SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 29 (File No. 2-86637) X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 30 (File No. 811-3848) X
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IDS EXTRA INCOME FUND, INC.
IDS Tower 10
Minneapolis, Minnesota 55440-0010
Leslie L. Ogg - 901 Marquette Ave. So., 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 July 30, 1998 pursuant to paragraph (b)
60 days after filing, pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) 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.
<PAGE>
IDS Extra Income Fund, a series of the Registrant, has adopted a master/feeder
operating structure. This Post-Effective Amendment includes a signature page for
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 Extra Income Fund
Prospectus
July 30, 1998
The primary goal of IDS Extra Income Fund, Inc. is to provide high current
income. Capital growth is a secondary goal.
The Fund seeks to achieve its goals by investing all of its assets in High Yield
Portfolio of 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.
The Portfolio invests primarily, and may invest all of its assets, in long-term
corporate bonds in the lower-rating categories, commonly known as junk bonds.
These securities generally have greater price fluctuations than higher-rated
securities and are more likely to experience a default. Investors should
carefully consider these risks before investing. See the prospectus sections
entitled "Investment policies and risks" and "Facts about investments and their
risks."
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
<PAGE>
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
Yield
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
<PAGE>
How the Fund and Portfolio are organized
Shares
Voting rights
Shareholder meetings
Special considerations regarding master/feeder structure
Board members and officers Investment manager
Administrator and transfer agent
Distributor
About American Express Financial Corporation
General information
Year 2000
Appendices
Description of corporate bond ratings
Descriptions of derivative instruments
<PAGE>
The Fund in brief
Goals
IDS Extra Income Fund (the Fund) seeks to provide shareholders with high current
income as its primary goal and, as its secondary goal, capital growth. It does
so by investing all of its assets in High Yield Portfolio (the Portfolio) of
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 goals. Because any investment involves
risk, achieving these goals cannot be guaranteed. The goals can be changed only
by holders of a majority of outstanding securities.
The Fund may withdraw its assets from the Portfolio at any time if the board
determines that it is in the best interests of the Fund to do so. In that event,
the Fund would consider what action should be taken, including whether to retain
an investment advisor to manage the Fund's assets directly or to reinvest all of
the Fund's assets in another pooled investment entity.
Investment policies and risks
Both the Fund and the Portfolio have the same investment policies. Accordingly,
the Portfolio invests primarily in long-term, high-yielding, high risk debt
securities below investment grade issued by U.S. and foreign corporations. These
securities are commonly known as junk bonds. They generally involve greater
volatility of price and risk of principal and income than higher rated
securities.
The Portfolio also invests in government securities, investment-grade bonds,
convertible securities, common and preferred stocks, derivative instruments and
money market instruments. For further information, refer to the later section in
the prospectus titled "Investment policies and risks."
<PAGE>
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 goals and investment policies as the Fund. This structure is described in
more detail in the section captioned "Special considerations regarding
master/feeder structure." Here is an illustration of the structure:
Investors buy
shares in the Fund
The Fund invests
in the Portfolio
The Portfolio invests
in securities, such
as stocks or bonds
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 $78
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
Jack Utter joined AEFC in 1962 and serves as vice president and senior portfolio
manager. He has managed the assets of the Fund since 1985 and serves as
portfolio manager of the Portfolio. He also is portfolio manager of IDS Life
Income Advantage 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.
<PAGE>
Sales charge and Fund expenses
Shareholder transaction expenses are incurred directly by an investor on the
purchase or redemption of Fund shares. Fund operating expenses are paid out of
Fund assets for each class of shares and include expenses charged by both the
Fund and the Portfolio. Operating expenses are reflected in the Fund's daily
share price and dividends, and are not charged directly to shareholder accounts.
Shareholder transaction expenses
Class A Class B Class Y
Maximum sales charge on purchases*
(as a percentage of offering price) 5% 0% 0%
Maximum deferred sales charge
imposed on redemptions (as a
percentage of original purchase price) 0% 5% 0%
Annual Fund and allocated Portfolio operating expenses (as a percentage of
average daily net assets):
Class A Class B Class Y
Management fee** 0.56% 0.56% 0.56%
12b-1 fee 0.00% 0.75% 0.00%
Other expenses*** 0.33% 0.34% 0.26%
Total 0.89% 1.65% 0.82%
*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.
***Other expenses include an administrative services fee, a shareholder services
fee, a transfer agency fee and other nonadvisory expenses.
Example: Suppose for each year for the next 10 years, Fund expenses are as above
and annual return is 5%. If you sold your shares at the end of the following
years, for each $1,000 invested, you would pay total expenses of:
1 year 3 years 5 years 10 years
Class A $59 $77 $ 97 $155
Class B $67 $92 $110 $176**
Class B* $17 $52 $ 90 $176**
Class Y $ 8 $26 $ 46 $102
*Assuming Class B shares are not redeemed at the end of the period.
**Based on conversion of Class B shares to Class A shares in the ninth year.
<PAGE>
This example does not represent actual expenses, past or future. Actual expenses
may be higher or lower than those shown. Because Class B pays annual
distribution (12b-1) fees, long-term shareholders of Class B may indirectly pay
an equivalent of more than a 6.25% sales charge, the maximum permitted by the
National Association of Securities Dealers.
<PAGE>
Performance
Financial highlights
<TABLE>
<CAPTION>
Financial highlights
Fiscal period ended May 31,
Per share income and capital changes(a)
Class A
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1996(b) 1995 1994 1993 1992 1991 1990 1989 1988
Net asset value, $ 4.39 $ 4.34 $ 4.15 $ 4.02 $ 4.44 $ 4.24 $ 3.72 $ 3.47 $ 4.46 $ 4.67 $ 4.94
beginning of period
Income from investment operations:
Net investment income (loss .40 .39 .28 .39 .43 .47 .44 .42 .46 .53 .53
Net gains (losses) both .17 .06 .20 .13 (.42) .16 .52 .24 (1.01) (.20) (.27)
realized and unrealized
Total from investment .57 .45 .48 .52 .01 .63 .96 .66 (.55) .33 .26
operations
Less distributions:
Dividends from net (.38) (.40) (.29) (.39) (.43) (.43) (.44) (.41) (.44) (.54) (.53)
investment income
Net asset value, $ 4.58 $ 4.39 $ 4.34 $ 4.15 $ 4.02 $ 4.44 $ 4.24 $ 3.72 $ 3.47 $ 4.46 $ 4.67
end of period
Ratios/supplemental data
Class A
1998 1997 1996(b) 1995 1994 1993 1992 1991 1990 1989 1988
Net assets, end of $3,112 $2,582 $2,145 $1,822 $1,626 $1,547 $1,304 $ 990 $ 931 $1,302 $1,186
period (in millions)
Ratio of expenses to .89% .92% .94%d .87% .79% .81% .83% .88% .84% .82% .81%
average daily net assets(c)
Ratio of net income (loss) to 8.90% 9.01% 8.90%d 9.93% 9.85% 10.03% 11.13% 12.45% 12.28% 11.67% 11.38%
average daily net assets
Portfolio turnover rate 81% 92% 61% 70% 74% 70% 89% 88% 88% 102% 105%
(excluding short-term
securities)
Total return(e) 13.2% 10.9% 11.7% 14.2% (0.2%) 15.8% 26.9% 21.2% (12.5%) 7.4% 5.8%
a For a share outstanding throughout the period. Rounded to the nearest cent.
b The Fund's fiscal year-end was changed from Aug. 31 to May 31, effective 1996.
c Effective fiscal year 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.
<PAGE>
Per share income and capital changes(a)
Class B Class Y
1998 1997 1996(c) 1995(b) 1998 1997 1996(c) 1995(b)
Net asset value, $ 4.39 $ 4.34 $ 4.15 $ 3.93 $4.39 $ 4.34 $ 4.15 $ 3.93
beginning of period
Income from investment operations:
Net investment income (loss) .37 .36 .25 .18 .41 .40 .28 .20
Net gains (losses) both .16 .06 .20 .21 .16 .06 .20 .21
realized and unrealized
Total from investment .53 .42 .45 .39 .57 .46 .48 .41
operations
Less distributions:
Dividends from net (.34) (.37) (.26) (.17) (.38) (.41) (.29) (.19)
investment income
Net asset value, $ 4.58 $ 4.39 $ 4.34 $ 4.15 $ 4.58 $ 4.39 $ 4.34 $ 4.15
end of period
Ratios/supplemental data
Class B Class Y
1998 1997 1996(c) 1995(b) 1998 1997 1996(c) 1995(b)
Net assets, end of $1,046 $ 613 $ 270 $ 76 $ 2 $ - $ - $ 2
period (in millions)
Ratio of expenses to 1.65% 1.68% 1.70%e 1.72%e .82% .85% .76%e .78%e
average daily net assets(d)
Ratio of net income (loss) to 8.23% 8.18% 8.34%e 9.51%e 10.07% 8.68% 8.24%e 10.19%e
average daily net assets
Portfolio turnover rate 81% 92% 61% 70% 81% 92% 61% 70%
(excluding short-term
securities)
Total return(f) 12.4% 10.1% 11.1% 9.9% 13.4% 11.1% 11.8% 10.4%
</TABLE>
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Inception date was March 20, 1995.
c The Fund's fiscal year-end was changed from Aug. 31 to May 31, effective 1996.
d Effective fiscal year 1996, the expense ratio is based on total expenses of
the Fund before reduction of earnings credits on cash balances.
e Adjusted to an annual basis.
f Total return does not reflect payment of a sales charge.
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 May 31, 1998
<TABLE>
<CAPTION>
Purchase 1 year Since 5 years 10 years
made ago inception ago ago
- ------------------------------------------------- -------------- ----------------- ------------- -------------
IDS Extra Income Fund
<S> <C> <C> <C> <C>
Class A + 7.57% --% + 9.48% +10.12%
Class B + 8.42% +13.11%* --% --%
Class Y +13.42% +14.86% --% --%
Lehman Aggregate Bond Index +10.92% + 9.06%** + 7.02% +9.20%
Merrill Lynch High Yield Bond Index +12.94% +13.34%** +11.03% +12.01%
- ------------------------------------------------- -------------- ----------------- ------------- -------------
*Inception date was March 20, 1995.
**Measurement period started April 1, 1995.
Cumulative total returns as of May 31, 1998
Purchase 1 year Since 5 years 10 years
made ago inception ago ago
- ------------------------------------------------ -------------- --------------- -------------- --------------
IDS Extra Income Fund
Class A + 7.57% --% +57.27% +162.31%
Class B + 8.42% +48.34%* --% --%
Class Y +13.42% +55.78%* --% --%
Lehman Aggregate Bond Index +10.92% +31.70%** +40.38% +141.09%
Merrill Lynch High Yield Bond Index +12.94% +48.91%** +68.75% +210.85%
</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 a
popular index 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.
Lehman Aggregate Bond Index is an unmanaged index made up of a representative
list of government and corporate bonds as well as asset-backed and
mortgage-backed securities. The index is frequently used as a general measure of
bond market performance. However, the securities used to create the index may
not be representative of the bonds held in the Fund. The index reflects
reinvestment of all distributions and changes in market prices, but excludes
brokerage commissions or other fees.
Merrill Lynch High Yield Bond Index provides a broad-based measure of
performance of the non-investment grade U.S. domestic bond market. The index
currently captures close to $200 billion of the outstanding debt of domestic
market issuers rated below investment grade but not in default. The index is
"rule-based,", which means there is a defined list of criteria that a bond must
meet in order to qualify for inclusion in the index.
Yield
Yield is the net investment income earned per share for a specified time period,
divided by the offering price at the end of the period. The Fund's annualized
yield for the 30-day period ended May 29, 1998, was 7.61% for Class A, 7.24% for
Class B and 8.09% for Class Y. The Fund calculates this 30-day annualized yield
by dividing:
o net investment income per share deemed earned during a 30-day period by
o the public offering price per share on the last day of the period, and
o converting the result to a yearly equivalent figure
<PAGE>
This yield calculation does not include any contingent deferred sales charge,
ranging from 5% to 0% on Class B shares, which would reduce the yield quoted.
The Fund's yield varies from day to day, mainly because share values and
offering prices (which are calculated daily) vary in response to changes in
interest rates. Net investment income normally changes much less in the short
run. Thus, when interest rates rise and share values fall, yield tends to rise.
When interest rates fall, yield tends to follow.
Past yields should not be considered an indicator of future yields.
Investment policies and risks
The policies described below apply both to the Fund and the Portfolio. The
Portfolio invests primarily in debt securities below investment grade issued by
U.S. and foreign corporations. Most of these will be rated BBB, BB, or B by
Standard & Poor's Corporation (S&P) or the Moody's Investors Service, Inc.
(Moody's) equivalent. However, the Portfolio may invest in debt securities with
lower ratings, including those in default. Other investments include
investment-grade bonds, convertible securities, stocks, 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
Debt securities: The price of bonds generally falls as interest rates increase,
and rises as interest rates decrease. The price of bonds 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. They have greater price
fluctuations, are more likely to experience a default and sometimes are referred
to as junk bonds. Reduced market liquidity for these bonds may occasionally make
it more difficult to value them. In valuing bonds, the Portfolio relies both on
independent rating agencies and on the investment manager's credit analysis.
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.
<PAGE>
Bond ratings and holdings for fiscal 1998
<TABLE>
<CAPTION>
Percent of
S&P rating Protection of net assets
Percent of (or Moody's principal and in unrated securities
net assets equivalent) interest assessed by AEFC
<S> <C> <C> <C>
0.18% AAA Highest quality 0.09%
-- AA High quality --
0.10 A Upper medium grade --
0.77 BBB Medium grade --
16.90 BB Moderately speculative 0.07
60.85 B Speculative 2.19
5.50 CCC Highly speculative 4.52
-- CC Poor quality --
-- C Lowest quality --
0.29 D In default --
12.22 Unrated Unrated securities 5.35
</TABLE>
(See the Appendix to this prospectus describing corporate bond ratings for
further information.)
Debt securities sold at a deep discount: Some bonds are sold at deep discounts
because they do not pay interest until maturity. They include zero coupon bonds
and PIK (Pay-in-kind) bonds. Because such securities do not pay current cash
income, the market value of these securities may be subject to greater
volatility than other debt securities. To comply with tax laws, the Portfolio
has to recognize a computed amount of interest income and pay dividends to
shareholders even though no cash has been received. In some instances, the
Portfolio may have to sell securities to have sufficient cash to pay the
dividends.
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 common stock makes the exchange likely,
convertible securities trade more like common stock.
Preferred stocks: If a company earns a profit, it generally must pay its
preferred stockholders a dividend at a pre-established rate.
<PAGE>
Common stocks: Stock prices are subject to market fluctuations. Stocks of
smaller companies may be subject to more abrupt or erratic price movements than
stocks of larger, established companies or the stock market as a whole. The
Portfolio may invest up to 10% of its total assets in common stocks, preferred
stocks that do not pay dividends and warrants to purchase common stocks.
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. There are risks when investing in
securities of foreign companies and governments in addition to those assumed
when investing in domestic securities. These risks are classified as country
risk, currency risk, and custody risk. Each can adversely affect the value of an
investment. Country risk includes the political, economic, and other conditions
of a country. These conditions include lack of publicly available information,
less government oversight, the possibility of government-imposed restrictions,
even the nationalization of assets. Currency risk results from the constantly
changing exchange rate between local currency and the U.S. dollar. Whenever the
Portfolio holds securities valued in local currency or holds the currency,
changes in the exchange rate add or subtract from the asset value of the
Portfolio. Custody risk refers to the process of clearing and settling trades.
It also covers holding securities with local agents and depositories. Low
trading volumes and volatile prices in less developed markets make trades harder
to complete and settle. Local agents are held only to the standard of care of
the local market. Governments or trade groups may compel local agents to hold
securities in designated depositories that are not subject to independent
evaluation. The less developed a country's securities market is, the greater the
likelihood of problems occurring. The risks of foreign investments are managed
carefully but the Portfolio cannot guarantee against losses that might result
from them. 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 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
<PAGE>
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.
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). NAV generally
declines as interest rates increase and rises as interest rates decline.
<PAGE>
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
Class Y None 0.10% of average daily net Available only to certain
assets qualifying institutional
investors
</TABLE>
<PAGE>
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
If you purchase Class A shares
o You will not have all of your purchase price invested. Part of your
purchase price will go to pay the sales charge. You will not pay a
sales charge when you redeem your shares.
o You will be able to take advantage of reductions in the sales charge.
If you purchase Class B shares
o All of your money is invested in shares of stock. However, you will pay
a sales charge if you redeem your shares within six years of purchase.
o No reductions of the sales charge are available for large purchases.
If your investments in IDS funds that are subject to a sales charge total
$250,000 or more, you are better off paying the reduced sales charge in Class A
than paying the higher fees in Class B. If you qualify for a waiver of the sales
charge, you should purchase Class A shares.
Ongoing expenses
If you purchase Class A shares
o Your shares will have a lower expense ratio than Class B shares because
Class A does not pay a distribution fee and the transfer agency fee for
Class A is lower than the fee for Class B. As a result, Class A shares
will pay higher dividends than Class B shares.
<PAGE>
If you purchase Class B shares
o The distribution and transfer agency fees for Class B will cause your
shares to have a higher expense ratio and to pay lower dividends than
Class A shares. In the ninth year of ownership, Class B shares will
convert to Class A shares and you will no longer be subject to higher
fees.
You should consider how long you plan to hold your shares and whether the
accumulated higher fees and CDSC on Class B shares prior to conversion would be
less than the initial sales charge on Class A shares. Also consider to what
extent the difference would be offset by the lower expenses on Class A shares.
To help you in 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 organizations 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.
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.
<PAGE>
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, American
Express Client Service Corporation (AECSC), 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 AECSC and the Fund are not responsible for any delays that occur in
wiring funds, including delays in processing by the bank.
o You must pay any fee the bank charges for wiring.
o The Fund reserves the right to reject any application for any reason.
o If your application does not specify which class of shares you are
purchasing, it will be assumed that you are investing in Class A
shares.
Three ways to invest
1 By regular account
Send your check and application (or your name and account number if you have an
established account) to:
American Express Financial Advisors Inc.
P.O. Box 74
Minneapolis, MN 55440-0074
<PAGE>
Your financial advisor will help you with this process.
Minimum amounts
Initial investment: $ 2,000
Additional investments: $ 100
Account balances: $ 300*
Qualified retirement accounts: none
2 By scheduled investment plan
Contact your financial advisor to set up one of the following scheduled plans:
o automatic payroll deduction
o bank authorization
o direct deposit of Social Security check
o other plan approved by the Fund
Minimum amounts
Initial investment: $ 100
Additional investments: $ 100/each payment for non-qualified accounts
$ 50/each payment for qualified accounts
Account balances: none
(on active plans of monthly payments)
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 wire money to:
Norwest Bank Minneapolis
Routing No. 091000019
Minneapolis, MN
Attn: Domestic Wire Dept.
Give these instructions: Credit IDS Account #00-30-015 for personal account #
(your account number) for (your name).
<PAGE>
If this information is not included, the order may be rejected and all money
received by the Fund, less any costs the Fund or AECSC incurs, will be returned
promptly.
Minimum amounts
Each wire investment: $ 1,000
*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. If
you are in a "wrap-fee" program sponsored by AEFA and your wrap program balance
falls below the required program minimum or is terminated, your shares will 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.
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.
<PAGE>
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
2 By phone
American Express Financial Advisors Telephone Transaction Service:
800-437-3133 or
612-671-3800
o The Fund and AECSC will honor any telephone exchange or redemption
request believed to be authentic and will use reasonable procedures to
confirm that they are. This includes asking identifying questions and
tape recording calls. If reasonable procedures are followed, the Fund
or AECSC will not be liable for any loss resulting from fraudulent
requests.
<PAGE>
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 AECSC 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 AECSC 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 AECSC that your check has cleared.)
Three ways to receive payment when you redeem shares
1 By regular or express mail
o Mailed to the address on record
o Payable to names listed on the account
NOTE: You will be charged a fee if you request express mail delivery.
2 By wire
o Minimum wire redemption: $1,000
o Request that money be wired to your bank
o Bank account must be in the same ownership as the IDS fund account
NOTE: Pre-authorization required. For instructions, contact your
financial advisor or American Express Shareholder Service.
<PAGE>
3 By scheduled payout plan
o Minimum payment: $50
o Contact your financial advisor or American Express Shareholder Service
to set up regular payments to you on a monthly, bimonthly, quarterly,
semiannual or annual basis
o Purchasing new shares while under a payout plan may be disadvantageous
because of the sales charges
Reductions and waivers of the sales charge
Class A - initial sales charge alternative
On purchases of Class A shares, you pay a 5% sales charge on the first $50,000
of your total investment and less on investments after the first $50,000:
Total investment Sales charge as a
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.)
<PAGE>
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.
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.
<PAGE>
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 Massachusetts
After-Tax Savings Program; the University of Texas System ORP; or a segregated
separate account offered by Nationwide Life Insurance Company or Nationwide Life
and Annuity Insurance Company.
o Purchases made with the proceeds from IDS Life Real Estate Variable Annuity
surrenders.
* 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%
<PAGE>
If the amount you are redeeming reduces the current net asset value of your
investment in Class B shares below the total dollar amount of all your purchase
payments during the last six years (including the year in which your redemption
is made), the CDSC is based on the lower of the redeemed purchase payments or
market value.
The following example illustrates how the CDSC is applied. Assume you had
invested $10,000 in Class B shares and that your investment had appreciated in
value to $12,000 after 15 months, including reinvested dividend and capital gain
distributions. You could redeem any amount up to $2,000 without paying a CDSC
($12,000 current value less $10,000 purchase amount). If you redeemed $2,500,
the CDSC would apply only to the $500 that represented part of your original
purchase price. The CDSC rate would be 4% because a redemption after 15 months
would take place during the second year after purchase.
Because the CDSC is imposed only on redemptions that reduce the total of your
purchase payments, you never have to pay a CDSC on any amount you redeem that
represents appreciation in the value of your shares, income earned by your
shares or capital gains. In addition, when determining the rate of any CDSC,
your redemption will be made from the oldest purchase payment you made. Of
course, once a purchase payment is considered to have been redeemed, the next
amount redeemed is the next oldest purchase payment. By redeeming the oldest
purchase payments first, lower CDSCs are imposed than would otherwise be the
case.
Waivers of the contingent deferred sales charge
The CDSC on Class B shares will be waived on redemptions of shares:
o In the event of the shareholder's death,
o Purchased by any board member, officer or employee of a fund or AEFC or its
subsidiaries,
o Held in a trusteed employee benefit plan,
o Held in IRAs or certain qualified plans for which American Express Trust
Company acts as custodian, such as Keogh plans, tax-sheltered custodial accounts
or corporate pension plans, provided that the shareholder is:
- at least 59-1/2 years old, and
- taking a retirement distribution (if the redemption is part of a
transfer to an IRA or qualified plan in a product distributed by 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.
<PAGE>
Special shareholder services
Services
To help you track and evaluate the performance of your investments, AECSC
provides these services:
Quarterly statements featuring: (1) a list of all your holdings and transactions
during the previous three months and (2) personalized mutual fund performance
information about your specific account.
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
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 (TouchTone(R) 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.
<PAGE>
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 monthly 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, 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.
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 cash only for distributions
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.
<PAGE>
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 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). 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.
<PAGE>
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 (not the personal representative
pension trust or estate or trustee, unless no legal entity is designated in
the account title)
Sole proprietorship The owner
Partnership The partnership
Corporate The corporation
Association, club or tax-exempt organization The organization
</TABLE>
For details on TIN requirements, ask your financial advisor or local American
Express Financial Advisors office for federal Form W-9, "Request for Taxpayer
Identification Number and Certification."
Important: This information is a brief and selective summary of certain federal
tax rules that apply to this Fund. Tax matters are highly individual and
complex, and you should consult a qualified tax advisor about your personal
situation.
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.
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The Fund no longer issues stock certificates.
Voting rights
As a shareholder, you have voting rights over the Fund's management and
fundamental policies. You are entitled to one vote for each share you own.
Shares of the Fund have cumulative voting rights. Each class has exclusive
voting rights with respect to the provisions of the Fund's distribution plan
that pertain to a particular class and other matters for which separate class
voting is appropriate under applicable law.
Shareholder meetings
The Fund does not hold annual shareholder meetings. However, the board members
may call meetings at their discretion, or on demand by holders of 10% or more of
the outstanding shares, to elect or remove board members.
Special considerations regarding master/feeder structure
The Fund pursues its goal by investing its assets in a master fund called the
Portfolio. This means that the Fund does not invest directly in securities;
rather the Portfolio invests in and manages its portfolio of securities. The
Portfolio is a separate investment company, but it has the same goal and
investment policies as the Fund. The goal and investment policies of the
Portfolio are described under the captions "Investment policies and risks" and
"Facts about investments and their risks." Additional information on investment
policies may be found in the SAI.
Board considerations: The board considered the advantages and disadvantages of
investing the Fund's assets in the Portfolio. The board believes that the
master/feeder structure can be in the best interest of the Fund and its
shareholders since it offers the opportunity for economies of scale. The Fund
may redeem all of its assets from the Portfolio at any time. Should the board
determine that it is in the best interest of the Fund and its shareholders to
terminate its investment in the Portfolio, it would consider hiring an
investment advisor to manage the Fund's assets, or other appropriate options.
The Fund would terminate its 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.
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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 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.
Retired chairman and chief executive officer, General Mills, Inc.
Lynne V. Cheney
Distinguished fellow, American Enterprise Institute for Public Policy Research.
Heinz F. Hutter
Retired president and chief operating officer, Cargill, Inc.
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Anne P. Jones
Attorney and telecommunications consultant.
Alan K. Simpson
Former United States senator for Wyoming.
Edson W. Spencer
Retired 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 of Board Services Corporation.
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.
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Vice president
Frederick C. Quirsfeld*
Vice president, AEFC.
