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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 95 (File Number 2-11358) X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 39 (File Number 811-498) X
IDS STOCK FUND, INC.
IDS Tower 10, Minneapolis, Minnesota 55440-0010
Leslie L. Ogg - 901 S. Marquette Avenue, Suite 2810,
Minneapolis, MN 55402-3268
(612) 330-9283
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check
appropriate box)
immediately upon filing pursuant to paragraph (b)
X on Nov. 29, 1996 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(i)
on (date) pursuant to paragraph (a)(i)
75 days after filing pursuant to paragraph (a)(ii)
on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
Registrant has registered an indefinite number or amount of
securities under the Securities Act of 1933 pursuant to Section 24f
of the Investment Company Act of 1940. Registrant's Rule 24f-2
notice for its most recent fiscal period was filed on or about
Nov. 21, 1996.
IDS Stock Fund, Inc. has adopted a master/feeder operating
structure. This Post-Effective Amendment includes a signature page
for Growth and Income Trust, the master fund.
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Cross reference sheet showing the location in its prospectus and the Statement of Additional Information of the information called
for by the items enumerated in Parts A and B of Form N-1A.
Negative answers omitted from prospectus are so indicated.
PART A PART B
<C> <C> <C> <C>
Section Section in
Item No. in Prospectus Item No. Statement of Additional Information
1 Cover page of prospectus 10 Cover page of SAI
2(a) Sales charge and Fund expenses 11 Table of Contents
(b) The Fund in brief
(c) The Fund in brief 12 NA
3(a) Financial highlights 13(a) Additional Investment Policies; all
(b) NA appendices except Dollar-Cost Averaging
(c) Performance (b) Additional Investment Policies
(d) Financial highlights (c) Additional Investment Policies
(d) Security Transactions
4(a) The Fund in brief; Investment policies and
risks; How the Fund and Portfolio are
organized 14(a) Board members and officers of the Fund;**
(b) Investment policies and risks Board members and officers
(c) Investment policies and risks (b) Board members and Officers
(c) Board members and Officers
5(a) Board members and officers; Board members and
officers of the Fund (listing) 15(a) NA
(b)(i) Investment manager (b) NA
About American Express Financial (c) Board members and Officers
Corporation -- General Information
(b)(ii) Investment manager 16(a)(i) How the Fund and Portfolio are organized; About
(b)(iii) Investment manager American Express Financial Corporation**
(c) Portfolio manager (a)(ii) Agreements: Investment Management Services
(d) Administrator and transfer agent Agreement, Plan and
(e) Administrator and transfer agent Agreement of Distribution
(f) Distributor (a)(iii) Agreements: Investment Management Services Agreement
(g) Investment manager; (b) Agreements: Investment Management Services Agreement
About American Express Financial (c) NA
Corporation -- General Information (d) Agreements: Administrative Services
Agreement, Shareholder Service Agreement
5A(a) * (e) NA
(b) * (f) Agreements: Distribution Agreement
(g) NA
6(a) Shares; Voting rights (h) Custodian; Independent Auditors
(b) NA (i) Agreements: Transfer Agency Agreement; Custodian
(c) NA
(d) Voting rights 17(a) Security Transactions
(e) Cover page; Special shareholder services (b) Brokerage Commissions Paid to Brokers Affiliated
(f) Dividends and capital gains distributions; with American Express Financial Corporation
Reinvestments (c) Security Transactions
(g) Taxes (d) Security Transactions
(h) Alternative purchase arrangements; Special (e) Security Transactions
considerations regarding master/feeder
structure 18(a) Shares; Voting rights**
(b) NA
7(a) Distributor
(b) Valuing Fund shares 19(a) Investing in the Fund
(c) How to purchase, exchange or redeem shares (b) Valuing Fund Shares; Investing in the Fund
(d) How to purchase shares (c) NA
(e) NA
(f) Distributor 20 Taxes
8(a) How to redeem shares 21(a) Agreements: Distribution Agreement
(b) NA (b) Agreements: Distribution Agreement
(c) How to purchase shares: Three ways to invest (c) NA
(d) How to purchase, exchange or redeem shares:
Redemption policies -- "Important..." 22(a) Performance Information (for money market
funds only)
9 None (b) Performance Information (for all funds except
money market funds)
23 Financial Statements
*Designates information is located in annual report.
**Designates location in prospectus.
/TABLE
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IDS Stock Fund
Prospectus
Nov. 29, 1996
The goals of IDS Stock Fund, Inc. are current income and growth of
capital.
The Fund seeks to achieve its goals by investing all of its assets
in Equity Portfolio of Growth and Income Trust. The Portfolio is a
separate investment company managed by American Express Financial
Corporation that has the same goals 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 is incorporated here by reference.
For a free copy, contact American Express Shareholder Service.
Like all mutual fund shares, 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.
Please note that this Fund:
o is not a bank deposit
o is not federally insured
o is not endorsed by any bank or government agency
o is not guaranteed to achieve its goals
American Express Shareholder Service
P.O. Box 534
Minneapolis, MN
55440-0534
612-671-3733
TTY: 800-846-4852
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Table of contents
The Fund in brief
Goals
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 and Portfolio are 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
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The Fund in brief
Goals
IDS Stock Fund (the Fund) seeks to provide shareholders with
current income and growth of capital. It does so by investing all
of its assets in Equity Portfolio (the Portfolio) of Growth and
Income Trust (the Trust). Both the Fund and the Portfolio are
diversified investment companies that have the same goals.
Because any investment involves risk, achieving these goals cannot
be guaranteed. The 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 and
securities convertible into common stock of U.S. and foreign
companies. It also may invest in preferred stocks, debt
securities, derivative instruments and money market instruments.
Some of the Portfolio's 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
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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 $55 billion in assets for the IDS
MUTUAL FUND GROUP. Shares of the Fund are sold through American
Express Financial Advisors Inc., a wholly owned subsidiary of AEFC.
Portfolio manager
Dick Warden joined AEFC in 1962 and serves as portfolio manager.
He has managed the assets of the Fund since January 1995 and serves
as portfolio manager of the Portfolio. He also serves as portfolio
manager of IDS Precious Metals Fund.
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 both 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
(as a percentage of average daily net assets):
Class A Class B Class Y
Management fee** 0.46% 0.46% 0.46%
12b-1 fee 0.00% 0.75% 0.00%
Other expenses*** 0.34% 0.36% 0.17%
Total**** 0.80% 1.57% 0.63%
*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
decreased the management fee by 0.02% in fiscal period 1996.
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PAGE 7
***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.
****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.
AEFC 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, approximately $6,200 in year one and $3,000 in year
two. These additional costs may be more than offset in subsequent
years if the assets being managed increase.
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 $58 $74 $ 92 $144
Class B $66 $90 $106 $166**
Class B* $16 $50 $ 86 $166**
Class Y $ 6 $20 $ 35 $ 79
*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.
Performance
Financial highlights
Performance
IDS Stock Fund, Inc.
Financial highlights
Fiscal period ended Sept. 30,
Per share income and capital changes *Class A
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996** 1995 1994 1993 1992 1991 1990 1989 1988 1987
Net asset value, $19.96 $19.48 $21.24 $20.05 $20.02 $17.26 $20.76 $17.43 $17.04 $19.26
beginning of period
_______________________________________________________________________________________________________________
Income from investment operations:
Net investment income .43 .52 .58 .55 .64 .68 .83 .77 .56 .57
Net gains (losses) (both 3.17 1.96 .21 2.93 1.11 4.02 (.87) 3.26 1.13 1.15
realized and unrealized)
________________________________________________________________________________________________________________
Total from investment 3.602 .48 .793 .481 .75 4.70 (.04) 4.03 1.69 1.72
operations
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____________________________________________________________________________________________________________
Less distributions:
Dividends from net (.39) (.49) (.60) (.53) (.63) (.74) (.85) (.70) (.55) (.58)
investment income
Distributions from (.68) (1.51) (1.95) (1.76) (1.09) (1.20) (2.61) -- (.75) (3.36)
realized gains
________________________________________________________________________________________________________________
Total distributions (1.07) (2.00) (2.55) (2.29) (1.72) (1.94) (3.46) (.70) (1.30) (3.94)
________________________________________________________________________________________________________________
Net asset value, $22.49 $19.96 $19.48 $21.24 $20.05 $20.02 $17.26 $20.76 $17.43 $17.04
end of period
________________________________________________________________________________________________________________
Ratios/supplemental data Class A
1996** 1995 1994 1993 1992 1991 1990 1989 1988 1987
Net assets, end of $2,307 $1,984 $2,368 $2,059 $1,658 $1,513 $1,213 $1,347 $1,246 $1,309
period (in millions)
Ratio of expenses to .80%++ .79% .76% .73% .72% .65% .63% .60% .58% .57%
average daily net assets+
Ratio of net income to 2.19%++ 2.61% 2.99% 2.75% 3.21% 3.59% 4.32% 3.94% 3.17% 2.53%
average daily net assets
Portfolio turnover rate 71% 69% 75% 76% 77% 58% 26% 54% 27% 42%
(excluding short-term
securities) for the
underlying Portfolio
Total return+++ 18.6% 14.4% 3.9% 18.8% 9.4% 29.0% (0.9%) 23.4% 10.1% 8.7%
Average brokerage
commission rate
for the underlying
Portfolio*** $.0388 -- -- -- -- -- -- -- -- --
_________________________________________________________________________________________________________________
*For a share outstanding throughout the period. Rounded to the nearest
cent.
