<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 96 (File Number 2-11358) X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 40 (File Number 811-498) X
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. 28, 1997 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.
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.
<PAGE>
Cross reference sheet showing the location in the prospectus and Statement of
Additional Information of the information called for by items enumerated in
Parts A and B of Form N-1A.
Negative answers omitted are so indicated.
PART A
Item No. Section in Prospectus
1 Cover page of prospectus
2 (a) Sales charge and Fund expenses
(b) The Fund in brief
(c) The Fund in brief
3 (a) Financial highlights
(b) NA
(c) Performance
(d) Financial highlights
4 (a) The Fund in brief; Investment policies and risks; How the Fund
and Portfolio are organized
(b) Investment policies and risks
(c) Investment policies and risks
5 (a) Board members and officers
(b)(i) Investment manager; About American Express Financial Corporation
- General information
(b)(ii) Investment manager
(b)(iii) Investment manager
(c) Portfolio manager
(d) Administrator and transfer agent
(e) Administrator and transfer agent
(f) Distributor
(g) Investment manager; About American Express Financial Corporation
- General information
5A(a) *
(b) *
6 (a) Shares; Voting rights
(b) NA
(c) NA
(d) Voting rights
(e) Cover page; Special shareholder services
(f) Dividend and capital gain distributions; Reinvestments
(g) Taxes
(h) Alternative purchase arrangements; Special considerations
regarding master/feeder structure
7 (a) Distributor
(b) Valuing Fund shares
(c) How to purchase, exchange or redeem shares
(d) How to purchase shares
(e) NA
(f) Distributor
(g) Alternative purchase arrangements; Reductions and waivers of the
sales charge
8 (a) How to redeem shares
(b) NA
(c) How to purchase shares: Three ways to invest
(d) How to purchase, exchange or redeem shares: Redemption policies -
"Important..."
9 None
PART B
Item No. Section in Statement of Additional Information
10 Cover page of SAI
11 Table of Contents
12 NA
13 (a) Additional Investment Policies; all appendices except Dollar-Cost
Averaging
(b) Additional Investment Policies
(c) Additional Investment Policies
(d) Security Transactions
14 (a) Board members and officers**; Board Members and Officers
(b) Board Members and Officers
(c) Board Members and Officers
15 (a) NA
(b) Principal Holders of Securities, if applicable
(c) Board Members and Officers
16 (a)(i) How the Fund and Portfolio are organized; About American Express
Financial Corporation**
(a)(ii) Agreements: Investment Management Services Agreement, Plan and
Agreement of Distribution
(a)(iii) Agreements: Investment Management Services Agreement
(b) Agreements: Investment Management Services Agreement
(c) NA
(d) Agreements: Administrative Services Agreement, Shareholder
Service Agreement
(e) NA
(f) Agreements: Distribution Agreement
(g) NA
(h) Custodian Agreement; Independent Auditors
(i) Agreements: Transfer Agency Agreement; Custodian Agreement
17 (a) Security Transactions
(b) Brokerage Commissions Paid to Brokers Affiliated with American
Express Financial Corporation
(c) Security Transactions
(d) Security Transactions
(e) Security Transactions
18 (a) Shares; Voting rights**
(b) NA
19(a) Investing in the Fund
(b) Valuing Fund Shares; Investing in the Fund
(c) Redeeming Shares
20 Taxes
21 (a) Agreements: Distribution Agreement
(b) NA
(c) NA
22 (a) Performance Information (for money market funds only)
(b) Performance Information (for all funds except money market funds)
23 Financial Statements
* Designates information is located in annual report.
** Designates location in prospectus.
<PAGE>
IDS Stock Fund
Prospectus
Nov. 28, 1997
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 managed by American
Express Financial Corporation and 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 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 the 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
800-862-7919
TTY: 800-846-4852
Web site address: http://www.americanexpress.com/advisors
<PAGE>
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
<PAGE>
Investment manager
Administrator and transfer agent
Distributor
About American Express Financial Corporation
General information
Appendix
Descriptions of derivative instruments
<PAGE>
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) rather than by directly
investing in and managing its own portfolio of securities. Both the Fund and the
Portfolio are diversified investment companies that have the same goal. Because
any investment involves risk, achieving this goal cannot be guaranteed. The goal
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 the 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. For further information, refer to the later section
in the prospectus titled "Investment policies and risks."
Structure of the Fund
This Fund uses what is commonly known as a master/feeder structure. This means
that the Fund (the feeder fund) invests all of its assets in the Portfolio (the
master fund). The Portfolio 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:
<PAGE>
Investors buy
shares in the Fund
The Fund invests
in the Portfolio
The Portfolio invests
in securities, such
as stocks or bonds
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 $70
billion in assets for the IDS MUTUAL FUND GROUP. Shares of the Fund are sold
through American Express Financial Advisors Inc.(AEFA), 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.
<PAGE>
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*** 0.32% 0.34% 0.25%
Total**** 0.78% 1.55% 0.71%
*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 year 1997.
***Other expenses include an administrative services fee, a shareholder services
fee, a transfer agency fee and other nonadvisory expenses. Class Y expenses have
been restated to reflect the 0.10% shareholder services fee effective May 9,
1997.
****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 agreed to pay the small additional costs required to
use a master/feeder structure to manage the investment portfolio during the
first year of its operation and half of such costs in the second year. These
additional costs may be more than offset in subsequent years if the assets being
managed increase.
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:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A $58 $74 $ 91 $142
Class B $66 $89 $105 $164**
Class B* $16 $49 $ 85 $164**
Class Y $ 7 $23 $ 40 $ 89
</TABLE>
<PAGE>
*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.
<TABLE><CAPTION>
Performance
Financial highlights
Fiscal period ended Sept. 30,
Per share income and capital changesa
Class A
1997 1996b 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $22.49 $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 (loss) .39 .43 .52 .58 .55 .64 .68 .83 .77 .56 .57
Net gains (losses) (both 6.11 3.17 1.96 .21 2.93 1.11 4.02 (.87) 3.26 1.13 1.15
realized and unrealized)
Total from investment 6.50 3.60 2.48 .79 3.48 1.75 4.70 (.04) 4.03 1.69 1.72
operations
Less distributions:
Dividends from net (.43) (.39) (.49) (.60) (.53) (.63) (.74) (.85) (.70) (.55) (.58)
investment income
Distributions from (1.12) (.68) (1.51) (1.95) (1.76) (1.09) (1.20) (2.61) -- (.75) (3.36)
realized gains
Total distributions (1.55) (1.07) (2.00) (2.55) (2.29) (1.72) (1.94) (3.46) (.70) (1.30) (3.94)
Net asset value, $27.44 $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
1997 1996b 1995 1994 1993 1992 1991 1990 1989 1988 1987
Net assets, end of $2,877 $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 .78% .80%d .79% .76% .73% .72% .65% .63% .60% .58% .57%
average daily net assetsc
Ratio of net income (loss) 1.58% 2.19%d 2.61% 2.99% 2.75% 3.21% 3.59% 4.32% 3.94% 3.17% 2.53%
to average daily net assets
Portfolio turnover rate 82% 71% 69% 75% 76% 77% 58% 26% 54% 27% 42%
(excluding short-term
securities)
Total returne 30.2% 18.6% 14.4% 3.9% 18.8% 9.4% 29.0% (0.9%) 23.4% 10.1% 8.7%
Average brokerage $.0320 $.0388 -- -- -- -- -- -- -- -- --
commission ratef
a For a share outstanding throughout the period. Rounded to the nearest cent.
b The Fund's fiscal year-end was changed from Oct. 31 to Sept. 30, effective 1996.
c Effective fiscal period 1996, expense ratio is based on total expenses of the Fund before reduction of earnings
credits on cash balances.
d Adjusted to an annual basis.
e Total return does not reflect payment of a sales charge.
f Effective fiscal period 1996, the Fund is required to disclose an average brokerage commission rate per
share for security trades on which commissions are charged. The comparability of this information may be
affected by the fact that commission rates per share vary significantly among foreign countries.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fiscal period ended Sept. 30,
Per share income and capital changesa
Class B Class Y
1997 1996b 1995g 1997 1996b 1995g
<S> <C> <C> <C> <C> <C> <C>
Net asset value, $22.42 $19.91 $18.03 $22.49 $19.96 $18.03
beginning of period
Income from investment operations:
Net investment income (loss) .22 .28 .27 .42 .47 .29
Net gains (losses) (both realized 6.05 3.17 1.92 6.11 3.17 2.01
and unrealized)
Total from investment operations 6.27 3.45 2.19 6.53 3.64 2.30
Less distributions:
Dividends from net (.25) (.26) (.31) (.46) (.43) (.37)
investment income
Distributions from (1.12) (.68) -- (1.12) (.68) --
realized gains
Total distributions (1.37) (.94) (.31) (1.58) (1.11) (.37)
Net asset value, $27.32 $22.42 $19.91 $27.44 $22.49 $19.96
end of period
Ratios/supplemental data
Class B Class Y
1997 1996b 1995g 1997 1996b 1995g
Net assets, end of $203 $107 $29 $1,082 $870 $738
period (in millions)
Ratio of expenses to 1.55% 1.57%d 1.61%d .66% .63%d .64%d
average daily net assetsc
Ratio of net income (loss) to .85% 1.61%d 1.37%d 1.71% 2.36%d 2.38%d
average daily net assets
Portfolio turnover rate 82% 71% 69% 82% 71% 69%
(excluding short-term
securities)
Total returne 29.2% 17.8% 12.1% 30.4% 18.8% 12.8%
Average brokerage $.0320 $.0388 -- $.0320 $.0388 --
commission ratef
a For a share outstanding throughout the period. Rounded to the nearest cent.
b The Fund's fiscal year-end was changed from Oct. 31 to Sept. 30, effective 1996.
c Effective fiscal period 1996, expense ratio is based on total expenses of the Fund
before reduction of earnings credits on cash balances.
d Adjusted to an annual basis
e Total return does not reflect payment of a sales charge.
f Effective fiscal period 1996, the Fund is required to disclose an average
brokerage commission rate per share for security trades on which commissions are
charged. The comparability of this information may be affected by the fact that
commission rates per share vary significantly among foreign countries.
g Inception date was March 20, 1995.
</TABLE>
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.
<PAGE>
Total returns
Total return is the sum of all of your returns for a given period, assuming you
reinvest all distributions. It is calculated by taking the total value of shares
you own at the end of the period (including shares acquired by reinvestment),
less the price of shares you purchased at the beginning of the period.
Average annual total return is the annually compounded rate of return over a
given time period (usually two or more years). It is the total return for the
period converted to an equivalent annual figure.
Average annual total returns as of Sept. 30, 1997
<TABLE>
<CAPTION>
Purchase 1 year Since 5 years 10 years
made ago inception ago ago
- ---------------------------- ----------------- --------------------- ------------------- -------------------
Stock:
<S> <C> <C> <C> <C>
Class A +23.71% --% +15.83% +12.51%
Class B +25.23% +22.38%* --% --%
Class Y +30.38% +24.66%* --% --%
S&P 500 +40.43% +31.28%** +20.73% +14.73%
Lipper Growth and Income
Fund Index +35.43% +27.73%** +19.08% +13.37%
*Inception date was March 20, 1995.
**Measurement period started April 1, 1995.
Cumulative total returns as of Sept. 30, 1997
Purchase 1 year Since 5 years 10 years
made ago inception ago ago
- ---------------------------- ----------------- --------------------- ------------------- -------------------
Stock:
Class A +23.71% --% +108.61% +225.33%
Class B +25.23% +66.82%* --% --%
Class Y +30.38% +74.81%* --% --%
S&P 500 +40.43% +99.51%** +156.52% +295.09%
Lipper Growth and Income
Fund Index +35.43% +84.38%** +139.41% +250.75%
</TABLE>
*Inception date was March 20, 1995.
**Measurement period started April 1, 1995.
<PAGE>
These examples show total returns from hypothetical investments in Class A,
Class B and Class Y shares of the Fund. These returns are compared to those of
popular indexes for the same periods. The performance of Class B and Class Y
will vary from the performance of Class A based on differences in sales charges
and fees. Past performance for Class Y for the periods prior to March 20, 1995
may be calculated based on the performance of Class A, adjusted to reflect
differences in sales charges although not for other differences in expenses.
For purposes of calculation, information about the Fund assumes:
o a sales charge of 5% for Class A shares
o redemption at the end of the period and deduction of the applicable contingent
deferred sales charge for Class B shares
o no sales charge for Class Y shares
o no adjustments for taxes an investor may have paid on the reinvested income
and capital gains
o a period of widely fluctuating securities prices. Returns shown should not be
considered a representation of the Fund's future performance.
Standard & Poor's 500 Stock Index (S&P 500), an unmanaged list of common stocks,
is frequently used as a general measure of market performance. 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 investment 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.
<PAGE>
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 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 investment 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
<PAGE>
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 investment
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 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 investment 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.
<PAGE>
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).
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 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 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 sales 0.175% of average daily net Initial sales charge waived
charge of 5%; no 12b-1 fee assets or reduced for certain
purchases
Class B No initial sales charge; 0.175% of average daily net Shares convert to Class A
maximum CDSC of 5% assets in the ninth year of
declines to 0% after six ownership; CDSC waived in
years; 12b-1 fee of 0.75% certain circumstances
of average daily net
assets
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Class Y None 0.10% of average daily net Available only to certain
assets qualifying institutional
investors
</TABLE>
Conversion of Class B shares to Class A shares - During the ninth calendar year
of owning your Class B shares, Class B shares will convert to Class A shares and
will no longer be subject to a distribution fee. Class B shares that convert to
Class A shares are not subject to a sales charge. Class B shares purchased
through reinvested dividends and distributions also will convert to Class A
shares in the same proportion as the other Class B shares. This means more of
your money will be put to work for you.