Treasurer
Matthew N. Karstetter*
Vice president, AEFC.
Refer to the SAI for the board members' and officers' biographies.
* Interested person 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 $1.0 0.590%
Next 1.0 0.565
Next 1.0 0.540
Next 3.0 0.515
Next 3.0 0.490
Over 9.0 0.465
For the fiscal year ended May 31, 1998, the Portfolio paid AEFC a total
investment management fee of 0.56% of its average daily net assets. Under the
Agreement, the Portfolio also pays taxes, brokerage commissions and nonadvisory
expenses.
Administrator and transfer agent
Under an Administrative Services Agreement, the Fund pays AEFC for
administration and accounting services at an annual rate of 0.05% decreasing in
gradual percentages to 0.025% as assets increase.
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Under a separate Transfer Agency Agreement, AECSC maintains shareholder accounts
and records. The Fund pays AECSC an annual fee per shareholder account for this
service as follows:
o Class A $15.50
o Class B $16.50
o Class Y $15.50
Distributor
The Fund has an exclusive distribution agreement with AEFA. 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.
Total expenses paid by the Fund's Class A shares for the fiscal year ended May
31, 1998, were 0.89% of its average daily net assets. Expenses for Class B and
Class Y were 1.65% and 0.82%, 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.
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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 May 31,
1998 were more than $195 billion.
AEFA serves individuals and businesses through its nationwide network of more
than 180 offices and more than 8,700 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.
Year 2000
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which would have a material impact on the operations of the Fund. The Fund has
no computer systems of its own but is dependent upon the systems maintained by
AEFC and certain other third parties.
A comprehensive review of AEFC's computer systems and business processes has
been conducted to identify the major systems that could be affected by the Year
2000 issue. Steps are being taken to resolve any potential problems including
modification of existing software and the purchase of new software. These
measures are scheduled to be completed and tested on a timely basis. AEFC's goal
is to complete internal remediation and testing of each of its critical systems
by the end of 1998 and to continue compliance efforts through 1999. The Year
2000 readiness of other third parties whose system failures could have an impact
on the Fund's operations currently is being evaluated. The companies or
governments in which the Fund invests also may be adversely affected by Year
2000 issues. This may affect the value of the Fund's investments. The potential
materiality of any impact is not known at this time.
<PAGE>
Appendix A
Description of corporate bond ratings
Bond 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. Ratings by Standard & Poor's
Corporation are AAA, AA, A, BBB, BB, B, CCC, CC, C and D. The following is a
compilation of the two agencies' rating descriptions.
For further information, see the SAI.
Aaa/AAA - Judged to be of the best quality and carry the smallest degree of
investment risk. Interest and principal are secure.
Aa/AA - Judged to be high-grade although margins of protection for interest and
principal may not be quite as good as Aaa or AAA rated securities.
A - Considered upper-medium grade. Protection for interest and principal is
deemed adequate but may be susceptible to future impairment.
Baa/BBB - Considered medium-grade obligations. Protection for interest and
principal is adequate over the short-term; however, these obligations may have
certain speculative characteristics.
Ba/BB - Considered to have speculative elements. The protection of interest and
principal payments may be very moderate.
B - Lack characteristics of more desirable investments. There may be small
assurance over any long period of time of the payment of interest and principal.
Caa/CCC - Are of poor standing. Such issues may be in default or there may be
risk with respect to principal or interest.
Ca/CC - Represent obligations that are highly speculative. Such issues are often
in default or have other marked shortcomings.
C - Are obligations with a higher degree of speculation. These securities have
major risk exposures to default.
D - Are in payment default. The D rating is used when interest payments or
principal payments are not made on the due date.
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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.
Definitions of zero-coupon and pay-in-kind securities
A zero-coupon security is a security that is sold at a deep discount from its
face value and makes no periodic interest payments. The buyer of such a security
receives a rate of return by gradual appreciation of the security, which is
redeemed at face value on the maturity date.
A pay-in-kind security is a security in which the issuer has the option to make
interest payments in cash or in additional securities. The securities issued as
interest usually have the same terms, including maturity date, as the
pay-in-kind securities.
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Appendix B
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.
Asset-backed and mortgage-backed securities - Asset-backed securities include
interests in pools of assets such as motor vehicle installment sale contracts,
installment loan contracts, leases on various types of real and personal
property, receivables from revolving credit (credit card) agreements or other
categories of receivables. Mortgage-backed securities include collateralized
mortgage obligations and stripped mortgage-backed securities. Interest and
principal payments depend on payment of the underlying loans or mortgages. The
value of these securities may also be affected by changes in interest rates, the
market's perception of the issuers and the creditworthiness of the parties
involved. The non-mortgage related asset-backed securities do not have the
benefit of a security interest in the related collateral. Stripped
mortgage-backed securities include interest only (IO) and principal only (PO)
securities. Cash flows and yields on IOs and POs are extremely sensitive to the
rate of principal payments on the underlying mortgage loans or mortgage-backed
securities.
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.
Inverse floaters - Inverse floaters are created by underwriters using the
interest payment on securities. A portion of the interest received is paid to
holders of instruments based on current interest rates for short-term
securities. The remainder, minus a servicing fee, is paid to holders of inverse
floaters. As interest rates go down, the holders of the inverse floaters receive
more income and an increase in the price for the inverse floaters. As interest
rates go up, the holders of the inverse floaters receive less income and a
decrease in the price for the inverse floaters.
<PAGE>
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 EXTRA INCOME FUND
July 30, 1998
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 July 30, 1998, and it is to be used with the prospectus dated
July 30, 1998, and the Annual Report for the fiscal year ended May 31, 1998.
<PAGE>
TABLE OF CONTENTS
Goals and Investment Policies..................................See Prospectus
Additional Investment Policies............................................p.4
Security Transactions.....................................................p.8
Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation...................................p.10
Performance Information..................................................p.11
Valuing Fund Shares......................................................p.13
Investing in the Fund....................................................p.14
Redeeming Shares.........................................................p.19
Pay-out Plans............................................................p.19
Capital Loss Carryover...................................................p.21
Taxes....................................................................p.21
Agreements...............................................................p.22
Organizational Information...............................................p.25
Board Members and Officers...............................................p.25
Compensation for Fund and Portfolio Board Members........................p.29
Independent Auditors.....................................................p.30
Financial Statements........................................See Annual Report
Prospectus...............................................................p.30
<PAGE>
Appendix A: Foreign Currency Transactions.............................p.31
Appendix B: Investing in Foreign Securities...........................p.36
Appendix C: Options and Interest Rate Futures Contracts...............p.37
Appendix D: Mortgage-Backed Securities................................p.43
Appendix E: Dollar-Cost Averaging.....................................p.44
<PAGE>
ADDITIONAL INVESTMENT POLICIES
IDS Extra Income Fund, Inc. (the Fund) pursues its goals by investing all of its
assets in High Yield Portfolio (the "Portfolio") of 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.
`Purchase more than 10% of the outstanding voting securities of an issuer.
<PAGE>
`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.
`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.
`Issue senior securities, except this restriction shall not be deemed to
prohibit the Portfolio from borrowing from banks, using options or futures
contracts, lending its securities or entering into repurchase agreements.
`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 the time of purchase,
can be invested in any one industry.
Unless changed by the board, the Fund and Portfolio will not:
`Buy on margin or sell short, except the Portfolio may enter into interest rate
future contracts.
<PAGE>
`Pledge or mortgage its assets beyond 15% of total assets. If the Portfolio were
ever to do so, valuation of the pledged or mortgaged assets would be based on
market values. For 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 10% of its total assets in securities of investment companies.
The Portfolio has no current intention to invest in securities of other
investment companies.
`Invest in exploration or development programs, such as oil, gas or mineral
leases.
`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.
`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 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.
`Invest more than 5% of its net assets in warrants.
`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, loans and loan participations, repurchase agreements with maturities
greater than seven days, non-negotiable fixed-time deposits and over-the-counter
options.
In determining the liquidity of Rule 144A securities, which are unregistered
securities offered to qualified institutional buyers, and interest-only and
principal-only fixed mortgage-backed securities (IOs and POs) issued by the U.S.
government or its agencies and instrumentalities. The investment manager, under
guidelines established by the board, will consider any relevant factors
including the frequency of trades, the number of dealers willing to purchase or
sell the security and the nature of marketplace trades.
In determining the liquidity of commercial paper issued in transactions not
involving a public offering under Section 4(2) of the Securities Act of 1933,
the investment manager, under guidelines established by the board, will evaluate
relevant factors such as the issuer and the size and nature of its commercial
paper programs, the willingness and ability of the issuer or dealer to
repurchase the paper, and the nature of the clearance and settlement procedures
for the paper.
<PAGE>
Loans, loan participations and interests in securitized loan pools are interests
in amounts owed by a corporate, governmental or other borrower to a lender or
consortium of lenders (typically banks, insurance companies, investment banks,
government agencies or international agencies). Loans involve a risk of loss in
case of default or insolvency of the borrower and may offer less legal
protection to the Portfolio in the event of fraud or misrepresentation. In
addition, loan participations involve a risk of insolvency of the lender or
other financial intermediary.
The Portfolio may make contracts to purchase securities for a fixed price at a
future date beyond normal settlement time (when-issued securities or forward
commitments). Under normal market conditions, the Portfolio does not intend to
commit more than 5% of its total assets to these practices. The Portfolio does
not pay for the securities or receive dividends or interest on them until the
contractual settlement date. The Portfolio will designate cash or liquid
high-grade debt securities at least equal in value to its commitments to
purchase the securities. When-issued securities or forward commitments are
subject to market fluctuations and they may affect the Portfolio's total assets
the same as owned securities.
The Portfolio may maintain a portion of its assets in cash and cash-equivalent
investments. The cash-equivalent investments the Portfolio may use are
short-term U.S. and Canadian government securities and negotiable certificates
of deposit, non-negotiable fixed-time deposits, bankers' acceptances and letters
of credit of banks or savings and loan associations having capital, surplus and
undivided profits (as of the date of its most recently published annual
financial statements) in excess of $100 million (or the equivalent in the
instance of a foreign branch of a U.S. bank) at the date of investment. Any
cash-equivalent investments in foreign securities will be subject to the
limitations on foreign investments described in the prospectus. The Portfolio
also may purchase short-term corporate notes and obligations rated in the top
two classifications by Moody's Investors Service, Inc. (Moody's) or Standard &
Poor's Corporation (S&P) or the equivalent and may use repurchase agreements
with broker-dealers registered under the Securities Exchange Act of 1934 and
with commercial banks. A risk of a repurchase agreement is that if the seller
seeks the protection of the bankruptcy laws, the Portfolio's ability to
liquidate the security involved could be impaired.
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.
<PAGE>
For a discussion about foreign currency transactions, see Appendix A. For a
discussion on investing in foreign securities, see Appendix B. For a discussion
on options and interest rate 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 been directed to use its best efforts to
obtain the best available price and most favorable execution except where
otherwise authorized by the board.
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.
Normally, the Portfolio's securities are traded on a principal rather than an
agency basis. In other words, AEFC will trade directly with the issuer or with a
dealer who buys or sells for its own account, rather than acting on behalf of
another client. AEFC does not pay the dealer commissions. Instead, the dealer's
profit, if any, is the difference, or spread, between the dealer's purchase and
sale price for the security.
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 with respect to the Fund and other funds and trusts in the IDS
MUTUAL FUND GROUP 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-
<PAGE>
making purposes, which include the research, portfolio management and trading
functions and other services to the extent permitted under an interpretation by
the SEC.
When paying a commission that might not otherwise be charged or a commission in
excess of the amount another broker might charge, AEFC must follow procedures
authorized by the board. To date, three procedures have been authorized. One
procedure permits AEFC to direct an order to buy or sell a security traded on a
national securities exchange to a specific broker for research services it has
provided. The second procedure permits AEFC, in order to obtain research, to
direct an order on an agency basis to buy or sell a security traded in the
over-the-counter market to a firm that does not make a market in that security.
The commission paid generally includes compensation for research services. The
third procedure permits AEFC, in order to obtain research and brokerage
services, to cause the Portfolio to pay a commission in excess of the amount
another broker might have charged. AEFC has advised the 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 represented 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.
As of the fiscal year ended May 31, 1998, the Portfolio held no securities of
its regular brokers or dealers or of the parents of those brokers or dealers
that derived more than 15% of gross revenue from securities-related activities.
<PAGE>
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 $49,511 for the fiscal year
ended May 31, 1998, $90,680 for fiscal year ended 1997, and $12,092 for fiscal
year ended 1996. Substantially all firms through whom transactions were executed
provide research services.
No transactions were directed to brokers because of research services they
provided to the Portfolio.
As of the fiscal year ended May 31, 1998, the Portfolio held no securities of
its regular brokers or dealers or of the parents of those brokers or dealers
that derived more than 15% of gross revenue from securities-related activities.
The portfolio turnover rate was 81% in the fiscal year ended May 31, 1998, and
92% in fiscal year 1997.
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.
No brokerage commissions were paid to brokers affiliated with AEFC for the three
most recent fiscal years.
<PAGE>
PERFORMANCE INFORMATION
The Fund may quote various performance figures to illustrate past performance.
Average annual total return and current yield quotations used by the Fund are
based on standardized methods of computing performance as required by the SEC.
An explanation of the methods used by the Fund to compute performance follows
below.
Average annual total return
The Fund may calculate average annual total return for a class for certain
periods by finding the average annual compounded rates of return over the period
that would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment,
made at the beginning of a period, at the end of the period
(or fractional portion thereof)
Aggregate total return
The Fund may calculate aggregate total return for a class for certain periods
representing the cumulative change in the value of an investment in the Fund
over a specified period of time according to the following formula:
ERV - P
P
where: P = a hypothetical initial payment of $1,000
ERV= ending redeemable value of a hypothetical $1,000 payment,
made at the beginning of a period, at the end of the period
(or fractional portion thereof
<PAGE>
Annualized yield
The Fund may calculate an annualized yield for a class by dividing the net
investment income per share deemed earned during a period by the net asset value
per share on the last day of the period and annualizing the results.
Yield is calculated according to the following formula:
Yield = 2[(a-b + 1)6 - 1]
cd
where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
The Fund's annualized yield was 7.61% for Class A, 7.24% for Class B and 8.09%
for Class Y for the 30-day period ended May 29, 1998.
The Fund's yield, calculated as described above according to the formula
prescribed by the SEC, is a hypothetical return based on market value yield to
maturity for the Portfolio's securities. It is not necessarily indicative of the
amount which was or may be paid to the Fund's shareholders. Actual amounts paid
to Fund shareholders are reflected in the distribution yield.
Distribution yield
Distribution yield is calculated according to the following formula:
D divided by POP F equals DY
30 30
where: D = sum of dividends for 30-day period
POP = sum of public offering price for 30-day period
F = annualizing factor DY = distribution yield
The Fund's distribution yield was 8.98% for Class A, 8.68% for Class B and 9.52%
for Class Y for the 30-day period ended May 29, 1998.
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
<PAGE>
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 June 1, 1998, the
first business day following the end of the fiscal year, the computation looked
like this:
<TABLE>
<CAPTION>
Net assets Shares
before outstanding at Net asset value
shareholder the end of of one share
transactions previous day
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Class A $3,112,932,174 divided by 679,679,514 equals $4.58
Class B 1,046,514,446 228,496,604 4.58
Class Y 1,821,594 397,728 4.58
</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 traded on a securities exchange for which a last-quoted sales price
is readily available are valued at the last-quoted sales price on the exchange
where such security is primarily traded.
`Securities traded on a securities exchange for which a last-quoted sales price
is not readily available are valued at the mean of the closing bid and asked
prices, looking first to the bid and asked prices on the exchange where the
security is primarily traded and, if none exist, to the over-the-counter market.
`Securities included in the NASDAQ National Market System are valued at the
last-quoted sales price in this market.
`Securities included in the NASDAQ National Market System for which a
last-quoted sales price is not readily available, and other securities traded
over-the-counter but not included in the NASDAQ National Market System are
valued at the mean of the closing bid and asked prices.
`Futures and options traded on major exchanges are valued at the last-quoted
sales price on their primary exchange.
<PAGE>
`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.
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 June 1, 1998, was determined by
dividing the net asset value of one share, $4.58, by 0.95 (1.00-0.05 for a
maximum 5% sales charge) for a public offering price of $4.82. The sales charge
is paid to American Express Financial Advisors Inc. (AEFA) by the person buying
the shares.
<PAGE>
Class A - Calculation of the Sales Charge
Sales charges are determined as follows:
Within each
increment, sales
charge as a
percentage of:
---------------------------------------------
Public Net
Amount of Investment Offering Price Amount Invested
- -------------------- -------------- ---------------
First $ 50,000 5.0% 5.26%
Next 50,000 4.5 4.71
Next 400,000 3.8 3.95
Next 500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
Sales charges on an investment greater than $50,000 and less than $1,000,000 are
calculated for each increment separately and then totaled. The resulting total
sales charge, expressed as a percentage of the public offering price and of the
net amount invested, will vary depending on the proportion of the investment at
different sales charge levels.
For example, compare an investment of $60,000 with an investment of $85,000. The
$60,000 investment is composed of $50,000 that incurs a sales charge of $2,500
(5.0% x $50,000) and $10,000 that incurs a sales charge of $450 (4.5% x
$10,000). The total sales charge of $2,950 is 4.92% of the public offering price
and 5.17% of the net amount invested.
In the case of the $85,000 investment, the first $50,000 also incurs a sales
charge of $2,500 (5.0% x $50,000) and $35,000 incurs a sales charge of $1,575
(4.5% x $35,000). The total sales charge of $4,075 is 4.79% of the public
offering price and 5.04% of the net amount invested.
The following table shows the range of sales charges as a percentage of the
public offering price and of the net amount invested on total investments at
each applicable level.
<TABLE>
<CAPTION>
On total
investment, sales
charge as a
percentage of:
-------------------------------------------------------------
Public Net
Offering Price Amount Invested
Amount of investment ranges from:
- --------------------------------------------
<S> <C> <C>
First $ 50,000 5.00% 5.26%
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>
<PAGE>
The initial sales charge is waived for certain qualified plans that meet the
requirements described in the prospectus. Participants in these qualified plans
may be subject to a deferred sales charge on certain redemptions. The deferred
sales charge on certain redemptions will be waived if the redemption is a result
of a participant's death, disability, retirement, attaining age 59 1/2, loans or
hardship withdrawals. The deferred sales charge varies depending on the number
of participants in the qualified plan and total plan assets as follows:
Deferred Sales Charge
Number of Participants
Total Plan Assets 1-99 100 or more
- ----------------- ---- -----------
Less than $1 million 4% 0%
$1 million or more 0% 0%
- -------------------------------------------------------------------------------
Class A - Reducing the Sales Charge
Sales charges are based on the total amount of your investments in the Fund. The
amount of all prior investments plus any new purchase is referred to as your
"total amount invested." For example, suppose you have made an investment of
$20,000 and later decide to invest $40,000 more. Your total amount invested
would be $60,000. As a result, $10,000 of your $40,000 investment qualifies for
the lower 4.5% sales charge that applies to investments of more than $50,000 and
up to $100,000.
The total amount invested includes any shares held in the Fund in the name of a
member of your primary household group. (The primary household group consists of
accounts in any ownership for spouses or domestic partners and their unmarried
children under 21. Domestic partners are individuals who maintain a shared
primary residence and have joint property or other insurable interests.) For
instance, if your spouse already has invested $20,000 and you want to invest
$40,000, your total amount invested will be $60,000 and therefore you will pay
the lower charge of 4.5% on $10,000 of the $40,000.
Until a spouse remarries, the sales charge is waived for spouses and unmarried
children under 21 of deceased board members, officers or employees of the Fund
or AEFC or its subsidiaries and deceased advisors.
The total amount invested also includes any investment you or your immediate
family already have in the other publicly offered funds in the IDS MUTUAL FUND
GROUP where the investment is subject to a sales charge. For example, suppose
you already have an investment of $30,000 in another IDS fund. If you invest
$40,000 more in this Fund, your total amount invested in the funds will be
$70,000 and therefore $20,000 of your $40,000 investment will incur a 4.5% sales
charge.
<PAGE>
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 a LOI may be used to reach the $1 million
total, excluding Cash Management Fund and Tax-Free Money Fund. However, we will
not adjust for sales charges on investments made prior to the signing of the
LOI. If you do not invest $1 million by the end of 13 months, there is no
penalty, you'll just miss out on the sales charge adjustment. A LOI is not an
option (absolute right) to buy shares.
Here's an example. You file a LOI to invest $1 million and make an investment of
$100,000 at that time. You pay the normal 5% sales charge on the first $50,000
and 4.5% sales charge on the next $50,000 of this investment. Let's say you make
a second investment of $900,000 (bringing the total up to $1 million) one month
before the 13-month period is up. On the date that you bring your total to $1
million, AEFC makes an adjustment to your account. The adjustment is made by
crediting your account with additional shares, in an amount equivalent to the
sales charge previously paid.
Systematic Investment Programs
After you make your initial investment of $100 or more, you must make additional
payments of $100 or more on at least a monthly basis until your balance reaches
$2,000. 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.
<PAGE>
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);
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 goal is 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.
<PAGE>
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 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.
<PAGE>
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.
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.
<PAGE>
CAPITAL LOSS CARRYOVER
For federal income tax purposes, the Fund had total capital loss carryovers of
$136,345,785 at May 31, 1998, that if not offset by subsequent capital gains
will expire as follows:
1999 2000 2003 2004
---- ---- ---- ----
$42,868,310 $28,359,344 $20,159,025 $44,959,106
It is unlikely that the board will authorize a distribution of any net realized
capital gains until the available capital loss carryover has been offset or has
expired except as required by Internal Revenue Service rules.
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.
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 May 31, 1998, 7.99% of the Fund's net investment income
dividends qualified for the corporate deduction.
<PAGE>
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. Each class of the Fund pays its proportionate share of the fee.
Assets Annual rate at
(billions) each asset level
- --------- ----------------
First $1.0 0.590%
Next 1.0 0.565
Next 1.0 0.540
Next 3.0 0.515
Next 3.0 0.490
Over 9.0 0.465
On May 31, 1998, the daily rate applied to the Portfolio's net assets was equal
to 0.551% 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.
<PAGE>
The management fee is paid monthly. Under the agreement, the total amount paid
was $20,715,160 for the fiscal year ended May 31, 1998, $15,766,458 for fiscal
year 1997, and $9,170,111 for fiscal year 1996.
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,
nonadvisory expenses paid by the Fund and Portfolio were $711,553 for the fiscal
year ended May 31, 1998, $1,055,243 for fiscal year 1997, and $742,081 for
fiscal year 1996.
In this section, prior to June 10, 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 $1.0 0.050%
Next 1.0 0.045
Next 1.0 0.040
Next 3.0 0.035
Next 3.0 0.030
Over 9.0 0.025
On May 31, 1998, the daily rate applied to the Fund's net assets was equal to
0.042% 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 $1,616,922 for the fiscal year ended May 31, 1998.
Transfer Agency Agreement
The Fund has a Transfer Agency Agreement with American Express Client Service
Corporation (AECSC). This agreement governs AECSC'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
<PAGE>
redemption or repurchase of the Fund's shares. Under the agreement, AECSC 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
$15.50 per year and for Class B is $16.50 per year. The fees paid to AECSC may
be changed from time to time upon agreement of the parties without shareholder
approval. Under the agreement, the Fund paid fees of $3,259,106 for the fiscal
year ended May 31, 1998.
Distribution Agreement
Under a Distribution Agreement, sales charges deducted for distributing Fund
shares are paid to AEFA daily. These charges amounted to $19,130,649 for the
fiscal year ended May 31, 1998. After paying commissions to personal financial
advisors, and other expenses, the amount retained was $(2,687,527). The amounts
were $14,475,323 and $1,927,778 for fiscal year 1997, and $8,715,152 and
$652,292 for fiscal year 1996.
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 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
<PAGE>
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 May
31, 1998, under the agreement, the Fund paid fees of $6,232,295.
Custodian Agreement
The Trust's securities and cash are held by U.S. Bank National Association, 180
E. Fifth St., St. Paul, MN 55101-1631, 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.
Total fees and expenses
The Fund paid total fees and nonadvisory expenses, net of earnings credits, of
$38,975,833 for the fiscal year ended May 31, 1998.
ORGANIZATIONAL INFORMATION
The Fund is a diversified, open-end management investment company, as defined in
the 1940 Act. It was incorporated on Aug. 17, 1983 in Minnesota. The Fund
headquarters are at 901 S. Marquette Ave., Suite 2810, Minneapolis, MN
55402-3268.
BOARD MEMBERS AND OFFICERS
The following is a list of the Fund's board members. 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
Retired chairman and chief executive officer, General Mills, Inc. Director,
Merck & Co., Inc. and Darden Restaurants, Inc.
<PAGE>
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 and Union
Pacific Resources.
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, chief executive officer and director of AEFC.
Heinz F. Hutter+'
Born in 1929
P.O. Box 2187
Minneapolis, MN
Retired 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. (electronics), C-Cor
Electronics, Inc., and Amnex, Inc. (communications).
<PAGE>
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. Retired 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) and Biogen
(pharmaceuticals).
Edson W. Spencer+
Born in 1926
4900 IDS Center
80 S. 8th St.
Minneapolis, MN
President, Spencer Associates Inc. (consulting). Retired chairman of the board
and chief executive officer, Honeywell Inc. Director, Boise Cascade Corporation
(forest products). Member of International Advisory Council of NEC (Japan).
John R. Thomas**
Born in 1937
2900 IDS Tower
Minneapolis, MN
Senior vice president of AEFC.
Wheelock Whitney+
Born in 1926
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN
Chairman, Whitney Management Company (manages family assets).
<PAGE>
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:
Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN
President 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.
<PAGE>
Frederick C. Quirsfeld
Born in 1947
IDS Tower 10
Minneapolis, MN
Vice president - taxable mutual fund investments of AEFC. Vice President - fixed
income investments for the Fund.