**The Fund's fiscal year-end was changed from Oct. 31 to Sept. 30,
effective 1996.
***Effective fiscal period 1996, the Fund is required to disclose an
average brokerage commission rate. The rate is calculated by dividing the
total brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period by the total number of related shares purchased
and sold.
+Effective fiscal period 1996, expense ratio is based on total expenses of
the Fund before reduction of earnings credits on cash balances.
++Adjusted to an annual basis.
+++Total return does not reflect payment of a sales charge.
/TABLE
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IDS Stock Fund, Inc.
Financial highlights
Fiscal period ended Sept. 30,
Per share income and capital changes*
<TABLE><CAPTION>
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Class B Class Y
1996** 1995 1996** 1995
Net asset value, $19.91 $18.03 $19.96 $18.03
beginning of period
________________________________________________________________________
Income from investment operations:
Net investment income .28 .27 .47 .29
Net gains (both 3.17 1.92 3.17 2.01
realized and unrealized)
________________________________________________________________________
Total from investment 3.45 2.19 3.64 2.30
operations
________________________________________________________________________
Less distributions:
Dividends from net (.26) (.31) (.43) (.37)
investmetn income
Distributions from (.68) -- (.68) --
realized gains
________________________________________________________________________
Total distributions (.94) (.31) (1.11) (.37)
________________________________________________________________________
Net asset value, $22.42 $19.91 $22.49 $19.96
end of period
________________________________________________________________________
Ratios/supplemental data
Class B Class Y
1996** 1995 1996** 1995
Net assets, end of $107 $29 $870 $738
period (in millions)
Ratio of expenses to 1.57%# 1.61%# .63%# .64%#
average daily net assets+
Ratio of net income to
average daily net assets 1.61%# 1.37%# 2.36%# 2.38%#
Portfolio turnover rate 71% 69% 71% 69%
(excluding short-term
securities) for the underlying
Portfolio
Total return++ 17.8% 12.1% 18.8% 12.8%
Average brokerage commission
rate $.0388 -- $.0388 --
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 Oct. 31 to Sept. 30,
effective 1996.
***Effective fiscal period 1996, the Fund is required to disclose an
average brokerage commission rate. The rate is calculated by dividing the
total brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period by the total number of related shares purchased
and sold.
+Effective fiscal period 1996, expense ratio is based on total expenses of
the Fund before reduction of earnings credits on cash balances.
++Total return does not reflect payment of a sales charge.
#Adjusted to an annual basis.
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>
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.
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PAGE 10
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 Sept. 30, 1996
Purchase 1 year Since 5 years 10 years
made ago inception ago ago
Stock:
Class A +10.67% --% +12.19% +13.26%
Class B* +10.60% +17.49% --% --%
Class Y* +16.69% +21.02% --% --%
S&P 500 +27.13% +26.38%# +15.19% +14.98%
Lipper Growth and
Income Fund Index +17.09% +22.40%# +14.25% +13.23%
*Inception date was March 20, 1995.
#Measurement period started April 1, 1995.
Cumulative total returns as of Sept. 30, 1996
Purchase 1 year Since 5 years 10 years
made ago inception ago ago
Stock:
Class A +10.67% --% + 77.70% +247.23%
Class B* +10.60% +28.05% --% --%
Class Y* +16.69% +34.01% --% --%
S&P 500 +27.13% +42.07%# +102.84% +303.77%
Lipper Growth and
Income Fund Index +17.09% +36.14%# +94.67% +246.30%
*Inception date was March 20, 1995.
#Measurement period started April 1, 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. March
20, 1995 was the inception date for Class B and Class Y. 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.
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
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PAGE 11
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. The index reflects reinvestment of all distributions
and changes in market prices, but excludes brokerage commissions or
other fees.
Lipper Growth and Income 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 policies described below apply both to the Fund and the
Portfolio. The Portfolio invests primarily in common stocks and
securities convertible into common stock of U.S. and foreign
companies. Under normal market conditions, at least 65% of the
Portfolio's total assets will be so invested. Other investments
will include preferred stocks, debt securities, 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 larger, established companies that pay dividends may be
less volatile than the stock market as a whole.
Preferred stocks: If a company earns a profit, it generally must
pay its preferred stockholders a dividend at a pre-established
rate.
Convertible securities: These securities generally are preferred
stocks or bonds that can be exchanged for other securities, usually
common stock, at prestated prices. When the trading price of the
common stock makes the exchange likely, convertible securities
trade more like common stock.
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
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 than to changes in interest rates. These bonds
have greater price fluctuations and are more likely to experience a
default. The Portfolio may purchase securities rated C or better
by Moody's Investors Service, Inc. (Moody's) or Standard & Poor's <PAGE>
PAGE 12
Corporation (S&P) or non-rated securities of equivalent investment
quality in the judgment of the investment manager. 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 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 25% 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
assets to cover its portfolio obligations. No more than 5% of the <PAGE>
PAGE 13
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 Portfolio'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.
Securities and 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 the
Portfolio's 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).
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PAGE 14
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 are 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 the
same pro rata portion as other Class B shares.
<PAGE>
PAGE 15
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 <PAGE>
PAGE 16
be offset by the lower expenses on Class A shares. To help you in
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 17
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.
<TABLE><CAPTION>
Three ways to invest
<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
you with this process.
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
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 18
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.
<TABLE><CAPTION>
Two ways to request an exchange or redemption of shares
<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
<PAGE>
PAGE 19
Regular mail:
American Express Shareholder Service
Attn: Redemptions
P.O. Box 534
Minneapolis, MN 55440-0534
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.
<PAGE>
PAGE 20
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.
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.)
<TABLE><CAPTION>
Three ways to receive payment when you redeem shares
<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
<PAGE>
PAGE 21
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:
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.
<PAGE>
PAGE 22
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.
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.
<PAGE>
PAGE 23
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:
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,
<PAGE>
PAGE 24
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
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
<PAGE>
PAGE 25
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
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
The Portfolio allocates investment income from dividends and
interest and net realized capital gains or losses, if any, to the
Fund. The Fund deducts direct and allocated expenses from the
investment income. The Fund's net investment income is distributed
to you at the end of each calendar quarter 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. The Fund will offset any net realized
capital gains by any available capital loss carryovers. 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.
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.
<PAGE>
PAGE 26
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.
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.
<PAGE>
PAGE 27
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.
<TABLE><CAPTION>
<S> <C>
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
</TABLE>
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.
<PAGE>
PAGE 28
How the Fund and Portfolio are organized
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.
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 goal 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 goal and investment policies
as the Fund. The goal 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 investments if
the Portfolio changed its goals, investment policies or
restrictions without the same change being approved by the Fund.
<PAGE>
PAGE 29
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.
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 actions
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 47 funds in the IDS MUTUAL FUND GROUP, except for Mr.
Dudley. Mr. Dudley is a board member of all IDS funds except the
nine life funds.
The board members 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.
<PAGE>
PAGE 30
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
H. Brewster Atwater Jr.
Former chairman and chief executive officer, General Mills, Inc.
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.
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.
<PAGE>
PAGE 31
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:
Assets Annual rate
(billions) at each asset level
First $0.50 0.530%
Next 0.50 0.505
Next 1.0 0.480
Next 1.0 0.455
Next 3.0 0.430
Over 6.0 0.400
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 and Income Fund Index. The maximum adjustment
is 0.08% of the Portfolio's average daily net assets on an annual
basis.
For the fiscal period ended Sept. 30, 1996, the Portfolio paid AEFC
a total investment management fee of 0.46% 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 agreement, the
Administrative Services Agreement, has a declining annual rate
beginning at 0.04% and decreasing to 0.02% as assets increase. The
second agreement, 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
<PAGE>
PAGE 32
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.
