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1996 ANNUAL REPORT
IDS New Dimensions Fund
(prospectus enclosed)
(Icon of) A dimension
The goal of IDS New Dimensions Fund, Inc. is long-term growth of
capital.
(This annual report includes a prospectus that describes in detail
the Fund's objective, investment policies, risks, sales charges,
fees and other matters of interest. Please read the prospectus
carefully before you invest or send money.)
AMERICAN
EXPRESS
Financial
Advisors
Distributed by American Express Financial Advisors Inc.
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(Icon of) A dimension
Fast-track stocks
What type of stock has been the driving force behind the dramatic
increases posted by U.S. and foreign stock markets in recent years?
The answer is growth stocks -- that is, stocks of companies that
have a track record of increasing their business and profits at a
rapid pace. These companies, some large and well-known, others
smaller and newly discovered, form the foundation of IDS New
Dimensions Fund. The Fund looks for companies from around the
world that not only have a history of continuous growth, but are
believed to be poised to continue growing over the long term due to
their management, marketing innovation and/or technological
advances.
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Contents
(Icon of) One open book inside of another.
The purpose of this annual report is to tell investors how the Fund
performed.
The prospectus, which is bound into the middle of this annual
report, describes the Fund in detail.
1996 annual report
From the president 4
From the portfolio manager 4
Ten largest holdings 6
Making the most of the Fund 7
Long-term performance 8
Independent auditors' report (Fund) 9
Financial statements (Fund) 10
Notes to financial statements (Fund) 13
Independent auditors' report (Portfolio) 18
Financial statements (Portfolio) 19
Notes to financial statements (Portfolio) 22
Investments in securities 30
IDS mutual funds 35
Federal income tax information 38
1996 prospectus
The Fund in brief 3p
Goal 3p
Investment policies and risks 3p
Structure of the Fund 4p
Manager and distributor 4p
Portfolio manager 5p
Alternative purchase arrangements 5p
Sales charge and Fund expenses 6p
Performance 8p
Financial highlights 8p
Total returns 10p
Investment policies and risks 13p
Facts about investments and their risks 13p
Valuing Fund shares 16p
How to purchase, exchange or redeem shares 17p
Alternative purchase arrangements 17p
How to purchase shares 20p
How to exchange shares 23p
How to redeem shares 23p
Reductions and waivers of the sales charge 28p
Special shareholder services 33p
Services 33p
Quick telephone reference 33p
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Distributions and taxes 34p
Dividend and capital gain distributions 34p
Reinvestments 35p
Taxes 35p
How to determine the correct TIN 37p
How the Fund is organized 38p
Shares 38p
Voting rights 38p
Shareholder meetings 38p
Special considerations regarding
master/feeder structure 39p
Board members and officers 41p
Investment manager 43p
Administrator and transfer agent 43p
Distributor 44p
About American Express Financial Corporation 45p
General information 45p
Appendix 46p
Descriptions of derivative instruments 46p
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To our shareholders
(Photo of) William R. Pearce, President of the Fund
(Photo of) Gordon M. Fines, Portfolio manager
From the president
The volatility in the stock market in recent months has put some
investors, even experienced ones, on edge. Although no one can
know exactly what will happen next, history tells us that ups and
downs are intrinsic to stock investing.
But history also shows that changing strategies with every twist
and turn of the market is an impractical and, worse yet, typically
unproductive way to invest. What matters more, therefore, is how
we react to market volatility.
If we take a long-term view and accept the downs with the ups, we
improve our chances of success. For in the investment world, the
race most often goes not to the swift, but to the persistent.
Along the way, of course, you'll still want to review your
investment program to make sure it's on track to achieving your
financial goals. Your American Express financial advisor will help
you do just that, and I suggest you take advantage of his or her
services on a regular basis.
On May 13, 1996, the Fund began investing its assets in Growth
Portfolio instead of directly in securities of individual
companies. Following the portfolio manager's letter are the
financial statements of both the Fund and Portfolio. The notes to
the financials and the prospectus go into more detail of how the
new structure works.
William R. Pearce
From the portfolio manager
IDS New Dimensions Fund recorded a double-digit gain during the
past 10 months (October 1995 through July 1996), as the stock
market advanced for most of the period. For Class A shareholders
of the Fund, the result was a 12.2% total return. (A substantial
portion of the return came in the form of a capital gain, which was
paid to shareholders last December and reduced the Fund's net asset
value by a like amount at that time.) This report also marks a
change in the Fund's fiscal year, which now ends on July 31.
Thanks to a low inflation rate, low interest rates and moderate
economic growth, stocks found the environment largely to their
liking for the first several months of the period. The relatively
few setbacks proved to be both modest and fleeting, as the market
quickly righted itself in the wake of occasional negative news.
Growth is good
Although a variety of stocks performed positively, those of growth
companies were most often at the forefront, as their generally
strong earnings attracted an increasing amount of investors'
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PAGE 6
capital. To the particular benefit of this Fund, growth stocks in
the amount of investors' capital. To the particular benefit of
this Fund, growth stocks in the technology/telecommunications,
health care and financial services sectors -- which have formed the
foundation of the portfolio for some time -- recorded many of the
most impressive gains. Although I continue to be optimistic about
the long-term prospects of technology-related companies, I did
reduce the exposure to personal computer manufacturers, whose near-
term potential appears questionable.
The portfolio also enjoyed good results from stocks of agri-
business companies, including seed, fertilizer and chemical
producers. This is a relatively new investment theme in the
portfolio that I began to develop late last year. Monsanto, an
agri-chemical supplier that we added to the portfolio, is a good
example of the type of company that appears likely to benefit from
less-developed countries' desire to improve their diets.
Summer slump
The news wasn't all good, though, during the past fiscal period.
By summer, stocks had begun to stall out under the weight of
higher long-term interest rates, and by July, they were in rapid
retreat. Growth stocks, especially those of technology-related
companies, found themselves under particular pressure. Although
the cash reserves in the portfolio (about 11% of assets) provided
some cushion against the downturn, the portfolio was forced to give
back a substantial portion of its gain for the period.
At this point (mid-August), questions about the direction of long-
term interest rates and corporate earnings have yet to be answered.
I expect this uncertainty will continue for a time yet, which could
well present a hurdle for the stock market. Looking longer-term, I
think the fundamentals remain favorable, but I suspect investors
will have to be content with less robust returns than they've
enjoyed in recent years.
Gordon Fines
Class A
10-month performance
(All figures per share)
Net asset value (NAV)
____________________________
July 31, 1996 $18.54
____________________________
Sept. 30, 1995 $17.24
____________________________
Increase $ 1.30
____________________________
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Distributions
Oct. 1, 1995 - July 31, 1996
____________________________
From income $ 0.15
____________________________
From capital gains $ 0.60
____________________________
Total distributions $ 0.75
____________________________
Total return* +12.2%**
____________________________
Class B
10-month performance
(All figures per share)
Net asset value (NAV)
____________________________
July 31, 1996 $18.38
____________________________
Sept. 30, 1995 $17.18
____________________________
Increase $ 1.20
____________________________
Distributions
Oct. 1, 1995 - July 31, 1996
____________________________
From income $ 0.11
____________________________
From capital gains $ 0.60
____________________________
Total distributions $ 0.71
____________________________
Total return* +11.5%**
____________________________
Class Y
10-month performance
(All figures per share)
Net asset value (NAV)
____________________________
July 31, 1996 $18.56
____________________________
Sept. 30, 1995 $17.26
____________________________
Increase $ 1.30
____________________________
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Distributions
Oct. 1, 1995 - July 31, 1996
____________________________
From income $ 0.17
____________________________
From capital gains $ 0.60
____________________________
Total distributions $ 0.77
____________________________
Total return* +12.3%**
____________________________
*The prospectus discusses the effect of
sales charges, if any, on the various classes.
**The total return is a hypothetical investment
in the Fund with all distributions reinvested.
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<TABLE>
<CAPTION>
Growth Trends Portfolio
The Portfolio's ten largest holdings
(Pie chart)
The ten holdings listed here make up 25.91% of the Portfolio's net assets.
________________________________________________________________________________________________________
Percent Value
(of Portfolio's net assets) (as of July 31, 1996)
________________________________________________________________________________________________________
<S> <C> <C>
Cisco Systems 3.62% $310,500,000
A leading designer and builder of devices that link personal computers
for application in the fast-growing business network market.
General Electric 3.07 263,600,000
A diversified company with interests in manufacturing, broadcasting
(NBC), financial services and technology.
Citicorp 3.05 262,000,000
The parent of Citibank, the largest bank in the U.S., it has a
substantial worldwide corporate and retail banking presence.
Pfizer 2.77 237,575,000
A leading producer of pharmaceuticals, hospital products,
animal health items, non-prescription medications and
specialty chemicals.
Intel 2.63 225,375,000
The world's number one semiconductor manufacturer, Intel produces
microcomputer components, modules and systems.
Monsanto 2.55 218,750,000
This company and its subsidiaries manufacture and sell a diverse
line of agricultural products; chemical products, including plastics
and manufactured fibers; pharmaceuticals; and food products, including
low-calorie sweeteners.
Boeing 2.16 185,850,000
The largest producer of commercial aircraft in the free world with over
50% of the market.
First Data 2.08 178,537,500
Operates in one business segment providing high-quality, high-volume
information processing and related services to specific client groups:
the transaction card, payment instruments, teleservices, mutual funds,
health care, receivables and information management industries.
Johnson & Johnson 2.00 171,900,000
A major producer of health-care products, including consumer
products, medical and dental devices and products and a wide variety
of ethical and over-the-counter drugs.
ConAgra 1.98 170,000,000
Engaged in a variety of basic food businesses, including
feed and fertilizer, grain processing and merchandising,
agricultural chemicals, worldwide trading, fresh and processed
red meats, poultry products, and frozen prepared foods and seafood.
</TABLE>
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Making the most of the Fund
Average annual total return
(as of July 31, 1996)
1 year Since inception* 5 years 10 years
Class A +10.67% --% +14.02% +15.07%
Class B +10.65% +21.70% --% --%
Class Y +16.68% +25.54% --% --%
*Inception date was March 20, 1995.
The performance of Class B and Class Y will vary from the
performance of Class A based on differences in sales charges and
fees.
Your investment and return values fluctuate so that your shares,
when redeemed, may be worth more or less than the original cost.
Figures for Class A and Class B reflect the effect of the maximum
5% sales charge. This was a period of widely fluctuating security
prices. Past performance is no guarantee of future results.
Build your assets systematically
One of the best ways to invest in the Fund is by dollar-cost
averaging -- a time-tested strategy that can make market
fluctuations work for you. To dollar-cost average, simply invest a
fixed amount of money regularly. You'll automatically buy more
shares when the Fund's share price is low, fewer shares when it is
high.
This does not ensure a profit or avoid a loss if the market
declines. But, if you can continue to invest regularly through
changing market conditions, it can be an effective way to
accumulate shares to meet your long-term goals.
How dollar-cost averaging works
Month Amount Per-share Number of shares purchased
invested market price
Jan $100 $20 5.00 XXXXX
Feb 100 16 5.56 XXXXXx
March 100 17 5.88 XXXXXx
April 100 16 6.67 XXXXXXx
May 100 16 6.25 XXXXXXx
June 100 18 5.56 XXXXXx
July 100 17 5.88 XXXXXx
Aug 100 19 5.26 XXXXXx
Sept 100 21 4.76 XXXXx
Oct 100 20 5.00 XXXXX
(footnotes to table) By investing an equal number of dollars each
month...
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(arrow in table pointing to April) you automatically buy more
shares when the per share market price is low...
(arrow in table pointing to September) and fewer shares when the
per share market price is high.
You have paid an average price of only $17.91 per share over the 10
months, while the average market price actually was $18.10.
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The Fund's long-term performance
Three ways to benefit from a mutual fund:
o your shares increase in value when the Fund's investments do
well
o you receive capital gains when the gains on investments sold
by the Fund exceed losses
o you receive income when the Fund's stock dividends, interest
and short-term gains exceed its expenses.
All three make up your total return. And you potentially can
increase your investment if, like most investors, you reinvest your
dividends and capital gain distributions to buy additional shares
of the Fund or another fund.
How your $10,000 has grown in IDS New Dimensions Fund
$40,767
$40,000 New Dimensions Fund
Class A
$30,000 S&P 500
Stock Index
Lipper Growth
Fund Index
$20,000
$9,500
'86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96
Average annual total return
(as of July 31, 1996)
1 year Since inception* 5 years 10 years
Class A +10.67% --% +14.02% +15.07%
Class B +10.65% +21.70% --% --%
Class Y +16.68% +25.54% --% --%
**Inception date was March 20, 1995.
Assumes: Holding period from 8/1/86 to 7/31/96. Returns do not
reflect taxes payable on distributions. Reinvestment of all income
and capital gain distributions for the Fund, with a value of
$25,185. Also see "Performance" in the Fund's current prospectus.
Standard & Poor's 500 Stock Index (S&P 500), an unmanaged list of
common stocks, is frequently used as a general measure of market
performance. However, the S&P companies are generally larger than
those in which the Fund invests.
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PAGE 13
Lipper Growth Fund Index, published by Lipper Analytical Services,
Inc., includes 30 funds that are generally similar to this Fund,
although some funds in the index may have somewhat different
investment policies or objectives.
On the graph above you can see how the Fund's total return compared
to two widely cited performance indexes, the S&P 500 and the Lipper
Growth Fund Index. In comparing New Dimensions Fund to the two
indexes, you should take into account the fact that the Fund's
performance reflects the maximum sales charge of 5%, while such
charges are not reflected in the performance of the indexes. If
you were actually to buy individual stocks or growth mutual funds,
any sales charges that you pay would reduce your total return as
well.
Your investment and return values fluctuate so that your shares,
when redeemed, may be worth more or less than the original cost.
This was a period of widely fluctuating security prices. Past
performance is no guarantee of future results.
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Independent auditors' report
The board and shareholders
IDS New Dimensions Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities of IDS New Dimensions Fund, Inc. as of July 31, 1996,
and the related statement of operations for the ten-month period
then ended and the statements of changes in net assets for the ten-
month period ended July 31, 1996 and the year ended September 30,
1995, and the financial highlights for the ten-month period ended
July 31, 1996 and for each of the years in the ten-year period
ended September 30, 1995. These financial statements and the
financial highlights are the responsibility of fund management.
Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements and the financial highlights are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of IDS New
Dimensions Fund, Inc. at July 31, 1996, and the results of its
operations, changes in its net assets and the financial highlights
for the periods stated in the first paragraph above, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
September 6, 1996
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<TABLE>
<CAPTION>
Statement of assets and liabilities
IDS New Dimensions Fund, Inc.
July 31, 1996
Assets
<S> <C>
Investment in Growth Trends Portfolio (Note 1) $8,560,236,452
Total assets 8,560,236,452
Liabilities
Disbursements in excess of cash on demand deposit 4,432
Accrued distribution fee 11,906
Accrued service fee 29,193
Accrued transfer agency fee 28,509
Accrued administrative services fee 8,539
Other accrued expenses 977,669
Total liabilities 1,060,248
Net assets applicable to outstanding capital stock $8,559,176,204
Represented by
Capital stock -- authorized 10,000,000,000 shares of $.01 par value $ 4,618,125
Additional paid-in-capital 6,073,895,611
Undistributed net investment income 36,187,086
Accumulated net realized gain (Note 1) 266,762,530
Unrealized appreciation of investments 2,177,712,852
Total - representing net assets applicable to outstanding capital stock 8,559,176,204
Net assets applicable to outstanding shares: Class A $5,625,868,997
Class B $ 593,497,390
Class Y $2,339,809,817
Net asset value per share of outstanding capital stock:Class A shares 303,463,317 $ 18.54
Class B shares 32,283,002 $ 18.38
Class Y shares 126,066,164 $ 18.56
See accompanying notes to financial statements.
</TABLE>
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<TABLE>
<CAPTION>
Statement of operations
IDS New Dimensions Fund, Inc.
Ten months ended July 31, 1996
Oct. 1, 1995 to May 13, 1996 to
May 12, 1996 July 31, 1996 Total
(Notes 1 and 5)
Investment income
<S> <C> <C> <C>
Income:
Interest $ 30,498,568 $ 12,065,824 $ 42,564,392
Dividends 48,412,633 20,390,020 68,802,653 *
Total income 78,911,201 32,455,844 111,367,045
Expenses (Note 2):
Investment management services fee 25,565,271 -- 25,565,271
Distribution fee -- Class B 1,287,734 898,655 2,186,389
Transfer agency fee 5,546,585 2,262,070 7,808,655
Incremental transfer agency fee -- Class B 29,093 17,407 46,500
Service fee
Class A 5,253,546 2,206,914 7,460,460
Class B 299,676 209,485 509,161
Administrative services fee 1,721,130 717,228 2,438,358
Compensation of board members 84,873 25,346 110,219
Compensation of officers 48,007 3,524 51,531
Custodian fees 263,008 -- 263,008
Postage 217,165 72,389 289,554
Registration fees 695,687 171,917 867,604
Reports to shareholders 232,470 64,955 297,425
Audit fees 28,798 1,528 30,326
Administrative 26,962 8,988 35,950
Other 41,431 6,162 47,593
Total expenses 41,341,436 6,666,568 48,008,004
Earnings credits on cash balances (Note 5) (16,175) -- (16,175)
41,325,261 6,666,568 47,991,829
Expenses, including investment management services fee
allocated from Growth Trends Portfolio -- 11,791,327 11,791,327
Total net expenses 41,325,261 18,457,895 59,783,156
Investment income -- net 37,585,940 13,997,949 51,583,889
Realized and unrealized gain (loss) -- net
Net realized gain on security transactions 280,525,097 45,442,725 325,967,822
Net change in unrealized appreciation or depreciation 611,005,528 (147,891,553) 463,113,975
Net gain (loss) on investments 891,530,625 (102,448,828) 789,081,797
Net increase (decrease) in net assets resulting from operations $929,116,565 $ (88,450,879) $840,665,686
*Includes net of foreign taxes withheld of $476,797.
See accompanying notes to financial statements.
</TABLE>
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<TABLE>
<CAPTION>
Statement of changes in net assets
IDS New Dimensions Fund, Inc.
Operations and distributions July 31, 1996 Sept. 30, 1995
Ten-month Year ended
period ended
<S> <C> <C>
Investment income - net $ 51,583,889 $ 56,020,175
Net realized gain on investments 325,967,822 188,034,728
Net change in unrealized appreciation or depreciation 463,113,975 1,122,806,020
Net increase in net assets resulting from operations 840,665,686 1,366,860,923
Distributions to shareholders from:
Net investment income
Class A (39,448,269) (37,824,704)
Class B (1,492,148) --
Class Y (19,131,175) --
Net realized gain
Class A (162,150,758) (161,781,539)
Class B (8,111,389) --
Class Y (68,560,165) --
Excess distributions of realized gain
Class A -- (10,005)
Total distributions (298,893,904) (199,616,248)
Capital share transactions (Note 3)
Proceeds from sales
Class A shares (Note 2) 1,078,880,570 1,277,766,445
Class B shares 442,410,073 139,503,525
Class Y shares 862,302,096 1,678,216,434
Reinvestment of distributions at net asset value
Class A shares 198,597,094 197,521,609
Class B shares 9,572,264 --
Class Y shares 87,691,340 --
Payments for redemptions
Class A shares (593,204,599) (2,058,310,273)
Class B shares (Note 2) (24,532,266) (2,112,953)
Class Y shares (560,414,845) (180,172,610)
Increase in net assets from capital share transactions 1,501,301,727 1,052,412,177
Total increase in net assets 2,043,073,509 2,219,656,852
Net assets at beginning of period 6,516,102,695 4,296,445,843
Net assets at end of period
(including undistributed net investment income of
$36,187,086 and $44,674,789) $8,559,176,204 $6,516,102,695
See accompanying notes to financial statements.
</TABLE>
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PAGE 18
The board of trustees and unitholders
Growth Trust:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments in securities,
of Growth Trends Portfolio (a series of Growth Trust) as of July
31, 1996, and the related statements of operations and changes in
net assets for the period from May 13, 1996 (commencement of
operations) to July 31, 1996. These financial statements are the
responsibility of fund management. Our responsibility is to
express an opinion on these financial statements based on our
audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Investment
securities held in custody are confirmed to us by the custodian.
As to securities purchased and sold but not received or delivered,
and securities on loan, we request confirmations from brokers, and
where replies are not received, we carry out other appropriate
auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Growth
Trends Portfolio at July 31, 1996, and the results of its
operations and the changes in its net assets for the period from
May 13, 1996 (commencement of operations) to July 31, 1996, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
September 6, 1996
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PAGE 19
<TABLE>
<CAPTION>
Statement of assets and liabilities
Growth Trends Portfolio
July 31, 1996
Assets
<S> <C>
Investments in securities, at value (Note 1)
Investments in securities of unaffiliated issuers
(identified cost $6,336,887,547) $8,454,639,876
Investments in securities of affiliated issuers
(identified cost $72,334,647) 133,031,250
Cash in bank on demand deposit 3,393,915
Dividends and accrued interest receivable 7,099,993
Receivable for investment securities sold 37,289,090
U.S. government securities held as collateral (Note 4) 640,540
Total assets 8,636,094,664
Liabilities
Payable for investment securities purchased 45,520,458
Payable upon return of securities loaned (Note 4) 5,018,140
Accrued investment management services fee 561,398
Other accrued expenses 155,470
Total liabilities 51,255,466
Net assets $8,584,839,198
See accompany notes to financial statements.
<PAGE>
PAGE 20
Statement of Operations
Growth Trends Portfolio
For the period from May 13, 1996
(commencement of operations) to July 31, 1996
Investment income
Income:
Interest $ 12,099,456
Dividends (net of foreign taxes withheld of $73,091) 20,448,561
Total income 32,548,017
Expenses (Note 2):
Investment management services fee 11,544,754
Compensation of board members 10,250
Custodian fees 256,677
Audit fees 4,582
Administrative 2,892
Other 11,403
Total expenses 11,830,558
Earnings credits on cash balances (Note 2) (6,141)
Total net expenses 11,824,417
Investment income -- net 20,723,600
Realized and unrealized gain (loss) -- net
Net realized gain on security transactions (Note 3) 44,047,563
Net change in unrealized appreciation or depreciation (147,155,473)
Net loss on investments (103,107,910)
Net decrease in net assets resulting from operations $ (82,384,310)
See accompanying notes to financial statements.
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PAGE 21
Statement of changes in net assets
Growth Trends Portfolio
For the period from May 13, 1996
(commencement of operations) to July 31, 1996
Operations and distributions
Investment income -- net $ 20,723,600
Net realized gain on investments 44,047,563
Net change in unrealized appreciation or depreciation (147,155,473)
Net decrease in net assets resulting from operations (103,107,910)
Net contributions 8,667,223,508
Total increase in net assets 8,584,839,198
Net assets at beginning of period (Note 1) --
Net assets at end of period $8,584,839,198
See accompanying notes to financial statements.
</TABLE>
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PAGE 22
IDS New Dimensions Fund
Prospectus
Sept. 27, 1996
The goal of IDS New Dimensions Fund, Inc. is long-term growth of
capital.
The Fund seeks to achieve its goal by investing all of its assets
in Growth Trends Portfolio of Growth Trust. The Portfolio is a
separate investment company managed by American Express Financial
Corporation that has the same goal as the Fund. This arrangement
is commonly known as a master/feeder structure.
This prospectus contains facts that can help you decide if the Fund
is the right investment for you. Read it before you invest and
keep it for future reference.
Additional facts about the Fund are in a Statement of Additional
Information (SAI), filed with the Securities and Exchange
Commission (SEC) and available for reference, along with other
related materials, on the SEC Internet web site
(http://www.sec.gov). The SAI, dated Sept. 27, 1996, is
incorporated here by reference. For a free copy, contact American
Express Shareholder Service.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
SHARES IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY. INVESTMENTS IN THE FUND INVOLVE
INVESTMENT RISK INCLUDING POSSIBLE LOSS OF PRINCIPAL.
American Express Shareholder Service
P.O. Box 534
Minneapolis, MN
55440-0534
612-671-3733
TTY: 800-846-4852
<PAGE>
PAGE 23
Table of Contents
The Fund in brief
Goal
Investment policies and risks
Structure of the Fund
Manager and distributor
Portfolio manager
Alternative purchase arrangements
Sales charge and Fund expenses
Performance
Financial highlights
Total returns
Investment policies and risks
Facts about investments and their risks
Valuing Fund shares
How to purchase, exchange or redeem shares
Alternative purchase arrangements
How to purchase shares
How to exchange shares
How to redeem shares
Reductions and waivers of the sales charge
Special shareholder services
Services
Quick telephone reference
Distributions and taxes
Dividend and capital gain distributions
Reinvestments
Taxes
How to determine the correct TIN
How the Fund is organized
Shares
Voting rights
Shareholder meetings
Special considerations regarding master/feeder structure
Board members and officers
Investment manager
Administrator and transfer agent
Distributor
About American Express Financial Corporation
General information
Appendix
Descriptions of derivative instruments
<PAGE>
PAGE 24
The Fund in brief
Goal
IDS New Dimensions Fund (the Fund) seeks to provide shareholders
with long-term growth of capital. It does so by investing all of
its assets in the Growth Trends Portfolio (the Portfolio) of Growth
Trust (the Trust). Both the Fund and the Portfolio are diversified
investment companies that have the same goal. Because any
investment involves risk, achieving this goal cannot be guaranteed.
Goals can be changed only by holders of a majority of outstanding
securities.
