1. ®
A m e r i c a n E x p r e s s F u n d s
Capital Gains Information
2. What’s in this packet
Here’s information you need Enclosed
regarding American Express® Funds capital
Per share net capital gains
gains distributions:
A list of 2004 capital gain ordinary income, and return
of capital distributions per share for each American
PAGE Express fund is enclosed. These figures are based on
capital gains realized by the funds. We will send Form
Federal capital gains tax rates for 2004 . . . . . . . . . . . .2 1099-DIV, Dividends and Distributions, in January 2005
or in the case of AXP® Real Estate Fund, as soon as the
information is available, which we expect to be on or about
Capital gains basics . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
March 1, 2005. The Form 1099-DIV will reflect actual
dividends and distributions.
Frequently asked questions about capital gains . . . . 5
2004 capital gains and
ordinary income distributions . . . . . . . . . . . . . . . . . . 6-7
Estimated tax payments . . . . . . . . . . . . . . . . . . . . . . . . . 8
Where to go for help . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Federal Capital Gains Tax Rates for 2004
Based on your federal ordinary income tax rate, the following capital gains tax rates apply. Please note that
special rules apply to capital gains involving real estate investments.
Ordinary Income Short-term Capital Long-term Capital Unrecaptured
Tax Rate Gains Rate1 Gains Rate2 Section 1250 Gain3
10% 10% 5% 10%
15% 15% 5% 15%
25% 25% 15% 25%
28% 28% 15% 25%
33% 33% 15% 25%
35% 35% 15% 25%
1
Held one year or less.
2
Held more than one year.
3
For distributions from American Express Funds, generally applies only to AXP® Real Estate Fund.
2
3. Capital gains rates for 2004
Current capital gains tax rates Remember, capital gains can change a taxpayer’s tax bracket
As part of the Jobs and Growth Tax Relief Keep in mind that larger capital gain amounts can push a taxpayer into a
Reconciliation Act of 2003, most long-term higher tax bracket. And with the tax laws, these scenarios can get
capital gains tax rates (assets held more complicated. Let’s look at a couple of examples of how these rates will
than 12 months) in all tax brackets were work. In 2004, a retired married couple in the 15% tax bracket, with
reduced. Effective May 6, 2003, to the end $30,000 in taxable income, sells a portion of a mutual fund that they have
of 2008, long-term capital gains will be held for more than one year and realizes a $5,000 capital gain. The gain is
taxed at a rate of 5% for taxpayers in the small enough that they remain in the 15% tax bracket. Because the fund
10% and 15% tax brackets and 15% for was held for more than one year, the gain would qualify for the 5% rate
those in the higher brackets. (For long- and they would owe $250 in capital gains tax.
term capital gains, the rate drops to zero
Let’s look at the same couple in 2004, but they sold one of their larger
in 2008 for taxpayers in the 10% and 15%
mutual fund holdings and have realized a $50,000 capital gain after
brackets.) These rules apply to the fund’s
owning the fund for more than one year. This gain has pushed them into
capital gain distributions made in
the 25% tax bracket. However, some of their gain will still fall in the 15%
December 2004.
bracket that qualifies for the 5% capital gains rate. They will owe $4,690
in capital gains tax. The first $28,100 of the capital gain will be taxed at
5% and the second $21,900 will be taxed at 15% for a total of $4,690
($1,405 + $3,285).
Capital gains basics
Capital gains or losses: The difference between Long-term capital gains: Gains on investments held longer than
the tax basis (basically the purchase price) of 12 months. Generally, the maximum tax on assets held more than
an investment and the price when sold. If you 12 months for investors with gains in the 10% and 15% tax brackets
redeemed funds in 2004, we will send Form is 5%, and for investors with gains in the higher tax brackets the
1099-B, Proceeds From Broker Transactions maximum tax is 15%. This rate change applies through the end of 2008.
From Mutual Funds, reporting gross proceeds The rate drops to zero in 2008 for taxpayers in the 10% and 15% brackets.
from the sale, and most will also receive an
Mutual funds, for example AXP® Real Estate Fund, may designate a
Average Basis Information For Shares
capital gain dividend as an Unrecaptured Section 1250 gain distribution.
