corporation issued only one series of capital stock (a single fund) and had the same name as the fund. The corporation now may issue more than one series (more than one fund), which could lead to confusion between the name of the corporation and the name of the original fund. If approved by shareholders, the name of the corporation will be changed as shown in the following table. The name of the fund will not change. Table 2-1. Proposed Names of Corporation Current Name of Corporation Proposed Name of Corporation (name of underlying fund will not change) AXP Bond Fund, Inc. AXP Fixed Income Series, Inc. - AXP Bond Fund AXP Discovery Fund, Inc. AXP Discovery Series, Inc. - AXP Discovery Fund AXP Equity Select Fund, Inc. AXP Equity Series, Inc. - AXP Equity Select Fund AXP Extra Income Fund, Inc. AXP High Yield Income Series, Inc. - AXP Extra Income Fund AXP Federal Income Fund, Inc. AXP Government Income Series, Inc. - AXP Federal Income Fund - AXP U.S. Government Mortgage Fund AXP High Yield Tax-Exempt Fund, Inc. AXP High Yield Tax-Exempt Series, Inc. - AXP High Yield Tax-Exempt Fund -------------------------------------------------------------------------------- 18 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Table 2-1. Proposed Names of Corporation (continued) Current Name of Corporation Proposed Name of Corporation (name of underlying fund will not change) AXP International Fund, Inc. AXP International Series, Inc. - AXP European Equity Fund - AXP International Fund AXP New Dimensions Fund, Inc. AXP Dimensions Series, Inc. - AXP Growth Dimensions Fund - AXP New Dimensions Fund AXP Precious Metals Fund, Inc. AXP Selected Series, Inc. - AXP Precious Metals Fund AXP Progressive Fund, Inc. AXP Progressive Series, Inc. - AXP Progressive Fund AXP Selective Fund, Inc. AXP Income Series, Inc. - AXP Selective Fund AXP Stock Fund, Inc. AXP Stock Series, Inc. - AXP Stock Fund AXP Tax-Free Money Fund, Inc. AXP Tax-Free Money Series, Inc. - AXP Tax-Free Money Fund AXP Utilities Income Fund, Inc. AXP Sector Series, Inc. - AXP Utilities Fund Board Recommendation and Vote Required. The Board recommends that you vote to approve the necessary amendments to the Articles of Incorporation or Declaration of Trust. The changes require the approval of a majority of the fund's shares voted at the meeting. The changes will be effective when the amendments are filed with the appropriate state office. This filing is expected to occur shortly after the shareholder meeting. If the amendments are not approved, the fund will continue to operate under the current organizational document. -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 19 PROPOSAL 3: APPROVE OR REJECT A POLICY AUTHORIZING AEFC, WITH APPROVAL OF THE BOARD, TO RETAIN AND REPLACE SUBADVISERS, OR MODIFY SUBADVISORY AGREEMENTS, WITHOUT OBTAINING SHAREHOLDER APPROVAL (Applies to: Blue Chip Advantage, Diversified Equity Income, Emerging Markets, Equity Select, Equity Value, European Equity, Focused Growth, Global Balanced, Global Growth, Global Technology, Growth, Growth Dimensions, International, Managed Allocation, Mid Cap Index, Mutual, New Dimensions, Precious Metals, Research Opportunities, S&P 500 Index, Small Cap Advantage, Small Company Index, Stock, Strategy Aggressive, Utilities and all Variable Portfolio Funds except VP-Partners Small Cap Value) AEFC serves as the investment adviser and administrator of the fund. For certain funds, AEFC makes the day-to-day investment decisions for the fund. For other funds, it does not. Instead, AEFC administers the fund, establishes an investment program for the fund and selects, compensates and evaluates the fund's subadviser. The subadviser, in turn, makes the day-to-day investment decisions for the fund. For each of the funds, in the future, AEFC, with the approval of the Board, may wish to hire, add or change a subadviser to handle the day-to-day investment decisions. Shareholder Approval of Subadvisory Agreements. Federal securities laws generally require that shareholders approve agreements with a fund's subadviser, as well as with the investment manager. Shareholder action also is required if the terms of existing agreements are materially changed or if there is a change in control of the subadviser. In order to obtain shareholder approval, the fund must call and conduct a shareholder meeting, prepare and distribute proxy materials, and solicit votes from shareholders. The process is costly and time-consuming. The Board believes that it is in shareholders' best interests if the Board represents their interests in approving or rejecting recommendations made by AEFC regarding subadvisers. This approach will avoid the cost and time delay associated with holding shareholder meetings to obtain approval for the changes. SEC Exemptive Order. On July 16, 2002, the Securities and Exchange Commission (the "SEC") granted the fund an order exempting it from the federal securities law requirements to obtain shareholder approval regarding unaffiliated subadvisers (the "SEC Order"). The SEC Order permits the fund to hire new subadvisers, to rehire existing subadvisers that have experienced a change in control and to modify subadvisory agreements, without the approval of shareholders provided shareholders adopt a policy authorizing AEFC, with the approval of the Board, to take such action. -------------------------------------------------------------------------------- 20 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Under the SEC Order, the fund and AEFC are subject to several conditions imposed by the SEC to ensure that the interests of the fund's shareholders are adequately protected. In addition, within 90 days of a change to your fund's subadvisory arrangements, the fund will provide you with an information statement that contains substantially the same information about the subadviser, the subadvisory agreement and the subadvisory fee that the fund would be required to send to you in a proxy statement. Shareholder approval of this proposal will not result in an increase or decrease in the total amount of investment advisory fees paid by the fund to AEFC. AEFC, directly or through subadvisers, will continue to provide the same level of management and administrative services to the fund as it has always provided. The SEC Order applies to at least the following situations: o AEFC recommends that a fund's management be diversified by adding another subadviser o AEFC recommends that a subadviser be removed for substandard performance and replaced with a different subadviser o There is a change of control of the subadviser Comparison of Present and Proposed Selection Process for Subadvisers. Under both the current process for approval of subadvisory agreements and under the proposed process, any change in a subadvisory agreement requires approval by the Board. In considering whether to appoint a subadviser, the Board will analyze the factors it considers relevant, including: o The nature, quality and scope of services provided by a subadviser to investment companies comparable to the fund. o The ability of the subadviser to provide its services to the fund, as well as its personnel, operations, financial condition or any other factor that would affect the provision of those services. o The subadviser's investment performance with respect to mutual funds or other managed accounts that are comparable. o Other factors that the Board considers relevant to the subadviser's performance as an investment adviser. Under the current process for approval of subadvisory agreements, in addition to Board approval, shareholders must approve any change in subadvisory agreements. This shareholder approval would be eliminated under the proposed process for approval of subadvisory agreements. While the policy would be effective immediately, there are no current plans to add or change subadvisers. -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 21 If the policy is approved, all subadvisory agreements will be for a period of one year and will be renewable from year to year, if approved by the Board. The agreements may be terminated without penalty by the Board, AEFC, a vote of shareholders, or the subadviser on 60 days notice. Board Recommendation and Vote Required. The Board recommends that shareholders approve the policy. The change must be approved by the lesser of (a) a majority of the fund's outstanding shares or (b) 67% of the shares voted at the meeting, so long as more than 50% of the shares actually vote. If the change is not approved, the fund will continue to require shareholder approval of changes in subadvisory relationships. PROPOSAL 4: APPROVE OR REJECT CHANGES TO THE INVESTMENT MANAGEMENT SERVICES AGREEMENT The fund pays fees to AEFC under an Investment Management Services Agreement (the "Agreement") for conducting investment management services for the fund. The services performed by AEFC include providing the personnel, equipment and office facilities necessary for the management of the fund's investment portfolio. Subject to the direction of the Board and consistent with the fund's investment policies, AEFC decides what securities to buy, hold or sell. AEFC also executes buy and sell orders and provides research and statistical data to support investment management activities. For some of the funds, AEFC hires and pays a subadviser to perform the day-to-day management functions, as described in Proposal 3. Some of the retail funds are part of a master/feeder structure. In this structure, the fund invests all of its assets in a master fund (the "portfolio") with the same policies as the fund. For purposes of this discussion, the portfolio is referred to as a "fund." AEFC recommended to the Boards of the equity funds that changes be made to the Agreement with respect to the performance incentive adjustment ("PIA") component of the fee schedule. AEFC believes the changes will allow it to attract and retain high quality investment management and research personnel and continue efforts to improve investment performance for the benefit of shareholders in the future. Specifically, AEFC recommended that: A. A PIA be added to certain equity funds. Under a PIA the fund's performance is compared to a Lipper index of funds with similar investment strategies. If the fund's performance is better than the index, the fee paid to AEFC will increase. If the fund's performance is worse than the index, the fee paid to AEFC will decrease. The proposed calculation is shown in Table 4-2. B. The PIA calculation currently part of the Agreement for most equity funds be modified. Table 4-3 shows a comparison of the curent and proposed PIA. -------------------------------------------------------------------------------- 22 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT C. The PIA be eliminated for Small Company Index. AEFC believes that an index fund that seeks to match the performance of an index, should be evaluated based on its performance relative to that index, not based on its performance relative to competitor funds. For that reason, AEFC has recommended that the PIA be eliminated from the Agreement. In addition, for the variable portfolio funds, IDS Life and AEFC recommended that: D. The Agreement be between the fund and AEFC instead of between the fund and IDS Life. Terms of the Current Agreement. The fee the fund pays to AEFC for its services under the Agreement is based on the net assets of the fund and decreases as the size of the fund increases. The complete fee schedule for your fund and other funds managed by AEFC is found in Section D. The fund also pays its 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; consultant fees; compensation of Board members, officers and employees; corporate filing fees; organizational expenses; expenses incurred in connection with lending securities; and other expenses properly payable by the fund, approved by the Board. Section D includes information on the date of the current Agreement, the date it was last approved by shareholders and the reason why it was submitted to shareholders at that time. Proposed Agreement Compared to the Current Agreement. For Proposals 4A, 4B and 4C, the terms of the proposed Agreement are the same as the current Agreement except for the change in the PIA described in the following paragraphs. For Proposal 4D, the terms of the proposed Agreement would be the same as the current Agreement after changes described in Proposal 4A and 4B except that the agreement is between the fund and AEFC rather than between the fund and IDS Life. Fund Expenses. Fees and expenses the fund actually paid as well as fees and expenses the fund would have paid if the proposed Agreement had been in effect for the last fiscal year are shown in Section D. Review of Agreements. Each year the Board reviews the Agreement and each of the other agreements between the fund and AEFC or one of AEFC's affiliates by receiving four reports prepared by AEFC. These reports cover investment performance, transfer agent operations, distribution and AEFC's profitability from its mutual fund operations. In addition, members of the Board, individually and with the assistance of the Contracts Committee for the fund, consider: o The fund's investment performance over various time periods compared to its peer group Lipper index and a security market index that most closely represents the investment style of the fund. -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 23 o The fund's expense ratio and the expense ratios of comparable funds. o The quality and level of services provided by AEFC or its affiliates to the fund and its shareholders. o The commitments made by AEFC regarding its management of the fund. Board Conclusions. Based on its work throughout the year and detailed analysis by the Contracts Committee of the reports provided by AEFC, the independent Board members determined to renew the Agreement based on: o tangible steps AEFC has taken to improve the competitive ranking and consistency of the investment performance of the Fund, including changes in leadership, portfolio managers, compensation structures, and the implementation of management practices, o continued commitment to expand the range of investment options that it offers investors, through repositioning existing funds and creating new funds, o consistent effort to provide a management structure that imposes disciplines that ensure adherence to stated management style and expected risk characteristics, o additional time needed to evaluate the efficacy of the new AEFC management structure that has produced improved performance results in the short term, o benefit of economy of scale that results from the graduated fee structure and the reasonableness of fees in light of the fees paid by similar funds in the industry, o competitive total expenses that are either at or only slightly above the median expenses of a group of comparable funds based on a report prepared by Lipper Inc., and o reasonable level of AEFC's profitability from its mutual fund operations. AEFC's Proposal to Change the PIA. In addition to reviewing the current Agreement, the Boards of the equity funds considered AEFC's proposal to change the PIA. The Board determined to recommend the change to shareholders based on the following: o Performance compensation is a desirable method to reward good investment performance. o Lipper indexes are meaningful because they measure investment performance against funds within the same investment category. Relative performance within a category is significant to AEFC clients when making investment decisions. -------------------------------------------------------------------------------- 24 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT o The proposed fee structure is based on AEFC's analysis showing that consistent investment performance within a narrow range above the Lipper index will provide good long-term competitive investment performance. The proposed fee structure encourages and rewards investment performance within that range and does not provide incentives to seek unsustainable results that might increase investment risk. At a meeting held on July 10-11, 2002, called for the purpose of considering the proposed Agreement, the independent members first and then the Board as a whole, by vote, cast in person, approved the terms of the proposed Agreement. If approved, the proposed Agreement will continue from year to year after the second year, so long as it is approved at least annually by a majority of the Board, including a majority of the independent members. The proposed Agreement may be terminated at any time by the Board, AEFC or the shareholders and will terminate automatically if it is assigned. Proposal 4A. Add a Performance Incentive Adjustment (Applies to: Global Technology, VP-Capital Resource, VP-International, VP-Managed, VP-New Dimensions, VP-Strategy Aggressive) Under the proposed Agreement, the fee will be adjusted based on the fund's performance compared to an index of similar funds. The PIA is determined by measuring the percentage difference over a rolling 12-month period between the performance of one share of the fund (one Class A share for a fund with multiple classes) and the change in a designated Lipper Index (the "Index") of funds with similar investment objectives (the "Performance Difference"). The Performance Difference is then used to determine the Adjustment Rate, described in Table 4-2. If the fund's performance is better than the Index, the fee paid to AEFC will increase. If the fund's performance is worse than the Index, the fee paid to AEFC will decrease. The following table shows the proposed Index for each fund. Table 4-1. Proposed Indexes Fund Index Global Technology Lipper Science and Technology Funds VP - Capital Resource Lipper Large-Cap Core Funds VP - International Lipper International Funds VP - Managed Lipper Balanced Funds VP - New Dimensions Lipper Large-Cap Growth Funds VP - Strategy Aggressive Lipper Mid-Cap Growth Funds -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 25 o Adjustment Calculation. The Adjustment Rate, computed to five decimal places, is determined in accordance with the following table: Table 4-2. Calculation of Proposed Adjustment Rate Performance Difference Adjustment Rate 0.00% - 0.50% 0 0.50% - 1.00% 6 basis points times the Performance Difference over 0.50% (maximum of 3 basis points if a 1% Performance Difference) 1.00% - 2.00% 3 basis points, plus 3 basis points times the Performance Difference over 1.00% (maximum 6 basis points if a 2% Performance Difference) 2.00% - 4.00% 6 basis points, plus 2 basis points times the Performance Difference over 2.00% (maximum 10 basis points if a 4% Performance Difference) 4.00% - 6.00% 10 basis points, plus 1 basis point times the Performance Difference over 4.00% (maximum 12 basis points if a 6% Performance Difference) 6.00% or more 12 basis points For example, if the Performance Difference is 2.38%, the Adjustment Rate is 0.000676 (0.0006 [6 basis points] plus 0.0038 [the 0.38% Performance Difference over 2.00%] x 0.0002 [2 basis points] x 100 (0.000076)). Rounded to five decimal places, the Adjustment Rate is 0.00068. The maximum Adjustment Rate is 0.00120 per year, except that for VP-Managed the maximum Adjustment Rate is 0.00080 per year. The first adjustment will be made on June 1, 2003 and will cover the six-month period beginning Dec. 1, 2002. The comparison period will increase by one month each month until it reaches 12 