The Fund may withdraw its assets from the Portfolio at any time if
the board determines that it is in the best interests of the Fund
to do so. In that event, the Fund would consider what action
should be taken, including whether to retain an investment advisor
to manage the Fund's assets directly or to reinvest all of the
Fund's assets in another pooled investment entity.
Investment policies and risks
Both the Fund and Portfolio have the same investment policies.
Accordingly, the Portfolio invests primarily in common stocks of
U.S. and foreign companies showing potential for significant
growth. These companies usually operate in areas where dynamic
economic and technological changes are occurring. The Portfolio
also invests in preferred stocks, debt securities, derivative
instruments and money market instruments. Some of the investments
may be considered speculative and involve additional investment
risks.
Structure of the Fund
This Fund uses what is commonly known as a master/feeder structure.
This means that it is a feeder fund that invests all of its assets
in the Portfolio which is its master fund. The Portfolio actually
invests in and manages the securities and has the same goal and
investment policies as the Fund. This structure is described in
more detail in the section captioned "Special considerations
regarding master/feeder structure". Here is an illustration of the
structure:
Investors
buy shares in
the Fund
The Fund
invests in
the Portfolio
The Portfolio invests in
securities, such as stocks
or bonds
<PAGE>
PAGE 25
Manager and distributor
The Portfolio is managed by American Express Financial Corporation
(AEFC), a provider of financial services since 1894. AEFC
currently manages more than $51 billion in assets. Shares of the
Fund are sold through American Express Financial Advisors Inc., a
wholly owned subsidiary of AEFC.
Portfolio manager
Gordon Fines joined AEFC in 1981 and serves as vice president and
senior portfolio manager. He has managed the assets of the Fund
since 1991 and serves as portfolio manager of the Portfolio. He
also is portfolio manager of IDS Life Growth Dimensions Fund and
leads the growth team for AEFC.
Alternative purchase arrangements
The Fund offers its shares in three classes. Class A shares are
subject to a sales charge at the time of purchase. Class B shares
are subject to a contingent deferred sales charge (CDSC) on
redemptions made within six years of purchase and an annual
distribution (12b-1) fee. Class Y shares are sold without a sales
charge to qualifying institutional investors.
Sales charge and Fund expenses
Shareholder transaction expenses are incurred directly by an
investor on the purchase or redemption of Fund shares. Fund
operating expenses are paid out of Fund assets for each class of
shares and include expenses charged by the Fund and the Portfolio.
Operating expenses are reflected in the Fund's daily share price
and dividends, and are not charged directly to shareholder
accounts.
Shareholder transaction expenses
Class A Class B Class Y
Maximum sales charge on purchases*
(as a percentage of offering price)..... 5% 0% 0%
Maximum deferred sales charge
imposed on redemptions (as a
percentage of original purchase price)...0% 5% 0%
Annual Fund and allocated Portfolio operating expenses+
(% of average daily net assets):
Class A Class B Class Y
Management fee** 0.57% 0.57% 0.57%
12b-1 fee 0.00% 0.75% 0.00%
Other expenses*** 0.37% 0.39% 0.20%
Total**** 0.94% 1.71% 0.77%
*This charge may be reduced depending on your total investments in
IDS funds. See "Reductions of the sales charge."
**The management fee is paid by the Trust on behalf of the
Portfolio. It includes the impact of a performance fee that
<PAGE>
PAGE 26
increased the management fee by 0.03% in fiscal 1996.
***Other expenses include an administrative services fee, a
shareholder services fee for Class A and Class B, a transfer agency
fee and other non-advisory expenses. Expense ratios are based on
total expenses of the Fund before applying earnings credit on cash
balances.
****The Fund changed to a master/feeder structure on May 13, 1996.
The Board considered whether the aggregate expenses of the Fund and
the Portfolio would be more or less than if the Fund invested
directly in the type of securities being held by the Portfolio.
American Express Financial Corporation has agreed to pay the small
additional costs required to use a master/feeder structure to
manage the investment portfolio during the first year of its
operation and half of such costs in the second year. These
additional costs may be more than offset in subsequent years if the
assets being managed increase.
+ Expenses are based on actual annualized expenses for the period
from Oct. 1, 1995 to July 31, 1996.
Example: Suppose for each year for the next 10 years, Fund
expenses are as above and annual return is 5%. If you sold your
shares at the end of the following years, for each $1,000 invested,
you would pay total expenses of:
1 year 3 years 5 years 10 years
Class A $59 $78 $ 99 $160
Class B $67 $94 $113 $177**
Class B* $17 $54 $ 93 $177**
Class Y $ 8 $25 $ 43 $ 96
*Assuming Class B shares are not redeemed at the end of the period.
**Based on conversion of Class B shares to Class A shares after
eight years.
This example does not represent actual expenses, past or future.
Actual expenses may be higher or lower than those shown. Because
Class B pays annual distribution (12b-1) fees, long-term
shareholders of Class B may indirectly pay an equivalent of more
than a 6.25% sales charge, the maximum permitted by the National
Association of Securities Dealers.
<PAGE>
PAGE 27
Performance
Financial highlights
<TABLE>
<CAPTION>
Financial highlights
IDS New Dimensions Fund, Inc.
Performance
Financial highlights
Fiscal period ended July 31,
Per share income and capital changes*
Class A
1996** 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $17.24 $14.06 $14.87 $12.57 $12.01 $9.45 $10.45 $7.94 $9.84 $8.16 $8.08
beginning of period
Income from investment operations:
Net investment
income .17 .16 .09 .06 .06 .15 .24 .16 .14 .16 .17
Net gains (losses) 1.88 3.64 (.18) 3.01 1.13 3.59 (.52) 2.39 (1.12) 3.19 2.27
(both realized
and unrealized)
Total from investment 2.05 3.80 (.09) 3.07 1.19 3.74 (.28) 2.55 (.98) 3.35 2.44
operations
Less distributions:
Dividends from net (.15) (.12) (.07) (.04) (.14) (.22) (.19) (.04) (.12) (.16) (.18)
investment income
Distributions from (.60) (.50) (.65) (.73) (.49) (.96) (.53) -- (.80) (1.51) (2.18)
realized gains
Total distributions (.75) (.62) (.72) (.77) (.63) (1.18) (.72) (.04) (.92) (1.67) (2.36)
Net asset value, $18.54 $17.24 $14.06 $14.87 $12.57 $12.01 $9.45 $10.45 $7.94 $9.84 $8.16
end of period
Ratios/supplemental data
Class A
1996** 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
Net assets, end of $5,626 $4,575 $4,296 $3,544 $2,253 $1,553 $815 $762 $636 $759 $510
period (in millions)
Ratio of expenses to .94%+ .90% .90% .92% .95% .90% .88% .82% .87% .79% .63%
average daily net
assets #
Ratio of net income .78%+ 1.07% 0.75% 0.51% 0.57% 1.65% 2.43% 1.70% 1.65% 1.60% 1.68%
to average daily net
assets
Total return ++ 12.2% 28.4% (.7%) 25.1% 9.6% 43.3% (2.8%) 32.4% (9.7%) 41.0% 30.2%
Portfolio turnover rate 41% 54% 48% 60% 75% 81% 91% 67% 119% 113% 128%
(excluding short-term
securities) for the
underlying Portfolio
*For a share outstanding throughout the period. Rounded to the nearest cent.
**The Fund's fiscal year-end was changed from Sept. 30 to July 31, effective 1996.
+Adjusted to an annual basis.
++Total return does not reflect payment of a sales charge.
#Effective fiscal year 1996, expense ratio is based on total expenses of the Fund
before reduction of earnings credit on cash balances.
<PAGE>
PAGE 28
IDS New Dimensions Fund, Inc.
Performance
Financial highlights
Fiscal period ended July 31,
Per share income and capital changes*
Class B Class Y
1996** 1995*** 1996** 1995***
Net asset value, $17.18 $14.21 $17.26 $14.21
beginning of period
Income from investment operations:
Net investment income
(loss) .03 .02 .19 .10
Net gains(losses) 1.88 2.95 1.88 2.95
(both realized
and unrealized)
Total from investment 1.91 2.97 2.07 3.05
operations
Less distributions:
Dividends from net (.11) -- (.17) --
investment income
Distributions from (.60) -- (.60) --
realized gains
Total distributions (.71) -- (.77) --
Net asset value, $18.38 $17.18 $18.56 $17.26
end of period
Ratios/supplemental data
Class B Class Y
1996** 1995*** 1996** 1995***
Net assets, end of $593 $150 $2,340 $1,792
period (in millions)
Ratio of expenses to 1.71%+ 1.72%+ .77%+ .76%+
average daily net
assets #
Ratio of net income .01%+ .33%+ .95%+ 1.26%+
to average daily net
assets
Total return++ 11.5% 20.9% 12.3% 21.5%
Portfolio turnover rate 41% 54% 41% 54%
(excluding short-term
securities) for the
underlying Portfolio
*For a share outstanding throughout the period. Rounded to the nearest cent.
**The Fund's fiscal year-end was changed from Sept. 30 to July 31, effective 1996.
***Inception date was March 20, 1995 for Class B and Class Y.
+Adjusted to an annual basis.
++Total return does not reflect payment of a sales charge.
#Effective fiscal year 1996, expense ratios are based on total expenses of the Fund before
reduction of earnings credit on cash balances.
The information in these tables has been audited by KPMG Peat Marwick LLP, independent auditors.
The independent auditors' report and additional information about the performance of the Fund
are contained in the Fund's annual report which, if not included with this prospectus, may be
obtained without charge.
</TABLE>
<PAGE>
PAGE 29
Total returns
Total return is the sum of all of your returns for a given period,
assuming you reinvest all distributions. It is calculated by
taking the total value of shares you own at the end of the period
(including shares acquired by reinvestment), less the price of
shares you purchased at the beginning of the period.
Average annual total return is the annually compounded rate of
return over a given time period (usually two or more years). It is
the total return for the period converted to an equivalent annual
figure.
Average annual total returns as of July 31, 1996
Purchase 1 year Since 5 years 10 years
made ago inception* ago ago
IDS New Dimensions Fund:
Class A +10.67% -- +14.02% +15.07%
Class B +10.65% +21.70% -- --
Class Y +16.68% +25.54% -- --
S&P 500 +16.39% +22.88% +13.61% +13.94%
Lipper Growth
Fund Index + 8.89% +16.01% +12.30% +12.21%
*Inception date was March 20, 1995.
Cumulative total returns as of July 31, 1996
Purchase 1 year Since 5 years 10 years
made ago inception* ago ago
IDS New Dimensions Fund:
Class A +10.67% -- +92.89% +307.67%
Class B +10.65% +30.76% -- --
Class Y +16.68% +36.47% -- --
S&P 500 +16.39% +31.72% +89.30% +268.84%
Lipper Growth
Fund Index + 8.89% +22.83% +78.63% +216.45%
*Inception date was March 20, 1995.
These examples show total returns from hypothetical investments in
Class A, Class B and Class Y shares of the Fund. These returns are
compared to those of popular indexes for the same periods. The
performance of Class B and Class Y will vary from the performance
of Class A based on differences in sales charges and fees. Past
performance for Class Y for the periods prior to March 20, 1995 may
be calculated based on the performance of Class A, adjusted to
reflect differences in sales charges although not for other
differences in expenses.
<PAGE>
PAGE 30
For purposes of calculation, information about the Fund assumes:
o a sales charge of 5% for Class A shares
o redemption at the end of the period and deduction of the
applicable contingent deferred sales charge for Class B
shares
o no sales charge for Class Y shares
o no adjustments for taxes an investor may have paid on the
reinvested income and capital gains
o a period of widely fluctuating securities prices. Returns
shown should not be considered a representation of the Fund's
future performance.
Standard & Poor's 500 Stock Index (S&P 500), an unmanaged list of
common stocks, is frequently used as a general measure of market
performance. However, the S&P 500 companies are generally larger
than those in which the Fund invests. The index reflects
reinvestment of all distributions and changes in market prices, but
excludes brokerage commissions or other fees.
Lipper Growth Fund Index, an unmanaged index published by Lipper
Analytical Services, Inc., includes 30 funds that are generally
similar to the Fund, although some funds in the index may have
somewhat different investment policies or objectives.
Investment policies and risks
The Fund and the Portfolio have the same investment policies. The
Portfolio invests primarily in common stocks of U.S. and foreign
corporations showing potential for significant growth. These
companies usually operate in areas where dynamic economic and
technological changes are occurring. They also may exhibit
excellence in technology, marketing or management. Other
investments include debt securities, preferred stocks, derivative
instruments and money market instruments.
The various types of investments the portfolio manager uses to
achieve investment performance are described in more detail in the
next section and in the SAI.
Facts about investments and their risks
Common stocks: Stock prices are subject to market fluctuations.
Stocks of companies experiencing significant growth and operating
in areas of financial and technological change may be subject to
more abrupt or erratic price movements than the stock market as a
whole. While most of the Portfolio's investments are in
established companies having adequate financial reserves, some
investments involve substantial risk and may be considered
speculative.
Preferred stocks: If a company earns a profit, it generally must
pay its preferred stockholders a dividend at a pre-established
rate.
Debt securities: The price of bonds generally falls as interest
rates increase, and rises as interest rates decrease. The price of
bonds also fluctuates if the credit rating is upgraded or
<PAGE>
PAGE 31
downgraded. The price of bonds below investment grade may react
more to the ability of the issuing company to pay interest and
principal when due. These bonds have greater price fluctuations
and are more likely to experience a default. The Portfolio will
not invest more than 5% of its net assets in bonds below investment
grade. Securities that are subsequently downgraded in quality may
continue to be held by the Portfolio and will be sold only when the
Portfolio's investment manager believes it is advantageous to do
so.
Foreign investments: Securities of foreign companies and
governments may be traded in the United States, but often they are
traded only on foreign markets. Frequently, there is less
information about foreign companies and less government supervision
of foreign markets. Foreign investments are subject to political
and economic risks of the countries in which the investments are
made, including the possibility of seizure or nationalization of
companies, imposition of withholding taxes on income, establishment
of exchange controls or adoption of other restrictions that might
affect an investment adversely. If an investment is made in a
foreign market, the local currency may be purchased using a forward
contract in which the price of the foreign currency in U.S. dollars
is established on the date the trade is made, but delivery of the
currency is not made until the securities are received. As long as
the Portfolio holds foreign currencies or securities valued in
foreign currencies, the value of those assets will be affected by
changes in the value of the currencies relative to the U.S. dollar.
Because of the limited trading volume in some foreign markets,
efforts to buy or sell a security may change the price of the
security, and it may be difficult to complete the transaction. The
Portfolio may invest up to 30% of its total assets in foreign
investments.
Derivative instruments: The portfolio manager may use derivative
instruments in addition to securities to achieve investment
performance. Derivative instruments include futures, options and
forward contracts. Such instruments may be used to maintain cash
reserves while remaining fully invested, to offset anticipated
declines in values of investments, to facilitate trading, to reduce
transaction costs or to pursue higher investment returns.
Derivative instruments are characterized by requiring little or no
initial payment and a daily change in price based on or derived
from a security, a currency, a group of securities or currencies,
or an index. A number of strategies or combination of instruments
can be used to achieve the desired investment performance
characteristics. A small change in the value of the underlying
security, currency or index will cause a sizable gain or loss in
the price of the derivative instrument. Derivative instruments
allow the portfolio manager to change the investment performance
characteristics very quickly and at lower costs. Risks include
losses of premiums, rapid changes in prices, defaults by other
parties and inability to close such instruments. The Portfolio
will use derivative instruments only to achieve the same investment
performance characteristics it could achieve by directly holding
those securities and currencies permitted under the investment
policies. The Portfolio will designate cash or appropriate liquid <PAGE>
PAGE 32
assets to cover its portfolio obligations. No more than 5% of the
Portfolio's net assets can be used at any one time for good faith
deposits on futures and premiums for options on futures that do not
offset existing investment positions. This does not, however,
limit the portion of the Fund's assets at risk to 5%. The
Portfolio is not limited as to the percentage of its assets that
may be invested in permissible investments, including derivatives,
except as otherwise explicitly provided in this prospectus or the
SAI. For descriptions of these and other types of derivative
instruments, see the Appendix to this prospectus and the SAI.
Securities and other instruments that are illiquid: A security or
other instrument is illiquid if it cannot be sold quickly in the
normal course of business. Some investments cannot be resold to
the U.S. public because of their terms or government regulations.
All securities and other instruments, however, can be sold in
private sales, and many may be sold to other institutions and
qualified buyers or on foreign markets. The portfolio manager will
follow guidelines established by the board and consider relevant
factors such as the nature of the security and the number of likely
buyers when determining whether a security is illiquid. No more
than 10% of the Portfolio's net assets will be held in securities
and other instruments that are illiquid.
Money market instruments: Short-term debt securities rated in the
top two grades or the equivalent are used to meet daily cash needs
and at various times to hold assets until better investment
opportunities arise. Generally, less than 25% of the Portfolio's
total assets are in these money market instruments. However, for
temporary defensive purposes these investments could exceed that
amount for a limited period of time.
The investment policies described above may be changed by the
boards.
Lending portfolio securities: The Portfolio may lend its
securities to earn income so long as borrowers provide collateral
equal to the market value of the loans. The risks are that
borrowers will not provide collateral when required or return
securities when due. Unless a majority of the outstanding voting
securities approve otherwise, loans may not exceed 30% of net
assets.
Valuing Fund shares
The public offering price is the net asset value (NAV) adjusted for
the sales charge for Class A. It is the NAV for Class B and
Class Y.
The NAV is the value of a single Fund share. The NAV usually
changes daily, and is calculated at the close of business, normally
3 p.m. Central time, each business day (any day the New York Stock
Exchange is open).
<PAGE>
PAGE 33
To establish the net assets, all securities held by the Portfolio
are valued as of the close of each business day. In valuing
assets:
o Securities (except bonds) and assets with available market
values are valued on that basis.
o Securities maturing in 60 days or less are valued at
amortized cost.
o Bonds and assets without readily available market values are
valued according to methods selected in good faith by the
board.
How to purchase, exchange or redeem shares
Alternative purchase arrangements
The Fund offers three different classes of shares - Class A, Class
B and Class Y. The primary differences among the classes are in
the sales charge structures and in their ongoing expenses. These
differences are summarized in the table below. You may choose the
class that best suits your circumstances and objectives.
<TABLE>
<CAPTION>
Sales charge and
distribution
(12b-1) fee Service fee Other information
<S> <C> <C> <C>
Class A Maximum initial 0.175% of average Initial sales charge
sales charge of daily net assets waived or reduced
5%; no 12b-1 fee for certain purchases
Class B No initial sales 0.175% of average Shares convert to
charge; maximum CDSC daily net assets Class A after eight
of 5% declines to 0% years; CDSC waived in
after six years; 12b-1 certain circumstances
fee of 0.75% of average
daily net assets
Class Y None None Available only to
certain qualifying
institutional
investors
</TABLE>
Conversion of Class B shares to Class A shares - Eight calendar
years after Class B shares were originally purchased, Class B
shares will convert to Class A shares and will no longer be subject
to a distribution fee. The conversion will be on the basis of
relative net asset values of the two classes, without the
imposition of any sales charge. Class B shares purchased through
reinvested dividends and distributions will convert to Class A
shares in a pro rata portion as the Class B shares purchased other
than through reinvestment.
<PAGE>
PAGE 34
Considerations in determining whether to purchase Class A or Class
B shares - You should consider the information below in determining
whether to purchase Class A or Class B shares. The distribution
fee (included in "Ongoing expenses") and sales charges are
structured so that you will have approximately the same total
return at the end of eight years regardless of which class you
chose.
Sales charges on purchase or redemption
If you purchase Class A If you purchase Class B
shares shares
o You will not have all o All of your money is
of your purchase price invested in shares of
invested. Part of your stock. However, you will
purchase price will go pay a sales charge if you
to pay the sales charge. redeem your shares within
You will not pay a sales six years of purchase.
charge when you redeem
your shares.
o You will be able to o No reductions of the
take advantage of sales charge are
reductions in the sales available for large
charge. purchases.
If your investments in IDS funds that are subject to a sales charge
total $250,000 or more, you are better off paying the reduced sales
charge in Class A than paying the higher fees in Class B. If you
qualify for a waiver of the sales charge, you should purchase Class
A shares.
Ongoing expenses
If you purchase Class A If you purchase Class B
shares shares
o Your shares will have o The distribution and
a lower expense ratio transfer agency fees for
than Class B shares Class B will cause your
because Class A does not shares to have a higher
pay a distribution fee expense ratio and to pay
and the transfer agency lower dividends than
fee for Class A is lower Class A shares. After
than the fee for Class B. eight years, Class B
As a result, Class A shares shares will convert to
will pay higher dividends Class A shares and you
than Class B shares. will no longer be
subject to higher fees.
You should consider how long you plan to hold your shares and
whether the accumulated higher fees and CDSC on Class B shares
prior to conversion would be less than the initial sales charge on
Class A shares. Also consider to what extent the difference would
be offset by the lower expenses on Class A shares. To help you in
<PAGE>
PAGE 35
this analysis, the example in the "Sales charge and Fund expenses"
section of the prospectus illustrates the charges applicable to
each class of shares.
Class Y shares - Class Y shares are offered to certain
institutional investors. Class Y shares are sold without a front-
end sales charge or a CDSC and are not subject to either a service
fee or a distribution fee. The following investors are eligible to
purchase Class Y shares:
o Qualified employee benefit plans* if the plan:
- uses a daily transfer recordkeeping service offering
participants daily access to IDS funds and has
- at least $10 million in plan assets or
- 500 or more participants; or
- does not use daily transfer recordkeeping and has
- at least $3 million invested in funds of the IDS MUTUAL
FUND GROUP or
- 500 or more participants.
o Trust companies or similar institutions, and charitable
organizations that meet the definition in Section 501(c)(3)
of the Internal Revenue Code.* These must have at least $10
million invested in funds of the IDS MUTUAL FUND GROUP.
o Nonqualified deferred compensation plans* whose
participants are included in a qualified employee benefit
plan described above.
* Eligibility must be determined in advance by American Express
Financial Advisors. To do so, contact your financial advisor.
How to purchase shares
If you're investing in this Fund for the first time, you'll need to
set up an account. Your financial advisor will help you fill out
and submit an application. Once your account is set up, you can
choose among several convenient ways to invest.
Important: When opening an account, you must provide AEFC with
your correct Taxpayer Identification Number (Social Security or
Employer Identification number). See "Distributions and taxes."
When you purchase shares for a new or existing account, the price
you pay per share is determined at the close of business on the day
your investment is received and accepted at the Minneapolis
headquarters.
Purchase policies:
o Investments must be received and accepted in the Minneapolis
headquarters on a business day before 3 p.m. Central time to
be included in your account that day and to receive that
day's share price. Otherwise, your purchase will be
processed the next business day and you will pay the next
day's share price.
<PAGE>
PAGE 36
o The minimums allowed for investment may change from time to
time.
o Wire orders can be accepted only on days when your bank,
AEFC, the Fund and Norwest Bank Minneapolis are open for
business.
o Wire purchases are completed when wired payment is received
and the Fund accepts the purchase.
o AEFC and the Fund are not responsible for any delays that
occur in wiring funds, including delays in processing by the
bank.
o You must pay any fee the bank charges for wiring.
o The Fund reserves the right to reject any application for any
reason.
o If your application does not specify which class of shares
you are purchasing, it will be assumed that you are investing
in Class A shares.
Three ways to invest
<TABLE>
<CAPTION>
<S> <C> <C>
1
By regular account Send your check and application Minimum amounts
(or your name and account number Initial investment: $2,000
if you have an established account) Additional
to: investments: $ 100
American Express Financial Advisors Inc.Account balances: $ 300*
P.O. Box 74 Qualified retirement
Minneapolis, MN 55440-0074 accounts: none
Your financial advisor will help Uniform Gifts to Minors Act
you with this process. (UGMA) and Uniform Transfers
to Minors Act (UTMA): $500
2
By scheduled Contact your financial advisor Minimum amounts
investment plan to set up one of the following Initial investment: $100
scheduled plans: Additional
investments: $100/mo.
o automatic payroll deduction Account balances: none
(on active plans of
o bank authorization monthly payments)
o direct deposit of UGMA and UTMA: $50/mo.
Social Security check
o other plan approved by the Fund
3
By wire If you have an established account, If this information is not
you may wire money to: included, the order may be
rejected and all money
Norwest Bank Minneapolis received by the Fund, less
Routing No. 091000019 any costs the Fund or AEFC
Minneapolis, MN incurs, will be returned
Attn: Domestic Wire Dept. promptly.
Give these instructions: Minimum amounts
Credit IDS Account #00-30-015 Each wire investment: $1,000
for personal account # (your
account number) for (your name).
*If your account balance falls below $300, you will be asked in writing to bring it up to $300 or establish a scheduled
investment plan. If you don't do so within 30 days, your shares can be redeemed and the proceeds mailed to you.
/TABLE
<PAGE>
PAGE 37
How to exchange shares
You can exchange your shares of the Fund at no charge for shares of
the same class of any other publicly offered fund in the IDS MUTUAL
FUND GROUP available in your state. Exchanges into IDS Tax-Free
Money Fund must be made from Class A shares. For complete
information, including fees and expenses, read the prospectus
carefully before exchanging into a new fund.
If your exchange request arrives at the Minneapolis headquarters
before the close of business, your shares will be redeemed at the
net asset value set for that day. The proceeds will be used to
purchase new fund shares the same day. Otherwise, your exchange
will take place the next business day at that day's net asset
value.
For tax purposes, an exchange represents a redemption and purchase
and may result in a gain or loss. However, you cannot create a tax
loss (or reduce a taxable gain) by exchanging from the Fund within
91 days of your purchase. For further explanation, see the SAI.