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
<TABLE>
<CAPTION>
<S> <C>
If you purchase Class A shares If you purchase Class B shares
o You will not have all of your purchase price o All of your money is invested in shares of stock.
invested. Part of your purchase price will go to pay However, you will pay a sales charge if you redeem
the sales charge. You will not pay a sales charge your shares within six years of purchase.
when you redeem your shares.
o You will be able to take advantage of reductions o No reductions of the sales charge are available
in the sales charge. for large purchases.
</TABLE>
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.
<PAGE>
Ongoing expenses
<TABLE>
<CAPTION>
<S> <C>
If you purchase Class A shares If you purchase Class B shares
o Your shares will have a lower expense ratio than o The distribution and transfer agency fees for Class B
Class B shares because Class A does not pay a will cause your shares to have a higher expense ratio
distribution fee and the transfer agency fee and to pay lower dividens than Class A shares. In the
for Class A is lower than the fee for Class B. ninth year of ownership, Class B shares will convert
As a result, Class A shares will pay higher to Class A shares and you will no longer be subject
dividends than Class B shares. to higher fees.
</TABLE>
You should consider how long you plan to hold your shares and whether the
accumulated higher fees and CDSC on Class B shares prior to conversion would be
less than the initial sales charge on Class A shares. Also consider to what
extent the difference would be offset by the lower expenses on Class A shares.
To help you in 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 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 AEFA. To do so, contact your
financial advisor.
<PAGE>
How to purchase shares
If you are investing in this Fund for the first time, you will 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 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.
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.
<PAGE>
Three ways to invest
<TABLE>
<CAPTION>
1
<S> <C> <C>
By regular account Send your check and application (or your name Minimum amounts
and account number if you have an established Initial investment: $2,000
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 investment Contact your financial advisor to set up one Minimum amounts
plan of the following scheduled plans: Initial investment: $ 100
Additional
o automatic payroll deduction investments: $ 100/
each payment
o bank authorization Account balances: none
(on active plans of
o direct deposit of Social Security check monthly payments)
o other plan approved by the Fund If account balance is below $2,000,
frequency of payments must be at
least monthly.
3
By wire If you have an established account, you may If this information is not
wire money to: included, the order may be
rejected and all money
Norwest Bank Minneapolis received by the Fund, less any
Routing No. 091000019 costs the Fund or AEFC incurs,
Minneapolis, MN will be returned promptly.
Attn: Domestic Wire Dept.
Minimum amounts
Give these instructions: Each wire investment: $1,000
Credit IDS Account #00-30-015 for personal
account # (your account number) for (your
name).
</TABLE>
*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 do not do so
within 30 days, your shares can be redeemed and the proceeds mailed to you.
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 on any other fund, including fees and expenses,
read that fund's prospectus carefully.
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.
<PAGE>
For tax purposes, an exchange represents a redemption and purchase and may
result in a gain or loss. However, you cannot use the sales charge imposed on
the purchase of Class A shares to create or increase 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 the proceeds from your redemption are
more or less than the cost of your shares, you will have a gain or loss, which
can affect your tax liability. Redeeming shares held in an IRA or qualified
retirement account may subject you to certain federal taxes, penalties and
reporting requirements. Consult your tax advisor.
Two ways to request an exchange or redemption of shares
1
By letter Include in your letter:
o the name of the fund (s)
o the class of shares to be exchanged or redeemed
o your account number(s) (for exchanges, both
funds must be registered in the same
ownership)
o your Taxpayer Identification
Number (TIN) o the dollar amount or number of
shares you want to exchange or redeem
o signature of all registered account owners
o for redemptions, indicate how you want your
money delivered to you
o any paper certificates of shares you hold
Regular mail:
American Express Shareholder Service
Attn: Redemptions
P.O. Box 534
Minneapolis, MN 55440-0534
Express mail:
American Express Shareholder Service
Attn: Redemptions
733 Marquette Ave.
Minneapolis, MN 55402
<PAGE>
2
By phone
American Express Financial o The Fund and AEFC will honor any telephone
Advisors Telephone Transaction exchange or redemption request believed to
Service: be authentic and will use reasonable
800-437-3133 or procedures to confirm that they are. This
612-671-3800 includes asking identifying questions and
tape recording calls. If reasonable
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
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>
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.)
Three ways to receive payment when you redeem shares
<TABLE>
<CAPTION>
<S> <C>
1 o Mailed to the address on record
By regular or o Payable to names listed on the account
express mail NOTE: You will be charged a fee if you request express mail delivery.
2 o Minimum wire redemption: $1,000
By wire 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
3 o Minimum payment: $50
By scheduled o Contact your financial advisor or American Express Shareholder Service to
payout plan set up regular payments to you on a monthly, bimonthly, quarterly,
semiannual or annual basis
o Purchasing new shares while under a payout plan may be disadvantageous
because of the sales charges
</TABLE>
Reductions and waivers of the sales charge
Class A - initial sales charge alternative
On purchases of Class A shares, you pay a 5% sales charge on the first $50,000
of your total investment and less on investments after the first $50,000:
<PAGE>
Total investment Sales charge as a
percentage of:*
Public Net
offering amount
price invested
Up to $50,000 5.0% 5.26%
Next $50,000 4.5 4.71
Next $400,000 3.8 3.95
Next $500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
* To calculate the actual sales charge on an investment greater than $50,000 and
less than $1,000,000, amounts for each applicable increment must be totaled. See
the SAI.
Reductions of the sales charge on Class A shares Your sales charge may be
reduced, depending on the totals of:
o the amount you are investing in this Fund now,
o the amount of your existing investment in this Fund, if any, and
o the amount you and your primary household group are investing or have in other
funds in the IDS MUTUAL FUND GROUP that carry a sales charge. (The primary
household group consists of accounts in any ownership for spouses or domestic
partners and their unmarried children under 21. Domestic partners are
individuals who maintain a shared primary residence and have joint property or
other insurable interests.)
Other policies that affect your sales charge:
o IDS Tax-Free Money Fund and Class A shares of IDS Cash Management Fund do not
carry sales charges. However, you may count investments in these funds if you
acquired shares in them by exchanging shares from IDS funds that carry sales
charges.
o IRA purchases or other employee benefit plan purchases made through a payroll
deduction plan or through a plan sponsored by an employer, association of
employers, employee organization or other similar entity, may be added together
to reduce sales charges for all shares purchased through that plan.
o If you intend to invest $1 million over a period of 13 months, you can reduce
the sales charges in Class A by filing a letter of intent.
For more details, see the SAI.
<PAGE>
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 Investors who have a business relationship with a newly associated financial
advisor who joined AEFA from another investment firm provided that (1) the
purchase is made within six months of the advisor's appointment date with AEFA,
(2) the purchase is made with proceeds of a redemption of shares that were
sponsored by the financial advisor's previous broker-dealer, and (3) the
proceeds must be the result of a redemption of an equal or greater value where a
sales load was previously assessed.
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. The CDSC will be waived only in
the circumstances described for waivers for Class B shares.
o Purchases made within 30 days after a redemption of shares (up to the
amount redeemed):
- of a product distributed by AEFA 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 the same class
of another fund in the IDS MUTUAL FUND GROUP that has a sales charge.
o Purchases made through or under a "wrap fee" product sponsored by AEFA (total
amount of all investments must be $50,000); the University of Texas System ORP;
or a segregated separate account offered by Nationwide Life Insurance Company or
Nationwide Life and Annuity Insurance Company.
<PAGE>
o Purchases made with the proceeds from IDS Life Real Estate Variable Annuity
surrenders through December 31, 1997.
* Eligibility must be determined in advance by AEFA. To do so, contact your
financial advisor.
Class B - contingent deferred sales charge alternative
Where a CDSC is imposed on a redemption, it is based on the amount of the
redemption and the number of calendar years, including the year of purchase,
between purchase and redemption. The following table shows the declining scale
of percentages that apply to redemptions during each year after a purchase:
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
<PAGE>
to have been redeemed, the next amount redeemed is the next oldest purchase
payment. By redeeming the oldest purchase payments first, lower CDSCs are
imposed than would otherwise be the case.
Waivers of the contingent deferred sales charge The CDSC on Class B shares will
be waived on redemptions of shares:
o In the event of the shareholder's death,
o Purchased by any board member, officer or employee of a fund or AEFC or its
subsidiaries,
o Held in a trusteed employee benefit plan,
o Held in IRAs or certain qualified plans for which American Express Trust
Company acts as custodian, such as Keogh plans, tax-sheltered custodial
accounts or corporate pension plans, provided that the shareholder is:
- at least 59-1/2 years old, and
- taking a retirement distribution (if the redemption is part of a
transfer to an IRA or qualified plan in a product distributed by AEFA,
or a custodian-to-custodian transfer to a product not distributed by
AEFA, the CDSC will not be waived), or
- redeeming under an approved substantially equal periodic payment
arrangement.
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 Financial Advisors Telephone Transaction Service Redemptions
and exchanges, dividend payments or reinvestments and automatic payment
arrangements
<PAGE>
National/Minnesota: 800-437-3133
Mpls./St. Paul area: 671-3800
TTY Service
For the hearing impaired
800-846-4852
American Express Financial Advisors Easy Access Line
Automated account information (TouchToneR phones only), including current Fund
prices and performance, account values and recent account transactions
800-862-7919
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.
Capital gains are realized when a security is sold for a higher price than was
paid for it. 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 when a security is held for more than one year. 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. These long-term capital gains will
be subject to differing tax rates depending on the holding period of the
underlying investments. Before they are distributed, both net investment income
and net long-term capital gains are included in the value of each share. After
they are 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.
<PAGE>
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 the same class of
another publicly available IDS fund for which you have previously
opened an account.
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. Prior to
reinvestment, no interest will accrue on amounts represented by uncashed
distribution or redemption checks.
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 short term (for shares held for one year or less) or long term (for shares
held for more than one year).
<PAGE>
Long-term capital gains will be taxed at rates that vary depending upon the
holding period. Long-term capital gains are divided into two holding periods: 1)
shares held more than one year but not more than 18 months and 2) shares held
more than 18 months.
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.
If you do not 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.
How to determine the correct TIN
<TABLE>
<CAPTION>
Use the Social Security or
For this type of account: Employer Identification number of:
<S> <C>
Individual or joint account The individual or individuals listed on the account
Custodian account of a minor (Uniform The minor
Gifts/Transfers to Minors Act)
A living trust The grantor-trustee
(the person who puts the money into the trust)
An irrevocable trust, The legal entity
pension trust or estate (not the personal representative or trustee, unless
no legal entity is designated in the account title)
Sole proprietorship The owner
Partnership The partnership
</TABLE>
<PAGE>
Corporate The corporation
Association, club or tax-exempt organization The organization
For details on TIN requirements, ask your financial advisor or local American
Express Financial Advisors office for federal Form W-9, "Request for Taxpayer
Identification Number and Certification."
Important: This information is a brief and selective summary of certain federal
tax rules that apply to this Fund. Tax matters are highly individual and
complex, and you should consult a qualified tax advisor about your personal
situation.
How the Fund 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
<PAGE>
investment policies of the Portfolio are described under the captions
"Investment policies and risks" and "Facts about investments and their risks."
Additional information on investment policies may be found in the SAI.
Board considerations: The board considered the advantages and disadvantages of
investing the Fund's assets in the Portfolio. The board believes that the
master/feeder structure can be in the best interest of the Fund and its
shareholders since it offers the opportunity for economies of scale. The Fund
may redeem all of its assets from the Portfolio at any time. Should the board
determine that it is in the best interest of the Fund and its shareholders to
terminate its investment in the Portfolio, it would consider hiring an
investment advisor to manage the Fund's assets, or other appropriate options.
The Fund would terminate its investment if the Portfolio changed its goal,
investment policies or restrictions without the same change being approved by
the Fund.
Other feeders: The Portfolio sells securities to other affiliated mutual funds
and may sell securities to non-affiliated investment companies and institutional
accounts (known as feeders). These feeders buy the Portfolio's securities on the
same terms and conditions as the Fund and pay their proportionate share of the
Portfolio's expenses. However, their operating costs and sales charges are
different from those of the Fund. Therefore, the investment returns for other
feeders are different from the returns of the Fund. Information about other
feeders may be obtained by calling American Express Financial Advisors at
1-800-AXP-SERV.
Each feeder that invests in the Portfolio is different and activities of its
investors may adversely affect all other feeders, including the Fund. For
example, if one feeder decides to terminate its investment in the Portfolio, the
Portfolio may elect to redeem in cash or in kind. If cash is used, the Portfolio
will incur brokerage, taxes and other costs in selling securities to raise the
cash. This may result in less investment diversification if entire investment
positions are sold, and it also may result in less liquidity among the remaining
assets. If in-kind distribution is made, a smaller pool of assets remains that
may affect brokerage rates and investment options. In both cases, expenses may
rise since there are fewer assets to cover the costs of managing those assets.
Shareholder meetings: Whenever the Portfolio proposes to change a fundamental
investment policy or to take any other action requiring approval of its security
holders, the Fund will 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. Board members and
officers serve 47 IDS and IDS Life
<PAGE>
funds and 15 Master Trust portfolios, except for William H. Dudley, who does not
serve the nine IDS Life funds. The board members also serve as members of the
board of the Trust which manages the investments of the Portfolio 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.