Matthew N. Karstetter
Born in 1961
IDS Tower 10
Minneapolis, MN
Vice president of Investment Accounting for AEFC since 1996. Prior to joining
AEFC, he served as vice president of State Street Bank's mutual fund service
operation from 1991 to 1996. Treasurer for the Fund.
COMPENSATION FOR FUND AND PORTFOLIO BOARD MEMBERS
Members of the Fund board who are not officers of the Fund or of AEFC receive an
annual fee of $700, and the chair of the Contracts Committee receives an
additional fee of $83. 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 $7. 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 $1,400 and the chair of the Contracts Committee
receives an additional $83. Board members receive a $50 per day attendance fee
for board meetings. The attendance fee for meetings of the Contracts and
Investment Review Committee is $50; for meetings of the Audit and Personnel
Committee $25 and for traveling from out-of-state $14. Expenses for attending
meeting are reimbursed.
<PAGE>
During the fiscal year ended May 31, 1998, the independent members of the Fund
and Portfolio boards, for attending up to 27 meetings, received the following
compensation:
<TABLE>
<CAPTION>
Compensation Table
Total cash
Pension or compensation
Retirement from the IDS
benefits MUTUAL FUND
Aggregate Aggregate accrued as Estimated GROUP and
compensation compensation Fund or annual benefit Preferred
Board member from the Fund from the Portfolio upon retirement Master Trust
Portfolio expenses Group
- ---------------------- ---------------- ----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
H. Brewster Atwater, $1,492 $2,250 $0 $0 $101,100
Jr.
Lynne V. Cheney 1,331 2,134 0 0 92,200
Robert F. Froehlke 700 1,100 0 0 49,000
Heinz F. Hutter 1,492 2,250 0 0 101,100
Anne P. Jones 1,382 2,184 0 0 95,200
Melvin R. Laird 512 861 0 0 36,800
Alan K. Simpson 1,200 1,995 0 0 84,200
Edson W. Spencer 1,717 2,475 0 0 114,600
Wheelock Whitney 1,517 2,275 0 0 102,700
C. Angus Wurtele 1,642 2,400 0 0 110,100
</TABLE>
On May 31, 1998, 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 May 31, 1998, 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 May 31,
1998, 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 Extra Income Fund, dated July 30, 1998, is hereby
incorporated in this SAI by reference.
<PAGE>
APPENDIX A
FOREIGN CURRENCY TRANSACTIONS
Since investments in foreign countries usually involve currencies of foreign
countries, and since the Portfolio may hold cash and cash-equivalent investments
in foreign currencies, the value of the Portfolio's assets as measured in U.S.
dollars may be affected favorably or unfavorably by changes in currency exchange
rates and exchange control regulations. Also, the Portfolio may incur costs in
connection with conversions between various currencies.
Spot Rates and Forward Contracts. The Portfolio conducts its foreign currency
exchange transactions either at the spot (cash) rate prevailing in the foreign
currency exchange market or by entering into forward currency exchange contracts
(forward contracts) as a hedge against fluctuations in future foreign exchange
rates. A forward contract involves an obligation to buy or sell a specific
currency at a future date, which may be any fixed number of days from the
contract date, at a price set at the time of the contract. These contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirements. No commissions are charged at any stage
for trades.
The Portfolio may enter into forward contracts to settle a security transaction
or handle dividend and interest collection. When the Portfolio enters into a
contract for the purchase or sale of a security denominated in a foreign
currency or has been notified of a dividend or interest payment, it may desire
to lock in the price of the security or the amount of the payment in dollars. By
entering into a forward contract, the Portfolio will be able to protect itself
against a possible loss resulting from an adverse change in the relationship
between different currencies from the date the security is purchased or sold to
the date on which payment is made or received or when the dividend or interest
is actually received.
The Portfolio also may enter into forward contracts when management of the
Portfolio believes the currency of a particular foreign country may suffer a
substantial decline against another currency. It may enter into a forward
contract to sell, for a fixed amount of dollars, the amount of foreign currency
approximating the value of some or all of the Portfolio's securities denominated
in such foreign currency. The precise matching of forward contract amounts and
the value of securities involved generally will not be possible since the future
value of such securities in foreign currencies more than likely will change
between the date the forward contract is entered into and the date it matures.
The projection of short-term currency market movements is extremely difficult
and successful execution of a short-term hedging strategy is highly uncertain.
The Portfolio will not enter into such forward contracts or maintain a net
exposure to such contracts when 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.
<PAGE>
The Portfolio will designate cash or securities in an amount equal to the value
of the Portfolio's total assets committed to consummating forward contracts
entered into under the second circumstance set forth above. If the value of the
securities declines, additional cash or securities will be designated on a daily
basis so that the value of the cash or securities will equal the amount of the
Portfolio's commitments on such contracts. At maturity of a forward contract,
the Portfolio may either sell the security and make delivery of the foreign
currency or retain the security and terminate its contractual obligation to
deliver the foreign currency by purchasing an offsetting contract with the same
currency trader obligating it to buy, on the same maturity date, the same amount
of foreign currency.
If the Portfolio retains the security and engages in an offsetting transaction,
the Portfolio will incur a gain or a loss (as described below) to the extent
there has been movement in forward contract prices. If the Portfolio engages in
an offsetting transaction, it may subsequently enter into a new forward contract
to sell the foreign currency. Should forward prices decline between the date the
Portfolio enters into a forward contract for selling foreign currency and the
date it enters into an offsetting contract for purchasing the foreign currency,
the Portfolio will realize a gain to the extent that the price of the currency
it has agreed to sell exceeds the price of the currency it has agreed to buy.
Should forward prices increase, the Portfolio will suffer a loss to the extent
the price of the currency it has agreed to buy exceeds the price of the currency
it has agreed to sell.
It is impossible to forecast what the market value of securities will be at the
expiration of a contract. Accordingly, it may be necessary for the Portfolio to
buy additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of foreign
currency the Portfolio is obligated to deliver and a decision is made to sell
the security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received on
the sale of the portfolio security if its market value exceeds the amount of
foreign currency the Portfolio is obligated to deliver.
The Portfolio's dealing in forward contracts will be limited to the transactions
described above. This method of protecting the value of the Portfolio's
securities against a decline in the value of a currency does not eliminate
fluctuations in the underlying prices of the securities. It simply establishes a
rate of exchange that can be achieved at some point in time. Although such
forward contracts tend to minimize the risk of loss due to a decline in value of
hedged currency, they tend to limit any potential gain that might result should
the value of such currency increase.
<PAGE>
Although the Portfolio values its assets each business day in terms of U.S.
dollars, it does not intend to convert its foreign currencies into U.S. dollars
on a daily basis. It will do so from time to time, and shareholders should be
aware of currency conversion costs. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(spread) between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Portfolio
at one rate, while offering a lesser rate of exchange should the Portfolio
desire to resell that currency to the dealer.
Options on Foreign Currencies. The Portfolio may buy put and write covered call
options on foreign currencies for hedging purposes. For example, a decline in
the dollar value of a foreign currency in which securities are denominated will
reduce the dollar value of such securities, even if their value in the foreign
currency remains constant. In order to protect against such diminutions in the
value of securities, the Portfolio may buy put options on the foreign currency.
If the value of the currency does decline, the Portfolio will have the right to
sell such currency for a fixed amount in dollars and will thereby offset, in
whole or in part, the adverse effect on its portfolio which otherwise would have
resulted.
As in the case of other types of options, however, the benefit to the Portfolio
derived from purchases of foreign currency options will be reduced by the amount
of the premium and related transaction costs. In addition, where currency
exchange rates do not move in the direction or to the extent anticipated, the
Portfolio could sustain losses on transactions in foreign currency options which
would require it to forego a portion or all of the benefits of advantageous
changes in such rates.
The Portfolio may write options on foreign currencies for the same types of
hedging purposes. For example, when the Portfolio anticipates a decline in the
dollar value of foreign-denominated securities due to adverse fluctuations in
exchange rates it could, instead of purchasing a put option, write a call option
on the relevant currency. If the expected decline occurs, the option will most
likely not be exercised and the diminution in value of securities will be fully
or partially offset by the amount of the premium received.
As in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of the
premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Portfolio would be required to buy or
sell the underlying currency at a loss which may not be offset by the amount of
the premium. Through the writing of options on foreign currencies, the Portfolio
also may be required to forego all or a portion of the benefits which might
otherwise have been obtained from favorable movements on exchange rates.
<PAGE>
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 B
INVESTING IN FOREIGN SECURITIES
Investors should recognize that investing in foreign securities involves certain
special considerations, including those set forth below and those described in
the prospectus, which are not typically associated with investing in United
States securities. Foreign companies are not generally subject to uniform
accounting and auditing and financial reporting standards comparable to those
applicable to domestic companies. Additionally, many foreign stock markets,
while growing in volume of trading activity, have substantially less volume than
the New York Stock Exchange, and securities of some foreign companies are less
liquid and more volatile than securities of domestic companies. Similarly,
volume and liquidity in most foreign bond markets are less than the volume and
liquidity in the United States and at times, volatility of price can be greater
than in the United States. Further, foreign markets have different clearance,
settlement, registration and communication procedures and in certain markets
there have been times when settlements have been unable to keep pace with the
volume of securities transactions making it difficult to conduct such
transactions. Delays in such procedures could result in temporary periods when
assets of the Portfolio are uninvested and no return is earned thereon. The
inability of the Portfolio is to make intended security purchases due to such
problems could cause the Portfolio to miss attractive investment opportunities.
Payment for securities without delivery may be required in certain foreign
markets and, when participating in new issues, some foreign countries require
payment to be made in advance of issuance (at the time of issuance, the market
value of the security may be more or less than the purchase price). Some foreign
markets also have compulsory depositories (i.e., the Portfolio does not have a
choice as to where the securities are held). Fixed commissions on some foreign
stock exchanges are generally higher than negotiated commissions on U.S.
exchanges, although the Portfolio will endeavor to achieve the most favorable
net results on their portfolio transactions. Further, the Portfolio may
encounter difficulties or be unable to pursue legal remedies and obtain
judgments in foreign courts. There is generally less government supervision and
regulation of business and industry practices, stock exchanges, brokers and
listed companies than in the United States. It may be more difficult for the
Portfolios' agents to keep currently informed about corporate actions such as
stock dividends or other matters which may affect the prices of portfolio
securities. Communications between the United States and foreign countries may
be less reliable than within the United States, thus increasing the risk of
delays or loss of certificates for portfolio securities. In addition, with
respect to certain foreign countries, there is the possibility of
nationalization, expropriation, the imposition of withholding or confiscatory
taxes, political, social, or economic instability, diplomatic developments which
could affect United States investments in those countries, or other unforeseen
actions by regulatory bodies (such as changes to settlement or custody
procedures). Investments in foreign securities may also entail certain risks,
such as possible currency blockages or transfer restrictions, and the difficulty
of enforcing rights in other countries.
<PAGE>
APPENDIX C
OPTIONS AND INTEREST RATE 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 interest rate
futures contracts traded on any U.S. or foreign exchange. The Portfolio also may
buy or write put and call options on these futures. 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 (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
a 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.
Options can be used to produce incremental earnings, protect gains and
facilitate buying and selling securities for investment purposes. The use of
options and futures contracts 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 the option price will be as
good or better than the price at which the security could be
<PAGE>
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 subsequent 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 goal.
`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.
Net premiums on call options closed or premiums on expired call options are
treated as short-term capital gains.
If a covered call option is exercised, the security is sold by the Portfolio.
The Portfolio will recognize a capital gain or loss based upon the difference
between the proceeds and the security's basis.
Options on many securities are listed on options exchanges. If the Portfolio
writes listed options, it will follow the rules of the options exchange. Options
are valued at the close of the New York Stock Exchange. An option listed on a
national exchange, Chicago Board Options 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.
<PAGE>
FUTURES CONTRACTS. A futures contract is an agreement between two parties to buy
and sell a security for a set price on a future date. They have been established
by boards of trade which have been designated contracts markets by the Commodity
Futures Trading Commission (CFTC). Futures contracts trade on these markets in a
manner similar to the way a stock trades on a stock exchange, and the boards of
trade, through their clearing corporations, guarantee performance of the
contracts. Currently, there are futures contracts based on such debt securities
as long-term U.S. Treasury bonds, Treasury notes, GNMA modified pass-through
mortgage-backed securities, three-month U.S. Treasury bills and bank
certificates of deposit. While futures contracts based on debt securities do
provide for the delivery and acceptance of securities, such deliveries and
acceptances are very seldom made. Generally, the futures contract is terminated
by entering into an offsetting transaction. An offsetting transaction for a
futures contract sale is effected by the Portfolio entering into a futures
contract purchase for the same aggregate amount of the specific type of
financial instrument and same delivery date. If the price in the sale exceeds
the price in the offsetting purchase, the Portfolio immediately is paid the
difference and realizes a gain. If the offsetting purchase price exceeds the
sale price, the Portfolio pays the difference and realizes a loss. Similarly,
closing out a futures contract purchase is effected by the Portfolio entering
into a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Portfolio realizes a gain, and if the offsetting sale price is less
than the purchase price, the Portfolio realizes a loss. At the time a futures
contract is made, a good-faith deposit called initial margin is set up within a
segregated account at the Portfolio's custodian bank. The initial margin deposit
is approximately 1.5% of a contract's face value. Daily thereafter, the futures
contract is valued and the payment of variation margin is required so that each
day the Portfolio would pay out cash in an amount equal to any decline in the
contract's value or receive cash equal to any increase. At the time a futures
contract is closed out, a nominal commission is paid, which is generally lower
than the commission on a comparable transaction in the cash markets.
The purpose of a futures contract, in the case of a portfolio holding long-term
debt securities, is to gain the benefit of changes in interest rates without
actually buying or selling long-term debt securities. For example, if the
Portfolio owned long-term bonds and interest rates were expected to increase, it
might enter into futures contracts to sell securities which would have much the
same effect as selling some of the long-term bonds it owned.
Futures contracts are based on types of debt securities referred to above, which
have historically reacted to an increase or decline in interest rates in a
fashion similar to the debt securities the Portfolio owns. If interest rates did
increase, the value of the debt securities in the portfolio would decline, but
the value of the Portfolio's futures contracts would increase at approximately
the same rate, thereby keeping the net asset value of the Fund from declining as
much as it otherwise would have. If, on the other hand, the Portfolio held cash
reserves and interest rates were expected to decline, the Portfolio might enter
into interest rate futures contracts for the purchase of securities. If
short-term rates were higher than long-term rates, the ability to continue
holding these cash reserves
<PAGE>
would have a very beneficial impact on the Portfolio's earnings. Even if
short-term rates were not higher, the Portfolio would still benefit from the
income earned by holding these short-term investments. At the same time, by
entering into futures contracts for the purchase of securities, the Portfolio
could take advantage of the anticipated rise in the value of long-term bonds
without actually buying them until the market had stabilized. At that time, the
futures contracts could be liquidated and the Portfolio's cash reserves could
then be used to buy long-term bonds on the cash market. The Portfolio could
accomplish similar results by selling bonds with long maturities and investing
in bonds with short maturities when interest rates are expected to increase or
by buying bonds with long maturities and selling bonds with short maturities
when interest rates are expected to decline. But by using futures contracts as
an investment tool, given the greater liquidity in the futures market than in
the cash market, it might be possible to accomplish the same result more easily
and more quickly. Successful use of futures contracts depends on the investment
manager's ability to predict the future direction of interest rates. If the
investment manager's prediction is incorrect, the Portfolio would have been
better off had it not entered into futures contracts.
OPTIONS ON FUTURES CONTRACTS. Options on futures contracts give the holder a
right to buy or sell futures contracts in the future. Unlike a futures contract,
which requires the parties to the contract to buy and sell a security on a set
date, an option on a futures contract merely entitles its holder to decide on or
before a future date (within nine months of the date of issue) whether to enter
into such a contract. If the holder decides not to enter into the contract, all
that is lost is the amount (premium) paid for the option. Furthermore, because
the value of the option is fixed at the point of sale, there are no daily
payments of cash to reflect the change in the value of the underlying contract.
However, since an option gives the buyer the right to enter into a contract at a
set price for a fixed period of time, its value does change daily and that
change is reflected in the net asset value of the Fund.
RISKS. There are risks in engaging in each of the management tools described
above. The risk the Portfolio assumes when it buys an option is the loss of the
premium paid for the option. Purchasing options also limits the use of monies
that might otherwise be available for long-term investments.
The risk involved in writing options on futures contracts the Portfolio owns, or
on securities held in its portfolio, is that there could be an increase in the
market value of such contracts or securities.
If that occurred, the option would be exercised and the asset sold at a lower
price than the cash market price. To some extent, the risk of not realizing a
gain could be reduced by entering into a closing transaction. The Portfolio
could enter into a closing transaction by purchasing an option with the same
terms as the one it had previously sold. The cost to close the option and
terminate the Portfolio's obligation, however, might be more or less
<PAGE>
than the premium received when it originally wrote the option. Furthermore, the
Portfolio might not be able to close the option because of insufficient activity
in the options market.
A risk in employing futures contracts to protect against the price volatility of
portfolio securities is that the prices of securities subject to futures
contracts may not correlate perfectly with the behavior of the cash prices of
the Portfolio's securities. The correlation may be distorted because the futures
market is dominated by short-term traders seeking to profit from the difference
between a contract or security price and their cost of borrowed funds. Such
distortions are generally minor and would diminish as the contract approached
maturity.
Another risk is that the Portfolio's investment manager could be incorrect in
anticipating as to the direction or extent of various interest rate movements or
the time span within which the movements take place. For example, if the
Portfolio sold futures contracts for the sale of securities in anticipation of
an increase in interest rates, and interest rates declined instead, the
Portfolio would lose money on the sale.
TAX TREATMENT. As permitted under federal income tax laws, the Portfolio intends
to identify futures contracts as mixed straddles and not mark them to market,
that is, not treat them as having been sold at the end of the year at market
value. Such an election may result in the Portfolio being required to defer
recognizing losses incurred by entering into futures contracts and losses on
underlying securities identified as being hedged against.
Federal income tax treatment of gains or losses from transactions in options on
futures contracts and indexes will depend on whether such option is a section
1256 contract . If the option is a non-equity option, the Portfolio will either
make a 1256(d) election and treat the option as a mixed straddle or mark to
market the option at fiscal year end and treat the gain/loss as 40% short-term
and 60% long-term. Certain provisions of the Internal Revenue Code may also
limit the Portfolio's ability to engage in futures contracts and related options
transactions. For example, at the close of each quarter of the Fund's taxable
year, at least 50% of the value of its assets must consist of cash, government
securities and other securities, subject to certain diversification
requirements.
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.
<PAGE>
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>
Independent auditors' report
The board and shareholders
IDS Extra Income Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of
IDS Extra Income Fund, Inc. as of May 31, 1998, and the related statement
of operations for the year then ended and the statements of changes in net
assets for each of the years in the two-year period then ended, and the
financial highlights for the two-year period ended May 31, 1998, the nine
months ended May 31, 1996 and each of the years in the eight-year period
ended Aug. 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 Extra Income Fund,
Inc. at May 31, 1998, 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.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
July 2, 1998
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
IDS Extra Income Fund, Inc.
May 31, 1998
Assets
<S> <C>
Investment in High Yield Portfolio (Note 1) $4,162,847,263
--------------
Liabilities
Dividends payable to shareholders 2,101,787
Accrued distribution fee 21,349
Accrued service fee 19,830
Accrued transfer agency fee 9,908
Accrued administrative services fee 4,789
Other accrued expenses 276,780
-------
Total liabilities 2,434,443
---------
Net assets applicable to outstanding capital stock $4,160,412,820
==============
Represented by
Capital stock-- $.01 par value (Note 1) $ 9,085,738
Additional paid-in capital 4,148,197,959
Undistributed net investment income 23,077,627
Accumulated net realized gain (loss) (137,241,125)
Unrealized appreciation (depreciation) on investments 117,292,621
-----------
Total-- representing net assets applicable to outstanding capital stock $4,160,412,820
==============
Net assets applicable to outstanding shares: Class A $3,112,350,416
Class B $1,046,240,526
Class Y $ 1,821,878
Net asset value per share of outstanding capital stock: Class A shares 679,679,514 $ 4.58
Class B shares 228,496,604 $ 4.58
Class Y shares 397,728 $ 4.58
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
IDS Extra Income Fund, Inc.
Year ended May 31, 1998
Investment income
Income:
<S> <C>
Dividends $ 28,682,903
Interest 335,435,713
-----------
Total income 364,118,616
-----------
Expenses (Note 2):
Expenses allocated from High Yield Portfolio 20,917,296
Distribution fee -- Class B 6,232,295
Transfer agency fee 3,206,873
Incremental transfer agency fee-- Class B 52,233
Service fee
Class A 4,999,691
Class B 1,446,643
Class Y 539
Administrative services fees and expenses 1,616,922
Compensation of board members 12,982
Postage 407,988
Registration fees 453,001
Reports to shareholders 11,923
Audit fees 11,000
Other 314
---
Total expenses 39,369,700
Earnings credits on cash balances (Note 2) (393,867)
--------
Total net expenses 38,975,833
----------
Investment income (loss) -- net 325,142,783
-----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions 107,216,267
Financial futures contracts 75,801
------
Net realized gain (loss) on investments 107,292,068
Net change in unrealized appreciation (depreciation) on investments 8,762,590
---------
Net gain (loss) on investments 116,054,658
-----------
Net increase (decrease) in net assets resulting from operations $441,197,441
============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statements of changes in net assets
IDS Extra Income Fund, Inc.
Year ended May 31,
Operations and distributions
1998 1997
<S> <C> <C>
Investment income (loss)-- net $ 325,142,783 $ 246,363,183
Net realized gain (loss) on investments 107,292,068 8,683,225
Net change in unrealized appreciation (depreciation) on investments 8,762,590 31,109,353
--------- ----------
Net increase (decrease) in net assets resulting from operations 441,197,441 286,155,761
----------- -----------
Distributions to shareholders from:
Net investment income
Class A (240,406,587) (215,602,233)
Class B (63,119,023) (36,099,715)
Class Y (46,439) (1,317)
------- ------
Total distributions (303,572,049) (251,703,265)
------------ ------------
Capital share transactions (Note 3)
Proceeds from sales
Class A shares (Note 2) 905,358,041 752,439,394
Class B shares 584,338,366 423,508,478
Class Y shares 1,680,622 125,331
Reinvestment of distributions at net asset value
Class A shares 164,676,904 147,052,512
Class B shares 53,387,290 30,338,648
Class Y shares 45,553 1,317
Payments for redemptions
Class A shares (651,156,321) (490,907,479)
Class B shares (Note 2) (231,593,965) (116,153,166)
Class Y shares (16,859) (8,197)
------- ------
Increase (decrease) in net assets from capital share transactions 826,719,631 746,396,838
----------- -----------
Total increase (decrease) in net assets 964,345,023 780,849,334
Net assets at beginning of year 3,196,067,797 2,415,218,463
------------- -------------
Net assets at end of year $4,160,412,820 $3,196,067,797
============== ==============
Undistributed net investment income $ 23,077,627 $ 1,431,092
-------------- --------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
IDS Extra Income 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 High Yield Portfolio
Effective June 10, 1996, the Fund began investing all of its assets in the
High Yield Portfolio (the Portfolio), a series of 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. High Yield
Portfolio invests primarily in long-term corporate bonds in the
lower-rating categories, commonly known as junk bonds.
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 May
31, 1998 was 99.97%. 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 net assets and liabilities, as a result of permanent
book-to-tax differences, undistributed net investment income has been
increased by $75,801 and accumulated net realized loss has been increased
by $75,801 .
Dividends to shareholders
Dividends, from net investment income, declared daily and paid monthly,
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 an agreement with American
Express Financial Corporation (AEFC) for providing administrative
services.
Under its Administrative Services Agreement, the Fund pays AEFC for
administration and accounting services at a percentage of the Fund's
average daily net assets in reducing percentages from 0.05% to 0.025%
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, American Express Client
Service Corporation (AECSC) maintains shareholder accounts and records.
The Fund pays AECSC an annual fee per shareholder account for this service
as follows:
o Class A $15.50
o Class B $16.50
o Class Y $15.50
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 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 $18,399,898 for Class A and $730,751 for
Class B for the year ended May 31, 1998.
During the year ended May 31, 1998, the Fund's transfer agency fees were
reduced by $393,867 as a result of earnings credits from overnight cash
balances.
3
Capital share
transactions
Transactions in shares of capital stock for the years indicated are as
follows:
Year ended May 31, 1998
Class A Class B Class Y
Sold 197,884,919 127,715,399 362,086
Issued for reinvested 35,993,198 11,659,883 9,921
distributions
Redeemed (142,256,690) (50,588,489) (3,656)
Net increase (decrease) 91,621,427 88,786,793 368,351
Year ended May 31, 1997
Class A Class B Class Y
Sold 172,870,021 97,289,537 28,878
Issued for reinvested 33,783,196 6,963,319 302
distributions
Redeemed (112,846,209) (26,691,764) (1,885)
Net increase (decrease) 93,807,008 77,561,092 27,295
4
Capital loss
carryover
For federal income tax purposes, the Fund had a capital loss carryover of
$136,345,785 at May 31, 1998, that if not offset by subsequent capital
gains, will expire in 1999 through 2004. It is unlikely the board will
authorize a distribution of any net realized gains until the available
capital loss carryover has been offset or expires.