How to redeem shares
You can redeem your shares at any time. American Express
Shareholder Service will mail payment within seven days after
receiving your request.
When you redeem shares, the amount you receive may be more or less
than the amount you invested. Your shares will be redeemed at net
asset value, minus any applicable sales charge, at the close of
business on the day your request is accepted at the Minneapolis
headquarters. If your request arrives after the close of business,
the price per share will be the net asset value, minus any
applicable sales charge, at the close of business on the next
business day.
A redemption is a taxable transaction. If your proceeds from your
redemption are more or less than the cost of your shares, you will
have a gain or loss, which can affect your tax liability.
Redeeming shares held in an IRA or qualified retirement account may
subject you to certain federal taxes, penalties and reporting
requirements. Consult your tax advisor.
Two ways to request an exchange or redemption of shares
<TABLE>
<CAPTION>
<S> <C>
1
By letter Include in your letter:
o the name of the fund(s)
o the class of shares to be exchanged or redeemed
o your account number(s) (for exchanges, both funds must be registered in the same
ownership)
o your Taxpayer Identification Number (TIN)
o the dollar amount or number of shares you want to exchange or redeem
o signature of all registered account owners
o for redemptions, indicate how you want your money delivered to you
o any paper certificates of shares you hold
Regular mail:
American Express Shareholder Service
Attn: Redemptions
P.O. Box 534
Minneapolis, MN 55440-0534<PAGE>
PAGE 38
Express mail:
American Express Shareholder Service
Attn: Redemptions
733 Marquette Ave.
Minneapolis, MN 55402
2
By phone
American Express Telephone o The Fund and AEFC will honor any telephone exchange or redemption request believed to be
Transaction Service: authentic and will use reasonable procedures to confirm that they are. This includes
800-437-3133 or asking identifying questions and tape recording calls. If reasonable
612-671-3800 procedures are not followed, the Fund or AEFC will be liable for any loss resulting from
fraudulent requests.
o Phone exchange and redemption privileges automatically apply to all accounts except
custodial, corporate or qualified retirement accounts unless you request these privileges
NOT apply by writing American Express Shareholder Service. Each registered owner must sign
the request.
o AEFC answers phone requests promptly, but you may experience delays when call volume is
high. If you are unable to get through, use mail procedure as an alternative.
o Acting on your instructions, your financial advisor may conduct telephone transactions
on your behalf.
o Phone privileges may be modified or discontinued at any time.
Minimum amount
Redemption: $100
Maximum amount
Redemption: $50,000
</TABLE>
Exchange policies:
o You may make up to three exchanges within any 30-day period,
with each limited to $300,000. These limits do not apply to
scheduled exchange programs and certain employee benefit plans or
other arrangements through which one shareholder represents the
interests of several. Exceptions may be allowed with pre-approval
of the Fund.
o Exchanges must be made into the same class of shares of the new
fund.
o If your exchange creates a new account, it must satisfy the
minimum investment amount for new purchases.
o Once we receive your exchange request, you cannot cancel it.
o Shares of the new fund may not be used on the same day for
another exchange.
o If your shares are pledged as collateral, the exchange will be
delayed until written approval is obtained from the secured party.
o AEFC and the Fund reserve the right to reject any exchange,
limit the amount, or modify or discontinue the exchange privilege,
to prevent abuse or adverse effects on the Fund and its
shareholders. For example, if exchanges are too numerous or too
large, they may disrupt the Fund's investment strategies or
increase its costs.
Redemption policies:
o A "change of mind" option allows you to change your mind after
requesting a redemption and to use all or part of the proceeds to
purchase new shares in the same account from which you redeemed.
<PAGE>
PAGE 39
If you reinvest in Class A, you will purchase the new shares at net
asset value rather than the offering price on the date of a new
purchase. If you reinvest in Class B, any CDSC you paid on the
amount you are reinvesting also will be reinvested. To take
advantage of this option, send a written request within 30 days of
the date your redemption request was received. Include your
account number and mention this option. This privilege may be
limited or withdrawn at any time, and it may have tax consequences.
o A telephone redemption request will not be allowed within 30
days of a phoned-in address change.
Important: If you request a redemption of shares you recently
purchased by a check or money order that is not guaranteed, the
Fund will wait for your check to clear. It may take up to 10 days
from the date of purchase before a check is mailed to you. (A
check may be mailed earlier if your bank provides evidence
satisfactory to the Fund and AEFC that your check has cleared.)
Three ways to receive payment when you redeem shares
<TABLE>
<CAPTION>
<S> <C>
1
By regular or express mail o Mailed to the address on record.
o Payable to names listed on the account.
NOTE: The express mail delivery charges
you pay will vary depending on the
courier you select.
2
By wire o Minimum wire redemption: $1,000.
o Request that money be wired to your bank.
o Bank account must be in the same
ownership as the IDS fund account.
NOTE: Pre-authorization required. For
instructions, contact your financial
advisor or American Express Shareholder Service.
3
By scheduled payout plan o Minimum payment: $50.
o Contact your financial advisor or American Express
Shareholder Service to set up regular
payments to you on a monthly, bimonthly,
quarterly, semiannual or annual basis.
o Purchasing new shares while under a payout
plan may be disadvantageous because of
the sales charges.
</TABLE>
Reductions and waivers of the sales charge
Class A - initial sales charge alternative
On purchases of Class A shares, you pay a 5% sales charge on the
first $50,000 of your total investment and less on investments
after the first $50,000:
<PAGE>
PAGE 40
Total investment Sales charge as a
percent of:*
Public Net
offering amount
price invested
Up to $50,000 5.0% 5.26%
Next $50,000 4.5 4.71
Next $400,000 3.8 3.95
Next $500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
* To calculate the actual sales charge on an investment greater
than $50,000 and less than $1,000,000, amounts for each applicable
increment must be totaled. See the SAI.
Reductions of the sales charge on Class A shares
Your sales charge may be reduced, depending on the totals of:
o the amount you are investing in this Fund now,
o the amount of your existing investment in this Fund, if any, and
o the amount you and your primary household group are investing or
have in other funds in the IDS MUTUAL FUND GROUP that carry a sales
charge. (The primary household group consists of accounts in any
ownership for spouses or domestic partners and their unmarried
children under 21. Domestic partners are individuals who maintain
a shared primary residence and have joint property or other
insurable interests.)
Other policies that affect your sales charge:
o IDS Tax-Free Money Fund and Class A shares of IDS Cash
Management Fund do not carry sales charges. However, you may count
investments in these funds if you acquired shares in them by
exchanging shares from IDS funds that carry sales charges.
o IRA purchases or other employee benefit plan purchases made
through a payroll deduction plan or through a plan sponsored by an
employer, association of employers, employee organization or other
similar entity, may be added together to reduce sales charges for
all shares purchased through that plan.
o If you intend to invest $1 million over a period of 13 months,
you can reduce the sales charges in Class A by filing a letter of
intent.
For more details, see the SAI.
<PAGE>
PAGE 41
Waivers of the sales charge for Class A shares
Sales charges do not apply to:
o Current or retired board members, officers or employees of the
Fund or AEFC or its subsidiaries, their spouses and unmarried
children under 21.
o Current or retired American Express financial advisors, their
spouses and unmarried children under 21.
o Qualified employee benefit plans* using a daily transfer
recordkeeping system offering participants daily access to IDS
funds.
(Participants in certain qualified plans for which the initial
sales charge is waived may be subject to a deferred sales charge of
up to 4% on certain redemptions. For more information, see the
SAI.)
o Shareholders who have at least $1 million invested in funds of
the IDS MUTUAL FUND GROUP. If the investment is redeemed in the
first year after purchase, a CDSC of 1% will be charged on the
redemption.
o Purchases made within 30 days after a redemption of shares (up
to the amount redeemed):
- of a product distributed by American Express Financial
Advisors in a qualified plan subject to a deferred sales
charge or
- in a qualified plan where American Express Trust Company has a
recordkeeping, trustee, investment management or investment
servicing relationship.
Send the Fund a written request along with your payment, indicating
the amount of the redemption and the date on which it occurred.
o Purchases made with dividend or capital gain distributions from
another fund in the IDS MUTUAL FUND GROUP that has a sales charge.
o Purchases made through American Express Strategic Portfolio
Service (total amount of all investments made in the Strategic
Portfolio Service must be at least $50,000).
o Purchases made under the University of Texas System ORP.
*Eligibility must be determined in advance by American Express
Financial Advisors. To do so, contact your financial advisor.
Class B - contingent deferred sales charge alternative
Where a CDSC is imposed on a redemption, it is based on the amount
of the redemption and the number of calendar years, including the
year of purchase, between purchase and redemption. The following
table shows the declining scale of percentages that apply to
redemptions during each year after a purchase:
<PAGE>
PAGE 42
If a redemption is The percentage rate
made during the for the CDSC is:
First year 5%
Second year 4%
Third year 4%
Fourth year 3%
Fifth year 2%
Sixth year 1%
Seventh year 0%
If the amount you are redeeming reduces the current net asset value
of your investment in Class B shares below the total dollar amount
of all your purchase payments during the last six years (including
the year in which your redemption is made), the CDSC is based on
the lower of the redeemed purchase payments or market value.
The following example illustrates how the CDSC is applied. Assume
you had invested $10,000 in Class B shares and that your investment
had appreciated in value to $12,000 after 15 months, including
reinvested dividend and capital gain distributions. You could
redeem any amount up to $2,000 without paying a CDSC ($12,000
current value less $10,000 purchase amount). If you redeemed
$2,500, the CDSC would apply only to the $500 that represented part
of your original purchase price. The CDSC rate would be 4% because
a redemption after 15 months would take place during the second
year after purchase.
Because the CDSC is imposed only on redemptions that reduce the
total of your purchase payments, you never have to pay a CDSC on
any amount you redeem that represents appreciation in the value of
your shares, income earned by your shares or capital gains. In
addition, when determining the rate of any CDSC, your redemption
will be made from the oldest purchase payment you made. Of course,
once a purchase payment is considered to have been redeemed, the
next amount redeemed is the next oldest purchase payment. By
redeeming the oldest purchase payments first, lower CDSCs are
imposed than would otherwise be the case.
Waivers of the contingent deferred sales charge
The CDSC on Class B shares will be waived on redemptions of shares:
o In the event of the shareholder's death,
o Purchased by any board member, officer or employee of a fund or
AEFC or its subsidiaries,
o Held in a trusteed employee benefit plan,
o Held in IRAs or certain qualified plans for which American
Express Trust Company acts as custodian, such as Keogh plans, tax-
sheltered custodial accounts or corporate pension plans, provided
that the shareholder is:
- at least 59-1/2 years old, and
- taking a retirement distribution (if the redemption is part
of a transfer to an IRA or qualified plan in a product
distributed by American Express Financial Advisors, or a
custodian-to-custodian transfer to a product not distributed
<PAGE>
PAGE 43
by American Express Financial Advisors, the CDSC will not be
waived), or
- redeeming under an approved substantially equal periodic
payment arrangement.
For investors in Class A shares who have over $1 million invested
in one year, the 1% CDSC on redemption of those shares will be
waived in the same circumstances described for Class B.
Special shareholder services
Services
To help you track and evaluate the performance of your investments,
AEFC provides these services:
Quarterly statements listing all of your holdings and transactions
during the previous three months.
Yearly tax statements featuring average-cost-basis reporting of
capital gains or losses if you redeem your shares along with
distribution information which simplifies tax calculations.
A personalized mutual fund progress report detailing returns on
your initial investment and cash-flow activity in your account. It
calculates a total return to reflect your individual history in
owning Fund shares. This report is available from your financial
advisor.
Quick telephone reference
American Express Telephone Transaction Service
Redemptions and exchanges, dividend payments or reinvestments and
automatic payment arrangements
National/Minnesota: 800-437-3133
Mpls./St. Paul area: 671-3800
American Express Shareholder Service
Fund performance, objectives and account inquiries
612-671-3733
TTY Service
For the hearing impaired
800-846-4852
American Express Infoline
Automated account information (TouchToneR phones only), including
current Fund prices and performance, account values and recent
account transactions
National/Minnesota: 800-272-4445
Mpls./St. Paul area: 671-1630
Distributions and taxes
As a shareholder you are entitled to your share of the Fund's net
income and any net gains realized on its investments. The Fund
distributes dividends and capital gain distributions to qualify as <PAGE>
PAGE 44
a regulated investment company and to avoid paying corporate income
and excise taxes. Dividend and capital gain distributions will
have tax consequences you should know about.
Dividend and capital gain distributions
Investment income is allocated to the Fund by the Portfolio, less
direct and allocated expenses. The Fund's net realized capital
gains or losses, if any, consist of the net realized capital gains
or losses allocated to the Fund from the Portfolio.
The Fund's net investment income from dividends and interest is
distributed to you by the end of the calendar year as dividends.
Short-term capital gains are distributed at the end of the calendar
year and are included in net investment income. Long-term capital
gains are realized whenever a security held for more than one year
is sold for a higher price than was paid for it. Net realized
long-term capital gains, if any, are distributed at the end of the
calendar year as capital gain distributions. Before they're
distributed, both net investment income and net long-term capital
gains are included in the value of each share. After they're
distributed, the value of each share drops by the per-share amount
of the distribution. (If your distributions are reinvested, the
total value of your holdings will not change.)
Dividends for each class will be calculated at the same time, in
the same manner and will be the same amount prior to deduction of
expenses. Expenses attributable solely to a class of shares will
be paid exclusively by that class. Class B shareholders will
receive lower per share dividends than Class A and Class Y
shareholders because expenses for Class B are higher than for Class
A or Class Y. Class A shareholders will receive lower per share
dividends than Class Y shareholders because expenses for Class A
are higher than for Class Y.
Reinvestments
Dividends and capital gain distributions are automatically
reinvested in additional shares in the same class of the Fund,
unless:
o you request the Fund in writing or by phone to pay
distributions to you in cash, or
o you direct the Fund to invest your distributions in any
publicly available IDS fund for which you've previously opened
an account. You pay no sales charge on shares purchased
through reinvestment from this Fund into any IDS fund.
The reinvestment price is the net asset value at close of business
on the day the distribution is paid. (Your quarterly statement
will confirm the amount invested and the number of shares
purchased.)
If you choose cash distributions, you will receive only those
declared after your request has been processed.
<PAGE>
PAGE 45
If the U.S. Postal Service cannot deliver the checks for the cash
distributions, we will reinvest the checks into your account at the
then-current net asset value and make future distributions in the
form of additional shares.
Taxes
The Fund has received a Private Letter Ruling from the Internal
Revenue Service stating that, for purposes of the Internal Revenue
Code, the Fund will be regarded as directly holding its allocable
share of the income and gain realized by the Portfolio.
Distributions are subject to federal income tax and also may be
subject to state and local taxes. Distributions are taxable in the
year the Fund declares them regardless of whether you take them in
cash or reinvest them.
Each January, you will receive a tax statement showing the kinds
and total amount of all distributions you received during the
previous year. You must report distributions on your tax returns,
even if they are reinvested in additional shares.
Buying a dividend creates a tax liability. This means buying
shares shortly before a net investment income or a capital gain
distribution. You pay the full pre-distribution price for the
shares, then receive a portion of your investment back as a
distribution, which is taxable.
Redemptions and exchanges subject you to a tax on any capital gain.
If you sell shares for more than their cost, the difference is a
capital gain. Your gain may be either short term (for shares held
for one year or less) or long term (for shares held for more than
one year).
Your Taxpayer Identification Number (TIN) is important. As with
any financial account you open, you must list your current and
correct Taxpayer Identification Number (TIN) -- either your Social
Security or Employer Identification number. The TIN must be
certified under penalties of perjury on your application when you
open an account at AEFC.
If you don't provide the TIN, or the TIN you report is incorrect,
you could be subject to backup withholding of 31% of taxable
distributions and proceeds from certain sales and exchanges. You
also could be subject to further penalties, such as:
o a $50 penalty for each failure to supply your correct TIN
o a civil penalty of $500 if you make a false statement that
results in no backup withholding
o criminal penalties for falsifying information
You also could be subject to backup withholding because you failed
to report interest or dividends on your tax return as required.
<PAGE>
PAGE 46
How to determine the correct TIN
Use the Social Security or
For this type of account: Employer Identification number
of:
Individual or joint account The individual or individuals
listed on the account
Custodian account of a minor The minor
(Uniform Gifts/Transfers to
Minors Act)
A living trust The grantor-trustee (the person
who puts the money into the
trust)
An irrevocable trust, pension The legal entity (not the
trust or estate personal representative or
trustee, unless no legal entity
is designated in the account
title)
Sole proprietorship The owner
Partnership The partnership
Corporate The corporation
Association, club or The organization
tax-exempt organization
For details on TIN requirements, ask your financial advisor or
local American Express Financial Advisors office for federal Form
W-9, "Request for Taxpayer Identification Number and
Certification."
Important: This information is a brief and selective summary of
certain federal tax rules that apply to this Fund. Tax matters are
highly individual and complex, and you should consult a qualified
tax advisor about your personal situation.
How the Fund is organized
The Fund is a diversified, open-end management investment company,
as defined in the Investment Company Act of 1940. Originally
incorporated on Feb. 20, 1968 in Nevada, the Fund changed its state
of incorporation on June 13, 1986 by merging into a Minnesota
corporation incorporated April 7, 1986. The Fund headquarters are
at 901 S. Marquette Ave., Suite 2810, Minneapolis, MN 55402-3268.
Shares
The Fund is owned by its shareholders. The Fund issues shares in
three classes - Class A, Class B and Class Y. Each class has
different sales arrangements and bears different expenses. Each
class represents interests in the assets of the Fund. Par value is
one cent per share. Both full and fractional shares can be issued.<PAGE>
PAGE 47
The Fund no longer issues stock certificates.
Voting rights
As a shareholder, you have voting rights over the Fund's management
and fundamental policies. You are entitled to one vote for each
share you own. Shares of the Fund have cumulative voting rights.
Each class has exclusive voting rights with respect to the
provisions of the Fund's distribution plan that pertain to a
particular class and other matters for which separate class voting
is appropriate under applicable law.
Shareholder meetings
The Fund does not hold annual shareholder meetings. However, the
board members may call meetings at their discretion, or on demand
by holders of 10% or more of the outstanding shares, to elect or
remove board members.
Special considerations regarding master/feeder structure
The Fund pursues its goals by investing its assets in a master fund
called the Portfolio. This means that the Fund does not invest
directly in securities; rather the Portfolio invests in and manages
its portfolio of securities. The Portfolio is a separate
investment company, but it has the same goals and investment
policies as the Fund. The goals and investment policies of the
Portfolio are described under the captions "Investment policies and
risks" and "Facts about investments and their risks." Additional
information on investment policies may be found in the SAI.
Board considerations: The board considered the advantages and
disadvantages of investing the Fund's assets in the Portfolio. The
board believes that the master/feeder structure can be in the best
interest of the Fund and its shareholders since it offers the
opportunity for economies of scale. The Fund may redeem all of its
assets from the Portfolio at any time. Should the board determine
that it is in the best interest of the Fund and its shareholders to
terminate its investment in the Portfolio, it would consider hiring
an investment advisor to manage the Fund's assets, or other
appropriate options. The Fund would terminate its investment if
the Portfolio changes its goals, investment policies or
restrictions without the same change being approved by the Fund.
Other feeders: The Portfolio sells securities to other affiliated
mutual funds and may sell securities to non-affiliated investment
companies and institutional accounts (known as feeders). These
feeders buy the Portfolio's securities on the same terms and
conditions as the Fund and pay their proportionate share of the
Portfolio's expenses. However, their operating costs and sales
charges are different from those of the Fund. Therefore, the
investment returns for other feeders are different from the returns
of the Fund. Information about other feeders may be obtained by
calling American Express Financial Advisors at 1-800-AXP-SERV.
<PAGE>
PAGE 48
Each feeder that invests in the Portfolio is different and
activities of its investors may adversely affect all other feeders,
including the Fund. For example, if one feeder decides to
terminate its investment in the Portfolio, the Portfolio may elect
to redeem in cash or in kind. If cash is used, the Portfolio will
incur brokerage, taxes and other costs in selling securities to
raise the cash. This may result in less investment diversification
if entire investment positions are sold, and it also may result in
less liquidity among the remaining assets. If in-kind distribution
is made, a smaller pool of assets remains that may affect brokerage
rates and investment options. In both cases, expenses may rise
since there are fewer assets to cover the costs of managing those
assets.
Shareholder meetings: Whenever the Portfolio proposes to change a
fundamental investment policy or to take any other action requiring
approval of its security holders, the Fund must hold a shareholder
meeting. The Fund will vote for or against the Portfolio's
proposals in proportion to the vote it receives for or against the
same proposals from its shareholders.
Board members and officers
Shareholders elect a board that oversees the operations of the Fund
and chooses its officers. Its officers are responsible for day-to-
day business decisions based on policies set by the board. The
board has named an executive committee that has authority to act on
its behalf between meetings. The board members serve on the boards
of all 41 of the funds in the IDS MUTUAL FUND GROUP, except for Mr.
Dudley, who is a board member of all 32 publicly offered funds.
The members of the Board also serve as members of the Board of the
Trust which manages the investments of the Fund and other accounts.
Should any conflict of interest arise between the interests of the
shareholders of the Fund and those of the other accounts, the Board
will follow written procedures to address the conflict.
Board members and officers of the Fund
President and interested board member
William R. Pearce
President of all funds in the IDS MUTUAL FUND GROUP.
Independent board members
Lynne V. Cheney
Distinguished fellow, American Enterprise Institute for Public
Policy Research.
Robert F. Froehlke
Former president of all funds in the IDS MUTUAL FUND GROUP.
Heinz F. Hutter
Former president and chief operating officer, Cargill, Inc.
<PAGE>
PAGE 49
Anne P. Jones
Attorney and telecommunications consultant.
Melvin R. Laird
Senior counsellor for national and international affairs, The
Reader's Digest Association, Inc.
Edson W. Spencer
Former chairman and chief executive officer, Honeywell, Inc.
Wheelock Whitney
Chairman, Whitney Management Company.
C. Angus Wurtele
Chairman of the board, The Valspar Corporation.
Interested board members who are officers and/or employees of AEFC
William H. Dudley
Executive vice president, AEFC.
David R. Hubers
President and chief executive officer, AEFC.
John R. Thomas
Senior vice president, AEFC.
Officers who also are officers and/or employees of AEFC
Peter J. Anderson
Vice president of all funds in the IDS MUTUAL FUND GROUP.
Melinda S. Urion
Treasurer of all funds in the IDS MUTUAL FUND GROUP.
Other officer
Leslie L. Ogg
Vice president, general counsel and secretary of all funds in the
IDS MUTUAL FUND GROUP.
Refer to the SAI for the board members' and officers' biographies.
Investment manager
The Portfolio pays AEFC for managing its assets. The Fund pays its
proportionate share of the fee. Under the Investment Management
Services Agreement that became effective March 20, 1995, and was
assumed by the Portfolio on May 13, 1996, AEFC is paid a fee for
these services based on the average daily net assets of the
Portfolio, as follows:
<PAGE>
PAGE 50
Assets Annual rate
(billions) at each asset level
First $1.0 0.600%
Next 1.0 0.575
Next 1.0 0.550
Next 3.0 0.525
Over 6.0 0.500
This fee may be increased or decreased by a performance adjustment
based on a comparison of performance of Class A shares of the Fund
to the Lipper Growth Fund Index. The maximum adjustment is 0.12%
of the Portfolio's average daily net assets on an annual basis.
For the fiscal period ended July 31, 1996, the Portfolio paid AEFC
a total investment management fee of 0.57% of its average daily net
assets. Under the Agreement, the Portfolio also pays taxes,
brokerage commissions and nonadvisory expenses.
Administrator and transfer agent
The Fund pays AEFC for shareholder accounting and transfer agent
services under two agreements. The first, the Administrative
Services Agreement, has a declining annual rate beginning at 0.05%
and decreasing to 0.03% as assets increase. The second, the
Transfer Agency Agreement, has an annual fee per shareholder
account as follows:
o Class A $15
o Class B $16
o Class Y $15
Distributor
The Fund has an exclusive distribution agreement with American
Express Financial Advisors, a wholly owned subsidiary of AEFC.
Financial advisors representing American Express Financial Advisors
provide information to investors about individual investment
programs, the Fund and its operations, new account applications,
and exchange and redemption requests. The cost of these services
is paid partially by the Fund's sales charges.
Persons who buy Class A shares pay a sales charge at the time of
purchase. Persons who buy Class B shares are subject to a
contingent deferred sales charge on a redemption in the first six
years and pay an asset-based sales charge (also known as a 12b-1
plan) of 0.75% of the Fund's average daily net assets. Class Y
shares are sold without a sales charge and without an asset-based
sales charge.
Financial advisors may receive different compensation for selling
Class A, Class B and Class Y shares. Portions of the sales charge
also may be paid to securities dealers who have sold the Fund's
shares or to banks and other financial institutions. The amounts
of those payments range from 0.8% to 4% of the Fund's offering
price depending on the monthly sales volume.
<PAGE>
PAGE 51
Under a Shareholder Service Agreement, the Fund also pays a fee for
service provided to shareholders by financial advisors and other
servicing agents. The fee is calculated at a rate of 0.175% of the
Fund's average daily net assets attributable to Class A and Class B
shares.
Total expenses paid by the Fund's Class A shares for the fiscal
period ended July 31, 1996, were 0.94% of its average daily net
assets. Expenses for Class B and Class Y were 1.71% and 0.77%,
respectively.