Independent board members and officers
Chairman of the board
William R. Pearce*
Chairman of the board, Board Services Corporation (provides administrative
services to boards including the boards of the IDS and IDS Life funds and Master
Trust portfolios).
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.
Heinz F. Hutter
Former president and chief operating officer, Cargill, Inc.
Anne P. Jones
Attorney and telecommunications consultant.
Alan K. Simpson
Former United States senator for Wyoming.
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.
Officer
Vice president, general counsel and secretary
Leslie L. Ogg*
President, treasurer and corporate secretary of Board Services Corporation.
<PAGE>
Board members and officers associated with AEFC
President
John R. Thomas*
Senior vice president, AEFC.
William H. Dudley*
Senior advisor to the chief executive officer, AEFC.
David R. Hubers*
President and chief executive officer, AEFC.
Officers associated with AEFC
Vice president
Peter J. Anderson*
Senior vice president, AEFC.
Treasurer
Melinda S. Urion*
Senior vice president and chief financial officer, AEFC.
Refer to the SAI for the board members' and officers' biographies.
*Interested persons as defined by the Investment Company Act of 1940.
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, 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
<PAGE>
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 year ended Sept. 30, 1997, 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
Distributor
The Fund has an exclusive distribution agreement with American Express Financial
Advisors, a wholly-owned subsidiary of AEFC. Financial advisors representing
AEFA 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 fee) 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 average daily net assets for Class A
and Class B shares and 0.10% for Class Y shares.
<PAGE>
Total expenses paid by the Fund's Class A shares for the fiscal year ended Sept.
30, 1997, were 0.78% of its average daily net assets. Expenses for Class B and
Class Y were 1.55% and 0.66%, respectively.
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 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, 1997 were more than $171 billion.
AEFA serves individuals and businesses through its nationwide network of more
than 175 offices and more than 8,500 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>
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>
STATEMENT OF ADDITIONAL INFORMATION
FOR
IDS STOCK FUND
Nov. 28, 1997
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. 28, 1997, and it is to be used with the prospectus dated
Nov. 28, 1997, and the Annual Report for the fiscal year ended Sept. 30, 1997.
<PAGE>
TABLE OF CONTENTS
Goal and Investment Policies See Prospectus
Additional Investment Policies p. 4
Security Transactions p. 7
Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation p. 10
Performance Information p. 11
Valuing Fund Shares p. 12
Investing in the Fund p. 14
Redeeming Shares p. 18
Pay-out Plans p. 19
Taxes p. 20
Agreements p. 21
Organizational Information p. 25
Board Members and Officers p. 26
Compensation for Fund and Portfolio Board Members p. 29
Independent Auditors p. 30
Financial Statements See Annual Report
Prospectus p. 30
Appendix A: Description of Bond Ratings p. 31
Appendix B: Foreign Currency Transactions p. 34
Appendix C: Options and Stock Index Futures Contracts p. 39
<PAGE>
Appendix D: Mortgage-Backed Securities p. 46
Appendix E: Dollar-Cost Averaging p. 47
<PAGE>
ADDITIONAL INVESTMENT POLICIES
IDS Stock Fund, Inc. (the Fund) pursues its goals by investing all of its assets
in Equity Portfolio (the Portfolio) of Growth and 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, respectively, as defined in the Investment Company Act
of 1940, as amended (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 that apply to both the Fund and the
Portfolio and may be changed only with shareholder/unitholder 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 and Fund have not borrowed in the
past and have 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.
<PAGE>
'Purchase more than 10% of the outstanding voting securities of an issuer.
'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.
'Purchase securities of an issuer if the board members and officers of the Fund,
the Portfolio and of American Express Financial Corporation (AEFC) hold more
than a certain percentage of the issuer's outstanding securities. If the
holdings of all board members and officers of the Fund, the Portfolio and of
AEFC who own more than 0.5% of an issuer's securities are added together, and if
in total they own more than 5%, the Portfolio will not purchase securities of
that issuer.
'Lend Portfolio securities in excess of 30% of its net assets. The current
policy of the Portfolio's board is to make these loans, either long- or
short-term, to broker-dealers. In making loans, the Portfolio receives the
market price in cash, U.S. government securities, letters of credit or such
other collateral as may be permitted by regulatory agencies and approved by the
board. If the market price of the loaned securities goes up, the Portfolio will
get additional collateral on a daily basis. The risks are that the borrower may
not provide additional collateral when required or return the securities when
due. During the existence of the loan, the Portfolio receives cash payments
equivalent to all interest or other distributions paid on the loaned securities.
A loan will not be made unless the investment manager believes the opportunity
for additional income outweighs the risks.
<PAGE>
Unless changed by the board, the Fund and Portfolio will not:
'Buy on margin or sell short, except the Portfolio 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 policy, collateral arrangements for margin
deposits on a futures contract 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.
'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 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
<PAGE>
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.
The Portfolio may invest in foreign securities that are traded in the form of
American Depositary Receipts (ADRs). ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying securities of
foreign issuers. European Depositary Receipts (EDRs) and Global Depositary
Receipts (GDRs) are receipts typically issued by foreign banks or trust
companies, evidencing ownership of underlying securities issued by either a
foreign or U.S. issuer. Generally Depositary Receipts in registered form are
designed for use in the U.S. securities market and Depositary Receipts in bearer
form are designed for use in securities markets outside the U.S. Depositary
Receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. Depositary Receipts also
involve the risks of other investments in foreign securities.
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 Fund's and 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
<PAGE>
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 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 accounts
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
<PAGE>
services, to cause the Portfolio to pay a commission in excess of the amount
another broker might have charged. AEFC has advised the Portfolio it is
necessary to do business with a number of brokerage firms on a continuing basis
to obtain such services as the handling of large orders, the willingness of a
broker to risk its own money by taking a position in a security, and the
specialized handling of a particular group of securities that only certain
brokers may be able to offer. As a result of this arrangement, some portfolio
transactions may not be effected at the lowest commission, but AEFC believes it
may obtain better overall execution. AEFC has assured the Fund 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 Fund it will continue to seek ways to reduce brokerage costs.
On a periodic basis, AEFC makes a comprehensive review of the broker-dealers and
the overall reasonableness of their commissions. The review evaluates execution,
operational efficiency and research services.
The Portfolio paid total brokerage commissions of $6,147,059 for the fiscal year
ended Sept. 30, 1997, $3,197,700 for the fiscal period ended Sept. 30, 1996, and
$4,265,791 for the fiscal year ended Oct. 31, 1995. Substantially all firms
through whom transactions were executed provide research services.
In fiscal year 1997, transactions amounting to $495,098,000 on which $1,039,140
in commissions were imputed or paid, were specifically directed to firms in
exchange for research services.
<PAGE>
As of the fiscal year ended Sept. 30, 1997, 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
Name of Issuer End of Fiscal Year
Bank of America $36,656,250
Merrill Lynch 19,891,875
Morgan Stanley 5,987,167
Salomon Brothers 34,031,745
Travelers Group 27,300,000
The portfolio turnover rate was 82% in the fiscal year ended Sept. 30, 1997, and
71% in fiscal period ended 1996.
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.
<PAGE>
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:
<TABLE>
<CAPTION>
For the For the For the
Fiscal Year Ended Fiscal Period Fiscal Year
Sept. 30, 1997 Ended Sept. Ended Oct.
___________________________________________ 30, 1996 31, 1995
------------ ------------
Percent of
Aggregate
Aggregate Dollar Aggregate Aggregate
Dollar Percent of Amount of Dollar Amount Dollar
Amount of Aggregate Transactions of Amount of
Nature of Commissions Brokerage Involving Commissions Commissions
Broker Affiliation Paid to Commissions Payment of Paid to Broker Paid to
Broker Commissions Broker
<S> <C> <C> <C> <C> <C> <C>
American (1) $404,603 6.58% 11.47% $154,450 $378,480
Enterprise
Investment
Services Inc.
</TABLE>
(1) Wholly-owned subsidiary of AEFC.
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:
<PAGE>
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)
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, Morningstar, 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, 1997, the
first business day following the end of the fiscal year, the computation looked
like this:
<TABLE>
<CAPTION>
- ------------------- ----------------------------- ---------------------------- ---------------------
Net assets before Shares outstanding Net asset value
shareholder transactions at end of previous day of one share
- ------------------- ----------------------------- ---------------------------- ---------------------
- ------------------- ----------------------------- ---------------------------- ---------------------
<S> <C> <C> <C>
Class A $2,892,899,540 divided by 104,853,191 equals $27.59
- ------------------- ----------------------------- ---------------------------- ---------------------
- ------------------- ----------------------------- ---------------------------- ---------------------
Class B 204,341,034 7,438,698 27.47
- ------------------- ----------------------------- ---------------------------- ---------------------
- ------------------- ----------------------------- ---------------------------- ---------------------
Class Y 1,088,061,009 39,436,789 27.59
- ------------------- ----------------------------- ---------------------------- ---------------------
</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.
<PAGE>
'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 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 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.
<PAGE>
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 the sales charge for Class A. 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, 1997, was determined by
dividing the net asset value of one share, $27.59, by 0.95 (1.00-0.05 for a
maximum 5% sales charge) for a public offering price of $29.04. The sales charge
is paid to American Express Financial Advisors Inc. (AEFA) by the person buying
the shares.
Class A - Calculation of the Sales Charge
Sales charges are determined as follows:
<TABLE>
<CAPTION>
Within each increment,
sales charge as a
percentage of:
Public Net
Offering Price Amount invested
Amount of Investment
- -------------------------------------------- ------------------------------ ------------------------------
<S> <C> <C> <C> <C>
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
- -------------------------------------------- ------------------------------ ------------------------------
</TABLE>
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.
<PAGE>
The following table shows the range of sales charges as a percentage of the
public offering price and of the net amount invested on total investments at
each applicable level.
<TABLE>
<CAPTION>
On total investment, sales
charge as a percentage of:
Public Net
Offering Price Amount Invested
Amount of Investment ranges from:
- -------------------------------------------- ------------------------------ ------------------------------
<S> <C> <C> <C> <C>
First $ 50,000 5.00% 5.26%
- -------------------------------------------- ------------------------------ ------------------------------
- -------------------------------------------- ------------------------------ ------------------------------
Next 50,000 to 100,000 5.00-4.50 5.26-4.71
- -------------------------------------------- ------------------------------ ------------------------------
- -------------------------------------------- ------------------------------ ------------------------------
Next 100,000 to 500,000 4.50-3.80 4.71-3.95
- -------------------------------------------- ------------------------------ ------------------------------
- -------------------------------------------- ------------------------------ ------------------------------
Next 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 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.
<PAGE>
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.
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.
<PAGE>
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.
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 the same class of another fund in the IDS MUTUAL FUND GROUP 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);
<PAGE>
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 that fund's 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 1940 Act, declares a period of emergency
to exist.
Should the Fund stop selling shares, the board may make a deduction from the
value of the assets held by the Fund to cover the cost of future liquidations of
the assets so as to distribute fairly these costs among all shareholders.
The Fund has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates the Fund to redeem shares in cash, with respect to any one shareholder
during any 90-day period, up to the 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
<PAGE>
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 American Express Shareholder Service,
P.O. Box 534, Minneapolis, MN 55440-0534, or call American Express Financial
Advisors Telephone Transaction Service at 800-437-3133 (National/Minnesota) or
612-671-3800 (Mpls./St. Paul). Your authorization must be received in the
Minneapolis headquarters at least five days before the date you want your
payments to begin. The initial payment must be at least $50. Payments will be
made on a monthly, bimonthly, quarterly, semiannual or annual basis. Your choice
is effective until you change or cancel it.
The following pay-out plans are designed to take care of the needs of most
shareholders in a way AEFC can handle efficiently and at a reasonable cost. If
you need a more irregular schedule of payments, it may be necessary for you to
make a series of individual redemptions, in which case you'll have to send in a
separate redemption request for each pay-out. The Fund reserves the right to
change or stop any pay-out plan and to stop making such plans available.
Plan #1: Pay-out for a fixed period of time
If you choose this plan, a varying number of shares will be redeemed at regular
intervals during the time period you choose. This plan is designed to end in
complete redemption of all shares in your account by the end of the fixed
period.
<PAGE>
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 redemption 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 redemption 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>
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 year ended Sept. 30, 1997, 60.34% of the Fund's net investment income
dividends qualified for the corporate deduction.
Capital gain distributions, if any, received by corporate shareholders should be
treated as long-term capital gains regardless of how long they owned their
shares. Capital gain distributions, if any, received by individuals should be
treated as long-term if held for more than one year; however, recent tax laws
have divided long-term capital gains into two holding periods: (1) shares held
more than one year but not more than 18 months and (2) shares held more than 18
months. 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. The Fund pays its proportionate share of the fee.
<PAGE>
- --------------------------- -------------------------
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, 1997, the daily rate applied to the Portfolio's net assets was
equal to 0.469% on an annual basis. The fee is calculated for each calendar day
on the basis of net assets as of the close of business two business days prior
to the day for which the calculation is made.
Before the fee based on the asset charge is paid, it is adjusted for investment
performance. The adjustment, determined monthly, will be calculated using the
percentage point difference between the change in the net asset value of one
Class A share of the Fund and the change in the Lipper Growth 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 $607,329 for
the fiscal year ended Sept. 30, 1997.