Redeemed in 2004 statement in early 2005.
Unrecaptured Section 1250 gain is a long-term capital gain attributable to
Short-term capital gains: Gains on certain depreciation on real estate. Different capital gains rates apply to
investments held one year or less. These are this gain. This gain is taxed at ordinary rates, but not higher than 25%.
federally taxed as ordinary income, up to 35%.
Unrealized gains: Increases in the value of unsold securities are
(State and local taxes may apply as well.)
considered “unrealized” gains and are not taxed.
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4. Mutual fund capital gains: Just as individuals will have Taxes on mutual fund distributions: Shareholders are
capital gains from selling an asset at a profit, so will a subject to tax on:
mutual fund when its manager sells securities in its ■ fund earnings (generally interest and dividends
portfolio. To determine whether or not a fund will distribute generated by portfolio holdings).
a capital gain distribution, the fund totals its capital gains
■ realized short-term gains from fund management’s
and losses for the year, based on the sales of securities in
sales of securities within the portfolio are treated
its portfolio. It then nets its short-term gains against short-
as ordinary income.
term losses, and nets its long-term gains against its long-
term losses. If both calculations result in losses, the losses ■ realized long-term gains from fund management’s
carry forward to offset gains in future years. If the fund has sales of securities within the portfolio.
net short-term gains and net long-term losses, they offset Mutual fund capital gains distributions effect on
each other, just as net long-term gains offset net short-term NAV: Before distribution, net capital gains are included
losses. Finally, the fund could have a net short-term gain in the value of each share. After they’re distributed, the
and/or a net long-term gain. Any net gains are paid to value of each share drops by the per-share amount of the
shareholders at the end of the year. distributions. The total value of your holdings does not
Mutual fund capital gains distributions: change (ignoring changes in market conditions) as long as
A capital gain distribution is sent to shareholders of record distributions are reinvested. You simply own more shares
near the end of the calendar year. at a lower NAV.
■ The short-term gains earned by the fund are treated Record date: Date chosen by American Express Funds;
as ordinary income and are included as part of the anyone owning shares on this date will receive the fund’s
shareholder dividends reported on line 1a of Form dividend and capital gains distributions. The owners on
1099-DIV, Dividends and Distributions. the record date receive the distribution. Shares purchased
■ The total long-term gain distributions are reported on after that time do not receive the distribution and are not
line 2a of Form 1099-DIV. subject to taxation on that capital gains distribution.
■ The total Unrecaptured Section 1250 gain distributions Payable date: Date on which fund distributions
are reported on line 2b of Form 1099-DIV. (This will (ordinary income and capital gains) were paid.
generally apply to AXP® Real Estate Fund.)
■ Form 1099-DIV is mailed to shareholders by January 31, Fund Distribution Dates
2005 or in the case of AXP Real Estate Fund, as soon as
Dividend Record Payable
the information is available, which we expect to be on or Frequency date date
about March 1, 2005. Monthly Dec. 21, 2004 Dec. 22, 2004
The capital gains distribution per share: The fund’s total Quarterly Dec. 21, 2004 Dec. 22, 2004
distributed net realized long-term gains divided by the Annual Dec. 17, 2004 Dec. 20, 2004
number of shares in the fund on the record date. The AXP Portfolio Builder
®
amount of the mutual fund’s capital gains distribution Series Funds Dec. 22, 2004 Dec. 23, 2004
is taxable to the shareholder even if it was reinvested. Money Market Funds Dec. 30, 2004 Dec. 30, 2004
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5. Frequently asked questions
about capital gains
Q. I will have a long-term capital Q. Can I use a short-term capital gain earned in a fund and paid out by the
gain distribution from one of the fund to offset other losses in an investment portfolio?
American Express funds. What
No. Short-term capital gains earned in funds and paid out by funds are treated
are the different ways to deal with
as ordinary income and cannot be used to offset short- or long-term capital
this gain?
losses elsewhere in your investment portfolio. Short-term capital gains resulting
You can: from your sale of fund shares can be used to offset other losses in your portfolio.