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 Sept. 30, 1996, were 0.80% of its average daily net
assets. Expenses for Class B and Class Y were 1.57% and 0.63%,
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 Sept. 30, 1996 were more
than $142 billion.
<PAGE>
PAGE 33
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 34
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 35
STATEMENT OF ADDITIONAL INFORMATION
FOR
IDS STOCK FUND
Nov. 29, 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 Nov. 29, 1996, and it is to be used with the
prospectus dated Nov. 29, 1996, and the Annual Report for the
fiscal period ended Sept. 30, 1996.
<PAGE>
PAGE 36
TABLE OF CONTENTS
Goals 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.19
Agreements....................................................p.20
Organizational Information....................................p.24
Board Members and Officers....................................p.24
Custodian.....................................................p.28
Independent Auditors..........................................p.28
Financial Statements..............................See Annual Report
Prospectus....................................................p.29
Appendix A: Description of Bond Ratings......................p.30
Appendix B: Foreign Currency Transactions....................p.33
Appendix C: Options and Stock Index Futures Contracts........p.38
Appendix D: Mortgage-Backed Securities.......................p.46
Appendix E: Dollar-Cost Averaging............................p.47
<PAGE>
PAGE 37
ADDITIONAL INVESTMENT POLICIES
The Fund pursues its goals by investing all of its assets in Equity
Portfolio (the "Portfolio") of Growth & Income Trust (the "Trust"),
a separate investment company, rather than by directly investing in
and managing its own portfolio of securities. The Portfolio has
the same investment objectives, policies and restrictions as the
Fund.
Fundamental investment policies 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 policies 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.
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.
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 38
'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.
'Invest in securities of investment companies except by purchase in
the open market where the dealer's or sponsor's profit is the
regular commission. The investment manager may wish to invest in
another investment company if, for example, that is the only way to
invest in a foreign market. If any such investment is ever made,
not more than 10% of the Portfolio's net assets will be so
invested. To the extent the Portfolio were to make such
investments, the shareholder may be subject to duplicate advisory,
administrative and distribution fees. Under one state's laws, 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.
'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 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 <PAGE>
PAGE 39
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.
'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 value. For purposes 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 in a company to control or manage it.
'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 in exploration or development programs, such as oil, gas or
mineral leases.
'Invest more than 10% of the Portfolio's 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 <PAGE>
PAGE 40
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.
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.
For a description of bond ratings, see Appendix A. For a
discussion about foreign currency transactions, see Appendix B.
For a discussion on options and stock index futures contracts, see
Appendix C. For a discussion on mortgage-backed securities, see
Appendix D.
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
order, the reliability, integrity, financial soundness and general <PAGE>
PAGE 41
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
the amount another broker might have charged. AEFC has advised the<PAGE>
PAGE 42
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 $3,197,700 for
the fiscal period ended Sept. 30, 1996, $4,265,791 for fiscal year
ended Oct. 31, 1995, and $4,511,330 for fiscal year ended Oct. 31,
1994. Substantially all firms through whom transactions were
executed provide research services.
In fiscal period 1996, transactions amounting to $212,022,000, on
which $285,531 in commissions were imputed or paid, were
specifically directed to firms in exchange for research services.
<PAGE>
PAGE 43
As of the fiscal period ended Sept. 30, 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:
Value of Securities
Owned at End of
Name of Issuer Fiscal Year
NationsBank $ 43,437,500
Merrill Lynch 20,857,500
First Chicago 18,100,000
J.P. Morgan 17,775,000
Morgan Stanley 6,992,718
BankAmerica 2,693,580
The portfolio turnover rate was 71% in the fiscal period ended
Sept. 30, 1996, and 69% 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 periods to brokers affiliated with AEFC is
contained in the following table:
<PAGE>
PAGE 44
<TABLE><CAPTION> For the Fiscal Year
For the Fiscal Period Ended Sept. 30, Ended Oct. 31,
<S> <C> <C> <C> <C> <C> <C>
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
American (1) $154,450 4.45% 10.64% $378,480 $504,741
Enterprise
Investment
Services Inc.
Lehman (2) None None None None 152,293
Brothers, Inc.
</TABLE>
(1) Wholly owned subsidiary of AEFC.
(2) Under common control with AEFC as a subsidiary of American
Express until May 31, 1994.
PERFORMANCE INFORMATION
The Fund may quote various performance figures to illustrate past
performance. Average annual total return and current yield
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
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)
<PAGE>
PAGE 45
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 Oct. 1, 1996, the first business day following the end of
the fiscal period, the computation looked like this:
<TABLE><CAPTION>
<S> <C> <C> <C>
Net assets before Shares outstanding Net asset value
shareholder transactions at end of previous day of one share
Class A $2,314,796,428 divided by 102,578,943 equals $22.566
Class B 107,783,303 4,792,499 22.490
Class Y 872,589,468 38,661,474 22.570
</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.
'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 <PAGE>
PAGE 46
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, 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 Oct. 1, 1996,
was determined by dividing the net asset value of one share,
$22.566, by 0.95 (1.00-0.05 for a maximum 5% sales charge) for a
public offering price of $23.75. The sales charge is paid to
American Express Financial Advisors by the person buying the
shares.
<PAGE>
PAGE 47
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>
<S> <C> <C>
On total investment, sales
charge as a percentage of
Public Net
Offering Price Amount Invested
Amount of Investment ranges from:
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>
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 <PAGE>
PAGE 48
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.
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.<PAGE>
PAGE 49
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. 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
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 E.
<PAGE>
PAGE 50
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
Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors
Act (UTMA) only into other UGMA or UTMA accounts with identical
ownership.
The Fund's investment goals are 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.
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 Investment Company Act of
1940 (the 1940 Act), as amended, declares a period of emergency to
exist.
<PAGE>
PAGE 51
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.
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.<PAGE>
PAGE 52
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.
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.
<PAGE>
PAGE 53
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 Sept. 30, 1996, 54.59% 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.
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 $0.50 0.530%
Next 0.50 0.505
Next 1.0 0.480
Next 1.0 0.455
Next 3.0 0.430
Over 6.0 0.400
On Sept. 30, 1996, the daily rate applied to the Portfolio's net
assets was equal to 0.478% on an annual basis. The fee is <PAGE>
PAGE 54
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 and Income 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 0.08% of the Fund's average net assets on an annual basis.
The 12 month comparison period rolls over with each succeeding
month, so that it always equals 12 months, ending with the month
for which the performance adjustment is being computed. The
adjustment decreased the fee by $628,458 for the fiscal period
ended Sept. 30, 1996.
The management fee is paid monthly. Under the agreement, the total
amount paid was $12,835,896 for the fiscal period ended Sept. 30,
1996, $11,924,057 for fiscal year ended Oct. 31, 1995, and
$12,067,405 for fiscal year ended Oct. 31, 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
nonadvisory expenses paid were $962,795 for the fiscal period ended
Sept. 30, 1996, $1,180,596 for fiscal year ended Oct. 31, 1995, and
$1,050,588 for fiscal year ended Oct. 31, 1994.
<PAGE>
PAGE 55
In this section, the fees and expenses described were paid by the
Portfolio after May 13, 1996. Prior to that date, fees and
expenses were paid directly by the Fund.
Administrative Services Agreement
The Fund has an Administrative Services Agreement with AEFC. Under
this agreement, the Fund pays AEFC for providing administration and
accounting services. The fee is calculated as follows:
Assets Annual rate
(billions) each asset level
First $0.50 0.040%
Next 0.50 0.035
Next 1.0 0.030
Next 1.0 0.025
Next 3.0 0.020
Over 6.0 0.020
On Sept. 30, 1996, the daily rate applied to the Fund's net assets
was equal to 0.030% 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
$853,210 for the fiscal period ended Sept. 30, 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
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 $3,064,530 for the fiscal period ended
Sept. 30, 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 $2,807,662 for the
fiscal period ended Sept. 30, 1996. After paying commissions to
personal financial advisors, and other expenses, the amount
retained was $114,245. The amounts were $2,812,649 and $520,122
for fiscal year ended Oct. 31, 1995, and $4,535,067 and $1,519,069
for fiscal year ended Oct. 31, 1994.
<PAGE>
PAGE 56
Additional information about commissions and compensation for the
fiscal period ended Sept. 30, 1996, is contained in the following
table:
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Net Compensation
Name of Underwriting on Redemption
Principal Discounts and and Brokerage Other
Underwriter Commissions Repurchases Commissions Compensation
AEFC None None $154,450* $455,169**
American
Express
Financial
Advisors $2,807,662 None None None
*For further information see "Brokerage Commissions Paid to Brokers
Affiliated with AEFC."