<PAGE>
The management fee is paid monthly. Under the agreement, the total amount paid
was $16,849,365 for the fiscal year ended Sept. 30, 1997, $12,835,896 for fiscal
period 1996, and $11,924,057 for fiscal year 1995.
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, Portfolio 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 by the Fund and Portfolio were $925,431 for the fiscal
year ended Sept. 30, 1997, $962,795 for fiscal period 1996, and $1,180,596 for
fiscal year 1995.
In this section, prior to May 13, 1996, the fees and expenses described were
paid directly by the Fund. After that date, the management fees were paid by the
Portfolio.
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, 1997, the daily rate applied to the Fund's net assets was equal to
0.028% 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 $1,073,735 for the fiscal year ended Sept. 30, 1997.
<PAGE>
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 $3,523,266 for the fiscal year ended Sept. 30,
1997.
Distribution Agreement
Under a Distribution Agreement, sales charges deducted for distributing Fund
shares are paid to AEFA daily. These charges amounted to $2,758,791 for the
fiscal year ended Sept. 30, 1997. After paying commissions to personal financial
advisors, and other expenses, the amount retained was $199,043. The amounts were
$2,807,662 and $114,245 for fiscal period 1996, and $2,812,649 and $520,122 for
fiscal year 1995.
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 average
daily net assets for Class A and Class B and 0.10% for Class Y.
Plan and Agreement of Distribution
For Class B shares, to help AEFA defray the cost of distribution and servicing,
not covered by the sales charges received under the Distribution Agreement, the
Fund and AEFA 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, AEFA 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
<PAGE>
the operation of the Plan or in any agreement related to the Plan, or by vote of
a majority of the outstanding voting securities of the Fund's Class B shares or
by AEFA. 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. 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 year ended Sept. 30, 1997, under the
agreement, the Fund paid fees of $1,152,946.
Custodian Agreement
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 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.
Total fees and expenses
The Fund paid total fees and nonadvisory expenses, net of earnings credits of
$28,549,498 for the fiscal year ended Sept. 30, 1997.
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.
<PAGE>
BOARD MEMBERS AND OFFICERS
The following is a list of the Fund's board members. They serve 15 Master Trust
portfolios and 47 IDS and IDS Life funds (except for William H. Dudley, who does
not serve on the nine IDS Life fund boards).
All shares have cumulative voting rights with respect to the election of board
members.
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, Union Pacific
Resources, and FPL Group, Inc. (holding company for Florida Power and Light).
William H. Dudley**
Born in 1932
2900 IDS Tower
Minneapolis, MN
Senior advisor to the chief executive officer of AEFC.
David R. Hubers+**
Born in 1943
2900 IDS Tower
Minneapolis, MN
President and chief executive officer of AEFC since August 1993, and director of
AEFC. Previously, senior vice president, finance and chief financial officer of
AEFC.
<PAGE>
Heinz F. Hutter+'
Born in 1929
P.O. Box 2187
Minneapolis, MN
Former president and chief operating officer, Cargill, Incorporated (commodity
merchants and processors).
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.
William R. Pearce+*
Born in 1927
901 S. Marquette Ave.
Minneapolis, MN
Chairman of the board, Board Services Corporation (provides administrative
services to boards). Director, trustee and officer of registered investment
companies whose boards are served by the company. Former vice chairman of the
board, Cargill, Incorporated (commodity merchants and processors).
Alan K. Simpson'
Born in 1931
1201 Sunshine Ave.
Cody, WY
Former three-term United States Senator for Wyoming. Former Assistant Republican
Leader, U.S. Senate. Director, PacifiCorp (electric power).
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).
<PAGE>
John R. Thomas**
Born in 1937
2900 IDS Tower
Minneapolis, MN
Senior vice president of AEFC.
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 chairman of the board, and Mr. Thomas, who is
president, the Fund's other officers are:
<PAGE>
Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN
President, treasurer and corporate secretary of Board Services Corporation. Vice
president, general counsel and secretary for the Fund.
Officers who also are officers and/or employees of AEFC
Peter J. Anderson
Born in 1942
IDS Tower 10
Minneapolis, MN
Director and senior vice president-investments of AEFC. Vice
president-investments for the Fund.
Melinda S. Urion
Born in 1953
IDS Tower 10
Minneapolis, MN
Director, senior vice president and chief financial officer of AEFC. Director,
executive vice president and controller of IDS Life Insurance Company. Treasurer
for the Fund.
COMPENSATION FOR FUND AND PORTFOLIO BOARD MEMBERS
Members of the Fund 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 $86. 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 $6. Expenses for attending meetings are
reimbursed.
Members of the Portfolio board who are not officers of the Portfolio or of AEFC
receive an annual fee of $1,800 and the chair of the Contracts Committee
receives and additional $86. 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 and Personnel
Committee $25 and for traveling from out-of-state, $18. Expenses for attending
meetings are reimbursed.
<PAGE>
During the fiscal year ended Sept. 30, 1997, the independent members of the Fund
and Portfolio boards, for attending up to 32 meetings, received the following
compensation:
<TABLE>
<CAPTION>
Compensation Table
Total cash
compensation
Pension or from the IDS
Aggregate Retirement MUTUAL FUND
Aggregate compensation benefits Estimated GROUP and
compensation from the accrued as Fund annual benefit Preferred
Board Member from the Fund Portfolio or Portfolio upon retirement Master Trust
expenses Group
- ---------------------- --------------- --------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
H. Brewster Atwater, $1,306 $2,418 $0 $0 $90,300
Jr. (part of year)
- ---------------------- --------------- --------------- ----------------- ----------------- -----------------
- ---------------------- --------------- --------------- ----------------- ----------------- -----------------
Lynne V. Cheney 1,373 2,632 0 0 95,800
- ---------------------- --------------- --------------- ----------------- ----------------- -----------------
- ---------------------- --------------- --------------- ----------------- ----------------- -----------------
Robert F. Froehlke 1,506 2,718 0 0 103,000
- ---------------------- --------------- --------------- ----------------- ----------------- -----------------
- ---------------------- --------------- --------------- ----------------- ----------------- -----------------
Heinz F. Hutter 1,581 2,793 0 0 107,200
- ---------------------- --------------- --------------- ----------------- ----------------- -----------------
- ---------------------- --------------- --------------- ----------------- ----------------- -----------------
Anne P. Jones 1,610 2,893 0 0 110,000
- ---------------------- --------------- --------------- ----------------- ----------------- -----------------
- ---------------------- --------------- --------------- ----------------- ----------------- -----------------
Melvin R. Laird 1,389 2,648 0 0 97,000
- ---------------------- --------------- --------------- ----------------- ----------------- -----------------
- ---------------------- --------------- --------------- ----------------- ----------------- -----------------
Alan K. Simpson 1,355 2,614 0 0 94,600
(part of year)
- ---------------------- --------------- --------------- ----------------- ----------------- -----------------
- ---------------------- --------------- --------------- ----------------- ----------------- -----------------
Edson W. Spencer 1,517 2,429 0 0 100,700
- ---------------------- --------------- --------------- ----------------- ----------------- -----------------
- ---------------------- --------------- --------------- ----------------- ----------------- -----------------
Wheelock Whitney 1,631 2,843 0 0 110,400
- ---------------------- --------------- --------------- ----------------- ----------------- -----------------
- ---------------------- --------------- --------------- ----------------- ----------------- -----------------
C. Angus Wurtele 1,656 2,868 0 0 111,600
- ---------------------- --------------- --------------- ----------------- ----------------- -----------------
</TABLE>
On Sept. 30, 1997, the Fund's board members and officers as a group owned less
than 1% of the outstanding shares of any class.
INDEPENDENT AUDITORS
The Fund's and corresponding Portfolio's financial statements contained in the
Annual Report to shareholders for the fiscal year ended Sept.30, 1997, 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 Annual Report to shareholders for the fiscal year ended Sept.
30, 1997, pursuant to Section 30(d) of the 1940 Act, 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. 28, 1997, is hereby incorporated
in this SAI by reference.
<PAGE>
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 neither 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.
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.
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>
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
<PAGE>
successful execution of a short-term hedging strategy is highly uncertain. The
Portfolio will not enter into such forward contracts or maintain a net exposure
to such contracts when consummating the contracts would 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
<PAGE>
time. Although such forward contracts tend to minimize the risk of loss due to a
decline in value of hedged currency, they tend to limit any potential gain that
might result should the value of such currency increase.
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
<PAGE>
not be offset by the amount of the premium. Through the writing of options on
foreign currencies, the Portfolio also may be required to forego all or a
portion of the benefits which might otherwise have been obtained from favorable
movements on exchange rates.
All options written on foreign currencies will be covered. An option written on
foreign currencies is covered if the Portfolio holds currency sufficient to
cover the option or has an absolute and immediate right to acquire that currency
without additional cash consideration upon conversion of assets denominated in
that currency or exchange of other currency held in its portfolio. An option
writer could lose amounts substantially in excess of its initial investments,
due to the margin and collateral requirements associated with such positions.
Options on foreign currencies are traded through financial institutions acting
as market-makers, although foreign currency options also are traded on certain
national securities exchanges, such as the Philadelphia Stock Exchange and the
Chicago Board Options Exchange, subject to SEC regulation. In an
over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchaser of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost.
Foreign currency option positions entered into on a national securities exchange
are cleared and guaranteed by the Options Clearing Corporation (OCC), thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting the Portfolio to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in certain foreign countries
for the purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on OCC or
its clearing member, impose special procedures on exercise and settlement, such
as technical changes in the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions on exercise.
<PAGE>
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>
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 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
<PAGE>
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 Fund'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.)
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
<PAGE>
between the proceeds and the security's basis. Premiums received from writing
outstanding call options are included as a deferred credit in the Statement of
Assets and Liabilities and adjusted daily to the current market value.
Options are valued at the close of the New York Stock Exchange. An option listed
on a national exchange, CBOE or NASDAQ will be valued at the last-quoted sales
price or, if such a price is not readily available, at the mean of the last bid
and asked prices.
STOCK INDEX FUTURES CONTRACTS. Stock index futures contracts are commodity
contracts listed on commodity exchanges. They currently include contracts on the
Standard & Poor's 500 Stock Index (S&P 500 Index) and other broad stock market
indexes such as the New York Stock Exchange Composite Stock Index and the Value
Line Composite Stock Index, as well as narrower sub-indexes such as the S&P 100
Energy Stock Index and the New York Stock Exchange Utilities Stock Index. A
stock index assigns relative values to common stocks included in the index and
the index fluctuates with the value of the common stocks so included.
A futures contract is a legal agreement between a buyer or seller and the
clearinghouse of a futures exchange in which the parties agree to make a cash
settlement on a specified future date in an amount determined by the stock index
on the last trading day of the contract. The amount is a specified dollar amount
(usually $100 or $500) multiplied by the difference between the index value on
the last trading day and the value on the day the contract was struck.
For example, the S&P 500 Index consists of 500 selected common stocks, most of
which are listed on the New York Stock Exchange. The S&P 500 Index assigns
relative weightings to the common stocks included in the Index, and the Index
fluctuates with changes in the market values of those stocks. In the case of S&P
500 Index futures contracts, the specified multiple is $500. Thus, if the value
of the S&P 500 Index were 150, the value of one contract would be $75,000 (150 x
$500). Unlike other futures contracts, a stock index futures contract specifies
that no delivery of the actual stocks making up the index will take place.
Instead, settlement in cash must occur upon the termination of the contract. For
example, excluding any transaction costs, if the Portfolio enters into one
futures contract to buy the S&P 500 Index at a specified future date at a
contract value of 150 and the S&P 500 Index is at 154 on that future date, the
Portfolio will gain $500 x (154-150) or $2,000. If the Portfolio enters into one
futures contract to sell the S&P 500 Index at a specified future date at a
contract value of 150 and the S&P 500 Index is at 152 on that future date, the
Portfolio will lose $500 x (152-150) or $1,000.
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
<PAGE>
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.
The Portfolio may enter into contracts with respect to any stock index or
sub-index. To hedge the Portfolio successfully, however, the Portfolio must
enter into contracts with respect to indexes or sub-indexes whose movements will
have a significant correlation with movements in the prices of the Portfolio's
securities.
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.
<PAGE>
Positions in stock index futures contracts may be closed only on an exchange or
board of trade providing a secondary market for such futures contracts. For
example, futures contracts transactions can currently be entered into with
respect to the S&P 500 Stock Index on the Chicago Mercantile Exchange, the New
York Stock Exchange Composite Stock Index on the New York Futures Exchange and
the Value Line Composite Stock Index on the Kansas City Board of Trade. Although
the Portfolio intends to enter into futures contracts only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a liquid secondary market will exist for any particular
contract at any particular time. In such event, it may not be possible to close
a futures contract position, and in the event of adverse price movements, the
Portfolio would have to make daily cash payments of variation margin. Such price
movements, however, will be offset all or in part by the price movements of the
securities subject to the hedge. Of course, there is no guarantee the price of
the securities will correlate with the price movements in the futures contract
and thus provide an offset to losses on a futures contract.
2. Hedging Risks. There are several risks in using stock index futures contracts
as a hedging device. One risk arises because the prices of futures contracts may
not correlate perfectly with movements in the underlying stock index due to
certain market distortions. First, all participants in the futures market are
subject to initial margin and variation margin requirements. Rather than making
additional variation margin payments, investors may close the contracts through
offsetting transactions which could distort the normal relationship between the
index and futures markets. Second, the margin requirements in the futures market
are lower than margin requirements in the securities market, and as a result the
futures market may attract more speculators than does the securities market.