months. o Lipper Indexes. Lipper, Inc. is an unaffiliated company that collects data from company reports, financial reporting services, periodicals and other sources deemed to be reliable. It then analyzes the data and publishes a number of indexes based on the performance of the largest mutual funds, usually 30 funds, in various categories. A Lipper index is an average of the investment performance of these funds. Categories are based on investment objectives. Lipper indexes are published by newspapers and periodicals throughout the country and are generally recognized by the mutual fund industry as being an accurate and reliable source of comparative information. If an Index ceases to be published for a period of more than 90 days, changes in any material respect or otherwise becomes impracticable to use for purposes of a performance incentive adjustment, the fund will pay the advisory fee without any adjustment for performance until the Board approves a substitute index. -------------------------------------------------------------------------------- 26 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Proposal 4B. Modify the PIA Calculation (Applies to: Blue Chip Advantage, Discovery, Diversified Equity Income, Emerging Markets, Equity Select, Equity Value, European Equity, Focused Growth, Global Balanced, Global Growth, Growth, Growth Dimensions, International, Large Cap Equity, Large Cap Value, Managed Allocation, Mid Cap Value, Mutual, New Dimensions, Partners Fundamental Value, Partners International Aggressive Growth, Partners International Select Value, Partners Select Value, Partners Small Cap Core, Partners Small Cap Growth, Partners Small Cap Value, Partners Value, Precious Metals, Progressive, Research Opportunities, Small Cap Advantage, Stock, Strategy Aggressive, Utilities, VP-Blue Chip Advantage, VP-Diversified Equity Income, VP-Emerging Markets, VP-Equity Select, VP-Growth, VP-Partners Small Cap Value, VP-Small Cap Advantage, VP-Stock) Under the current Agreement, the fee paid to AEFC by the fund includes a PIA as an element of the fee. AEFC has recommended that the manner of calculating the PIA be modified to match the proposed calculation described in Proposal 4A. The current calculation is made by measuring the percentage difference over a rolling 12-month period between the performance of one share of the fund (one Class A share for a fund with multiple classes) and the change in a designated Lipper index of funds with similar investment objectives. One percentage point is subtracted from the calculation and the result is multiplied by 0.01. For example, if the difference between the change in the fund's net asset value and the change in the Index for a comparison period is 2.38%, the adjustment would be 0.000138 (0.0238 - 0.01 = 0.0138 x 0.01 = 0.000138) times the fund's average net assets for the comparison period divided by 12. The proposed calculation is described in Table 4-2. Table 4-3 shows the difference between the current PIA and the proposed PIA at various levels of Performance Difference. -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 27 Table 4-3. Difference Between Current PIA and Proposed PIA Performance Current PIA Proposed PIA Difference (basis points) (basis points) 0.0% 0.0 0.0 0.5% 0.0 0.0 0.75% 0.0 1.5 1.0% 0.0 3.0 1.5% 0.5 4.5 2.0% 1.0 6.0 2.5% 1.5 7.0 3.0% 2.0 8.0 3.5% 2.5 9.0 4.0% 3.0 10.0 4.5% 3.5 10.5 5.0% 4.0 11.0 5.5% 4.5 11.5 6.0% 5.0 12.0 7.0% 6.0 12.0 8.0% 7.0 12.0 9.0% 8.0 12.0 10.0% 9.0 12.0 11.0% 10.0 12.0 12.0% 11.0 12.0 13.0% and higher 12.0 12.0 AEFC believes that the modified calculation will provide a better alignment between the interests of the fund shareholders and AEFC. AEFC seeks to achieve sustained performance above the median, which it believes will lead to a fund with a strong competitive performance record. The proposed PIA provides meaningful additional compensation to AEFC for investment performance that is 0.50% or better than the Lipper index. Generally a fund that is above the Lipper index will be above the median of its peer group. The proposal not to adjust the fee if the performance difference is above or below the index by 0.50% differs from the current null zone which deducts 1% from performance before the PIA is calculated. Thus, if sustained performance above the median is achieved, shareholders will benefit from consistent strong performance and AEFC will benefit from additional compensation. The maximum Adjustment Rate is 0.00120 per year, except that for Global Balanced, Managed Allocation and Mutual, the maximum Adjustment Rate -------------------------------------------------------------------------------- 28 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT is 0.00080 per year. If the proposed Agreement is approved by shareholders, for a period of six months from the date of implementation of the proposed Agreement, the PIA will be calculated based on the lesser of the amount due under the current Agreement or the amount due under the proposed Agreement. Fees and expenses the fund actually paid as well as fees and expenses the fund would have paid if the proposed Agreement had been in effect for the last fiscal year are shown in Section D. Proposal 4C. Eliminate the PIA (Applies to: Small Company Index) The Agreement for the fund currently includes a PIA. The fund invests in common stocks of small-capitalization companies that are expected to provide investment results that correspond to the performance of the S&P SmallCap 600 Index. The fund is an index fund and is unlike an actively managed fund, where the decision about what stocks to purchase is made by the portfolio manager. In an actively managed fund, the pool of possible investments is not limited to those stocks that are part of a particular index. Generally, an actively managed fund seeks to perform better than a benchmark index. An index fund, on the other hand, generally purchases only securities found in its benchmark index. AEFC believes that an index fund that seeks to match the performance of an index, should be evaluated based on its performance relative to that index, not based on its performance relative to competitor funds. For that reason, AEFC has recommended that the PIA be eliminated from the Agreement. If the proposed Agreement is approved by shareholders, for a period of six months from the date of implementation of the proposed Agreement, the fee under the Agreement will be calculated based on the lesser of the amount due under the current Agreement or the amount due under the proposed Agreement. Fees and expenses the fund actually paid as well as fees and expenses the fund would have paid if the proposed Agreement had been in effect for the last fiscal year are shown in Section D. Proposal 4D. Change the Investment Manager from IDS Life to AEFC (Applies to: all Variable Portfolio Funds) Historically, the investment manager for the variable portfolio funds has been IDS Life. Under an Investment Advisory Agreement between IDS Life and AEFC, AEFC has served as investment adviser to the variable portfolio funds. IDS Life and AEFC now recommend that AEFC assume both the role of investment manager, currently held by IDS Life, and the role of investment adviser, currently held by AEFC. This will combine all investment roles within one entity and one contract. The change will not affect the management of the fund and will not change the fees paid by the fund. -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 29 Board Recommendation and Vote Required. The Board recommends that shareholders approve the proposed Agreement. The Agreement must be approved by the lesser of (a) a majority of the fund's outstanding shares or (b) 67% of the shares voted at the meeting, so long as more than 50% of the shares actually vote. If the proposed Agreement is not approved, the fund will continue to operate under the current Agreement. PROPOSAL 5: APPROVE OR REJECT A CHANGE IN THE FUND'S CLASSIFICATION FROM DIVERSIFIED TO NON-DIVERSIFIED (Applies to: Global Technology) Currently, the fund is a diversified fund, which means that the fund may not invest more than 5% of its total assets in the securities of any one company, government or political subdivision, although up to 25% of the fund's total assets may be invested without regard to the 5% limitation. In addition, the fund may not purchase more than 10% of the outstanding voting securities of any one issuer. There are a limited number of issuers in the technologies industry. Because of the limited number of issuers whose securities meet the fund's investment objective, it has become increasingly difficult to manage the fund as it increases in size. In order to provide the portfolio manager with more flexibility in investing the fund's assets, AEFC has proposed that the fund's classification be changed from diversified to non-diversified. This means the fund would not be subject to the limitations described above, although it still would be subject to diversification requirements under federal tax law. The fund would be able to focus its investments in the securities of only a few companies. As a result, the fund would have more risk than funds with broader diversification. This is because the fund may have a higher percentage of its assets invested in the securities of a single issuer. If that investment does not perform as well as expected, the consequences to the fund would be more pronounced than if the fund had limited its investment to 5% of its assets. Recommendation and Vote Required. The Board recommends that shareholders approve the proposed change in the fund's classification. The change must be approved by the lesser of (a) a majority of the fund's outstanding shares or (b) 67% of the shares voted at the meeting, so long as more than 50% of the shares actually vote. If the change is not approved, the fund will continue to operate as a diversified fund. -------------------------------------------------------------------------------- 30 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT PROPOSAL 6: APPROVE OR REJECT ADDING A PLAN AND AGREEMENT OF DISTRIBUTION (Applies to: Cash Management (Classes A and B), Tax-Free Money) American Express Financial Advisors Inc. ("AEFA") is the distributor for the fund and sells fund shares primarily through personal financial advisors. Each AEFA advisor receives compensation from the sales charges for the services he or she provides you. The sales charges include both front-end or contingent deferred sales charges paid by you as well as fees paid by the fund. The fees paid by the fund are called 12b-1 fees, named for SEC Rule 12b-1 that permits a fund to pay distribution costs. Currently shares of all American Express Funds except Cash Management and Tax-Free Money have a 0.25% 12b-1 fee, most of which is paid directly to your AEFA advisor. Your AEFA advisor does not receive any compensation if you invest or hold money in Cash Management and Tax-Free Money even though he or she has provided services. Accordingly, AEFA recommended to the Board that a 0.10% 12b-1 fee be added to those funds. For the same reasons, AEFA recommended that Class B shares of Cash Management adopt a 0.10% shareholder service fee. Class B shares of Cash Management are only available to shareholders who exchange Class B shares from other AXP funds. Class B investors do not pay a sales charge at the time shares are purchased so AEFA must use its own money to pay for distribution costs. For that reason, Class B shares have a 0.75% 12b-1 fee to help AEFA recover its distribution costs. In support of its recommendation, AEFA made the following observations: o AEFA has begun offering several cash options and AEFA advisors should be compensated similarly for each option. o The fund's current pricing structure leaves it at a competitive disadvantage to similar products that generally have distribution or shareholder service fees. o Growth of the fund's assets is crucial to long-term success. -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 31 In light of these observations, AEFA recommended that the fund adopt a plan and agreement of distribution or shareholder service fee (the "Distribution Plan") as follows. Table 6-1. Proposed Distribution Plan (as a percent of average daily net assets) Fund Current Distribution Plan Proposed Distribution Plan Cash Management - Class A None 0.10% - Class B 0.75% 0.85%* Tax-Free Money None 0.10% * The 0.85% fee will be composed of the current 12b-1 fee of 0.75% and a new shareholder service fee of 0.10%. Under the proposed Distribution Plan, AEFA will distribute fund shares and service shareholder accounts either directly through its financial advisors or through broker-dealers and other financial intermediaries. Fees paid to AEFA under the Distribution Plan may be used for distribution activities and for shareholder service related activities. Distribution activities are primarily intended to result in sales of fund shares and include advertising, compensation and expenses of financial advisors or other sales and marketing personnel; printing and mailing of prospectuses to prospective investors, and printing and mailing of sales literature. Services provided under this Distribution Plan are intended to help shareholders thoughtfully consider their investment goals and monitor the progress they are making in achieving those goals. Shareholder service-related activities include, among other things, ongoing interactions between financial advisors and shareholders, shareholder communications and shareholder seminars. Class B shares convert to Class A shares in the ninth year of ownership, and therefore Class B shareholders of Cash Management are also entitled to vote on the proposal for Class A. For Class B shareholders, a vote in favor of this proposal is a vote in favor of both the Class A and Class B plans. How Will the Proposed Distribution Plan Affect Fund Expenses? Fees and expenses the fund actually paid as well as fees and expenses the fund would have paid if the proposed Distribution Plan had been in effect for the last fiscal year are shown in Section D. The Proposed Distribution Plan. Under the proposed Distribution Plan, the fund will pay AEFA each month for distribution and shareholder servicing activities. AEFA will pay financial advisors, broker-dealers and other financial intermediaries who provide distribution or shareholder services to the fund's shareholders. AEFA will provide the Board with quarterly reports specifying how the money was spent. -------------------------------------------------------------------------------- 32 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT What Factors Did the Board Consider? In considering the adoption of the Distribution Plan, the Board considered the potential costs and benefits of the Distribution Plan, including: o The increase in expenses. o AEFA's statement that it needs the revenue to compensate financial advisors, broker-dealers and other financial intermediaries for distribution and service-related activities at competitive levels to assure the scope and quality of services expected by shareholders. The Board reviewed the fund's expense ratios, the level to which the expense ratios will increase as a result of adopting the Distribution Plan, the relationship of the fee to the overall expense ratio of the fund and how the overall expense ratio compares to expense ratios of comparable funds with which the fund competes. The Board concluded that there is a reasonable likelihood that the Distribution Plan will benefit the fund and its shareholders. If approved, the Distribution Plan will continue in effect for one year from the date of approval, and then from year to year so long as it is approved by a majority of the Board, including a majority of the independent members. The Distribution Plan may be terminated at any time by the Board or the shareholders and will terminate automatically if it is assigned. The Distribution Plan may not be amended to materially increase the amount of the fee unless the change is approved by the shareholders. What Does the Board Recommend and How Many Votes are Needed? The Board recommends that shareholders approve the proposed Distribution Plan. The Distribution Plan must be approved by the lesser of (a) a majority of the fund's outstanding shares or (b) 67% of the shares voted at the meeting, so long as more than 50% of the shares actually vote. If the proposed Distribution Plan is not approved, the fund will continue to operate under its current arrangements. PROPOSAL 7: APPROVE OR REJECT A PLAN OF LIQUIDATION (Applies to: International Equity Index) Summary. The fund began operations on Oct. 25, 1999 as a separate series of AXP Market Advantage Series, Inc. (the "Corporation"). The fund invests primarily in the equity securities included in its benchmark index. Notwithstanding the marketing of the fund's shares, the fund has been unable to attract sufficient assets to operate effectively without significant expense subsidization. During the period from commencement of operations through June 30, 2002, assets reached a level of only $ 20.2 million. The Board therefore is recommending that shareholders vote to approve a Plan of Liquidation to dissolve the fund. -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 33 How the Plan of Liquidation Will Work. The Board has approved the Plan of Liquidation summarized in this section. 1. Effective Date of the Plan of Liquidation and End of the Fund's Operations. The Plan of Liquidation will become effective on the date it is approved by shareholders. Following this approval, the fund (i) will cease to invest its assets in accordance with its investment objective and will sell the portfolio securities it owns in order to convert the fund's assets to cash; and (ii) will not engage in any business activities except for the purposes of winding up its business and affairs, preserving the value of its assets and distributing its assets to shareholders after the payment to (or reservation of assets for payment to) all creditors of the fund. 2. Restriction of Transfer of Shares. Following the effective date, the shares of the fund will not be transferable. 3. Liquidating Distribution. As soon as possible after the approval of the Plan of Liquidation, and in any event within fourteen days, the Corporation on behalf of the fund will provide to the applicable service agent of each shareholder of record on the effective date of the Plan of Liquidation: (i) a liquidating cash distribution equal to the shareholder's proportionate interest in the net assets of the fund based on the number of shares of the class of shares of the fund held by the shareholder and recorded on the books of the Corporation, determined immediately after the close of business on the date of the liquidating distribution; and (ii) information concerning the sources of the liquidating distribution. 4. Expenses. Any expenses and solicitation costs will be borne by AEFC. It is expected that other liabilities of the fund incurred or expected to be incurred prior to the date of the liquidating distribution will be paid by the fund, or set aside for payment, prior to the payment of the liquidating distribution. 