**Distribution fees paid pursuant to the Plan and Agreement of
Distribution.
</TABLE>
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
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 <PAGE>
PAGE 57
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 Sept. 30,
1996, under the agreement, the Fund paid fees of $455,169.
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 $21,621,493 for the fiscal period ended
Sept. 30, 1996.
ORGANIZATIONAL INFORMATION
The Fund is a diversified, open-end management investment company,
as defined in the Investment Company Act of 1940. Originally
incorporated on Feb. 10, 1945 in Nevada, the Fund changed its state
of incorporation on June 13, 1986 by merging into a Minnesota
corporation incorporated on April 7, 1986. The Fund headquarters
are at 901 S. Marquette Ave., Suite 2810, Minneapolis, MN 55402-
3268.
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
38 publicly offered funds. The board members and officers are also
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.
<PAGE>
PAGE 58
H. Brewster Atwater, Jr.
Born in 1931
4900 IDS Tower
Minneapolis, MN
Former chairman and chief executive officer, General Mills, Inc.
Director, Merck & Co., Inc. and Darden Restaurants, Inc.
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 59
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 60
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 61
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 AEFC
receive an annual fee of $600 and the chair of the Contracts
Committee receives an additional $90. Board members receive a $50
per day attendance fee for board meetings. The attendance fee for
meetings of the Contracts and Investment Review Committees is $50;
for meetings of the Audit Committee and Personnel Committee $25 and
for traveling from out-of-state $8. Expenses for attending those
meetings are also reimbursed.
During the fiscal period ended Sept. 30, 1996, the members of the
board, for attending up to 20 meetings, received the following
compensation:
<TABLE><CAPTION>
Compensation Table
<S> <C> <C> <C> <C>
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
Lynne V. Cheney $2,386 $ 833 $1,450 $62,800
Robert F. Froehlke 2,386 3,595 1,450 62,800
Heinz F. Hutter 2,406 1,306 701 63,300
Anne P. Jones 2,426 837 1,450 64,300
Donald M. Kendall 1,625 3,979 1,450 36,000
(Part of Year)
Melvin R. Laird 2,469 2,720 1,450 66,100
Lewis W. Lehr 1,642 2,397 1,414 36,700
(Part of Year)
Edson W. Spencer 2,550 1,104 773 69,300
Wheelock Whitney 2,412 1,593 1,450 64,000
C. Angus Wurtele 2,350 1,412 1,438 61,300
</TABLE>
On Sept. 30, 1996, the Fund's board members and officers as a group
owned less than 1% of the outstanding shares. During the fiscal
period ended Sept. 30, 1996, no board member or officer earned more
than $60,000 from this Fund. All board members and officers as a
group earned $80,865, including $19,776 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.
The custodian is permitted to deposit some or all of its securities
in central depository systems as allowed by federal law. For its <PAGE>
PAGE 62
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 Sept. 30, 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 Stock Fund dated Nov. 29, 1996, is hereby
incorporated in this SAI by reference.
<PAGE>
PAGE 63
APPENDIX A
DESCRIPTION OF BOND RATINGS
These ratings concern the quality of the issuing corporation. They
are not an opinion of the market value of the security. Such
ratings are opinions on whether the principal and interest will be
repaid when due. A security's rating may change which could affect
its price.
Ratings by Moody's Investors Service, Inc. are Aaa, Aa, A, Baa, Ba,
B, Caa, Ca, and C.
Bonds rated:
Aaa are judged to be of the best quality. They carry the smallest
degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risk
appear somewhat larger than the Aaa securities.
A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to
impairment some time in the future.
Baa are considered as medium-grade obligations (i.e., they are
neighter highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba are judged to have speculative elements; their future cannot be
considered as well-assured. Often the protection of interest and
principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be
small.
<PAGE>
PAGE 64
Caa are of poor standing. Such issues may be in default or there
may be present elements of danger with respect to principal or
interest.
Ca represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings.
C are the lowest rated class of bonds, and issues so rated can be
regarded as having extremely poor prospects of ever attaining any
real investment standing.
Ratings by Standard & Poor's Corporation are AAA, AA, A, BBB, BB,
B, CCC, CC, C and D.
AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in
higher-rated categories.
BBB is regarded as having adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher-rated
categories.
BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions
which could lead to inadequate capacity to meet timely interest and
principal payments. The BB rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied
BBB- rating.
B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely
impair capacity or willingness to pay interest and repay principal.
The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.
CCC has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or
economic conditions, it is not likely to have the capacity to pay
interest and repay principal. The CCC rating category is also used
for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.<PAGE>
PAGE 65
CC typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating.
C typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC- rating. The C rating may be
used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the due
date, even if the applicable grace period has not expired, unless
S&P believes that such payments will be made during such grace
period. The D rating also will be used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
Non-rated securities will be considered for investment when they
possess a risk comparable to that of rated securities consistent
with the Portfolio's objectives and policies. When assessing the
risk involved in each non-rated security, the Portfolio will
consider the financial condition of the issuer or the protection
afforded by the terms of the security.
<PAGE>
PAGE 66
APPENDIX B
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 Portfolio's 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 <PAGE>
PAGE 67
consummating the contracts would 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 Portfolio's securities against a decline in the value of a
currency does not eliminate fluctuations in the underlying prices
of the securities. It simply establishes a rate of exchange that
can be achieved at some point in time. Although such forward
contracts tend to minimize the risk of loss due to a decline in <PAGE>
PAGE 68
value of hedged currency, they tend to limit any potential gain
that might result should the value of such currency increase.
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 <PAGE>
PAGE 69
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.
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 <PAGE>
PAGE 70
special procedures on exercise and settlement, such as technical
changes in the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions on exercise.
Foreign Currency Futures and Related Options. The 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 Portfolio
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.
<PAGE>
PAGE 71
APPENDIX C
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
<PAGE>
PAGE 72
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:
'Underlying securities will continue to be bought or sold solely on
the basis of investment considerations consistent with the
Portfolio's goals.
'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.
<PAGE>
PAGE 73
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.
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 <PAGE>
PAGE 74
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.
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 an 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.
<PAGE>
PAGE 75
The Portfolio may enter into contracts with respect to any stock
index or sub-index. To hedge the Portfolio's 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.
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. <PAGE>
PAGE 76
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
could occur, the investment manager believes that over time the
value of the Portfolio's 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 Portfolio 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.
<PAGE>
PAGE 77
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
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 Portfolio'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.
<PAGE>
PAGE 78
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.
<PAGE>
PAGE 79
APPENDIX D
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.
<PAGE>
PAGE 80
APPENDIX E
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).
<PAGE>
<PAGE>
PAGE 81
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) List of financial statements filed as part of this Post-
Effective Amendment to the Registration Statement:
For IDS Stock Fund, Inc.
Independent auditors' report dated November 1, 1996.
Statement of assets and liabilities, Sept. 30, 1996.
Statement of operations eleven months ended Sept. 30.
1996.
Statements of changes in net assets eleven-month period
ended Sept. 30, 1996 and year ended Oct. 31, 1995.
Notes to financial statements.
For Equity Portfolio
Independent auditors' report dated November 1, 1996.
Statement of assets and liabilities, Sept. 30, 1996.
Statement of operations for the period from May 13, 1996
(commencement of operations) to Sept. 30, 1996.
Statement of changes in net assets for the period from
May 13, 1996 (commencement of operations) to Sept. 30,
1996.
Notes to financial statements.
Investments in securities, Sept. 30, 1996.
Notes to investments in securities.
(b) Exhibits
1. Copy of Articles of Incorporation, as amended October 17, 1988,
filed electronically as Exhibit 1 to Registrant's Post-Effective
Amendment No. 78 to Registration Statement No. 2-11358, is
incorporated by reference.
2. Copy of By-laws, as amended January 10, 1996, is filed
electronically herewith.
3. Not applicable.
4. Copy of Stock certificate, filed as Exhibit 1 to Registrant's
Form N-1Q for the calendar quarter ended December 31, 1976, is
incorporated by reference.
5. Form of Investment Management Services Agreement between
Registrant and American Express Financial Corporation, dated March
20, 1995, filed electronically as Exhibit 5 to Registrant's Post-
Effective Amendment No. 92 to Registration Statement No. 2-11358,
is incorporated by reference.
<PAGE>
PAGE 82
6. Form of Distribution Agreement between Registrant and American
Express Financial Advisors Inc., dated March 20, 1995, filed
electronically as Exhibit 6 to Registrant's Post-Effective
Amendment No. 92 to Registration Statement No. 2-11358, is
incorporated by reference.