Increased participation by speculators in the futures market also may cause
temporary price distortions. Because of price distortion in the futures market
and because of imperfect correlation between movements in stock indexes and
movements in prices of futures contracts, even a correct forecast of general
market trends may not result in a successful hedging transaction over a short
period.
Another risk arises because of imperfect correlation between movements in the
value of the futures contracts and movements in the value of securities subject
to the hedge. If this occurred, the Portfolio could lose money on the contracts
and also experience a decline in the value of its portfolio securities. While
this could occur, the investment manager believes that over time the value of
the Portfolio will tend to move in the same direction as the market indexes and
will attempt to reduce this risk, to the extent possible, by entering into
futures contracts on indexes whose movements it believes will have a significant
correlation with movements in the value of the Portfolio's securities sought to
be hedged. It also is possible that if the Portfolio has hedged against a
decline in the value of the stocks held in its portfolio and stock prices
increase instead, the Portfolio will lose part or all of the benefit of the
increased value of its stock which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the
Portfolio has insufficient cash, it may have to sell securities to meet daily
<PAGE>
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.
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.
<PAGE>
Federal income tax treatment of gains or losses from transactions in options on
futures contracts and indexes will depend on whether such option is a section
1256 contract. If the option is a non-equity option, the Portfolio will either
make a 1256(d) election and treat the option as a mixed straddle or mark to
market the option at fiscal year end and treat the gain/loss as 40% short term
and 60% long term. Certain provisions of the Internal Revenue Code may also
limit the Portfolio's ability to engage in futures contracts and related options
transactions. For example, at the close of each quarter of the Fund's taxable
year, at least 50% of the value of its assets must consist of cash, government
securities and other securities, subject to certain diversification
requirements. Less than 30% of its gross income must be derived from sales of
securities held less than three months.
The IRS has ruled publicly that an exchange-traded call option is a security for
purposes of the 50%-of-assets test and that its issuer is the issuer of the
underlying security, not the writer of the option, for purposes of the
diversification requirements. In order to avoid realizing a gain within the
three-month period, the Portfolio may be required to defer closing out a
contract beyond the time when it might otherwise be advantageous to do so. The
Portfolio also may be restricted in purchasing put options for the purpose of
hedging underlying securities because of applying the short sale holding period
rules with respect to such underlying securities.
Accounting for futures contracts will be according to generally accepted
accounting principles. Initial margin deposits will be recognized as assets due
from a broker (the Portfolio's agent in acquiring the futures position). During
the period the futures contract is open, changes in value of the contract will
be recognized as unrealized gains or losses by marking to market on a daily
basis to reflect the market value of the contract at the end of each day's
trading. Variation margin payments will be made or received depending upon
whether gains or losses are incurred. All contracts and options will be valued
at the last-quoted sales price on their primary exchange.
<PAGE>
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>
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 technique 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 on a regular basis through changing market conditions,
including times when the price of their shares falls or the market declines, 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>
Independent auditors' report
The board and shareholders
IDS Stock Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of
IDS Stock Fund, Inc. as of September 30, 1997, and the related statement
of operations for the year then ended, the statements of changes in net
assets for the year then ended and the eleven month period ended September
30, 1996, and the financial highlights for the one year ended September
30, 1997, the eleven month period ended September 30, 1996 and for each of
the years in the nine-year period ended October 31, 1995. These financial
statements and the financial highlights are the responsibility of fund
management. Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and the
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of IDS Stock Fund, Inc.
at September 30, 1997, and the results of its operations, changes in its
net assets and the financial highlights for the periods stated in the
first paragraph above, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 7, 1997
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
IDS Stock Fund, Inc.
Sept. 30, 1997
Assets
<S> <C>
Investment in Equity Portfolio (Note 1) $4,163,002,859
--------------
Total assets 4,163,002,859
-------------
Liabilities
Accrued distribution fee 4,143
Accrued service fee 17,584
Accrued transfer agency fee 10,010
Accrued administrative services fees 3,158
Other accrued expenses 155,208
-------
Total liabilities 190,103
-------
Net assets applicable to outstanding capital stock $4,162,812,756
==============
Represented by
Capital stock-- $.01 par value (Note 1) $ 1,517,287
Additional paid-in capital 2,616,232,141
Undistributed net investment income 791,472
Accumulated net realized gain (loss) 469,623,967
Unrealized appreciation (depreciation) on investments and on translation
of assets and liabilities in foreign currencies 1,074,647,889
-------------
Total-- representing net assets applicable to outstanding capital stock $4,162,812,756
==============
Net assets applicable to outstanding shares: Class A $2,877,266,387
Class B $ 203,257,884
Class Y $1,082,288,485
Net asset value per share of outstanding capital stock: Class A shares 104,853,191 $ 27.44
Class B shares 7,438,698 $ 27.32
Class Y shares 39,436,789 $ 27.44
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
IDS Stock Fund, Inc.
Year ended Sept. 30, 1997
Investment income
Income:
<S> <C>
Dividends $ 72,702,266
Interest 14,749,102
Less: Foreign taxes withheld (526,504)
--------
Total Income 86,924,864
----------
Expenses (Note 2):
Expenses allocated from Equity Portfolio 17,488,030
Distribution fee -- Class B 1,152,946
Transfer agency fee 3,507,442
Incremental transfer agency fee-- Class B 15,824
Service fee
Class A 4,348,683
Class B 267,485
Class Y 411,815
Administrative services fees and expenses 1,073,735
Compensation of board members 14,110
Compensation of officers 4,103
Postage 148,894
Registration fees 302,944
Reports to shareholders 3,271
Audit fees 9,625
Other 9,436
-----
Total expenses 28,758,343
Earnings credits on cash balances (Note 2) (208,845)
--------
Total net expenses 28,549,498
----------
Investment income (loss) -- net 58,375,366
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 491,037,820
Foreign currency transactions (506,048)
--------
Net realized gain (loss) on investments 490,531,772
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 427,269,463
-----------
Net gain (loss) on investments and foreign currencies 917,801,235
-----------
Net increase (decrease) in net assets resulting from operations $976,176,601
============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of changes in net assets
IDS Stock Fund, Inc.
Operations and distributions Sept. 30, 1997 Sept. 30, 1996
Year ended Eleven-month
period ended
<S> <C> <C>
Investment income (loss)-- net $ 58,375,366 $ 62,152,554
Net realized gain (loss) on investments 490,531,772 144,560,754
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 427,269,463 307,696,966
----------- -----------
Net increase (decrease) in net assets resulting from operations 976,176,601 514,410,274
----------- -----------
Distributions to shareholders from:
Net investment income
Class A (44,462,913) (40,068,143)
Class B (1,646,156) (917,346)
Class Y (17,928,151) (16,474,443)
Net realized gain
Class A (113,973,806) (66,949,954)
Class B (6,116,806) (1,317,953)
Class Y (43,104,797) (25,308,530)
----------- -----------
Total distributions (227,232,629) (151,036,369)
------------ ------------
Capital share transactions (Note 3)
Proceeds from sales
Class A shares (Note 2) 242,084,917 310,273,867
Class B shares 72,920,015 73,175,827
Class Y shares 252,272,494 206,212,641
Reinvestment of distributions at net asset value
Class A shares 145,741,344 98,054,599
Class B shares 7,699,303 2,216,336
Class Y shares 53,455,672 36,464,463
Payments for redemptions
Class A shares (340,439,519) (344,574,702)
Class B shares (Note 2) (16,926,750) (5,132,861)
Class Y shares (287,081,216) (207,758,852)
------------ ------------
Increase (decrease) in net assets from capital share transactions 129,726,260 168,931,318
----------- -----------
Total increase (decrease) in net assets 878,670,232 532,305,223
Net assets at beginning of period 3,284,142,524 2,751,837,301
------------- -------------
Net assets at end of period $4,162,812,756 $3,284,142,524
============== ==============
Undistributed net investment income $ 791,472 $ 7,896,550
-------------- --------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
IDS Stock Fund, Inc.
1
Summary of
significant
accounting policies
The Fund is registered under the Investment Company Act of 1940 (as
amended) as a diversified, open-end management investment company. The
Fund has 10 billion authorized shares of capital stock. The Fund offers
Class A, Class B and Class Y shares. Class A shares are sold with a
front-end sales charge. Class B shares may be subject to a contingent
deferred sales charge and such shares automatically convert to Class A
shares during the ninth calendar year of ownership. Class Y shares have no
sales charge and are offered only to qualifying institutional investors.
All classes of shares have identical voting, dividend, liquidation and
other rights, and the same terms and conditions, except that the level of
distribution fee, transfer agency fee and service fee (class specific
expenses) differs among classes. Income, expenses (other than class
specific expenses) and realized and unrealized gains or losses on
investments are allocated to each class of shares based upon its relative
net assets.
Investment in Equity Portfolio
Effective May 13, 1996, the Fund began investing all of its assets in
Equity Portfolio (the Portfolio), a series of Growth and Income Trust, an
open-end investment company that has the same objectives as the Fund. This
was accomplished by transferring the Fund's assets to the Portfolio in
return for a proportionate ownership interest in the Portfolio. Equity
Portfolio invests primarily in common stocks and securities convertible
into common stocks.
The Fund records daily its share of the Portfolio's income, expenses and
realized and unrealized gains and losses. The financial statements of the
Portfolio are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The Fund records its investment in the Portfolio at the value that is
equal to the Fund's proportionate ownership interest in the net assets of
the Portfolio. The percentage of the Portfolio owned by the Fund at Sept.
30, 1997 was 99.98%. Valuation of securities held by the Portfolio is
discussed in Note 1 of the Portfolio's "Notes to financial statements,"
which are included elsewhere in this report.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increase and decrease in
net assets from operations during the period. Actual results could differ
from those estimates.
Federal taxes
Since the Fund's policy is to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders, no provision for
income or excise taxes is required.
Net investment income (loss) and net realized gains (losses) allocated
from the Portfolio may differ for financial statement and tax purposes
primarily because of the deferral of losses on certain futures contracts,
the recognition of certain foreign currency gains (losses) as ordinary
income (loss) for tax purposes, and losses deferred due to "wash sale"
transactions. The character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing
of dividend distributions, the fiscal year in which amounts are
distributed may differ from the year that the income or realized gains
(losses) were recorded by the Fund.
On the statement of assets and liabilities, as a result of permanent
book-to-tax differences, undistributed net investment income has been
decreased by $1,443,224 and accumulated net realized gain has been
increased by $1,623,596 resulting in a net reclassification adjustment to
decrease additional paid-in capital by $180,372.
Dividends to shareholders
Dividends from net investment income, declared and paid each calendar
quarter, are reinvested in additional shares of the Fund at net asset
value or payable in cash. Capital gains, when available, are distributed
along with the last income dividend of the calendar year.
2
Expenses and
sales charges
In addition to the expenses allocated from the Portfolio, the Fund accrues
its own expenses as follows:
Effective March 20, 1995, the Fund entered into agreements with American
Express Financial Corporation (AEFC) for providing administrative services
and serving as transfer agent. Under its Administrative Services
Agreement, the Fund pays AEFC a fee for administration and accounting
services at a percentage of the Fund's average daily net assets in
reducing percentages from 0.04% to 0.02% annually. Additional
administrative service expenses paid by the Fund are office expenses,
consultants' fees and compensation of officers and employees. Under this
agreement, the Fund also pays taxes, audit and certain legal fees,
registration fees for shares, compensation of board members, corporate
filing fees, organizational expenses and any other expenses properly
payable by the Fund and approved by the board.
Under a separate Transfer Agency Agreement, AEFC maintains shareholder
accounts and records. The Fund pays AEFC an annual fee per shareholder
account for this service as follows:
o Class A $15
o Class B $16
o Class Y $15
Also effective March 20, 1995, the Fund entered into agreements with
American Express Financial Advisors Inc. for distribution and shareholder
servicing-related services. Under a Plan and Agreement of Distribution,
the Fund pays a distribution fee at an annual rate of 0.75% of the Fund's
average daily net assets attributable to Class B shares for
distribution-related services.
Under a Shareholder Service Agreement, the Fund pays a fee for service
provided to shareholders by financial advisors and other servicing agents.
The fee is calculated at a rate of 0.175% of the Fund's average daily net
assets attributable to Class A and Class B shares and commencing on May 9,
1997, the fee is calculated at a rate of 0.10% of the Fund's average daily
net assets attributable to Class Y shares.
Sales charges received by American Express Financial Advisors Inc. for
distributing Fund shares were $2,666,707 for Class A and $92,084 for Class
B for the year ended Sept. 30, 1997.
During the year ended Sept. 30, 1997, the Fund's transfer agency fees were
reduced by $208,845 as a result of earnings credits from overnight cash
balances.
3
Capital share
transactions
Transactions in shares of capital stock for the periods indicated are as
follows:
Year ended Sept. 30, 1997
Class A Class B Class Y
Sold 9,885,572 3,000,534 10,328,998
Issued for reinvested
distributions 6,259,225 333,244 2,293,106
Redeemed (13,870,549) (687,579)(11,846,789)
----------- -------- -----------
Net increase (decrease) 2,274,248 2,646,199 775,315
Period ended Sept. 30, 1996
Class A Class B Class Y
Sold 14,630,112 3,448,528 9,749,258
Issued for reinvested
distributions 4,745,900 106,774 1,762,224
Redeemed (16,225,558) (241,151) (9,825,574)
----------- -------- ----------
Net increase (decrease) 3,150,454 3,314,151 1,685,908
4
Change of Fund's
fiscal year
The By-Laws of the Fund were amended on Jan. 11, 1996, changing it's
fiscal year end from Oct. 31 to Sept. 30, effective 1996.