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 Income Trust:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments in securities, of High Yield
Portfolio (a series of Income Trust) as of May 31, 1998, and the related
statement of operations for the year then ended and the statements of
changes in net assets for the year ended May 31, 1998 and for the period
from June 10, 1996 (commencement of operations) to May 31, 1997. 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, 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 High Yield Portfolio
at May 31, 1998, 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.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
July 2, 1998
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
High Yield Portfolio
May 31, 1998
Assets
Investments in securities, at value (Note 1)
<S> <C>
(identified cost $3,989,298,915) $4,106,636,021
Accrued interest and dividends receivable 83,199,988
Receivable for investment securities sold 10,871,787
----------
Total assets 4,200,707,796
-------------
Liabilities
Payable for investment securities purchased 35,744,905
Disbursements in excess of cash on demand deposit 861,975
Accrued investment management services fee 62,943
Other accrued expenses 37,008
------
Total liabilities 36,706,831
----------
Net assets $4,164,000,965
==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of operations
High Yield Portfolio
Year ended May 31, 1998
Investment income
Income:
<S> <C>
Dividend $ 28,691,205
Interest 335,488,917
-----------
Total income 364,180,122
-----------
Expenses (Note 2):
Investment management services fee 20,715,160
Compensation of board members 19,923
Custodian fees 219,723
Audit fees 33,000
Other 45,122
------
Total expenses 21,032,928
Earnings credits on cash balances (Note 2) (109,556)
--------
Total net expenses 20,923,372
----------
Investment income (loss) -- net 343,256,750
-----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 107,244,523
Financial futures contracts 75,820
------
Net realized gain (loss) on investments 107,320,343
Net change in unrealized appreciation (depreciation) on investments 8,772,357
---------
Net gain (loss) on investments 116,092,700
-----------
Net increase (decrease) in net assets resulting from operations $459,349,450
============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
High Yield Portfolio
Operations
May 31, 1998 For the period from
Year ended June 10, 1996* to
May 31, 1997
<S> <C> <C>
Investment income (loss)-- net $ 343,256,750 $ 255,009,695
Net realized gain (loss) on investments 107,320,343 11,905,305
Net change in unrealized appreciation (depreciation) on investments 8,772,357 42,485,867
--------- ----------
Net increase (decrease) in net assets resulting from operations 459,349,450 309,400,867
Net contributions (withdrawals) from partners 505,587,141 2,889,633,507
----------- -------------
Total increase (decrease) in net assets 964,936,591 3,199,034,374
Net assets at beginning of period (Note 1) 3,199,064,374 30,000
------------- ------
Net assets at end of period $4,164,000,965 $3,199,064,374
============== ==============
*Commencement of operations
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
High Yield Portfolio
1
Summary of
significant
accounting policies
The High Yield Portfolio (the Portfolio) is a series of Income Trust (the
Trust) and is registered under the Investment Company Act of 1940 (as
amended) as a diversified, open-end management investment company. High
Yield Portfolio invests primarily in long-term corporate bonds in the
lower-rating categories, commonly known as junk bonds. 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 $30,000 to the Portfolio. Operations did not formally
commence until June 10, 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 independent 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 options on debt securities or futures are
exercised, the Portfolio will realize a gain or loss. When other options
are 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.
Illiquid securities
At May 31, 1998, investments in securities included issues that are
illiquid. The Portfolio currently limits investments in illiquid
securities to 10% of net assets, at market value, at the time of purchase.
The aggregate value of such securities at May 31, 1998 was $96,293,369
representing 2.31% of net assets. Pursuant to guidelines adopted by the
board, certain unregistered securities are determined to be liquid and are
not included within the 10% limitation specified above.
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.
For U.S. dollar denominated bonds, interest income includes level-yield
amortization of premium and discount. For foreign bonds, except for
original issue discount, the Portfolio does not amortize premium and
discount. 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 0.59% to 0.465% annually.
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.
For the period ended May 31, 1998, the Portfolio's custodian fees were
reduced by $109,556 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 $3,868,258,459 and $2,944,741,962,
respectively, for the year ended May 31, 1998. For the same period, the
portfolio turnover rate was 81%. Realized gains and losses are determined
on an identified cost basis.
<PAGE>
<TABLE>
<CAPTION>
Investments in securities
High Yield Portfolio
May 31, 1998
(Percentages represent
value of investments
compared to net assets)
Bonds (86.8%)
Issuer Coupon Principal Value(a)
rate amount
Mortgage-backed securities (0.2%)
Federal Home Loan Mtge Corp
<S> <C> <C> <C>
08-01-17 7.50% $ 4,644(b) $ 4,865
Merrill Lynch Mtge Investors
06-15-21 8.17 6,426,277 6,426,277
Total 6,431,142
Aerospace & defense (1.1%)
Compass Aerospace
Sr Sub Nts
04-15-05 10.125 8,075,000(c) 8,256,688
K&F Inds
Sr Sub Nts Series B
10-15-07 9.25 4,500,000 4,646,250
L-3 Communications
Sr Sub Nts Series B
05-01-07 10.375 10,645,000 11,762,725
Sequa
Sr Sub Nts
12-15-03 9.375 20,750,000 21,683,750
Total 46,349,413
Automotive & related (0.9%)
Hayes Lemmerz Intl
Company Guaranty Series B
07-15-07 9.125 10,000,000 10,500,000
Oxford Automotive
Company Guaranty
06-15-07 10.125 20,120,000 21,377,500
Sr Sub Nts
06-15-07 10.125 5,000,000(c) 5,312,500
Total 37,190,000
Banks and savings & loans (0.8%)
First Nationwide Holdings
Sr Sub Nts
10-01-03 10.625 11,000,000 12,265,000
Wilshire Financial Services
01-01-04 13.00 11,500,000 12,477,500
Series B
08-15-04 13.00 8,500,000 9,222,500
Total 33,965,000
Communications equipment & services (13.8%)
21st Century Telecom Group
Zero Coupon Sr Disc Nts
02-15-03 12.35 15,500,000(c,g) 8,680,000
American Cellular
Sr Nts
05-15-08 10.50 21,000,000(c) 20,790,000
CCPR Services
Company Guaranty
02-01-07 10.00 26,850,000 27,185,625
Celcaribe
Sr Nts
03-15-04 13.50 7,350,000 7,460,250
Units
03-15-04 13.50 3,800,000(c) 7,011,000
Comcast Cellular Holdings
Sr Nts Series B
05-01-07 9.50 20,000,000 20,700,000
Facilicom Intl
Sr Nts
01-15-08 10.50 5,000,000 5,000,000
Geotek Communications
Cv Sr Sub Nts
02-15-01 12.00 4,135,000(e) 2,811,800
Zero Coupon Sr Disc Nts Series B
07-15-00 18.23 20,983,000(g) 10,491,500
Globalstar LP/Capital
Sr Nts
02-15-04 11.375 13,500,000 13,398,750
06-15-04 11.25 7,500,000 7,425,000
06-01-05 11.50 6,000,000(c) 5,940,000
GST Equipment Funding
Sr Nts
05-01-07 13.25 6,750,000 7,897,500
GST Telecom/GST Network Funding
Zero Coupon Sr Disc Nts
05-01-03 10.50 15,000,000(c,g) 8,962,500
GST Telecommunications
Sr Sub Nts
11-15-07 12.75 6,750,000 8,032,500
Intermedia Communications
Sr Nts Series B
11-01-07 8.875 11,025,000 11,355,750
Zero Coupon Sr Disc Nts Series B
07-15-02 11.34 18,375,000(g) 13,505,625
Intl Wireless Communications
Zero Coupon Sr Disc Nts
08-15-01 14.00 14,750,000(f) 5,457,500
Iridium LLC/Capital
Company Guaranty Series A
07-15-05 13.00 10,000,000 10,825,000
Company Guaranty Series D
07-15-05 10.875 15,200,000 15,238,000
Sr Nts
07-15-05 11.25 4,000,000(c) 4,055,000
ITC Deltacom
Sr Nts
06-01-07 11.00 9,457,000 10,639,125
03-01-08 8.875 16,250,000(c) 16,595,313
IXC Communications
Sr Sub Nts
04-15-08 9.00 8,000,000(c) 8,000,000
Jordan Telecommunications Products
Sr Nts Series B
08-01-07 9.875 25,950,000 26,598,750
Zero Coupon Sr Disc Nts Series B
08-01-00 6.98 18,000,000(g) 14,940,000
Metrocall
Sr Sub Nts
10-01-07 10.375% $13,750,000 $14,231,250
Nextel Communications
Zero Coupon Sr Disc Nts
01-15-99 11.50 20,500,000(g) 19,987,500
08-15-99 2.86 4,500,000(g) 4,348,124
NEXTLINK Communications
Sr Nts
04-15-06 12.50 15,000,000 17,418,750
NTL
Zero Coupon Sr Nts Series B
02-01-06 11.48 40,000,000(g) 32,300,000
Omnipoint
Sr Nts
08-15-06 11.625 24,100,000 25,606,250
Sr Nts Series A
08-15-06 11.625 4,450,000 4,728,125
Pagemart Nationwide
Zero Coupon Sr Disc Nts
02-01-05 16.43 23,000,000(g) 20,700,000
Peoples Telephone
Sr Nts
07-15-02 12.25 14,250,000 15,069,375
PhoneTel Technologies
Sr Nts
12-15-06 12.00 23,500,000 20,680,000
Price Comm Cellular Holdings
Zero Coupon Company Guaranty Series B
08-01-07 11.18 12,000,000(g) 8,400,000
PriCellular Wireless
Sr Disc Nts Series B
11-15-01 14.00 10,000,000 11,487,500
Zero Coupon Sr Disc Nts
10-01-98 14.00 18,250,000(g) 19,322,187
Pronet
Sr Sub Nts
06-15-05 11.875 19,350,000 20,898,000
RCN
Zero Coupon Sr Disc Nts
02-15-03 9.88 12,000,000(c,g) 7,575,000
Unisite
Zero Coupon Sub Nts
12-15-00 13.00 9,000,000(e,g) 9,000,000
Verio
Sr Nts
04-01-05 10.375 7,000,000(c) 7,280,000
Vialog
Company Guaranty
11-15-01 12.75 17,600,000 18,172,000
Total 576,200,549
Computers & office equipment (2.2%)
Anacomp
Sr Sub Nts Series B
04-01-04 10.875 13,000,000 13,910,000
Bell Technology Group
Sr Nts
05-01-05 13.00 17,075,000(c) 17,629,938
Concentric Network
Sr Nts
12-15-07 12.75 5,600,000 6,160,000
Cooperative Computing
Sr Sub Nts
02-01-08 9.00 20,250,000(c) 19,085,625
Decisionone Holdings
Zero Coupon
08-01-08 4.18 11,875,000(f) 7,065,625
Learning
Cv Sr Nts
11-01-00 5.50 2,500,000 2,375,000
Psinet
Sr Nts
02-15-05 10.00 7,025,000(c) 7,147,938
Read-Rite
Sub Nts
09-01-04 6.50 4,375,000 2,914,844
Unisys
04-15-03 12.00 8,000,000 9,080,000
Sr Nts
10-15-04 11.75 7,500,000 8,681,250
Total 94,050,220
Electronics (--%)
Amkor Technologies
Cv Sub Nts
05-01-03 5.75 1,750,000 1,745,625
Energy (2.7%)
Belco Oil & Gas
Sr Sub Nts Series B
09-15-07 8.875 5,800,000 5,756,500
Chesapeake Energy
Sr Nts
05-01-05 9.625 5,450,000(c) 5,463,625
Clark R&M
Sr Sub Nts
11-15-07 8.875 11,000,000 11,013,750
Costilla Energy
Sr Nts
10-01-06 10.25 16,250,000 16,412,500
Energy Corp of America
Sr Sub Nts Series A
05-15-07 9.50 9,000,000 8,932,500
Forcenergy
Sr Sub Nts
11-01-06 9.50 5,000,000 5,118,750
Sr Sub Nts Series B
02-15-07 8.50 2,250,000 2,193,750
Houston Exploration
Sr Sub Nts
01-01-08 8.625% $11,750,000(c) $11,779,374
HS Resources
Company Guaranty
11-15-06 9.25 4,250,000 4,345,625
Sr Sub Nts
12-01-03 9.875 9,700,000 10,039,500
Rayovac
Sr Sub Nts Series B
11-01-06 10.25 7,664,000 8,497,460
Transamerica Energy
06-15-02 11.50 13,960,000 13,366,700
Zero Coupon
06-15-99 17.58 9,600,000(g) 7,968,000
Total 110,888,034
Energy equipment & services (1.0%)
Dailey Intl
Sr Nts
02-15-08 9.50 9,000,000 9,045,000
DI Inds
Sr Nts
07-01-07 8.875 6,000,000 6,060,000
Plains Resources
Company Guaranty Series D
03-15-06 10.25 9,000,000 9,630,000
Pride Intl
Sr Nts
05-01-07 9.375 6,600,000 7,062,000
Seven Seas Petroleum
Sr Nts
05-15-05 12.50 8,000,000(c) 8,090,000
Total 39,887,000
Financial services (0.7%)
Arcadia Financial
Sr Nts
03-15-07 11.50 13,805,000 13,718,719
Gemini Inds
12-23-01 13.50 13,500,000(e,i) 13,500,000
Total 27,218,719
Food (2.4%)
Ameriserve Food Distributions
Company Guaranty
07-15-07 10.125 8,400,000 9,072,000
Aurora Foods
Sr Sub Nts Series B
02-15-07 9.875 6,000,000 6,435,000
Sr Sub Nts Series D
02-15-07 9.875 10,000,000 10,725,000
CFP Holdings
Sr Nts Series B
01-15-04 11.625 10,675,000 10,621,625
Chiquita Brands Intl
Sr Nts
01-15-04 9.625% $8,500,000 $9,010,000
Fine Host
Cv Sub Nts
11-01-04 5.00 2,000,000(c) 1,442,500
Gorges/Quik to Fix Food
Sr Sub Nts Series B
12-01-06 11.50 14,250,000 15,087,188
Specialty Foods
Sr Nts Series B
08-15-01 10.25 15,000,000 15,037,500
Stroh Brewery
Sr Sub Nts
07-01-06 11.10 14,887,000 10,123,159
Twin Laboratories
Sr Sub Nts Company Guaranty
05-15-06 10.25 13,813,000 15,263,365
Total 102,817,337
Foreign (15.7%)(d)
Alfa-Russia Finance
(U.S. Dollar) Medium-term Nts Bank Guaranty
07-28-00 10.375 5,000,000 4,069,000
APP Intl Finance
(U.S. Dollar)
10-01-05 11.75 4,500,000 3,937,500
Argentina Govt Natl
(U.S. Dollar)
09-19-27 9.75 7,000,000 6,501,250
Australis Holdings
(U.S. Dollar) Zero Coupon Sr Disc Nts
11-01-00 14.99 17,900,000(g) 1,790,000
Australis Media
(U.S. Dollar)
11-01-00 14.00 5,587,791 4,062,592
(U.S. Dollar) Zero Coupon
05-15-00 15.75 43,969,560(g) 4,396,956
Autopistas Del Sol
(U.S. Dollar) Sr Nts
08-01-09 10.25 13,500,000(c) 13,128,750
Bestel
(U.S. Dollar) Zero Coupon Sr Disc Nts
05-15-05 12.75 11,400,000(c,g) 7,794,750
Canadian Forest Oil
(U.S. Dollar) Company Guaranty
09-15-07 8.75 8,500,000 8,542,500
CEI Citicorp Holdings
(Argentine Peso)
02-14-07 11.25 5,000,000(c) 4,292,800
(U.S. Dollar)
02-14-02 8.50 3,000,000 2,996,250
Centaur Mining & Exploration
(U.S. Dollar) Company Guaranty
12-01-07 11.00 11,500,000(c) 12,003,125
entral Euro Media
(U.S. Dollar) Sr Nts
08-15-04 9.375 12,175,000 11,820,099
City of Moscow
(U.S. Dollar) Zero Coupon
07-01-98 9.50 3,345,945(f) 3,306,128
12-31-98 10.96 3,691,890(f) 3,740,623
Colt Telecommunications Group
(U.S. Dollar) Zero Coupon
12-15-01 12.00 8,500,000(g) 7,480,000
CTI Holdings
(U.S. Dollar) Zero Coupon Sr Nts
04-15-03 11.50 9,450,000(c,g) 5,575,500
Daya Guna
(U.S. Dollar) Company Guaranty
06-01-07 10.00 10,325,000(c) 8,156,750
Doman Inds
(U.S. Dollar)
03-15-04 8.75 10,500,000 10,395,000
(U.S. Dollar) Sr Nts Series B
11-15-07 9.25 3,500,000 3,521,875
Enterprises Shipholding
(U.S Dollar) Sr Nts
05-01-08 8.875 16,250,000(c) 16,209,375
Espirito Santo Centrais
(U.S. Dollar) Sr Nts
07-15-07 10.00 9,000,000(c) 8,159,580
Esprit Telecom Group
(U.S. Dollar) Sr Nts
12-15-07 11.50 11,000,000 11,852,500
Globo Communicacoes Participacoes
(U.S. Dollar) Sr Nts
12-05-08 10.625 15,000,000(c) 14,584,650
Govt of Algeria
(U.S. Dollar)
09-04-06 7.06 5,227,273 3,998,864
Great Central Mines
(U.S. Dollar) Sr Nts
04-01-08 8.875 10,000,000(c) 9,962,500
Greater Beijing
(U.S. Dollar) Sr Nts
06-15-04 9.25 3,500,000(c) 2,450,000
06-15-07 9.50 5,000,000(c) 3,400,000
Grupo Industrial Durango
(U.S. Dollar)
08-01-03 12.625 5,000,000 5,579,450
Grupo Iusacell
(U.S. Dollar)
07-15-04 10.00 4,550,000 4,618,250
Grupo Televisa
(U.S. Dollar) Sr Nts
05-15-06 11.875 3,250,000 3,647,118
Hurricane Hydrocarbons
(U.S. Dollar) Sr Nts
11-01-04 11.75 15,750,000(c) 15,316,875
Hyundai Semiconductor
(U.S. Dollar) Sr Nts
05-15-07 8.625 15,000,000(c) 12,210,450
Imexsa Export Trust
(U.S. Dollar)
05-31-03 10.125 10,000,000(c) 10,300,000
Lodestar Holdings
(U.S. Dollar) Sr Nts
05-15-05 11.50 7,750,000(c) 7,808,125
MDC Communications
(U.S. Dollar) Sr Sub Nts
12-01-06 10.50 12,100,000 13,098,250
MetroNet Communications
(U.S. Dollar) Sr Nts
08-15-07 12.00 8,750,000 10,084,375
(U.S. Dollar) Zero Coupon Sr Disc Nts
11-01-02 10.74 12,800,000(g) 8,640,000
Mexican Cetes
(Mexican Peso) Zero Coupon
06-04-98 20.65 85,160,000(f) 9,635,002
Microcell Telecommunications
(U.S. Dollar) Zero Coupon Sr Disc Nts Series B
12-01-01 11.10 9,000,000(g) 6,671,250
(U.S. Dollar) Zero Coupon Sr Disc Nts Series B
10-15-02 8.76 12,140,000(g) 5,319,214
Netia Holdings
(U.S. Dollar) Company Guaranty
11-01-07 10.25 17,750,000(c) 18,282,500
Northern Offshore ASA
(U.S. Dollar) Company Guaranty
05-15-05 10.00 21,000,000(c) 20,842,500
NTEX
(U.S. Dollar) Sr Nts
06-01-06 11.50 8,450,000(c) 8,450,000
Panda Global Energy
(U.S. Dollar) Company Guaranty
04-15-04 12.50 24,500,000(c) 23,581,250
Philippine Long Distance Telephone
(U.S. Dollar) Medium-term Nts Series E
03-06-07 7.85 7,500,000(c) 6,794,850
03-06-17 8.35 7,500,000(c) 6,613,950
PLD Telekom
(U.S. Dollar) Zero Coupon
06-01-04 14.00 4,000,000(g) 3,720,000
Plitt Theatres
(U.S. Dollar) Sr Sub Nts
06-15-04 10.875 22,850,000 24,820,812
Poland Telecom Finance
(U.S. Dollar)
12-01-07 14.00 16,500,000(c) 18,562,500
Polysindo Intl Finance
(U.S. Dollar) Company Guaranty
06-15-01 13.00 2,000,000 1,030,000
06-15-06 11.375 7,900,000 3,989,500
Pratama Datakom Asia
(U.S. Dollar) Company Guaranty
07-15-05 12.75 5,600,000(c) 2,352,000
Repap New Brunswick
(U.S. Dollar) Sr Nts
07-15-00 9.875 15,450,000 16,299,750
06-01-04 9.00 9,900,000(c) 9,900,000
04-15-05 10.625 28,500,000 29,497,500
Republic of Korea
(U.S. Dollar)
04-15-08 8.875 8,450,000 7,879,625
Rogers Cablesystems
(U.S. Dollar) Nts
08-01-02 9.625 9,000,000 9,630,000
Roil
(U.S. Dollar)
12-05-02 12.78 10,000,000(e) 9,770,000
RSL Communications
(U.S. Dollar) Company Guaranty
11-15-06 12.25 10,167,000 11,577,671
Russia Federal Loan Bond
(Russian Ruble) Series 25018
09-27-00 14.00 30,008,878 2,430,088
Satelites Mexicanos
(U.S. Dollar) Company Guaranty Sr Nts
06-30-04 9.44 4,247,000(c) 4,247,000
(U.S. Dollar) Sr Nts
11-01-04 10.125 10,000,000(c) 9,962,500
Tarkett Intl
(U.S. Dollar) Sr Sub Nts
03-01-02 9.00 10,000,000 10,150,000
Tatneft Finance
(U.S. Dollar) Company Guaranty
10-29-02 9.00 3,800,000(c) 3,181,968
Telewest Communications
(U.S. Dollar) Zero Coupon
10-01-00 11.00 10,000,000(g) 8,075,000
Tjiwi Kimia Finance Mauritius
(U.S. Dollar) Company Guaranty
08-01-04 10.00 10,000,000 7,200,000
Tjiwi Kimia Intl
(U.S. Dollar) Company Guaranty
08-01-01 13.25 7,000,000 5,740,000
Tri Polyta Finance BV
(U.S. Dollar) Company Guaranty
12-01-03 11.375 20,000,000 10,800,000
United Mexican States
(U.S. Dollar)
05-15-26 11.50 5,000,000 5,818,750
Veninfotel
(U.S. Dollar) Cv Pay-in-kind
03-01-02 10.00 9,000,000(e,j) 13,500,000
Veritas Holdings
(U.S. Dollar) Sr Nts
12-15-03 9.625 15,256,000 16,285,780
Versatel Telecom
(U.S. Dollar) Sr Nts
05-15-08 13.25 11,000,000(c) 11,330,000
Total 653,372,770
Furniture & appliances (0.2%)
Lifestyle Furnishings
Company Guaranty
08-01-06 10.875 6,500,000 7,280,000
Health care (0.2%)
Maxxim Medical
Company Guaranty
08-01-06 10.50 6,600,000 7,284,750
Health care services (1.8%)
Abbey Healthcare Group
Sr Sub Nts
11-01-02 9.50 4,800,000 4,812,000
Fountain View
Sr Sub Nts
04-15-08 11.25 8,600,000(c) 8,815,000
Magellan Health Services
Sr Sub Nts
02-15-08 9.00 15,000,000(c) 14,887,500
Oxford Health Plans
Sr Nts
05-15-05 11.00 6,650,000(c) 6,799,625
Paracelsus Healthcare
Sr Sub Nts
08-15-06 10.00 21,450,000 22,039,875
Physician Sales & Service
Company Guaranty
10-01-07 8.50 15,250,000 15,631,250
Total 72,985,250
Household products (0.4%)
Revlon Worldwide
Zero Coupon Sr Disc Nts Series B
03-15-01 11.52 20,000,000(f) 15,550,000
Industrial equipment & services (2.2%)
Borg-Warner Security
03-15-07 9.625 4,100,000 4,335,750
Sr Sub Nts
05-01-03 9.125 10,000,000 10,250,000
Clark Materials Handling
Company Guaranty
11-15-06 10.75 11,000,000 11,880,000
Goss Graphic Systems
Sr Sub Nts
10-15-06 12.00 14,000,000 15,715,000
Motor & Gears
Sr Nts Series D
11-15-06 10.75 25,000,000 27,000,000
Purina Mills
Sr Sub Nts
03-15-10 9.00 5,825,000(c) 5,999,750
Thermadyne Holdings
Zero Coupon
06-01-03 12.49% $12,000,000(c,g) $6,630,000
Thermadyne Mfg LLC/Capital
Sr Sub Nts
06-01-08 9.875 8,000,000(c) 8,040,000
Total 89,850,500
Insurance (0.4%)
Americo Life
Sr Sub Nts
06-01-05 9.25 15,000,000 15,393,750
Leisure time & entertainment (5.6%)
Affinity Group Holding
Sr Nts
04-01-07 11.00 9,000,000 9,618,750
AMC Entertainment
Sr Sub Nts
03-15-09 9.50 4,500,000 4,657,500
Coast Hotels & Casino
Company Guaranty Series B
12-15-02 13.00 19,800,000 22,522,500
Hammons (JQ) Hotels
1st Mtge
02-15-04 8.875 12,000,000 12,120,000
Hollywood Theaters
Company Guaranty
08-01-07 10.625 5,950,000 6,433,438
Icon Health & Fitness
Sr Sub Nts Series B
07-15-02 13.00 7,500,000 8,006,250
Zero Coupon Sr Disc Nts Series B
11-15-01 13.37 21,750,000(g) 11,310,000
IHF Holdings
Zero Coupon Sr Disc Nts Series B
11-15-99 2.04 7,275,000(g) 6,201,938
Lodgenet Entertainment
Sr Nts
12-15-06 10.25 15,000,000 15,600,000
Premier Parks
Sr Nts
04-01-06 9.25 8,300,000 8,424,500
Riviera Holdings
Company Guaranty
08-15-04 10.00 11,000,000 11,000,000
Trump Atlantic City Assn/Funding
1st Mtge Company Guaranty
05-01-06 11.25 26,945,000 26,473,462
Trump Holdings & Funding
Sr Nts
06-15-05 15.50 28,050,000 31,836,750
United Artists Theatre
Series 1995A
07-01-15 9.30 13,505,649 13,877,054
Sr Sub Nts
04-15-08 9.75 10,000,000(e) 10,100,000