7. All employees are eligible to participate in a profit sharing
plan. Entry into the plan is Jan. 1 or July 1. The Registrant
contributes each year an amount up to 15 percent of their annual
salaries, the maximum deductible amount permitted under Section
404(a) of the Internal Revenue Code.
8(a). Form of Custodian Agreement between Registrant and American
Express Trust Company, dated March 20, 1995, filed electronically
as Exhibit 8(a) to Registrant's Post-Effective Amendment No. 92 to
Registration Statement No. 2-11358, is incorporated by reference.
8(b). Copy of Addendum to the Custodian Agreement among IDS Stock
Fund, Inc., American Express Trust Company and American Express
Financial Corporation dated May 13, 1996, is filed electronically
herewith.
8(c). Form of Custody Agreement between Morgan Stanley Trust
Company and IDS Bank and Trust dated May, 1993, filed
electronically as Exhibit 8(b) to Registrant's Post-Effective
Amendment No. 93 to Registration Statement No. 2-11358, is
incorporated by reference.
9(a). Copy of Plan and Agreement of Merger, dated April 10, 1986,
filed electronically as Exhibit 9(a) to Registrant's Post-Effective
Amendment No. 70 to Registration Statement No. 2-11358, is
incorporated by reference.
9(b). Form of Transfer Agency Agreement between Registrant and
American Express Financial Corporation, dated March 20, 1995, filed
electronically as Exhibit 9(b) to Registrant's Post-Effective
Amendment No. 92 to Registration Statement No. 2-11358, is
incorporated by reference.
9(c). Copy of License Agreement, dated Jan. 25, 1988, between
Registrant and IDS Financial Corporation, filed electronically as
Exhibit 9(c) to Post-Effective Amendment No. 83 to Registration
Statement No. 2-11358, is incorporated by reference.
9(d). Form of Shareholder Service Agreement between Registrant and
American Express Financial Advisors Inc., dated March 20, 1995,
filed electronically as Exhibit 9(d) to Registrant's Post-Effective
Amendment No. 92 to Registration Statement No. 2-11358, is
incorporated by reference.
9(e). Form of Administrative Services Agreement between Registrant
and American Express Financial Corporation, dated March 20, 1995,
filed electronically as Exhibit 9(e) to Registrant's Post-Effective
Amendment No. 92 to Registration Statement No. 2-11358, is
incorporated by reference.<PAGE>
PAGE 83
9(f). Copy of Agreement and Declaration of Unitholders between IDS
Stock Fund, Inc. and Strategist Growth and Income Fund, Inc. dated
May 13, 1996, is filed electronically herewith.
10. Opinion and consent of counsel as to the legality of the
securities being registered is filed with Registrant's most recent
24f-2 Notice.
11. Independent Auditors' Consent, is filed electronically
herewith.
12. None.
13. Not Applicable.
14. Forms of Keogh, IRA and other retirement plans, filed as
Exhibits 14(a) through 14(n) to IDS Growth Fund, Inc., Post-
Effective Amendment No. 19 to Registration Statement No. 2-54516,
are incorporated by reference.
15. Form of Plan and Agreement of Distribution between Registrant
and American Express Financial Advisors Inc., dated March 20, 1995,
filed electronically as Exhibit 15 to Registrant's Post-Effective
Amendment No. 92 to Registration Statement No. 2-11358, is
incorporated by reference.
16. Schedule for computation of each performance quotation provided
in the Registration Statement in response to Item 22, filed
electronically as Exhibit 16 to Registrant's Post-Effective
Amendment No. 76 to Registration Statement No. 2-11358, is
incorporated by reference.
17. Financial Data Schedule, is filed electronically herewith.
18. Copy of Plan pursuant to Rule 18f-3 under the 1940 Act, filed
electronically as Exhibit 18 to Registrant's Post-Effective
Amendment No. 93 to Registration Statement No. 2-11358, is
incorporated by reference.
19(a). Directors' Power of Attorney, dated November 10, 1994, to
sign Amendments to this Registration Statement, filed
electronically as Exhibit 18(a) to Registrant's Post-Effective
Amendment No. 91, is incorporated by reference.
19(b). Officers' Power of Attorney, dated November 1, 1995, filed
electronically as Exhibit 19(b) to Registrant's Post-Effective
Amendment No. 94 is incorporated by reference.
19(c). Trustees Power of Attorney dated April 11, 1996, is filed
electronically herewith.
19(d). Officers' Power of Attorney dated April 11, 1996, is filed
electronically herewith.
<PAGE>
PAGE 84
Item 25. Persons Controlled by or under Common Control with
Registrant.
None.
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Holders as of
Title Class Nov. 7, 1996
Common Stock
Class A 114,516
Class B 13,501
Class Y 100,116
Item 27. Indemnification
The Articles of Incorporation of the registrant provide that the
Fund shall indemnify any person who was or is a party or is
threatened to be made a party, by reason of the fact that she or he
is or was a director, officer, employee or agent of the Fund, or is
or was serving at the request of the Fund as a director, officer,
employee or agent of another company, partnership, joint venture,
trust or other enterprise, to any threatened, pending or completed
action, suit or proceeding, wherever brought, and the Fund may
purchase liability insurance and advance legal expenses, all to the
fullest extent permitted by the laws of the State of Minnesota, as
now existing or hereafter amended. The By-laws of the registrant
provide that present or former directors or officers of the Fund
made or threatened to be made a party to or involved (including as
a witness) in an actual or threatened action, suit or proceeding
shall be indemnified by the Fund to the full extent authorized by
the Minnesota Business Corporation Act, all as more fully set forth
in the By-laws filed as an exhibit to this registration statement.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities <PAGE>
PAGE 85
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
Any indemnification hereunder shall not be exclusive of any other
rights of indemnification to which the directors, officers,
employees or agents might otherwise be entitled. No
indemnification shall be made in violation of the Investment
Company Act of 1940.
<PAGE>
PAGE 86
<PAGE>
PAGE 1<PAGE>
Item 29(c). Not applicable.
Item 30. Location of Accounts and Records
American Express Financial Corporation
IDS Tower 10
Minneapolis, MN 55440
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) Not Applicable.
(b) Not Applicable.
(c) The Registrant undertakes to furnish each person
to whom a prospectus is delivered with a copy of
the Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE>
PAGE 87
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, IDS Stock Fund,
Inc., certifies that it meets all of the requirements for
effectiveness of this Amendment to its Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Minneapolis and State of Minnesota on the 25th day
of November, 1996.
IDS STOCK FUND, INC.
By /s/ Melinda S. Urion**
Melinda S. Urion, Treasurer
By /s/ William R. Pearce*
William R. Pearce, President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by
the following persons in the capacities indicated on the 25th day
of November, 1996.
Signature Capacity
/s/ William R. Pearce** President, Principal
William R. Pearce Executive Officer and
Director
H. Brewster Atwater Jr. Director
/s/ Lynne V. Cheney*
Lynne V. Cheney Director
/s/ William H. Dudley* Director
William H. Dudley
/s/ Robert F. Froehlke* Director
Robert F. Froehlke
/s/ David R. Hubers* Director
David R. Hubers
/s/ Heinz F. Hutter*
Heinz F. Hutter Director
/s/ Anne P. Jones* Director
Anne P. Jones
<PAGE>
PAGE 88
Signature Capacity
/s/ Melvin R. Laird* Director
Melvin R. Laird
/s/ Edson W. Spencer* Director
Edson W. Spencer
/s/ John R. Thomas* Director
John R. Thomas
/s/ Wheelock Whitney* Director
Wheelock Whitney
/s/ C. Angus Wurtele* Director
C. Angus Wurtele
*Signed pursuant to Directors' Power of Attorney, dated November
10, 1994, filed electronically as Exhibit 18(a) to Registrant's
Post-Effective Amendment No. 91, by:
__________________________
Leslie L. Ogg
**Signed pursuant to Officers' Power of Attorney, dated November 1,
1995, filed electronically as Exhibit 19(b) to Post-Effective
Amendment No. 94 by:
__________________________
Leslie L. Ogg
<PAGE>
PAGE 89
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, GROWTH AND INCOME TRUST consents to
the filing of this Amendment to the Registration Statement signed
on its behalf by the undersigned, thereunto duly authorized, in the
City of Minneapolis and State of Minnesota on the 25th day of
November, 1996.
GROWTH AND INCOME TRUST
By /s/ Melinda S. Urion**
Melinda S. Urion
Treasurer
By /s/ William R. Pearce**
William R. Pearce
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by
the following persons in the capacities indicated on the 25th day
of November, 1996.