5
Financial
highlights
"Financial highlights" showing per share data and selected information is
presented on pages 7 and 8 of the prospectus.
<PAGE>
Independent auditors' report
The board of trustees and unitholders
Growth and Income Trust:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments in securities, of Equity Portfolio
(a series of Growth and Income Trust) as of September 30, 1997, the
related statement of operations for the year then ended and the statements
of changes in net assets for the year ended September 30, 1997 and for the
period from May 13, 1996 (commencement of operations) to September 30,
1996. These financial statements are the responsibility of portfolio
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by
the custodian. As to securities purchased and sold but not received or
delivered, and securities on loan, we request confirmations from brokers,
and where replies are not received, we carry out other appropriate
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Equity Portfolio at
September 30, 1997, and the results of its operations and the changes in
its net assets for the periods stated in the first paragraph above, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 7, 1997
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
Equity Portfolio
Sept. 30, 1997
Assets
Investments in securities, at value (Note 1)
<S> <C>
Investments in securities of unaffiliated issuers (identified cost $3,094,630,726) $4,140,592,546
Investments in securities of affiliated issuers (identified cost $40,790,575) 69,650,928
Dividends and accrued interest receivable 7,431,287
Receivable for investment securities sold 55,112,037
U.S. government securities held as collateral (Note 4) 157,000
-------
Total assets 4,272,943,798
-------------
Liabilities
Disbursements in excess of cash on demand deposit 3,507,565
Payable for investment securities purchased 46,156,429
Unrealized depreciation on foreign currency contracts held, at value (Notes 1 and 5) 3,351
Payable upon return of securities loaned (Note 4) 59,437,000
Accrued investment management services fee 38,688
------
Total liabilities 109,143,033
-----------
Net assets $4,163,800,765
==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
Equity Portfolio
Year ended Sept. 30, 1997
Investment income
Income:
<S> <C>
Dividends (including $703,000 earned from affiliates) $ 72,715,743
Interest 14,726,478
Less: Foreign taxes withheld (526,601)
--------
Total income 86,915,620
----------
Expenses (Note 2):
Investment management services fee 16,849,365
Compensation of board members 22,624
Custodian fees 511,951
Audit fees 28,875
Other 90,087
------
Total expenses 17,502,902
Earnings credit on cash balances (Note 2) (11,644)
-------
Total net expenses 17,491,258
----------
Investment income (loss) -- net 69,424,362
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (including $2,126,838 realized loss
on sales of affiliated issuers) (Note 3) 491,092,967
Foreign currency transactions (506,142)
--------
Net realized gain (loss) on investments 490,586,825
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 427,383,679
-----------
Net gain (loss) on investments and foreign currencies 917,970,504
-----------
Net increase (decrease) in net assets resulting from operations $987,394,866
============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statements of changes in net assets
Equity Portfolio
Operations and distributions
Year ended For the period from
Sept. 30, 1997 May 13, 1996* to
Sept. 30, 1996
<S> <C> <C>
Investment income (loss)-- net $ 69,424,362 $ 38,250,649
Net realized gain (loss) on investments 490,586,825 (4,205,188)
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 427,383,679 140,669,806
----------- -----------
Net increase (decrease) in net assets resulting from operations 987,394,866 174,715,267
Net contributions (withdrawals) from partners (108,642,196) 3,110,307,828
------------ -------------
Total increase (decrease) in net assets 878,752,670 3,285,023,095
Net assets at beginning of period (Note 1) 3,285,048,095 25,000
------------- ------
Net assets at end of period $4,163,800,765 $3,285,048,095
============== ==============
*Commencement of operations
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
Equity Portfolio
1
Summary of
significant
accounting policies
Equity Portfolio (the Portfolio) is a series of Growth and Income Trust
(the Trust) and is registered under the Investment Company Act of 1940 (as
amended) as a diversified, open-end management investment company. Equity
Portfolio invests primarily in common stocks and securities convertible
into common stocks. The Declaration of Trust permits the Trustees to issue
non-transferable interests in the Portfolio. On April 15, 1996, American
Express Financial Corporation (AEFC) contributed $25,000 to the Portfolio.
Operations did not formally commence until May 13, 1996, at which time, an
existing fund transferred its assets to the Portfolio in return for an
ownership percentage of the Portfolio.
Significant accounting policies followed by the Portfolio are summarized
below:
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increase and decrease in
net assets from operations during the period. Actual results could differ
from those estimates.
Valuation of securities
All securities are valued at the close of each business day. Securities
traded on national securities exchanges or included in national market
systems are valued at the last quoted sales price. Debt securities are
generally traded in the over-the-counter market and are valued at a price
deemed best to reflect fair value as quoted by dealers who make markets in
these securities or by an independant pricing service. Securities for
which market quotations are not readily available are valued at fair value
according to methods selected in good faith by the board. Short-term
securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current
interest rates; those maturing in 60 days or less are valued at amortized
cost.
Option transactions
In order to produce incremental earnings, protect gains and facilitate
buying and selling of securities for investment purposes, the Portfolio
may buy and write options traded on any U.S. or foreign exchange or in the
over-the-counter market where the completion of the obligation is
dependent upon the credit standing of the other party. The Portfolio also
may buy and sell put and call options and write covered call options on
portfolio securities and may write cash-secured put options. The risk in
writing a call option is that the Portfolio gives up the opportunity of
profit if the market price of the security increases. The risk in writing
a put option is that the Portfolio may incur a loss if the market price of
the security decreases and the option is exercised. The risk in buying an
option is that the Portfolio pays a premium whether or not the option is
exercised. The Portfolio also has the additional risk of not being able to
enter into a closing transaction if a liquid secondary market does not
exist.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The
Portfolio will realize a gain or loss upon expiration or closing of the
option transaction. When an option is exercised, the proceeds on sales for
a written call option, the purchase cost for a written put option or the
cost of a security for a purchased put or call option is adjusted by the
amount of premium received or paid.
Futures transactions
In order to gain exposure to or protect itself from changes in the market,
the Portfolio may buy and sell financial futures contracts traded on any
U.S. or foreign exchange. The Portfolio also may buy and write put and
call options on these futures contracts. Risks of entering into futures
contracts and related options include the possibility that there may be an
illiquid market and that a change in the value of the contract or option
may not correlate with changes in the value of the underlying securities.
Upon entering into a futures contract, the Portfolio is required to
deposit either cash or securities in an amount (initial margin) equal to a
certain percentage of the contract value. Subsequent payments (variation
margin) are made or received by the Portfolio each day. The variation
margin payments are equal to the daily changes in the contract value and
are recorded as unrealized gains and losses. The Portfolio recognizes a
realized gain or loss when the contract is closed or expires.
Foreign currency translations
and foreign currency contracts
Securities and other assets and liabilities denominated in foreign
currencies are translated daily into U.S. dollars at the closing rate of
exchange. Foreign currency amounts related to the purchase or sale of
securities and income and expenses are translated at the exchange rate on
the transaction date. The effect of changes in foreign exchange rates on
realized and unrealized security gains or losses is reflected as a
component of such gains or losses. In the statement of operations, net
realized gains or losses from foreign currency transactions may arise from
sales of foreign currency, closed forward contracts, exchange gains or
losses realized between the trade date and settlement dates on securities
transactions, and other translation gains or losses on dividends, interest
income and foreign withholding taxes.
The Portfolio may enter into forward foreign currency exchange contracts
for operational purposes and to protect against adverse exchange rate
fluctuation. The net U.S. dollar value of foreign currency underlying all
contractual commitments held by the Portfolio and the resulting unrealized
appreciation or depreciation are determined using foreign currency
exchange rates from an independent pricing service. The Portfolio is
subject to the credit risk that the other party will not complete the
obligations of the contract.
Federal taxes
For federal income tax purposes the Portfolio qualifies as a partnership
and each investor in the Portfolio is treated as the owner of its
proportionate share of the net assets, income, expenses and realized and
unrealized gains and losses of the Portfolio. Accordingly, as a
"pass-through" entity, the Portfolio does not pay any income dividends or
capital gain distributions.
Other
Security transactions are accounted for on the date securities are
purchased or sold. Dividend income is recognized on the ex-dividend date
and interest income, including level-yield amortization of premium and
discount, is accrued daily.
2
Fees and
expenses
The Trust, on behalf of the Portfolio, has entered into an Investment
Management Services Agreement with AEFC for managing its portfolio. Under
this agreement, AEFC determines which securities will be purchased, held
or sold. The management fee is a percentage of the portfolio's average
daily net assets in reducing percentages from 0.53% to 0.4% annually. The
fees may be increased or decreased by a performance adjustment based on a
comparison of the performance of Class A shares of IDS Stock 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. The
adjustment decreased the fee by $607,329 for the year ended Sept. 30,
1997.
Under the agreement, the Trust also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees, audit and certain
legal fees, fidelity bond premiums, registration fees for units, office
expenses, consultants' fees, compensation of trustees, corporate filing
fees, expenses incurred in connection with lending securities of the
Portfolio and any other expenses properly payable by the Trust or
Portfolio and approved by the board.
During the year ended Sept. 30, 1997, the Portfolio's custodian fees were
reduced by $11,644 as a result of earnings credits from overnight cash
balances.
Pursuant to a Placement Agency Agreement, American Express Financial
Advisors Inc. acts as placement agent of the units of the Trust.
3
Securities
transactions
Cost of purchases and proceeds from sales of securities (other than
short-term obligations) aggregated $2,867,116,422 and $2,884,426,737,
respectively, for the year ended Sept. 30, 1997. For the same year, the
portfolio turnover rate was 82%. Realized gains and losses are determined
on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $404,603
for the year ended Sept. 30, 1997.
4
Lending of
portfolio
securities
At Sept. 30, 1997, securities valued at $59,437,000 were on loan to
brokers. For collateral, the Portfolio received $59,280,000 in cash and
U.S. government securities valued at $157,000. Income from securities
lending amounted to $876,421 for the year ended Sept. 30, 1997. The risks
to the Portfolio of securities lending are that the borrower may not
provide additional collateral when required or return the securities when
due.