Venetian Casino/LV Sands
Mtge
11-15-04 12.25 15,105,000(c) 15,671,437
Sr Sub Nts
11-15-05 10.00 6,000,000(c) 5,670,000
Waterford Gaming/LLC
Sr Nts
11-15-03 12.75 12,771,000 14,143,883
Total 233,667,462
Media (7.5%)
Adelphia Communications
Sr Deb
09-15-04 11.875 5,000,000 5,525,000
Sr Nts Series B
02-01-08 8.375 27,500,000 27,259,375
Benedek Broadcasting
Sr Nts
03-01-05 11.875 2,500,000 2,825,000
Benedek Communications
Zero Coupon Sr Disc Nts
05-15-06 13.25 9,500,000(g) 7,600,000
Big Flower Press
Sr Sub Nts
07-01-07 8.875 8,000,000 8,260,000
Cable Systems USA
06-30-99 10.75 2,287,647(e) 2,276,208
Capstar Broadcasting
Zero Coupon Sr Disc Nts
02-01-02 7.49 8,000,000(c,g) 6,030,000
Chancellor Media
Sr Sub Nts
10-01-04 9.375 3,500,000 3,675,000
12-15-07 8.125 19,750,000(c) 19,898,125
EchoStar Communications
Zero Coupon Sr Sec Disc Nts
06-01-99 7.95 12,000,000(g) 11,640,000
EchoStar Satellite Broadcasting
Zero Coupon Sr Disc Nts
03-15-00 11.81 30,500,000(g) 28,060,000
Garden State Newspapers
Sr Sub Nts Series B
10-01-09 8.75 9,000,000 9,236,250
Jacor Communications
Company Guaranty
12-15-06 9.75 19,000,000 20,662,500
Zero Coupon Cv
02-09-18 8.75 5,500,000(f) 2,330,625
James Cable Partners LP
Sr Nts Series B
08-15-04 10.75 17,000,000 17,977,500
Liberty Group
Sr Sub Nts
02-01-08 9.375 7,500,000 7,715,625
OpTel
Sr Nts Series B
02-15-05 13.00 17,000,000 19,082,500
Outdoor Systems
Company Guaranty
10-15-06 9.375% $10,000,000 $10,600,000
06-15-07 8.875 30,000,000 31,200,000
Paxson Communications
Sr Sub Nts
10-01-02 11.625 7,000,000 7,560,000
Pegasus Media & Communications
Sr Nts Series B
10-15-05 9.625 6,500,000 6,743,750
Series B
07-01-05 12.50 15,400,000 17,594,500
Price Communications Wireless
Sr Sub Nts
07-15-07 11.75 10,000,000 11,200,000
Spanish Broadcasting System
Sr Nts Series B
03-15-04 11.00 3,150,000 3,457,125
Sr Nts
06-15-02 12.50 4,000,000 4,560,000
Transwestern Publishing/TWP Capital
Sr Sub Nts
11-15-07 9.625 4,500,000 4,668,750
Viacom Intl
07-01-03 7.00 15,000,000 14,998,350
Total 312,636,183
Metals (1.5%)
Bar Technologies
Company Guaranty
04-01-01 13.50 10,000,000(c) 10,750,000
EnviroSource
Sr Nts
06-15-03 9.75 21,510,000 21,993,975
Maxxam Group Holdings
Sr Nts Series B
08-01-03 12.00 12,000,000 13,080,000
NSM Steel
Company Guaranty
02-01-06 12.00 16,350,000 14,878,500
Total 60,702,475
Miscellaneous (13.4%)
Adams Outdoor Advertising
Sr Nts
03-15-06 10.75 15,300,000 16,677,000
Advance Holding
Zero Coupon
04-15-03 12.98 3,300,000(c,g) 1,914,000
Advance Stores
Sr Sub Nts
04-15-08 10.25 5,500,000(c) 5,692,500
American Architectural
Sr Nts
12-01-07 11.75 10,000,000(c) 10,500,000
American Mobile/AMSC ACQ
04-01-08 12.25% $8,000,000 $8,000,000
Anker Coal Group
Sr Nts Series B
10-01-07 9.75 11,000,000 10,422,500
Big City Radio
Zero Coupon Sr Disc Nts
03-15-01 11.40 10,000,000(c,g) 7,400,000
Bistro Trust
Sub Nts
12-31-02 9.50 10,000,000(c) 10,072,000
Booth Creek Ski Holdings
Sr Nts Series B
03-15-07 12.50 6,250,000 6,593,750
BTI Telecommunications
Sr Nts
09-15-07 10.50 7,875,000 8,268,750
Cex Holdings
Sr Sub Nts
06-01-08 9.625 10,000,000(c) 10,225,000
Comforce Operating
Sr Nts Series B
12-01-07 12.00 9,000,000 9,765,000
Coty
Sr Sub Nts
05-01-05 10.25 7,000,000 7,455,000
Crown Castle Intl
Zero Coupon Sr Disc Nts
11-15-02 8.88 14,750,000(c,g) 10,140,625
ECM Funding LP
06-10-02 11.92 1,661,844(e) 1,661,844
Grant Geophysical
Sr Nts
02-15-08 9.75 7,250,000 7,231,875
Great Lakes Acquisition
Zero Coupon
05-15-03 13.23 8,000,000(c,g) 4,340,000
Great Lakes Carbon
Sr Sub Nts
05-15-08 10.25 8,875,000(c) 9,096,875
Grove Holdings LLC
Zero Coupon
05-01-03 11.625 4,000,000(g) 2,365,000
Grove Inds LLC
05-01-10 14.50 2,700,000(c) 2,713,500
Hyperion Telecommunications
Sr Nts Series B
09-01-04 12.25 14,000,000 15,400,000
Isle of Capri/Capital
1st Mtge Series B
08-31-04 13.00 16,250,000 16,798,437
JTM Inds
Sr Sub Nts
04-15-08 10.00 17,445,000(c) 17,619,450
Knology Holdings
Zero Coupon Sr Disc Nts
10-15-02 12.24 11,000,000(g) 6,435,000
Level 3 Communications
Sr Nts
05-01-08 9.125 22,400,000(c) 21,784,000
Michael Petroleum
Sr Nts
04-01-05 11.50 6,000,000(c) 6,067,500
MJD Communications
05-01-08 9.50 4,300,000(c) 4,380,625
Morris Materials Handling
Sr Nts
04-01-08 9.50 15,000,000(c) 14,700,000
MSX Intl
Sr Sub Nts
01-15-08 11.375 10,410,000 10,722,300
Nationwide Credit
Sr Nts
01-15-08 10.25 8,750,000(c) 8,925,000
Norcal Waste Systems
Company Guaranty Series B
11-15-05 13.50 20,300,000 23,598,750
NSM Steel
02-01-08 12.25 11,700,000 10,939,500
Omnipoint Communications
Sr Nts
02-17-06 8.875 22,500,000(c) 22,500,000
Outsourcing Solutions
Sr Sub Nts Series B
11-01-06 11.00 37,395,000 40,760,550
Park-Ohio Inds
Sr Sub Nts
12-01-07 9.25 15,000,000 15,487,500
Pathnet
04-15-08 12.25 14,250,000(c) 15,817,500
Pierce Leahy Command
Company Guaranty
05-15-08 8.125 25,150,000(c) 24,395,500
Premier Cruises
Sr Nts
03-15-08 11.00 11,000,000(c) 11,027,500
RAB Enterprises
Sr Nts
05-01-05 10.50 9,600,000(c) 9,696,000
Resource America
Sr Nts
08-01-04 12.00 9,000,000 9,630,000
SC Intl
09-01-07 9.25 22,750,000 23,773,750
SFX Entertainment
Sr Sub Nts
02-01-08 9.125 9,700,000 9,506,000
Sheffield Steel
1st Mtge Series B
12-01-05 11.50 10,200,000 10,633,500
Steel Heddle Group
Zero Coupon
06-01-03 13.75 6,200,000(c,g) 3,224,000
Steel Heddle Mfg
Sr Sub Nts
06-01-08 10.625 6,600,000(c) 6,666,000
Stellex Inds
Sr Sub Nts Series B
11-01-07 9.50 13,700,000 14,008,250
Talton Holdings
Company Guaranty Sr Nts Series B
06-30-07 11.00 7,600,000 8,227,000
Triton Communications
Zero Coupon Sr Disc Nts
05-01-03 10.86 22,000,000(c,g) 12,980,000
Wesco Intl
Zero Coupon Sr Disc Nts
06-01-03 11.21 6,800,000(c,g) 3,945,427
XCL
05-01-04 13.50 8,000,000(c) 9,200,000
Total 559,384,258
Multi-industry conglomerates (0.9%)
Communications & Power Inds
Sr Sub Nts Series B
08-01-05 12.00 10,000,000 11,175,000
Jordan Inds
Zero Coupon Sr Sub Deb Series B
04-01-02 11.75 17,692,251(g) 10,792,273
Pierce Leahy
Sr Sub Nts
07-15-06 11.125 5,433,000 6,139,290
Prime Succession
Sr Sub Nts
08-15-04 10.75 10,000,000 11,000,000
Total 39,106,563
Paper & packaging (4.0%)
Bear Island LLC/Finance
Sr Nts Series B
12-01-07 10.00 12,500,000 12,875,000
BPC Holding
Sr Nts Series B
06-15-06 12.50 11,750,000 12,983,750
Crown Paper
Sr Sub Nts
09-01-05 11.00 20,000,000 22,100,000
Gaylord Container
Sr Nts
06-15-07 9.75 15,000,000 15,450,000
02-15-08 9.875 29,250,000 29,542,500
Graham Packaging Capital
Zero Coupon Sr Disc Nts
01-15-03 10.84 5,000,000(c,g) 3,125,000
Riverwood Intl
Company Guaranty
04-01-06 10.25 15,000,000 15,525,000
08-01-07 10.625 5,500,000 5,775,000
04-01-08 10.875 10,000,000 10,200,000
Silgan Holdings
06-01-09 9.00 8,250,000 8,631,563
Pay-in-kind
07-15-06 13.25 5,621,000(j) 6,295,520
Stone Container
1st Mtge
10-01-02 10.75 10,000,000 10,700,000
Sr Nts
12-01-98 11.875 4,500,000 4,635,000
08-01-16 12.58 9,000,000 9,945,000
Total 167,783,333
Restaurants & lodging (0.5%)
American Restaurant Group
Sr Nts
02-15-03 11.50 9,000,000(c) 9,292,500
Prime Hospitality
Sr Sub Nts Series B
04-01-07 9.75 11,900,000 12,733,000
Total 22,025,500
Retail (2.8%)
Amazon.com
Zero Coupon Sr Disc Nts
05-01-03 10.00 24,250,000(c,g) 14,368,125
Dairy Mart Convenience Stores
Sr Sub Nts Series A
03-15-04 10.25 18,700,000 18,559,750
Sr Sub Nts Series B
03-15-04 10.25 6,250,000 6,203,125
Maxim Group
Company Guaranty Series B
10-15-07 9.25 12,500,000 12,718,750
Musicland Group
Company Guaranty Sr Sub Nts
03-15-08 9.875 13,250,000(c) 13,250,000
Pathmark Stores
Sr Sub Nts
05-01-03 9.625 8,500,000 8,691,250
Sub Nts
06-15-02 11.625 8,000,000 8,080,000
Zero Coupon Sub Nts
11-01-99 10.75 12,500,000(g) 10,375,000
Pueblo Xtra Intl
Sr Nts
08-01-03 9.50 3,660,000 3,605,100
Sr Nts Series C
08-01-03 9.50 5,750,000 5,663,750
Stater Brothers Holdings
Sr Nts
03-01-01 11.00 14,500,000 15,913,750
Total 117,428,600
Textiles & apparel (1.5%)
Anvil Knitwear
Sr Nts Series B
03-15-07 10.875 14,000,000 14,525,000
Galey & Lord
Sr Sub Nts
03-01-08 9.125 8,000,000(c) 7,940,000
GFSI Holdings
Sr Sub Nts Series B
03-01-07 9.625 9,000,000(c) 9,528,750
Zero Coupon Sr Disc Nts Series B
09-15-04 10.77 11,700,000(g) 13,104,000
Hosiery Corp of America
Sr Sub Nts
08-01-02 13.75 10,000,000 11,050,000
Pillowtex
Company Guaranty Sr Sub Nts Series B
12-15-07 9.00 5,000,000 5,225,000
Total 61,372,750
Transportation (0.4%)
Global Ocean Carriers
Sr Nts
07-15-07 10.25 13,500,000 12,420,000
Trico Marine Services
Company Guaranty Sr Nts Series F
08-01-05 8.50 5,000,000 5,012,500
Total 17,432,500
Utilities -- electric (0.8%)
AES
Sr Sub Nts
11-01-07 8.50 12,800,000 13,088,000
Midland Funding
Series A
07-23-05 11.75 5,000,000 5,950,000
Series B
07-23-06 13.25 12,500,000 15,718,750
Total 34,756,750
Utilities -- gas (0.5%)
Bellwether Exploration
Sr Nts
04-01-07 10.875 9,000,000 9,495,000
Empire Gas
Sr Nts
07-15-04 7.00 11,350,000 10,498,750
Total 19,993,750
Utilities -- telephone (0.7%)
McLeod USA
Sr Nts
03-15-08 8.375 7,680,000(c) 7,699,200
Primus Telecommunications Group
Sr Nts
08-01-04 11.75 11,550,000 12,416,249
05-15-08 9.875 10,000,000(c) 9,975,000
Total 30,090,449
Total bonds
(Cost: $3,511,627,007) $3,614,840,632
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
Investments in securities
High Yield Portfolio
Common stocks (0.8%)
Issuer Shares Value(a)
Arena Brands 111,111(e) $2,388,887
Celcaribe 1,195,110 4,780,440
Communications &
Power Inds 3,500 525,000
Concentric Network 100,000 2,212,500
Core Capital 222,223(e) 4,444,460
EchoStar Satellite
Broadcasting 150,000 3,815,625
Gaylord Container Cl A 1,000,000 8,375,000
Global TeleSystems
Group 107,700 4,126,256
IFINT Diversified
Holdings 42,418(e) 233,299
Nextel Communications
Cl A 41,056 967,382
OpTel 17,000 68,000
Pagemart Nationwide 50,750 253,750
Pegasus Communications 16,923 412,498
Specialty Foods 300,000 6,000
Wireless One 25,000 32,813
Total common stocks
(Cost: $28,755,581) $32,641,910
Preferred stocks & other (10.0%)
Issuer Shares Value(a)
21st Century Telecom Group
13.75% Pay-in-kind 2,600(j) $2,840,500
Allegiance Telecommunications
Warrants 30,450 16,747,500
American Radio Systems
11.375% Pay-in-kind
Series B 94,753(j) 11,180,854
American Restaurant Group
12.00% Pay-in-kind 3,500(j) 3,570,000
American Telecasting
Warrants 85,225 852
APP Finance II Mauritius Cl B
12.00% 22,600 16,498,000
Australis Holdings
Warrants 13,400 134
Bar Technologies
Warrants 10,000 550,000
Benedek Communications
Warrants 70,000 210,000
California Federal Bank
11.50% 166,500 18,460,688
Chesapeake Energy
Cv 33,300 1,519,313
Clearnet Communications
Warrants 42,240 422,400
Communications & Power Inds
14.00% Pay-in-kind
Series B 173,823(j) 19,033,620
Concentric Network
Warrants 5,600 728,000
Core Capital
10.00% Cv Series A/I 222,223(e) 5,640,020
Crown Packaging
Warrants 10,000 2,500
CSC Holdings
11.75% Pay-in-kind
Series H 133,837(j) 15,692,388
11.125% Pay-in-kind
Series M 359,982(j) 41,487,926
Dairy Mart
Warrants 311,333(c) 155,668
Day Intl Group
Pay-in-kind 8,000(j) 8,260,000
Earthwatch
12% Cv Series C 700,000(c) 1,050,000
EchoStar Communications
12.125% Pay-in-kind
Series B 11,008(j) 12,411,520
Fairfield Mfg
11.25% Pay-in-kind 12,880(j) 13,459,600
Foodmaker
Warrants 7,000 349,125
Geotek Communications
Warrants 872,500(k) --
Globalstar Telecommunications
Warrants 13,500(c) 1,451,250
HarCor Energy
Warrants 110,000 55,000
Hemmeter Enterprises
Warrants 36,000(k) --
Hosiery Corp of America
Warrants 10,000 50,000
Houlihan's Restaurant
Warrants 5,886(k) --
Hyperion Telecommunications
12.875% Pay-in-kind
Series B 4,804(j) 5,236,360
Intermedia Communications
13.50% Pay-in-kind
Series B 122,400(j) 14,688,000
Warrants 22,750 3,071,250
Intl Wireless Communications
Warrants 14,750 148
Iridium World Communications
Warrants 17,150 3,858,750
IXC Communications
12.50% Pay-in-kind
Series B 4,927(j) 5,666,050
Jitney-Jungle Stores of
America 64,000 10,368,000
KMC Telecommunications
Holdings
Warrants 12,000 7,110,000
Knology Holdings
Warrants 11,000 11,000
Liberty Group Publishing
14.75% 449,000 11,674,000
Martin Media
14.00% Unit Cv 115,000(e) 11,500,000
MetroNet Communications
Warrants 8,750 420,000
Nebco Evans Holding
11.25% Pay-in-kind 95,000(j) 9,642,500
Nextel Communications
11.125% Pay-in-kind 6,688(j) $6,888,640
Warrants 18,902(k) --
NTL
13.00% Pay-in-kind
Series B 22,744(j) 26,951,640
Paxson Communications
12.50% Pay-in-kind
Exchangeable 204,320(j) 20,942,800
Pegasus Communications
12.75% Pay-in-kind 62,500(j) 7,546,875
12.75% Pay-in-kind
Series A 1,976(j) 2,321,800
Price Communications
Warrants 41,280 433,440
Primus Telecommunications
Warrants 11,550 265,650
RSL Communications
Warrants 9,500 931,000
SFX Broadcasting
12.625% Pay-in-kind
Series E 114,235(j) 13,479,730
SGW Holding
12.50% Pay-in-kind
Series B 116,626(c,j) 1,995,471
Cv Series A 87,091(c) 899,941
Warrants 2,750(c) 870,650
Sinclair Capital
11.625% 140,000 15,517,600
Time Warner
10.25% Pay-in-kind
Series M 6,227(j) 7,067,645
Transdigm
Warrants 11,195(e) 6,716,785
Unifi Communications
Warrants 10,000 100
Unisite
Cl C 5,938(e) 2,750,066
Warrants 4,504(e,k) --
Vialog
Warrants 17,600 1,056,000
Warren (SD)
14.00% Series B 477,430 23,871,500
Wireless One
Warrants 23,250 233
Total preferred stocks & other
(Cost: $405,343,330) $415,580,482
Short-term securities (1.0%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agencies (0.2%)
Federal Home Loan Mtge Corp Disc Nt
06-29-98 5.45% $3,300,000 $3,285,068
Federal Natl Mtge Assn Disc Nt
06-12-98 5.42 5,800,000 5,788,690
Total 9,073,758
Commercial paper (0.8%)
Ciesco LP
07-10-98 5.55 7,500,000(h)7,452,935
Glaxo Wellcome
06-08-98 5.53 3,500,000(h)3,495,179
GTE Funding
06-17-98 5.54 5,000,000 4,986,225
06-17-98 5.53 2,900,000 2,892,010
Kredietbank North America Finance
06-11-98 5.52 12,100,000 12,077,817
SBC Communications Capital
06-08-98 5.50 3,600,000(h)3,595,073
Total 34,499,239
Total short-term securities
(Cost: $43,572,997) $43,572,997
Total investments in securities
(Cost: $3,989,298,915)(l) $4,106,636,021
See accompanying notes to investments in securities.
<PAGE>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Adjustable rate mortgage; interest rate varies to reflect current market
conditions; rate shown is the effective rate on May 31, 1998.
(c) 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.
(d) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated.
(e) Identifies issues considered to be illiquid as to their marketability (see
Note 1 to the financial statements). Information concerning such security
holdings at May 31, 1998, is as follows:
Security Acquisition Cost
dates
Arena Brands
Common 06-20-97 $5,888,888
Cable Systems USA
10.75% 1999 02-02-96 2,203,622
Core Capital
Common 10-30-97 4,444,460
Preferred 10.00% Cv Series A/I 10-30-97 5,555,575
ECM Funding LP
11.92% 2002 04-13-92 1,661,844
Gemini Inds
13.50% 2001 11-01-96 13,500,000
Geotek Communications
Cv Sr Sub Nts 12.00% 2001 03-04-96 4,135,000
IFINT Diversified Holdings
Common 08-18-94 --
Martin Media
Preferred 14.00% Unit Cv 12-22-97 11,500,000
<PAGE>
Security Acquisition Cost
dates
Roil
(U.S. Dollar) 12.78% 2002 04-30-98 $9,700,000
Transdigm
Warrants 09-29-93 thru 04-24-96 1,027,805
Unisite
Preferred Cl C 12-17-97 2,750,066
Warrants 12-17-97 --
Zero Coupon Sub Nts 13.00% 2000* 12-18-97 9,000,000
United Artist Theatres
Sr Sub Nts 9.75% 2008* 04-15-98 10,000,000
Veninfotel
(U.S. Dollar) Cv Pay-in-kind
10.00% 2002 03-05-97 thru 07-23-97 9,000,000
*Represents a security sold under Rule 144A, which is exempt from registration
under the Securities Act of 1933, as amended.
(f) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(g) For those zero coupon bonds that become coupon paying at a future date, the
interest rate disclosed represents the annualized effective yield from the date
of acquisition to interest reset date disclosed.
(h) 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.
(i) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on May 31, 1998.
(j) Pay-in-kind securities are securities in which the issuer has the option to
make interest or dividend payments in cash or in additional securities. The
securities issued as interest or dividends usually have the same terms,
including maturity date, as the pay-in-kind securities.
(k) Negligible market value.
(l) At May 31, 1998, the cost of securities for federal income tax purposes was
$3,989,705,805 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation.........................................$225,306,326
Unrealized depreciation.........................................(108,376,110)
Net unrealized appreciation.....................................$116,930,216
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS:
List of financial statements filed as part of this Post-Effective
Amendment to the Registration Statement:
For the Fund:
- Independent auditors' report dated July 2, 1998
- Statement of assets and liabilities, May 31, 1998
- Statement of operations, year ended May 31, 1998
- Statements of changes in net assets, May 31, 1997 and May 31, 1998
- Notes to financial statements
For the Portfolio:
- Independent auditors' report dated July 2, 1998
- Statement of assets and liabilities, May 31, 1998
- Statement of operations, year ended May 31, 1998
- Statement of changes in net assets for the year ended May
31, 1998 and the period from June 10, 1996 (commencement
of operations) to May 31, 1997
- Notes to financial statements
- Investments in securities, May 31, 1998
(b) EXHIBITS:
1. Copy of Articles of Incorporation, as amended Nov. 14, 1991, filed as
Exhibit No. 1 to Post-Effective Amendment No. 17 to Registration Statement
No. 2-86637, is incorporated herein by reference.
2. Copy of Amended By-laws, dated Jan. 10, 1996, filed electronically as
Exhibit No. 2 to Post-Effective Amendment No. 27 to Registration Statement
No. 2-86637, is incorporated herein by reference.
3. Not Applicable.
4. Form of Stock certificate for common stock, filed as Exhibit No. 4 to
Registrant's Post-Effective Amendment No. 4, is incorporated herein by
reference.
5. Form of Investment Management and 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.
23 to Registration Statement No. 2-86637, is incorporated herein by
reference. The Agreement was assumed by the Portfolio when the Fund
adopted the master/feeder structure.
<PAGE>
6. Copy of Distribution Agreement between Registrant and American Express
Financial Advisors Inc., dated March 20, 1995, is filed electronically
herewith.
7. All employees are eligible to participate in a profit sharing plan.
Entry into the plan is Jan. 1 or July 1. The Registrant contributes each
year an amount up to 15 percent of their annual salaries, the maximum
deductible amount permitted under Section 404(a) of the Internal Revenue
Code.
8(a). Form of Custodian Agreement between Registrant and First National Bank
of Minneapolis, dated July 23, 1986, refiled electronically as Exhibit
8(a) to Registrant's Post-Effective Amendment No. 27 to Registration
Statement No. 2-86637, is incorporated herein by reference.
8(b). Copy of addendum to the Custodian Agreement, dated July 23, 1986
between IDS Extra Income Fund, Inc. and First Bank National Association
executed on June 10, 1996, filed electronically as Exhibit 8(b) to
Post-Effective Amendment No. 27 to Registration Statement No. 2-86637,
is incorporated herein by reference.
9(a). Copy of Transfer Agency Agreement between Registrant and American
Express Client Service Corporation, dated January 1, 1998, is filed
electronically herewith.
9(b).Copy of License Agreement dated Jan. 25, 1988, between Registrant and IDS
Financial Corporation, filed as Exhibit 9(c) to Post-Effective Amendment
No. 15 to Registration Statement No. 2-86637, is incorporated herein by
reference.
9(c). Copy of Shareholder Service Agreement between Registrant and American
Express Financial Advisors Inc., dated March 20, 1995, is filed
electronically herewith.
9(d). Copy of Administrative Services Agreement between Registrant and
American Express Financial Corporation, dated March 20, 1995, is filed
electronically herewith.
9(e).Copy of Agreement and Declaration of Unitholders made June 10, 1996 by IDS
Extra Income Fund, Inc. and Strategist Income Fund, Inc., filed
electronically as Exhibit 9(e) to Post-Effective Amendment No. 27 to
Registration Statement No. 2-86637, is incorporated herein by reference.
9(f). 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, 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.