Signatures Capacity
/s/ William R. Pearce* Trustee
William R. Pearce
H. Brewster Atwater Jr. Trustee
/s/ Lynne V. Cheney* Trustee
Lynne V. Cheney
/s/ William H. Dudley* Trustee
William H. Dudley
/s/ Robert F. Froehlke* Trustee
Robert F. Froehlke
/s/ David R. Hubers* Trustee
David R. Hubers
/s/ Heinz F. Hutter* Trustee
Heinz F. Hutter
/s/ Anne P. Jones* Trustee
Anne P. Jones
<PAGE>
PAGE 90
Signatures Capacity
/s/ Melvin R. Laird* Trustee
Melvin R. Laird
Trustee
Edson W. Spencer
/s/ John R. Thomas* Trustee
John R. Thomas
Trustee
Wheelock Whitney
/s/ C. Angus Wurtele* Trustee
C. Angus Wurtele
* Signed pursuant to Trustees Power of Attorney dated April 11,
1996, filed electronically herewith as Exhibit 19(c), by:
___________________________________
Leslie L. Ogg
** Signed pursuant to Officers' Power of Attorney dated April 11,
1996, filed electronically herewith as Exhibit 19(d), by:
___________________________________
Leslie L. Ogg
<PAGE>
PAGE 91
CONTENTS OF THIS
POST-EFFECTIVE AMENDMENT NO. 95
TO REGISTRATION STATEMENT NO. 2-11358
This post-effective amendment comprises the following papers and
documents:
The facing sheet.
Cross reference sheet.
Part A.
The prospectus.
Part B.
Statement of Additional Information.
Financial Statements.
Part C.
Other Information.
The Signatures.
<PAGE>
PAGE 1
IDS Stock Fund, Inc.
File No. 2-11358/811-498
EXHIBIT INDEX
Exhibit 2: By-laws
Exhibit 8(b): Addendum to the Custodian Agreement
Exhibit 9(f): Agreement and Declaration of Unitholders
Exhibit 11: Independent Auditors' Consent
Exhibit 17: Financial Data Schedule
Exhibit 19(c): Trustees Power of Attorney
Exhibit 19(d): Officers' Power of Attorney
<PAGE>
PAGE 1
Effective: June 13, 1986
Amended: 5/14/87, 1/12/89, 1/10/96
BY-LAWS
OF
IDS STOCK FUND, INC.
ARTICLE I
Corporate Seal
The corporate seal shall bear the inscription "IDS Stock Fund,
Inc., Minnesota, Incorporated 1986".
ARTICLE II
Meeting of Shareholders
Section 1. No regular meeting of shareholders need be held,
however, a majority of directors present at a duly held meeting may
call a regular meeting of shareholders by fixing the date, time and
place for a meeting. A regular meeting of the shareholders shall
include an election of directors. No meeting shall be considered a
regular meeting unless specifically designated as such in the
notice of meeting. Regular meetings may be held no more frequently
than once per year. If a regular meeting of shareholders has not
been held during the immediately preceding 15 months, a shareholder
or shareholders holding three percent or more of the voting power
of all shares entitled to vote may demand a regular meeting of
shareholders by written notice of demand given to the chief
executive officer or chief financial officer of the Fund. Within
30 days after receipt of the demand by one of those officers, the
Board of Directors shall cause a regular meeting of shareholders to
be called and held on notice no later than 90 days after receipt of
the demand, all at the expense of the Fund. If the Board fails to
cause a regular meeting to be called, the shareholder or
shareholders making the demand may call the regular meeting by
giving notice as required by the laws of Minnesota at the expense
of the Fund.
Section 2. The holders of at least ten percent (10%) of the
shares outstanding and entitled to vote, present in person or by
proxy, shall constitute a quorum, but the holders of a smaller
amount may adjourn from time to time without further notice, other
than by notice at the time, until a quorum is secured at any such
adjourned meeting. In case a quorum is not present, the meeting
may be adjourned from time to time without notice other than by
notice at the meeting. At any adjourned meeting at which a quorum
may be present, any business may be transacted which might have
been transacted at the meeting as originally called.
<PAGE>
PAGE 2
Section 3. At each meeting of the shareholders, the polls may
be opened and closed, the proxies and ballots may be received and
taken in charge, and all questions touching the qualification of
voters, the validity of proxies, and acceptances or rejections of
votes may be decided by two (2) inspectors of election. Inspectors
may be appointed by the Board of Directors before or at the
meeting. If no such appointment shall have been made or if any
inspector be absent or fails to act, the presiding officer at the
meeting shall appoint a person or persons to fill such vacancy.
Inspectors shall take charge of the polls and, when the vote is
completed, shall make a certificate of the result of the vote taken
and of such other facts as may be required by law.
Section 4. Special meetings of the shareholders may be called
at any time as provided for by the laws of the State of Minnesota.
Section 5. Shareholders shall take action by the affirmative
vote of the holders of a majority of the voting power of the shares
present and entitled to vote except where a larger portion is
otherwise required.
ARTICLE III
Directors
Section 1. An organizational meeting of the Board of
Directors shall be held as soon as convenient to a majority of the
directors, after the final adjournment of each regular meeting of
the shareholders, and no notice shall be required. Other meetings
of the Board of Directors may be previously scheduled or called by
the President or any two directors. Notice of specially called
meetings shall be sufficient if given to each director at least
five days prior thereto by mail or one day prior thereto by
telephone, telegraph or in person, unless such notice period is
waived by each director.
Section 2. The Board of Directors shall fix and change, as it
may from time to time determine, by majority vote, the compensation
to be paid the directors, officers and all employees appointed by
the Board of Directors.
Section 3. A director may give advance written consent or
opposition to a proposal to be acted on at a Board meeting. If the
director is not present at the meeting, consent or opposition to a
proposal does not constitute presence for purposes of determining
the existence of a quorum, but consent or opposition shall be
counted as a vote in favor of or against the proposal and shall be
entered in the minutes of the meeting, if the proposal acted on at
the meeting is substantially the same or has substantially the same
effect as the proposal to which the director has consented or
objected.
<PAGE>
PAGE 3
Section 4. A majority of the directors shall constitute a
quorum, but a smaller number may adjourn from time to time without
notice, other than by announcement at the meeting, until a quorum
is secured; and, likewise, in case a quorum is present, the meeting
may be adjourned from time to time without notice other than by
announcement at the meeting. At any adjourned meeting at which a
quorum may be present, any business may be transacted which might
have been transacted at the meeting as originally called.
Section 5. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate an Executive Committee
of two or more directors, which may meet at stated times or on
notice to all by any of their number during intervals between
meetings of the Board. The Executive Committee shall advise with
and aid the officers of the Fund in all matters concerning its
interests and the management of its business, and generally perform
such duties and exercise such powers as may be delegated to it from
time to time by the Board of Directors. Vacancies in the
membership of such Executive Committee shall be filled by the Board
of Directors.
Section 6. From time to time the Board of Directors may, by
resolution passed by a majority of the whole Board, appoint any
other committee or committees for any purpose or purposes, which
committee or committees shall have such powers as shall be
specified in the resolution of appointment.
Section 7. The quorum for such committee established by the
Board of Directors is two members regardless of the number of
members serving on the committee.
Section 8. Any action required or permitted to be taken at
any meeting of the Board of Directors or of a duly appointed
committee of the Board of Directors may be taken in any manner
permitted by law.
ARTICLE IV
Officers
Section 1. The Fund shall have a President who shall serve as
the chief executive officer, a Treasurer who shall serve as the
chief financial officer, and may have such other officers as the
Board of Directors may choose from time to time.
Section 2. The Treasurer shall be the chief financial officer
of the Fund, shall keep or cause to be kept full and accurate
accounts of receipts and disbursements in books belonging to the
Fund, and shall perform such other duties as the Board of Directors
may from time to time prescribe or require.
<PAGE>
PAGE 4
Section 3. Any person designated by the Board of Directors as
a Vice President shall be vested with all the powers and required
to perform all the duties of the President in the President's
absence or disability, shall at all times be vested with the same
power as the President to sign and deliver in the name of the Fund
any deeds, mortgages, bonds, contracts or other instruments
pertaining to the business of the Fund, and shall perform such
other duties as may be prescribed by the Board of Directors.
Section 4. Any person designated by the Board of Directors as
Secretary shall attend all meetings of the shareholders of the
Fund, the Board of Directors, and such other meetings as may be
designated by the Board of Directors. The Secretary shall record
all of the proceedings of such meetings in a book or books to be
kept for that purpose; shall have custody of the seal, stock
certificate books and minute books of the Fund; may affix the seal
of the Fund to any instrument and perform such additional duties as
shall be assigned by the Board of Directors.