5
Foreign currency
contracts
At Sept. 30, 1997, the Portfolio had entered into a foreign currency
exchange contract that obligates the Portfolio to deliver currency at a
specified future date. The unrealized appreciation and/or depreciation on
this contract is included in the accompanying financial statements. See
Summary of significant accounting policies. The terms of the open contract
are as follows:
Currency to Currency to Unrealized Unrealized
Exchange date be delivered be received appreciation depreciation
Oct. 2, 1 997 3,463,151 2,503,000 $-- $3,351
Canadian Dollar U.S. Dollar
<PAGE>
Investments in securities
Equity Portfolio (Percentages represent value of
Sept. 30, 1997 investments compared to net assets)
Investments in securities of unaffiliated issuers
Common stocks (81.7%)
Issuer Shares Value(a)
Aerospace & defense (2.5%)
Boeing 800,000 $ 43,550,000
General Motors Cl H 450,000 29,756,250
Lockheed Martin 306,084 32,636,206
Total 105,942,456
Airlines (0.8%)
AMR 300,000(b) 33,206,250
Automotive & related (0.9%)
Eaton 386,200 35,675,225
Banks and savings & loans (6.1%)
BankAmerica 500,000 36,656,250
BankBoston 328,250 29,029,609
First Union 1,000,000 50,062,500
KeyCorp 575,000 36,584,375
Mellon Bank 700,000 38,325,000
Norwest 400,000 24,500,000
Wachovia 49,300 3,549,600
Washington Mutual 500,000 34,875,000
Total 253,582,334
Beverages & tobacco (1.4%)
Coca-Cola 550,000 33,515,625
Philip Morris 600,000 24,937,500
Total 58,453,125
Chemicals (1.2%)
Du Pont (EI) de Nemours 500,000 30,781,250
Praxair 391,300 20,029,669
Total 50,810,919
Computers & office equipment (4.8%)
Compaq Computer 1,000,000(b,c) 74,750,000
Hewlett-Packard 650,000 45,215,625
Intl Business Machines 200,000 21,187,500
Microsoft 150,000(b) 19,846,875
Synopsys 970,000(b) 41,225,000
Total 202,225,000
Electronics (1.7%)
Harris 600,000 27,450,000
Intel 450,000 41,540,625
Total 68,990,625
Energy (3.2%)
Atlantic Richfield 350,000 29,903,125
Exxon 400,000 25,625,000
Gulf Indonesia Resources 126,000(b) 2,803,500
Phillips Petroleum 600,000 30,975,000
Unocal 1,000,000 43,250,000
Total 132,556,625
Energy equipment & services (0.2%)
Cooper Cameron 137,500(b) 9,874,219
Financial services (0.7%)
Travelers Group 400,000 27,300,000
Food (1.8%)
ConAgra 400,000 26,400,000
CPC Intl 250,000 23,156,250
Sara Lee 500,000 25,750,000
Total 75,306,250
Furniture & appliances (0.8%)
Maytag 1,000,000 34,125,000
Health care (9.1%)
Baxter Intl 750,000 39,187,500
Bristol-Myers Squibb 500,000 41,375,000
Guidant 1,000,000 56,000,000
Johnson & Johnson 625,000 36,015,625
Medtronic 1,050,000 49,350,000
Merck & Co 200,000 19,987,500
Pfizer 1,000,000 60,062,500
Schering-Plough 700,000 36,050,000
Warner-Lambert 300,000 40,481,250
Total 378,509,375
Health care services (0.5%)
Tenet Healthcare 700,000(b) 20,387,500
Household products (3.8%)
Colgate-Palmolive 1,000,000 69,687,500
Gillette 550,000 47,471,875
Procter & Gamble 600,000 41,437,500
Total 158,596,875
Industrial equipment & services (3.5%)
AGCO 500,000 15,843,750
Deere & Co 950,000 51,062,500
Illinois Tool Works 800,000 40,000,000
UCAR Intl 800,000(b) 38,200,000
Total 145,106,250
Insurance (3.3%)
American Intl Group 375,000 38,695,313
Provident Cos 400,000 27,975,000
SunAmerica 750,000 29,390,625
Travelers Property
Casualty Cl A 1,000,000 40,500,000
Total 136,560,938
Leisure time & entertainment (0.5%)
Disney (Walt) 275,000 22,171,875
Media (0.8%)
Clear Channel
Communications 500,000(b) 32,437,500
Metals (2.7%)
Freeport-McMoRan
Copper & Gold Cl B 500,000 14,406,250
Getchell Gold 1,000,000(b) 41,000,000
Martin Marietta Materials1,000,000 36,000,000
Stillwater Mining 1,000,000(b) 21,312,500
Total 112,718,750
Multi-industry conglomerates (3.5%)
Emerson Electric 400,000 23,050,000
General Electric 1,100,000 74,868,750
Siebe 1,500,000 30,188,602
Xerox 220,000 18,521,250
Total 146,628,602
Paper & packaging (0.8%)
Longview Fibre 1,636,300 32,521,462
Restaurants & lodging (0.6%)
Hilton Hotels 800,000 26,950,000
Retail (5.6%)
American Stores 1,100,000 26,812,500
Dayton Hudson 500,000 29,968,750
Penney (JC) 550,000 32,037,500
Rite Aid 1,000,000 55,437,500
Safeway 1,000,000(b) 54,375,000
Wal-Mart Stores 1,000,000 36,625,000
Total 235,256,250
Utilities -- electric (1.6%)
Carolina Power & Light 300,000 10,781,250
DTE Energy 325,000 9,892,187
FPL Group 600,000 30,750,000
Northern States Power 285,000 14,178,750
Total 65,602,187
Utilities -- telephone (3.2%)
Bell Atlantic 460,800 37,065,600
BellSouth 700,000 32,375,000
SBC Communications 450,000 27,618,750
U S WEST Communications
Group 900,000 34,650,000
Total 131,709,350
Foreign (16.1%) (d)
Commerzbank 600,000(c) 21,634,166
Compagnie Generale
des Eaux 156,500 18,412,851
Credito Italiano 20,000,000(c) 54,108,840
Deutsche Bank 600,000 42,249,455
Ericsson (LM) ADR 7,000,000 46,375,000
EXEL 1,250,000 74,453,125
General Electric 4,100,000 25,874,907
ING Groep ADR 600,000(c) 27,562,500
Lufthansa (Deutsche) 1,000,000(b) 19,669,996
Northern Telecom 450,000 46,771,875
Railtrack Group 4,000,000 57,838,316
Royal Dutch Petroleum 1,300,000 72,150,000
Schlumberger 500,000 42,093,750
SGL Carbon 200,000 29,377,636
SmithKline Beecham ADR 1,000,000 48,875,000
Unilever 200,000 42,525,000
Total 669,972,417
Total common stocks of unaffiliated issuers
(Cost: $2,449,323,305) $3,403,177,359
Preferred stocks (10.6%)
Issuer Shares Value(a)
AirTouch Communications
4.00% 525,000 $16,275,000
Altera
8.00% 347,826(e) 16,563,474
Circuit City Stores
5.50% 535,715 19,955,384
Citicorp
5.50% 250,000 29,781,250
CNF Trust I
5.00% 100,000 6,437,500
ConAgra
4.50% Cv 350,000 21,218,750
Crown Cork & Seal
1.90% Cv 225,000 10,012,500
Finova Finance Trust
5.50% 200,000 13,175,000
Gillette
3.00% 195,000 13,065,000
Hilton Hotels
8.00% 600,000(i) 18,600,000
Host Marriott Financial Trust
6.75% Cv 300,000(e) 19,875,000
Houston Inds
7.00% Cv 325,000(i) 16,900,000
Intel
5.00% Cv 206,000(j) 33,685,120
McKesson
$2.50 Cv 200,000(e) 14,650,000
Medtronic
5.00% 442,125 $37,447,987
Merck & Co.
4.50% Cv 225,000 20,193,750
Merrill Lynch
6.25% 515,000 19,891,875
Service Corp Intl
5.00% 1,100,000 35,475,000
Sunamerica
$3.19 Cv 500,000(j) 22,937,500
UNUM
$2.34 Cv 650,000 55,087,500
Total preferred stocks
(Cost: $357,217,740) $441,227,590
<PAGE>
<TABLE>
<CAPTION>
Bonds (3.2%)
Issuer Coupon Maturity Principal Value(a)
rate year amount
Domestic (2.9%)
Adaptec
<S> <C> <C> <C> <C>
Cv Sub Nts 4.75 % 2004 $15,000,000(e) $ 16,912,500
Costco
Zero Coupon Cv 3.50 2017 21,000,000(e,k) 11,313,750
Salomon-Emerson Electric ELK
Cv 5.00 1999 35,318,997(f) 34,031,745
Loews
Cv 3.125 2007 15,800,000 16,451,750
Read-Rite
Cv 6.50 2004 12,000,000 11,790,000
Softkey Intl
Cv 5.50 2000 15,000,000 12,993,750
Tower Automotive
Cv 5.00 2004 3,000,000(e) 3,225,000
WBK Strypes ELK
Cv 10.00 2000 15,216,875(f) 15,204,750
Total 121,923,245
Foreign (0.3%) (d)
BAA
(British Pound) 9.36 2006 6,000,000 11,062,304
Total bonds
(Cost: $124,872,180) $132,985,549
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
Investments in securities
Equity Portfolio
(Percentages represent value of
investments compared to net assets)
Investments in securities of unaffiliated issuers
Short-term securities (3.9%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agencies (0.6%)
Federal Home Loan Mtge Corp Disc Nt
10-14-97 5.40% $ 9,900,000 $ 9,880,695
Federal Natl Mtge Assn Disc Nt
10-17-97 5.45 14,000,000 13,966,089
Total 23,846,784
Commercial paper (3.2%)
Abbott Laboratories
10-29-97 5.50 9,300,000 9,260,217
Ameritech Capital Funding
10-24-97 5.48 13,266,000(g)13,216,746
10-28-97 5.52 3,100,000(g) 3,087,166
BellSouth Capital Funding
11-03-97 5.52 10,000,000 9,949,400
BOC Group
10-20-97 5.52 4,000,000 3,988,347
Cargill
10-20-97 5.50 5,900,000 5,882,874
Ciesco LP
11-07-97 5.51 1,500,000 1,491,505
CIT Group Holdings
11-04-97 5.51 6,100,000 6,068,256
Gannett
11-06-97 5.50 6,100,000 6,066,450
Gateway Fuel
10-21-97 5.50 6,000,000 5,981,667
10-27-97 5.49 7,000,000 6,970,960
Kredietbank North America Finance
10-08-97 5.50 1,700,000 1,698,182
10-08-97 5.51 600,000 599,357
Morgan Stanley Group
10-15-97 5.50 6,000,000 5,987,167
Motorola
10-23-97 5.50 10,000,000 9,966,389
Natl Bank Canada
10-03-97 5.52 4,900,000 4,898,497
New Center Asset Trust
10-17-97 5.51 1,800,000 1,795,592
Paccar Financial
10-20-97 5.51 8,000,000 7,976,735
Reed Elsevier
11-21-97 5.51 8,600,000(g) 8,529,450
SBC Communications Capital
11-03-97 5.51 5,700,000(g) 5,668,270
11-05-97 5.53 9,300,000(g) 9,249,999
USAA Capital
10-22-97 5.51 6,500,000 6,479,108
Total 134,812,334
Letter of credit (0.1%)
Student Loan Marketing Assn-
Nebraska Higher Education
10-31-97 5.54 4,564,000 4,542,930
Total short-term securities
(Cost: $163,212,501) $163,202,048
Total investments in securities of unaffiliated issuers
(Cost: $3,094,630,726) $4,140,592,546
Investments in securities of affiliated issuers (h)
Common stocks (1.7%)
Issuer Shares Value(a)
Meridian Gold 3,800,000(b) $18,838,428
Mutual Risk
Management 1,000,000 50,812,500
Total investments in securities of affiliated issuers
(Cost: $40,790,575) $69,650,928
Total investments in securities
(Cost: $3,135,421,301) (l) $4,210,243,474
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Security is partially or fully on loan. See Note 4 to the financial
statements.
(d) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated.
(e) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security has
been determined to be liquid under guidelines established ...by the board.
(f) ELKS are equity-linked securities that are structured as an interest-bearing
debt security of a brokerage firm and linked to the common stock of another
company. The terms of ELKS differ from those of ordinary debt securities in that
the principal amount received at maturity is not fixed but is based on the price
of the common stock the ELK is linked to. The principal amount disclosed equals
the current estimated future value of the amount to be received upon maturity.
(g) Commercial paper sold within terms of a private placement memorandum, exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
and may be sold only to dealers in that program or other "accredited investors."
This security has been determined to be liquid under guidelines established by
the board.
(h) Investments representing 5% or more of the outstanding voting securities of
the issuer. Transactions with companies that are or were affiliates during the
year ended Sept. 30, 1997 are as follows:
Issuer Beginning Purchase Sales Ending Dividend
cost cost cost cost income
<S> <C> <C> <C> <C> <C>
Meridian Gold $ 6,941,711 $14,386,276 $ 7,217,469 $14,110,518 $ --
Mutual Risk
Management* 9,937,262 16,742,795 -- 26,680,057 318,000
Station Casino 5,500,000 -- 5,500,000 -- 385,000
--------- --------- -------
Total $22,378,973 $31,129,071 $12,717,469 $40,790,575 $703,000
*Issuer was not an affiliate for the entire fiscal period.
(i) PRIDES -- (Preferred Redeemed Increased Dividend Equity Securities) -- are
structured as convertible preferred securities issued by a company. Investors
receive an enhanced yield but based upon a specific formula, potential
appreciation is limited. PRIDES pay dividends, have voting rights, are
non-callable for three years and upon maturity, convert into shares of common
stock.
(j) PERCS -- (Preferred-Equity Redeemable Cumulative Securities) -- are
convertible preferred securities. PERCS are like buying an underlying common
stock and selling a call option against the position.
(k) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield from the date of acquisition.
(l) At Sept. 30,1997, the cost of securities for federal income tax purposes was
$3,135,919,805 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation.......................................$1,089,616,771
Unrealized depreciation..........................................(15,293,102)
-----------
Net unrealized appreciation...................................$1,074,323,669
</TABLE>
<PAGE>
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 7, 1997.
Statement of assets and liabilities, Sept. 30, 1997.
Statement of operations year ended Sept. 30, 1997.
Statement of changes in net assets year ended Sept. 30, 1997
and eleven-month period ended Sept. 30, 1996.
Notes to financial statements.
For Equity Portfolio of Growth and Income Trust
Independent auditors' report dated November 7, 1997.
Statement of assets and liabilities, Sept. 30, 1997.
Statement of operations year ended Sept. 30, 1997.
Statements of changes in net assets year ended Sept. 30, 1997
and for the period from May 13, 1996 (commencement of
operations) to Sept. 30, 1996.
Notes to financial statements.
Investments in securities, Sept. 30, 1997.
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, filed electronically as
Exhibit 2 to Registrant's Post-Effective Amendment No. 95 to Registration
Statement No. 2-11358, is incorporated by reference.
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. Copy 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.
6. Copy 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.
<PAGE>
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).Copy 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, filed electronically as Exhibit 8(b) to Registrant's
Post-Effective Amendment No. 95 to Registration Statement No. 2 -11358, is
incorporated by reference
8(c).Copy 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).Copy 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).Copy 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).Copy 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.
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, filed
electronically as Exhibit 9(f) to Registrant's Post-Effective Amendment No.
95 to Registration Statement No. 2 -11358, is incorporated by reference
<PAGE>
9(g). Copy of Class Y Shareholder Service Agreement between IDS Precious
Metals Fund, Inc. and American Express Financial Advisors Inc., dated
May 9, 1997, filed electronically on or about May 27, 1997 as Exhibit
9(e) to IDS Precious Metals Fund, Inc.'s Amendment No. 30 to
Registration Statement No. 2-93745, is incorporated herein by
reference. Registrant's Class Y Shareholder Service Agreement differs
from the one incorporated by reference only by the fact that Registrant
is one executing party.
10. Opinion and consent of counsel as to the legality of the securities being
registered, is filed electronically herewith.
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. Copy 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 Schedules, are 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, to sign Amendments to this Registration
Statement dated January 8, 1997, is filed electronically herewith.
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). Trustee's Power of Attorney, dated January 8, 1997, is filed
electronically herewith.
19(d). Officers' Power of Attorney dated April 11, 1996, filed electronically as
Exhibit 19(d) to Registrant's Post-Effective Amendment No. 95 to
Registration Statement No. 2 -11358, is incorporated by reference.