Total fees and expenses (excluding taxes and brokerage commissions)
cannot exceed the most restrictive applicable state expense
limitation.
About American Express Financial Corporation
General information
The AEFC family of companies offers not only mutual funds but also
insurance, annuities, investment certificates and a broad range of
financial management services.
Besides managing investments for all publicly offered funds in the
IDS MUTUAL FUND GROUP, AEFC also manages investments for itself and
its subsidiaries, IDS Certificate Company and IDS Life Insurance
Company. Total assets under management on July 31, 1996 were more
than $136 billion.
American Express Financial Advisors serves individuals and
businesses through its nationwide network of more than 175 offices
and more than 7,900 advisors.
Other AEFC subsidiaries provide investment management and related
services for pension, profit sharing, employee savings and
endowment funds of businesses and institutions.
AEFC is located at IDS Tower 10, Minneapolis, MN 55440-0010. It is
a wholly owned subsidiary of American Express Company (American
Express), a financial services company with headquarters at
American Express Tower, World Financial Center, New York, NY 10285.
The Portfolio may pay brokerage commissions to broker-dealer
affiliates of AEFC.
<PAGE>
PAGE 52
Appendix
Descriptions of derivative instruments
What follows are brief descriptions of derivative instruments the
Portfolio may use. At various times the Portfolio may use some or
all of these instruments and is not limited to these instruments.
It may use other similar types of instruments if they are
consistent with the Portfolio's investment goal and policies. For
more information on these instruments, see the SAI.
Options and futures contracts. An option is an agreement to buy or
sell an instrument at a set price during a certain period of time.
A futures contract is an agreement to buy or sell an instrument for
a set price on a future date. The Portfolio may buy and sell
options and futures contracts to manage its exposure to changing
interest rates, security prices and currency exchange rates.
Options and futures may be used to hedge the Portfolio's
investments against price fluctuations or to increase market
exposure.
Indexed securities. The value of indexed securities is linked to
currencies, interest rates, commodities, indexes or other financial
indicators. Most indexed securities are short- to intermediate-
term fixed income securities whose values at maturity or interest
rates rise or fall according to the change in one or more specified
underlying instruments. Indexed securities may be more volatile
than the underlying instrument itself.
Structured products. Structured products are over-the-counter
financial instruments created specifically to meet the needs of one
or a small number of investors. The instrument may consist of a
warrant, an option or a forward contract embedded in a note or any
of a wide variety of debt, equity and/or currency combinations.
Risks of structured products include the inability to close such
instruments, rapid changes in the market and defaults by other
parties.
<PAGE>
PAGE 53
IDS New Dimensions Fund
IDS Tower 10
Minneapolis, MN 55440-0010
Distributed by
American Express
Financial Advisors Inc.
<PAGE>
PAGE 54
Notes to financial statements
IDS New Dimensions Fund, Inc.
___________________________________________________________________
1. Summary of significant accounting policies
The Fund is registered under the Investment Company Act of 1940 (as
amended) as a diversified, open-end management investment company.
The Fund offers Class A, Class B and Class Y shares. Class A shares
are sold with a front-end sales charge. Class B shares may be
subject to a contingent deferred sales charge and such shares
automatically convert to Class A after eight years. Class Y shares
have no sales charge and are offered only to qualifying
institutional investors.
All classes of shares have identical voting, dividend, liquidation
and other rights, and the same terms and conditions, except that
the level of distribution fee, transfer agency fee and service fee
(class specific expenses) differs among classes. Income, expenses
(other than class specific expenses) and realized and unrealized
gains or losses on investments are allocated to each class of
shares based upon its relative net assets.
Investment in Growth Trends Portfolio
Effective May 13, 1996, the Fund began investing all of its assets
in the Growth Trends Portfolio (Portfolio), a series of Growth
Trust, an open-end investment company that has the same objectives
as the Fund. This was accomplished by transferring the Fund's
assets to the Portfolio in return for a proportionate ownership
interest in the Portfolio. Growth Trends Portfolio invests
primarily in common stocks of companies showing potential for
significant growth and operating in areas where economic or
technological changes are occuring.
The Fund records daily its share of the Portfolio's income,
expenses and realized and unrealized gains and losses. The
financial statements of the Portfolio are included elsewhere in
this report and should be read in conjunction with the Fund's
financial statements.
The Fund records its investment in the Portfolio at value which is
equal to the Fund's proportionate owership interest in the net
assets of the Portfolio. The percentage of the Portfolio owned by
the Fund at July 31, 1996 was 99.71%. Valuation of securities held
by the Portfolio is discussed in Note 1 of the Portfolio's Notes to
Financial Statements, which are included elsewhere in this report.
Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of increase and decrease in net assets from
operations during the period. Actual results could differ from
those estimates.
<PAGE>
PAGE 55
Federal taxes
Since the Fund's policy is to comply with all sections of the
Internal Revenue Code applicable to regulated investment companies
and to distribute all of its taxable income to the shareholders, no
provision for income or excise taxes is required.
Net investment income (loss) and net realized gains (losses)
allocated from the Portfolio may differ for financial statement and
tax purposes primarily because of the deferral of losses on certain
futures contracts, the recognition of certain foreign currency
gains (losses) as ordinary income (loss) for tax purposes, and
losses deferred due to "wash sale" transactions. The character of
distributions made during the year from net investment income or
net realized gains may differ from their ultimate characterization
for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are
distributed may differ from the year that the income or realized
gains (losses) were recorded by the Fund.
Dividends to shareholders
An annual dividend declared and paid at the end of the calendar
year from net investment income is reinvested in additional shares
of the Fund at net asset value or payable in cash. Capital gains,
when available, are distributed along with the income dividend.
___________________________________________________________________
2. Expenses and sales charges
In addition to the expenses allocated from the Portfolio, the Fund
accrues its own expenses as follows:
Effective March 20, 1995, the Fund entered into agreements with
American Express Financial Corporation (AEFC) for providing
administrative services and serving as transfer agent. Under its
Administrative Services Agreement, the Fund pays AEFC for
administration and accounting services at a percentage of the
Fund's average daily net assets in reducing percentages from 0.05%
to 0.03% annually. Under this agreement, the Fund also pays taxes;
audit and certain legal fees; registration fees for shares; office
expenses; consultant's fees; compensation of board members,
officers and employees; corporate filing fees; organizational
expenses; and any other expenses properly payable by the Fund
approved by the board.
Under a separate Transfer Agency Agreement, AEFC maintains
shareholder accounts and records. The Fund pays AEFC an annual fee
per shareholder account for this service as follows:
o Class A $15
o Class B $16
o Class Y $15
<PAGE>
PAGE 56
Also effective March 20, 1995, the Fund entered into agreements
with American Express Financial Advisors Inc. for distribution and
shareholder servicing-related services. Under a Plan and Agreement
of Distribution, the Fund pays a distribution fee at an annual rate
of 0.75% of the Fund's average daily net assets attributable to
Class B shares for distribution-related services.
Under a Shareholder Service Agreement, the Fund pays a fee for
service provided to shareholders by financial advisors and other
servicing agents. The fee is calculated at a rate of 0.175% of the
Fund's average daily net assets attributable to Class A and Class B
shares.
AEFC will assume and pay any expenses (except taxes and brokerage
commissions) that exceed the most restrictive applicable state
expense limitation.
Sales charges received by American Express Financial Advisors for
distributing Fund shares were $19,094,029 for Class A and $210,811
for Class B for the period ended July 31, 1996.
Prior to April 30, 1996, the Fund had a retirement plan for its
independent board members. The plan was terminated April 30, 1996.
The retirement plan expense amounted to $61,688 for the period.
The total liability for the plan is $179,512 which will be paid out
at some future date.
___________________________________________________________________
3. Capital share transactions
Transactions in shares of capital stock for the periods indicated
are as follows:
<TABLE>
<CAPTION>
Period ended July 31, 1996
Class A Class B Class Y
_______________________________________________________________________
<S> <C> <C> <C>
Sold 59,377,568 24,364,763 47,643,756
Issued for reinvested 11,500,909 556,495 5,077,375
distributions
Redeemed (32,745,436) (1,354,343) (30,480,217)
_______________________________________________________________________
Net increase 38,133,041 23,566,915 22,240,914
_______________________________________________________________________
Year ended Sept. 30, 1995
Class A Class B* Class Y*
_______________________________________________________________________
Sold 87,791,383 8,845,958 115,253,413
Issued for reinvested 14,863,540 ___ ___
distributions
Redeemed (142,988,018) (129,871) (11,428,163)
_______________________________________________________________________
Net increase (decrease) (40,333,095) 8,716,087 103,825,250
_______________________________________________________________________
*Inception date was March 20, 1995.
</TABLE>
___________________________________________________________________
4. Change of Fund's fiscal year
The By-Laws of the Fund were amended on Jan. 11, 1996, changing
it's fiscal year end from Sept. 30 to July 31, effective 1996.
<PAGE>
PAGE 57
___________________________________________________________________
5. Pre-conversion to Master
Prior to transferring its securities to Growth Trends Portfolio on
May 13, 1996, various transactions took place as stated below.
Expenses and sales charges
Prior to the conversion on May 13, 1996, the Fund paid an
investment management fee to AEFC. Subsequent to the conversion,
the investment management fee is assessed at the Portfolio level.
(See the footnotes to the Portfolio financial statements for the
terms of the investment management agreement which remain
unchanged.) Prior to conversion, the investment management fee
was adjusted by a performance incentive adjustment based on the
Funds's average daily net assets over a rolling 12-month period as
measured against the change in the Lipper Growth Fund Index. The
adjustment increased the fee by $1,168,789 for the period from Oct.
1, 1995 to May 12, 1996.
During the period from Oct. 1, 1995 to May 12, 1996, the Fund's
custodian fees were reduced by $16,175 as a result of earnings
credits from overnight cash balances.
Securities transactions
Cost of purchases and proceeds from sales of securities (other than
short-term obligations) aggregated $2,918,666,737 and
$2,267,032,914, respectively, for the period from Oct. 1, 1995 to
May 12, 1996.
Brokerage commissions paid to brokers affiliated with AEFC were
$272,605 during this period.
Lending of portfolio securities
Income from securities lending amounted to $38,570 for the period
from Oct. 1, 1995 to May 12, 1996.
___________________________________________________________________
6. Financial highlights
"Financial highlights" showing per share data and selected
information is presented on pages 8 and 9 of the prospectus.
<PAGE>
PAGE 58
The board of trustees and unitholders
Growth Trust:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments in securities,
of Growth Trends Portfolio (a series of Growth Trust) as of July
31, 1996, and the related statements of operations and changes in
net assets for the period from May 13, 1996 (commencement of
operations) to July 31, 1996. These financial statements are the
responsibility of fund management. Our responsibility is to
express an opinion on these financial statements based on our
audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Investment
securities held in custody are confirmed to us by the custodian.
As to securities purchased and sold but not received or delivered,
and securities on loan, we request confirmations from brokers, and
where replies are not received, we carry out other appropriate
auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Growth
Trends Portfolio at July 31, 1996, and the results of its
operations and the changes in its net assets for the period from
May 13, 1996 (commencement of operations) to July 31, 1996, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
September 6, 1996
<PAGE>
PAGE 59
<TABLE>
<CAPTION>
Statement of assets and liabilities
Growth Trends Portfolio
July 31, 1996
Assets
<S> <C>
Investments in securities, at value (Note 1)
Investments in securities of unaffiliated issuers
(identified cost $6,336,887,547) $8,454,639,876
Investments in securities of affiliated issuers
(identified cost $72,334,647) 133,031,250
Cash in bank on demand deposit 3,393,915
Dividends and accrued interest receivable 7,099,993
Receivable for investment securities sold 37,289,090
U.S. government securities held as collateral (Note 4) 640,540
Total assets 8,636,094,664
Liabilities
Payable for investment securities purchased 45,520,458
Payable upon return of securities loaned (Note 4) 5,018,140
Accrued investment management services fee 561,398
Other accrued expenses 155,470
Total liabilities 51,255,466
Net assets $8,584,839,198
See accompany notes to financial statements.
<PAGE>
PAGE 60
Statement of Operations
Growth Trends Portfolio
For the period from May 13, 1996
(commencement of operations) to July 31, 1996
Investment income
Income:
Interest $ 12,099,456
Dividends (net of foreign taxes withheld of $73,091) 20,448,561
Total income 32,548,017
Expenses (Note 2):
Investment management services fee 11,544,754
Compensation of board members 10,250
Custodian fees 256,677
Audit fees 4,582
Administrative 2,892
Other 11,403
Total expenses 11,830,558
Earnings credits on cash balances (Note 2) (6,141)
Total net expenses 11,824,417
Investment income -- net 20,723,600
Realized and unrealized gain (loss) -- net
Net realized gain on security transactions (Note 3) 44,047,563
Net change in unrealized appreciation or depreciation (147,155,473)
Net loss on investments (103,107,910)
Net decrease in net assets resulting from operations $ (82,384,310)
See accompanying notes to financial statements.
<PAGE>
PAGE 61
Statement of changes in net assets
Growth Trends Portfolio
For the period from May 13, 1996
(commencement of operations) to July 31, 1996
Operations and distributions
Investment income -- net $ 20,723,600
Net realized gain on investments 44,047,563
Net change in unrealized appreciation or depreciation (147,155,473)
Net decrease in net assets resulting from operations (82,384,310)
Net contributions 8,667,223,508
Total increase in net assets 8,584,839,198
Net assets at beginning of period (Note 1) --
Net assets at end of period $8,584,839,198
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 62
Notes to financial statements
Growth Trends Portfolio
___________________________________________________________________
1. Summary of significant accounting policies
The Growth Trends Portfolio (Portfolio) is a series of Growth Trust
(Trust) and is registered under the Investment Company Act of 1940
as a diversified, open-end management investment company. Growth
Trends Portfolio invests primarily in common stocks of companies
showing potential for significant growth and operating in areas
where economic or technological changes are occurring. The
Declaration of Trust permits the Trustees to issue non-transferable
interests in the Portfolio. The Portfolio commenced operations on
May 13, 1996. At this time, an existing fund transferred its assets
to the Portfolio in return for an ownership percentage of the
Portfolio.
Significant accounting polices followed by the Portfolio are
summarized below:
Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of increase and decrease in net assets from
operations during the period. Actual results could differ from
those estimates.
Valuation of securities
All securities are valued at the close of each business day.
Securities traded on national securities exchanges or included in
national market systems are valued at the last quoted sales price;
securities for which market quotations are not readily available
are valued at fair value according to methods selected in good
faith by the board. Determination of fair value involves, among
other things, reference to market indexes, matrixes and data from
independent brokers. Short-term securities maturing in more than 60
days from the valuation date are valued at the market price or
approximate market value based on current interest rates; those
maturing in 60 days or less are valued at amortized cost.
Option transactions
In order to produce incremental earnings, protect gains and
facilitate buying and selling of securities for investment
purposes, the Portfolio may buy or write options traded on any U.S.
or foreign exchange or in the over-the-counter market where the
completion of the obligation is dependent upon the credit standing
of the other party. The Portfolio also may buy and sell put and
call options and write covered call options on portfolio securities
and may write cash-secured put options. The risk in writing a call
option is that the Portfolio gives up the opportunity of profit if
the market price of the security increases. The risk in writing a
put option is that the Portfolio may incur a loss if the market <PAGE>
PAGE 63
price of the security decreases and the option is exercised. The
risk in buying an option is that the Portfolio pays a premium
whether or not the option is exercised. The Portfolio also has the
additional risk of not being able to enter into a closing
transaction if a liquid secondary market does not exist.
Option contracts are valued daily at the closing prices on their
primary exchanges and unrealized appreciation or depreciation is
recorded. The Portfolio will realize a gain or loss upon expiration
or closing of the option transaction. When an option is exercised,
the proceeds on sales for a written call option, the purchase cost
for a written put option or the cost of a security for a purchased
put or call option is adjusted by the amount of premium received or
paid.
Futures transactions
In order to gain exposure to or protect itself from changes in the
market, the Portfolio may buy and sell stock index futures
contracts traded on any U.S. or foreign exchange. The Portfolio
also may buy or write put and call options on these futures
contracts. Risks of entering into futures contracts and related
options include the possibility that there may be an illiquid
market and that a change in the value of the contract or option may
not correlate with changes in the value of the underlying
securities.
Upon entering into a futures contract, the Portfolio is required to
deposit either cash or securities in an amount (initial margin)
equal to a certain percentage of the contract value. Subsequent
payments (variation margin) are made or received by the Portfolio
each day. The variation margin payments are equal to the daily
changes in the contract value and are recorded as unrealized gains
and losses. The Portfolio recognizes a realized gain or loss when
the contract is closed or expires.
Foreign currency translations and foreign currency contracts
Securities and other assets and liabilities denominated in foreign
currencies are translated daily into U.S. dollars at the closing
rate of exchange. Foreign currency amounts related to the purchase
or sale of securities and income and expenses are translated at the
exchange rate on the transaction date. The effect of changes in
foreign exchange rates on realized and unrealized security gains or
losses is reflected as a component of such gains or losses. In
the statement of operations, net realized gains or losses from
foreign currency transactions may arise from sales of foreign
currency, closed forward contracts, exchange gains or losses
realized between the trade date and settlement dates on securities
transactions, and other translation gains or losses on dividends,
interest income and foreign withholding taxes.
The Portfolio may enter into forward foreign currency exchange
contracts for operational purposes and to protect against adverse
exchange rate fluctuation. The net U.S. dollar value of foreign
currency underlying all contractual commitments held by the
Portfolio and the resulting unrealized appreciation or depreciation
<PAGE>
PAGE 64
are determined using foreign currency exchange rates from an
independent pricing service. The Portfolio is subject to the
credit risk that the other party will not complete the obligations
of the contract.
Federal taxes
For federal income tax purposes the Portfolio qualifies as a
partnership and each investor in the Portfolio is treated as the
owner of its proportionate share of the net assets, income,
expenses and realized and unrealized gains and losses of the
Portfolio. Accordingly, as a "pass-through" entity, the Portfolio
does not pay any income dividends or capital gain distributions.
Other
Security transactions are accounted for on the date securities are
purchased or sold. Dividend income is recognized on the ex-dividend
date and interest income, including level-yield amortization of
premium and discount, is accrued daily.
___________________________________________________________________
2. Fees and expenses
The Trust, on behalf of the Portfolio, has entered into an
Investment Management Services Agreement with American Express
Financial Corporation (AEFC) for managing its portfolio. Under this
agreement, AEFC determines which securities will be purchased, held
or sold. The management fee is a percentage of the Portfolio's
average daily net assets in reducing percentages from 0.6% to 0.5%
annually. The fees may be increased or decreased by a performance
adjustment based on a comparison of the performance of Class A
shares of IDS New Dimensions Fund to the Lipper Growth Fund Index.
The maximum adjustment is 0.12% of the Portfolio's average daily
net assets on an annual basis. The adjustment increased the fee by
$1,130,056 for the period from May 13, 1996 to July 31, 1996.
Under the agreement, the Trust also pays taxes, brokerage
commissions and nonadvisory expenses, which include custodian fees
to be paid to an affiliate of AEFC; audit and certain legal fees;
fidelity bond premiums; registration fees for units; Portfolio
office expenses; consultants' fees; compensation of trustees;
corporate filing fees; expenses incurred in connection with lending
securities of the Portfolio; and any other expenses properly
payable by the Trust or Portfolio, approved by the board.
For the period from May 13, 1996 to July 31, 1996, the Portfolio's
custodian fees were reduced by $6,141 as a result of earnings
credits from overnight cash balances.
Pursuant to a Placement Agency Agreement, American Express
Financial Advisors Inc. acts as placement agent of the units of the
Trust.
<PAGE>
PAGE 65
___________________________________________________________________
3. Securities transactions
Cost of purchases and proceeds from sales of securities (other than
short-term obligations) aggregated $883,856,643 and $586,814,919,
respectively, for the period from May 13, 1996 to July 31, 1996.
For the same period, the portfolio turnover rate was 7%. Realized
gains and losses are determined on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were
$66,667 for this period.
___________________________________________________________________
4. Lending of portfolio securities
At July 31, 1996, securities valued at $4,997,200 were on loan to
brokers. For collateral, the Portfolio received $4,377,600 in
cash and U.S. government securities valued at $640,540. Income from
securities lending amounted to $86,952 for the period ended July
31, 1996. The risks to the Portfolio of securities lending are that
the borrower may not provide additional collateral when required or
return the securities when due.