<PAGE>
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. 34
to Registration Statement No. 2-38355 on Sept.
8, 1986, are incorporated herein by reference.
15. Copy of Plan and Agreement of Distribution between Registrant and
American Express Financial Advisors Inc., dated March 20, 1995 is filed
electronically herewith.
16. Copy of schedule for computation of each performance quotation provided
in the Registration Statement in response to Item 22(b), filed as
Exhibit 16 to Registrant's Post-Effective Amendment No. 18 to
Registration Statement No. 2-86637, is incorporated herein by reference.
17. Financial Data Schedules are filed electronically herewith.
18. Copy of plan pursuant to Rule 18f-3, dated May 9, 1997 filed
electronically on or about January 27, 1998 as Exhibit 18 to IDS Equity
Select Fund, Inc.'s Post-Effective Amendment No. 86 to Registration
Statement No. 2-13188, is incorporated herein by reference.
19(a). Directors' Power of Attorney, dated January 7, 1998, to sign Amendments
to this Registration Statement is filed electronically herewith.
19(b). Officers' Power of Attorney, dated Nov. 1, 1995, to sign Amendments to
this Registration Statement, filed electronically as Exhibit 19(b) to
Registrant's Post-Effective Amendment No.
27, is incorporated herein by reference.
19(c). Trustees Power of Attorney dated January 7, 1998, 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. 27, is
incorporated herein by reference.
Item 25. Persons Controlled by or Under Common Control with Registrant:
None.
<PAGE>
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Holders as of
Title of Class July 15, 1998
Capital Stock
Class A 167,572
Class B 66,287
Class Y 120
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.
<TABLE>
<CAPTION>
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)
Directors and officers of American Express Financial Corporation who are directors and/or officers of one or more
other companies:
<S> <C> <C> <C>
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Name and Title Other company(s) Address Title within other
company(s)
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Ronald G. Abrahamson, American Express Client IDS Tower 10 Director and Vice President
Vice President Service Corporation Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
North Dakota Public Director and Vice President
Employee Payment Company
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Douglas A. Alger, American Express Financial IDS Tower 10 Senior Vice President
Senior Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Peter J. Anderson, Advisory Capital Strategies IDS Tower 10 Director
Director and Senior Vice Group Inc. Minneapolis, MN 55440
President
American Express Asset Director and Chairman of
Management Group Inc. the Board
American Express Asset Director, Chairman of the
Management International, Board and Executive Vice
Inc. President
American Express Financial Senior Vice President
Advisors Inc.
IDS Capital Holdings Inc. Director and President
IDS Futures Corporation Director
NCM Capital Management 2 Mutual Plaza Director
Group, Inc. 501 Willard Street
Durham, NC 27701
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Ward D. Armstrong, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Service Vice President
Corporation
American Express Trust Director and Chairman of
Company the Board
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
John M. Baker, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Trust Senior Vice President
Company
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Joseph M. Barsky III, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Timothy V. Bechtold, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Executive Vice President
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
John C. Boeder, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Box 5144 Director
of New York Albany, NY 12205
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Douglas W. Brewers, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Karl J. Breyer, American Express Financial IDS Tower 10 Senior Vice President
Director, Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Minnesota Director
Foundation
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Daniel J. Candura, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Cynthia M. Carlson, American Enterprise IDS Tower 10 Director, President and
Vice President Investment Services Inc. Minneapolis, MN 55440 Chief Executive Officer
American Express Financial Vice President
Advisors Inc.
American Express Service Vice President
Corporation
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Mark W. Carter, American Express Financial IDS Tower 10 Senior Vice President and
Senior Vice President and Advisors Inc. Minneapolis, MN 55440 Chief Marketing Officer
Chief Marketing Officer
IDS Life Insurance Company Executive Vice President
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
James E. Choat, American Enterprise Life IDS Tower 10 Director, President and
Senior Vice President Insurance Company Minneapolis, MN 55440 Chief Executive Officer
American Express Financial Senior Vice President
Advisors Inc.
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Alabama Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Massachusetts Inc.
IDS Insurance Agency of New Vice President
Mexico Inc.
IDS Insurance Agency of Vice President
North Carolina Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Insurance Agency of Vice President
Wyoming Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Kenneth J. Ciak, AMEX Assurance Company IDS Tower 10 Director and President
Vice President and General Minneapolis, MN 55440
Manager
American Express Financial Vice President and General
Advisors Inc. Manager
IDS Property Casualty 1 WEG Blvd. Director and President
Insurance Company DePere, WI 54115
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Paul A. Connolly, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Colleen Curran, American Express Financial IDS Tower 10 Vice President and
Vice President and Advisors Inc. Minneapolis, MN 55440 Assistant General Counsel
Assistant General Counsel
American Express Service Vice President and Chief
Corporation Legal Counsel
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Regenia David, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Luz Maria Davis American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Gordon L. Eid, American Express Financial IDS Tower 10 Senior Vice President,
Director, Senior Vice Advisors Inc. Minneapolis, MN 55440 General Counsel and Chief
President, Deputy General Compliance Officer
Counsel and Chief
Compliance Officer
American Express Insurance Director and Vice President
Agency of Arizona Inc.
American Express Insurance Director and Vice President
Agency of Idaho Inc.
American Express Insurance Director and Vice President
Agency of Nevada Inc.
American Express Insurance Director and Vice President
Agency of Oregon Inc.
American Express Property Director and Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Director and Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Director and Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Director and Vice President
Alabama Inc.
IDS Insurance Agency of Director and Vice President
Arkansas Inc.
IDS Insurance Agency of Director and Vice President
Massachusetts Inc.
IDS Insurance Agency of New Director and Vice President
Mexico Inc.
IDS Insurance Agency of Director and Vice President
North Carolina Inc.
IDS Insurance Agency of Director and Vice President
Ohio Inc.
IDS Insurance Agency of Director and Vice President
Wyoming Inc.
IDS Real Estate Services, Vice President
Inc.
Investors Syndicate Director
Development Corp.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Robert M. Elconin, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Vice President
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Gordon M. Fines, American Express Asset IDS Tower 10 Executive Vice President
Vice President Management Group Inc. Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Douglas L. Forsberg, American Centurion Life IDS Tower 10 Director
Vice President Assurance Company Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Jeffrey P. Fox, American Enterprise Life IDS Tower 10 Vice President and
Vice President and Insurance Company Minneapolis, MN 55440 Controller
Corporate Controller
American Express Financial Vice President and
Advisors Inc. Corporate Controller
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Harvey Golub, American Express Company American Express Tower Chairman and Chief
Director World Financial Center Executive Officer
New York, NY 10285
American Express Travel Chairman and Chief
Related Services Company, Executive Officer
Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
David A. Hammer, American Express Financial IDS Tower 10 Vice President and
Vice President and Advisors Inc. Minneapolis, MN 55440 Marketing Controller
Marketing Controller
IDS Plan Services of Director and Vice President
California, Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Lorraine R. Hart, AMEX Assurance Company IDS Tower 10 Vice President
Vice President Minneapolis, MN 55440
American Enterprise Life Vice President
Insurance Company
American Express Financial Vice President
Advisors Inc.
American Partners Life Director and Vice
Insurance Company President
IDS Certificate Company Vice President
IDS Life Insurance Company Vice President
IDS Life Series Fund, Inc. Vice President
IDS Life Variable Annuity Vice President
Funds A and B
Investors Syndicate Director and Vice
Development Corp. President
IDS Life Insurance Company P.O. Box 5144 Investment Officer
of New York Albany, NY 12205
IDS Property Casualty 1 WEG Blvd. Vice President
Insurance Company DePere, WI 54115
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Scott A. Hawkinson, American Centurion Life IDS Tower 10 Chief Actuary
Vice President Assurance Company Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Janis K. Heaney, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
James G. Hirsh, American Express Financial IDS Tower 10 Vice President and
Vice President and Advisors Inc. Minneapolis, MN 55440 Assistant General Counsel
Assistant General Counsel
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Darryl G. Horsman, American Express Trust IDS Tower 10 Director and President
Vice President Company Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Jeffrey S. Horton, AMEX Assurance Company IDS Tower 10 Vice President, Treasurer
Vice President and Minneapolis, MN 55440 and Assistant Secretary
Corporate Treasurer
American Centurion Life Vice President and
Assurance Company Treasurer
American Enterprise Vice President and
Investment Services Inc. Treasurer
American Enterprise Life Vice President and
Insurance Company Treasurer
American Express Asset Vice President and
Management Group Inc. Treasurer
American Express Asset Vice President and
Management International Treasurer
Inc.
American Express Client Vice President and
Service Corporation Treasurer
American Express Corporation Vice President and
Treasurer
American Express Financial Vice President and
Advisors Inc. Treasurer
American Express Insurance Vice President and
Agency of Arizona Inc. Treasurer
American Express Insurance Vice President and
Agency of Idaho Inc. Treasurer
American Express Insurance Vice President and
Agency of Nevada Inc. Treasurer
American Express Minnesota Vice President and
Foundation Treasurer
American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Kentucky Inc.
American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Maryland Inc.
American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Pennsylvania Inc.
American Express Partners Vice President and
Life Insurance Company Treasurer
IDS Cable Corporation Director, Vice President
and Treasurer
IDS Cable II Corporation Director, Vice President
and Treasurer
IDS Capital Holdings Inc. Vice President, Treasurer
and Assistant Secretary
IDS Certificate Company Vice President and
Treasurer
IDS Insurance Agency of Vice President and
Alabama Inc. Treasurer
IDS Insurance Agency of Vice President and
Arkansas Inc. Treasurer
IDS Insurance Agency of Vice President and
Massachusetts Inc. Treasurer
IDS Insurance Agency of New Vice President and
Mexico Inc. Treasurer
IDS Insurance Agency of Vice President and
North Carolina Inc. Treasurer
IDS Insurance Agency of Vice President and
Ohio Inc. Treasurer
IDS Insurance Agency of Vice President and
Wyoming Inc. Treasurer
IDS Life Insurance Company Vice President, Treasurer
and Assistant Secretary
IDS Life Series Fund Inc. Vice President and
Treasurer
IDS Life Variable Annuity Vice President and
Funds A & B Treasurer
IDS Management Corporation Director, Vice President
and Treasurer
IDS Partnership Services Vice President and
Corporation Treasurer
IDS Plan Services of Vice President and
California, Inc. Treasurer
IDS Real Estate Services, Vice President and
Inc. Treasurer
IDS Realty Corporation Vice President and
Treasurer
IDS Sales Support Inc. Vice President and
Treasurer
IDS Securities Corporation Vice President and
Treasurer
Investors Syndicate Vice President and
Development Corp. Treasurer
IDS Property Casualty 1 WEG Blvd. Vice President, Treasurer
Insurance Company DePere, WI 54115 and Assistant Secretary
North Dakota Public Vice President and
Employee Payment Company Treasurer
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
David R. Hubers, AMEX Assurance Company IDS Tower 10 Director
Director, President and Minneapolis, MN 55440
Chief Executive Officer
American Express Financial Chairman, President and
Advisors Inc. Chief Executive Officer
American Express Service Director and President
Corporation
IDS Certificate Company Director
IDS Life Insurance Company Director
IDS Plan Services of Director and President
California, Inc.
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Martin G. Hurwitz, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
James M. Jensen, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Vice President
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Marietta L. Johns, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Nancy E. Jones, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Service Vice President
Corporation
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
James E. Kaarre, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Matthew N. Karstetter, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Linda B. Keene, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
G. Michael Kennedy, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Susan D. Kinder, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
IDS Securities Corporation Director
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Brian C. Kleinberg, American Enterprise IDS Tower 10 Senior Vice President
Executive Vice President Investment Services Inc. Minneapolis, MN 55440
American Express Financial Executive Vice President
Advisors Inc.
American Express Service Director
Corporation
AMEX Assurance Company Director and Chairman of
the Board
American Partners Life Executive Vice President
Insurance Company
IDS Property Casualty 1 WEG Blvd. Director and Chairman of
Insurance Company DePere, WI 54115 the Board
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Richard W. Kling, AMEX Assurance Company IDS Tower 10 Director
Director and Senior Vice Minneapolis, MN 55440
President
American Centurion Life Director
Assurance Company
American Enterprise Life Director and Chairman of
Insurance Company the Board
American Express Corporation Director and President
American Express Financial Senior Vice President
Advisors Inc.
American Express Insurance Director and President
Agency of Arizona Inc.
American Express Insurance Director and President
Agency of Idaho Inc.
American Express Insurance Director and President
Agency of Nevada Inc.
American Express Insurance Director and President
Agency of Oregon Inc.
American Express Property Director and President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Director and President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Director and President
Casualty Insurance Agency
of Pennsylvania Inc.
American Express Service Vice President
Corporation
American Partners Life Director and Chairman of
Insurance Company the Board
IDS Certificate Company Director and Chairman of
the Board
IDS Insurance Agency of Director and President
Alabama Inc.
IDS Insurance Agency of Director and President
Arkansas Inc.
IDS Insurance Agency of Director and President
Massachusetts Inc.
IDS Insurance Agency of New Director and President
Mexico Inc.
IDS Insurance Agency of Director and President
North Carolina Inc.
IDS Insurance Agency of Director and President
Ohio Inc.
IDS Insurance Agency of Director and President
Wyoming Inc.
IDS Life Insurance Company Director and President
IDS Life Series Fund, Inc. Director and President
IDS Life Variable Annuity Manager, Chairman of the
Funds A and B Board and President
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
IDS Life Insurance Company P.O. Box 5144 Director, Chairman of the
of New York Albany, NY 12205 Board and President
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Paul F. Kolkman, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Director and Executive
Vice President
IDS Life Series Fund, Inc. Vice President and Chief
Actuary
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Claire Kolmodin, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Steve C. Kumagai, American Express Financial IDS Tower 10 Director and Senior Vice
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440 President
President
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Edward Labenski, Jr., American Express Asset IDS Tower 10 Senior Vice President
Vice President Management Group Inc. Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Kurt A Larson, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Lori J. Larson, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Futures Corporation Director
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Daniel E. Laufenberg, American Express Financial IDS Tower 10 Vice President and Chief
Vice President and Chief Advisors Inc. Minneapolis, MN 55440 U.S. Economist
U.S. Economist
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Peter A. Lefferts, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Trust Director
Company
IDS Plan Services of Director
California, Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Douglas A. Lennick, American Express Financial IDS Tower 10 Director and Executive
Director and Executive Vice Advisors Inc. Minneapolis, MN 55440 Vice President
President
IDS Securities Corporation Director, President and
Chief Executive Officer
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Mary J. Malevich, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Fred A. Mandell, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Thomas W. Medcalf, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Paula R. Meyer, American Enterprise Life IDS Tower 10 Vice President
Vice President Insurance Company Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
American Partners Life Director and President
Insurance Company
IDS Certificate Company Director and President
IDS Life Insurance Company Director and Executive
Vice President
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
James A. Mitchell, AMEX Assurance Company IDS Tower 10 Director
Director and Executive Vice Minneapolis, MN 55440
President
American Enterprise Director
Investment Services Inc.
American Express Financial Executive Vice President
Advisors Inc.
American Express Service Director and Senior Vice
Corporation President
American Express Tax and Director
Business Services Inc.
IDS Certificate Company Director
IDS Life Insurance Company Director, Chairman of the
Board and Chief Executive
Officer
IDS Plan Services of Director
California, Inc.
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
William P. Miller, Advisory Capital Strategies IDS Tower 10 Vice President
Vice President and Senior Group Inc. Minneapolis, MN 55440
Portfolio Manager
American Express Asset Senior Vice President
Management Group Inc.
American Express Financial Vice President and Senior
Advisors Inc. Portfolio Manager
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Pamela J. Moret, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Trust Vice President
Company
IDS Life Insurance Company Executive Vice President
IDS Life Insurance Company P.O. Box 5144 Vice President
of New York Albany, NY 12205
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Barry J. Murphy, American Express Client IDS Tower 10 Director and President
Director and Senior Vice Service Corporation Minneapolis, MN 55440
President
American Express Financial Senior Vice President
Advisors Inc.
IDS Life Insurance Company Director and Executive
Vice President
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Mary Owens Neal, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Michael J. O'Keefe, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
James R. Palmer, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Vice President
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Carla P. Pavone, American Express Client IDS Tower 10 Director and Vice President
Vice President Service Corporation Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
North Dakota Public Director and President
Employee Payment Company
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Thomas P. Perrine, American Express Financial IDS Tower 10 Senior Vice President
Senior Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Susan B. Plimpton, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Ronald W. Powell, American Express Financial IDS Tower 10 Vice President and
Vice President and Advisors Inc. Minneapolis, MN 55440 Assistant General Counsel
Assistant General Counsel
IDS Cable Corporation Vice President and
Assistant Secretary
IDS Cable II Corporation Vice President and
Assistant Secretary
IDS Management Corporation Vice President and
Assistant Secretary
IDS Partnership Services Vice President and
Corporation Assistant Secretary
IDS Plan Services of Vice President and
California, Inc. Assistant Secretary
IDS Realty Corporation Vice President and
Assistant Secretary
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
James M. Punch, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Frederick C. Quirsfeld, American Express Asset IDS Tower 10 Vice President
Senior Vice President Management Group Inc. Minneapolis, MN 55440
American Express Financial Senior Vice President
Advisors Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
ReBecca K. Roloff, American Express Financial IDS Tower 10 Senior Vice President
Senior Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Stephen W. Roszell, Advisory Capital Strategies IDS Tower 10 Director
Senior Vice President Group Inc. Minneapolis, MN 55440
American Express Asset Director, President and
Management Group Inc. Chief Executive Officer
American Express Asset Director
Management International,
Inc.
American Express Asset Director
Management Ltd.
American Express Financial Senior Vice President
Advisors Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
John P. Ryan, American Express Financial IDS Tower 10 Vice President and General
Vice President and General Advisors Inc. Minneapolis, MN 55440 Auditor
Auditor
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Erven A. Samsel, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Alabama Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Massachusetts Inc.
IDS Insurance Agency of New Vice President
Mexico Inc.
IDS Insurance Agency of Vice President
North Carolina Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Insurance Agency of Vice President
Wyoming Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Stuart A. Sedlacek, American Centurion Life IDS Tower 10 Director, Chairman and
Senior Vice President and Assurance Company Minneapolis, MN 55440 President
Chief Financial Officer
American Enterprise Life Executive Vice President
Insurance Company
American Express Financial Senior Vice President and
Advisors Inc. Chief Financial Officer
American Express Trust Director
Company
American Partners Life Director and Vice President
Insurance Agency
IDS Certificate Company Director and President
IDS Life Insurance Company Executive Vice President
and Controller
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Donald K. Shanks, AMEX Assurance Company IDS Tower 10 Senior Vice President
Vice President Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
IDS Property Casualty 1 WEG Blvd. Senior Vice President
Insurance Company DePere, WI 54115
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
F. Dale Simmons, AMEX Assurance Company IDS Tower 10 Vice President
Vice President Minneapolis, MN 55440
American Enterprise Life Vice President
Insurance
American Express Financial Vice President
Advisors Inc.
American Partners Life Vice President
Insurance Company
IDS Certificate Company Vice President
IDS Life Insurance Company Vice President
IDS Partnership Services Director and Vice President
Corporation
IDS Real Estate Services Director and Vice President
Inc.
IDS Realty Corporation Director and Vice President
IDS Life Insurance Company Box 5144 Vice President and
of New York Albany, NY 12205 Assistant Treasurer
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Judy P. Skoglund, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
William A. Smith, American Express Financial IDS Tower 10 Vice President and
Vice President and Advisors Inc. Minneapolis, MN 55440 Controller
Controller
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Bridget Sperl, American Express Client IDS Tower 10 Vice President
Vice President Service Corporation Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Lisa A. Steffes, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
William A. Stoltzmann, American Enterprise Life IDS Tower 10 Director, Vice President,
Vice President and Insurance Company Minneapolis, MN 55440 General Counsel and
Assistant General Counsel Secretary
American Express Corporation Director, Vice President
and Secretary
American Express Financial Vice President and
Advisors Inc. Assistant General Counsel
American Partners Life Director, Vice President,
Insurance Company General Counsel and
Secretary
IDS Life Insurance Company Vice President, General
Counsel and Secretary
IDS Life Series Fund Inc. General Counsel and
Assistant Secretary
IDS Life Variable Annuity General Counsel and
Funds A & B Assistant Secretary
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
James J. Strauss, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Jeffrey J. Stremcha, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Barbara Stroup Stewart, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Wesley W. Wadman, American Express Asset IDS Tower 10 Executive Vice President
Vice President Management Group Inc. Minneapolis, MN 55440
American Express Asset Director and Senior Vice
Management International, President
Inc.
American Express Asset Director and Vice Chairman
Management Ltd.
American Express Financial Vice President
Advisors Inc.
IDS Fund Management Limited Director and Vice Chairman
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Norman Weaver Jr., American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Insurance Vice President
Agency of Arizona Inc.
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Alabama Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Massachusetts Inc.
IDS Insurance Agency of New Vice President
Mexico Inc.
IDS Insurance Agency of Vice President
North Carolina Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Insurance Agency of Vice President
Wyoming Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Michael L. Weiner, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Capital Holdings Inc. Vice President
IDS Futures Brokerage Group Vice President
IDS Futures Corporation Vice President, Treasurer
and Secretary
IDS Sales Support Inc. Director, Vice President
and Assistant Treasurer
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Lawrence J. Welte, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Jeffrey F. Welter, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Edwin M. Wistrand, American Express Financial IDS Tower 10 Vice President and
Vice President and Advisors Inc. Minneapolis, MN 55440 Assistant General Counsel
Assistant General Counsel
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Michael D. Wolf, American Express Asset IDS Tower 10 Executive Vice President
Vice President Management Group Inc. Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Michael R. Woodward, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Alabama Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Massachusetts Inc.
IDS Insurance Agency of New Vice President
Mexico Inc.
IDS Insurance Agency of Vice President
North Carolina Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Insurance Agency of Vice President
Wyoming Inc.
IDS Life Insurance Company Box 5144 Director
of New York Albany, NY 12205
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
</TABLE>
<TABLE>
<CAPTION>
Item 29. Principal Underwriters.
(a) American Express Financial Advisors acts as principal underwriter for the following investment
companies:
IDS Bond Fund, Inc.; IDS California Tax-Exempt Trust; IDS Discovery Fund, Inc.; IDS Equity
Select Fund, Inc.; IDS Extra Income Fund, Inc.; IDS Federal Income Fund, Inc.; IDS Global
Series, Inc.; IDS Growth Fund, Inc.; IDS High Yield Tax-Exempt Fund, Inc.; IDS International
Fund, Inc.; IDS Investment Series, Inc.; IDS Managed Retirement Fund, Inc.; IDS Market
Advantage Series, Inc.; IDS Money Market Series, Inc.; IDS New Dimensions Fund, Inc.; IDS
Precious Metals Fund, Inc.; IDS Progressive Fund, Inc.; IDS Selective Fund, Inc.; IDS Special
Tax-Exempt Series Trust; IDS Stock Fund, Inc.; IDS Strategy Fund, Inc.; IDS Tax-Exempt Bond
Fund, Inc.; IDS Tax-Free Money Fund, Inc.; IDS Utilities Income Fund, Inc., Growth Trust;
Growth and Income Trust; Income Trust, Tax-Free Income Trust, World Trust and IDS Certificate
Company.
(b) As to each director, officer or partner of the principal underwriter:
<S> <C> <C>
Name and Principal Business Address Position and Offices with Offices with Registrant
Underwriter
- --------------------------------------------- --------------------------------- --------------------------
Ronald G. Abrahamson Vice President-Service Quality None
IDS Tower 10 and Reengineering
Minneapolis, MN 55440
Douglas A. Alger Senior Vice President-Human None
IDS Tower 10 Resources
Minneapolis, MN 55440
Peter J. Anderson Senior Vice Vice President
IDS Tower 10 President-Investment Operations
Minneapolis, MN 55440
Ward D. Armstrong Vice President-American None
IDS Tower 10 Express, Institutional Services
Minneapolis, MN 55440
John M. Baker Vice President-Plan Sponsor None
IDS Tower 10 Services
Minneapolis, MN 55440
Joseph M. Barsky III Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Timothy V. Bechtold Vice President-Risk Management None
IDS Tower 10 Products
Minneapolis, MN 55440
John D. Begley Group Vice None
Suite 100 President-Ohio/Indiana
7760 Olentangy River Rd.
Columbus, OH 43235
Brent L. Bisson Group Vice President-Los None
Suite 900, E. Westside Twr Angeles Metro
11835 West Olympic Blvd.
Los Angeles, CA 90064
John C. Boeder Vice President-Mature Market None
IDS Tower 10 Group
Minneapolis, MN 55440
Walter K. Booker Group Vice President-New Jersey None
Suite 200, 3500 Market Street
Camp Hill, NJ 17011
Bruce J. Bordelon Group Vice President-Gulf States None
Galleria One Suite 1900
Galleria Blvd.
Metairie, LA 70001
Charles R. Branch Group Vice President-Northwest None
Suite 200
West 111 North River Dr.
