2204 3 J 105


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2204 3 J 105

  1. 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. 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. 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. 3
  4. 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 4
  5. 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. 5
  6. 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. 6
  7. 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. 6 November fiscal year-end 7 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. 7
  8. 8. Estimated Tax Payments Tax penalties for failure to pay estimated tax payments estimated tax payments. For specifics on the Federal by the deadlines can be imposed on you. People who rules, see the chart below. State rules for estimated may be liable for estimated taxes are individuals with tax payments may be different. large capital gains, especially if they are retirees or Please note that neither American Express and its self-employed. subsidiary companies nor its advisors or If, after completing your Form 1040, you owe less than representatives provide tax or legal advice. Always $1,000 in additional tax you should not be penalized at consult with a qualified tax/legal advisor concerning the Federal level. If your check to the IRS could be your own situation. $1,000 or more, penalties may be avoided by making Estimated Tax Taxpayer With Adjusted Gross Taxpayer With Adjusted Gross Payment Made... Income up to $150,000* Gross Income Over $150,000* For 2004 tax return Pay the lesser of: Pay the lesser of: 4/15/04, 6/15/04, ■ 90% of 2004’s taxes or ■ 90% of 2004’s taxes or 9/15/04, 1/18/05 ■ 100% of 2003’s taxes. ■ 110% of 2003’s taxes. For 2005 tax return Pay the lesser of: Pay the lesser of: 4/15/05, 6/15/05, ■ 90% of 2005’s taxes or ■ 90% of 2005’s taxes or 9/15/05, 1/17/06 ■ 100% of 2004’s taxes. ■ 110% of 2004’s taxes. * $75,000 for married filing separately. Where to go for help Materials available Tax-Sheltered Annuity Plans (403(b) Plans) for Employees of Public Schools and Certain Tax- IRS free publications: Exempt Organizations 1-800-829-3676 (1-800-TAX-FORM). ■ Pub. 571. IRS Guide to Free Tax Services Individual Retirement Arrangements (IRAs) ■ Pub. 910. Lists many IRS publications and taxpayer ■ Pub. 590. assistance services. Older Americans’ Tax Guide Mutual Fund Distributions ■ Pub. 554. ■ Pub. 564. Investment Income and Expenses Recordkeeping for Individuals ■ Pub. 550. ■ Pub. 552. Or visit the IRS web site: http://www.irs.gov American Express Funds 2741 AXP Financial Center Minneapolis, MN 55474 americanexpress.com/funds American Express Financial Advisors Inc. Member NASD. © 2005 American Express Financial Corporation American Express Company is separate from American Express All rights reserved. Financial Advisors Inc. and is not a broker-dealer. 2204-3 J (1/05) 8