<PAGE>
PAGE 66
<TABLE>
<CAPTION>
Investments in securities
Growth Trends Portfolio (Percentages represent value of
July 31, 1996 investments compared to net assets)
Investments in securities of unaffiliated issuers
Common stocks (86.7%)
Issuer Shares Value (a)
<S> <C> <C>
Aerospace & defense (5.3%)
Boeing 2,100,000 $ 185,850,000
Lockheed Martin 1,100,000 91,162,500
Raytheon 1,700,000 82,450,000
United Technologies 860,000 96,857,500
Total 456,320,000
Airlines (0.9%)
AMR 1,000,000 (b) 78,875,000
Automotive & related (1.3%)
Chrylser 4,000,000 113,500,000
Banks and savings & loans (5.4%)
Citicorp 3,200,000 262,000,000
MBNA 1,700,000 47,387,500
Norwest 3,700,000 131,350,000
State Street Boston 500,000 25,125,000
Total 465,862,500
Beverages & tobacco (3.9%)
Anheuser-Busch 1,150,000 85,962,500
Coca-Cola 3,200,000 150,000,000
PepsiCo 3,000,000 94,875,000
Total 330,837,500
Building materials & construction (0.6%)
Tyco Intl 1,300,000 53,300,000
Chemicals (3.3%)
IMC Global 1,100,000 43,450,000
Monsanto 7,000,000 218,750,000
Praxair 620,000 23,792,500
Total 285,992,500
Communications equipment & services (1.7%)
ADC Telecommunications 1,100,000 (b) 46,475,000
Andrew 1,000,000 (b) 40,875,000
Tellabs 1,000,000 (b) 59,750,000
Total 147,100,000
<PAGE>
PAGE 67
Computers & office equipment (16.2%)
Ceridian 2,100,000 (b) 91,350,000
Cisco Systems 6,000,000 (b) 310,500,000
Computer Associates Intl 2,100,000 106,837,500
Computer Sciences 1,260,000 (b) 85,680,000
First Data 2,300,000 178,537,500
Hewlett-Packard 3,330,000 146,520,000
Microsoft 1,200,000 (b) 141,450,000
Oracle 4,000,000 (b) 156,500,000
Parametric Technology 2,500,000 (b) 104,062,500
3Com 1,850,000 (b) 72,843,750
Total 1,394,281,250
Electronics (2.6%)
Intel 3,000,000 225,375,000
Energy (2.5%)
Amoco 300,000 20,062,500
Exxon 1,000,000 82,250,000
Mobil 1,000,000 110,375,000
Total 212,687,500
Energy equipment & services (1.6%)
Fluor 1,600,000 96,400,000
Sonat Offshore Drilling 800,000 39,200,000
Total 135,600,000
Financial services (1.6%)
Dean Witter 800,000 40,700,000
Household Intl 600,000 44,700,000
Morgan Stanley 1,050,000 51,187,500
Total 136,587,500
Food (2.2%)
ConAgra 4,000,000 170,000,000
Pioneer Hi-Bred Intl 400,000 21,500,000
Total 191,500,000
Health care (9.5%)
Amgen 2,400,000 (b) 131,100,000
Boston Scientific 1,000,000 (b) 47,750,000
Guidant 800,000 40,600,000
Johnson & Johnson 3,600,000 171,900,000
Medtronic 1,700,000 80,537,500
Merck 1,600,000 102,800,000
Pfizer 3,400,000 237,575,000
Total 812,262,500
Health care services (1.3%)
Cardinal Health 472,400 32,831,800
HBO & Co 1,200,000 73,500,000
Total 106,331,800
Household products (3.0%)
Gillette 2,100,000 133,612,500
Procter & Gamble 1,400,000 125,125,000
Total 258,737,500
Industrial equipment & services (1.7%)
Case 600,000 26,550,000
Deere 2,500,000 89,375,000
Illinois Tool Works 400,000 25,750,000
Total 141,675,000
Insurance (2.2%)
ACE Limited 1,000,000 44,000,000
American Intl Group 1,000,000 94,125,000
UNUM 840,000 51,240,000
Total 189,365,000
<PAGE>
PAGE 68
Leisure time & entertainment (1.8%)
Marriott Intl 1,800,000 92,475,000
Mattel 800,000 19,800,000
Mirage Resorts 2,000,000 (b) 45,000,000
Total 157,275,000
Media (1.0%)
A.H. Belo Series A 650,000 26,162,500
Infinity Broadcasting Cl A 900,000 (b) 24,750,000
Time Warner 1,000,000 34,875,000
Total 85,787,500
Metals (1.0%)
Aluminum Co of America 1,400,000 81,200,000
Multi-industry conglomerates (5.4%)
Alco Standard 1,650,000 72,187,500
Emerson Electric 1,477,200 124,638,750
General Electric 3,200,000 263,600,000
Total 460,426,250
Restaurants & lodging (2.6%)
Hospitality Franchise System 1,700,000 (b) 102,000,000
McDonald's 2,000,000 92,750,000
Promus Hotel 1,000,000 (b) 27,250,000
Total 222,000,000
Retail (2.9%)
Albertson's 1,300,000 53,300,000
Circuit City 700,000 22,050,000
Federated Department Stores 1,400,000 (b) 42,350,000
Home Depot 1,000,000 50,500,000
Kroger 500,000 (b) 18,875,000
Safeway 1,700,000 (b) 61,200,000
Total 248,275,000
Textiles & apparel (0.6%)
NIKE Cl B 500,000 51,437,500
Utilities -- telephone (1.7%)
AirTouch Communications 2,000,000 (b) 55,000,000
GTE 1,700,000 70,125,000
MFS Communications 700,000 (b) 22,050,000
Total 147,175,000
Foreign (2.9%) (c)
British Airways ADR 400,000 (d) 32,600,000
Reuters Holdings ADR 700,000 43,837,500
Royal Dutch Petroleum 300,000 (d) 45,262,500
Schlumberger 700,000 56,000,000
SmithKline Beecham ADR 1,350,000 72,562,500
Total 250,262,500
Total common stocks
(Cost: $5,322,021,805) $7,440,029,300
</TABLE>
<PAGE>
PAGE 69
<TABLE>
<CAPTION>
Short-term securities (11.8%)
Issuer Annualized Amount Value (a)
yield on payable at
date of maturity
purchase
<S> <C> <C> <C>
U.S. government agencies (0.1%)
Federal Home Loan Bank Disc Nt
08-05-96 5.32% $ 600,000 $ 599,647
Federal Home Loan Mtge Corp Disc Nt
08-16-96 5.25 7,900,000 7,882,784
Total 8,482,431
Commercial paper (11.5%)
ABN Amro
08-27-96 5.06 15,000,000 14,937,992
10-11-96 5.52 9,000,000 8,900,100
A.I. Credit
08-20-96 5.41 10,000,000 9,970,327
09-18-96 5.37 10,235,000 10,162,263
Alabama Power
08-23-96 5.31 6,700,000 6,678,340
American General Finance
08-01-96 5.38 1,500,000 1,500,000
08-01-96 5.35 10,100,000 10,100,000
Ameritech Capital Funding
08-13-96 5.40 13,600,000 13,572,004
08-27-96 5.41 10,400,000 (f) 10,355,472
08-29-96 5.42 1,200,000 (f) 1,194,564
Associates North America
09-25-96 5.42 10,000,000 9,913,640
AVCO Financial Services
08-01-96 5.40 3,500,000 3,500,000
08-19-96 5.34 9,000,000 8,974,609
08-29-96 5.34 8,300,000 8,263,616
10-22-96 5.49 8,700,000 8,588,676
10-30-96 5.49 5,400,000 5,321,952
10-31-96 5.50 18,000,000 17,741,480
BBV Finance (Delaware)
08-01-96 5.32 9,000,000 9,000,000
08-07-96 5.33 4,400,000 4,395,729
08-07-96 5.29 10,000,000 9,990,292
Becton Dickinson
08-28-96 5.44 7,000,000 6,971,650
BellSouth
08-28-96 5.42 6,958,000 6,928,555
09-17-96 5.38 9,800,000 9,731,678
Beneficial
09-12-96 5.39 10,000,000 9,937,583
CAFCO
09-11-96 5.44 15,000,000 14,901,870
Cargill
08-14-96 5.37 7,100,000 7,086,283
10-08-96 5.53 8,000,000 7,914,900
10-23-96 5.50 17,000,000 (f) 16,779,850
Chevron
08-21-96 5.43 13,000,000 12,966,995
Ciesco LP
08-21-96 5.40 6,100,000 (f) 6,079,364
08-23-96 5.34 7,000,000 6,974,122
09-13-96 5.45 10,000,000 9,928,793
10-01-96 5.43 10,000,000 9,904,417
CIT Group
08-16-96 5.41 15,000,000 14,966,375
Commercial Credit
08-08-96 5.39 5,400,000 5,394,361
Commerzbank U.S. Finance
08-13-96 5.35 8,000,000 7,982,181
08-14-96 5.39 16,700,000 16,661,560
<PAGE>
PAGE 70
CPC Intl
09-04-96 5.44 8,300,000 (f) 8,254,972
09-16-96 5.47 11,000,000 (f) 10,919,977
09-24-96 5.37 12,000,000 (f) 11,899,533
09-26-96 5.45 20,000,000 (f) 19,824,338
10-22-96 5.49 10,300,000 (f) 10,168,203
Dean Witter
08-05-96 5.37 3,800,000 3,796,830
Ford Motor Credit
09-05-96 5.39 15,000,000 14,921,979
Gannett
10-11-96 5.54 12,400,000 (f) 12,262,360
10-15-96 5.52 5,400,000 (f) 5,376,337
10-16-96 5.54 10,700,000 (f) 10,572,982
General Electric Capital
08-14-96 5.37 12,000,000 11,971,840
08-22-96 5.43 15,000,000 14,946,404
08-28-96 5.44 10,000,000 9,954,418
08-29-96 5.32 6,500,000 6,473,206
Goldman Sachs
08-05-96 5.36 6,000,000 5,995,299
08-23-96 5.39 5,000,000 4,981,030
09-09-96 5.50 1,400,000 1,390,947
09-10-96 5.47 7,000,000 6,954,606
10-21-96 5.53 2,200,000 2,172,188
Harris Trust
08-09-96 5.37 10,400,000 10,399,592
Hewlett-Packard
08-29-96 5.42 4,500,000 4,479,153
09-17-96 5.42 2,430,000 2,411,536
Household Finance
08-26-96 5.42 10,000,000 9,958,074
09-19-96 5.44 20,000,000 19,841,873
Kredietbank North America Finance
09-03-96 5.16 10,000,000 9,945,270
Lilly (Eli) & Co.
08-09-96 5.40 11,200,000 11,186,610
Merrill Lynch
08-23-96 5.43 3,700,000 3,686,576
Metlife Funding
09-09-96 5.39 9,700,000 9,643,675
Mobil Australia Finance (Delaware)
08-15-96 5.40 8,000,000 (f) 7,980,371
08-30-96 5.41 10,000,000 (f) 9,951,305
09-18-96 5.48 8,000,000 (f) 7,937,946
09-18-96 5.45 9,908,000 (f) 9,831,146
10-02-96 5.49 7,000,000 (f) 6,932,012
Morgan Stanley Group
08-08-96 5.40 6,000,000 5,993,735
09-06-96 5.37 7,100,000 7,062,086
Motorola
08-28-96 5.35 13,523,000 13,469,043
Natl Australia Funding (Delaware)
08-13-96 5.39 6,700,000 6,686,316
NationsBank
08-06-96 5.37 15,000,000 14,999,931
09-04-96 5.40 8,000,000 7,999,173
Norfolk Southern
08-29-96 5.37 5,000,000 (f) 4,977,144
PACCAR
08-26-96 5.34 9,000,000 8,962,856
Penney (JC) Funding
09-17-96 5.43 9,000,000 8,932,984
Pfizer
08-02-96 5.40 20,000,000 (f) 19,997,017
Pitney Bowes Credit
08-29-96 5.42 9,000,000 8,958,859
10-09-96 5.49 3,500,000 3,452,048
10-16-96 5.51 8,800,000 8,695,537
Reed Elsevier
09-20-96 5.47 20,000,000 (f) 19,839,148
SAFECO Credit
08-05-96 5.35 8,100,000 8,093,845
08-23-96 5.41 7,500,000 7,475,387
09-23-96 5.40 1,000,000 991,768
<PAGE>
PAGE 71
Sandoz
08-01-96 5.38 12,000,000 (f) 12,000,000
08-06-96 5.40 8,800,000 8,793,449
08-20-96 5.35 8,000,000 7,973,647
09-10-96 5.47 7,900,000 (f) 7,847,816
Siemens
08-20-96 5.41 9,100,000 9,070,024
09-18-96 5.44 1,300,000 1,289,701
SmithKline Beecham
08-13-96 5.40 15,600,000 15,572,024
Societe Generale North America
08-12-96 5.39 21,700,000 21,664,526
Southern California Gas
09-03-96 5.03 10,269,000 (f) 10,212,059
10-29-96 5.53 5,623,000 (f) 5,546,246
Southwestern Bell Telephone
09-10-96 5.37 8,500,000 8,449,567
Transamerica Financial
08-19-96 5.37 6,000,000 5,981,152
09-23-96 5.40 3,000,000 2,975,303
USAA Capital
08-07-96 5.40 9,100,000 9,091,856
08-12-96 5.37 14,000,000 13,972,579
08-19-96 5.34 10,000,000 9,968,587
08-23-96 5.41 6,700,000 6,678,013
09-06-96 5.33 5,100,000 5,072,970
U S WEST Communications
09-17-96 5.44 9,600,000 9,525,755
09-24-96 5.40 8,600,000 8,530,856
10-24-96 5.49 10,000,000 9,868,958
Total 987,866,146
Letters of credit (0.2%)
First Chicago - Commed Fuel
08-15-96 5.42 9,134,000 9,112,039
09-09-96 5.35 9,203,000 9,149,960
Total 18,261,999
Total short-term securities
(Cost: $1,014,865,742) $1,014,610,576
Total investments in securities of unaffiliated issuers
(Cost: $6,336,887,547) $8,454,639,876
Investments in securities of affiliated issuer (e)
Common Stock (1.5%)
Issuer Shares Value (a)
Reynolds & Reynolds Cl A 2,750,000 $ 133,031,250
Total investments in securities of affiliated issuer
(Cost: $72,334,647) 133,031,250
Total investments in securities
(Cost: $6,409,222,194) (g) $8,587,671,126
<PAGE>
PAGE 72
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b) Presently non-income producing.
(c) Foreign security values are stated in U.S. dollars.
(d) Security is partially or fully on loan. See Note 4 to the financial statements.
(e) Investments representing 5% or more of the outstanding voting securities of the issuer.
(f) Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This security
has been determined to be liquid under guidelines established by the board.
(g) At July 31, 1996, the cost of securities for federal income tax purposes was $6,409,235,783 and the aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation 2,247,642,210
Unrealized depreciation (69,206,867)
Net unrealized appreciation 2,178,435,343
</TABLE>
<PAGE>
PAGE 73
IDS mutual funds
Cash equivalent investments
These money market funds have three main goals: conservation of
capital, constant liquidity and the highest possible current income
consistent with these objectives. Very limited risk.
IDS Cash Management Fund
Invests in such money market securities as high quality commercial
paper, bankers' acceptances, certificates of deposits (CDs) and
other bank securities.
(icon of) piggy bank
IDS Tax-Free Money Fund
Invests primarily in short-term bonds and notes issued by state and
local governments to seek high current income exempt from federal
income taxes.
(icon of) shield with piggy bank enclosed
Income investments
The funds in this group invest their assets primarily in corporate
bonds or government securities to seek interest income. Secondary
objective is capital growth. Risk varies by bond quality.
IDS Global Bond Fund
Invests primarily in debt securities of U.S. and foreign issuers to
seek high total return through income and growth of capital.
(icon of) globe
IDS Extra Income Fund
Invests mainly in long-term, high-yielding corporate fixed-income
securities in the lower rated, higher risk bond categories to seek
high current income. Secondary objective is capital growth.
(icon of) coins
IDS Bond Fund
Invests mainly in corporate bonds, at least 50% in the higher
rated, lower risk bond categories, or the equivalent, and in
government bonds.
(icon of) greek column
<PAGE>
PAGE 74
IDS Selective Fund
Invests in high-quality corporate bonds and other highly rated debt
instruments including government securities and short-term
investments. Seeks current income and preservation of capital.
(icon of) skyline
IDS Federal Income Fund
Invests primarily in securities issued or guaranteed as to the
timely payment of principal and interest by the U.S. government,
its agencies and instrumentalities. Seeks a high level of current
income and safety of principal consistent with its type of
investments.
(icon of) shield with eagle head enclosed
Tax-exempt income investments
These funds provide tax-free income by investing in municipal
bonds. The income is generally free from federal income tax. Risk
varies by bond quality.
IDS High Yield Tax-Exempt Fund
Invests primarily in medium- and lower-quality municipal bonds and
notes. Lower-quality securities generally involve greater risk of
principal and income.
(icon of) shield with basket of apples enclosed
IDS State Tax-Exempt Funds
(CA, MA, MI, MN, NY, OH)
Invests primarily in high- and medium-grade municipal securities to
provide income to residents of each respective state that is exempt
from federal, state and local income taxes. (New York is the only
state that is exempt at the local level.)
(icon of) shield with U.S. enclosed
IDS Tax-Exempt Bond Fund
Invests mainly in bonds and notes of state or local government
units, with at least 75% in the four highest rated, lowest risk
bond categories.
(icon of) shield with Greek column enclosed
IDS Insured Tax-Exempt Fund
Invests primarily in municipal securities that are insured as to
the timely payment of principal and interest. The insurance
feature minimizes credit risk of the fund but does not guarantee
the market value of the fund's shares.
(icon of) shield with star enclosed
<PAGE>
PAGE 75
Growth and income investments
These funds focus on securities of medium to large, well-
established companies that offer long-term growth of capital and
reasonable income from dividends and interest. Moderate risk.
IDS International Fund
Invests primarily in common stocks of foreign companies that offer
potential for superior growth. The fund may invest up to 20% of
its assets in the U.S. market.
(icon of) three flags
IDS Managed Allocation Fund
Invests in U.S. equity securities, U.S. and foreign debt
securities, foreign equity securities and money market instruments.
The fund provides diversification among these major investment
categories and has a target mix that represents the way the fund's
investments will be allocated over the long term. Seeks maximum
total return.
(icon of) bird in a nest
IDS Equity Select Fund
Invests primarily in a combination of moderate growth stocks,
higher-yielding equities and bonds. Seeks growth of capital and
income.
(icon of) three pine trees
IDS Blue Chip Advantage Fund
Invests in selected stocks from a major market index. Securities
purchased are those recommended by our research analysts as the
best from each industry represented on the index. Offers potential
for long-term growth as well as dividend income.
(icon of) ribbon
IDS Stock Fund
Invests in common stock of companies representing many sectors of
the economy. Seeks current income and growth of capital.
(icon of) building with columns
IDS Equity Value Fund
Invests primarily in undervalued common stocks that offer potential
for growth of capital and income.
(icon of) three growing flowers
<PAGE>
PAGE 76
IDS Utilities Income Fund
Invests primarily in the stocks of public utility companies to seek
high current income and growth of income and capital with reduced
volatility.
(icon of) light bulb
IDS Diversified Equity Income Fund
Invests primarily in high-yielding common stocks to seek high
current income and, secondarily, to benefit from the growth
potential offered by stock investments.
(icon of) two puzzle pieces
IDS Mutual
Invests in a balance between common stocks and senior securities
(preferred stocks and bonds). Seeks a balance of growth of capital
and current income.
(icon of) scale of justice
Growth investments
Funds in this group seek capital growth, primarily from common
stocks. They are high risk mutual funds with a potential for high
reward.
IDS Discovery Fund
Invests in small- and medium-size, growth-oriented companies
emphasizing technological innovation and productivity enhancement.
Buys and holds larger growth-oriented stocks.
(icon of) ship
IDS Small Company Index Fund
Invests in all or a representative group of the equity securities
comprising the S&P SmallCap 600 Index, as it strives to provide
long-term capital appreciation.
(icon of) office building
IDS Progressive Fund
Invests primarily in undervalued common stocks. The fund holds
stocks for the long term with the goal of capital growth.
(icon of) shooting star
<PAGE>
PAGE 77
IDS Global Growth Fund
Invests in stocks of companies throughout the world that are
positioned to meet market needs in a changing world economy. These
companies offer above-average potential for long-term growth.
(icon of) world
IDS Strategy Aggressive Fund
Invests primarily in common stocks of companies that are selected
for their potential for above-average growth. Above-average means
that their growth potential is better, in the opinion of the
portfolio's investment manager, than the Standard & Poor's
Corporation (S&P) 500 Stock Index.
(icon of) chess piece
IDS Research Opportunities Fund
Invests primarily in equity securities of companies included in the
S&P 500 Index that are believed to have strong growth potential.
The Portfolio is managed using a research methodology by the
Research Department of AEFC. Goal is long-term appreciation.
(icon of) magnifying glass
IDS Growth Fund
Invests primarily in companies that have above-average potential
for long-term growth as a result of new management, marketing
opportunities or technological superiority.
(icon of) trees
IDS New Dimensions Fund
Invests primarily in companies with significant growth potential
due to superiority in technology, marketing or management. The
fund frequently changes its industry mix.
(icon of) dimension
Specialty growth investment
This fund aggressively seeks capital growth as a hedge against
inflation.
IDS Precious Metals Fund
Invests primarily in the securities of foreign or domestic
companies that explore for, mine and process or distribute gold and
other precious metals. This is the most aggressive and most
speculative IDS mutual fund.
(icon of) cart of precious gems
<PAGE>
PAGE 78
For more complete information about any of these funds, including
charges and expenses, you can obtain a prospectus by contacting
your financial advisor or writing to American Express Shareholder
Service, P.O. Box 534, Minneapolis, MN 55440-0534. Read it
carefully before you invest or send money.
<PAGE>
PAGE 79
Federal income tax information
IDS New Dimensions Fund, Inc.
___________________________________________________________________
The Fund is required by the Internal Revenue Code of 1986 to tell
its shareholders about the tax treatment of the dividends it pays
during its fiscal year. The dividends listed below were reported
to you on a Form 1099-DIV, Dividends and Distributions, last
January. Shareholders should consult a tax advisor on how to
report distributions for state and local purposes.
IDS New Dimensions Fund, Inc.
Fiscal year ended July 31, 1996
Class A
Income distribution taxable as dividend income, 100% qualifying for
deduction by corporations.
Payable date Per share
Dec. 29, 1995 $0.14600
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 29, 1995 $0.60100
Total distributions $0.74700
Class B
Income distribution taxable as dividend income, 100% qualifying for
deduction by corporations.
Payable date Per share
Dec. 29, 1995 $0.10942
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 29, 1995 $0.60100
Total distributions $0.71042
Class Y
Income distribution taxable as dividend income, 100% qualifying for
deduction by corporations.
Payable date Per share
Dec. 29, 1995 $0.16774
<PAGE>
PAGE 80
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 29, 1995 $0.60100
Total distributions $0.76874
<PAGE>
PAGE 81
Quick telephone reference
American Express Telephone Transaction Service
Redemptions and exchanges, dividend payments or reinvestments and
automatic payment arrangements
National/Minnesota: 800-437-3133
Mpls./St. Paul area: 671-3800
American Express Shareholder Service
Fund performance, objectives and account inquiries
612-671-3733
TTY Service
For the hearing impaired
800-846-4852
American Express Infoline
Automated account information (TouchToneR phones only), including
current fund prices and performance, account values and recent
account transactions
National/Minnesota: 800-272-4445
Mpls./St. Paul area: 671-1630
AMERICAN
EXPRESS
Financial
Advisors
IDS New Dimensions Fund
IDS Tower 10
Minneapolis, MN 55440-0010
<PAGE>
PAGE 82
STATEMENT OF ADDITIONAL INFORMATION
FOR
IDS NEW DIMENSIONS FUND
Sept. 27, 1996
This Statement of Additional Information (SAI) is not a prospectus.
It should be read together with the prospectus and the financial
statements contained in the Annual Report which may be obtained
from your American Express financial advisor or by writing to
American Express Shareholder Service, P.O. Box 534, Minneapolis, MN
55440-0534.
This SAI is dated Sept. 27, 1996, and it is to be used with the
prospectus dated Sept. 27, 1996, and the Annual Report for the
fiscal period ended July 31, 1996.
<PAGE>
PAGE 83
TABLE OF CONTENTS
Goal and Investment Policies.........................See Prospectus
Additional Investment Policies................................p. 3
Security Transactions.........................................p. 6
Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation........................p. 9
Performance Information.......................................p. 10
Valuing Fund Shares...........................................p. 11
Investing in the Fund.........................................p. 12
Redeeming Shares..............................................p. 16
Pay-out Plans.................................................p. 17
Taxes.........................................................p. 18
Agreements....................................................p. 20
Board Members and Officers....................................p. 23
Custodian.....................................................p. 27
Independent Auditors..........................................p. 28
Financial Statements..............................See Annual Report
Prospectus....................................................p. 28
Appendix A: Foreign Currency Transactions....................p. 29
Appendix B: Options and Stock Index Futures Contracts........p. 34
Appendix C: Mortgage-Backed Securities.......................p. 41
Appendix D: Dollar-Cost Averaging............................p. 42
<PAGE>
PAGE 84
ADDITIONAL INVESTMENT POLICIES
The Fund pursues its goal by investing all of its assets in Growth
Trends Portfolio (the "Portfolio") of Growth Trust (the "Trust"), a
separate investment company, rather than by directly investing in
and managing its own portfolio of securities. The Portfolio has
the same investment objectives, policies and restrictions as the
Fund.
Fundamental investment restrictions adopted by the Fund or
Portfolio cannot be changed without the approval of a majority of
the outstanding voting securities of the Fund or Portfolio, as
defined in the Investment Company Act of 1940 (the 1940 Act).
Whenever the Fund is requested to vote on a change in the
investment restrictions of the corresponding Portfolio, the Fund
will hold a meeting of Fund shareholders and will cast the Fund's
vote as instructed by the shareholders.
These are investment policies in addition to those presented in the
prospectus. The policies below are fundamental policies of the
Fund and the Portfolio and may be changed only with shareholder
approval. Unless holders of a majority of the outstanding voting
securities agree to make the change, the Fund and Portfolio will
not:
'Act as an underwriter (sell securities for others). However,
under the securities laws, the Portfolio may be deemed to be an
underwriter when it purchases securities directly from the issuer
and later resells them.
'Borrow money or property, except as a temporary measure for
extraordinary or emergency purposes, in an amount not exceeding
one-third of the market value of its total assets (including
borrowings) less liabilities (other than borrowings) immediately
after the borrowing. The Portfolio has not borrowed in the past
and has no present intention to borrow.
'Make cash loans if the total commitment amount exceeds 5% of the
Portfolio's total assets.
'Concentrate in any one industry. According to the present
interpretation by the Securities and Exchange Commission (SEC),
this means no more than 25% of the Portfolio's total assets, based
on current market value at time of purchase, can be invested in any
one industry.
'Purchase more than 10% of the outstanding voting securities of an
issuer.
<PAGE>
PAGE 85
'Invest more than 5% of its total assets in securities of any one
company, government or political subdivision thereof, except the
limitation will not apply to investments in securities issued by
the U.S. government, its agencies or instrumentalities, and except
that up to 25% of the Portfolio's total assets may be invested
without regard to this 5% limitation.
'Buy or sell real estate, unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent
the Portfolio from investing in securities or other instruments
backed by real estate or securities of companies engaged in the
real estate business or real estate investment trusts. For
purposes of this policy, real estate includes real estate limited
partnerships.
'Buy or sell physical commodities unless acquired as a result of
ownership of securities or other instruments, except this shall not
prevent the Portfolio from buying or selling options and futures
contracts or from investing in securities or other instruments
backed by, or whose value is derived from, physical commodities.
'Make a loan of any part of its assets to American Express
Financial Corporation (AEFC), to the board members and officers of
AEFC or to its own board members and officers.
'Purchase securities of an issuer if the board members and officers
of the Fund, the Portfolio and American Express Financial
Corporation (AEFC) hold more than a certain percentage of the
issuer's outstanding securities. If the holdings of all board
members and officers of the Fund, the Portfolio and of AEFC who own
more than 0.5% of an issuer's securities are added together, and if
in total they own more than 5%, the Portfolio will not purchase
securities of that issuer.
'Lend Portfolio securities in excess of 30% of its net assets. The
current policy of the board is to make these loans, either long- or
short-term, to broker-dealers. In making loans, the Portfolio gets
the market price in cash, U.S. government securities, letters of
credit or such other collateral as may be permitted by regulatory
agencies and approved by the board. If the market price of the
loaned securities goes up, the Portfolio will get additional
collateral on a daily basis. The risks are that the borrower may
not provide additional collateral when required or return the
securities when due. During the existence of the loan, the
Portfolio receives cash payments equivalent to all interest or
other distributions paid on the loaned securities. A loan will not
be made unless the investment manager believes the opportunity for
additional income outweighs the risks.
Unless changed by the board, the Fund and Portfolio will not:
'Buy on margin or sell short, but it may make margin payments in
connection with transactions in stock index futures contracts.
<PAGE>
PAGE 86
'Pledge or mortgage its assets beyond 15% of total assets. If the
Portfolio were ever to do so, valuation of the pledged or mortgaged
assets would be based on market values. For the purpose of this
restriction, collateral arrangements for margin deposits on futures
contracts are not deemed to be a pledge of assets.
'Invest more than 5% of its total assets in securities of
companies, including any predecessors, that have a record of less
than three years continuous operations.
'Invest more than 10% of its assets in securities of investment
companies. Under one state's law, the Portfolio is limited to
investment in the open market where no commission or profit to a
sponsor or dealer results from the purchase other than the
customary broker's commission, or when the purchase is part of a
plan or merger, consolidation, reorganization or acquisition.
'Invest in a company to control or manage it.
'Invest in exploration or development programs, such as oil, gas or
mineral leases.
'Invest more than 5% of its net assets in warrants. Under one
state's law no more than 2% of the Portfolio's net assets may be
invested in warrants not listed on the New York or American Stock
Exchange.
'Invest more than 10% of its net assets in securities and
derivative instruments that are illiquid. For purposes of this
policy, illiquid securities include some privately placed
securities, public securities and Rule 144A securities that for one
reason or another may no longer have a readily available market,
repurchase agreements with maturities greater than seven days, non-
negotiable fixed-time deposits and over-the-counter options.