■ Offset the gain with long-term Q. What is an unrealized capital gain?
capital losses realized elsewhere
For mutual funds, this is the appreciated market value of the securities in the
in your investment portfolio
fund, minus their cost. This capital gain is a not taxable gain because the fund
■ If there are no realized long-term has not sold the securities.
capital losses or they do not
completely offset the gain, offset
the gain with short-term capital Q. Where can I find capital gains distributions on Form 1099-DIV?
losses realized elsewhere in the
■ The short-term gains are included as part of the shareholder dividends and
investment portfolio — to the extent
income and are reported on line 1a of Form 1099-DIV.
they have not been offset by short-
■ The qualified dividends are reported on line 1b of Form 1099-DIV.
term capital gains — or
■ The total long-term gains are distributions reported on line 2a of Form 1099-DIV.
■ Pay taxes on the long-term
■ The total Unrecaptured Section 1250 gain distributions are reported on line 2b of
capital gain at the lower capital
Form 1099-DIV (this will generally apply to AXP® Real Estate Fund).
gains rate. Please consult your
■ A return of capital, if any, will be found on
tax advisor when preparing your
Form 1099-DIV, line 3.
2004 tax return
The Average Basis Information For Shares Redeemed
in 2004 Form will be sent in early 2005. This statement is
designed to closely reflect the Schedule D, and will
make tax reporting on the Schedule D easier for
shareholders who must file it.
Information about
AXP® Precious Metals Fund Note: If you earn more than $1,500 in gross dividends
from mutual fund and stock investments, you must list
In December, AXP® Precious Metals
payouts on Schedule B of Form 1040. Otherwise you can
Fund distributed $1.16277 per share simply report the total on Form 1040.
of ordinary income to shareholders
(Class A shares). This income is from
the March 31, 2004 fiscal year-end
that was required to be distributed
Information about AXP® Real Estate Fund
prior to December 31, 2004.
AXP® Real Estate Fund invests in real estate investment trusts (REITs), which
For a complete list of 2004 ordinary often do not provide complete tax information in time for the January 31
income distributions for stock and deadline for mailing tax information. If you own shares of AXP® Real Estate
bond funds, see pages 6 and 7. Fund, a Year End Information Notice will be sent by January 31, 2005. A Form
1099-DIV and/or Average Basis Information for Shares Redeemed in 2004 (if
applicable) will be sent when it is available. We expect this information to be
available on or about March 1, 2005.
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6. For each fund below, you may obtain performance information current to the most recent month-end by calling (800) 862-7919 or
visiting www.americanexpress.com/funds. See “Past Performance” in each Fund’s current prospectus. Monthly fund fact sheet
information is on americanexpress.com/funds December 31, 2004.
2004 Capital Gains and Ordinary Income Distributions (Class A Shares)
Short-term capital gains distributions are considered ordinary income for federal tax purposes.
2004 Total Short-Term Long-Term Long-Term Fund NAV
Ordinary Short-Term Reportable Gains as a Capital Capital Gains as of
Equity Funds Income Capital Gains Ordinary Income5 % of NAV Gains % of NAV Record Date
AXP® Partners Small Cap Value Fund1 $ 0.00000 $ 0.15492 $ 0.15492 2.0% $ 0.67422 8.9% $ 7.59