5. Continued Operation of the Fund. Following the liquidating distribution referred to in paragraph 3 above, the fund will be dissolved. The Plan of Liquidation provides that the Board has the authority to authorize variations from or amendments to the provisions of the Plan of Liquidation as may be necessary or appropriate to marshal the assets of the fund and to effect the complete liquidation of the fund. 6. Variations. The Plan of Liquidation authorizes the Board to make variations from or amendments to the provisions of the Plan of Liquidation that it deems necessary or appropriate to carry out its purposes. 7. Dissenters' Rights. No shareholder will be entitled to exercise any dissenter's rights or appraisal rights with respect to the fund's liquidation under either the Plan of Liquidation or relevant provisions of Minnesota law. -------------------------------------------------------------------------------- 34 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Reasons for the Liquidation and Board Deliberations. The Board believes that liquidation of the fund is in the best interest of shareholders for several reasons. The Board considered the following matters, among others, in approving the Plan of Liquidation. o Terms and Conditions of the Plan of Liquidation. The Board considered the terms and conditions of the Plan of Liquidation as described in previous paragraphs. o Fund Expenses. Since commencement of operations, AEFC has waived all or a portion of its fees and assumed a significant portion of the expenses of the fund. AEFC has committed to continue capping fees through Jan. 31, 2003, although the waiver can be discontinued at any time after that. AEFC does not expect to waive fees indefinitely and, without continued fee waivers or growth in assets, the fund's expense ratio would likely exceed those of many other funds with similar investment objectives. This could have an adverse impact on the fund's performance. As a result, it is possible that the fund's asset base will decline and the fund's expense ratio will rise even higher as fixed costs are spread over a shrinking asset base. For the most recent fiscal year, the fund's total expenses were: Table 7-1. Fund Total Expenses (as of Jan. 31, 2002) Class D Class E Management fees 0.50% 0.50% 12b-1 fees 0.25% 0.00% Other expenses 0.74% 0.70% Total annual fund operating expenses 1.49% 1.20% Fee waiver and expense reimbursement 0.60% 0.56% Net annual operating expenses 0.89% 0.64% o Alternative Solutions. The Board investigated what, if any, additional steps or alternative courses would best serve the interests of shareholders. The Board considered whether a merger or a transfer of assets would be possible, and if those transactions would produce desirable results for shareholders. After reviewing current market conditions, the relatively small size of the fund and the time required to effect a transaction, management of the fund believes that the expense of a merger with or transfer of assets to another mutual fund are greater than the benefits shareholders of the fund could expect to realize from such a transaction. -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 35 o Shareholder Options. The Board noted that shareholders may continue to exchange their shares for shares of the same class of any other American Express fund with Class D or Class E shares prior to the date of the liquidating distribution. The applicable redemption fee for the fund has been waived. However, the Board also noted that shareholders who exchange will recognize taxable gain or loss for federal income tax purposes in the same way as if they had received a liquidating distribution. o Tax Implications for Shareholders. Each shareholder who receives a liquidating distribution will recognize a taxable gain or loss for federal income tax purposes equal to any difference between the amount of the distribution over the shareholder's tax basis in fund shares. Assuming that the shareholder holds the shares as capital assets, the gain or loss will be a capital gain or loss and will be a long-term or short-term capital gain or loss depending on the shareholder's holding period for the shares. The tax consequences discussed may affect shareholders differently depending upon their particular tax situations unrelated to the liquidating distribution, and accordingly, this summary is not a substitute for careful tax planning on an individual basis. Shareholders may wish to consult their personal tax advisers concerning their particular tax situations and the impact of receiving the liquidating distribution as discussed above, including any state or local tax consequences. The Corporation anticipates that it will retain its qualification as a regulated investment company under the Internal Revenue Code, as amended, during the liquidation period and, therefore, will not be taxed on any of its net income from the sale of its assets. Board's Determination. At a meeting held on July 10-11, 2002 the Board reviewed the expenses that had been assumed by AEFC during the life of the fund, the efforts and expenses of AEFA to distribute shares of the fund, and the effect of the operating expenses on the historic and anticipated returns of shareholders. The Board considered that AEFC had not been able to collect or retain any significant fees during the life of the fund, that there would be no prospect that this would change in the near future, and that in the absence of compensation over long periods, the ability of AEFC to service the needs of the fund would be impaired. The Board concluded that an increase in fund expenses attributable to the likely discontinuance of the fee waiver and assumption of the expenses in the future, especially when added to the expenses of the fund presently paid directly by the fund, would significantly reduce the fund's returns. Moreover, the presence of larger funds with similar objectives better able to operate on an efficient basis and provide higher returns to shareholders, make it unlikely that the fund could -------------------------------------------------------------------------------- 36 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT achieve a significant increase in asset size and achieve economies of scale. The Board therefore concluded that it would be in the best interest of the shareholders of the fund to liquidate the fund promptly. Accordingly, the Board approved the liquidation of the fund and approved the Plan of Liquidation. Board Recommendation and Vote Required. The Board recommends that shareholders approve the proposed Plan of Liquidation. The Plan of Liquidation must be approved by a majority of the fund's shares voted at the meeting. If the Plan of Liquidation is not approved, the fund will continue to exist as a series of the Corporation and will operate in accordance with its stated objective and policies. The Board will consider what further action should be taken. SECTION C -- PROXY VOTING AND SHAREHOLDER MEETING INFORMATION This section includes information about proxy voting and the shareholder meetings. Voting. Each share is entitled to one vote. For those of you who cannot come to the meeting, the Board is asking permission to vote for you. The shares will be voted as you instruct either by mail, telephone or internet. Signed proxy cards returned without instructions will be voted in favor of all proposals. Each corporation or trust issues one or more series of common stock. Each series is a separate fund. On the election of Board members and the amendments to the organizational document, you vote together with the owners of shares of all the other funds that are part of the same corporation or trust. On the subadvisory agreement policy, investment management agreement, change in diversification status, and liquidation, you vote together with the owners of the other shares in your fund. On the distribution plan, you vote together with the owners of shares of the same class owned in your fund. In voting for Board members, you may vote all of your shares cumulatively. This means that you have the right to give each nominee an equal number of votes or divide the votes among the nominees as you wish. You have as many votes as the number of shares you own, including fractional shares, multiplied by the number of members to be elected. If you elect to withhold authority for any individual nominee or nominees, you may do so by marking the box labeled "For All Except," and by writing the number of any excepted nominee on the line provided, as is further explained on the card itself. If you do withhold authority, the proxies will not vote shares equivalent to the proportionate number applicable to the names for which authority is withheld. -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 37 All votes count toward a quorum, regardless of how they are voted (For, Against or Abstain). Broker non-votes will be counted toward a quorum but not toward the approval of any proposals. (Broker non-votes are shares for which the underlying owner has not voted and the broker holding the shares does not have authority to vote.) If your shares are held in an IRA account, you have the right to instruct the IRA Custodian how to vote those shares. The IRA Custodian will vote any shares for which it has not received voting instructions in proportionately the same manner -- either For, Against or Abstain -- as other fund shareholders have voted. If your investments include any of the variable portfolio funds, you have the right to instruct IDS Life, IDS Life Insurance Company of New York ("IDS Life of New York"), American Centurion Life Assurance Company ("ACL"), American Enterprise Life Insurance Company ("AEL"), or American Partners Life Insurance Company ("APL") how to vote the variable portfolio fund shares held under your annuity contract or life insurance policy. IDS Life, IDS Life of New York, ACL, AEL and APL will vote any fund shares for which they do not receive voting instructions in proportionately the same manner -- either For, Against or Abstain -- as shares for which they do receive instructions. Master/Feeder Funds. Some funds are part of a master/feeder structure. The feeder funds seek their investment objectives by investing their assets in master funds with the same policies. Master funds invest in and manage the securities. Proposals 1, 3, 4 and 5 affect certain master funds. Feeder funds, as the sole shareholders of the master fund, will vote for or against each of those proposals in proportion to the vote received from feeder fund shareholders. Revoking Your Proxy. If your plans change and you can attend the meeting, simply inform the Secretary at the meeting that you will be voting your shares in person. Also, if you change your mind after you vote, you may change your vote or revoke it by mail, telephone or internet. Joint Proxy Statement/Simultaneous Meetings. This joint proxy statement reduces the preparation, printing and mailing costs of sending separate proxy statements for each fund. The meetings will be held simultaneously with each proposal being voted on separately by shareholders of a corporation or by shareholders of a fund or by a class of shares of the fund where appropriate. If any shareholder objects to the holding of simultaneous meetings, the shareholder may move for an adjournment of his or her fund's meeting to a time immediately after the simultaneous meetings so that a meeting of that fund may be held separately. If a shareholder makes this motion, the persons named as proxies will take into consideration the reasons for the objection in deciding whether to vote in favor of the adjournment. -------------------------------------------------------------------------------- 38 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Solicitation of Proxies. The Board is asking for your vote and for you to vote as promptly as possible. The fund will pay the expenses for the proxy material and the postage. Supplementary solicitations may be made by mail, telephone, electronic means or personal contact. The expenses of supplementary solicitation will be paid by the fund and AEFC. Shareholder Proposals. No proposals were received from shareholders. The funds are not required to hold regular meetings of shareholders each year. However, meetings of shareholders are held from time to time and proposals of shareholders that are intended to be presented at future shareholder meetings must be submitted in writing to the funds in reasonable time prior to the solicitation of proxies for the meeting. Other Business. The Board does not know at this time of any other business to come before the meetings. If something does come up, the proxies will use their best judgment to vote for you on the matter. Adjournment. In the event that not enough votes in favor of any of the proposals are received by the time scheduled for the meeting, the persons named as proxies may move for one or more adjournments of the meeting for a period of not more than 120 days in the aggregate to allow further solicitation of shareholders on the proposals. Any adjournment requires the affirmative vote of a majority of the shares present at the meeting. The persons named as proxies will vote in favor of adjournment those shares they are entitled to vote that have voted in favor of the proposals. They will vote against any adjournment those shares that have voted against any of the proposals. Annual Report. The latest annual report was previously mailed to you. If you would like another copy of the annual report and any subsequent semi-annual report, without charge, please write American Express Funds, 70100 AXP Financial Center, Minneapolis, MN 55474 or call (800) 862-7919. -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 39 SECTION D -- FUND INFORMATION This section contains the following information about your fund and its adviser: Table Content (all information is shown for the last fiscal year unless noted otherwise) D-1A Actual and pro forma expenses for Class A shares of the retail funds, Tax-Free Money and the Variable Portfolio Funds, assuming all of the fee changes had been in effect during the year D-1B Actual and pro forma expenses for Class B D-1C Actual and pro forma expenses for Class C D-1Y Actual and pro forma expenses for Class Y D-2 The fund's current fee schedule under its management agreement D-3 Actual and pro forma Investment Management Services Agreement fees D-4 Information about shareholder approval of current management agreements D-5 Payments the fund made to AEFC and its affiliates D-6 Brokerage commissions the fund paid to a broker-dealer affiliate D-7 The fund's size, number of outstanding shares and 5% owners D-8 Audit fees The Fund's Adviser and Distributor. AEFC is the adviser or subadviser for each of the funds. IDS Life, a wholly owned subsidiary of AEFC, is the investment manager and distributor for each of the variable portfolio funds. AEFA, a wholly owned subsidiary of AEFC, is the distributor for each of the retail funds. The address for AEFC, IDS Life and AEFA is 200 AXP Financial Center, Minneapolis, MN 55474. AEFC is a wholly owned subsidiary of American Express Company, World Financial Center, New York, NY 10285. President, Chief Executive Officer and Board of Directors of AEFC. James M. Cracchiolo is President and Chief Executive Officer of AEFC. The following individuals are directors of AEFC. Except as otherwise noted, each director is an officer of AEFC located at 200 AXP Financial Center, Minneapolis, MN 55474. Directors: Kenneth I. Chenault (Chief Executive Officer, American Express Company, New York, NY 10285), James M. Cracchiolo and Walter S. Berman. President, Chief Executive Officer and Board of Directors of IDS Life. Barbara H. Fraser is Chief Executive Officer ofIDS Life. Timothy V. Bechtold is President of IDS Life. The following individuals are directors of IDS Life. Each director is an officer of AEFC located at 200 AXP Financial Center, Minneapolis, MN 55474. Directors: Gumer C. Alvero, Barbara H. Fraser, Timothy V. Bechtold, Barry J. Murphy, Stephen W. Roszell and John T. Sweeney. -------------------------------------------------------------------------------- 40 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT
Table D-1A. Actual and Pro Forma Fund Expenses -- Class A, Tax-Free Money and Variable Portfolio Funds Total Fund (as a % of average Management Agreement Distribution Other Expenses* Operating Expenses daily net assets) Actual Pro Forma Actual Pro Forma Actual Pro Forma Actual Pro Forma Retail Funds Blue Chip Advantage 0.40% 0.32% 0.25% 0.25% 0.24% 0.24% 0.89% 0.81% Cash Management 0.30 0.30 0.00 0.10 0.29 0.29 0.59 0.69 Discovery 0.44 0.44 0.25 0.25 0.37 0.37 1.06 1.06 Diversified Equity Income 0.49 0.48 0.25 0.25 0.21 0.21 0.95 0.94 Emerging Markets 1.08 1.02 0.25 0.25 0.69 0.69 2.02 1.96 Equity Select 0.68 0.72 0.25 0.25 0.23 0.23 1.16 1.20 Equity Value 0.54 0.59 0.25 0.25 0.24 0.24 1.03 1.08 European Equity 0.78 0.74 0.25 0.25 0.50 0.50 1.53 1.49 Focused Growth** 0.53 0.53 0.25 0.25 0.62 0.62 1.40 1.40 Global Balanced 0.78 0.66 0.25 0.25 0.42 0.42 1.45 1.33 Global Growth 0.59 0.58 0.25 0.25 0.34 0.34 1.18 1.17 Global Technology 0.71 0.71 0.25 0.25 0.67 0.67 1.63 1.63 Growth 0.54 0.53 0.25 0.25 0.20 0.20 0.99 0.98 Growth Dimensions** 0.47 0.44 0.25 0.25 0.44 0.44 1.16 1.13 International 0.62 0.60 0.25 0.25 0.41 0.41 1.28 1.26 Large Cap Equity*** N/A N/A N/A N/A N/A N/A N/A N/A Large Cap Value*** N/A N/A N/A N/A N/A N/A N/A N/A Managed Allocation 0.49 0.45 0.25 0.25 0.23 0.23 0.97 0.93 Mid Cap Value*** N/A N/A N/A N/A N/A N/A N/A N/A Mutual 0.40 0.35 0.25 0.25 0.22 0.22 0.87 0.82
-------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 41
Table D-1A. Actual and Pro Forma Fund Expenses -- Class A, Tax-Free Money and Variable Portfolio Funds (continued) Total Fund (as a % of average Management Agreement Distribution Other Expenses* Operating Expenses daily net assets) Actual Pro Forma Actual Pro Forma Actual Pro Forma Actual Pro Forma Retail Funds (continued) New Dimensions 0.58% 0.60% 0.25% 0.25% 0.17% 0.17% 1.00% 1.02% Partners Fundamental Value** 0.73 0.72 0.25 0.25 0.57 0.57 1.55 1.54 Partners International Aggressive Growth** 1.00 1.00 0.25 0.25 8.09 8.09 9.34 9.34 Partners International Select Value** 0.90 0.90 0.25 0.25 9.00 9.00 10.15 10.15 Partners Select Value** 0.78 0.79 0.25 0.25 2.03 2.03 3.06 3.07 Partners Small Cap Core** 0.97 0.94 0.25 0.25 3.83 3.83 5.05 5.02 Partners Small Cap Growth** 0.93 0.96 0.25 0.25 0.71 0.71 1.89 1.92 Partners Small Cap Value** 0.97 0.99 0.25 0.25 0.56 0.56 1.78 1.80 Partners Value** 0.74 0.76 0.25 0.25 0.68 0.68 1.67 1.69 Precious Metals 0.76 0.77 0.25 0.25 0.77 0.77 1.78 1.79 Progressive 0.53 0.50 0.25 0.25 0.30 0.30 1.08 1.05 Research Opportunities 0.60 0.53 0.25 0.25 0.31 0.31 1.16 1.09 Small Cap Advantage 0.63 0.60 0.25 0.25 0.37 0.37 1.25 1.22 Small Company Index 0.38 0.42 0.25 0.25 0.33 0.33 0.96 1.00 Stock 0.47 0.48 0.25 0.25 0.15 0.15 0.87 0.88 Strategy Aggressive 0.46 0.43 0.25 0.25 0.38 0.38 1.09 1.06 Tax-Free Money 0.36 0.36 0.00 0.10 0.23 0.23 0.59 0.69 Utilities 0.61 0.64 0.25 0.25 0.17 0.17 1.03 1.06
-------------------------------------------------------------------------------- 42 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT
Table D-1A. Actual and Pro Forma Fund Expenses -- Class A, Tax-Free Money and Variable Portfolio Funds (continued) Total Fund (as a % of average Management Agreement Distribution Other Expenses* Operating Expenses daily net assets) Actual Pro Forma Actual Pro Forma Actual Pro Forma Actual Pro Forma Variable Portfolio Funds VP-Blue Chip Advantage 0.54% 0.49% 0.12% 0.12% 0.12% 0.12% 0.78% 0.73% VP-Bond 0.60 0.60 0.12 0.12 0.08 0.08 0.80 0.80 VP-Capital Resource 0.61 0.61 0.12 0.12 0.05 0.05 0.78 0.78 VP-Cash Management 0.51 0.51 0.12 0.12 0.05 0.05 0.68 0.68 VP-Diversified Equity Income 0.55 0.54 0.12 0.12 0.50 0.50 1.17 1.16 VP-Emerging Markets** 1.16 1.12 0.12 0.12 2.21 2.21 3.49 3.45 VP-Equity Select** 0.64 0.67 0.12 0.12 2.23 2.23 2.99 3.02 VP-Extra Income 0.62 0.62 0.12 0.12 0.08 0.08 0.82 0.82 VP-Federal Income 0.61 0.61 0.12 0.12 0.14 0.14 0.87 0.87 VP-Global Bond 0.84 0.84 0.12 0.12 0.11 0.11 1.07 1.07 VP-Growth 0.62 0.60 0.12 0.12 0.17 0.17 0.91 0.89 VP-International 0.83 0.83 0.12 0.12 0.09 0.09 1.04 1.04 VP-Managed 0.59 0.59 0.12 0.12 0.05 0.05 0.76 0.76 VP-New Dimensions 0.60 0.60 0.12 0.12 0.07 0.07 0.79 0.79 VP-Partners Small Cap Value 1.02 1.02 0.12 0.12 5.72 5.72 6.86 6.86 VP-S&P 500 Index** 0.29 0.29 0.12 0.12 0.90 0.90 1.31 1.31 VP-Small Cap Advantage 0.73 0.71 0.12 0.12 0.41 0.41 1.26 1.24 VP-Stock** 0.56 0.56 0.12 0.12 10.68 10.68 11.36 11.36 VP-Strategy Aggressive 0.60 0.60 0.12 0.12 0.06 0.06 0.78 0.78
* Includes expenses such as an administrative services fee, a shareholder services fee, a transfer agency fee and other nonadvisory expenses. ** The fund is subject to an expense cap and the total fund operating expenses will be less for an agreed upon time frame. Reference Table D-2 for detailed information. *** The fund began operations in 2002 and has not yet had a fiscal year end reporting period. -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 43 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. The following table shows your costs under the current arrangements and your costs if the proposed changes had been in effect:
1 year 3 years 5 years 10 years Actual Pro Forma Actual Pro Forma Actual Pro Forma Actual Pro Forma Retail Funds Blue Chip Advantage $661 $653 $ 843 $ 819 $1,040 $1,000 $1,612 $1,523 Cash Management 60 70 189 221 330 385 741 862 Discovery 677 677 893 893 1,127 1,127 1,799 1,799 Diversified Equity Income 666 655 861 858 1,071 1,066 1,679 1,667 Emerging Markets 768 763 1,172 1,155 1,601 1,572 2,793 2,733 Equity Select 686 690 923 934 1,178 1,198 1,907 1,951 Equity Value 674 679 884 899 1,112 1,137 1,766 1,821 European Equity 722 718 1,031 1,019 1,362 1,342 2,298 2,557 Focused Growth* 702 702 986 986 1,291 1,291 2,156 2,156 Global Balanced 714 703 1,008 972 1,323 1,263 2,215 2,089 Global Growth 688 687 928 925 1,188 1,183 1,929 1,918 Global Technology 731 731 1,060 1,060 1,411 1,411 2,401 2,401 Growth 670 669 872 869 1,091 1,086 1,723 1,712 Growth Dimensions* 685 684 922 914 1,177 1,162 1,907 1,875 International 698 696 958 952 1,238 1,228 2,036 2,015 Large Cap Equity** N/A N/A N/A N/A N/A N/A N/A N/A Large Cap Value** N/A N/A N/A N/A N/A N/A N/A N/A Managed Allocation 668 664 866 855 1,081 1,061 1,701 1,656 Mid Cap Value** N/A N/A N/A N/A N/A N/A N/A N/A
-------------------------------------------------------------------------------- 44 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT
Example: (continued) 1 year 3 years 5 years 10 years Actual Pro Forma Actual Pro Forma Actual Pro Forma Actual Pro Forma Retail Funds (continued) Mutual $659 $654 $ 837 $ 822 $1,030 $1,005 $1,590 $1,534 New Dimensions 671 673 875 881 1,097 1,107 1,734 1,755 Partners Fundamental Value* 705 705 1,018 1,016 1,354 1,350 2,303 2,294 Partners International Aggressive Growth* 743 743 2,484 2,484 N/A N/A N/A N/A Partners International Select Value* 733 733 2,612 2,612 N/A N/A N/A N/A Partners Select Value* 719 719 1,328 1,330 1,961 1,965 3,656 3,664 Partners Small Cap Core* 728 728 1,713 1,707 2,696 2,686 5,150 5,130 Partners Small Cap Growth* 724 724 1,104 1,110 1,509 1,521 2,638 2,666 Partners Small Cap Value* 728 728 1,087 1,091 1,469 1,477 2,540 2,559 Partners Value* 705 705 1,042 1,046 1,403 1,411 2,417 2,436 Precious Metals 745 746 1,103 1,106 1,485 1,490 2,554 2,564 Progressive 679 676 899 890 1,137 1,122 1,821 1,788 Research Opportunities 686 680 923 902 1,178 1,142 1,907 1,832 Small Cap Advantage 695 692 949 940 1,123 1,208 2,004 1,972 Small Company Index 667 671 863 875 1,076 1,097 1,690 1,734 Stock 659 660 837 840 1,030 1,035 1,590 1,601 Strategy Aggressive 680 677 902 893 1,142 1,127 1,832 1,799 Tax-Free Money 60 70 189 221 330 385 741 862 Utilities 674 677 884 893 1,112 1,127 1,766 1,799
-------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 45
Example: (continued) 1 year 3 years 5 years 10 years Actual Pro Forma Actual Pro Forma Actual Pro Forma Actual Pro Forma Variable Portfolio Funds VP-Blue Chip Advantage $ 80 $ 75 $ 249 $ 234 $ 434 $ 407 $ 970 $ 910 VP-Bond 82 82 256 256 445 445 994 994 VP-Capital Resource 80 80 249 249 434 434 970 970 VP-Cash Management 69 69 218 218 379 379 850 850 VP-Diversified Equity Income 119 118 372 369 645 639 1,425 1,414 VP-Emerging Markets* 178 178 910 902 1,664 1,648 3,653 3,620 VP-Equity Select* 112 112 747 753 1,407 1,419 3,179 3,205 VP-Extra Income 84 84 262 262 456 456 1,018 1,018 VP-Federal Income 89 89 278 278 483 483 1,077 1,077 VP-Global Bond 109 109 341 341 591 591 1,310 1,310 VP-Growth 93 91 290 284 505 494 1,124 1,100 VP-International 106 106 331 331 575 575 1,276 1,276 VP-Managed 78 78 243 243 423 423 946 946 VP-New Dimensions 81 81 253 253 440 440 982 982 VP-Partners Small Cap Value 153 153 1,547 1,547 2,891 2,891 6,040 6,040 VP-S&P 500 Index* 50 50 334 334 641 641 1,513 1,513 VP-Small Cap Advantage 128 126 400 394 693 682 1,528 1,505 VP-Stock* 112 112 2,329 2,329 4,281 4,281 8,202 8,202 VP-Strategy Aggressive 80 80 249 249 434 434 970 970
* The fund is subject to an expense cap and the total fund operating expenses will be less for an agreed upon time frame. Reference Table D-2 for detailed information. ** The fund began operations in 2002 and has not yet had a fiscal year end reporting period. -------------------------------------------------------------------------------- 46 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT
Table D-1B. Actual and Pro Forma Fund Expenses -- Class B Total Fund (as a % of average Management Agreement Distribution Other Expenses* Operating Expenses daily net assets) Actual Pro Forma Actual Pro Forma Actual Pro Forma Actual Pro Forma Retail Funds Blue Chip Advantage 0.40% 0.32% 1.00% 1.00% 0.25% 0.25% 1.65% 1.57% Cash Management 0.30 0.30 0.75 0.85 0.29 0.29 1.34 1.44 Discovery 0.44 0.44 1.00 1.00 0.39 0.39 1.83 1.83 Diversified Equity Income 0.49 0.48 1.00 1.00 0.22 0.22 1.71 1.70 Emerging Markets 1.08 1.02 1.00 1.00 0.71 0.71 2.79 2.73 Equity Select 0.68 0.72 1.00 1.00 0.25 0.25 1.93 1.97 Equity Value 0.54 0.59 1.00 1.00 0.24 0.24 1.78 1.83 European Equity 0.78 0.74 1.00 1.00 0.52 0.52 2.30 2.26 Focused Growth** 0.53 0.53 1.00 1.00 0.63 0.63 2.16 2.16 Global Balanced 0.78 0.66 1.00 1.00 0.43 0.43 2.21 2.09 Global Growth 0.59 0.58 1.00 1.00 0.36 0.36 1.95 1.94 Global Technology 0.71 0.71 1.00 1.00 0.71 0.71 2.42 2.42 Growth 0.54 0.53 1.00 1.00 0.21 0.21 1.75 1.74 Growth Dimensions** 0.47 0.44 1.00 1.00 0.45 0.45 1.92 1.89 International 0.62 0.60 1.00 1.00 0.43 0.43 2.05 2.03 Large Cap Equity*** N/A N/A N/A N/A N/A N/A N/A N/A Large Cap Value*** N/A N/A N/A N/A N/A N/A N/A N/A Managed Allocation 0.49 0.45 1.00 1.00 0.25 0.25 1.74 1.70 Mid Cap Value*** N/A N/A N/A N/A N/A N/A N/A N/A Mutual 0.40 0.35 1.00 1.00 0.24 0.24 1.64 1.59
-------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 47
Table D-1B. Actual and Pro Forma Fund Expenses -- Class B (continued) Total Fund (as a % of average Management Agreement Distribution Other Expenses* Operating Expenses daily net assets) Actual Pro Forma Actual Pro Forma Actual Pro Forma Actual Pro Forma Retail Funds (continued) New Dimensions 0.58% 0.60% 1.00% 1.00% 0.18% 0.18% 1.76% 1.78% Partners Fundamental Value** 0.73 0.72 1.00 1.00 0.58 0.58 2.31 2.30 Partners International Aggressive Growth** 1.00 1.00 1.00 1.00 8.11 8.11 10.11 10.11 Partners International Select Value** 0.90 0.90 1.00 1.00 9.02 9.02 10.92 10.92 Partners Select Value** 0.78 0.79 1.00 1.00 2.04 2.04 3.82 3.83 Partners Small Cap Core** 0.97 0.94 1.00 1.00 3.84 3.84 5.81 5.78 Partners Small Cap Growth** 0.93 0.96 1.00 1.00 0.72 0.72 2.65 2.68 Partners Small Cap Value** 0.97 0.99 1.00 1.00 0.57 0.57 2.54 2.56 Partners Value** 0.74 0.76 1.00 1.00 0.69 0.69 2.43 2.45 Precious Metals 0.76 0.77 1.00 1.00 0.78 0.78 2.54 2.55 Progressive 0.53 0.50 1.00 1.00 0.33 0.33 1.86 1.83 Research Opportunities 0.60 0.53 1.00 1.00 0.32 0.32 1.92 1.85 Small Cap Advantage 0.63 0.60 1.00 1.00 0.39 0.39 2.02 1.99 Small Company Index 0.38 0.42 1.00 1.00 0.34 0.34 1.72 1.76 Stock 0.47 0.48 1.00 1.00 0.17 0.17 1.64 1.65 Strategy Aggressive 0.46 0.43 1.00 1.00 0.40 0.40 1.86 1.83 Utilities 0.61 0.64 1.00 1.00 0.19 0.19 1.80 1.83
* Other expenses include an administrative services fee, a shareholder services fee, a transfer agency fee and other nonadvisory expenses. ** The fund is subject to an expense cap and the total fund operating expenses will be less for an agreed upon time frame. Reference Table D-2 for detailed information. *** The fund began operations in 2002 and has not yet had a fiscal year end reporting period. -------------------------------------------------------------------------------- 48 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT
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. The following table shows your costs under the current arrangements and your costs if the proposed changes had been in effect: 1 year 3 years 5 years 10 years Actual Pro Forma Actual Pro Forma Actual Pro Forma Actual Pro Forma Retail Funds Blue Chip Advantage $568 $560 $ 821 $ 796 $ 998 $ 956 $1,756 $1,667 Cash Management 536 547 725 756 835 888 1,410 1,524 Discovery 586 586 876 876 1,091 1,091 1,950 1,950 Diversified Equity Income 574 572 839 836 1,029 1,024 1,822 1,811 Emerging Markets 682 676 1,165 1,146 1,575 1,545 2,938 2,879 Equity Select 596 600 906 919 1,143 1,163 2,058 2,101 Equity Value 581 586 861 876 1,065 1,091 1,901 1,956 European Equity 633 629 1,019 1,007 1,331 1,311 2,447 2,405 Focused Growth* 611 611 969 969 1,253 1,253 2,298 2,298 Global Balanced 624 612 991 955 1,286 1,225 2,356 2,231 Global Growth 598 597 913 909 1,153 1,148 2,079 2,069 Global Technology 645 645 1,055 1,055 1,391 1,391 2,564 2,564 Growth 578 576 851 848 1,050 1,045 1,866 1,855 Growth Dimensions* 594 592 902 894 1,137 1,122 2,049 2,018 International 608 606 943 937 1,204 1,194 2,186 2,165 Large Cap Equity** N/A N/A N/A N/A N/A N/A N/A N/A Large Cap Value** N/A N/A N/A N/A N/A N/A N/A N/A Managed Allocation 577 573 848 836 1,045 1,024 1,852 1,808 Mid Cap Value** N/A N/A N/A N/A N/A N/A N/A N/A
-------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 49
Example: (continued) 1 year 3 years 5 years 10 years Actual Pro Forma Actual Pro Forma Actual Pro Forma Actual Pro Forma Retail Funds (continued) Mutual $567 $562 $ 818 $ 802 $ 993 $ 967 $1,742 $1,687 New Dimensions 579 581 854 861 1,055 1,065 1,877 1,899 Partners Fundamental Value* 614 614 1,003 1,000 1,318 1,314 2,444 2,434 Partners International Aggressive Growth* 655 655 2,525 2,525 N/A N/A N/A N/A Partners International Select Value* 645 645 2,657 2,657 N/A N/A N/A N/A Partners Select Value* 629 629 1,324 1,326 1,937 1,941 3,791 3,799 Partners Small Cap Core* 639 639 1,723 1,717 2,687 2,676 5,278 5,258 Partners Small Cap Growth* 634 634 1,092 1,098 1,476 1,488 2,777 2,805 Partners Small Cap Value* 639 639 1,074 1,078 1,435 1,443 2,679 2,698 Partners Value* 614 614 1,027 1,031 1,368 1,376 2,558 2,576 Precious Metals 657 658 1,091 1,094 1,451 1,456 2,693 2,703 Progressive 589 586 885 876 1,107 1,091 1,980 1,948 Research Opportunities 595 588 903 882 1,138 1,102 2,050 1,975 Small Cap Advantage 605 602 934 925 1,189 1,174 2,154 2,122 Small Company Index 575 579 842 854 1,034 1,055 1,833 1,877 Stock 567 568 818 821 993 998 1,742 1,753 Strategy Aggressive 589 586 885 876 1,107 1,091 1,983 1,950 Utilities 583 586 867 876 1,076 1,091 1,918 1,950
* The fund is subject to an expense cap and the total fund operating expenses will be less for an agreed upon time frame. Reference Table D-2 for detailed information. ** The fund began operations in 2002 and has not yet had a fiscal year end reporting period. -------------------------------------------------------------------------------- 50 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT
Table D-1C. Actual and Pro Forma Fund Expenses -- Class C Total Fund (as a % of average Management Agreement Distribution Other Expenses* Operating Expenses daily net assets) Actual Pro Forma Actual Pro Forma Actual Pro Forma Actual Pro Forma Retail Funds Blue Chip Advantage 0.40% 0.32% 1.00% 1.00% 0.27% 0.27% 1.67% 1.59% Cash Management 0.30 0.30 0.75 0.75 0.29 0.29 1.34 1.34 Discovery 0.44 0.44 1.00 1.00 0.39 0.39 1.83 1.83 Diversified Equity Income 0.49 0.48 1.00 1.00 0.22 0.22 1.71 1.70 Emerging Markets 1.08 1.02 1.00 1.00 0.71 0.71 2.79 2.73 Equity Select 0.68 0.72 1.00 1.00 0.29 0.29 1.97 2.01 Equity Value 0.54 0.59 1.00 1.00 0.27 0.27 1.81 1.86 European Equity 0.78 0.74 1.00 1.00 0.52 0.52 2.30 2.26 Focused Growth** 0.53 0.53 1.00 1.00 0.63 0.63 2.16 2.16 Global Balanced 0.78 0.66 1.00 1.00 0.43 0.43 2.21 2.09 Global Growth 0.59 0.58 1.00 1.00 0.36 0.36 1.95 1.94 Global Technology 0.71 0.71 1.00 1.00 0.71 0.71 2.42 2.42 Growth 0.54 0.53 1.00 1.00 0.21 0.21 1.75 1.74 Growth Dimensions** 0.47 0.44 1.00 1.00 0.45 0.45 1.92 1.89 International 0.62 0.60 1.00 1.00 0.43 0.43 2.05 2.03 Large Cap Equity*** N/A N/A N/A N/A N/A N/A N/A N/A Large Cap Value*** N/A N/A N/A N/A N/A N/A N/A N/A Managed Allocation 0.49 0.45 1.00 1.00 0.25 0.25 1.74 1.70 Mid Cap Value*** N/A N/A N/A N/A N/A N/A N/A N/A Mutual 0.40 0.35 1.00 1.00 0.24 0.24 1.64 1.59
-------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 51
Table D-1C. Actual and Pro Forma Fund Expenses -- Class C (continued) Total Fund (as a % of average Management Agreement Distribution Other Expenses* Operating Expenses daily net assets) Actual Pro Forma Actual Pro Forma Actual Pro Forma Actual Pro Forma Retail Funds (continued) New Dimensions 0.58% 0.60% 1.00% 1.00% 0.18% 0.18% 1.76% 1.78% Partners Fundamental Value** 0.73 0.72 1.00 1.00 0.58 0.58 2.31 2.30 Partners International Aggressive Growth** 1.00 1.00 1.00 1.00 8.11 8.11 10.11 10.11 Partners International Select Value** 0.90 0.90 1.00 1.00 9.02 9.02 10.92 10.92 Partners Select Value** 0.78 0.79 1.00 1.00 2.04 2.04 3.82 3.83 Partners Small Cap Core** 0.97 0.94 1.00 1.00 3.84 3.84 5.81 5.78 Partners Small Cap Growth** 0.93 0.96 1.00 1.00 0.72 0.72 2.65 2.68 Partners Small Cap Value** 0.97 0.99 1.00 1.00 0.57 0.57 2.54 2.56 Partners Value** 0.74 0.76 1.00 1.00 0.69 0.69 2.43 2.45 Precious Metals 0.76 0.77 1.00 1.00 0.75 0.75 2.51 2.52 Progressive 0.53 0.50 1.00 1.00 0.33 0.33 1.86 1.83 Research Opportunities 0.60 0.53 1.00 1.00 0.32 0.32 1.92 1.85 Small Cap Advantage 0.63 0.60 1.00 1.00 0.41 0.41 2.04 2.01 Stock 0.47 0.48 1.00 1.00 0.17 0.17 1.64 1.65 Strategy Aggressive 0.46 0.43 1.00 1.00 0.43 0.43 1.89 1.86 Utilities 0.61 0.64 1.00 1.00 0.19 0.19 1.80 1.83
* Other expenses include an administrative services fee, a shareholder services fee, a transfer agency fee and other nonadvisory expenses. ** The fund is subject to an expense cap and the total fund operating expenses will be less for an agreed upon time frame. Reference Table D-2 for detailed information. *** The fund began operations in 2002 and has not yet had a fiscal year end reporting period. -------------------------------------------------------------------------------- 52 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 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. The following table shows your costs under the current arrangements and your costs if the proposed changes had been in effect:
1 year 3 years 5 years 10 years Actual Pro Forma Actual Pro Forma Actual Pro Forma Actual Pro Forma Retail Funds Blue Chip Advantage $170 $162 $527 $502 $ 908 $ 867 $1,981 $1,894 Cash Management 136 136 425 425 735 735 1,618 1,618 Discovery 186 186 576 576 991 991 2,153 2,153 Diversified Equity Income 174 173 539 536 929 924 2,024 2,014 Emerging Markets 282 276 865 847 1,475 1,445 3,122 3,064 Equity Select 200 204 619 631 1,063 1,084 2,301 2,342 Equity Value 184 189 570 585 981 1,007 2,132 2,185 European Equity 233 229 719 707 1,231 1,211 2,640 2,600 Focused Growth* 211 211 669 669 1,153 1,153 2,491 2,491 Global Balanced 224 212 691 655 1,186 1,125 2,549 2,425 Global Growth 198 197 613 609 1,053 1,048 2,280 2,269 Global Technology 245 245 755 755 1,291 1,291 2,761 2,761 Growth 178 177 551 548 950 945 2,067 2,057 Growth Dimensions* 194 192 602 594 1,037 1,022 2,247 2,216 International 208 206 643 637 1,104 1,094 2,384 2,363 Large Cap Equity** N/A N/A N/A N/A N/A N/A N/A N/A Large Cap Value** N/A N/A N/A N/A N/A N/A N/A N/A Managed Allocation 177 173 548 536 945 924 2,057 2,014 Mid Cap Value** N/A N/A N/A N/A N/A N/A N/A N/A
-------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 53
Example: (continued) 1 year 3 years 5 years 10 years Actual Pro Forma Actual Pro Forma Actual Pro Forma Actual Pro Forma Retail Funds (continued) Mutual $167 $162 $ 518 $ 502 $ 893 $ 867 $1,949 $1,894 New Dimensions 179 181 554 561 955 965 2,078 2,100 Partners Fundamental Value* 214 214 703 700 1,218 1,214 2,635 2,626 Partners International Aggressive Growth* 255 255 2,225 2,225 N/A N/A N/A N/A Partners International Select Value* 245 245 2,357 2,357 N/A N/A N/A N/A Partners Select Value* 229 229 1,024 1,026 1,837 1,841 3,957 3,965 Partners Small Cap Core* 239 239 1,423 1,417 2,587 2,576 5,417 5,397 Partners Small Cap Growth* 234 234 792 798 1,376 1,388 2,962 2,989 Partners Small Cap Value* 239 239 774 778 1,335 1,343 2,866 2,884 Partners Value* 214 214 727 731 1,268 1,276 2,746 2,765 Precious Metals 254 255 782 785 1,336 1,341 2,850 2,860 Progressive 189 186 585 576 1,107 991 2,185 2,153 Research Opportunities 195 188 603 582 1,038 1,002 2,248 2,174 Small Cap Advantage 207 204 640 631 1,099 1,084 2,374 2,342 Stock 167 168 518 521 893 898 1,949 1,960 Strategy Aggressive 192 189 594 585 1,022 1,007 2,216 2,185 Utilities 183 186 567 576 976 991 2,121 2,153
* The fund is subject to an expense cap and the total fund operating expenses will be less for an agreed upon time frame. Reference Table D-2 for detailed information. ** The fund began operations in 2002 and has not yet had a fiscal year end reporting period. -------------------------------------------------------------------------------- 54 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT
Table D-1Y. Actual and Pro Forma Fund Expenses -- Class Y Total Fund (as a % of average Management Agreement Distribution Other Expenses* Operating Expenses daily net assets) Actual Pro Forma Actual Pro Forma Actual Pro Forma Actual Pro Forma Retail Funds Blue Chip Advantage 0.40% 0.32% 0.00% 0.00% 0.32% 0.32% 0.72% 0.64% Cash Management 0.30 0.30 0.00 0.00 0.27 0.27 0.57 0.57 Discovery 0.44 0.44 0.00 0.00 0.42 0.42 0.86 0.86 Diversified Equity Income 0.49 0.48 0.00 0.00 0.29 0.29 0.78 0.77 Emerging Markets 1.08 1.02 0.00 0.00 0.76 0.76 1.84 1.78 Equity Select 0.68 0.72 0.00 0.00 0.32 0.32 1.00 1.04 Equity Value 0.54 0.59 0.00 0.00 0.32 0.32 0.86 0.91 European Equity 0.78 0.74 0.00 0.00 0.57 0.57 1.35 1.31 Focused Growth** 0.53 0.53 0.00 0.00 0.71 0.71 1.24 1.24 Global Balanced 0.78 0.66 0.00 0.00 0.53 0.53 1.31 1.19 Global Growth 0.59 0.58 0.00 0.00 0.42 0.42 1.01 1.00 Global Technology 0.71 0.71 0.00 0.00 0.78 0.78 1.49 1.49 Growth 0.54 0.53 0.00 0.00 0.29 0.29 0.83 0.82 Growth Dimensions** 0.47 0.44 0.00 0.00 0.53 0.53 1.00 0.97 International 0.62 0.60 0.00 0.00 0.49 0.49 1.11 1.09 Large Cap Equity*** N/A N/A N/A N/A N/A N/A N/A N/A Large Cap Value*** N/A N/A N/A N/A N/A N/A N/A N/A Managed Allocation 0.49 0.45 0.00 0.00 0.31 0.31 0.80 0.76 Mid Cap Value*** N/A N/A N/A N/A N/A N/A N/A N/A Mutual 0.40 0.35 0.00 0.00 0.31 0.31 0.71 0.66