In determining the liquidity of Rule 144A securities, which are
unregistered securities offered to qualified institutional buyers,
and interest-only and principal-only fixed mortgage-backed
securities (IOs and POs) issued by the U.S. government or its
agencies and instrumentalities, the investment manager, under
guidelines established by the board, will consider any relevant
factors including the frequency of trades, the number of dealers
willing to purchase or sell the security and the nature of
marketplace trades.
In determining the liquidity of commercial paper issued in
transactions not involving a public offering under Section 4(2) of
the Securities Act of 1933, the investment manager, under
guidelines established by the board, will evaluate relevant factors
such as the issuer and the size and nature of its commercial paper
programs, the willingness and ability of the issuer or dealer to
repurchase the paper, and the nature of the clearance and
settlement procedures for the paper.
<PAGE>
PAGE 87
The Portfolio may make contracts to purchase securities for a fixed
price at a future date beyond normal settlement time (when-issued
securities or forward commitments). Under normal market
conditions, the Portfolio does not intend to commit more than 5% of
its total assets to these practices. The Portfolio does not pay
for the securities or receive dividends or interest on them until
the contractual settlement date. The Portfolio will designate cash
or liquid high-grade debt securities at least equal in value to its
commitments to purchase the securities. When-issued securities or
forward commitments are subject to market fluctuations and they may
affect the Portfolio's total assets the same as owned securities.
The Portfolio may maintain a portion of its assets in cash and
cash-equivalent investments. The cash-equivalent investments the
Portfolio may use are short-term U.S. and Canadian government
securities and negotiable certificates of deposit, non-negotiable
fixed-time deposits, bankers' acceptances and letters of credit of
banks or savings and loan associations having capital, surplus and
undivided profits (as of the date of its most recently published
annual financial statements) in excess of $100 million (or the
equivalent in the instance of a foreign branch of a U.S. bank) at
the date of investment. Any cash-equivalent investments in foreign
securities will be subject to the limitations on foreign
investments described in the prospectus. The Portfolio also may
purchase short-term corporate notes and obligations rated in the
top two classifications by Moody's Investors Service, Inc.
(Moody's) or Standard & Poor's Corporation (S&P) or the equivalent
and may use repurchase agreements with broker-dealers registered
under the Securities Exchange Act of 1934 and with commercial
banks. A risk of a repurchase agreement is that if the seller
seeks the protection of the bankruptcy laws, the Portfolio's
ability to liquidate the security involved could be impaired.
Notwithstanding any of the Fund's other investment policies, the
Fund may invest its assets in an open-end management investment
company having substantially the same investment objectives,
policies and restrictions as the Fund for the purpose of having
those assets managed as part of a combined pool.
For a discussion about foreign currency transactions, see Appendix
A. For a discussion on options and stock index futures contracts,
see Appendix B. For a discussion on mortgage-backed securities,
see Appendix C.
SECURITY TRANSACTIONS
Subject to policies set by the board, AEFC is authorized to
determine, consistent with the Portfolio's investment goal and
policies, which securities will be purchased, held or sold. In
determining where the buy and sell orders are to be placed, AEFC
has been directed to use its best efforts to obtain the best
available price and the most favorable execution except where
otherwise authorized by the board. In selecting broker-dealers to
execute transactions, AEFC may consider the price of the security,
including commission or mark-up, the size and difficulty of the
<PAGE>
PAGE 88
order, the reliability, integrity, financial soundness and general
operation and execution capabilities of the broker, the broker's
expertise in particular markets, and research services provided by
the broker.
AEFC has a strict Code of Ethics that prohibits its affiliated
personnel from engaging in personal investment activities that
compete with or attempt to take advantage of planned portfolio
transactions for any fund or trust for which it acts as investment
manager. AEFC carefully monitors compliance with its Code of
Ethics.
On occasion, it may be desirable to compensate a broker for
research services or for brokerage services by paying a commission
that might not otherwise be charged or a commission in excess of
the amount another broker might charge. The board has adopted a
policy authorizing AEFC to do so to the extent authorized by law,
if AEFC determines, in good faith, that such commission is
reasonable in relation to the value of the brokerage or research
services provided by a broker or dealer, viewed either in the light
of that transaction or AEFC's overall responsibilities to the funds
in the IDS MUTUAL FUND GROUP and other funds for which it acts as
investment advisor.
Research provided by brokers supplements AEFC's own research
activities. Such services include economic data on, and analysis
of, U.S. and foreign economies; information on specific industries;
information about specific companies, including earnings estimates;
purchase recommendations for stocks and bonds; portfolio strategy
services; political, economic, business and industry trend
assessments; historical statistical information; market data
services providing information on specific issues and prices; and
technical analysis of various aspects of the securities markets,
including technical charts. Research services may take the form of
written reports, computer software or personal contact by telephone
or at seminars or other meetings. AEFC has obtained, and in the
future may obtain, computer hardware from brokers, including but
not limited to personal computers that will be used exclusively for
investment decision-making purposes, which include the research,
portfolio management and trading functions and other services to
the extent permitted under an interpretation by the SEC.
When paying a commission that might not otherwise be charged or a
commission in excess of the amount another broker might charge,
AEFC must follow procedures authorized by the board. To date,
three procedures have been authorized. One procedure permits AEFC
to direct an order to buy or sell a security traded on a national
securities exchange to a specific broker for research services it
has provided. The second procedure permits AEFC, in order to
obtain research, to direct an order on an agency basis to buy or
sell a security traded in the over-the-counter market to a firm
that does not make a market in that security. The commission paid
generally includes compensation for research services. The third
procedure permits AEFC, in order to obtain research and brokerage
services, to cause the Portfolio to pay a commission in excess of
<PAGE>
PAGE 89
the amount another broker might have charged. AEFC has advised the
Portfolio it is necessary to do business with a number of brokerage
firms on a continuing basis to obtain such services as the handling
of large orders, the willingness of a broker to risk its own money
by taking a position in a security, and the specialized handling of
a particular group of securities that only certain brokers may be
able to offer. As a result of this arrangement, some portfolio
transactions may not be effected at the lowest commission, but AEFC
believes it may obtain better overall execution. AEFC has assured
the Portfolio that under all three procedures the amount of
commission paid will be reasonable and competitive in relation to
the value of the brokerage services performed or research provided.
All other transactions shall be placed on the basis of obtaining
the best available price and the most favorable execution. In so
doing, if in the professional opinion of the person responsible for
selecting the broker or dealer, several firms can execute the
transaction on the same basis, consideration will be given by such
person to those firms offering research services. Such services
may be used by AEFC in providing advice to all the funds in the IDS
MUTUAL FUND GROUP even though it is not possible to relate the
benefits to any particular fund or account.
Each investment decision made for the Portfolio is made
independently from any decision made for another portfolio, fund or
other account advised by AEFC or any of its subsidiaries. When the
Portfolio buys or sells the same security as another portfolio,
fund or account, AEFC carries out the purchase or sale in a way the
Portfolio agrees in advance is fair. Although sharing in large
transactions may adversely affect the price or volume purchased or
sold by the Portfolio, the Portfolio hopes to gain an overall
advantage in execution. AEFC has assured the Portfolio it will
continue to seek ways to reduce brokerage costs.
On a periodic basis, AEFC makes a comprehensive review of the
broker-dealers and the overall reasonableness of their commissions.
The review evaluates execution, operational efficiency and research
services.
The Portfolio paid total brokerage commissions of $6,405,032 for
the fiscal period ended July 31, 1996, $6,993,055 for fiscal year
1995, and $4,629,595 for fiscal year 1994. Substantially all firms
through whom transactions were executed provide research services.
In fiscal period ended July 31, 1996, transactions amounting to
$43,304,000, on which $37,896 in commissions were imputed or paid,
were specifically directed to firms in exchange for research
services.
As of the fiscal period ended July 31, 1996, the Portfolio held
securities of its regular brokers or dealers or of the parent of
those brokers or dealers that derived more than 15% of gross
revenue from securities-related activities as presented below:
<PAGE>
PAGE 90
Value of Securities
Owned at End of
Name of Issuer Fiscal Period
Dean Witter $44,496,830
Goldman Sachs 21,494,070
Merrill Lynch 3,686,576
Morgan Stanley Group 64,243,321
Nations Bank 22,999,104
The portfolio turnover rate was 41% in the fiscal period ended July
31, 1996, and 54% in fiscal year 1995.
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH AMERICAN
EXPRESS FINANCIAL CORPORATION
Affiliates of American Express Company (American Express) (of which
AEFC is a wholly owned subsidiary) may engage in brokerage and
other securities transactions on behalf of the Portfolio according
to procedures adopted by the board and to the extent consistent
with applicable provisions of the federal securities laws. AEFC
will use an American Express affiliate only if (i) AEFC determines
that the Portfolio will receive prices and executions at least as
favorable as those offered by qualified independent brokers
performing similar brokerage and other services for the Portfolio
and (ii) the affiliate charges the Portfolio commission rates
consistent with those the affiliate charges comparable unaffiliated
customers in similar transactions and if such use is consistent
with terms of the Investment Management Services Agreement.
AEFC may direct brokerage to compensate an affiliate. AEFC will
receive research on South Africa from New Africa Advisors, a
wholly-owned subsidiary of Sloan Financial Group. AEFC owns 100%
of IDS Capital Holdings Inc. which in turn owns 40% of Sloan
Financial Group. New Africa Advisors will send research to AEFC
and in turn AEFC will direct trades to a particular broker. The
broker will have an agreement to pay New Africa Advisors. All
transactions will be on a best execution basis. Compensation
received will be reasonable for the services rendered.
Information about brokerage commissions paid by the Portfolio for
the last three fiscal years to brokers affiliated with AEFC is
contained in the following table:
<PAGE>
PAGE 91
<TABLE>
<CAPTION>
For the Fiscal Period Ended July 31,
1996 1995 1994
Aggregate Percent of Aggregate Aggregate
Dollar Aggregate Dollar Dollar Dollar
Amount of Percent of Amount of Amount of Amount of
Nature Commissions Aggregate Transactions Commissions Commissions
of Paid to Brokerage Involving Payment Paid to Paid to
Broker Affiliation Broker Commissions of Commissions Broker Broker
<S> <C> <C> <C> <C> <C> <C>
Lehman (1) None None None None $199,920
Brothers, Inc.
American
Enterprise
Investment (2) $339,272 5.30% 8.95% $617,469 $888,862
The Robinson
Humphrey
Company, Inc. (3) None None None None 21,853
Shearson
Lehman
Brothers, Inc. (4) None None None None 82,231
</TABLE>
(1) Under common control with AEFC as a subsidiary of American
Express until May 31, 1994.
(2) Wholly owned subsidiary of AEFC.
PERFORMANCE INFORMATION
The Fund may quote various performance figures to illustrate past
performance. Average annual total return quotations used by the
Fund are based on standardized methods of computing performance as
required by the SEC. An explanation of the methods used by the
Fund to compute performance follows below.
Average annual total return
The Fund may calculate average annual total return for a class for
certain periods by finding the average annual compounded rates of
return over the period that would equate the initial amount
invested to the ending redeemable value, according to the following
formula:
P(1+T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of a period, at the
end of the period (or fractional portion thereof)
Aggregate total return
The Fund may calculate aggregate total return for a class for
certain periods representing the cumulative change in the value of
an investment in the Fund over a specified period of time according
to the following formula:
ERV - P
P<PAGE>
PAGE 92
where: P = a hypothetical initial payment of $1,000
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of a period, at the
end of the period (or fractional portion thereof)
In its sales material and other communications, the Fund may quote,
compare or refer to rankings, yields or returns as published by
independent statistical services or publishers and publications
such as The Bank Rate Monitor National Index, Barron's, Business
Week, Donoghue's Money Market Fund Report, Financial Services Week,
Financial Times, Financial World, Forbes, Fortune, Global Investor,
Institutional Investor, Investor's Daily, Kiplinger's Personal
Finance, Lipper Analytical Services, Money, Mutual Fund Forecaster,
Newsweek, The New York Times, Personal Investor, Stanger Report,
Sylvia Porter's Personal Finance, USA Today, U.S. News and World
Report, The Wall Street Journal and Wiesenberger Investment
Companies Service.
VALUING FUND SHARES
The value of an individual share for each class is determined by
using the net asset value before shareholder transactions for the
day. On Aug. 1, 1996, the first business day following the end of
the fiscal period, the computation looked like this:
<TABLE>
<CAPTION>
Net assets before Shares outstanding Net asset value
shareholder transactions at end of previous day of one share
<S> <C> <C> <C> <C> <C>
Class A $5,717,248,873 divided by 303,463,317 equals $ 18.84
Class B 603,046,477 32,283,002 18.68
Class Y 2,377,607,853 126,066,164 18.86
</TABLE>
In determining net assets before shareholder transactions, the
Portfolio's securities are valued as follows as of the close of
business of the New York Stock Exchange (the Exchange):
'Securities, except bonds other than convertibles, traded on a
securities exchange for which a last-quoted sales price is readily
available are valued at the last-quoted sales price on the exchange
where such security is primarily traded.
'Securities traded on a securities exchange for which a last-quoted
sales price is not readily available are valued at the mean of the
closing bid and asked prices, looking first to the bid and asked
prices on the exchange where the security is primarily traded and,
if none exist, to the over-the-counter market.
'Securities included in the NASDAQ National Market System are
valued at the last-quoted sales price in this market.
'Securities included in the NASDAQ National Market System for which
a last-quoted sales price is not readily available, and other
securities traded over-the-counter but not included in the NASDAQ
National Market System are valued at the mean of the closing bid
and asked prices.
<PAGE>
PAGE 93
'Futures and options traded on major exchanges are valued at the
last-quoted sales price on their primary exchange.
'Foreign securities traded outside the United States are generally
valued as of the time their trading is complete, which is usually
different from the close of the Exchange. Foreign securities
quoted in foreign currencies are translated into U.S. dollars at
the current rate of exchange. Occasionally, events affecting the
value of such securities may occur between such times and the close
of the Exchange that will not be reflected in the computation of
the Fund's net asset value. If events materially affecting the
value of such securities occur during such period, these securities
will be valued at their fair value according to procedures decided
upon in good faith by the board.
'Short-term securities maturing more than 60 days from the
valuation date are valued at the readily available market price or
approximate market value based on current interest rates. Short-
term securities maturing in 60 days or less that originally had
maturities of more than 60 days at acquisition date are valued at
amortized cost using the market value on the 61st day before
maturity. Short-term securities maturing in 60 days or less at
acquisition date are valued at amortized cost. Amortized cost is
an approximation of market value determined by systematically
increasing the carrying value of a security if acquired at a
discount, or reducing the carrying value if acquired at a premium,
so that the carrying value is equal to maturity value on the
maturity date.
'Securities without a readily available market price, bonds other
than convertibles and other assets are valued at fair value as
determined in good faith by the board. The board is responsible
for selecting methods it believes provide fair value. When
possible, bonds are valued by a pricing service independent from
the Portfolio. If a valuation of a bond is not available from a
pricing service, the bond will be valued by a dealer knowledgeable
about the bond if such a dealer is available.
The Exchange, AEFC and the Fund will be closed on the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
INVESTING IN THE FUND
Sales Charge
Shares of the Fund are sold at the public offering price determined
at the close of business on the day an application is accepted.
The public offering price is the net asset value of one share
adjusted for a sales charge, if applicable. For Class B and Class
Y, there is no initial sales charge so the public offering price is
the same as the net asset value. For Class A, the public offering
price for an investment of less than $50,000, made Aug. 1, 1996,
was determined by dividing the net asset value of one share,
<PAGE>
PAGE 94
$18.84, by 0.95 (1.00-0.05 for a maximum 5% sales charge) for a
public offering price of $19.83. The sales charge is paid to
American Express Financial Advisors by the person buying the
shares.
Class A - Calculation of the Sales Charge
Sales charges are determined as follows:
Within each increment,
sales charge as a
percentage of:
Public Net
Amount of Investment Offering Price Amount Invested
First $ 50,000 5.0% 5.26%
Next 50,000 4.5 4.71
Next 400,000 3.8 3.95
Next 500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
Sales charges on an investment greater than $50,000 and less than
$1,000,000 are calculated for each increment separately and then
totaled. The resulting total sales charge, expressed as a
percentage of the public offering price and of the net amount
invested, will vary depending on the proportion of the investment
at different sales charge levels.
For example, compare an investment of $60,000 with an investment of
$85,000. The $60,000 investment is composed of $50,000 that incurs
a sales charge of $2,500 (5.0% x $50,000) and $10,000 that incurs a
sales charge of $450 (4.5% x $10,000). The total sales charge of
$2,950 is 4.92% of the public offering price and 5.17% of the net
amount invested.
In the case of the $85,000 investment, the first $50,000 also
incurs a sales charge of $2,500 (5.0% x $50,000) and $35,000 incurs
a sales charge of $1,575 (4.5% x $35,000). The total sales charge
of $4,075 is 4.79% of the public offering price and 5.04% of the
net amount invested.
The following table shows the range of sales charges as a
percentage of the public offering price and of the net amount
invested on total investments at each applicable level.
<TABLE>
<CAPTION>
On total investment, sales
charge as a percentage of
Public Net
Offering Price Amount Invested
Amount of Investment ranges from:
<S> <C> <C>
First $ 50,000 5.00% 5.26%
More than 50,000 to 100,000 5.00-4.50 5.26-4.71
More than 100,000 to 500,000 4.50-3.80 4.71-3.95
More than 500,000 to 999,999 3.80-2.00 3.95-2.04
$1,000,000 or more 0.00 0.00
</TABLE>
<PAGE>
PAGE 95
The initial sales charge is waived for certain qualified plans that
meet the requirements described in the prospectus. Participants in
these qualified plans may be subject to a deferred sales charge on
certain redemptions. The deferred sales charge on certain
redemptions will be waived if the redemption is a result of a
participant's death, disability, retirement, attaining age 59 1/2,
loans or hardship withdrawals. The deferred sales charge varies
depending on the number of participants in the qualified plan and
total plan assets as follows:
Deferred Sales Charge
Number of Participants
Total Plan Assets 1-99 100 or more
Less than $1 million 4% 0%
$1 million or more 0% 0%
_________________________________________________________
Class A - Reducing the Sales Charge
Sales charges are based on the total amount of your investments in
the Fund. The amount of all prior investments plus any new
purchase is referred to as your "total amount invested." For
example, suppose you have made an investment of $20,000 and later
decide to invest $40,000 more. Your total amount invested would be
$60,000. As a result, $10,000 of your $40,000 investment qualifies
for the lower 4.5% sales charge that applies to investments of more
than $50,000 and up to $100,000.
The total amount invested includes any shares held in the Fund in
the name of a member of your primary household group. The primary
household group consists of accounts in any ownership for spouses
or domestic partners and their unmarried children under 21.
Domestic partners are individuals who maintain a shared primary
residence and have joint property or other insurable interests.
For instance, if your spouse already has invested $20,000 and you
want to invest $40,000, your total amount invested will be $60,000
and therefore you will pay the lower charge of 4.5% on $10,000 of
the $40,000.
Until a spouse remarries, the sales charge is waived for spouses
and unmarried children under 21 of deceased board members, officers
or employees of the Fund or AEFC or its subsidiaries and deceased
advisors.
The total amount invested also includes any investment you or your
immediate family already have in the other publicly offered funds
in the IDS MUTUAL FUND GROUP where the investment is subject to a
sales charge. For example, suppose you already have an investment
of $30,000 in another IDS Fund. If you invest $40,000 more in this
Fund, your total amount invested in the funds will be $70,000 and
therefore $20,000 of your $40,000 investment will incur a 4.5%
sales charge.
<PAGE>
PAGE 96
Finally, Individual Retirement Account (IRA) purchases, or other
employee benefit plan purchases made through a payroll deduction
plan or through a plan sponsored by an employer, association of
employers, employee organization or other similar entity, may be
added together to reduce sales charges for shares purchased through
that plan.
Class A - Letter of Intent (LOI)
If you intend to invest $1 million over a period of 13 months, you
can reduce the sales charges in Class A by filing a LOI. The
agreement can start at any time and will remain in effect for 13
months. Your investment will be charged normal sales charges until
you have invested $1 million. At that time, your account will be
credited with the sales charges previously paid. Class A
investments made prior to signing an LOI may be used to reach the
$1 million total, excluding Cash Management Fund and Tax-Free Money
Fund. However, we will not adjust for sales charges on investments
made prior to the signing of the LOI. If you do not invest $1
million by the end of 13 months, there is no penalty, you'll just
miss out on the sales charge adjustment. A LOI is not an option
(absolute right) to buy shares.
Here's an example. You file a LOI to invest $1 million and make an
investment of $100,000 at that time. You pay the normal 5% sales
charge on the first $50,000 and 4.5% sales charge on the next
$50,000 of this investment. Let's say you make a second investment
of $900,000 (bringing the total up to $1 million) one month before
the 13-month period is up. On the date that you bring your total
to $1 million, AEFC makes an adjustment to your account. The
adjustment is made by crediting your account with additional
shares, in an amount equivalent to the sales charge previously
paid.
Systematic Investment Programs
After you make your initial investment of $2,000 or more, you can
arrange to make additional payments of $100 or more on a regular
basis. These minimums do not apply to all systematic investment
programs. For Uniform Gifts to Minors Act (UGMA) and Uniform
Transfers to Minors Act (UTMA), the initial investment is $500 and
the minimum is $50 per month. You decide how often to make
payments - monthly, quarterly, or semiannually. You are not
obligated to make any payments. You can omit payments or
discontinue the investment program altogether.
The Fund also can change the program or end it at any time. If
there is no obligation, why do it? Putting money aside is an
important part of financial planning. With a systematic investment
program, you have a goal to work for.
How does this work? Your regular investment amount will purchase
more shares when the net asset value per share decreases, and fewer
shares when the net asset value per share increases. Each purchase
is a separate transaction. After each purchase your new shares
<PAGE>
PAGE 97
will be added to your account. Shares bought through these
programs are exactly the same as any other fund shares. They can
be bought and sold at any time. A systematic investment program is
not an option or an absolute right to buy shares.
The systematic investment program itself cannot ensure a profit,
nor can it protect against a loss in a declining market. If you
decide to discontinue the program and redeem your shares when their
net asset value is less than what you paid for them, you will incur
a loss.
For a discussion on dollar-cost averaging, see Appendix D.
Automatic Directed Dividends
Dividends, including capital gain distributions, paid by another
fund in the IDS MUTUAL FUND GROUP subject to a sales charge, may be
used to automatically purchase shares in the same class of this
Fund without paying a sales charge. Dividends may be directed to
existing accounts only. Dividends declared by a fund are exchanged
to this Fund the following day. Dividends can be exchanged into
one fund but cannot be split to make purchases in two or more
funds. Automatic directed dividends are available between accounts
of any ownership except:
Between a non-custodial account and an IRA, or 401(k) plan account
or other qualified retirement account of which American Express
Trust Company acts as custodian;
Between two American Express Trust Company custodial accounts with
different owners (for example, you may not exchange dividends from
your IRA to the IRA of your spouse);
Between different kinds of custodial accounts with the same
ownership (for example, you may not exchange dividends from your
IRA to your 401(k) plan account, although you may exchange
dividends from one IRA to another IRA).
Dividends may be directed from accounts established under the UGMA
or UTMA only into other UGMA or UTMA accounts with identical
ownership.
The Fund's investment goal is described in its prospectus along
with other information, including fees and expense ratios. Before
exchanging dividends into another fund, you should read its
prospectus. You will receive a confirmation that the automatic
directed dividend service has been set up for your account.
REDEEMING SHARES
You have a right to redeem your shares at any time. For an
explanation of redemption procedures, please see the prospectus.
<PAGE>
PAGE 98
During an emergency, the board can suspend the computation of net
asset value, stop accepting payments for purchase of shares or
suspend the duty of the Fund to redeem shares for more than seven
days. Such emergency situations would occur if:
'The Exchange closes for reasons other than the usual weekend and
holiday closings or trading on the Exchange is restricted, or
'Disposal of the Portfolio's securities is not reasonably
practicable or it is not reasonably practicable for the Portfolio
to determine the fair value of its net assets, or
'The SEC, under the provisions of the 1940 Act, as amended,
declares a period of emergency to exist.
Should the Fund stop selling shares, the board may make a deduction
from the value of the assets held by the Fund to cover the cost of
future liquidations of the assets so as to distribute fairly these
costs among all shareholders.
The Fund has elected to be governed by Rule 18f-1 under the 1940
Act, which obligates the Fund to redeem shares in cash, with
respect to any one shareholder during any 90-day period, up to
lesser of $250,000 or 1% of the net assets of the Fund at the
beginning of the period. Although redemptions in excess of this
limitation would normally be paid in cash, the Fund reserves the
right to make these payments in whole or in part in securities or
other assets in case of an emergency, or if the payment of a
redemption in cash would be detrimental to the existing
shareholders of the Fund as determined by the board. In these
circumstances, the securities distributed would be valued as set
forth in the prospectus. Should the Fund distribute securities, a
shareholder may incur brokerage fees or other transaction costs in
converting the securities to cash.
PAY-OUT PLANS
You can use any of several pay-out plans to redeem your investment
in regular installments. If you redeem Class B shares you may be
subject to a contingent deferred sales charge as discussed in the
prospectus. While the plans differ on how the pay-out is figured,
they all are based on the redemption of your investment. Net
investment income dividends and any capital gain distributions will
automatically be reinvested, unless you elect to receive them in
cash. If you are redeeming a tax-qualified plan account for which
American Express Trust Company acts as custodian, you can elect to
receive your dividends and other distributions in cash when
permitted by law. If you redeem an IRA or a qualified retirement
account, certain restrictions, federal tax penalties and special
federal income tax reporting requirements may apply. You should
consult your tax advisor about this complex area of the tax law.