AXP® Partners Small Cap Core Fund1 0.00000 0.44182 0.44182 6.8% 0.19563 3.0% 6.45
AXP® Partners International Core Fund1 0.08836 0.17852 0.26688 2.4% 0.46820 6.2% 7.51
AXP® Small Company Index Fund1 0.00000 0.00000 0.00000 0.0% 0.50511 5.8% 8.78
AXP® Partners International Small Cap Fund1 0.00000 0.31657 0.31657 3.8% 0.12650 1.5% 8.39
AXP® Large Cap Value Fund1 0.04174 0.07476 0.11650 1.3% 0.15592 2.7% 5.84
AXP® Partners International Select Value Fund1 0.00000 0.00000 0.00000 0.0% 0.29396 3.6% 8.16
AXP® Quantitative Large Cap Equity Fund1 0.02984 0.06776 0.09760 1.0% 0.09141 1.4% 6.55
AXP® Small Cap Advantage Fund1 0.00000 0.00000 0.00000 0.0% 0.17062 2.3% 7.45
AXP® Partners International Aggressive 0.01029 0.00000 0.01029 0.0% 0.13630 1.9% 7.35
Growth Fund1
AXP Partners Aggressive Growth Fund1
®
0.01366 0.06862 0.08228 0.9% 0.00612 0.1% 7.41
AXP® Mid Cap Value Fund1 0.01917 0.00000 0.01917 0.0% 0.06178 0.8% 7.57
AXP® New Dimensions Fund®1,4 0.18903 0.00000 0.18903 0.0% 0.17948 0.7% 24.18
AXP® Real Estate Fund1* 0.13845 0.07744 0.21589 0.6% 0.02712 0.2% 12.69
AXP® Partners Growth Fund1 0.00000 0.02953 0.02953 0.5% 0.00120 0.0% 5.91
AXP® Partners Select Value Fund1,4 0.08313 0.0262 0.10933 0.4% 0.0965 1.5% 6.62
AXP® Large Cap Equity Fund1,4 0.14979 0.11174 0.26153 2.3% 0.02367 0.5% 4.95
2004 Total Short-Term Long-Term Long-Term Fund NAV
Ordinary Short-Term Reportable Gains as a Capital Capital Gains as of
Taxable Bond Funds Income Capital Gains Ordinary Income1 % of NAV Gains % of NAV Record Date
AXP® Income Opportunities Fund2 0.60570 0.11350 0.71920 1.1% 0.01136 0.1% 10.73
AXP® Inflation Protected Securities Fund2 0.33724 0.00215 0.33939 0.0% 0.00000 0.0% 10.25
2004 Total Short-Term Long-Term Long-Term Fund NAV
Ordinary Short-Term Reportable Gains as a Capital Capital Gains as of
Asset Allocation Funds Income Capital Gains Ordinary Income1 % of NAV Gains % of NAV Record Date
AXP® Portfolio Builder Conservative Fund3 0.12704 0.16760 0.29464 1.6% 0.00006 0.0% 10.36
AXP® Portfolio Builder Moderate Fund3 0.15948 0.01235 0.17183 0.1% 0.00014 0.0% 10.68
AXP® Portfolio Builder Moderate Aggressive Fund3 0.14182 0.00742 0.14924 0.1% 0.00015 0.0% 10.72
AXP® Portfolio Builder Aggressive Fund3 0.10635 0.00956 0.11591 0.1% 0.00017 0.0% 10.77
AXP® Portfolio Builder Total Equity Fund3 0.09534 0.01004 0.10538 0.1% 0.00042 0.0% 10.81
AXP® Portfolio Builder Moderate Conservative Fund3 0.16013 0.00884 0.16897 0.1% 0.00019 0.0% 10.53
2004 Tax- Total Short-Term Long-Term Long-Term Fund NAV
Income Exempt Taxable Short-Term Reportable Gains as a Capital Capital Gains as of
Tax-Exempt Bond Funds Distributions Income Income Capital Gains Ordinary Income % of NAV Gains % of NAV Record Date
AXP® CA Tax-Exempt Fund2 0.19722 0.19553 0.00169 0.00000 0.19722 0.0% 0.07212 1.4% 5.28
AXP® NY Tax-Exempt Fund2 0.17641 0.17641 – 0.00272 0.17913 0.1% 0.05940 1.1% 5.20
AXP® Tax-Exempt Bond Fund2,6 0.13822 0.13822 – 0.00377 0.14199 0.1% 0.02682 0.7% 3.93
AXP® Insured Tax-Exempt Fund2 0.18565 0.18304 0.00261 0.01586 0.20151 0.3% 0.01623 0.3% 5.50
AXP® Intermed. Tax-Exempt Fund2,6 0.15790 0.15790 – 0.00000 0.15790 0.0% 0.02955 0.5% 5.43
AXP® MI Tax-Exempt Fund2 0.18781 0.18780 0.00001 0.00569 0.19350 0.1% 0.01986 0.4% 5.35
AXP® MA Tax-Exempt Fund2 0.17351 0.16838 0.00513 0.00000 0.17351 0.0% 0.02410 0.4% 5.44
AXP® MN Tax-Exempt Fund2 0.18102 0.18102 – 0.00000 0.18102 0.0% 0.01719 0.3% 5.35
1
Record date was 12/17/04.