Section 5. The officers of the Fund shall hold office until
their successors are chosen and qualify in their stead. Any
officer chosen and appointed by the Board of Directors may be
removed either with or without cause at any time by the Board of
Directors.
ARTICLE V
Capital Stock
Shares of capital stock shall be uncertificated. 1/12/89
ARTICLE VI
Transfers
1/12/89
Section 1. Shares of stock of the Fund shall be transferred
on the books of the Fund at the request of the holder thereof in
person or of her or his duly authorized attorney upon surrender of
the certificate or certificates therefor, if any, or in their
absence by a request for transfer in a form acceptable to the Fund
that may include the request be in writing, and be signed by the
registered holder or by his duly authorized attorney in the manner
specified by the Fund. No transfer or assignment of shares shall
affect the right of the Fund to pay any dividend due upon the
shares, or to treat the holder of record as the holder in fact,
until such transfer or assignment is registered on the books of the
Fund and the Fund shall be entitled to treat the holder of record
of any of its shares as the holder in fact thereof and accordingly
shall not be bound to recognize any equitable or other claim to, or
interest in, such shares on the part of any person whether or not
it shall have express or other notice thereof, save as may be
expressly provided by law.
<PAGE>
PAGE 5
Section 2. The Board of Directors shall have power and
authority from time to time to appoint one or more transfer agents
and/or clerks and registrars for the securities issued by the Fund
and to make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of such securities.
Section 3. If any security issued by the Fund be lost,
stolen, mutilated or destroyed, the security may be transferred
upon giving of a satisfactory bond of indemnity in an amount which,
in the judgment of the Board of Directors, is sufficient to
indemnify the Fund against any claim that may result therefrom.
ARTICLE VII
Definitions
For all purposes of the Articles of Incorporation and these
By-Laws, the term "business day" shall be defined as a day with
respect to which the New York Stock Exchange is open for business.
ARTICLE VIII
Custodian or Trustee Agreements
The Fund shall enter into a custodian or trustee agreement
with a bank or trust company having aggregate capital, surplus and
undivided profits of not less than $2,000,000 for the custody of
the Fund's securities and other assets. All securities and cash
assets owned or acquired by the Fund shall be held by such
custodian or trustee pursuant to the terms of such agreement and
the Fund shall deposit or cause to be deposited with such custodian
or trustee all such securities and cash assets. The agreement
between the Fund and the custodian or trustee may be terminated at
any time by a vote of a majority of the outstanding shares of the
Fund.
ARTICLE IX
Miscellaneous
1/10/96
Section 1. The fiscal year of the Fund shall begin on the
first day of October in each year and end on the thirtieth day of
September following.
Section 2. If the sale of shares issued by the Fund shall at
any time be discontinued, the Board of Directors may in its
discretion, pursuant to resolution, deduct from the value of the
assets an amount equal to the brokerage commissions, transfer
taxes, and charges, if any, which would be payable on the sale of
such securities if they were then being sold.
<PAGE>
PAGE 6
ARTICLE X
Indemnification
5/14/87
Section 1. Each person made or threatened to be made a party
to or is involved (including, without limitation, as a witness) in
any actual or threatened action, suit or proceeding whether civil,
criminal, administrative, arbitration, or investigative, including
a proceeding by or in the right of the Fund by reason of the former
or present capacity as a director or officer of the Fund or who,
while a director or officer of the Fund, is or was serving at the
request of the Fund or whose duties as a director or officer
involve or involved service as a director, officer, partner,
trustee or agent of another organization or employee benefit plan,
whether the basis of any proceeding is alleged action in an
official capacity or in any capacity while serving as a director,
officer, partner, trustee or agent, shall be indemnified and held
harmless by the Fund to the full extent authorized by the Minnesota
Business Corporation Act, as the same or may hereafter be amended
(but, in the case of any such amendment, only to the extent that
such amendment permits the Fund to provide broader indemnification
rights than the law permitted the Fund to provide prior to such
amendment, or by any other applicable law as then in effect,
against judgments, penalties, fines including, without limitation,
excise taxes assessed against the person with respect to an
employee benefit plan, settlements and reasonable expenses,
including attorneys' fees and disbursements, incurred in connection
therewith) and such indemnification shall continue as to any person
who has ceased to be a director or officer and shall inure to the
benefit of the person's heirs, executors and administrators
provided, however, in an action brought against the Fund to enforce
rights to indemnification, the director or officer shall be
indemnified only if the action was authorized by the Board of
Directors of the Fund. The right to indemnification conferred by
this Section shall be a contract right and shall include the right
to be paid by the Fund in advance of the final disposition of a
proceeding for expenses incurred in connection therewith provided,
however, such payment of expenses shall be made only upon receipt
of a written undertaking by the director or officer to repay all
amounts so paid if it is ultimately determined that the director or
officer is not entitled to indemnification.
Section 2. Each person who upon written request to the Fund
has not received payment within thirty days may at any time
thereafter bring suit against the Fund to recover any unpaid amount
and, to the extent successful, in whole or in part, shall be
entitled to be paid the expenses of prosecuting such suit. Each
person shall be presumed to be entitled to indemnification upon
filing a written request for payment and the Fund shall have the
burden of proof to overcome the presumption that the director or <PAGE>
PAGE 7
officer is not so entitled. Neither the determination by the Fund,
whether by the Board of Directors, special legal counsel or by
shareholder, nor the failure of the Fund to have made any
determination shall be a defense or create the presumption that the
director or officer is not entitled to indemnification.
Section 3. The right to indemnification and to the payment of
expenses prior to any final determination shall not be exclusive of
any other right which any person may have or hereinafter acquire
under any statute, provision of the Articles of Incorporation, by-
law, agreement, vote of shareholders or otherwise and notwith-
standing any provisions in this Article X, the Fund is not
obligated to make any payment with respect to any claim for which
payment is required to be made to or on behalf of the director or
officer under any insurance policy, except with respect to any
excess beyond the amount of required payment under such insurance
and no indemnification will be made in violation of the provisions
of the Investment Company Act of 1940.
<PAGE>
PAGE 1
ADDENDUM TO THE CUSTODIAN AGREEMENT
THIS ADDENDUM TO THE CUSTODIAN AGREEMENT dated March 20, 1995
between IDS Stock Fund, Inc. (the Corporation) and American Express
Trust Company (the Custodian) is made pursuant to Section 12 of the
Agreement to reflect the Corporation's arrangement of investing all
of its assets in a master trust.
American Express Financial Corporation (AEFC) serves as
administrator for the Corporation and for the master trust in which
the Corporation invests.
The Corporation, the Custodian and AEFC agree as follows:
The parties to this Agreement acknowledge that, so long as the
Corporation invests all of its assets in a master trust, the only
assets held by the Corporation will be units of the master trust.
The parties agree that the Custodian is entitled to rely upon AEFC
for an accounting of the number of units held, purchased or
redeemed by the Corporation and to delegate to AEFC responsibility
for all reporting to the Corporation. AEFC agrees to indemnify and
hold harmless the Custodian from all claims and liabilities
incurred or assessed against the Custodian in connection with the
accounting for and reporting to the Corporation by AEFC.
IN WITNESS WHEREOF, the Corporation, the Custodian and AEFC have
caused this addendum to the Custodian Agreement to be executed on
May 13, 1996 which shall remain in effect until terminated by one
of the parties on written notice to the other parties to this
Addendum.
IDS STOCK FUND, INC.
By /s/ Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS TRUST COMPANY
By /s/ Chandrakant A. Patel
Chandrakant A. Patel
Vice President
AMERICAN EXPRESS FINANCIAL CORPORATION
By /s/ Richard W. Kling
Richard W. Kling
Senior Vice President
<PAGE>
PAGE 1
EQUITY PORTFOLIO
AGREEMENT AND DECLARATION OF UNITHOLDERS
This AGREEMENT AND DECLARATION OF UNITHOLDERS is made at
Minneapolis, Minnesota, as of this 13th day of May, 1996 by the
holders of beneficial interest of Equity Portfolio, a separate
series of Growth and Income Trust.
WITNESS that
WHEREAS, the Declaration of Trust for Growth and Income Trust
provides for no restrictions on the transfer of units therein; and
WHEREAS, the holders of units in Equity Portfolio desire to
restrict the transfer of their units in Equity Portfolio;
NOW, THEREFORE, the undersigned hereby declare that they will not
transfer any units in Equity Portfolio held by them without the
prior written consent of the other unitholders holding at least two
thirds of the Equity Portfolio's units outstanding (excluding the
units of the holder seeking to effect the transfer) and that any
attempted transfer in violation of this agreement shall be null and
void. This agreement shall not affect the rights of any unitholder
to redeem units in Equity Portfolio as provided for in the
Declaration of Trust. The undersigned also acknowledge that the
remedy of damages for the violation of this agreement would be
inadequate and therefore further agree that this agreement shall be
enforceable solely by the remedy of specific performance.