Applications for a systematic investment in a class of the Fund
subject to a sales charge normally will not be accepted while a
pay-out plan for any of those funds is in effect. Occasional
investments, however, may be accepted.<PAGE>
PAGE 99
To start any of these plans, please write or call American Express
Shareholder Service, P.O. Box 534, Minneapolis, MN 55440-0534,
612-671-3733. Your authorization must be received in the
Minneapolis headquarters at least five days before the date you
want your payments to begin. The initial payment must be at least
$50. Payments will be made on a monthly, bimonthly, quarterly,
semiannual or annual basis. Your choice is effective until you
change or cancel it.
The following pay-out plans are designed to take care of the needs
of most shareholders in a way AEFC can handle efficiently and at a
reasonable cost. If you need a more irregular schedule of
payments, it may be necessary for you to make a series of
individual redemptions, in which case you'll have to send in a
separate redemption request for each pay-out. The Fund reserves
the right to change or stop any pay-out plan and to stop making
such plans available.
Plan #1: Pay-out for a fixed period of time
If you choose this plan, a varying number of shares will be
redeemed at regular intervals during the time period you choose.
This plan is designed to end in complete redemption of all shares
in your account by the end of the fixed period.
Plan #2: Redemption of a fixed number of shares
If you choose this plan, a fixed number of shares will be redeemed
for each payment and that amount will be sent to you. The length
of time these payments continue is based on the number of shares in
your account.
Plan #3: Redemption of a fixed dollar amount
If you decide on a fixed dollar amount, whatever number of shares
is necessary to make the payment will be redeemed in regular
installments until the account is closed.
Plan #4: Redemption of a percentage of net asset value
Payments are made based on a fixed percentage of the net asset
value of the shares in the account computed on the day of each
payment. Percentages range from 0.25% to 0.75%. For example, if
you are on this plan and arrange to take 0.5% each month, you will
get $50 if the value of your account is $10,000 on the payment
date.
TAXES
If you buy shares in the Fund and then exchange into another fund,
it is considered a sale and subsequent purchase of shares. Under
the tax laws, if this exchange is done within 91 days, any sales
charge waived on Class A shares on a subsequent purchase of shares
applies to the new shares acquired in the exchange. Therefore, you
cannot create a tax loss or reduce a tax gain attributable to the
sales charge when exchanging shares within 91 days.<PAGE>
PAGE 100
Retirement Accounts
If you have a nonqualified investment in the Fund and you wish to
move part or all of those shares to an IRA or qualified retirement
account in the Fund, you can do so without paying a sales charge.
However, this type of exchange is considered a sale of shares and
may result in a gain or loss for tax purposes. In addition, this
type of exchange may result in an excess contribution under IRA or
qualified plan regulations if the amount exchanged plus the amount
of the initial sales charge applied to the amount exchanged exceeds
annual contribution limitations. For example: If you were to
exchange $2,000 in Class A shares from a nonqualified account to an
IRA without considering the 5% ($100) initial sales charge
applicable to that $2,000, you may be deemed to have exceeded
current IRA annual contribution limitations. You should consult
your tax advisor for further details about this complex subject.
Net investment income dividends received should be treated as
dividend income for federal income tax purposes. Corporate
shareholders are generally entitled to a deduction equal to 70% of
that portion of the Fund's dividend that is attributable to
dividends the Fund received from domestic (U.S.) securities. For
the fiscal period ended July 31, 1996, 100% of the Fund's net
investment income dividends qualified for the corporate deduction.
Capital gain distributions received by individual and corporate
shareholders, if any, should be treated as long-term capital gains
regardless of how long they owned their shares. Short-term capital
gains earned by the Fund are paid to shareholders as part of their
ordinary income dividend and are taxable.
Under federal tax law, by the end of a calendar year the Fund must
declare and pay dividends representing 98% of ordinary income for
that calendar year and 98% of net capital gains (both long-term and
short-term) for the 12-month period ending Oct. 31 of that calendar
year. The Fund is subject to an excise tax equal to 4% of the
excess, if any, of the amount required to be distributed over the
amount actually distributed. The Fund intends to comply with
federal tax law and avoid any excise tax.
The Fund may be subject to U.S. taxes resulting from holdings in a
passive foreign investment company (PFIC). A foreign corporation
is a PFIC when 75% or more of its gross income for the taxable year
is passive income or if 50% or more of the average value of its
assets consists of assets that produce or could produce passive
income.
This is a brief summary that relates to federal income taxation
only. Shareholders should consult their tax advisor as to the
application of federal, state and local income tax laws to Fund
distributions.
<PAGE>
PAGE 101
AGREEMENTS
Investment Management Services Agreement
The Trust, on behalf of the Portfolio, has an Investment Management
Services Agreement with AEFC. For its services, AEFC is paid a fee
based on the following schedule:
Assets Annual rate at
(billions) each asset level
First $1.0 0.600%
Next 1.0 0.575
Next 1.0 0.550
Next 3.0 0.525
Over 6.0 0.500
On July 31, 1996, the daily rate applied to the Portfolio's net
assets was equal to 0.535% on an annual basis. The fee is
calculated for each calendar day on the basis of net assets as of
the close of business two business days prior to the day for which
the calculation is made.
Before the fee based on the asset charge is paid, it is adjusted
for investment performance. The adjustment, determined monthly,
will be calculated using the percentage point difference between
the change in the net asset value of one Class A share of the Fund
and the change in the Lipper Growth Fund Index (Index). The
performance of one Class A share of the Fund is measured by
computing the percentage difference between the opening and closing
net asset value of one Class A share of the Fund, as of the last
business day of the period selected for comparison, adjusted for
dividend or capital gain distributions which are treated as
reinvested at the end of the month during which the distribution
was made. The performance of the Index for the same period is
established by measuring the percentage difference between the
beginning and ending Index for the comparison period. The
performance is adjusted for dividend or capital gain distributions
(on the securities which comprise the Index), which are treated as
reinvested at the end of the month during which the distribution
was made. One percentage point will be subtracted from the
calculation to help assure that incentive adjustments are
attributable to AEFC's management abilities rather than random
fluctuations and the result multiplied by 0.01%. That number will
be multiplied times the Fund's average net assets for the
comparison period and then divided by the number of months in the
comparison period to determine the monthly adjustment.
Where the Fund's Class A share performance exceeds that of the
Index, the base fee will be increased. Where the performance of
the Index exceeds the performance of Class A shares, the base fee
will be decreased. The maximum monthly increase or decrease will
be 0.12% of the Fund's average net assets on an annual basis.
<PAGE>
PAGE 102
The 12 month comparison period rolls over with each succeeding
month, so that it always equals 12 months, ending with the month
for which the performance adjustment is being computed. The
adjustment increased the fee by $2,298,845 for the fiscal period
ended July 31, 1996.
The management fee is paid monthly. The total amount paid was
$37,110,025 for the fiscal period ended July 31, 1996, $29,578,200
for fiscal year 1995, and $24,534,014 for fiscal year 1994.
Under the agreement, the Portfolio also pays taxes, brokerage
commissions and nonadvisory expenses, which include custodian fees;
audit and certain legal fees; fidelity bond premiums; registration
fees for shares; office expenses; consultants' fees; compensation
of board members, officers and employees; corporate filing fees;
organizational expenses; expenses incurred in connection with
lending securities of the Portfolio; and expenses properly payable
by the Portfolio, approved by the board. Under the agreement, the
Fund paid nonadvisory expenses of $1,977,035 for the fiscal period
ended July 31, 1996, $1,647,694 for fiscal year 1995, and
$2,296,838 for fiscal year 1994.
Administrative Services Agreement
The Fund has an Administrative Services Agreement with AEFC. Under
this agreement, the Fund pays AEFC for providing administration and
accounting services. The fee is calculated as follows:
Assets Annual rate
(billions) each asset level
First $1.0 0.050%
Next 1.0 0.045
Next 1.0 0.040
Next 3.0 0.035
Over 6.0 0.030
On July 31, 1996, the daily rate applied to the Fund's net assets
was equal to 0.037% on an annual basis. The fee is calculated for
each calendar day on the basis of net assets as of the close of
business two business days prior to the day for which the
calculation is made. Under the agreement, the Fund paid fees of
$2,438,358 for the fiscal period ended July 31, 1996.
Transfer Agency Agreement
The Fund has a Transfer Agency Agreement with AEFC. This agreement
governs AEFC's responsibility for administering and/or performing
transfer agent functions, for acting as service agent in connection
with dividend and distribution functions and for performing
shareholder account administration agent functions in connection
with the issuance, exchange and redemption or repurchase of the
Fund's shares. Under the agreement, AEFC will earn a fee from the
Fund determined by multiplying the number of shareholder accounts
at the end of the day by a rate determined for each class per year <PAGE>
PAGE 103
and dividing by the number of days in the year. The rate for Class
A and Class Y is $15 per year and for Class B is $16 per year. The
fees paid to AEFC may be changed from time to time upon agreement
of the parties without shareholder approval. Under the agreement,
the Fund paid fees of $7,855,155 for the fiscal period ended July
31, 1996.
Distribution Agreement
Under a Distribution Agreement, sales charges deducted for
distributing Fund shares are paid to American Express Financial
Advisors daily. These charges amounted to $19,304,840 for the
fiscal period ended July 31, 1996. After paying commissions to
personal financial advisors, and other expenses, the amount
retained was $652,404. The amounts were $17,037,260 and
$12,310,508 for fiscal year 1995, and $18,384,527 and $6,366,755
for fiscal year 1994.
Additional information about commissions and compensation for the
fiscal period ended July 31, 1996, is contained in the following
table:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Compensation
Name of Underwriting on Redemption
Principal Discounts and and Brokerage Other
Underwriter Commissions Repurchases Commissions Compensation
<S> <C> <C> <C> <C>
AEFC None None $339,272* $2,186,389**
American
Express
Financial
Advisors $19,304,840 None None None
</TABLE>
*For further information see "Brokerage Commissions Paid to Brokers
Affiliated with AEFC."
**Distribution fees paid pursuant to the Plan and Agreement of
Distribution.
Shareholder Service Agreement
The Fund pays a fee for service provided to shareholders by
financial advisors and other servicing agents. The fee is
calculated at a rate of 0.175% of the Fund's average daily net
assets attributable to Class A and Class B shares.
Plan and Agreement of Distribution
For Class B shares, to help American Express Financial Advisors
defray the cost of distribution and servicing, not covered by the
sales charges received under the Distribution Agreement, the Fund
and American Express Financial Advisors entered into a Plan and
Agreement of Distribution (Plan). These costs cover almost all
aspects of distributing the Fund's shares except compensation to
<PAGE>
PAGE 104
the sales force. A substantial portion of the costs are not
specifically identified to any one fund in the IDS MUTUAL FUND
GROUP. Under the Plan, American Express Financial Advisors is paid
a fee at an annual rate of 0.75% of the Fund's average daily net
assets attributable to Class B shares.
The Plan must be approved annually by the board, including a
majority of the disinterested board members, if it is to continue
for more than a year. At least quarterly, the board must review
written reports concerning the amounts expended under the Plan and
the purposes for which such expenditures were made. The Plan and
any agreement related to it may be terminated at any time by vote
of a majority of board members who are not interested persons of
the Fund and have no direct or indirect financial interest in the
operation of the Plan or in any agreement related to the Plan, or
by vote of a majority of the outstanding voting securities of the
Fund's Class B shares or by American Express Financial Advisors.
The Plan (or any agreement related to it) will terminate in the
event of its assignment, as that term is defined in the 1940 Act,
as amended. The Plan may not be amended to increase the amount to
be spent for distribution without shareholder approval, and all
material amendments to the Plan must be approved by a majority of
the board members, including a majority of the board members who
are not interested persons of the Fund and who do not have a
financial interest in the operation of the Plan or any agreement
related to it. The selection and nomination of disinterested board
members is the responsibility of the other disinterested board
members. No board member who is not an interested person, has any
direct or indirect financial interest in the operation of the Plan
or any related agreement. For the fiscal period ended July 31,
1996, the Fund paid fees of $2,186,389.
Total fees and expenses
Total combined fees and nonadvisory expenses of both the Fund and
the Portfolio cannot exceed the most restrictive applicable state
limitation. Currently, the most restrictive applicable state
expense limitation, subject to exclusion of certain expenses, is
2.5% of the first $30 million of the Fund's average daily net
assets, 2% of the next $70 million and 1.5% of average daily net
assets over $100 million, on an annual basis. At the end of each
month, if the fees and expenses of the Fund exceed this limitation
for the Fund's fiscal year in progress, AEFC will assume all
expenses in excess of the limitation. AEFC then may bill the Fund
for such expenses in subsequent months up to the end of that fiscal
year, but not after that date. No interest charges are assessed by
AEFC for expenses it assumes. The Fund paid total fees and
nonadvisory expenses of $59,783,156 for the fiscal period ended
July 31, 1996.
BOARD MEMBERS AND OFFICERS
The following is a list of the Fund's board members who, except for
Mr. Dudley, are also board members and officers of all other funds
in the IDS MUTUAL FUND GROUP. Mr. Dudley is a board member of the
<PAGE>
PAGE 105
34 publicly offered funds. The board members and officers also are
board members and officers of all five trusts in the Preferred
Master Trust Group. All shares have cumulative voting rights with
respect to the election of board members.
Lynne V. Cheney'
Born in 1941
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W.
Washington, D.C.
Distinguished Fellow AEI. Former Chair of National Endowment of
the Humanities. Director, The Reader's Digest Association Inc.,
Lockheed-Martin, the Interpublic Group of Companies, Inc.
(advertising), and FPL Group, Inc. (holding company for Florida
Power and Light).
William H. Dudley**
Born in 1932
2900 IDS Tower
Minneapolis, MN
Executive vice president and director of AEFC.
Robert F. Froehlke+
Born in 1922
1201 Yale Place
Minneapolis, MN
Former president of all funds in the IDS MUTUAL FUND GROUP.
Director, the ICI Mutual Insurance Co., Institute for Defense
Analyses, Marshall Erdman and Associates, Inc. (architectural
engineering) and Public Oversight Board of the American Institute
of Certified Public Accountants.
David R. Hubers+**
Born in 1943
2900 IDS Tower
Minneapolis, MN
President, chief executive officer and director of AEFC.
Previously, senior vice president, finance and chief financial
officer of AEFC.
Heinz F. Hutter+'
Born in 1929
P.O. Box 2187
Minneapolis, MN
Former president and chief operating officer, Cargill, Incorporated
(commodity merchants and processors).
<PAGE>
PAGE 106
Anne P. Jones
Born in 1935
5716 Bent Branch Rd.
Bethesda, MD
Attorney and telecommunications consultant. Former partner, law
firm of Sutherland, Asbill & Brennan. Director, Motorola, Inc. and
C-Cor Electronics, Inc.
Melvin R. Laird
Born in 1922
Reader's Digest Association, Inc.
1730 Rhode Island Ave., N.W.
Washington, D.C.
Senior counsellor for national and international affairs, The
Reader's Digest Association, Inc. Former nine-term congressman,
secretary of defense and presidential counsellor. Director, Martin
Marietta Corp., Metropolitan Life Insurance Co., The Reader's
Digest Association, Inc., Science Applications International Corp.,
Wallace Reader's Digest Funds and Public Oversight Board (SEC
Practice Section, American Institute of Certified Public
Accountants).
William R. Pearce+*
Born in 1927
901 S. Marquette Ave.
Minneapolis, MN
President of all funds in the IDS MUTUAL FUND GROUP since June
1993. Former vice chairman of the board, Cargill, Incorporated
(commodity merchants and processors).
Edson W. Spencer+
Born in 1926
4900 IDS Center
80 S. 8th St.
Minneapolis, MN
President, Spencer Associates Inc. (consulting). Former chairman
of the board and chief executive officer, Honeywell Inc. Director,
Boise Cascade Corporation (forest products). Member of
International Advisory Council of NEC (Japan).
John R. Thomas**
Born in 1937
2900 IDS Tower
Minneapolis, MN
Senior vice president and director of AEFC.
<PAGE>
PAGE 107
Wheelock Whitney+
Born in 1926
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN
Chairman, Whitney Management Company (manages family assets).
C. Angus Wurtele'
Born in 1934
Valspar Corporation
Suite 1700
Foshay Tower
Minneapolis, MN
Chairman of the board and retired chief executive officer, The
Valspar Corporation (paints). Director, Bemis Corporation
(packaging), Donaldson Company (air cleaners & mufflers) and
General Mills, Inc. (consumer foods).
+ Member of executive committee.
' Member of joint audit committee.
* Interested person by reason of being an officer and employee of
the Fund.
**Interested person by reason of being an officer, board member,
employee and/or shareholder of AEFC or American Express.
The board also has appointed officers who are responsible for day-
to-day business decisions based on policies it has established.
In addition to Mr. Pearce, who is president, the Fund's other
officers are:
Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN
Vice president, general counsel and secretary of all funds in the
IDS MUTUAL FUND GROUP.
Officers who also are officers and/or employees of AEFC
Peter J. Anderson
Born in 1942
IDS Tower 10
Minneapolis, MN
Vice president-investments of all funds in the IDS MUTUAL FUND
GROUP. Director and senior vice president-investments of AEFC.
<PAGE>
PAGE 108
Melinda S. Urion
Born in 1953
IDS Tower 10
Minneapolis, MN
Treasurer of all funds in the IDS MUTUAL FUND GROUP. Director,
senior vice president and chief financial officer of AEFC.
Director and executive vice president and controller of IDS Life
Insurance Company.
Members of the board who are not officers of the Fund or of AEFC
receive an annual fee of $6,750. They also receive attendance and
other fees, the cost of which the Fund shares with the other funds
in the IDS MUTUAL FUND GROUP. These fees include attendance of
meetings of the Board, $1,000; meetings of the Contracts Committee,
$750; meetings of the Audit, Executive or Investment Review
Committees, $500; meetings of the Personnel Committee, $300; out-
of-state, $500; and Chair of the Contracts Committee, $5,000.
Expenses for attending those meetings are also reimbursed.
During the fiscal period ended July 31, 1996, the members of the
board, for attending up to 22 meetings, received the following
compensation:
<TABLE>
<CAPTION>
Compensation Table
Pension or Estimated
Aggregate Retirement annual Total cash
compensation benefits benefit compensation
from the accrued as upon from the IDS
Board member Fund Fund expenses* retirement MUTUAL FUND GROUP
<S> <C> <C> <C> <C>
Lynne V. Cheney $4,921 $20,998 $3,375 $69,300
Robert F. Froehlke 4,916 4,743 3,375 69,600
Heinz F. Hutter 4,918 1,533 1,631 69,300
Anne P. Jones 4,961 1,020 3,375 70,800
Donald M. Kendall 3,720 12,717 3,375 51,000
(Part of Year)
Melvin R. Laird 5,012 4,494 3,375 72,900
Lewis W. Lehr 3,772 10,249 3,291 53,500
(Part of Year)
Edson W. Spencer 5,057 2,184 1,800 75,100
Wheelock Whitney 4,932 2,135 3,375 70,300
C. Angus Wurtele 4,849 1,615 3,347 66,800
</TABLE>
On July 31, 1996, the Fund's board members and officers as a group
owned less than 1% of the outstanding shares. During the fiscal
period ended July 31, 1996, no board member or officer earned more
than $60,000 from this Fund. All board members and officers as a
group earned $161,750, including $61,688 of retirement plan
benefits, from this Fund.
*The Fund had a retirement plan for its independent board members.
The plan was terminated April 30, 1996.
CUSTODIAN
The Trust's securities and cash are held by American Express Trust
Company, 1200 Northstar Center West, 625 Marquette Ave.,
Minneapolis, MN 55402-2307, through a custodian agreement. The
Fund also retains the custodian pursuant to a custodian agreement.
<PAGE>
PAGE 109
The custodian is permitted to deposit some or all of its securities
in central depository systems as allowed by federal law. For its
services, the Portfolio pays the custodian a maintenance charge and
a charge per transaction in addition to reimbursing the custodian's
out-of-pocket expenses.
The custodian has entered into a sub-custodian arrangement with the
Morgan Stanley Trust Company (Morgan Stanley), One Pierrepont
Plaza, Eighth Floor, Brooklyn, NY 11201-2775. As part of this
arrangement, securities purchased outside the United States are
maintained in the custody of various foreign branches of Morgan
Stanley or in such other financial institutions as may be permitted
by law and by the Fund's sub-custodian agreement.
INDEPENDENT AUDITORS
The financial statements contained in the Annual Report to
shareholders for the fiscal period ended July 31, 1996, were
audited by independent auditors, KPMG Peat Marwick LLP, 4200
Norwest Center, 90 S. Seventh St., Minneapolis, MN 55402-3900.
The independent auditors also provide other accounting and tax-
related services as requested by the Fund.
FINANCIAL STATEMENTS
The Independent Auditors' Report and the Financial Statements,
including Notes to the Financial Statements and the Schedule of
Investments in Securities, contained in the 1996 Annual Report to
shareholders, pursuant to Section 30(d) of the Investment Company
Act of 1940, as amended, are hereby incorporated in this SAI by
reference. No other portion of the Annual Report, however, is
incorporated by reference.
PROSPECTUS
The prospectus for IDS New Dimensions Fund dated Sept. 27, 1996, is
hereby incorporated in this SAI by reference.
<PAGE>
PAGE 110
APPENDIX A
FOREIGN CURRENCY TRANSACTIONS
Since investments in foreign countries usually involve currencies
of foreign countries, and since the Portfolio may hold cash and
cash-equivalent investments in foreign currencies, the value of the
Portfolio's assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency exchange rates and
exchange control regulations. Also, the Portfolio may incur costs
in connection with conversions between various currencies.
Spot Rates and Forward Contracts. The Portfolio conducts its
foreign currency exchange transactions either at the spot (cash)
rate prevailing in the foreign currency exchange market or by
entering into forward currency exchange contracts (forward
contracts) as a hedge against fluctuations in future foreign
exchange rates. A forward contract involves an obligation to buy
or sell a specific currency at a future date, which may be any
fixed number of days from the contract date, at a price set at the
time of the contract. These contracts are traded in the interbank
market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract
generally has no deposit requirements. No commissions are charged
at any stage for trades.
The Portfolio may enter into forward contracts to settle a security
transaction or handle dividend and interest collection. When the
Portfolio enters into a contract for the purchase or sale of a
security denominated in a foreign currency or has been notified of
a dividend or interest payment, it may desire to lock in the price
of the security or the amount of the payment in dollars. By
entering into a forward contract, the Portfolio will be able to
protect itself against a possible loss resulting from an adverse
change in the relationship between different currencies from the
date the security is purchased or sold to the date on which payment
is made or received or when the dividend or interest is actually
received.
The Portfolio also may enter into forward contracts when management
of the Portfolio believes the currency of a particular foreign
country may suffer a substantial decline against another currency.
It may enter into a forward contract to sell, for a fixed amount of
dollars, the amount of foreign currency approximating the value of
some or all of the securities denominated in such foreign currency.
The precise matching of forward contract amounts and the value of
securities involved generally will not be possible since the future
value of such securities in foreign currencies more than likely
will change between the date the forward contract is entered into
and the date it matures. The projection of short-term currency
market movements is extremely difficult and successful execution of
a short-term hedging strategy is highly uncertain. The Portfolio
will not enter into such forward contracts or maintain a net
exposure to such contracts when consummating the contracts would
<PAGE>
PAGE 111
obligate the Portfolio to deliver an amount of foreign currency in
excess of the value of the Portfolio's securities or other assets
denominated in that currency.
The Portfolio will designate cash or securities in an amount equal
to the value of the Portfolio's total assets committed to
consummating forward contracts entered into under the second
circumstance set forth above. If the value of the securities
declines, additional cash or securities will be designated on a
daily basis so that the value of the cash or securities will equal
the amount of the Portfolio's commitments on such contracts.
At maturity of a forward contract, the Portfolio may either sell
the security and make delivery of the foreign currency or retain
the security and terminate its contractual obligation to deliver
the foreign currency by purchasing an offsetting contract with the
same currency trader obligating it to buy, on the same maturity
date, the same amount of foreign currency.
If the Portfolio retains the security and engages in an offsetting
transaction, the Portfolio will incur a gain or a loss (as
described below) to the extent there has been movement in forward
contract prices. If the Portfolio engages in an offsetting
transaction, it may subsequently enter into a new forward contract
to sell the foreign currency. Should forward prices decline
between the date the Portfolio enters into a forward contract for
selling foreign currency and the date it enters into an offsetting
contract for purchasing the foreign currency, the Portfolio will
realize a gain to the extent that the price of the currency it has
agreed to sell exceeds the price of the currency it has agreed to
buy. Should forward prices increase, the Portfolio will suffer a
loss to the extent the price of the currency it has agreed to buy
exceeds the price of the currency it has agreed to sell.
It is impossible to forecast what the market value of securities
will be at the expiration of a contract. Accordingly, it may be
necessary for the Portfolio to buy additional foreign currency on
the spot market (and bear the expense of such purchase) if the
market value of the security is less than the amount of foreign
currency the Portfolio is obligated to deliver and a decision is
made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot
market some of the foreign currency received on the sale of the
portfolio security if its market value exceeds the amount of
foreign currency the Portfolio is obligated to deliver.
The Portfolio's dealing in forward contracts will be limited to the
transactions described above. This method of protecting the value
of the securities against a decline in the value of a currency does
not eliminate fluctuations in the underlying prices of the
securities. It simply establishes a rate of exchange that can be
achieved at some point in time. Although such forward contracts
tend to minimize the risk of loss due to a decline in value of
hedged currency, they tend to limit any potential gain that might
result should the value of such currency increase.