<PAGE>
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. 6, 1997
Common Stock
Class A 115,993
Class B 19,332
Class Y 110,915
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 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>
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>
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 24th day of November, 1997.
IDS STOCK FUND, INC.
By________________________________________
Matthew N. Karstetter, Treasurer
By /s/ William R. Pearce**
William R. Pearce, Chief Executive Officer
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 24th day of November, 1997.
Signature Capacity
/s/ William R. Pearce* Chairman of the Board
William R. Pearce
/s/ John R. Thomas* Director
John R. Thomas
/s/ H. Brewster Atwater, Jr.* Director
H. Brewster Atwater, Jr.
/s/ Lynne V. Cheney* Director
Lynne V. Cheney
/s/ William H. Dudley* Director
William H. Dudley
/s/ David R. Hubers* Director
David R. Hubers
/s/ Heinz F. Hutter* Director
Heinz F. Hutter
/s/ Anne P. Jones* Director
Anne P. Jones
<PAGE>
Signature Capacity
/s/ Alan K. Simpson* Director
Alan K. Simpson
/s/ Edson W. Spencer* Director
Edson W. Spencer
/s/ Wheelock Whitney* Director
Wheelock Whitney
/s/ C. Angus Wurtele* Director
C. Angus Wurtele
*Signed pursuant to Directors' Power of Attorney, dated January 8, 1997, filed
electronically as Exhibit 19(a) to Registrant's Post-Effective Amendment No. 96,
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>
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 24th day of November, 1997.
GROWTH AND INCOME TRUST
By_______________________________
Matthew N. Karstetter
Treasurer
By /s/ William R. Pearce**
William R. Pearce
Chief Executive Officer
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 24th day of November, 1997.
Signatures Capacity
/s/ William R. Pearce* Chairman of the Board
William R. Pearce
/s/ H. Brewster Atwater, Jr.* Trustee
H. Brewster Atwater, Jr.
/s/ Lynne V. Cheney* Trustee
Lynne V. Cheney
/s/ William H. Dudley* Trustee
William H. Dudley
/s/ David R. Hubers* Trustee
David R. Hubers
/s/ Heinz F. Hutter* Trustee
Heinz F. Hutter
/s/ Anne P. Jones* Trustee
Anne P. Jones
/s/ Alan K. Simpson* Trustee
Alan K. Simpson
<PAGE>
/s/ Edson W Spencer* Trustee
Edson W. Spencer
/s/ John R. Thomas* Trustee
John R. Thomas
/s/ Wheelock Whitney* Trustee
Wheelock Whitney
/s/ C. Angus Wurtele* Trustee
C. Angus Wurtele
* Signed pursuant to Trustee's Power of Attorney dated January 8, 1997, filed
electronically herewith as Exhibit 19(c) to Registrant's Post-Effective
Amendment No. 96, by:
_________________________________
Leslie L. Ogg
** Signed pursuant to Officers' Power of Attorney dated April 11, 1996, filed
electronically as Exhibit 19(d) to Registrant's Post-Effective Amendment No. 95,
by:
_________________________________
Leslie L. Ogg
<PAGE>
CONTENTS OF THIS
POST-EFFECTIVE AMENDMENT NO. 96
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>
IDS Stock Fund, Inc.
File No. 2-11358/811-498
EXHIBIT INDEX
Exhibit 10: Opinion and consent of counsel.
Exhibit 11: Independent Auditors' Consent.
Exhibit 17: Financial Data Schedules.
Exhibit 19(a): Directors' Power of Attorney, dated January 8, 1997.
Exhibit 19(c): Trustee's Power of Attorney, dated January 8, 1997.
<PAGE>
November 24, 1997
IDS Stock Fund, Inc.
IDS Tower 10
Minneapolis, Minnesota 55440-0010
Gentlemen:
I have examined the Articles of Incorporation and the By-Laws of the Company and
all necessary certificates, permits, minute books, documents and records of the
Company, and the applicable statutes of the State of Minnesota, and it is my
opinion:
(a) That the Company is a corporation duly organized and existing under the
laws of the State of Minnesota with an authorized capital stock of
10,000,000,000 shares, all of $.01 par value, that such shares may be
issued as full or fractional shares;
(b) That all such authorized shares are, under the laws of the State of
Minnesota, redeemable as provided in the Articles of Incorporation of
the Company and upon redemption shall have the status of authorized and
unissued shares;
(c) That the Company registered on December 23, 1992 an indefinite number of
shares pursuant to Rule 24f-2; and
(d) That shares which were sold at not less than their par value and in
accordance with applicable federal and state securities laws were
legally issued, fully paid and nonassessable.
I hereby consent that the foregoing opinion may be used in connection with this
Post-Effective Amendment.
Very truly yours,
Leslie L. Ogg
Attorney at Law
901 S. Marquette Ave., Suite 2810
Minneapolis, Minnesota 55402-3268
LLO/NL/rdh
<PAGE>
Independent auditors' consent
The board and shareholders IDS Stock Fund, Inc.:
The board of trustees and unitholders Growth and Income Trust:
Equity Portfolio
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, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> IDS STOCK FUND CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 4163002859
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4163002859
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 190103
<TOTAL-LIABILITIES> 190103
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2617749428
<SHARES-COMMON-STOCK> 104853191
<SHARES-COMMON-PRIOR> 102578943
<ACCUMULATED-NII-CURRENT> 791472
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 469623967
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1074647889
<NET-ASSETS> 2877266387
<DIVIDEND-INCOME> 72175762
<INTEREST-INCOME> 14749102
<OTHER-INCOME> 0
<EXPENSES-NET> 28549498
<NET-INVESTMENT-INCOME> 58375366
<REALIZED-GAINS-CURRENT> 490531772
<APPREC-INCREASE-CURRENT> 427269463
<NET-CHANGE-FROM-OPS> 976176601
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (44462913)
<DISTRIBUTIONS-OF-GAINS> (113973806)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9885572
<NUMBER-OF-SHARES-REDEEMED> 13870549
<SHARES-REINVESTED> 6259225
<NET-CHANGE-IN-ASSETS> 878670232
<ACCUMULATED-NII-PRIOR> 7896550
<ACCUMULATED-GAINS-PRIOR> 140664008
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 17488030
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 28758343
<AVERAGE-NET-ASSETS> 2568984366
<PER-SHARE-NAV-BEGIN> 22.49
<PER-SHARE-NII> .39
<PER-SHARE-GAIN-APPREC> 6.11
<PER-SHARE-DIVIDEND> (.43)
<PER-SHARE-DISTRIBUTIONS> (1.12)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 27.44
<EXPENSE-RATIO> .78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> IDS STOCK FUND CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 4163002859
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4163002859
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 190103
<TOTAL-LIABILITIES> 190103
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2617749428
<SHARES-COMMON-STOCK> 7438698
<SHARES-COMMON-PRIOR> 4792499
<ACCUMULATED-NII-CURRENT> 791472
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 469623967
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1074647889
<NET-ASSETS> 203257884
<DIVIDEND-INCOME> 72175762
<INTEREST-INCOME> 14749102
<OTHER-INCOME> 0
<EXPENSES-NET> 28549498
<NET-INVESTMENT-INCOME> 58375366
<REALIZED-GAINS-CURRENT> 490531772
<APPREC-INCREASE-CURRENT> 427269463
<NET-CHANGE-FROM-OPS> 976176601
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1646156)
<DISTRIBUTIONS-OF-GAINS> (6116806)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3000534
<NUMBER-OF-SHARES-REDEEMED> 687579
<SHARES-REINVESTED> 333244
<NET-CHANGE-IN-ASSETS> 878670232
<ACCUMULATED-NII-PRIOR> 7896550
<ACCUMULATED-GAINS-PRIOR> 140664008
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 17488030
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 28758343
<AVERAGE-NET-ASSETS> 153809845
<PER-SHARE-NAV-BEGIN> 22.42
<PER-SHARE-NII> .22
<PER-SHARE-GAIN-APPREC> 6.05
<PER-SHARE-DIVIDEND> (.25)
<PER-SHARE-DISTRIBUTIONS> (1.12)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 27.32
<EXPENSE-RATIO> 1.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> IDS STOCK FUND CLASS Y
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 4163002859
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4163002859
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 190103
<TOTAL-LIABILITIES> 190103
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2617749428
<SHARES-COMMON-STOCK> 39436789
<SHARES-COMMON-PRIOR> 38661474
<ACCUMULATED-NII-CURRENT> 791472
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 469623967
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1074647889
<NET-ASSETS> 1082288485
<DIVIDEND-INCOME> 72175762
<INTEREST-INCOME> 14749102
<OTHER-INCOME> 0
<EXPENSES-NET> 28549498
<NET-INVESTMENT-INCOME> 58375366
<REALIZED-GAINS-CURRENT> 490531772
<APPREC-INCREASE-CURRENT> 427269463
<NET-CHANGE-FROM-OPS> 976176601
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (17928151)
<DISTRIBUTIONS-OF-GAINS> (43104797)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10328998
<NUMBER-OF-SHARES-REDEEMED> 11846789
<SHARES-REINVESTED> 2293106
<NET-CHANGE-IN-ASSETS> 878670232
<ACCUMULATED-NII-PRIOR> 7896550
<ACCUMULATED-GAINS-PRIOR> 140664008
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 17488030
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 28758343
<AVERAGE-NET-ASSETS> 960323009
<PER-SHARE-NAV-BEGIN> 22.49
<PER-SHARE-NII> .42
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 27.44
<EXPENSE-RATIO> .66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
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<NUMBER>4
<NAME> EQUITY INCOME PORTFOLIO
<S> <C>
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<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 1897012312
<INVESTMENTS-AT-VALUE> 2223436124
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</TABLE>
<PAGE>
DIRECTORS/TRUSTEES POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as directors and 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 Securities Act of 1933 and the Investment Company Act of 1940 with the
Securities and Exchange Commission:
1933 Act 1940 Act
Reg. Number Reg. Number
IDS Bond Fund, Inc. 2-51586 811-2503
IDS California Tax-Exempt Trust 33-5103 811-4646
IDS Discovery Fund, Inc. 2-72174 811-3178
IDS Equity Select Fund, Inc. 2-13188 811-772
IDS Extra Income Fund, Inc. 2-86637 811-3848
IDS Federal Income Fund, Inc. 2-96512 811-4260
IDS Global Series, Inc. 33-25824 811-5696
IDS Growth Fund, Inc. 2-38355 811-2111
IDS High Yield Tax-Exempt Fund, Inc. 2-63552 811-2901
IDS International Fund, Inc. 2-92309 811-4075
IDS Investment Series, Inc. 2-11328 811-54
IDS Managed Retirement Fund, Inc. 2-93801 811-4133
IDS Market Advantage Series, Inc. 33-30770 811-5897
IDS Money Market Series, Inc. 2-54516 811-2591
IDS New Dimensions Fund, Inc. 2-28529 811-1629
IDS Precious Metals Fund, Inc. 2-93745 811-4132
IDS Progressive Fund, Inc. 2-30059 811-1714
IDS Selective Fund, Inc. 2-10700 811-499
IDS Special Tax-Exempt Series Trust 33-5102 811-4647
IDS Stock Fund, Inc. 2-11358 811-498
IDS Strategy Fund, Inc. 2-89288 811-3956
IDS Tax-Exempt Bond Fund, Inc. 2-57328 811-2686
IDS Tax-Free Money Fund, Inc. 2-66868 811-3003
IDS Utilities Income Fund, Inc. 33-20872 811-5522
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 Acts 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.
<PAGE>
Dated the 8th day of January, 1997.
/s/ H. Brewster Atwater, Jr. /s/ Melvin R. Laird
H. Brewster Atwater, Jr. Melvin R. Laird
/s/ Lynne V. Cheney /s/ William R. Pearce
Lynne V. Cheney William R. Pearce
/s/ William H. Dudley /s/ Alan K. Simpson
William H. Dudley Alan K. Simpson
/s/ Robert F. Froehlke /s/ Edson W. Spencer
Robert F. Froehlke Edson W. Spencer
/s/ David R. Hubers /s/ John R. Thomas
David R. Hubers John R. Thomas
/s/ Heinz F. Hutter /s/ Wheelock Whitney
Heinz F. Hutter Wheelock Whitney
/s/ Anne P. Jones /s/ C. Angus Wurtele
Anne P. Jones C. Angus Wurtele
<PAGE>
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:
1940 Act
Reg. Number
Growth Trust 811-07395
Growth and Income Trust 811-07393
Income Trust 811-07307
Tax-Free Income Trust 811-07397
World Trust 811-07399
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 8th day of January, 1997.
/s/ H. Brewster Atwater, Jr. /s/ Melvin R. Laird
H. Brewster Atwater, Jr. Melvin R. Laird
/s/ Lynne V. Cheney /s/ William R. Pearce
Lynne V. Cheney William R. Pearce
/s/ William H. Dudley /s/ Alan K. Simpson
William H. Dudley Alan K. Simpson
/s/ Robert F. Froehlke /s/ Edson W. Spencer
Robert F. Froehlke Edson W. Spencer
/s/ David R. Hubers /s/ John R. Thomas
David R. Hubers John R. Thomas
/s/ Heinz F. Hutter /s/ Wheelock Whitney
Heinz F. Hutter Wheelock Whitney
/s/ Anne P. Jones /s/ C. Angus Wurtele
Anne P. Jones C. Angus Wurtele