-------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 55
Table D-1Y. Actual and Pro Forma Fund Expenses -- Class Y (continued) Total Fund (as a % of average Management Agreement Distribution Other Expenses* Operating Expenses daily net assets) Actual Pro Forma Actual Pro Forma Actual Pro Forma Actual Pro Forma Retail Funds (continued) New Dimensions 0.58% 0.60% 0.00% 0.00% 0.26% 0.26% 0.84% 0.86% Partners Fundamental Value** 0.73 0.72 0.00 0.00 0.64 0.64 1.37 1.36 Partners International Aggressive Growth** 1.00 1.00 0.00 0.00 8.17 8.17 9.17 9.17 Partners International Select Value** 0.90 0.90 0.00 0.00 9.08 9.08 9.98 9.98 Partners Select Value** 0.78 0.79 0.00 0.00 2.10 2.10 2.88 2.89 Partners Small Cap Core** 0.97 0.94 0.00 0.00 3.90 3.90 4.87 4.84 Partners Small Cap Growth** 0.93 0.96 0.00 0.00 0.78 0.78 1.71 1.74 Partners Small Cap Value** 0.97 0.99 0.00 0.00 0.63 0.63 1.60 1.62 Partners Value** 0.74 0.76 0.00 0.00 0.75 0.75 1.49 1.51 Precious Metals 0.76 0.77 0.00 0.00 0.82 0.82 1.58 1.59 Progressive 0.53 0.50 0.00 0.00 0.42 0.42 0.95 0.92 Research Opportunities 0.60 0.53 0.00 0.00 0.40 0.40 1.00 0.93 Small Cap Advantage 0.63 0.60 0.00 0.00 0.45 0.45 1.08 1.05 Small Company Index 0.38 0.42 0.00 0.00 0.41 0.41 0.79 0.83 Stock 0.47 0.48 0.00 0.00 0.24 0.24 0.71 0.72 Strategy Aggressive 0.46 0.43 0.00 0.00 0.45 0.45 0.91 0.88 Utilities 0.61 0.64 0.00 0.00 0.27 0.27 0.88 0.91
* Other expenses include an administrative services fee, a shareholder services fee, a transfer agency fee and other nonadvisory expenses. ** The fund is subject to an expense cap and the total fund operating expenses will be less for an agreed upon time frame. Reference Table D-2 for detailed information. *** The fund began operations in 2002 and has not yet had a fiscal year end reporting period. -------------------------------------------------------------------------------- 56 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 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. The following table shows your costs under the current arrangements and your costs if the proposed changes had been in effect:
1 year 3 years 5 years 10 years Actual Pro Forma Actual Pro Forma Actual Pro Forma Actual Pro Forma Retail Funds Blue Chip Advantage $ 74 $ 65 $230 $205 $ 401 $ 357 $ 898 $ 802 Cash Management 58 58 183 183 319 319 717 717 Discovery 88 88 275 275 478 478 1,065 1,065 Diversified Equity Income 80 79 249 246 434 429 970 958 Emerging Markets 187 181 579 561 996 965 2,164 2,100 Equity Select 102 106 319 331 553 575 1,229 1,276 Equity Value 88 93 275 290 478 505 1,065 1,124 European Equity 137 133 428 415 740 719 1,629 1,584 Focused Growth* 118 118 386 386 674 674 1,498 1,498 Global Balanced 133 121 415 378 719 655 1,584 1,448 Global Growth 103 162 322 319 559 553 1,241 1,229 Global Technology 152 152 471 471 814 814 1,785 1,785 Growth 85 84 265 262 461 456 1,029 1,018 Growth Dimensions* 101 99 318 309 552 537 1,228 1,194 International 113 111 353 347 612 602 1,356 1,333 Large Cap Equity** N/A N/A N/A N/A N/A N/A N/A N/A Large Cap Value** N/A N/A N/A N/A N/A N/A N/A N/A Managed Allocation 82 78 256 243 445 423 994 946 Mid Cap Value** N/A N/A N/A N/A N/A N/A N/A N/A
-------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 57
Example: (continued) 1 year 3 years 5 years 10 years Actual Pro Forma Actual Pro Forma Actual Pro Forma Actual Pro Forma Retail Funds (continued) Mutual $ 73 $ 67 $ 227 $ 211 $ 396 $ 368 $ 886 $ 826 New Dimensions 86 88 268 275 467 478 1,041 1,065 Partners Fundamental Value* 119 119 414 412 732 728 1,634 1,624 Partners International Aggressive Growth* 161 161 1,981 1,981 N/A N/A N/A N/A Partners International Select Value* 151 151 2,118 2,118 N/A N/A N/A N/A Partners Select Value* 134 134 745 747 1,382 1,386 3,097 3,106 Partners Small Cap Core* 145 145 1,155 1,149 2,169 2,158 4,714 4,692 Partners Small Cap Growth* 139 139 506 512 897 910 1,996 2,026 Partners Small Cap Value* 145 145 488 492 855 864 1,890 1,910 Partners Value* 119 119 440 444 784 793 1,757 1,778 Precious Metals 161 162 499 502 861 867 1,883 1,894 Progressive 97 94 303 294 526 510 1,171 1,136 Research Opportunities 102 95 319 297 553 516 1,229 1,147 Small Cap Advantage 110 107 344 334 596 580 1,322 1,287 Small Company Index 81 85 253 265 440 461 982 1,029 Stock 73 74 227 230 396 401 886 898 Strategy Aggressive 93 90 290 281 505 488 1,124 1,089 Utilities 90 93 281 290 488 505 1,089 1,124
* The fund is subject to an expense cap and the total fund operating expenses will be less for an agreed upon time frame. Reference Table D-2 for detailed information. ** The fund began operations in 2002 and has not yet had a fiscal year end reporting period. -------------------------------------------------------------------------------- 58 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT
Table D-2. Current Fund Management Fees ------------------------------------------ --------------------------------------- ------------------------ Retail Funds(1) Management Fee (annual rate; in billions) Fee Cap(2) (if applicable) ------------------------------------------ --------------------------------------- ------------------------ Blue Chip Advantage First $.25-.54%; next $.25-.515%; next $.25-.49%; next$.25-.465%; next $1-.44%; next $1-.41%; next $3-.38%; over $6-.35% ------------------------------------------ --------------------------------------- ------------------------ Discovery(3) First $.25-.64%; next $.25-.615%; Progressive (4) next $.25-.59%; next $.25-.565%; next $1-.54%; over $2-.515% ------------------------------------------ --------------------------------------- ------------------------ Diversified Equity Income(5) First $.5-.53%; next $.5-.505%; Equity Value next $1-.48%; next $1-.455%; Managed Allocation (5) next $3-.43%; over $6-.40% Stock(5) ------------------------------------------ --------------------------------------- ------------------------ Emerging Markets(5),(6) First $.25-1.10%; next $.25-1.08%; next $.25-1.06%; next $.25-1.04%; next $1-1.02%; over $2-1.0% ------------------------------------------ --------------------------------------- ------------------------ Equity Select First $1-.60%; next $1-.575%; Growth Dimensions: Growth(5) next $1-.55%; next $3-.525%; 1.15% until 7/31/03 Growth Dimensions next $6-.50%; next $12-.49%; Large Cap Equity and Large Cap Equity over $24-.48% Large Cap Value: Large Cap Value 1.25% until 7/31/03 New Dimensions(5) ------------------------------------------ --------------------------------------- ------------------------ European Equity(6) First $.25-.80%; next $.25-.775%; Global Growth(5),(6) next $.25-.75%; next $.25-.725%; International(6) next $1-.70%; over $2-.675% Precious Metals ------------------------------------------ --------------------------------------- ------------------------ Focused Growth First $.25-.65%; next $.25-.625%; Focused Growth: Research next $.50-.60%; next $1-.575%; 1.32% until 3/31/03 Opportunities(5) next $1-.55%; next $3-.525%; over $6-.50% ------------------------------------------ --------------------------------------- ------------------------ Global Balanced(6) First $.25-.79%; next $.25-.765%; next $.25-.74%; next $.25-.715%; next $1-.69%; over $2-.665% ------------------------------------------ --------------------------------------- ------------------------ Global Technology(5) First $.25-.72%; next $.25-.695%; next $.25-.67%; next $.25-.645%; next $1-.62%; over $2-.595% ------------------------------------------ --------------------------------------- ------------------------
-------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 59
Table D-2. Current Fund Management Fees (continued) ------------------------------------------ --------------------------------------- ------------------------ Retail Funds(1) Management Fee (annual rate; in Fee Cap(2) (if billions) applicable) ------------------------------------------ --------------------------------------- ------------------------ Mid Cap Value First $1-.70%; next $1-.675%; 1.40% until 9/30/02 next $1-.65%; next $3-.625%; next $6-.60%; next $12-.59%; over $24-.58% ------------------------------------------ --------------------------------------- ------------------------ Mutual(5) First $1-.53%; next $1-.505%; next $1-.48%; next $3-.455%; over $6-.43% ------------------------------------------ --------------------------------------- ------------------------ Partners First $.5-.73%; next $.5-.705%; 1.35% until 5/31/03 Fundamental Value(7) next $1-.68%; next $1-.655%; Partners Value(8) next $3-.63%; over $6-.60% ------------------------------------------ --------------------------------------- ------------------------ Partners International First $.25-1%; next $.25-.975%; 1.75% until 10/31/02 Aggressive Growth(9) next $.25-.95%; next $.25-.925%; next $1-.90%; over $2-.875% ------------------------------------------ --------------------------------------- ------------------------ Partners International First $.25-.90%; next $.25-.875%; 1.65% until 10/31/02 Select Value(10) next $.25-.85%; next $.25-.825%; next $1-.80%; over $2-.775% ------------------------------------------ --------------------------------------- ------------------------ Partners Select Value(4) First $.5-.78%; next $.5-.755%; 1.5% until 5/31/03 next $1-.73%; next $1-.705%; next $3-.68%; over $6-.65% ------------------------------------------ --------------------------------------- ------------------------ Partners First $.25-.97%; next $.25-.945%; Partners Small Cap Core(3) next $.25-.92%; next $.25-.895%; Small Cap Core and Partners over $1-.87% Partners Small Cap Value(11) Small Cap Value: 1.6% until 5/31/03 ------------------------------------------ --------------------------------------- ------------------------ Partners Small First $.25-.92%; next $.25-.895%; 1.55% until 3/31/03 Cap Growth(12) next $.25-.87%; next $.25-.845%; next $1-.82%; over $2-.795% ------------------------------------------ --------------------------------------- ------------------------ Small Cap Advantage(13) First $.25-.74%; next $.25-.715%; next $.25-.69%; next $.25-.665%; next $1-.64%; over $2-.615% ------------------------------------------ --------------------------------------- ------------------------ Small Company Index First $.25-.38%; next $.25-.37%; next $.25-.36%; next $.25-.35%; over $1-.34% ------------------------------------------ --------------------------------------- ------------------------ Strategy Aggressive First $1-.60%; next $1-.575%; next $1-.55%; next $3-.525%; over $6-.50% ------------------------------------------ --------------------------------------- ------------------------
-------------------------------------------------------------------------------- 60 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT
Table D-2. Current Fund Management Fees (continued) ------------------------------------------ --------------------------------------- ------------------------ Retail Funds(1) Management Fee (annual rate; in Fee Cap(2) (if billions) applicable) ------------------------------------------ --------------------------------------- ------------------------ Utilities First $.5-.61%; next $.5-.585%; next $1-.56%; next $1-.535%; next $3-.51%; over $6-.48% ------------------------------------------ --------------------------------------- ------------------------
(1) Except for Global Technology, each fund has a performance incentive adjustment based on its performance compared to a Lipper index of comparable funds over a rolling 12-month period. (2) For Class A shares, total fees and expenses in excess of this percent will be waived. Fee caps for Classes B, C and Y vary slightly based on the expenses of those classes. (3) The fund has subadvisory agreements with Pilgrim Baxter & Associates, Ltd. and Wellington Management Company, LLP. (4) The fund has a subadvisory agreement with Gabelli Asset Management Company. (5) The fund is part of a master/feeder structure. Management fees are paid by the portfolio on behalf of the fund. (6) The fund has a subadvisory agreement with American Express Asset Management International Inc. (7) The fund has a subadvisory agreement with Davis Advisors. (8) The fund has a subadvisory agreement with Lord, Abbett & Co. (9) The fund has subadvisory agreements with American Century Investment Management, Inc. and Liberty Wanger Asset Management, L.P. (10) The fund has a subadvisory agreement with Alliance Capital Management L.P. (11) The fund has subadvisory agreements with Third Avenue Management LLC, Royce & Associates, Inc. and National City Investment Management Company. (12) The fund has subadvisory agreements with INVESCO Funds Group Inc., RS Investment Management, L.P. and Neuberger Berman Management Inc. (13) The fund has a subadvisory agreement with Kenwood Capital Management LLC.
Table D-2. Current Fund Management Fees (continued) ------------------------------------------ --------------------------------------- ------------------------ Variable Portfolio Funds Management Fee (annual rate; in Fee Cap(1) (if billions) applicable) ------------------------------------------ --------------------------------------- ------------------------ VP-Blue Chip Advantage First $.5-.56%; next $.5-.545%; VP-Stock: 1.10% VP-Diversified Equity next $1-.53%; next $1-.515%; until 4/30/03 Income next $3-.50%; over $6-.47% VP-Stock ------------------------------------------ --------------------------------------- ------------------------ VP-Bond First $1-.61%; next $1-.595%; VP-Federal Income next $1-.58%; next $3-.565%; next $3-.55%; over $9-.535% ------------------------------------------ --------------------------------------- ------------------------ VP-Capital Resource First $1-.63%; next $1-.615%; VP-Growth next $1-.60%; next $3-.585%; VP-New Dimensions over $6-.57% ------------------------------------------ --------------------------------------- ------------------------ VP-Cash Management First $1-.51%; next $.5-.493%; next $.5-.475%; next $.5-.458%; over $2.5-.44% ------------------------------------------ --------------------------------------- ------------------------ VP-Emerging Markets(2) First $.25-1.17%; next $.25-1.155%; 1.75% until 4/30/03 next $.25-1.14%; next $.25 -1.125%; next $1-1.11%; over $2-1.095% ------------------------------------------ --------------------------------------- ------------------------
-------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 61
Table D-2. Current Fund Management Fees (continued) ------------------------------------------ --------------------------------------- ------------------------ Variable Portfolio Funds Management Fee (annual rate; in Fee Cap(1) (if billions) applicable) ------------------------------------------ --------------------------------------- ------------------------ VP-Equity Select First $.25-.65%; next $.25-.635%; 1.10% until 4/30/03 next $.25-.62%; next $.25-.605%; next $1-.59%; next $1-.575%; over $3-.56% ------------------------------------------ --------------------------------------- ------------------------ VP-Extra Income First $1-.62%; next $1-.605%; next $1-.59%; next $3-.575%; next $3-.56%; over $9-.545% ------------------------------------------ --------------------------------------- ------------------------ VP-Global Bond First $.25-.84%; next $.25-.825%; next $.25-.81%; next $.25-.795%; over $1-.78% ------------------------------------------ --------------------------------------- ------------------------ VP-International(2) First $.25-.87%; next $.25-.855%; next $.25-.84%; next $.25-.825%; next $1-.81%; over $2-.795% ------------------------------------------ --------------------------------------- ------------------------ VP-Managed First $.5-.63%; next $.5-.615%; next $1-.60%; next $1-.585%; next $3-.57%; over $6-.55% ------------------------------------------ --------------------------------------- ------------------------ VP-Partners First $.25-1.02%; next $.25-1.00%; Small Cap Value(3) next $.25-.98%; next $.25-.96%; next $1-.94%; over $2-.92% ------------------------------------------ --------------------------------------- ------------------------ VP-S&P 500 Index First $1-.29%; next $1-.28%; .495% until 4/30/03 next $3-.27%; over $5-.26% ------------------------------------------ --------------------------------------- ------------------------ VP-Small Cap Advantage(4) First $.25-.79%; next $.25-.77%; next $.25-.75%; next $.25-.73%; next $1-.71%; over $2-.65% ------------------------------------------ --------------------------------------- ------------------------ VP-Strategy Aggressive First $.25-.65%; next $.25-.635%; next $.25-.62%; next $.25-.605%; next $1-.59%; over $2-.575% ------------------------------------------ --------------------------------------- ------------------------