Spokane, WA 99201
Douglas W. Brewers Vice President-Sales Support None
IDS Tower 10
Minneapolis, MN 55440
Karl J. Breyer Senior Vice President-Law and None
IDS Tower 10 Corporate
Minneapolis, MN 55440 Affairs
Daniel J. Candura Vice President-Marketing Support None
IDS Tower 10
Minneapolis, MN 55440
Cynthia M. Carlson Vice President-American Express None
IDS Tower 10 Securities Services
Minneapolis, MN 55440
Mark W. Carter Senior Vice President and Chief None
IDS Tower 10 Marketing Officer
Minneapolis, MN 55440
James E. Choat Senior Vice None
IDS Tower 10 President-Institutional
Minneapolis, MN 55440 Products Group
Kenneth J. Ciak Vice President and General None
IDS Property Casualty Manager-IDS Property Casualty
1400 Lombardi Avenue
Green Bay, WI 54304
Paul A. Connolly Vice President - Advisor None
IDS Tower 10 Staffing, Training and Support
Minneapolis, MN 55440
Roger C. Corea Group Vice President-Upstate None
290 Woodcliff Drive New York
Fairport, NY 14450
Henry J. Cormier Group Vice President-Connecticut None
Commerce Center One
333 East River Drive
East Hartford, CT 06108
John M. Crawford Group Vice President-Arkansas / None
Suite 200 Springfield / Memphis
10800 Financial Ctr Pkwy
Little Rock, AR 72211
Kevin F. Crowe Group Vice None
Suite 312 President-Carolinas/Eastern
7300 Carmel Executive Pk Georgia
Charlotte, NC 28226
Colleen Curran Vice President and assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
Reginia David Vice President-Systems Services None
IDS Tower 10
Minneapolis, MN 55440
Luz Maria Davis Vice President-Communications None
IDS Tower 10
Minneapolis, MN 55440
Scott M. DiGiammarino Group Vice None
Suite 500, 8045 Leesburg Pike President-Washington/Baltimore
Vienna, VA 22182
Bradford L. Drew Group Vice President-Eastern None
Two Datran Center Florida
Penthouse One B
9130 S. Dadeland Blvd.
Miami, FL 33156
James P. Egge Group Vice President - Western None
4305 South Louise, Suite 202 Iowa, Nebraska, Dakotas
Sioux Falls, SD 57103
Gordon L. Eid Senior Vice President, General None
IDS Tower 10 Counsel and Chief Compliance
Minneapolis, MN 55440 Officer
Robert M. Elconin Vice President-Government None
IDS Tower 10 Relations
Minneapolis, MN 55440
Louise P. Evenson Group Vice President-San None
Suite 200 Francisco Bay Area
1333 N. California Blvd.
Walnut Creek, CA 94596
Phillip W. Evans, Group Vice President - Rocky None
Suite 600 Mountain
6985 Union Park Center
Midvale, UT 84047-4177
Gordon M. Fines Vice President-Mutual Fund None
IDS Tower 10 Equity Investments
Minneapolis, MN 55440
Douglas L. Forsberg Vice President-Institutional None
IDS Tower 10 Products Group
Minneapolis, MN 55440
Jeffrey P. Fox Vice President and Corporate None
IDS Tower 10 Controller
Minneapolis, MN 55440
William P. Fritz Group Vice President-Gateway None
Suite 160
12855 Flushing Meadows Dr
St. Louis, MO 63131
Carl W. Gans Group Vice President-Twin City None
8500 Tower Suite 1770 Metro
8500 Normandale Lake Blvd.
Bloomington, MN 55437
David A. Hammer Vice President and Marketing None
IDS Tower 10 Controller
Minneapolis, MN 55440
Teresa A. Hanratty Group Vice President-Northern None
Suites 6&7 New England
169 South River Road
Bedford, NH 03110
Robert L. Harden Group Vice President-Boston None
Two Constitution Plaza Metro
Boston, MA 02129
Lorraine R. Hart Vice President-Insurance None
IDS Tower 10 Investments
Minneapolis, MN 55440
Scott A. Hawkinson Vice President-Assured Assets None
IDS Tower 10 Product Development and
Minneapolis, MN 55440 Management
Brian M. Heath Group Vice President-North Texas None
Suite 150
801 E. Campbell Road
Richardson, TX 75081
Janis K. Heaney Vice President - Incentive None
IDS Tower 10 Management
Minneapolis, MN 55440
James G. Hirsh Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
Jon E. Hjelm Group Vice President-Rhode None
319 Southbridge Street Island/Central-Western
Auburn, MA 01501 Massachusetts
David J. Hockenberry Group Vice President-Eastern None
30 Burton Hills Blvd. Tennessee
Suite 175
Nashville, TN 37215
Jeffrey S. Horton Vice President and Treasurer None
IDS Tower 10
Minneapolis, MN 55440
David R. Hubers Chairman, President and Chief Board member
IDS Tower 10 Executive Officer
Minneapolis, MN 55440
Martin G. Hurwitz Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
James M. Jensen Vice President-Insurance None
IDS Tower 10 Product Development and
Minneapolis, MN 55440 Management
Marietta L. Johns Senior Vice President-Field None
IDS Tower 10 Management
Minneapolis, MN 55440
Nancy E. Jones Vice President - Business None
IDS Tower 10 Development
Minneapolis, MN 55440
James E. Kaarre Vice President-Marketing None
IDS Tower 10 Promotions
Minneapolis, MN 55440
Matthew N. Karstetter Vice President-Investment None
IDS Tower 10 Accounting
Minneapolis, MN 55440
Linda B. Keene Vice President-Market None
IDS Tower 10 Development
Minneapolis, MN 55440
G. Michael Kennedy Vice President-Investment None
IDS Tower 10 Services and Investment Research
Minneapolis, MN 55440
Susan D. Kinder Senior Vice None
IDS Tower 10 President-Distribution Services
Minneapolis, MN 55440
Brian Kleinberg Executive Vice None
IDS Tower 10 President-Financial Direct
Minneapolis, MN 55440
Richard W. Kling Senior Vice President-Products None
IDS Tower 10
Minneapolis, MN 55440
Paul F. Kolkman Vice President-Actuarial Finance None
IDS Tower 10
Minneapolis, MN 55440
Claire Kolmodin Vice President-Service Quality None
IDS Tower 10
Minneapolis, MN 55440
David S. Kreager Group Vice President-Greater None
Suite 108 Michigan
Trestle Bridge V
5136 Lovers Lane
Kalamazoo, MI 49002
Steven C. Kumagai Director and Senior Vice None
IDS Tower 10 President-Field Management and
Minneapolis, MN 55440 Business Systems
Mitre Kutanovski Group Vice President-Chicago None
Suite 680 Metro
8585 Broadway
Merrillville, IN 48410
Edward Labenski Jr. Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Kurt A. Larson Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Lori J. Larson Vice President - Brokerage and None
IDS Tower 10 Direct Services
Minneapolis, MN 55440
Daniel E. Laufenberg Vice President and Chief U.S. None
IDS Tower 10 Economist
Minneapolis, MN 55440
Peter A. Lefferts Senior Vice President-Corporate None
IDS Tower 10 Strategy and Development
Minneapolis, MN 55440
Douglas A. Lennick Director and Executive Vice None
IDS Tower 10 President-Private Client Group
Minneapolis, MN 55440
Mary J. Malevich Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Fred A. Mandell Vice President-Field Marketing None
IDS Tower 10 Readiness
Minneapolis, MN 55440
Daniel E. Martin Group Vice President-Pittsburgh None
Suite 650 Metro
5700 Corporate Drive
Pittsburgh, PA 15237
Thomas W. Medcalf Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Paula R. Meyer Vice President - Assured Assets None
IDS Tower 10
Minneapolis, MN 55440
William P. Miller Vice President and Senior None
IDS Tower 10 Portfolio Manager
Minneapolis, MN 55440
James A. Mitchell Executive Vice None
IDS Tower 10 President-Marketing and Products
Minneapolis, MN 55440
Pamela J. Moret Vice President-Variable Assets None
IDS Tower 10
Minneapolis, MN 55440
Alan D. Morgenstern Group Vice President-Central None
Suite 200 California/Western Nevada
3500 Market Street
Camp Hill, NJ 17011
Barry J. Murphy Senior Vice President-Client None
IDS Tower 10 Service
Minneapolis, MN 55440
Mary Owens Neal Vice President-Mature Market None
IDS Tower 10 Segment
Minneapolis, MN 55440
Thomas V. Nicolosi Group Vice President-New York None
Suite 220 Metro Area
500 Mamaroneck Avenue
Harrison, NY 10528
Michael J. O'Keefe Vice President - Advisory None
IDS Tower 10 Business Systems
Minneapolis, MN 55440
James R. Palmer Vice President-Taxes None
IDS Tower 10
Minneapolis, MN 55440
Marc A. Parker Group Vice President - None
10200 SW Greenburg Road Portland/Eugene
Suite 110
Portland OR 97223
Carla P. Pavone Vice President-Compensation and None
IDS Tower 10 Field Administration
Minneapolis, MN 55440
Thomas P. Perrine Senior Vice President - Group
IDS Tower 10 Relationship Leader/AXP
Minneapolis, MN 55440 Technologies Financial Services
Susan B. Plimpton Vice President-Marketing None
IDS Tower 10 Services
Minneapolis, MN 55440
Larry M. Post Group Vice None
One Tower Bridge President-Philadelphia Metro
100 Front Street 8th Fl
West Conshohocken, PA 19428
Ronald W. Powell Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
Diana R. Prost Group Vice President - None
3030 N.W. Expressway Kansas/Oklahoma
Suite 900
Oklahoma City, OK 73112
James M. Punch Vice President-Special Projects None
IDS Tower 10
Minneapolis, MN 55440
Frederick C. Quirsfeld Senior Vice President - Fixed None
IDS Tower 10 Income
Minneapolis, MN 55440
R. Daniel Richardson Group Vice President-Southern None
Suite 800 Texas
Arboretum Plaza One
9442 Capital of Texas Hwy N.
Austin, TX 78759
ReBecca K. Roloff Senior Vice President-Field None
IDS Tower 10 Management and Financial
Minneapolis, MN 55440 Advisory Service
Stephen W. Roszell Senior Vice None
IDS Tower 10 President-Institutional
Minneapolis, MN 55440
Max G. Roth Group Vice None
Suite 201 S IDS Ctr President-Wisconsin/Upper
1400 Lombardi Avenue Michigan
Green Bay, WI 54304
John P. Ryan Vice President and General None
IDS Tower 10 Auditor
Minneapolis, MN 55440
Erven A. Samsel Senior Vice President-Field None
45 Braintree Hill Park Management
Suite 402
Braintree, MA 02184
Russell L. Scalfano Group Vice None
Suite 201 President-Illinois/Indiana/Kentucky
101 Plaza East Blvd.
Evansville, IN 47715
William G. Scholz Group Vice None
Suite 205 President-Arizona/Las Vegas
7333 E Doubletree Ranch Rd
Scottsdale, AZ 85258
Stuart A. Sedlacek Senior Vice President and Chief None
IDS Tower 10 Financial Officer
Minneapolis, MN 55440
Donald K. Shanks Vice President-Property Casualty None
IDS Tower 10
Minneapolis, MN 55440
F. Dale Simmons Vice President-Senior Portfolio None
IDS Tower 10 Manager, Insurance Investments
Minneapolis, MN 55440
Judy P. Skoglund Vice President -Quality and None
IDS Tower 10 Service Support
Minneapolis, MN 55440
William A. Smith Vice President and None
IDS Tower 10 Controller-Private Client Group
Minneapolis, MN 55440
James B. Solberg Group Vice President-Eastern None
466 Westdale Mall Iowa Area
Cedar Rapids, IA 52404
Bridget Sperl Vice President-Geographic None
IDS Tower 10 Service Teams
Minneapolis, MN 55440
Paul J. Stanislaw Group Vice President-Southern None
Suite 1100 California
Two Park Plaza
Irvine, CA 92714
Lisa A. Steffes Vice President - Cardmember None
IDS Tower 10 Initiatives
Minneapolis, MN 55440
Lois A. Stilwell Group Vice President-Outstate None
Suite 433 Minnesota Area/ North
9900 East Bren Road Dakota/Western Wisconsin
Minnetonka, MN 55343
William A. Stoltzmann Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
James J. Strauss Vice President and General None
IDS Tower 10 Auditor
Minneapolis, MN 55440
Jeffrey J. Stremcha Vice President-Information None
IDS Tower 10 Resource Management/ISD
Minneapolis, MN 55440
Barbara Stroup Stewart Vice President - Channel None
IDS Tower 10 Development
Minneapolis, MN 55440
Craig P. Taucher Group Vice None
Suite 150 President-Orlando/Jacksonville
4190 Belfort Road
Jacksonville, FL 32216
Neil G. Taylor Group Vice None
Suite 425 President-Seattle/Tacoma
101 Elliott Avenue West
Seattle, WA 98119
Peter S. Velardi Group Vice None
Suite 180 President-Atlanta/Birmingham
1200 Ashwood Parkway
Atlanta, GA 30338
Charles F. Wachendorfer Group Vice President - Detroit None
8115 East Jefferson Avenue Metro
Detroit, MI 48214
Wesley W. Wadman Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Donald F. Weaver Group Vice President - Greater None
3500 Market Street, Suite 200 Pennsylvania
Camp Hill, PA 17011
Norman Weaver Jr. Senior Vice President-Field None
1010 Main St. Suite 2B Management
Huntington Beach, CA 92648
Michael L. Weiner Vice President-Tax Research and None
IDS Tower 10 Audit
Minneapolis, MN 55440
Lawrence J. Welte Vice President-Investment None
IDS Tower 10 Administration
Minneapolis, MN 55440
Jeffry M. Welter Vice President-Equity and Fixed None
IDS Tower 10 Income Trading
Minneapolis, MN 55440
Thomas L. White Group Vice President-Cleveland None
Suite 200 Metro
28601 Chagrin Blvd.
Woodmere, OH 44122
Eric S. Williams Group Vice President-Virginia None
Suite 250
3951 Westerre Parkway
Richmond, VA 23233
William J. Williams Group Vice President-Western None
Two North Tamiami Trail Florida
Suite 702
Sarasota, FL 34236
Edwin M. Wistrand Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
Michael D. Wolf Vice President- Senior None
IDS Tower 10 Portfolio Manager
Minneapolis, MN 55440
Michael R. Woodward Senior Vice President-Field None
32 Ellicott St Management
Suite 100
Batavia, NY 14020
</TABLE>
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 Extra Income Fund, Inc., certifies that
it meets the requirements for the 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 29th day of July, 1998.
IDS EXTRA INCOME FUND, INC.
By /s/ William R. Pearce**
William R. Pearce, Chief Executive Officer
By /s/ Matthew N. Karstetter
Matthew N. Karstetter, Treasurer
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 29th day of July, 1998.
Signature Capacity
/s/ William R. Pearce* Chairman of the Board
William R. Pearce
/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/ John R. Thomas* Director
John R. Thomas
/s/ Wheelock Whitney* Director
Wheelock Whitney
/s/ C. Angus Wurtele* Director
C. Angus Wurtele
*Signed pursuant to Directors' Power of Attorney dated January 7, 1998, to sign
Amendments to this Registration Statement filed electronically herewith as
Exhibit 19(a), by:
/s/ Leslie L. Ogg
Leslie L. Ogg
**Signed pursuant to Officers' Power of Attorney dated Nov. 1, 1995, to sign
Amendments to this Registration Statement filed electronically as Exhibit
17(b) to Registrant's Post-Effective Amendment No. 27, by:
/s/ Leslie L. Ogg
Leslie L. Ogg
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, 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 29th
day of July, 1998.
INCOME TRUST
By /s/ William R. Pearce**
William R. Pearce
Chief Executive Officer
By /s/ Matthew N. Karstetter
Matthew N. Karstetter
Treasurer
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 29th day of July, 1998.
Signature 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
<PAGE>
Signature Capacity
/s/ Anne P. Jones* Trustee
Anne P. Jones
/s/ Alan K. Simpson* Trustee
Alan K. Simpson
/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 Trustees Power of Attorney dated January 7, 1998, filed
electronically herewith as Exhibit 19(c), by:
/s/ Leslie L. Ogg
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. 27,
by:
/s/ Leslie L. Ogg
Leslie L. Ogg
<PAGE>
CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 29
TO REGISTRATION STATEMENT No. 2-86637
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.
Exhibits.
The signatures.
IDS Extra Income Fund Inc.
File No. 2-86637/811-3848
EXHIBIT INDEX
Exhibit 6: Distribution Agreement
Exhibit 9(a): Transfer Agency Agreement
Exhibit 9(c): Shareholder Service Agreement
Exhibit 9(d): Administrative Services Agreement
Exhibit 10: Opinion and consent of counsel
Exhibit 11: Independent Auditors' Consent
Exhibit 15: Plan and Agreement of Distribution
Exhibit 17 Financial Data Schedules
Exhibit 19(a): Directors'Power of Attorney
Exhibit 19(c): Trustees' Power of Attorney
DISTRIBUTION AGREEMENT
Agreement made as of the 20th day of March, 1995, by and between IDS Extra
Income Fund, Inc. (the "Fund"), a Minnesota corporation, for and on behalf of
each class of the Fund and American Express Financial Advisors Inc., a Delaware
corporation.
Part One: DISTRIBUTION OF SECURITIES
(1) The Fund covenants and agrees that, during the term of this agreement and
any renewal or extension, American Express Financial Advisors shall have the
exclusive right to act as principal underwriter for the Fund and to offer for
sale and to distribute either directly or through any affiliate any and all
shares of each class of capital stock issued or to be issued by the Fund.
(2) American Express Financial Advisors hereby covenants and agrees to act as
the principal underwriter of each class of capital shares issued and to be
issued by the Fund during the period of this agreement and agrees during such
period to offer for sale such shares as long as such shares remain available for
sale, unless American Express Financial Advisors is unable or unwilling to make
such offer for sale or sales or solicitations therefor legally because of any
federal, state, provincial or governmental law, rule or agency or for any
financial reason.
(3) With respect to the offering for sale and sale of shares of each class to be
issued by the Fund, it is mutually understood and agreed that such shares are to
be sold on the following terms:
(a) All sales shall be made by means of an application, and every
application shall be subject to acceptance or rejection by the Fund at its
principal place of business. Shares are to be sold for cash, payable at the time
the application and payment for such shares are received at the principal place
of business of the Fund.
(b) No shares shall be sold at less than the asset value (computed in
the manner provided by the currently effective prospectus or Statement of
Additional Information and the Investment Company Act of 1940, and rules
thereunder). The number of shares or fractional shares to be acquired by each
applicant shall be determined by dividing the amount of each accepted
application by the public offering price of one share of the capital stock of
the appropriate class as of the close of business on the day when the
application, together with payment, is received by the Fund at its principal
place of business. The computation as to the number of shares and fractional
shares shall be carried to three decimal points of one share with the
computation being carried to the nearest 1/lOOOth of a share. If the day of
receipt of the application and payment is not a full business day, then the
asset value of the share for use in such computation shall be determined as of
the close of business on the next succeeding full business day. In the event of
a period of emergency, the computation of the asset value for the purpose of
determining the number of shares or fractional shares to be acquired by the
applicant may be deferred until the close of business on the first full business
day following the termination of the period of
<PAGE>
emergency. A period of emergency shall have the definition given thereto in the
Investment Company Act of 1940, and rules thereunder.
(4) The Fund agrees to make prompt and reasonable effort to do any and all
things necessary, in the opinion of American Express Financial Advisors, to have
and to keep the Fund and the shares properly registered or qualified in all
appropriate jurisdictions and, as to shares, in such amounts as American Express
Financial Advisors may from time to time designate in order that the Fund's
shares may be offered or sold in such jurisdictions.
(5) The Fund agrees that it will furnish American Express Financial Advisors
with information with respect to the affairs and accounts of the Fund, and in
such form, as American Express Financial Advisors may from time to time
reasonably require and further agrees that American Express Financial Advisors,
at all reasonable times, shall be permitted to inspect the books and records of
the Fund.
(6) American Express Financial Advisors or its agents may prepare or cause to be
prepared from time to time circulars, sales literature, broadcast material,
publicity data and other advertising material to be used in the sales of shares
issued by the Fund, including material which may be deemed to be a prospectus
under rules promulgated by the Securities and Exchange Commission (each separate
promotional piece is referred to as an "Item of Soliciting Material"). At its
option, American Express Financial Advisors may submit any Item of Soliciting
Material to the Fund for its prior approval. Unless a particular Item of
Soliciting Material is approved in writing by the Fund prior to its use,
American Express Financial Advisors agrees to indemnify the Fund and its
directors and officers against any and all claims, demands, liabilities and
expenses which the Fund or such persons may incur arising out of or based upon
the use of any Item of Soliciting Material. The term "expenses" includes amounts
paid in satisfaction of judgments or in settlements. The foregoing right of
indemnification shall be in addition to any other rights to which the Fund or
any director or officer may be entitled as a matter of law. Notwithstanding the
foregoing, such indemnification shall not be deemed to abrogate or diminish in
any way any right or claim American Express Financial Advisors may have against
the Fund or its officers or directors in connection with the Fund's registration
statement, prospectus, Statement of Additional Information or other information
furnished by or caused to be furnished by the Fund.
(7) American Express Financial Advisors agrees to submit to the Fund each
application for shares immediately after the receipt of such application and
payment therefor by American Express Financial Advisors at its principal place
or business.
(8) American Express Financial Advisors agrees to cause to be delivered to each
person submitting an application a prospectus or circular to be furnished by the
Fund in the form required by the applicable federal laws or by the acts or
statutes of any applicable state, province or country.
<PAGE>
(9) The Fund shall have the right to extend to shareholders of each class the
right to use the proceeds of any cash dividend paid by the Fund to that
shareholder to purchase shares of the same class at the net asset value at the
close of business upon the day of purchase, to the extent set forth in the
currently effective prospectus or Statement of Additional Information.
(10) Shares of each class issued by the Fund may be offered and sold at their
asset value to the shareholders of the same class of other funds in the IDS
MUTUAL FUND GROUP who wish to exchange their investments in shares of the other
funds in the IDS MUTUAL FUND GROUP to investments in shares of the Fund, to the
extent set forth in the currently effective prospectus or Statement of
Additional Information, such asset value to be computed as of the close of
business on the day of sale of such shares of the Fund.
(11) American Express Financial Advisors and the Fund agree to use their best
efforts to conform with all applicable state and federal laws and regulations
relating to any rights or obligations under the term of this agreement.
Part Two: ALLOCATION OF EXPENSES
Except as provided by any other agreements between the parties, American Express
Financial Advisors covenants and agrees that during the period of this agreement
it will pay or cause or be paid all expenses incurred by American Express
Financial Advisors, or any of its affiliates, in the offering for sale or sale
of each class of the Fund's shares.
Part Three: COMPENSATION
(1) It is covenanted and agreed that American Express Financial Advisors shall
be paid:
(i) for a class of shares imposing a front-end sales charge, by the
purchasers of Fund shares in an amount equal to the difference between the total
amount received upon each sale of shares issued by the Fund and the asset value
of such shares at the time of such sale; and
(ii) for a class of shares imposing a deferred sales charge, by owners
of Fund shares at the time the sales charge is imposed in an amount equal to any
deferred sales charge, as described in the Fund's prospectus.
Such sums as are received by the Fund shall be received as Agent for American
Express Financial Advisors and shall be remitted to American Express Financial
Advisors daily as soon as practicable after receipt.
(2) The asset value of any share of each class of the Fund shall be determined
in the manner provided by the classes currently effective prospectus and
Statement of Additional Information and the Investment Company Act of 1940, and
rules thereunder.
<PAGE>
Part Four: MISCELLANEOUS
(1) American Express Financial Advisors shall be deemed to be an independent
contractor and, except as expressly provided or authorized in this agreement,
shall have no authority to act for or represent the Fund.
(2) American Express Financial Advisors shall be free to render to others
services similar to those rendered under this agreement.
(3) Neither this agreement nor any transaction had pursuant hereto shall be
invalidated or in any way affected by the fact that directors, officers, agents
and/or shareholders of the Fund are or may be interested in American Express
Financial Advisors as directors, officers, shareholders or otherwise; that
directors, officers, shareholders or agents of American Express Financial
Advisors are or may be interested in the Fund as directors, officers,
shareholders or otherwise; or that American Express Financial Advisors is or may
be interested in the Fund as shareholder or otherwise, provided, however, that
neither American Express Financial Advisors nor any officer or director of
American Express Financial Advisors or any officers or directors of the Fund
shall sell to or buy from the Fund any property or security other than a
security issued by the Fund, except in accordance with a rule, regulation or
order of the federal Securities and Exchange Commission.
(4) For the purposes of this agreement, a "business day" shall have the same
meaning as is given to the term in the By-laws of the Fund.
(5) Any notice under this agreement shall be given in writing, addressed and
delivered, or mailed postpaid, to the parties to this agreement at each
company's principal place of business in Minneapolis, Minnesota, or to such
other address as either party may designate in writing mailed to the other.
(6) American Express Financial Advisors agrees that no officer, director or
employee of American Express Financial Advisors will deal for or on behalf of
the Fund with himself as principal or agent, or with any corporation or
partnership in which he may have a financial interest, except that this shall
not prohibit:
(a) Officers, directors and employees of American Express Financial
Advisors from having a financial interest in the Fund or in American Express
Financial Advisors.
(b) The purchase of securities for the Fund, or the sale of securities
owned by the Fund, through a security broker or dealer, one or more of whose
partners, officers, directors or employees is an officer, director or employee
of American Express Financial Advisors, provided such transactions are handled
in the capacity of broker only and provided commissions charged do not exceed
customary brokerage charges for such services.
<PAGE>
(c) Transactions with the Fund by a broker-dealer affiliate of American
Express Financial Advisors if allowed by rule or order of the Securities and
Exchange Commission and if made pursuant to procedures adopted by the Fund's
Board of Directors.
(7) American Express Financial Advisors agrees that, except as otherwise
provided in this agreement, or as may be permitted consistent with the use of a
broker-dealer affiliate of American Express Financial Advisors under applicable
provisions of the federal securities laws, neither it nor any of its officers,
directors or employees shall at any time during the period of this agreement
make, accept or receive, directly or indirectly, any fees, profits or emoluments
of any character in connection with the purchase or sale of securities (except
securities issued by the Fund) or other assets by or for the Fund.
Part Five: TERMINATION
(1) This agreement shall continue from year to year unless and until terminated
by American Express Financial Advisors or the Fund, except that such continuance
shall be specifically approved at least annually by a vote of a majority of the
Board of Directors who are not parties to this agreement or interested persons
of any such party, cast in person at a meeting called for the purpose of voting
on such approval, and by a majority of the Board of Directors or by vote of a
majority of the outstanding voting securities of the Fund. As used in this
paragraph, the term "interested person" shall have the meaning as set forth in
the Investment Company Act of 1940, as amended.