<PAGE>
PAGE 112
Although the Portfolio values its assets each business day in terms
of U.S. dollars, it does not intend to convert its foreign
currencies into U.S. dollars on a daily basis. It will do so from
time to time, and shareholders should be aware of currency
conversion costs. Although foreign exchange dealers do not charge
a fee for conversion, they do realize a profit based on the
difference (spread) between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a
foreign currency to the Portfolio at one rate, while offering a
lesser rate of exchange should the Portfolio desire to resell that
currency to the dealer.
Options on Foreign Currencies. The Portfolio may buy put and write
covered call options on foreign currencies for hedging purposes.
For example, a decline in the dollar value of a foreign currency in
which securities are denominated will reduce the dollar value of
such securities, even if their value in the foreign currency
remains constant. In order to protect against such diminutions in
the value of securities, the Portfolio may buy put options on the
foreign currency. If the value of the currency does decline, the
Portfolio will have the right to sell such currency for a fixed
amount in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have
resulted.
As in the case of other types of options, however, the benefit to
the Portfolio derived from purchases of foreign currency options
will be reduced by the amount of the premium and related
transaction costs. In addition, where currency exchange rates do
not move in the direction or to the extent anticipated, the
Portfolio could sustain losses on transactions in foreign currency
options which would require it to forego a portion or all of the
benefits of advantageous changes in such rates.
The Portfolio may write options on foreign currencies for the same
types of hedging purposes. For example, when the Portfolio
anticipates a decline in the dollar value of foreign-denominated
securities due to adverse fluctuations in exchange rates it could,
instead of purchasing a put option, write a call option on the
relevant currency. If the expected decline occurs, the option will
most likely not be exercised and the diminution in value of
securities will be fully or partially offset by the amount of the
premium received.
As in the case of other types of options, however, the writing of a
foreign currency option will constitute only a partial hedge up to
the amount of the premium, and only if rates move in the expected
direction. If this does not occur, the option may be exercised and
the Portfolio would be required to buy or sell the underlying
currency at a loss which may not be offset by the amount of the
premium. Through the writing of options on foreign currencies, the
Portfolio also may be required to forego all or a portion of the
benefits which might otherwise have been obtained from favorable
movements on exchange rates.
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All options written on foreign currencies will be covered. An
option written on foreign currencies is covered if the Portfolio
holds currency sufficient to cover the option or has an absolute
and immediate right to acquire that currency without additional
cash consideration upon conversion of assets denominated in that
currency or exchange of other currency held in its portfolio. An
option writer could lose amounts substantially in excess of its
initial investments, due to the margin and collateral requirements
associated with such positions.
Options on foreign currencies are traded through financial
institutions acting as market-makers, although foreign currency
options also are traded on certain national securities exchanges,
such as the Philadelphia Stock Exchange and the Chicago Board
Options Exchange, subject to SEC regulation. In an over-the-
counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there
are no daily price fluctuation limits, and adverse market movements
could therefore continue to an unlimited extent over a period of
time. Although the purchaser of an option cannot lose more than
the amount of the premium plus related transaction costs, this
entire amount could be lost.
Foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the Options
Clearing Corporation (OCC), thereby reducing the risk of
counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more
readily available than in the over-the-counter market, potentially
permitting the Portfolio to liquidate open positions at a profit
prior to exercise or expiration, or to limit losses in the event of
adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of availability of a liquid
secondary market described above, as well as the risks regarding
adverse market movements, margining of options written, the nature
of the foreign currency market, possible intervention by
governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-
counter market. For example, exercise and settlement of such
options must be made exclusively through the OCC, which has
established banking relationships in certain foreign countries for
the purpose. As a result, the OCC may, if it determines that
foreign governmental restrictions or taxes would prevent the
orderly settlement of foreign currency option exercises, or would
result in undue burdens on OCC or its clearing member, impose
special procedures on exercise and settlement, such as technical
changes in the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions on exercise.
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Foreign Currency Futures and Related Options. The Portfolio may
enter into currency futures contracts to sell currencies. It also
may buy put options and write covered call options on currency
futures. Currency futures contracts are similar to currency
forward contracts, except that they are traded on exchanges (and
have margin requirements) and are standardized as to contract size
and delivery date. Most currency futures call for payment of
delivery in U.S. dollars. The Portfolio may use currency futures
for the same purposes as currency forward contracts, subject to
Commodity Futures Trading Commission (CFTC) limitations. All
futures contracts are aggregated for purposes of the percentage
limitations.
Currency futures and options on futures values can be expected to
correlate with exchange rates, but will not reflect other factors
that may affect the values of the Portfolio's investments. A
currency hedge, for example, should protect a Yen-denominated bond
against a decline in the Yen, but will not protect the Fund against
price decline if the issuer's creditworthiness deteriorates.
Because the value of the Portfolio's investments denominated in
foreign currency will change in response to many factors other than
exchange rates, it may not be possible to match the amount of a
forward contract to the value of the Portfolio's investments
denominated in that currency over time.
The Portfolio will hold securities or other options or futures
positions whose values are expected to offset its obligations. The
Portfolio will not enter into an option or futures position that
exposes the Portfolio to an obligation to another party unless it
owns either (i) an offsetting position in securities or (ii) cash,
receivables and short-term debt securities with a value sufficient
to cover its potential obligations.
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APPENDIX B
OPTIONS AND STOCK INDEX FUTURES CONTRACTS
The Portfolio may buy or write options traded on any U.S. or
foreign exchange or in the over-the-counter market. The Portfolio
may enter into stock index futures contracts traded on any U.S. or
foreign exchange. The Portfolio also may buy or write put and call
options on these futures and on stock indexes. Options in the
over-the-counter market will be purchased only when the investment
manager believes a liquid secondary market exists for the options
and only from dealers and institutions the investment manager
believes present a minimal credit risk. Some options are
exercisable only on a specific date. In that case, or if a liquid
secondary market does not exist, the Portfolio could be required to
buy or sell securities at disadvantageous prices, thereby incurring
losses.
OPTIONS. An option is a contract. A person who buys a call option
for a security has the right to buy the security at a set price for
the length of the contract. A person who sells a call option is
called a writer. The writer of a call option agrees to sell the
security at the set price when the buyer wants to exercise the
option, no matter what the market price of the security is at that
time. A person who buys a put option has the right to sell a
security at a set price for the length of the contract. A person
who writes a put option agrees to buy the security at the set price
if the purchaser wants to exercise the option, no matter what the
market price of the security is at that time. An option is covered
if the writer owns the security (in the case of a call) or sets
aside the cash or securities of equivalent value (in the case of a
put) that would be required upon exercise.
The price paid by the buyer for an option is called a premium. In
addition the buyer generally pays a broker a commission. The
writer receives a premium, less another commission, at the time the
option is written. The cash received is retained by the writer
whether or not the option is exercised. A writer of a call option
may have to sell the security for a below-market price if the
market price rises above the exercise price. A writer of a put
option may have to pay an above-market price for the security if
its market price decreases below the exercise price. The risk of
the writer is potentially unlimited, unless the option is covered.
Options can be used to produce incremental earnings, protect gains
and facilitate buying and selling securities for investment
purposes. The use of options may benefit the Portfolio and its
shareholders by improving the Portfolio's liquidity and by helping
to stabilize the value of its net assets.
Buying options. Put and call options may be used as a trading
technique to facilitate buying and selling securities for
investment reasons. Options are used as a trading technique to
take advantage of any disparity between the price of the underlying
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security in the securities market and its price on the options
market. It is anticipated the trading technique will be utilized
only to effect a transaction when the price of the security plus
the option price will be as good or better than the price at which
the security could be bought or sold directly. When the option is
purchased, the Portfolio pays a premium and a commission. It then
pays a second commission on the purchase or sale of the underlying
security when the option is exercised. For record keeping and tax
purposes, the price obtained on the purchase of the underlying
security will be the combination of the exercise price, the premium
and both commissions. When using options as a trading technique,
commissions on the option will be set as if only the underlying
securities were traded.
Put and call options also may be held by the Portfolio for
investment purposes. Options permit the Portfolio to experience
the change in the value of a security with a relatively small
initial cash investment.
The risk the Portfolio assumes when it buys an option is the loss
of the premium. To be beneficial to the Portfolio, the price of
the underlying security must change within the time set by the
option contract. Furthermore, the change must be sufficient to
cover the premium paid, the commissions paid both in the
acquisition of the option and in a closing transaction or in the
exercise of the option and sale (in the case of a call) or purchase
(in the case of a put) of the underlying security. Even then the
price change in the underlying security does not ensure a profit
since prices in the option market may not reflect such a change.
Writing covered options. The Portfolio will write covered options
when it feels it is appropriate and will follow these guidelines:
'All options written by the Portfolio will be covered. For covered
call options if a decision is made to sell the security, the
Portfolio will attempt to terminate the option contract through a
closing purchase transaction.
'The Portfolio will deal only in standard option contracts traded
on national securities exchanges or those that may be quoted on
NASDAQ (a system of price quotations developed by the National
Association of Securities Dealers, Inc.)
'The Portfolio will write options only as permitted under federal
or state laws or regulations, such as those that limit the amount
of total assets subject to the options. While no limit has been
set by the Portfolio, it will conform to the requirements of those
states. For example, California limits the writing of options to
50% of the assets of a fund.
Net premiums on call options closed or premiums on expired call
options are treated as short-term capital gains. Since the
Portfolio is taxed as a regulated investment company under the
Internal Revenue Code, any gains on options and other securities
held less than three months must be limited to less than 30% of its
annual gross income.<PAGE>
PAGE 117
If a covered call option is exercised, the security is sold by the
Portfolio. The premium received upon writing the option is added
to the proceeds received from the sale of the security. The
Portfolio will recognize a capital gain or loss based upon the
difference between the proceeds and the security's basis. Premiums
received from writing outstanding call options are included as a
deferred credit in the Statement of Assets and Liabilities and
adjusted daily to the current market value.
Options are valued at the close of the New York Stock Exchange. An
option listed on a national exchange, CBOE or NASDAQ will be valued
at the last-quoted sales price or, if such a price is not readily
available, at the mean of the last bid and asked prices.
STOCK INDEX FUTURES CONTRACTS. Stock index futures contracts are
commodity contracts listed on commodity exchanges. They currently
include contracts on the Standard & Poor's 500 Stock Index (S&P 500
Index) and other broad stock market indexes such as the New York
Stock Exchange Composite Stock Index and the Value Line Composite
Stock Index, as well as narrower sub-indexes such as the S&P 100
Energy Stock Index and the New York Stock Exchange Utilities Stock
Index. A stock index assigns relative values to common stocks
included in the index and the index fluctuates with the value of
the common stocks so included.
A futures contract is a legal agreement between a buyer or seller
and the clearinghouse of a futures exchange in which the parties
agree to make a cash settlement on a specified future date in an
amount determined by the stock index on the last trading day of the
contract. The amount is a specified dollar amount (usually $100 or
$500) multiplied by the difference between the index value on the
last trading day and the value on the day the contract was struck.
For example, the S&P 500 Index consists of 500 selected common
stocks, most of which are listed on the New York Stock Exchange.
The S&P 500 Index assigns relative weightings to the common stocks
included in the Index, and the Index fluctuates with changes in the
market values of those stocks. In the case of S&P 500 Index
futures contracts, the specified multiple is $500. Thus, if the
value of the S&P 500 Index were 150, the value of one contract
would be $75,000 (150 x $500). Unlike other futures contracts, a
stock index futures contract specifies that no delivery of the
actual stocks making up the index will take place. Instead,
settlement in cash must occur upon the termination of the contract.
For example, excluding any transaction costs, if the Portfolio
enters into one futures contract to buy the S&P 500 Index at a
specified future date at a contract value of 150 and the S&P 500
Index is at 154 on that future date, the Portfolio will gain $500 x
(154-150) or $2,000. If the Portfolio enters into one futures
contract to sell the S&P 500 Index at a specified future date at a
contract value of 150 and the S&P 500 Index is at 152 on that
future date, the Portfolio will lose $500 x (152-150) or $1,000.
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Unlike the purchase or sale of an equity security, no price would
be paid or received by the Portfolio upon entering into futures
contracts. However, the Portfolio would be required to deposit
with its custodian, in a segregated account in the name of the
futures broker, an amount of cash or U.S. Treasury bills equal to
approximately 5% of the contract value. This amount is known as
initial margin. The nature of initial margin in futures
transactions is different from that of margin in security
transactions in that futures contract margin does not involve
borrowing funds by the Portfolio to finance the transactions.
Rather, the initial margin is in the nature of a performance bond
or good-faith deposit on the contract that is returned to the
Portfolio upon termination of the contract, assuming all
contractual obligations have been satisfied.
Subsequent payments, called variation margin, to and from the
broker would be made on a daily basis as the price of the
underlying stock index fluctuates, making the long and short
positions in the contract more or less valuable, a process known as
marking to market. For example, when the Portfolio enters into a
contract in which it benefits from a rise in the value of an index
and the price of the underlying stock index has risen, the
Portfolio will receive from the broker a variation margin payment
equal to that increase in value. Conversely, if the price of the
underlying stock index declines, the Portfolio would be required to
make a variation margin payment to the broker equal to the decline
in value.
How the Portfolio Would Use Stock Index Futures Contracts. The
Portfolio intends to use stock index futures contracts and related
options for hedging and not for speculation. Hedging permits the
Portfolio to gain rapid exposure to or protect itself from changes
in the market. For example, the Portfolio may find itself with a
high cash position at the beginning of a market rally.
Conventional procedures of purchasing a number of individual issues
entail the lapse of time and the possibility of missing a
significant market movement. By using futures contracts, the
Portfolio can obtain immediate exposure to the market and benefit
from the beginning stages of a rally. The buying program can then
proceed and once it is completed (or as it proceeds), the contracts
can be closed. Conversely, in the early stages of a market
decline, market exposure can be promptly offset by entering into
stock index futures contracts to sell units of an index and
individual stocks can be sold over a longer period under cover of
the resulting short contract position.
The Portfolio may enter into contracts with respect to any stock
index or sub-index. To hedge the Portfolio successfully, however,
the Portfolio must enter into contracts with respect to indexes or
sub-indexes whose movements will have a significant correlation
with movements in the prices of the Portfolio's securities.
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Special Risks of Transactions in Stock Index Futures Contracts
1. Liquidity. The Portfolio may elect to close some or all of its
contracts prior to expiration. The purpose of making such a move
would be to reduce or eliminate the hedge position held by the
Portfolio. The Portfolio may close its positions by taking
opposite positions. Final determinations of variation margin are
then made, additional cash as required is paid by or to the
Portfolio, and the Portfolio realizes a gain or a loss.
Positions in stock index futures contracts may be closed only on an
exchange or board of trade providing a secondary market for such
futures contracts. For example, futures contracts transactions can
currently be entered into with respect to the S&P 500 Stock Index
on the Chicago Mercantile Exchange, the New York Stock Exchange
Composite Stock Index on the New York Futures Exchange and the
Value Line Composite Stock Index on the Kansas City Board of Trade.
Although the Portfolio intends to enter into futures contracts only
on exchanges or boards of trade where there appears to be an active
secondary market, there is no assurance that a liquid secondary
market will exist for any particular contract at any particular
time. In such event, it may not be possible to close a futures
contract position, and in the event of adverse price movements, the
Portfolio would have to make daily cash payments of variation
margin. Such price movements, however, will be offset all or in
part by the price movements of the securities subject to the hedge.
Of course, there is no guarantee the price of the securities will
correlate with the price movements in the futures contract and thus
provide an offset to losses on a futures contract.
2. Hedging Risks. There are several risks in using stock index
futures contracts as a hedging device. One risk arises because the
prices of futures contracts may not correlate perfectly with
movements in the underlying stock index due to certain market
distortions. First, all participants in the futures market are
subject to initial margin and variation margin requirements.
Rather than making additional variation margin payments, investors
may close the contracts through offsetting transactions which could
distort the normal relationship between the index and futures
markets. Second, the margin requirements in the futures market are
lower than margin requirements in the securities market, and as a
result the futures market may attract more speculators than does
the securities market. Increased participation by speculators in
the futures market also may cause temporary price distortions.
Because of price distortion in the futures market and because of
imperfect correlation between movements in stock indexes and
movements in prices of futures contracts, even a correct forecast
of general market trends may not result in a successful hedging
transaction over a short period.
Another risk arises because of imperfect correlation between
movements in the value of the futures contracts and movements in
the value of securities subject to the hedge. If this occurred,
the Portfolio could lose money on the contracts and also experience
a decline in the value of its portfolio securities. While this
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could occur, the investment manager believes that over time the
value of the portfolio will tend to move in the same direction as
the market indexes and will attempt to reduce this risk, to the
extent possible, by entering into futures contracts on indexes
whose movements it believes will have a significant correlation
with movements in the value of the Portfolio's securities sought to
be hedged. It also is possible that if the Portfolio has hedged
against a decline in the value of the stocks held in its portfolio
and stock prices increase instead, the Portfolio will lose part or
all of the benefit of the increased value of its stock which it has
hedged because it will have offsetting losses in its futures
positions. In addition, in such situations, if the Portfolio has
insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may be,
but will not necessarily be, at increased prices which reflect the
rising market. The Portfolio may have to sell securities at a time
when it may be disadvantageous to do so.
OPTIONS ON STOCK INDEX FUTURES CONTRACTS. Options on stock index
futures contracts are similar to options on stock except that
options on futures contracts give the purchaser the right, in
return for the premium paid, to assume a position in a stock index
futures contract (a long position if the option is a call and a
short position if the option is a put) at a specified exercise
price at any time during the period of the option. If the option
is closed instead of exercised, the holder of the option receives
an amount that represents the amount by which the market price of
the contract exceeds (in the case of a call) or is less than (in
the case of a put) the exercise price of the option on the futures
contract. If the option does not appreciate in value prior to the
exercise date, the Fund will suffer a loss of the premium paid.
OPTIONS ON STOCK INDEXES. Options on stock indexes are securities
traded on national securities exchanges. An option on a stock
index is similar to an option on a futures contract except all
settlements are in cash. A fund exercising a put, for example,
would receive the difference between the exercise price and the
current index level. Such options would be used in the same manner
as options on futures contracts.
SPECIAL RISKS OF TRANSACTIONS IN OPTIONS ON STOCK INDEX FUTURES
CONTRACTS AND OPTIONS ON STOCK INDEXES. As with options on stocks,
the holder of an option on a futures contract or on a stock index
may terminate a position by selling an option covering the same
contract or index and having the same exercise price and expiration
date. The ability to establish and close out positions on such
options will be subject to the development and maintenance of a
liquid secondary market. The Portfolio will not purchase options
unless the market for such options has developed sufficiently, so
that the risks in connection with options are not greater than the
risks in connection with stock index futures contracts transactions
themselves. Compared to using futures contracts, purchasing
options involves less risk to the Portfolio because the maximum
amount at risk is the premium paid for the options (plus
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transaction costs). There may be circumstances, however, when
using an option would result in a greater loss to the Portfolio
than using a futures contract, such as when there is no movement in
the level of the stock index.
TAX TREATMENT. As permitted under federal income tax laws, the
Portfolio intends to identify futures contracts as mixed straddles
and not mark them to market, that is, not treat them as having been
sold at the end of the year at market value. Such an election may
result in the Portfolio being required to defer recognizing losses
incurred by entering into futures contracts and losses on
underlying securities identified as being hedged against.
Federal income tax treatment of gains or losses from transactions
in options on futures contracts and indexes will depend on whether
such option is a section 1256 contract. If the option is a non-
equity option, the Portfolio will either make a 1256(d) election
and treat the option as a mixed straddle or mark to market the
option at fiscal year end and treat the gain/loss as 40% short-term
and 60% long-term. Certain provisions of the Internal Revenue Code
may also limit the Portfolio's ability to engage in futures
contracts and related options transactions. For example, at the
close of each quarter of the Fund's taxable year, at least 50% of
the value of its assets must consist of cash, government securities
and other securities, subject to certain diversification
requirements. Less than 30% of its gross income must be derived
from sales of securities held less than three months.
The IRS has ruled publicly that an exchange-traded call option is a
security for purposes of the 50%-of-assets test and that its issuer
is the issuer of the underlying security, not the writer of the
option, for purposes of the diversification requirements. In order
to avoid realizing a gain within the three-month period, the
Portfolio may be required to defer closing out a contract beyond
the time when it might otherwise be advantageous to do so. The
Portfolio also may be restricted in purchasing put options for the
purpose of hedging underlying securities because of applying the
short sale holding period rules with respect to such underlying
securities.
Accounting for futures contracts will be according to generally
accepted accounting principles. Initial margin deposits will be
recognized as assets due from a broker (the Portfolio's agent in
acquiring the futures position). During the period the futures
contract is open, changes in value of the contract will be
recognized as unrealized gains or losses by marking to market on a
daily basis to reflect the market value of the contract at the end
of each day's trading. Variation margin payments will be made or
received depending upon whether gains or losses are incurred. All
contracts and options will be valued at the last-quoted sales price
on their primary exchange.
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APPENDIX C
MORTGAGE-BACKED SECURITIES
A mortgage pass-through certificate is one that represents an
interest in a pool, or group, of mortgage loans assembled by the
Government National Mortgage Association (GNMA), Federal Home Loan
Mortgage Corporation (FHLMC), Federal National Mortgage Association
(FNMA) or non-governmental entities. In pass-through certificates,
both principal and interest payments, including prepayments, are
passed through to the holder of the certificate. Prepayments on
underlying mortgages result in a loss of anticipated interest, and
the actual yield (or total return) to the Portfolio, which is
influenced by both stated interest rates and market conditions, may
be different than the quoted yield on certificates. Some U.S.
government securities may be purchased on a when-issued basis,
which means that it may take as long as 45 days after the purchase
before the securities are delivered to the Portfolio.
Stripped Mortgage-Backed Securities. The Portfolio may invest in
stripped mortgage-backed securities. Generally, there are two
classes of stripped mortgage-backed securities: Interest Only (IO)
and Principal Only (PO). IOs entitle the holder to receive
distributions consisting of all or a portion of the interest on the
underlying pool of mortgage loans or mortgage-backed securities.
POs entitle the holder to receive distributions consisting of all
or a portion of the principal of the underlying pool of mortgage
loans or mortgage-backed securities. The cash flows and yields on
IOs and POs are extremely sensitive to the rate of principal
payments (including prepayments) on the underlying mortgage loans
or mortgage-backed securities. A rapid rate of principal payments
may adversely affect the yield to maturity of IOs. A slow rate of
principal payments may adversely affect the yield to maturity of
POs. On an IO, if prepayments of principal are greater than
anticipated, an investor may incur substantial losses. If
prepayments of principal are slower than anticipated, the yield on
a PO will be affected more severely than would be the case with a
traditional mortgage-backed security.
Mortgage-Backed Security Spread Options. The Portfolio may
purchase mortgage-backed security (MBS) put spread options and
write covered MBS call spread options. MBS spread options are
based upon the changes in the price spread between a specified
mortgage-backed security and a like-duration Treasury security.
MBS spread options are traded in the OTC market and are of short
duration, typically one to two months. The Portfolio would buy or
sell covered MBS call spread options in situations where mortgage-
backed securities are expected to underperform like-duration
Treasury securities.
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APPENDIX D
DOLLAR-COST AVERAGING
A technique that works well for many investors is one that
eliminates random buy and sell decisions. One such system is
dollar-cost averaging. Dollar-cost averaging involves building a
portfolio through the investment of fixed amounts of money on a
regular basis regardless of the price or market condition. This
may enable an investor to smooth out the effects of the volatility
of the financial markets. By using this strategy, more shares will
be purchased when the price is low and less when the price is high.
As the accompanying chart illustrates, dollar-cost averaging tends
to keep the average price paid for the shares lower than the
average market price of shares purchased, although there is no
guarantee.
While this does not ensure a profit and does not protect against a
loss if the market declines, it is an effective way for many
shareholders who can continue investing through changing market
conditions to accumulate shares in a fund to meet long-term goals.
Dollar-cost averaging
___________________________________________________________________
Regular Market Price Shares
Investment of a Share Acquired
$100 $6.00 16.7
100 4.00 25.0
100 4.00 25.0
100 6.00 16.7
100 5.00 20.0
$500 $25.00 103.4
Average market price of a share over 5 periods:
$5.00 ($25.00 divided by 5).
The average price you paid for each share:
$4.84 ($500 divided by 103.4).
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STATEMENT OF DIFFERENCES
Difference Description
1) The layout is different 1) Some of the layout in the
throughout the prospectus. prospectus to shareholders
is in two columns.
2) The layout is different 2) Some of the layout in the
throughout the annual report. annual report to
shareholders is in two
columns.
3) Headings. 3) The headings in the
annual report and
prospectus are placed
in blue strip at the top
of the page.
4) There are pictures, icons 4) Each picture, icon and
and graphs throughout the graph is described in
annual report and prospectus. parentheses.
5) Footnotes for charts and 5) The footnotes for each
graphs are described at chart or graph are typed
the left margin. below the description of
the chart or graph.
6) The page numbers in the 6) The prospectus begins on
electronic document do not page 1; however, it is
correspond to the prospectus numbered as page 22. The
sent to the shareholders. annual report resumes on
page 54 of the electronic
document after the
completion of the
prospectus.
7) Financial Information. 7) Some of the figures in the
Statement of changes in
net assets, notes to
financial statements and
financial highlights, for
New Dimensions have been
adjusted. A figure in the
Statement of changes in
net assets for Growth
Trends Portfolio has also
been adjusted.