(1) Total fees and expenses in excess of this percent will be waived. (2) The fund has a subadvisory agreement with American Express Asset Management International Inc. (3) The fund has subadvisory agreements with Third Avenue Management LLC, Royce & Associates, Inc. and National City Investment Management Company. (4) The fund has a subadvisory agreement with Kenwood Capital Management LLC. -------------------------------------------------------------------------------- 62 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Table D-3. Actual and Pro Forma Investment Management Services Agreement Fees Fund Actual Fee Pro Forma Fee % Change Retail Funds Blue Chip Advantage $ 13,295,269 $ 10,519,357 (21%) Discovery 1,657,144 1,641,903 (1) Diversified Equity Income 10,388,708 10,150,467 (2) Emerging Markets 3,038,817 2,870,655 (6) Equity Select 11,264,762 11,952,474 6 Equity Value 10,337,896 11,337,535 10 European Equity 1,749,863 1,665,840 (5) Focused Growth 463,382 460,228 (1) Global Balanced 1,247,975 1,050,268 (16) Global Growth 8,625,128 8,528,881 (1) Global Technology 2,346,933 2,346,933 0 Growth 46,332,234 45,901,875 (1) Growth Dimensions 1,354,637 1,281,363 (5) International 6,238,651 6,051,762 (3) Large Cap Equity* N/A N/A N/A Large Cap Value* N/A N/A N/A Managed Allocation 8,045,640 7,315,052 (9) Mid Cap Value* N/A N/A N/A Mutual 12,630,281 11,014,126 (13) New Dimensions 156,837,446 162,659,468 4 Partners Fundamental Value 861,709 852,654 (1) Partners International Aggressive Growth 11,981 11,981 0 Partners International Select Value 9,434 9,434 0 Partners Select Value 51,468 52,411 2 Partners Small Cap Core 28,743 27,894 (3) Partners Small Cap Growth 1,074,990 1,113,257 4 Partners Small Cap Value 2,111,899 2,160,137 2 Partners Value 778,039 799,049 3 Precious Metals 309,868 314,325 1 Progressive 1,337,549 1,252,850 (6) Research Opportunities 4,445,123 3,937,124 (11) Small Cap Advantage 3,737,351 3,585,372 (4) Small Company Index 4,135,567 4,556,651 10 Stock 19,192,649 19,651,969 2 Strategy Aggressive 7,962,141 7,358,197 (8) Utilities 15,139,721 15,806,461 4 -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 63 Table D-3 Actual and Pro Forma Investment Management Services Agreement Fees (cont.) Fund Actual Fee Pro Forma Fee % Change Variable Portfolio Funds VP-Blue Chip Advantage $ 432,774 $ 395,926 (9%) VP-Bond 9,066,435 9,066,435 0 VP-Capital Resource 26,165,265 26,165,265 0 VP-Cash Management 4,588,071 4,588,071 0 VP-Diversified Equity Income 226,096 221,970 (2) VP-Emerging Markets 63,655 61,433 (3) VP-Equity Select 14,536 15,315 5 VP-Extra Income 3,654,071 3,654,071 0 VP-Federal Income 380,941 380,941 0 VP-Global Bond 1,528,297 1,528,297 0 VP-Growth 1,231,521 1,192,995 (3) VP-International 14,728,134 14,728,134 0 VP-Managed 26,202,635 26,202,635 0 VP-New Dimensions 27,613,749 27,613,749 0 VP-Partners Small Cap Value 2,014 2,014 0 VP-S&P 500 Index 109,395 109,395 0 VP-Small Cap Advantage 289,538 282,717 (2) VP-Stock 540 540 0 VP-Strategy Aggressive 16,018,758 16,018,758 0 * The fund began operations in 2002 and has not yet had a fiscal year end reporting period. -------------------------------------------------------------------------------- 64 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Table D-4. Dates Relating to Approval of Current Management Agreements ---------------------------- ---------------- ----------------- ---------------- Fund Date Last Date Entered Reason Approved by Into Submitted to Shareholders Shareholders ---------------------------- ---------------- ----------------- ---------------- Retail Funds ---------------------------- ---------------- ----------------- ---------------- Discovery, Growth, 9/9/94 3/20/95 * International, Managed Allocation, Mutual, New Dimensions, Precious Metals, Progressive, Stock ---------------------------- ---------------- ----------------- ---------------- Small Cap Advantage 4/18/99 4/18/99 Initial approval ---------------------------- ---------------- ----------------- ---------------- Blue Chip Advantage, 6/16/99 7/1/99 ** Diversified Equity Income, Emerging Markets, Equity Select, Equity Value, Global Balanced, Global Growth, Research Opportunities, Small Company Index, Strategy Aggressive, Utilities ---------------------------- ---------------- ----------------- ---------------- Global Technology 7/1/99 7/1/99 Initial approval ---------------------------- ---------------- ----------------- ---------------- European Equity, 3/9/00 3/9/00 Initial approval Focused Growth, Growth Dimensions ---------------------------- ---------------- ----------------- ---------------- Partners Small Cap Growth 11/9/00 11/9/00 Initial approval ---------------------------- ---------------- ----------------- ---------------- Partners Fundamental 5/10/01 5/10/01 Initial approval Value, Partners International Aggressive Growth, Partners International Select Value, Partners Small Cap Value, Partners Value ---------------------------- ---------------- ----------------- ---------------- Large Cap Equity, 1/10/02 1/10/02 Initial approval Mid Cap Value, Partners Select Value, Partners Small Cap Core ---------------------------- ---------------- ----------------- ---------------- Large Cap Value 4/11/02 4/11/02 Initial approval ---------------------------- ---------------- ----------------- ---------------- -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 65 Table D-4. Dates Relating to Approval of Current Management Agreements (cont.) ---------------------------- ---------------- ----------------- ---------------- Fund Date Last Date Entered Reason Approved by Into Submitted to Shareholders Shareholders ---------------------------- ---------------- ----------------- ---------------- Variable Portfolio Funds ---------------------------- ---------------- ----------------- ---------------- VP-Bond, 9/9/94 3/20/95 * VP-Capital Resource, VP-Cash Management, VP-International, VP-Managed, VP-Strategy Aggressive ---------------------------- ---------------- ----------------- ---------------- VP-Extra Income, 4/11/96 4/11/96 Initial approval VP-Global Bond, VP-New Dimensions ---------------------------- ---------------- ----------------- ---------------- VP-Blue Chip Advantage, 9/13/99 9/13/99 Initial approval VP-Diversified Equity Income, VP-Federal Income, VP-Growth, VP-Small Cap Advantage ---------------------------- ---------------- ----------------- ---------------- VP-Emerging Markets, 5/1/00 5/1/00 Initial approval VP-S&P 500 Index ---------------------------- ---------------- ----------------- ---------------- VP-Equity Select 4/11/01 4/11/01 Initial approval ---------------------------- ---------------- ----------------- ---------------- VP-Partners Small Cap 5/9/01 5/9/01 Initial approval Value, VP-Stock ---------------------------- ---------------- ----------------- ---------------- * Shareholders approved (1) basing the fee solely on the assets of the fund, not on the assets of all of the American Express Funds and (2) eliminating provisions regarding administration and accounting services. The fund and AEFC then entered into a separate Administrative Services Agreement. ** Shareholders approved a change in the management fee involving an increase in the fee, the addition of breakpoints and/or the addition of a performance incentive adjustment. -------------------------------------------------------------------------------- 66 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT
Table D-5. Fund Payments to AEFC and Its Affiliates* Fund Admin Plan Service TA Custody Retail Funds Blue Chip Advantage $ 839,722 $16,627,617 $ 304,770 $ 6,210,943 $ 217,720 Discovery 223,384 1,360,017 3,935 862,691 89,788 Diversified Equity Income 719,533 9,423,250 21,145 3,195,016 132,395 Emerging Markets 278,576 1,423,491 89 1,115,949 307,916 Equity Select 822,210 6,053,929 81,837 2,338,505 141,154 Equity Value 680,433 11,095,728 2,510 3,468,272 98,626 European Equity 136,777 1,094,908 55 614,473 136,483 Focused Growth 53,298 446,170 20 342,945 11,342 Global Balanced 98,158 890,146 1,788 361,902 80,005 Global Growth 710,917 6,843,748 14,782 3,509,859 254,289 Global Technology 194,084 1,607,956 85 1,464,738 73,489 Growth 3,193,208 33,358,014 1,259,734 11,049,320 563,372 Growth Dimensions 85,654 1,428,268 47 619,982 70,140 International 541,114 4,492,578 84,402 2,880,564 323,622 Large Cap Equity** N/A N/A N/A N/A N/A Large Cap Value** N/A N/A N/A N/A N/A Managed Allocation 571,810 5,432,910 20,425 2,313,883 270,466 Mid Cap Value** N/A N/A N/A N/A N/A Mutual 1,091,114 8,458,912 705,705 4,703,810 251,341 New Dimensions 7,911,702 96,991,703 5,501,233 31,406,714 1,490,795 Partners Fundamental Value 71,365 649,317 11 281,986 58,829 Partners International Aggressive Growth 959 3,436 -- 987 9,570
-------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 67
Table D-5. Fund Payments to AEFC and Its Affiliates* (continued) Fund Admin Plan Service TA Custody Retail Funds (continued) Partners International Select Value $ 838 $ 3,838 $ 1 $ 1,948 $ 9,570 Partners Select Value 3,959 35,827 2 21,172 13,860 Partners Small Cap Core 2,371 13,644 4 8,345 24,954 Partners Small Cap Growth 92,972 552,582 23 323,427 176,447 Partners Small Cap Value 171,697 1,148,413 82 610,630 66,103 Partners Value 63,396 577,320 10 234,444 153,315 Precious Metals 24,611 163,925 9 149,255 29,454 Progressive 157,294 933,519 3 489,277 37,895 Research Opportunities 412,205 4,016,790 315 1,478,718 78,465 Small Cap Advantage 341,955 3,034,591 145 1,456,171 76,216 Small Company Index 730,484 5,824,337 7,960 2,240,968 147,836 Stock 1,156,491 10,914,974 843,430 4,113,941 251,882 Strategy Aggressive 858,122 9,374,449 4,045 5,079,727 185,968 Utilities 804,152 12,095,597 1,414 2,822,848 158,225 Variable Portfolio Funds VP-Blue Chip Advantage 33,432 99,620 N/A N/A 23,061 VP-Bond 848,035 1,873,229 N/A N/A 95,885 VP-Capital Resource 1,875,677 5,398,734 N/A N/A 323,925 VP-Cash Management 281,249 1,124,716 N/A N/A 85,059 VP-Diversified Equity Income 15,460 51,207 N/A N/A 150,326 VP-Emerging Markets 5,471 6,839 N/A N/A 57,962 VP-Equity Select 1,342 2,795 N/A N/A 27,970
-------------------------------------------------------------------------------- 68 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT
Table D-5. Fund Payments to AEFC and Its Affiliates* (continued) Fund Admin Plan Service TA Custody Variable Portfolio Funds (continued) VP-Extra Income $ 312,497 $ 736,708 N/A N/A $ 50,135 VP-Federal Income 32,461 78,061 N/A N/A 20,896 VP-Global Bond 112,061 227,425 N/A N/A 40,542 VP-Growth 102,800 249,203 N/A N/A 187,494 VP-International 859,062 2,216,073 N/A N/A 449,183 VP-Managed 1,309,591 5,532,568 N/A N/A 304,550 VP-New Dimensions 1,967,593 5,708,239 N/A N/A 283,557 VP-Partners Small Cap Value 158 247 N/A N/A 1,700 VP-S&P 500 Index 31,399 47,153 N/A N/A 265,820 VP-Small Cap Advantage 22,991 49,728 N/A N/A 106,376 VP-Stock 39 120 N/A N/A 1,800 VP-Strategy Aggressive 1,192,060 3,341,490 N/A N/A 283,424
* The Administrative Services Agreement ("Admin") is between the fund and AEFC. The Plan and Agreement of Distribution ("Plan") and Shareholder Service Agreement ("Service") are between the fund and AEFA. The Transfer Agency ("TA") Agreement is between the fund and American Express Client Service Corporation. The Custodian Agreement ("Custody") is between the fund and American Express Trust Company. Services under these agreements will continue to be provided after the Agreement is approved. The Variable Portolio Funds do not have separate Service or TA Agreements. ** The fund began operations in 2002 and has not yet had a fiscal year end reporting period. -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 69
Table D-6. Brokerage Commissions Paid to Affiliates Amount of % of All Fund Broker/Dealer Commissions Commissions Retail Funds Blue Chip Advantage AEIS(1) $ 23,611 0.34% Discovery AEIS(1) 11,649 1.30 Diversified Equity Income AEIS(1) 20,283 0.30 Emerging Markets N/A N/A N/A Equity Select AEIS(1) 85,611 8.42 Equity Value AEIS(1) 1,701 0.05 European Equity N/A N/A N/A Focused Growth N/A N/A N/A Global Balanced N/A N/A N/A Global Growth N/A N/A N/A Global Technology AEIS(1) 77,423 10.25 Growth AEIS(1) 147,507 3.02 Growth Dimensions AEIS(1) 18,750 3.44 International N/A N/A N/A Large Cap Equity(2) N/A N/A N/A Large Cap Value(2) N/A N/A N/A Managed Allocation AEIS(1) 78,453 1.94 Mid Cap Value(2) N/A N/A N/A Mutual AEIS(1) 243,507 4.97 New Dimensions AEIS(1) 1,480,185 9.93 Partners Fundamental Value N/A N/A N/A Partners International Aggressive Growth N/A N/A N/A Partners International Select Value N/A N/A N/A Partners Select Value Gabelli & Co.(3) 73,135 98.17 Partners Small Cap Core N/A N/A N/A Partners Small Cap Growth N/A N/A N/A Partners Small Cap Value M.J. Whitman, Inc.(4) 262,142 84.03 Partners Value N/A N/A N/A Precious Metals AEIS(1) 14,448 1.30 Progressive AEIS(1) 28,767 7.77 Research Opportunities AEIS(1) 40,815 1.66 Small Cap Advantage AEIS(1) 3,567 0.16 Small Company Index N/A N/A N/A Stock AEIS(1) 548,179 7.91 Strategy Aggressive AEIS(1) 47,232 0.69 Utilities AEIS(1) 71,428 1.20
-------------------------------------------------------------------------------- 70 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT
Table D-6. Brokerage Commissions Paid to Affiliates (continued) Amount of % of All Fund Broker/Dealer Commissions Commissions Variable Portfolio Funds VP-Blue Chip Advantage N/A N/A N/A VP-Bond N/A N/A N/A VP-Capital Resource AEIS(1) $603,162 10.79% VP-Cash Management N/A N/A N/A VP-Diversified Equity Income N/A N/A N/A VP-Emerging Markets N/A N/A N/A VP-Equity Select N/A N/A N/A VP-Extra Income N/A N/A N/A VP-Federal Income N/A N/A N/A VP-Global Bond N/A N/A N/A VP-Growth AEIS(1) 441 0.33 VP-International N/A N/A N/A VP-Managed AEIS(1) 186,633 4.96 VP-New Dimensions AEIS(1) 29,262 1.13 VP-Partners Small Cap Value N/A N/A N/A VP-S&P 500 Index N/A N/A N/A VP-Small Cap Advantage N/A N/A N/A VP-Stock N/A N/A N/A VP-Strategy Aggressive AEIS(1) 146,170 2.71
(1) American Enterprise Investment Services Inc. is a wholly owned subsidiary of AEFC. These transactions were executed at rates determined to be reasonable and fair as compared to the rates another broker would charge. (2) The fund began operations in 2002 and has not yet had a fiscal year end reporting period. (3) Gabelli & Co. is an affiliate of the fund's subadviser. (4) M.J. Whitman, Inc. is an affiliate of the fund's subadviser. -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 71 Table D-7. Fund Size and 5% Owners (as of June 30, 2002) Fund Net Assets Outstanding Shares 5% Owners Retail Funds Blue Chip Advantage: Class A $1,197,999,655 171,054,822 None Class B 818,670,275 119,871,357 None Class C 4,858,996 713,413 None Class Y 200,620,018 28,581,298 None Bond: Class A 2,351,799,678 499,101,849 None Class B 1,051,698,684 223,165,131 None Class C 22,094,177 4,683,166 None Class Y 292,655,321 62,094,715 None California Tax-Exempt: Class A 233,535,249 44,613,090 None Class B 27,291,593 5,215,616 None Class C 3,479,415 663,882 (1) Cash Management: Class A 5,689,467,033 5,689,284,268 None Class B 309,943,754 310,104,215 None Class C 2,721,165 2,721,289 (2) Class Y 201,836,061 201,925,057 None Discovery: Class A 156,929,088 27,581,942 None Class B 26,711,113 5,063,200 None Class C 20,047 3,807 (3) Class Y 1,038,259 180,716 None Diversified Equity Income: Class A 1,624,873,043 203,991,203 None Class B 698,383,881 87,880,229 None Class C 13,835,581 1,741,182 None Class Y 30,633,009 3,843,885 None -------------------------------------------------------------------------------- 72 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Table D-7. Fund Size and 5% Owners (continued) (as of June 30, 2002) Fund Net Assets Outstanding Shares 5% Owners Retail Funds (continued) Emerging Markets: Class A $ 154,856,192 35,363,017 None Class B 79,158,581 18,841,732 None Class C 320,172 76,067 (4) Class Y 1,799,485 408,407 None Equity Select: Class A 1,208,445,344 116,958,845 None Class B 325,288,235 33,441,064 None Class C 6,608,707 679,378 None Class Y 116,388,767 11,187,817 None Equity Value: Class A 931,399,647 113,695,370 None Class B 638,004,873 77,800,731 None Class C 3,944,897 484,028 None Class Y 2,763,596 336,934 None European Equity: Class A 130,923,996 38,499,424 None Class B 61,386,612 18,306,037 None Class C 2,364,489 705,684 None Class Y 42,824 12,572 None Extra Income: Class A 1,538,791,362 626,598,140 None Class B 682,920,691 278,226,122 None Class C 19,605,617 8,030,683 None Class Y 775,881 315,613 None Federal Income: Class A 1,220,338,132 250,876,238 None Class B 1,159,262,989 238,343,351 None Class C 30,996,724 6,372,173 None Class Y 191,357,299 39,341,113 None -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 73 Table D-7. Fund Size and 5% Owners (continued) (as of June 30, 2002) Fund Net Assets Outstanding Shares 5% Owners Retail Funds (continued) Focused Growth: Class A $ 41,528,017 23,597,032 None Class B 22,013,548 12,667,241 None Class C 1,453,170 838,260 None Class Y 15,458 8,748 None Global Balanced: Class A 65,877,761 14,939,911 None Class B 44,023,957 10,135,253 None Class C 740,467 171,042 (5) Class Y 3,380,204 762,557 None Global Bond: Class A 341,236,316 58,285,077 None Class B 143,285,683 24,455,391 None Class C 1,962,942 335,635 (6) Class Y 68,201 11,636 None Global Growth: Class A 537,012,166 119,805,637 None Class B 235,593,795 54,643,476 None Class C 1,147,400 266,936 None Class Y 9,360,535 2,079,519 None Global Technology: Class A 103,007,090 84,444,967 None Class B 49,674,216 45,495,958 None Class C 3,368,552 3,084,478 None Class Y 57,271 47,073 None Growth: Class A 2,478,023,641 110,205,921 None Class B 971,051,420 45,933,147 None Class C 8,083,023 382,290 None Class Y 630,364,224 27,729,054 None -------------------------------------------------------------------------------- 74 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Table D-7. Fund Size and 5% Owners (continued) (as of June 30, 2002) Fund Net Assets Outstanding Shares 5% Owners Retail Funds (continued) Growth Dimensions: Class A $ 159,253,684 72,745,777 None Class B 78,863,921 36,579,456 None Class C 4,853,295 2,250,647 None Class Y 26,990 12,296 None High Yield Tax-Exempt: Class A 4,529,831,875 1,025,537,530 None Class B 345,916,025 78,337,385 None Class C 22,444,075 5,079,853 None Class Y 1,992 450 None Insured Tax-Exempt: Class A 396,862,618 71,630,027 None Class B 65,110,910 11,751,800 None Class C 5,857,956 1,055,602 (7) Class Y 1,452 263 None Intermediate Tax-Exempt: Class A 64,665,104 12,251,074 None Class B 15,747,142 2,983,759 None Class C 3,574,583 677,724 (8) Class Y 1,273 243 None International: Class A 382,924,813 63,316,776 None Class B 154,335,355 25,948,564 None Class C 1,243,959 210,203 (9) Class Y 82,028,936 13,523,183 None International Equity Index: Class D 8,328,424 2,255,470 (10) Class E 11,869,993 3,221,113 (11) Large Cap Equity: Class A 10,036,226 2,293,737 None Class B 4,407,286 1,010,177 None Class C 159,466 36,492 (12) Class Y 28,342 6,471 None -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 75 Table D-7. Fund Size and 5% Owners (continued) (as of June 30, 2002) Fund Net Assets Outstanding Shares 5% Owners Retail Funds (continued) Large Cap Value: Class A $ 2,096,130 426,122 None Class B 39,405 8,011 (13) Class C 9,837 2,000 (14) Class Y 9,838 2,000 None Managed Allocation: Class A 1,039,918,060 132,904,838 None Class B 142,491,691 18,340,066 None Class C 1,245,035 160,248 None Class Y 8,013,717 1,024,214 None Massachusetts Tax-Exempt: Class A 66,064,388 12,295,169 None Class B 24,090,858 4,483,711 None Class C 2,251,695 418,975 (15) Michigan Tax-Exempt: Class A 69,995,877 13,136,620 None Class B 8,236,860 1,545,661 None Class C 1,412,273 265,016 (16) Mid Cap Index: Class D 15,267,016 2,745,197 (17) Class E 14,952,145 2,681,735 (18) Mid Cap Value: Class A 49,863,889 9,971,989 None Class B 28,574,512 5,731,617 None Class C 1,257,500 252,084 None Class Y 28,105 5,615 None Minnesota Tax-Exempt Class A 374,526,702 72,060,911 None Class B 64,344,285 12,378,473 None Class C 4,891,395 940,739 (19) -------------------------------------------------------------------------------- 76 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Table D-7. Fund Size and 5% Owners (continued) (as of June 30, 2002) Fund Net Assets Outstanding Shares 5% Owners Retail Funds (continued) Mutual: Class A $ 1,340,654,681 159,546,734 None Class B 191,168,415 22,902,411 None Class C 1,111,645 132,982 None Class Y 382,681,406 45,548,035 None New Dimensions: Class A 10,857,921,433 506,115,486 None Class B 4,211,791,119 205,691,905 None Class C 46,778,106 2,286,740 None Class Y 3,506,181,474 162,698,292 None New York Tax-Exempt: Class A 92,407,788 17,914,912 (20) Class B 18,221,052 3,532,642 None Class C 1,274,622 247,124 (21) Ohio Tax-Exempt: Class A 69,429,655 12,989,135 None Class B 11,811,168 2,209,981 None Class C 1,271,370 237,807 (22) Partners Fundamental Value: Class A 150,660,872 36,421,108 None Class B 103,019,829 25,067,669 None Class C 5,161,235 1,251,227 None Class Y 14,505 3,503 None Partners International Aggressive Growth: Class A 72,853,708 13,311,247 None Class B 22,854,095 4,197,752 None Class C 1,120,872 205,935 (23) Class Y 25,446 4,643 None -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 77 Table D-7. Fund Size and 5% Owners (continued) (as of June 30, 2002) Fund Net Assets Outstanding Shares 5% Owners Retail Funds (continued) Partners International Select Value: Class A $138,821,160 24,641,422 None Class B 62,270,241 11,106,924 None Class C 2,617,090 467,056 None Class Y 37,429 6,634 None Partners Select Value: Class A 47,569,374 10,066,789 None Class B 32,579,675 6,907,141 None Class C 1,942,688 411,888 (24) Class Y 9,455 2,000 None Partners Small Cap Core: Class A 16,450,931 3,645,030 None Class B 8,292,290 1,840,459 None Class C 690,276 153,363 (25) Class Y 16,004 3,545 None Partners Small Cap Growth: Class A 146,702,444 39,864,451 None Class B 72,140,998 19,809,547 None Class C 5,485,245 1,506,381 None Class Y 55,375 15,037 None Partners Small Cap Value: Class A 393,890,164 71,411,460 None Class B 237,943,352 43,463,246 