2
Record date was 12/21/04.
3
Record date was 12/22/04.
4
Includes dividends paid on 6/24/04 prior to mergers.
5
Total reportable ordinary income is the total of ordinary income and short-term capital gains.
* AXP® Real Estate Fund paid an Unrecaptured Section 1250 gain of $0.00880. These allocations are subject to change.
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7. Funds that paid ordinary income distributions, but no capital gains distributions in 2004 (Class A Shares)
Equity Funds 2004 Ordinary Income Per Share
AXP Diversified Equity Income Fund
®
$ 0.15536
AXP® Dividend Opportunity Fund 0.21039
AXP® Threadneedle Emerging Markets Fund 0.02974
AXP® Equity Value Fund 0.12685
AXP® Threadneedle European Equity Fund 0.03423
AXP® Threadneedle Global Balanced Fund 0.12585
AXP® Global Bond Fund 0.35383
AXP® Threadneedle Global Equity Fund 0.03371
AXP Threadneedle International Fund
®
0.02976
AXP® Managed Allocation Fund 0.11860
AXP® Mutual 0.20084
AXP® Partners Fundamental Value Fund 0.02142
AXP® Stock Fund 0.26251
AXP® Partners Value Fund 0.02327
AXP® Precious Metals Fund 1.16277
AXP® S&P 500 Index Fund 0.06877
Taxable Income Funds 2004 Ordinary Income Per Share
AXP® Cash Management Fund*,7 $ 0.00611
AXP® Core Bond Fund 0.27024
AXP® Diversified Bond Fund 0.17982
AXP® Limited Duration Bond Fund 0.24443
AXP® U.S. Government Mortgage Fund** 0.18291
AXP® Selective Fund 0.30113
AXP® Short Duration U.S. Government Fund 0.11981
AXP® High Yield Bond Fund*** 0.19886
Tax-Exempt Income Funds 2004 Income Tax-Exempt Taxable
Distributions Per Share Income Income
AXP® High Yield Tax-Exempt Fund6 $ 0.17663 $ 0.17647 $ 0.00016
AXP® Ohio Tax-Exempt Fund 0.16458 0.16458 –
AXP Tax-Free Money Fund*
® ,7
0.00497 0.00497 _
* Ordinary income paid 12/30/04
** This amount includes a return of capital of $0.00977 per share.
*** This amount includes a return of capital of $0.01094 per share.
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November fiscal year-end
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An investment in a money market fund is not guaranteed or insured by the Federal Deposit Insurance Corporation any other government agency. There is no assurance that the Funds will be
able to maintain a stable net asset value of $1 per share; it is possible to lose money by investing in the Funds. Income from the Funds may be subject to state and local taxes.
The measurement period for determining net capital gains runs from November 1 to October 31, except for November fiscal year-end funds, which run from December 1 to November 30. The
approximate realized capital gain rates for the funds listed above were distributed in December of 2004.
The Threadneedle group of companies constitutes American Express’ international investment platform. The group consists of wholly-owned subsidiaries of American Express
Financial Corporation and provides investment management services independent from American Express Financial Advisors (AEFA), including AEFA’s broker-dealer business.
The following funds are subject to greater volatility than more broadly diversified funds because they invest in specific sectors: AXP® Precious Metals Fund and AXP® Real Estate Fund.
There are special risk considerations associated with international investing related to market, currency, economic, political and other factors. Stocks of small- and medium-sized companies
generally may be subject to more abrupt or erratic price movements than stocks of larger companies. Some of these companies also may have fewer financial resources. Higher-yield corporate
bond prices may fluctuate more broadly than prices of higher-quality bonds. Risk of principal and income is also greater than with higher-quality securities. Certain municipal bond fund income
may be subject to the alternative minimum tax or state or local tax.
Products offered are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution and involve investment risks including possible loss of principal
and fluctuation in value.
You should consider the investment objectives, risks, and charges and expenses of each fund carefully before investing. For a free copy
of any fund’s prospectus, which contains this and other information, call (800) 862-7919. Read the prospectus carefully before you invest.
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