IDS STOCK FUND, INC.
/s/ Leslie L. Ogg
Leslie L. Ogg
Vice President and General Counsel
STRATEGIST GROWTH AND INCOME FUND, INC.
Strategist Equity Fund
/s/ James A. Mitchell
James A. Mitchell
President
<PAGE>
PAGE 1
Independent auditors' consent
___________________________________________________________________
The Board and Shareholders
IDS Stock Fund, Inc.:
We consent to the use of our reports incorporated herein by
reference and to the references to our Firm under the headings
"Financial highlights" in Part A and "INDEPENDENT AUDITORS" in Part
B of the Registration Statement.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 25, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
PAGE 1
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> IDS STOCK FUND CLASS A
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 3284477481
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3284477481
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 334957
<TOTAL-LIABILITIES> 334957
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2488203540
<SHARES-COMMON-STOCK> 102578943
<SHARES-COMMON-PRIOR> 99428489
<ACCUMULATED-NII-CURRENT> 7896550
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 140664008
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 647378426
<NET-ASSETS> 2307114544
<DIVIDEND-INCOME> 69164225
<INTEREST-INCOME> 14609822
<OTHER-INCOME> 0
<EXPENSES-NET> 21621493
<NET-INVESTMENT-INCOME> 62152554
<REALIZED-GAINS-CURRENT> 144560754
<APPREC-INCREASE-CURRENT> 307696966
<NET-CHANGE-FROM-OPS> 514410274
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (40068143)
<DISTRIBUTIONS-OF-GAINS> (66949954)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14630112
<NUMBER-OF-SHARES-REDEEMED> (16225558)
<SHARES-REINVESTED> 4745900
<NET-CHANGE-IN-ASSETS> 532305223
<ACCUMULATED-NII-PRIOR> 64325841
<ACCUMULATED-GAINS-PRIOR> 89188632
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7063551
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 21626747
<AVERAGE-NET-ASSETS> 2167103066
<PER-SHARE-NAV-BEGIN> 19.96
<PER-SHARE-NII> .43<PAGE>
PAGE 2
<PER-SHARE-GAIN-APPREC> 3.17
<PER-SHARE-DIVIDEND> (.39)
<PER-SHARE-DISTRIBUTIONS> (.68)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 22.49
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
PAGE 3
<ARTICLE> 6
<SERIES>
[NUMBER] 2
<NAME> IDS STOCK FUND CLASS B
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
[INVESTMENTS-AT-COST] 0
[INVESTMENTS-AT-VALUE] 0
[RECEIVABLES] 0
[ASSETS-OTHER] 3284477481
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 3284477481
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 334957
[TOTAL-LIABILITIES] 334957
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 2488203540
[SHARES-COMMON-STOCK] 4792499
[SHARES-COMMON-PRIOR] 1478348
[ACCUMULATED-NII-CURRENT] 7896550
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 140664008
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 647378426
[NET-ASSETS] 107425240
[DIVIDEND-INCOME] 69164225
[INTEREST-INCOME] 14609822
[OTHER-INCOME] 0
[EXPENSES-NET] 21621493
[NET-INVESTMENT-INCOME] 62152554
[REALIZED-GAINS-CURRENT] 144560754
[APPREC-INCREASE-CURRENT] 307696966
[NET-CHANGE-FROM-OPS] 514410274
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (917346)
[DISTRIBUTIONS-OF-GAINS] (1317953)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 3448528
[NUMBER-OF-SHARES-REDEEMED] (241151)
[SHARES-REINVESTED] 106774
[NET-CHANGE-IN-ASSETS] 532305223
[ACCUMULATED-NII-PRIOR] 64325841
[ACCUMULATED-GAINS-PRIOR] 89188632
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 7063551
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 21626747
[AVERAGE-NET-ASSETS] 66258226
[PER-SHARE-NAV-BEGIN] 19.91
[PER-SHARE-NII] .28
[PER-SHARE-GAIN-APPREC] 3.17
<PAGE>
PAGE 4
[PER-SHARE-DIVIDEND] (.26)
[PER-SHARE-DISTRIBUTIONS] (.68)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 22.42
[EXPENSE-RATIO] 1.57
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<PAGE>
PAGE 5
<ARTICLE> 6
<SERIES>
[NUMBER] 3
<NAME> IDS STOCK FUND CLASS Y
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
[INVESTMENTS-AT-COST] 0
[INVESTMENTS-AT-VALUE] 0
[RECEIVABLES] 0
[ASSETS-OTHER] 3284477481
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 3284477481
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 334957
[TOTAL-LIABILITIES] 334957
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 2488203540
[SHARES-COMMON-STOCK] 38661474
[SHARES-COMMON-PRIOR] 36975566
[ACCUMULATED-NII-CURRENT] 7896550
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 140664008
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 647378426
[NET-ASSETS] 869602740
[DIVIDEND-INCOME] 69164225
[INTEREST-INCOME] 14609822
[OTHER-INCOME] 0
[EXPENSES-NET] 21621493
[NET-INVESTMENT-INCOME] 62152554
[REALIZED-GAINS-CURRENT] 144560754
[APPREC-INCREASE-CURRENT] 307696966
[NET-CHANGE-FROM-OPS] 514410274
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (16474443)
[DISTRIBUTIONS-OF-GAINS] (25308530)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 9749258
[NUMBER-OF-SHARES-REDEEMED] (9825574)
[SHARES-REINVESTED] 1762224
[NET-CHANGE-IN-ASSETS] 532305223
[ACCUMULATED-NII-PRIOR] 64325841
[ACCUMULATED-GAINS-PRIOR] 89188632
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 7063551
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 21626747
[AVERAGE-NET-ASSETS] 809857444
[PER-SHARE-NAV-BEGIN] 19.96
[PER-SHARE-NII] .47
[PER-SHARE-GAIN-APPREC] 3.17
<PAGE>
PAGE 6
[PER-SHARE-DIVIDEND] (.43)
[PER-SHARE-DISTRIBUTIONS] (.68)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 22.49
[EXPENSE-RATIO] .63
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
PAGE 1
TRUSTEES POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as trustees of the below listed open-
end, diversified investment companies that previously have filed
registration statements and amendments thereto pursuant to the
requirements of the Investment Company Act of 1940 with the
Securities and Exchange Commission:
Growth Trust
Growth and Income Trust
Income Trust
Tax-Free Income Trust
World Trust
hereby constitutes and appoints William R. Pearce and Leslie L. Ogg
or either one of them, as her or his attorney-in-fact and agent, to
sign for her or him in her or his name, place and stead any and all
further amendments to said registration statements filed pursuant
to said Act and any rules and regulations thereunder, and to file
such amendments with all exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission,
granting to either of them the full power and authority to do and
perform each and every act required and necessary to be done in
connection therewith.
Dated the 11th day of April, 1996.
/s/ Lynne V. Cheney /s/ Melvin R. Laird
Lynne V. Cheney Melvin R. Laird
/s/ William H. Dudley /s/ William R. Pearce
William H. Dudley William R. Pearce
/s/ Robert F. Froehlke
Robert F. Froehlke Edson W. Spencer
/s/ David R. Hubers /s/ John R. Thomas
David R. Hubers John R. Thomas
/s/ Heinz F. Hutter
Heinz F. Hutter Wheelock Whitney
/s/ Anne P. Jones /s/ C. Angus Wurtele
Anne P. Jones C. Angus Wurtele
<PAGE>
PAGE 1
OFFICERS' POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as officers of the below listed open-
end, diversified investment companies that previously have filed
registration statements and amendments thereto pursuant to the
requirements of the Investment Company Act of 1940 with the
Securities and Exchange Commission:
Growth Trust
Growth and Income Trust
Income Trust
Tax-Free Income Trust
World Trust
hereby constitutes and appoints William R. Pearce and Leslie L. Ogg
or either one of them, as her or his attorney-in-fact and agent, to
sign for her or him in her or his name, place and stead, as an
officer, any and all further amendments to said registration
statements filed pursuant to said Act and any rules and regulations
thereunder, and to file such amendments with all exhibits thereto
and other documents in connection therewith with the Securities and
Exchange Commission, granting to either of them the full power and
authority to do and perform each and every act required and
necessary to be done in connection therewith.
Dated the 11th day of April, 1996.
/s/ William R. Pearce
William R. Pearce
/s/ Melinda S. Urion
Melinda S. Urion