None Class C 11,910,231 2,170,402 None Class Y 256,631 46,482 None Partners Value: Class A 150,290,967 35,039,689 None Class B 103,908,600 24,362,786 None Class C 6,705,717 1,568,134 None Class Y 11,715 2,728 None -------------------------------------------------------------------------------- 78 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Table D-7. Fund Size and 5% Owners (continued) (as of June 30, 2002) Fund Net Assets Outstanding Shares 5% Owners Retail Funds (continued) Precious Metals: Class A $ 47,038,761 5,737,787 None Class B 140,924,398 1,890,751 None Class C 207,821 26,390 (26) Class Y 41,688 5,063 None Progressive: Class A 14,997,233 25,714,521 None Class B 24,769,588 4,672,795 None Class C 87,013 16,501 (27) Class Y 1,756 318 None Research Opportunities: Class A 214,319,274 50,717,577 None Class B 139,402,624 34,806,392 None Class C 301,771 75,279 (28) Class Y 222,221 52,148 None S&P 500 Index: Class D 40,797,696 10,640,901 None Class E 195,310,752 50,777,313 None Selective: Class A 1,025,396,845 119,257,397 None Class B 342,188,791 39,798,974 None Class C 9,675,812 1,125,548 None Class Y 182,325,606 21,205,127 None Small Cap Advantage: Class A 378,002,770 74,827,144 None Class B 201,137,568 40,801,452 None Class C 5,144,106 1,043,303 None Class Y 149,663 29,465 None Small Company Index: Class A 736,507,667 117,497,908 None Class B 481,545,401 81,000,761 None Class Y 11,122,217 1,758,852 None -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 79 Table D-7. Fund Size and 5% Owners (continued) (as of June 30, 2002) Fund Net Assets Outstanding Shares 5% Owners Retail Funds (continued) Stock: Class A $1,992,131,691 116,402,257 None Class B 275,149,364 16,227,081 None Class C 2,421,249 143,189 None Class Y 600,418,512 35,084,431 None Strategy Aggressive: Class A 696,881,850 71,817,494 None Class B 407,586,319 46,216,413 None Class C 3,002,956 340,431 None Class Y 1,662,342 168,779 None Tax-Exempt Bond: Class A 837,401,772 205,967,486 None Class B 58,560,503 14,401,136 None Class C 5,235,591 1,287,593 None Class Y 1,980 487 None Tax-Free Money 196,029,973 196,037,728 None U.S. Government Mortgage: Class A 71,760,220 14,131,764 None Class B 43,026,414 8,470,009 None Class C 6,298,959 1,239,770 (29) Class Y 11,679 2,300 None Utilities: Class A 1,085,639,985 164,841,673 None Class B 531,370,505 81,216,388 None Class C 12,217,990 1,866,785 None Class Y 1,463,598 221,986 None Variable Portfolio Funds VP-Blue Chip Advantage 72,663,450 10,201,331 (30) VP-Bond 1,730,572,501 167,767,969 (30) VP-Capital Resource 2,497,370,320 144,947,054 (30) VP-Cash Management 1,058,408,243 1,058,788,319 (30) VP-Diversified Equity Income 276,147,539 29,478,938 (30) VP-Emerging Markets 9,831,673 1,309,110 (30) -------------------------------------------------------------------------------- 80 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Table D-7. Fund Size and 5% Owners (continued) (as of June 30, 2002) Fund Net Assets Outstanding Shares 5% Owners Variable Portfolio Funds (continued) VP-Equity Select $ 67,625,080 7,251,638 (30) VP-Extra Income 587,098,561 102,856,021 (30) VP-Federal Income 204,621,578 19,614,114 (30) VP-Global Bond 213,295,358 21,379,957 (30) VP-Growth 157,731,851 29,603,829 (30) VP-International 1,049,938,729 132,651,668 (30) VP-Managed 3,060,946,948 234,766,320 (30) VP-New Dimensions 3,409,602,064 245,235,106 (30) VP-Partners Small Cap Value 60,561,423 5,466,411 (30) VP-S&P 500 Index 99,888,011 14,812,448 (30) VP-Small Cap Advantage 66,818,043 6,549,688 (30) VP-Stock 4,473,258 523,398 (30) VP-Strategy Aggressive 1,197,713,169 186,574,684 (30) (1) Miriam Thias Carr Trust, Sacramento CA, owns 35,354 shares (6.37%). Tommy E. and Sally J. Sims 1991 Fam Trust, Salinas CA, owns 34,386 shares (6.20%). Dorothy M. Mendel Rev Trust, Richmond CA, owns 32,899 shares (5.93%). Jessica R. Rothenberg and Michael E. Dodson, San Francisco CA, own 29,062 shares (5.24%). (2) John W. Slagle, Irvine CA, owns 204,426 shares (8.71%). Joan A. Vesco Rev Trust, Sierra Vista AZ, owns 147,514 shares (6.29%). (3) Antonia B. Palazzolo, Rocky Hill CT, owns 791 shares (27.26%). Hal C. Beckley, Branford CT, owns 695 shares (23.94%). Thai Duc Bui, Redwood City CA, owns 644 shares (22.19%). (4) Raymond T. Snapp, Bedford IN, owns 11,553 shares (19.55%). Sandra L. Kubena, San Antonio TX, owns 4,556 shares (7.71%). Mark Carrol Nelson, Vacaville CA, owns 4,073 shares (6.89%). Frank Paul Sincaglia, Chagrin Falls OH, owns 3,070 shares (5.19%). (5) Phillip L. Jones, Hanford CA, owns 8,830 shares (6.08%). Michael R. McCormick and Carla Z. McCormick, Louisville KY, own 8,117 shares (5.59%). (6) Patricia Rose Reynolds, Plymouth MN, owns 9,781 shares (6.17%). (7) Mary M. Stephens Irrev Trust, Calhoun GA, owns 66,061 shares (6.62%). (8) Frank A. Maggio and Dianne K. Maggio, C/O Texaco Italiana Pouch, White Plains NY, own 37,351 shares (7.66%). Mary M. Stephens Irrev Trust, Calhoun GA, owns 29,488 shares (6.05%). (9) Roger J. Thompson and Sylvia Ann Thompson, Boise ID, own 15,999 shares (8.92%). Sandra L. Kubena, San Antonio TX, owns 13,462 shares (7.51%). David T. Rouleau and Joann E. Rouleau, Cloquet MN, own 10,235 shares (5.71%). (10) AEFC, Minneapolis MN, owns 1,226,935 shares (54.40%). (11) AEFC, Minneapolis MN, owns 2,869,362 shares (89.08%). (12) Bonnie P. Foslien and Leroy D. Foslien, Minneapolis MN, own 6,845 shares (28.07%). Daniel F. Pagano, Yonkers NY, owns 2,189 shares (8.98%). Eric T. Fiedler and Laurie Fiedler, Lakeville MN, own 2,037 shares (8.35%). Derrick M. Cone, Phoenix AZ, owns 1,264 shares (5.18%). -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 81 (13) Richard J. Schmaltz and Lois M. Schmaltz, Penn Yan NY, own 2,559 shares (24.05%). Lawrence A. Minor, Beavercreek OR, owns 1,698 shares (15.96%). Donavon Lee Krey, Waite Park MN, owns 1,598 shares (15.02%). Julia G. Haggerty, Seattle WA, owns 1,154 shares (10.84%). Dorothy A. Snyder, Lebanon OR, owns 676 shares (6.36%). (14) Judith S. Chapman Trust, Santa Monica CA, owns 384 shares (16.10%). (15) Rivelo C. Campagna and Joyce M. Campagna, Lunenburg MA, own 94,298 shares (25.68%). Paul J. Cormier, Leominster MA, owns 63,549 shares (17.31%). Glenlevit Trust, Leominster MA, owns 59,184 shares (16.12%). Linda Di Nardo and Alphonse A. Di Nardo, Leominster MA, own 24,398 shares (6.65%). Carole J. Bigney, Boston MA, owns 18,867 shares (5.14%). (16) Marian A. Beaver Trust, Riga MI, owns 14,426 shares (12.38%). Jean M. Abramson, Laurium MI, owns 10,433 shares (8.95%). Ray W. and Gertrude E. Butler Rev Liv Trust, Clarkston MI, owns 10,148 shares (8.71%). Alan Pawlow, Grosse Pointe MI, owns 8,556 shares (7.34%). Ronald P. White and Susan L. White, Grand Rapids MI, own 8,398 shares (7.20%). Michael Wayne Miller and Sheryl Ann Miller, Mattawan MI, own 7,026 shares (6.03%). (17) AEFC, Minneapolis MN, owns 679,093 shares (24.74%). (18) AEFC, Minneapolis MN, owns 1,588,274 shares (59.23%). (19) Jane Nelson and James P. Nelson, Duluth MN, own 49,143 shares (5.91%). (20) Frank L. Skillern Jr., New York NY, owns 958,990 shares (5.37%). (21) Bruce C. Bernhard, Fairport NY, owns 16,576 shares (7.73%). Bernadette M. Johannes, C/O Denise W. Jose AIF, Keuka Park NY, owns 11,679 shares (5.44%). (22) Sears Family Rev Liv Trust, Parma OH, owns 78,377 shares (34.12%). Gary N. Nebinger and Maureen L. Nebinger, Dublin OH, own 19,820 shares (8.63%). Richard Joseph Shenal Jr, Twinsburg OH, owns 14,375 shares (6.26%). Bunny Kay Cowan Clark and Thomas J. Clark, Powell OH, own 12,714 shares (5.53%). (23) Jeffrey D. Cooper, Tampa FL, owns 4,965 shares (5.01%). (24) Victor O. Lawson, C/O Terry or C. Lawson POA, Portage MI, owns 17,760 shares (8.55%). (25) Jeffrey D. Cooper, Tampa FL, owns 5,706 shares (7.73%). Gary L. Kaiser, West Chicago IL, owns 4,873 shares (6.60%). Mary Jo Langhorne, Iowa City IA, owns 3,859 shares (5.23%). (26) Richard L. Venable and Susan Angela Venable, Argyle TX, own 4,815 shares (27.05%). Greg Leroy Anderson, Gainsville GA, owns 3,317 shares (18.63%). Richard C. Anderson Jr., Reading MA, owns 1,765 shares (9.92%). Mildred L. Thiem, Eastpointe MI, owns 1,684 shares (9.46%). David Alan Briden and Laurine Briden, W Des Moines IA, own 1,208 shares (6.78%). (27) Willis P. Beverly Jr., Birmingham AL, owns 2,273 shares (14.76%). Dianna L. Padovini and Joseph A. Padovini Jr., Morgantown WV, own 2,122 shares (13.78%). Gerald W. Rowe and Linda P. Rowe, Ulster PA, own 1,894 shares (12.30%). Vicki Jean Haun Trust, Ventura CA, owns 1,210 shares (7.85%). Kay Eleanor Slade, Birmingham AL, owns 1,085 shares (7.05%). Guy Ciaccio and Joan M. Ciaccio, Gloversville NY, own 795 shares (5.16%). (28) Shirley Ann Balliett, San Diego CA, owns 9,422 shares (12.48%). Kelly Family Trust, El Cajon CA, owns 7,655 shares (10.14%). James R. Glenn and Marcia E. Glenn, Crete NE, own 4,929 shares (6.53%). Michael C. Farah Trust and Katrina L. Farah Trust, Bloomfield MI, own 4,836 shares (6.41%). (29) Husted Ranches In, Jackson MT, owns 82,828 shares (8.75%). (30) 100% of the fund's assets are owned by the separate accounts of IDS Life, IDS Life of New York, ACL, AEL and APL. -------------------------------------------------------------------------------- 82 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT The Fund's Independent Public Accountant. The Investment Company Act of 1940 (the "1940 Act") provides that every registered investment company must be audited at least once each year by independent public accountants selected by a majority of the independent Board members. The fund's Board has selected KPMG LLP to be the fund's independent public accountant for the current fiscal year. KPMG LLP, in accordance with Independence Standards Board Standard No. 1 ("ISB No. 1"), has confirmed to the Board's Joint Audit Committee that they are independent accountants with respect to the fund. The independent accountants examine annual financial statements for the fund and provide other requested non-audit and tax-related services to the fund. The Board's Joint Audit Committee does not consider other non-audit services provided by KPMG LLP to be incompatible with maintaining the independence of KPMG LLP in its audits of the fund, taking into account representations from KPMG LLP, in accordance with ISB No. 1, regarding its independence from the fund and its related entities. Representatives of KPMG LLP are expected to be present at the meeting. They will be given the opportunity to make a statement to shareholders and are expected to be available to respond to any questions that may be raised at the meeting. Fund-Related Fees o Audit Fees. During the year ended June 30, 2002, the fee paid to KPMG LLP for professional services rendered for the audits of the annual financial statements for the fund was as follows: Table D-8. Audit Fees Fund Audit Fees Retail Funds Blue Chip Advantage $25,000 Bond 42,000 California Tax-Exempt 17,500 Cash Management 36,000 Discovery 26,250 Diversified Equity Income 34,000 Emerging Markets 24,750 Equity Select 28,000 Equity Value 23,750 European Equity 14,250 Extra Income 48,000 -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 83 Table D-8. Audit Fees (continued) Fund Audit Fees Retail Funds (continued) Federal Income $47,250 Focused Growth 14,000 Global Balanced 18,250 Global Bond 32,750 Global Growth 32,750 Global Technology 21,250 Growth 38,000 Growth Dimensions 14,250 High Yield Tax-Exempt 50,000 Insured Tax-Exempt 19,000 Intermediate Tax-Exempt 15,500 International 39,000 International Equity Index 15,500 Large Cap Equity* N/A Large Cap Value* N/A Managed Allocation 42,250 Massachusetts Tax-Exempt 16,000 Michigan Tax-Exempt 16,000 Mid Cap Index 13,750 Mid Cap Value* N/A Minnesota Tax-Exempt 19,000 Mutual 43,250 New Dimensions 46,000 New York Tax-Exempt 17,500 Ohio Tax-Exempt 16,000 Partners Fundamental Value 13,750 Partners International Aggressive Growth 14,000 Partners International Select Value 14,000 Partners Select Value 13,750 Partners Small Cap Core 13,750 Partners Small Cap Growth 14,000 Partners Small Cap Value 13,750 Partners Value 13,750 Precious Metals 20,250 Progressive 26,000 -------------------------------------------------------------------------------- 84 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Table D-8. Audit Fees (continued) Fund Audit Fees Retail Funds (continued) Research Opportunities $24,000 S&P 500 Index 13,750 Selective 43,250 Small Cap Advantage 16,250 Small Company Index 21,500 Stock 43,250 Strategy Aggressive 23,500 Tax-Exempt Bond 36,750 Tax-Free Money 22,000 U.S. Government Mortgage 14,500 Utilities 28,000 Variable Portfolio Funds VP-Blue Chip Advantage 14,000 VP-Bond 24,250 VP-Capital Resource 23,500 VP-Cash Management 18,250 VP-Diversified Equity Income 14,000 VP-Emerging Markets 14,500 VP-Equity Select 13,750 VP-Extra Income 19,750 VP-Federal Income 14,500 VP-Global Bond 17,750 VP-Growth 14,250 VP-International 21,250 VP-Managed 22,000 VP-New Dimensions 23,250 VP-Partners Small Cap Value 9,000 VP-S&P 500 Index 14,000 VP-Small Cap Advantage 14,000 VP-Stock 8,000 VP-Strategy Aggressive 18,500 * The fund began operations in 2002 and has not yet had a fiscal year end reporting period. -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 85 o All Other Fees. During the year ended June 30, 2002, KPMG LLP was paid $193,150 for tax-related services rendered to the funds and $46,000 for other procedures requested by the Board or required by the 1940 Act. AEFC Related Fees o Audit Fees. For the year ended June 30, 2002, KPMG LLP was paid $15,000 by AEFC for additional professional services rendered in connection with the audit of the funds' financial statements. o Financial Information Systems Design and Implementation Fees. For the year ended June 30, 2002, no financial information systems design and implementation fees were paid to KPMG LLP by the American Express Funds, American Express Company, AEFC or affiliates. o All Other Fees. For the year ended June 30, 2002, KPMG LLP was paid $112,200 for non-audit services related to consulting, attestation services for transfer agent review and tax-related services rendered to AEFC and $115,989 for non-audit services related to consulting and tax-related services rendered to American Express Company or affiliates. SECTION E -- BOARD MEMBER INFORMATION This section contains the following information: o Table E-1 shows the compensation paid to Board members by each fund in its last fiscal year o Table E-2 shows the total number of shares of all the funds owned by the Board members and the number of shares owned in each individual fund.
Table E-1. Board Member Compensation(1) DeSimone Hall Hutter Jones Lewis(2) Quasha(2) Simpson Retail Funds Blue Chip Advantage $2,450 $2,700 $2,915 $3,015 $ 233 $-- $2,550 Bond 1,550 2,133 2,490 2,440 -- -- 2,325 California Tax-Exempt 900 1,050 1,165 1,265 400 275 900 Cash Management 2,125 2,875 3,475 3,475 -- -- 3,425 Discovery 583 967 1,033 1,033 -- -- 983 Diversified Equity Income(4) 1,825 2,675 2,880 2,780 -- -- 2,350 Emerging Markets(4) 1,183 2,217 2,547 2,447 -- -- 1,717 Equity Select 1,433 1,800 1,965 2,015 -- -- 1,600 Equity Value 1,675 1,975 2,140 2,140 350 -- 1,775 European Equity 633 1,150 1,315 1,265 -- -- 900 Extra Income(4) 2,733 3,133 3,513 3,463 1,083 533 2,733 Federal Income(4) 2,558 2,958 3,288 3,288 1,058 533 2,558 Focused Growth 800 1,100 1,265 1,265 125 -- 900
-------------------------------------------------------------------------------- 86 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT
Table E-1. Board Member Compensation(1) (continued) DeSimone Hall Hutter Jones Lewis(2) Quasha(2) Simpson Retail Funds (continued) Global Balanced $ 633 $ 1,150 $ 1,315 $ 1,265 $ -- $ -- $ 900 Global Bond(4) 1,267 2,300 2,630 2,530 -- -- 1,800 Global Growth(4) 1,700 2,833 3,163 3,063 -- -- 2,333 Global Technology(4) 1,233 2,250 2,580 2,480 -- -- 1,750 Growth(4) 3,283 4,683 5,700 5,700 -- -- 5,600 Growth Dimensions 583 950 958 858 -- -- 808 High Yield Tax-Exempt(4) 3,442 4,208 4,538 4,638 -- -- 3,808 Insured Tax-Exempt 1,000 1,150 1,265 1,365 450 300 1,000 Intermediate Tax-Exempt 792 1,100 1,265 1,315 -- -- 900 International 983 1,583 1,748 1,698 -- -- 1,333 International Equity Index 800 1,050 1,265 1,365 108 -- 900 Large Cap Equity(3) -- -- -- -- -- -- -- Large Cap Value(3) -- -- -- -- -- -- -- Managed Allocation(4) 1,675 2,508 2,755 2,605 -- -- 2,175 Massachusetts Tax-Exempt 900 1,050 1,165 1,265 400 275 900 Michigan Tax-Exempt 900 1,050 1,165 1,265 400 275 900 Mid Cap Index 283 433 633 583 108 -- 383 Mid Cap Value(3) -- -- -- -- -- -- -- Minnesota Tax-Exempt 1,000 1,150 1,265 1,365 450 300 1,000 Mutual(4) 2,225 3,208 3,480 3,380 -- -- 2,950 New Dimensions(4) 8,125 10,892 13,925 13,925 -- -- 13,825 New York Tax-Exempt 900 1,050 1,165 1,265 400 275 900 Ohio Tax-Exempt 900 1,050 1,165 1,265 400 275 900 Partners Fundamental Value 392 392 392 392 292 167 342 Partners International Aggressive Growth(3) -- -- -- -- -- -- -- Partners International Select Value(3) -- -- -- -- -- -- -- Partners Select Value(3) -- -- -- -- -- -- -- Partners Small Cap Core(3) -- -- -- -- -- -- -- Partners Small Cap Growth 800 1,100 1,265 1,265 125 -- 900 Partners Small Cap Value 392 392 392 392 292 167 342 Partners Value 392 392 392 392 292 167 342 Precious Metals 800 1,100 1,265 1,265 125 -- 900 Progressive 625 992 1,065 1,015 -- -- 800 Research Opportunities(4) 1,175 1,925 2,000 2,000 -- -- 1,900 S&P 500 Index 800 1,050 1,265 1,365 108 -- 900
-------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 87
Table E-1. Board Member Compensation(1) (continued) DeSimone Hall Hutter Jones Lewis(2) Quasha(2) Simpson Retail Funds (continued) Selective(4) $2,175 $2,575 $2,905 $2,905 $875 $450 $2,175 Small Cap Advantage 925 1,225 1,390 1,390 175 -- 1,025 Small Company Index 1,183 1,433 1,648 1,748 142 -- 1,283 Stock(4) 2,600 3,633 3,930 3,830 -- -- 3,400 Strategy Aggressive 1,675 1,975 2,140 2,140 300 -- 1,775 Tax-Exempt Bond 1,042 1,367 1,532 1,582 -- -- 1,167 Tax-Free Money 800 1,050 1,215 1,315 -- -- 900 U.S. Government Mortgage 217 167 167 217 167 167 217 Utilities 1,950 2,100 2,215 2,315 875 500 1,950 Variable Portfolio Funds VP-Blue Chip Advantage 567 933 1,015 1,015 -- -- 900 VP-Bond 917 1,367 1,582 1,532 -- -- 1,417 VP-Capital Resource 1,858 2,592 3,040 3,040 -- -- 2,925 VP-Cash Management 758 1,158 1,273 1,273 -- -- 1,158 VP-Diversified Equity Income 567 1,200 1,332 1,032 -- -- 967 VP-Emerging Markets(3) -- -- -- -- -- -- -- VP-Equity Select(3) -- -- -- -- -- -- -- VP-Extra Income 650 1,033 1,132 1,132 -- -- 1,017 VP-Federal Income 567 933 1,015 1,015 -- -- 900 VP-Global Bond 567 933 1,015 1,015 -- -- 900 VP-Growth 567 933 1,015 1,015 -- -- 900 VP-International 1,058 1,558 1,782 1,782 -- -- 1,667 VP-Managed 1,858 2,558 3,023 2,973 -- -- 2,858 VP-New Dimensions 1,900 2,600 3,007 3,007 -- -- 2,892 VP-Partners Small Cap Value(3) -- -- -- -- -- -- -- VP-S&P 500 Index 567 667 682 782 -- -- 617 VP-Small Cap Advantage 567 1,200 1,332 1,032 -- -- 967 VP-Stock(3) -- -- -- -- -- -- -- VP-Strategy Aggressive 1,317 1,900 2,190 2,190 -- -- 2,075
(1) Mr. Carlson is paid $275,000 a year by Board Services Corporation and is not paid compensation by the funds. Ms. Fraser and Messrs. Roszell and Truscott are paid by AEFC. (2) Mr. Lewis and Mr. Quasha have been Board members for less than a year. (3) No compensation is paid to Board members until the fund reaches $20 million in assets. (4) The fund is part of a master/feeder structure. The amount shown includes compensation from both the feeder fund and its related master portfolio. -------------------------------------------------------------------------------- 88 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT
Table E-2. Board Member Holdings Dollar range of equity securities beneficially owned on June 30, 2002 Aggregate dollar range of equity securities of all American Express Funds overseen by Dollar range of equity securities in the fund Board Member Board Member Fund Range Range Carlson Blue Chip Advantage $1-$10,000 New Dimensions $50,001-$100,000 Partners Select Value $1-$10,000 VP - Diversified Equity Income $10,001- $50,000 VP - Extra Income $1-$10,000 VP - Managed $10,001- $50,000 Over $100,000 DeSimone Extra Income Over $100,000 High Yield Tax-Exempt Over $100,000 Partners Small Cap Value $50,001 -$100,000 Small Cap Advantage $50,001 -$100,000 Over $100,000 Hall Cash Management Over $100,000 Over $100,000 Hutter Cash Management $1-$10,000 Growth Over $100,000 Growth Dimensions $50,001-$100,000 New Dimensions Over $100,000 Over $100,000 Jones Blue Chip Advantage $10,001-$50,000 Bond $50,001-$100,000 Cash Management $10,001-$50,000 Emerging Markets $10,001-$50,000 Extra Income Over $100,000 Federal Income Over $100,000 Global Bond $50,001-$100,000 Growth $10,001-$50,000 New Dimensions Over $100,000 Small Cap Advantage $10,001-$50,000 Small Company Index $10,001-$50,000 Tax-Exempt Bond $10,001-$50,000 Over $100,000 Lewis Diversified Equity Income $50,001-$100,000 Equity Select $10,001-$50,000 $50,001-$100,000 Quasha None None Simpson Bond $10,001-$50,000 Extra Income $10,001-$50,000 New Dimensions $10,001-$50,000 Utilities $10,001-$50,000 Over $100,000
-------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 89
Table E-2. Board Member Holdings (continued) Dollar range of equity securities beneficially owned on June 30, 2002 Aggregate dollar range of equity securities of all American Express Funds overseen by Dollar range of equity securities in the fund Board Member Board Member Fund Range Range Truscott Bond $1-$10,000 Emerging Markets $1-$10,000 Equity Select $50,001-$100,000 Extra Income $50,001-$100,000 Growth $50,001-$100,000 International $10,001-$50,000 Large Cap Equity $10,001-$50,000 Mid Cap Value $10,001-$50,000 Mutual $50,001-$100,000 Research Opportunities $1-$10,000 Over $100,000
-------------------------------------------------------------------------------- 90 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Exhibit A ADDITIONAL INFORMATION FOR SHAREHOLDERS OF PARTNERS SMALL CAP VALUE AND VP-PARTNERS SMALL CAP VALUE REGARDING NEW SUBADVISORY AGREEMENTS Pursuant to an exemptive order granted by the SEC on July 16, 2002, the fund may enter into and materially amend subadvisory agreements without shareholder approval. The exemptive order permits AEFC, subject to board approval, to select the subadviser best suited to achieve the fund's investment objective. For example, the fund may exercise this authority in order to hire an additional subadviser, to replace a subadviser or if there is a change in control of a subadviser. A. Subadvisory Agreement with Third Avenue. On May 23, 2002, EQSF Advisers, Inc. ("Third Avenue"), one of the fund's current Subadvisers, announced that it had reached an agreement with Affiliated Managers Group, Inc. ("AMG") for AMG to acquire a majority equity interest in Third Avenue. Upon completion of the transaction, Third Avenue's business will remain unchanged. The firm's senior principals have entered into long-term employment agreements. Under the 1940 Act, completion of the transaction will result in the automatic termination of the current subadvisory agreement between Third Avenue and AEFC on behalf of the funds (the "Current Subadvisory Agreement"). The Board of the fund has approved a new subadvisory contract with Third Avenue to take effect on the completion of the transaction. The new Subadvisory Agreement is substantially identical to the Current Subadvisory Agreement. The services provided to the fund by Third Avenue after the transaction are expected to be substantially similar to the services currently provided to the fund by Third Avenue. There will be no change in the fee paid by the fund. AEFC will continue to pay Third Avenue at a rate of 0.50% of average daily net assets gradually reducing to 0.40%. Third Avenue is located at 767 Third Avenue, Fifth Floor, New York, NY. The following table provides information on the principal executive officers and directors of Third Avenue. AMG, a Delaware corporation with a principal place of business at 600 Hale Street, Prides Crossing, MA 01965, is an asset management holding company that holds equity interests in investment management firms. -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 91 Name Title and Principal Occupation Martin J. Whitman Chairman, CEO David M. Barse President, COO Michael T. Carney Treasurer, CFO W. James Hall General Counsel, Secretary Richard V. Barry Co-Controller Julie A. Smith Co-Controller Other Funds with Similar Investment Objectives Managed by Third Avenue Assets (in millions) Name as of June 30, 2002 Management Fee* Third Avenue Small-Cap Value Fund $463 0.90% * Annual rate based on average daily net assets. B. Subadvisory Agreement with National City Investment Management Company. As a result of very strong sales in the fund, AEFC recommended to the Board that an additional subadviser be hired. The criteria for choosing a subadviser were incremental performance and reduced risk through diversification of investment style. Based on the recommendation of AEFC, the Board appointed National City Investment Management Company ("National City") as an additional subadviser to the fund. National City will make investment decisions for a portion of the fund's assets allocated to it by AEFC. National City is a highly focused, multi-style registered investment adviser, focused on the investment and service requirements of institutional clients, including corporate, public, Taft-Hartley, foundation, endowment and mutual funds. As of June 30, 2002, National City had approximately $29 billion in assets under management. AEFC will pay National City at a rate of 0.50% of average daily net assets gradually reducing to 0.40%. National City, with principal offices at 1900 East Ninth Street, Cleveland, OH, 44114, is a wholly owned subsidiary of National City Corporation, a publicly traded financial holding company. The following table provides information on the principal executive officers and directors of National City. Name Title and Principal Occupation Paul G. Clark Director and Chairman Donald L. Ross Director/President/Managing Director/ Chief Investment Officer Kathleen T. Barr Director/Managing Director Sandra I. Kiely Managing Director/Chief Administrative Officer Timothy F. McDonough Managing Director, Client Services Daniel G. Bandi Managing Director, Equities -------------------------------------------------------------------------------- 92 AMERICAN EXPRESS FUNDS -- PROXY STATEMENT Other Funds with Similar Investment Objectives Managed by National City Assets (in millions) Name as of June 30, 2002 Management Fee* Armada Small Cap Value Fund $977 1.00% * Annual rate based on average daily net assets. In evaluating the recommendation to hire a subadviser for the fund, the Board considered, among other factors: o The favorable history, reputation, qualification and background of the subadviser, as well as the qualifications of its personnel and its financial condition. o The expertise that the subadviser offers in providing portfolio management services to other similar portfolios and the performance history of those portfolios. o The subadviser's proposed investment strategy for the fund. o The fund's long- and short-term investment performance relative to comparable mutual funds and unmanaged indexes. o The investment management fee will not change. o The terms of the subadvisory agreement are consistent with the language of the registration statement of the fund and the Investment Management Services Agreement between the fund and AEFC. At a meeting held on July 10-11, 2002, called for the purpose of considering the proposals, the Board determined that it would be in the best interests of the fund and its shareholders to retain Third Avenue and National City as subadvisers for the fund. By vote cast in person, the independent members first and then the Board as a whole unanimously approved the Subadvisers and approved the subadvisory agreements between AEFC and each Subadviser. There will be no change in the fees paid by the fund. The fees paid by the fund to AEFC will remain the same. AEFC, not the fund, will pay the Subadvisers. -------------------------------------------------------------------------------- AMERICAN EXPRESS FUNDS -- PROXY STATEMENT 93 (logo) American Express Funds Non-M S-6420 A (9/02) (logo) American Express Funds Proxy Statement Summary September 14, 2002 Here's a brief overview of some of the changes being recommended for your American Express mutual fund or variable annuity fund. We encourage you to read the full text of the enclosed proxy statement. Q: Why am I being asked to vote? Funds are required to get shareholders' votes for certain kinds of changes, like the ones included in this proxy statement. You have a right to vote on these changes either by mailing your proxy card, calling a toll-free number or responding by internet. Q: What am I being asked to vote on? At all regular meetings, shareholders elect Board members. In addition, shareholders at this meeting will vote on other proposals. These include: |X| Changing voting procedures from a share-based to a dollar-based system, |X| Authorizing American Express Financial Corporation (the funds' investment adviser), subject to Board approval, to retain and replace subadvisers, or to modify subadvisory agreements, without shareholder approval, |X| Changing the method of calculating the Performance Incentive Adjustment (PIA) to the investment management fee (the PIA rewards the fund's investment adviser for performance above a Lipper index and reduces its compensation for performance that is below the index), |X| Changing the classification of AXP Global Technology Fund from diversified to non-diversified, |X| Adding a 0.10% distribution plan to AXP Cash Management Fund (Class A and B shares) and AXP Tax-Free Money Fund, and |X| Approving a plan of liquidation for AXP International Equity Index Fund. Again, we encourage you to read the full text of the proxy statement to obtain a more detailed understanding of these issues. Q: Is my vote important? Absolutely! While the Board has reviewed these changes and recommends you approve them, you have the right to voice your opinion. And your Fund pays for most of the cost of holding a shareholder meeting. Until the Fund is sure that a quorum has been reached (in most cases, 50% of existing shares), it will continue to contact shareholders asking them to vote. These efforts cost your Fund money - so please, vote immediately. Q: What do Board members do? Board members represent the interests of the shareholders and oversee the management of the Fund. Q: How does the Board recommend that I vote? After careful consideration, the Board recommends that you vote FOR each proposal. Q: How do I vote? You can vote in one of four ways: 1. By mail with the enclosed proxy card 2. By telephone 3. By Web site 4. In person at the meeting Please refer to the enclosed voting instruction card for the telephone number and internet address. If you own more than one Fund, it is important that you vote for each Fund. Q: Whom should I call if I have questions? If you have questions about any of the issues described in the proxy statement or about voting procedures, please call your financial advisor or call client services toll free at (866) 208-5310. American PROXY Express(R) Funds AMERICAN EXPRESS FUNDS Principal Executive Office 901 Marquette Avenue South, Suite 2810 Minneapolis, MN 55402-3268 NOTICE OF REGULAR MEETING OF SHAREHOLDERS To be held November 13, 2002 Your fund(s) will hold a regular shareholders' meeting at 11:00 a.m. on November 13, 2002, at The Marquette Hotel, 701 Marguette Avenue, Minneapolis, MN in the Red River Room on the third floor. This will be a joint meeting of the funds listed below. You are entitled to vote at the meeting if you were a shareholder on September 14, 2002. Please read the proxy statement. The Board recommends that you vote FOR each proposal. Please vote immediately by mail, telephone or internet, even if you plan to attend the meeting. Just follow the instructions on this proxy card. VOTE VIA THE INTERNET: americanexpress.com/proxyvoting VOTE VIA THE TELEPHONE: 1-866-837-1891 CONTROL NUMBER: 999 9999 999 Note: Please sign this proxy exactly as your name or names appears on this card. Joint owners should each sign personally. Trustees and other fiduciaries should indicate the capacity in which they sign, and where more than one name appears, a majority must sign. If a corporation, this signature should be that of an authorized officer who should state his or her title. ------------------------------------------------ Signature ------------------------------------------------ Signature of joint owner, if any ------------------------------------------------ Date 12606_AEP
FUND FUND FUND Fund Name Drop-In 1 2652.8576 Fund Name Drop-In 2 1026.8572 Fund Name Drop-In 3 1026.8572 Fund Name Drop-In 4 57858.6497 Fund Name Drop-In 5 3365.9812 Fund Name Drop-In 6 3365.9812 Fund Name Drop-In 7 103.0851 Fund Name Drop-In 8 9658.0602 Fund Name Drop-In 9 9658.0602 Fund Name Drop-In 10 7023.0960 Fund Name Drop-In 11 85269.9172 Fund Name Drop-In 12 85269.9172
Please vote by filling in the appropriate box below. If you do not mark one or more proposals, your Proxy will be voted FOR each such proposal. PLEASE MARK VOTES AS IN THIS EXAMPLE: [X] [X] To vote FOR all Funds on all Proposals mark this box. (No other vote is necessary.)
1. To elect Board members. FOR WITHHOLD FOR ALL 01 Arne H. Carlson 02 Philip J. Carroll, Jr. 03 Livio D. DeSimone ALL ALL EXCEPT* 04 Barbara H Fraser 05 Ira D. Hall 06 Heinz F. Hutter 07 Anne P. Jones 08 Stephen R. Lewis, Jr. 09 Alan G. Quasha [ ] [ ] [ ] 10 Stephen W. Roszell 11 Alan K. Simpson 12 Alison Taunton-Rigby 13 William F. Truscott
If you do not wish your shares to be voted "FOR" a particular nominee, mark the "FOR ALL EXCEPT" box and write the nominee's number and the fund name on the line provided below: ________________________________________________________________________________
2. Amend the Articles of Incorporation/Declaration of Trust: 2(a). To allow one vote/dollar instead of one vote/share. FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN Fund Name Drop-In 1 [ ] [ ] [ ] Fund Name Drop-In 2 [ ] [ ] [ ] Fund Name Drop-In 3 [ ] [ ] [ ] Fund Name Drop-In 4 [ ] [ ] [ ] Fund Name Drop-In 5 [ ] [ ] [ ] Fund Name Drop-In 6 [ ] [ ] [ ] Fund Name Drop-In 7 [ ] [ ] [ ] Fund Name Drop-In 8 [ ] [ ] [ ] Fund Name Drop-In 9 [ ] [ ] [ ] Fund Name Drop-In 10 [ ] [ ] [ ] Fund Name Drop-In 11 [ ] [ ] [ ] Fund Name Drop-In 12 [ ] [ ] [ ]
2(b). To change the name of the corporation. FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN Fund Name Drop-In 1 [ ] [ ] [ ] Fund Name Drop-In 2 [ ] [ ] [ ] Fund Name Drop-In 3 [ ] [ ] [ ] Fund Name Drop-In 4 [ ] [ ] [ ] Fund Name Drop-In 5 [ ] [ ] [ ] Fund Name Drop-In 6 [ ] [ ] [ ] Fund Name Drop-In 7 [ ] [ ] [ ] Fund Name Drop-In 8 [ ] [ ] [ ] Fund Name Drop-In 9 [ ] [ ] [ ] Fund Name Drop-In 10 [ ] [ ] [ ] Fund Name Drop-In 11 [ ] [ ] [ ] Fund Name Drop-In 12 [ ] [ ] [ ] 3. Approve a policy authorizing American Express Financial Corporation, subject to Board approval, to retain and replace subadvisers, or to modify subadvisory agreements, without shareholder approval. FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN Fund Name Drop-In 1 [ ] [ ] [ ] Fund Name Drop-In 2 [ ] [ ] [ ] Fund Name Drop-In 3 [ ] [ ] [ ] Fund Name Drop-In 4 [ ] [ ] [ ] Fund Name Drop-In 5 [ ] [ ] [ ] Fund Name Drop-In 6 [ ] [ ] [ ] Fund Name Drop-In 7 [ ] [ ] [ ] Fund Name Drop-In 8 [ ] [ ] [ ] Fund Name Drop-In 9 [ ] [ ] [ ] Fund Name Drop-In 10 [ ] [ ] [ ] Fund Name Drop-In 11 [ ] [ ] [ ] Fund Name Drop-In 12 [ ] [ ] [ ] 4. Approve changes to the Investment Management Services Agreement: 4(a). Add a performance incentive adjustment. FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN Fund Name Drop-In 1 [ ] [ ] [ ] Fund Name Drop-In 2 [ ] [ ] [ ] Fund Name Drop-In 3 [ ] [ ] [ ] Fund Name Drop-In 4 [ ] [ ] [ ] Fund Name Drop-In 5 [ ] [ ] [ ] Fund Name Drop-In 6 [ ] [ ] [ ] 4(b). Modify the performance incentive adjustment calculation. FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN Fund Name Drop-In 1 [ ] [ ] [ ] Fund Name Drop-In 2 [ ] [ ] [ ] Fund Name Drop-In 3 [ ] [ ] [ ] Fund Name Drop-In 4 [ ] [ ] [ ] Fund Name Drop-In 5 [ ] [ ] [ ] Fund Name Drop-In 6 [ ] [ ] [ ] Fund Name Drop-In 7 [ ] [ ] [ ] Fund Name Drop-In 8 [ ] [ ] [ ] Fund Name Drop-In 9 [ ] [ ] [ ] Fund Name Drop-In 10 [ ] [ ] [ ] Fund Name Drop-In 11 [ ] [ ] [ ] Fund Name Drop-In 12 [ ] [ ] [ ] 4(c). Eliminate the performance incentive adjustment. FOR AGAINST ABSTAIN Fund Name Drop-In 1 [ ] [ ] [ ] 4(d). Change the investment manager from IDS Life Insurance Company to American Express Financial Corporation. FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN Fund Name Drop-In 1 [ ] [ ] [ ] Fund Name Drop-In 2 [ ] [ ] [ ] Fund Name Drop-In 3 [ ] [ ] [ ] Fund Name Drop-In 4 [ ] [ ] [ ] Fund Name Drop-In 5 [ ] [ ] [ ] Fund Name Drop-In 6 [ ] [ ] [ ] Fund Name Drop-In 7 [ ] [ ] [ ] Fund Name Drop-In 8 [ ] [ ] [ ] Fund Name Drop-In 9 [ ] [ ] [ ] 5. Change the fund's classification from diversified to non-diversified. FOR AGAINST ABSTAIN Fund Name Drop-In 1 [ ] [ ] [ ] 6. Add a Plan and Agreement of Distribution. FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN Fund Name Drop-In 1 [ ] [ ] [ ] Fund Name Drop-In 2 [ ] [ ] [ ] Fund Name Drop-In 3 [ ] [ ] [ ] 7. Approve a Plan of Liquidation. FOR AGAINST ABSTAIN Fund Name Drop-In 1 [ ] [ ] [ ] EVERY SHAREHOLDER'S VOTE IS IMPORTANT! PLEASE SIGN, DATE AND RETURN YOUR PROXY CARD TODAY!
(logo) AMERICAN EXPRESS IMPORTANT NOTICE Your vote is important. Please select one of the following voting methods: o Vote by Mail. Sign, date and vote the enclosed proxy card(s) and return in the postage paid envelope. o Vote by Internet. Log onto americanexpress.com/proxyvoting, enter the 14-digit control number on your proxy card and follow the instructions. o Vote by Touch-tone phone. Call 1- 866-837-1891, enter your 14-digit control number and follow the instructions. This option accepts shareholder voting of all holdings together on all proposals for the control number entered. If you want to vote on each proposal separately, please vote either by mail or by internet. Thank you. (logo) AMERICAN EXPRESS IMPORTANT NOTICE Your vote is important. Please select one of the following voting methods: o Vote by Mail. Sign, date and vote the enclosed proxy card(s) and return in the postage paid envelope. o Vote by Internet. Log onto americanexpress.com/proxyvoting, enter the 14-digit control number on your proxy card and follow the instructions. o Vote by Touch-tone phone. Call 1- 866-837-1891, enter your 14-digit control number and follow the instructions. This option accepts shareholder voting of all holdings together on all proposals for the control number entered. If you want to vote on each proposal separately, please vote either by mail or by internet. Thank you.