(2) This agreement may be terminated by American Express Financial Advisors or
the Fund at any time by giving the other party sixty (60) days written notice of
such intention to terminate.
(3) This agreement shall terminate in the event of its assignment, the term
"assignment" for this purpose having the same meaning as set forth in the
Investment Company Act of 1940, as amended.
IN WITNESS WHEREOF, The parties hereto have executed the foregoing agreement on
the date and year first above written.
IDS EXTRA INCOME FUND, INC.
By /s/ Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
By /s/ Janis E. Miller
Vice President
TRANSFER AGENCY AGREEMENT
AGREEMENT dated as of January 1, 1998, between IDS Extra Income Fund, Inc., a
Minnesota corporation, (the "Company" or "Fund"), and American Express Client
Service Corporation (the "Transfer Agent"), a Minnesota corporation.
In consideration of the mutual promises set forth below, the Company and the
Transfer Agent agree as follows:
1. Appointment of the Transfer Agent. The Company hereby appoints the
Transfer Agent, as transfer agent for its shares and as shareholder
servicing agent for the Company, and the Transfer Agent accepts such
appointment and agrees to perform the duties set forth below.
2. Compensation. The Company will compensate the Transfer Agent for the
performance of its obligations as set forth in Schedule A. Schedule A
does not include out-of-pocket disbursements of the Transfer Agent for
which the Transfer Agent shall be entitled to bill the Company
separately.
The Transfer Agent will bill the Company monthly. The fee provided for
hereunder shall be paid in cash by the Company to the Transfer Agent
within five (5) business days after the last day of each month.
Out-of-pocket disbursements shall include, but shall not be limited to,
the items specified in Schedule B. Reimbursement by the Company for
expenses incurred by the Transfer Agent in any month shall be made as
soon as practicable after the receipt of an itemized bill from the
Transfer Agent.
Any compensation jointly agreed to hereunder may be adjusted from time
to time by attaching to this Agreement a revised Schedule A, dated and
signed by an officer of each party.
3. Documents. The Company will furnish from time to time such
certificates, documents or opinions as the Transfer Agent deems to be
appropriate or necessary for the proper performance of its duties.
4. Representations of the Company and the Transfer Agent.
(a) The Company represents to the Transfer Agent that all
outstanding shares are validly issued, fully paid and
non-assessable by the Company. When shares are hereafter
issued in accordance with the terms of the Company's Articles
of Incorporation and its By-laws, such shares shall be validly
issued, fully paid and non-assessable by the Company.
(b) The Transfer Agent represents that it is registered under
Section 17A(c) of the Securities Exchange Act of 1934. The
Transfer Agent agrees to maintain the necessary facilities,
equipment and personnel to perform its duties and obligations
under this agreement and to comply with all applicable laws.
<PAGE>
5. Duties of the Transfer Agent. The Transfer Agent shall be responsible,
separately and through its subsidiaries or affiliates, for the
following functions:
(a) Sale of Fund Shares.
(1) On receipt of an application and payment, wired
instructions and payment, or payment identified as
being for the account of a shareholder, the Transfer
Agent will deposit the payment, prepare and present
the necessary report to the Custodian and record the
purchase of shares in a timely fashion in accordance
with the terms of the Fund's prospectus. All shares
shall be held in book entry form and no certificate
shall be issued unless the Fund is permitted to do so
by its prospectus and the purchaser so requests.
(2) On receipt of notice that payment was dishonored, the
Transfer Agent shall stop redemptions of all shares
owned by the purchaser related to that payment, place
a stop payment on any checks that have been issued to
redeem shares of the purchaser and take such other
action as it deems appropriate.
(b) Redemption of Fund Shares. On receipt of instructions to
redeem shares in accordance with the terms of the Fund's
prospectus, the Transfer Agent will record the redemption of
shares of the Fund, prepare and present the necessary report
to the Custodian and pay the proceeds of the redemption to the
shareholder, an authorized agent or legal representative upon
the receipt of the monies from the Custodian.
(c) Transfer or Other Change Pertaining to Fund Shares. On receipt
of instructions or forms acceptable to the Transfer Agent to
transfer the shares to the name of a new owner, change the
name or address of the present owner or take other legal
action, the Transfer Agent will take such action as is
requested.
(d) Exchange of Fund Shares. On receipt of instructions to
exchange the shares of the Fund for the shares of another fund
in the IDS MUTUAL FUND GROUP or other American Express
Financial Corporation product in accordance with the terms of
the prospectus, the Transfer Agent will process the exchange
in the same manner as a redemption and sale of shares.
(e) Right to Seek Assurance. The Transfer Agent may refuse to transfer,
exchange or redeem shares of the Fund or take any action requested by a
shareholder until it is satisfied that the requested transaction or action
is legally authorized or until it is satisfied there is no basis for any
claims adverse to the transaction or action. It may rely on the provisions
of the Uniform Act for the Simplification of Fiduciary Security Transfers
or the Uniform Commercial Code. The Company shall indemnify the Transfer
Agent for any act done or omitted to be done in reliance on such laws or
for refusing to transfer, exchange or redeem shares or taking any requested
action if it acts on a good faith belief that the transaction or action is
illegal or unauthorized.
<PAGE>
(f) Shareholder Records, Reports and Services.
(1) The Transfer Agent shall maintain all shareholder
accounts, which shall contain all required tax,
legally imposed and regulatory information; shall
provide shareholders, and file with federal and state
agencies, all required tax and other reports
pertaining to shareholder accounts; shall prepare
shareholder mailing lists; shall cause to be printed
and mailed all required prospectuses, annual reports,
semiannual reports, statements of additional
information (upon request), proxies and other
mailings to shareholders; and shall cause proxies to
be tabulated.
(2) The Transfer Agent shall respond to all valid
inquiries related to its duties under this Agreement.
(3) The Transfer Agent shall create and maintain all
records in accordance with all applicable laws, rules
and regulations, including, but not limited to, the
records required by Section 31(a) of the Investment
Company Act of 1940.
(g) Dividends and Distributions. The Transfer Agent shall prepare
and present the necessary report to the Custodian and shall
cause to be prepared and transmitted the payment of income
dividends and capital gains distributions or cause to be
recorded the investment of such dividends and distributions in
additional shares of the Fund or as directed by instructions
or forms acceptable to the Transfer Agent.
(h) Confirmations and Statements. The Transfer Agent shall confirm
each transaction either at the time of the transaction or
through periodic reports as may be legally permitted.
(i) Lost or Stolen Checks. The Transfer Agent will replace lost or
stolen checks issued to shareholders upon receipt of proper
notification and will maintain any stop payment orders against
the lost or stolen checks as it is economically desirable to
do.
(j) Reports to Company. The Transfer Agent will provide reports
pertaining to the services provided under this Agreement as
the Company may request to ascertain the quality and level of
services being provided or as required by law.
(k) Other Duties. The Transfer Agent may perform other duties for
additional compensation if agreed to in writing by the parties
to this Agreement.
6. Ownership and Confidentiality of Records. The Transfer Agent agrees
that all records prepared or maintained by it relating to the services
to be performed by it under the terms of this Agreement are the
property of the Company and may be inspected by the Company or any
person retained by the Company at reasonable times. The Company and
Transfer Agent agree to protect the confidentiality of those records.
<PAGE>
7. Action by Board and Opinion of Counsel. The Transfer Agent may rely on
resolutions of the Board of Directors (the "Board") or the Executive
Committee of the Board and on opinion of counsel for the Company.
8. Duty of Care. It is understood and agreed that, in furnishing the Company
with the services as herein provided, neither the Transfer Agent, nor any
officer, director or agent thereof shall be held liable for any loss
arising out of or in connection with their actions under this Agreement so
long as they act in good faith and with due diligence, and are not
negligent or guilty of any willful misconduct. It is further understood and
agreed that the Transfer Agent may rely upon information furnished to it
reasonably believed to be accurate and reliable. In the event the Transfer
Agent is unable to perform its obligations under the terms of this
Agreement because of an act of God, strike or equipment or transmission
failure reasonably beyond its control, the Transfer Agent shall not be
liable for any damages resulting from such failure.
9. Term and Termination. This Agreement shall become effective on the date
first set forth above (the "Effective Date") and shall continue in effect
from year to year thereafter as the parties may mutually agree; provided
that either party may terminate this Agreement by giving the other party
notice in writing specifying the date of such termination, which shall be
not less than 60 days after the date of receipt of such notice. In the
event such notice is given by the Company, it shall be accompanied by a
vote of the Board, certified by the Secretary, electing to terminate this
Agreement and designating a successor transfer agent or transfer agents.
Upon such termination and at the expense of the Company, the Transfer Agent
will deliver to such successor a certified list of shareholders of the Fund
(with name, address and taxpayer identification or Social Security number),
a historical record of the account of each shareholder and the status
thereof, and all other relevant books, records, correspondence, and other
data established or maintained by the Transfer Agent under this Agreement
in the form reasonably acceptable to the Company, and will cooperate in the
transfer of such duties and responsibilities, including provisions for
assistance from the Transfer Agent's personnel in the establishment of
books, records and other data by such successor or successors.
10. Amendment. This Agreement may not be amended or modified in any manner
except by a written agreement executed by both parties.
11. Subcontracting. The Company agrees that the Transfer Agent may
subcontract for certain of the services described under this Agreement
with the understanding that there shall be no diminution in the quality
or level of the services and that the Transfer Agent remains fully
responsible for the services. Except for out-of-pocket expenses
identified in Schedule B, the Transfer Agent shall bear the cost of
subcontracting such services, unless otherwise agreed by the parties.
<PAGE>
12. Miscellaneous.
(a) This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable
without the written consent of the other party.
(b) This Agreement shall be governed by the laws of the State of
Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers as of the day and year written above.
IDS EXTRA INCOME FUND, INC.
By: /s/ Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS CLIENT SERVICE CORPORATION
By: /s/ Barry J. Murphy
Barry J. Murphy
President
<PAGE>
Schedule A
IDS EXTRA INCOME FUND, INC.
FEE
The annual per account fee for services under this agreement, accrued daily and
payable monthly, is as follows:
Class A Class B Class Y
$15.50 $16.50 $15.50
<PAGE>
Schedule B
OUT-OF-POCKET EXPENSES
The Company shall reimburse the Transfer Agent monthly for the following
out-of-pocket expenses:
o typesetting, printing, paper, envelopes, postage and return postage for
proxy soliciting material, and proxy tabulation costs
o printing, paper, envelopes and postage for dividend notices, dividend
checks, records of account, purchase confirmations, exchange
confirmations and exchange prospectuses, redemption confirmations,
redemption checks, confirmations on changes of address and any other
communication required to be sent to shareholders
o typesetting, printing, paper, envelopes and postage for prospectuses,
annual and semiannual reports, statements of additional information,
supplements for prospectuses and statements of additional information
and other required mailings to shareholders
o stop orders
o outgoing wire charges
o other expenses incurred at the request or with the consent of the Company
Shareholder Service Agreement
This agreement is between IDS Extra Income Fund, Inc. (the "Fund") and American
Express Financial Advisors Inc., the principal underwriter of the Fund, for
services to be provided to shareholders by personal financial advisors and other
servicing agents. It is effective on the first day the Fund offers multiple
classes of shares.
American Express Financial Advisors represents that shareholders consider their
financial advisor or servicing agent a significant factor in their satisfaction
with their investment and, to help retain financial advisors or servicing
agents, it is necessary for the Fund to pay annual servicing fees to financial
advisors and other servicing agents.
American Express Financial Advisors represents that fees paid to financial
advisors will be used by financial advisors to help shareholders thoughtfully
consider their investment goals and objectively monitor how well the goals are
being achieved. As principal underwriter, American Express Financial Advisors
will use its best efforts to assure that other distributors provide comparable
services to shareholders for the servicing fees received.
American Express Financial Advisors agrees to monitor the services provided by
financial advisors and servicing agents, to measure the level and quality of
services provided, to provide training and support to financial advisors and
servicing agents and to devise methods for rewarding financial advisors and
servicing agents who achieve an exemplary level and quality of services.
The Fund agrees to pay American Express financial advisors and other servicing
agents 0.15 percent of the net asset value for each shareholder account assigned
to a financial advisor or servicing agent that holds either Class A or Class B
shares. In addition, the Fund agrees to pay American Express Financial Advisors'
costs to monitor, measure, train and support services provided by financial
advisors or servicing agents up to 0.025 percent of the net asset value for each
shareholder account assigned to a financial advisor or servicing agent that
holds either Class A or Class B shares. The Fund agrees to pay American Express
Financial Advisors in cash within five (5) business days after the last day of
each month.
American Express Financial Advisors agrees to provide the Fund, prior to the
beginning of the calendar year, a budget covering its expected costs to monitor,
measure, train and support services and a quarterly report of its actual
expenditures. American Express Financial Advisors agrees to meet with
representatives of the Fund at their request to provide information as may be
reasonably necessary to evaluate its performance under the terms of this
agreement.
American Express Financial Advisors agrees that if, at the end of any month, the
expenses of the Fund, including fees under this agreement and any other
agreement between the Fund and American
<PAGE>
Express Financial Advisors or American Express Financial Corporation, but
excluding taxes, brokerage commissions and charges in connection with the
purchase and sale of assets exceed the most restrictive applicable state expense
limitation for the Fund's current fiscal year, the Fund shall not pay fees and
expenses under this agreement to the extent necessary to keep the Fund's
expenses from exceeding the limitation, it being understood that American
Express Financial Advisors will assume all unpaid expenses and bill the Fund for
them in subsequent months but in no event can the accumulation of unpaid
expenses or billing be carried past the end of the Fund's fiscal year.
This agreement shall continue in effect for a period of more than one year so
long as it is reapproved at least annually at a meeting called for the purpose
of voting on the agreement by a vote, in person, of the members of the Board who
are not interested persons of the Fund and have no financial interest in the
operation of the agreement, and of all the members of the Board.
This agreement may be terminated at any time without payment of any penalty by a
vote of a majority of the members of the Board who are not interested persons of
the Fund and have no financial interest in the operation of the agreement or by
American Express Financial Advisors. The agreement will terminate automatically
in the event of its assignment as that term is defined in the Investment Company
Act of 1940. This agreement may be amended at any time provided the amendment is
approved in the same manner the agreement was initially approved and the
amendment is agreed to by American Express Financial Advisors.
Approved this 20th day of March, 1995.
IDS EXTRA INCOME FUND, INC.
/s/ Leslie L. Ogg
- ----------------------------------
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
/s/ Janis E. Miller
- ----------------------------------
Vice President
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT made the 20th day of March, 1995, by and between IDS Extra Income
Fund, Inc. (the "Fund"), a Minnesota corporation, and American Express Financial
Corporation, a Delaware corporation.
Part One: SERVICES
(1) The Fund hereby retains American Express Financial Corporation, and American
Express Financial Corporation hereby agrees, for the period of this Agreement
and under the terms and conditions hereinafter set forth, to furnish the Fund
continuously with all administrative, accounting, clerical, statistical,
correspondence, corporate and all other services of whatever nature required in
connection with the administration of the Fund as provided under this Agreement;
and to pay such expenses as may be provided for in Part Three hereof; subject
always to the direction and control of the Board of Directors, the Executive
Committee and the authorized officers of the Fund. American Express Financial
Corporation agrees to maintain an adequate organization of competent persons to
provide the services and to perform the functions herein mentioned. American
Express Financial Corporation agrees to meet with any persons at such times as
the Board of Directors deems appropriate for the purpose of reviewing American
Express Financial Corporation's performance under this Agreement.
(2) The Fund agrees that it will furnish to American Express Financial
Corporation any information that the latter may reasonably request with respect
to the services performed or to be performed by American Express Financial
Corporation under this Agreement.
(3) It is understood and agreed that in furnishing the Fund with the services as
herein provided, neither American Express Financial Corporation, nor any
officer, director or agent thereof shall be held liable to the Fund or its
creditors or shareholders for errors of judgment or for anything except willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
reckless disregard of its obligations and duties under the terms of this
Agreement. It is further understood and agreed that American Express Financial
Corporation may rely upon information furnished to it reasonably believed to be
accurate and reliable.
Part Two: COMPENSATION FOR SERVICES
(1) The Fund agrees to pay to American Express Financial Corporation, and
American Express Financial Corporation covenants and agrees to accept from the
Fund in full payment for the services furnished, based on the net assets of the
Fund as set forth in the following table:
<PAGE>
Assets Annual Rate At
(Billions) Each Asset Level
First $1 0.050%
Next 1 0.045
Next 1 0.040
Next 3 0.035
Next 3 0.030
Over 9 0.025
The administrative fee for each calendar day of each year shall be equal to
1/365th (1/366th in each leap year) of the total amount computed. The
computation shall be made for each such day on the basis of net assets as of the
close of business of the full business day two (2) business days prior to the
day for which the computation is being made. In the case of the suspension of
the computation of net asset value, the administrative fee for each day during
such suspension shall be computed as of the close of business on the last full
business day on which the net assets were computed. As used herein, "net assets"
as of the close of a full business day shall include all transactions in shares
of the Fund recorded on the books of the Fund for that day.
(2) The administrative fee shall be paid on a monthly basis and, in the event of
the termination of this Agreement, the administrative fee accrued shall be
prorated on the basis of the number of days that this Agreement is in effect
during the month with respect to which such payment is made.
(3) The administrative fee provided for hereunder shall be paid in cash by the
Fund to American Express Financial Corporation within five (5) business days
after the last day of each month.
Part Three: ALLOCATION OF EXPENSES
(1) The Fund agrees to pay:
(a) Administrative fees payable to American Express Financial Corporation for
its services under the terms of this Agreement.
(b) Taxes.
(c) Fees and charges of its independent certified public accountants for
services the Fund requests.
(d) Fees and expenses of attorneys (i) it employs in matters not involving the
assertion of a claim by a third party against the Fund, its directors and
officers, (ii) it employs in conjunction with a claim asserted by the Board of
Directors against American Express Financial Corporation, except that American
Express Financial Corporation shall reimburse the Fund for such fees and
expenses if it is ultimately determined by a court of competent jurisdiction, or
American Express Financial Corporation agrees, that it is liable in whole or in
part to the Fund, and (iii) it employs to assert a claim against a third party.
<PAGE>
(e) Fees paid for the qualification and registration for public sale of the
securities of the Fund under the laws of the United States and of the several
states in which such securities shall be offered for sale.
(f) Office expenses which shall include a charge for occupancy, insurance on the
premises, furniture and equipment, telephone, telegraph, electronic information
services, books, periodicals, published services, and office supplies used by
the Fund, equal to the cost of such incurred by American Express Financial
Corporation.
(g) Fees of consultants employed by the Fund.
(h) Directors, officers and employees expenses which shall include fees,
salaries, memberships, dues, travel, seminars, pension, profit sharing, and all
other benefits paid to or provided for directors, officers and employees,
directors and officers liability insurance, errors and omissions liability
insurance, worker's compensation insurance and other expenses applicable to the
directors, officers and employees, except the Fund will not pay any fees or
expenses of any person who is an officer or employee of American Express
Financial Corporation or its affiliates.
(i) Filing fees and charges incurred by the Fund in connection with filing any
amendment to its articles of incorporation, or incurred in filing any other
document with the State of Minnesota or its political subdivisions.
(j) Organizational expenses of the Fund.
(k) One-half of the Investment Company Institute membership dues charged jointly
to the IDS MUTUAL FUND GROUP and American Express Financial Corporation.
(l) Expenses properly payable by the Fund, approved by the Board of Directors.
(2) American Express Financial Corporation agrees to pay all expenses associated
with the services it provides under the terms of this Agreement. Further,
American Express Financial Corporation agrees that if, at the end of any month,
the expenses of the Fund under this Agreement and any other agreement between
the Fund and American Express Financial Corporation, but excluding those
expenses set forth in (1)(b) of this Part Three, exceed the most restrictive
applicable state expenses limitation, the Fund shall not pay those expenses set
forth in (1)(a) and (c) through (m) of this Part Three to the extent necessary
to keep the Fund's expenses from exceeding the limitation, it being understood
that American Express Financial Corporation will assume all unpaid expenses and
bill the Fund for them in subsequent months but in no event can the accumulation
of unpaid expenses or billing be carried past the end of the Fund's fiscal year.
<PAGE>
Part Four: MISCELLANEOUS
(1) American Express Financial Corporation shall be deemed to be an independent
contractor and, except as expressly provided or authorized in this Agreement,
shall have no authority to act for or represent the Fund.
(2) A "full business day" shall be as defined in the By-laws.
(3) The Fund recognizes that American Express Financial Corporation now renders
and may continue to render investment advice and other services to other
investment companies and persons which may or may not have investment policies
and investments similar to those of the Fund and that American Express Financial
Corporation manages its own investments and/or those of its subsidiaries.
American Express Financial Corporation shall be free to render such investment
advice and other services and the Fund hereby consents thereto.
(4) Neither this Agreement nor any transaction had pursuant hereto shall be
invalidated or in anyway affected by the fact that directors, officers, agents
and/or shareholders of the Fund are or may be interested in American Express
Financial Corporation or any successor or assignee thereof, as directors,
officers, stockholders or otherwise; that directors, officers, stockholders or
agents of American Express Financial Corporation are or may be interested in the
Fund as directors, officers, shareholders, or otherwise; or that American
Express Financial Corporation or any successor or assignee, is or may be
interested in the Fund as shareholder or otherwise, provided, however, that
neither American Express Financial Corporation, nor any officer, director or
employee thereof or of the Fund, shall sell to or buy from the Fund any property
or security other than shares issued by the Fund, except in accordance with
applicable regulations or orders of the United States Securities and Exchange
Commission.
(5) Any notice under this Agreement shall be given in writing, addressed, and
delivered, or mailed postpaid, to the party to this Agreement entitled to
receive such, at such party's principal place of business in Minneapolis,
Minnesota, or to such other address as either party may designate in writing
mailed to the other.
(6) American Express Financial Corporation agrees that no officer, director or
employee of American Express Financial Corporation will deal for or on behalf of
the Fund with himself as principal or agent, or with any corporation or
partnership in which he may have a financial interest, except that this shall
not prohibit officers, directors or employees of American Express Financial
Corporation from having a financial interest in the Fund or in American Express
Financial Corporation.
(7) The Fund agrees that American Express Financial Corporation may subcontract
for certain of the services described under this Agreement with the
understanding that there shall be no diminution in the quality or level of the
services and that American Express Financial Corporation remains fully
responsible for the services.
<PAGE>
(8) This Agreement shall extend to and shall be binding upon the parties hereto,
and their respective successors and assigns; provided, however, that this
Agreement shall not be assignable without the written consent of the other
party. This Agreement shall be governed by the laws of the State of Minnesota.
Part Five: RENEWAL AND TERMINATION
(1) This Agreement shall become effective on the date first set forth above (the
"Effective Date") and shall continue in effect from year to year thereafter as
the parties may mutually agree; provided that either party may terminate this
Agreement by giving the other party notice in writing specifying the date of
such termination, which shall be not less than 60 days after the date of receipt
of such notice.
(2) This Agreement may not be amended or modified in any manner except by a
written agreement executed by both parties.
IN WITNESS THEREOF, the parties hereto have executed the foregoing Agreement as
of the day and year first above written.
IDS EXTRA INCOME FUND, INC.
By:/s/ Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL CORPORATION
By:/s/ Janis E. Miller
Vice President
July 29, 1998
IDS Extra Income 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, and 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 2, 1983, 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,
/s/ Leslie L. Ogg
Leslie L. Ogg
Attorney at Law
901 S. Marquette Ave., Suite 2810
Minneapolis, MN 55402-3268
LLO/SP/prs
Independent auditors' consent
- ------------------------------------------------------------------------------
The board and shareholders
IDS Extra Income Fund, Inc.:
The board of trustees and unitholders Income Trust:
High Yield 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.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
July 29, 1998
Plan and Agreement of Distribution
This plan and agreement is between IDS Extra Income Fund, Inc. (the "Fund") and
American Express Financial Advisors Inc., the principal underwriter of the Fund,
for distribution services to the Fund. It is effective on the first day the Fund
offers multiple classes of shares.
The plan and agreement has been approved by members of the Board of Directors
(the "Board") of the Fund who are not interested persons of the Fund and have no
direct or indirect financial interest in the operation of the plan or any
related agreement, and all of the members of the Board, in person, at a meeting
called for the purpose of voting on the plan and agreement.
The plan and agreement provides that:
1. The Fund will reimburse American Express Financial Advisors for all sales and
promotional expenses attributable to the sale of Class B shares, including sales
commissions, business and employee expenses charged to distribution of Class B
shares, and corporate overhead appropriately allocated to the sale of Class B
shares.
2. The amount of the reimbursement shall be equal on an annual basis to 0.75% of
the average daily net assets of the Fund attributable to Class B shares. The
amount so determined shall be paid to American Express Financial Advisors in
cash within five (5) business days after the last day of each month. American
Express Financial Advisors agrees that if, at the end of any month, the expenses
of the Fund, including fees under this agreement and any other agreement between
the Fund and American Express Financial Advisors or American Express Financial
Corporation, but excluding taxes, brokerage commissions and charges in
connection with the purchase and sale of assets exceed the most restrictive
applicable state expense limitation for the Fund's current fiscal year, the Fund
shall not pay fees and expenses under this agreement to the extent necessary to
keep the Fund's expenses from exceeding the limitation, it being understood that
American Express Financial Advisors will assume all unpaid expenses and bill the
Fund for them in subsequent months, but in no event can the accumulation of
unpaid expenses or billing be carried past the end of the Fund's fiscal year.
3. For each purchase of Class B shares, after eight years the Class B shares
will be converted to Class A shares and those assets will no longer be included
in determining the reimbursement amount.
4. The Fund understands that if a shareholder redeems Class B shares before they
are converted to Class A shares, American Express Financial Advisors will impose
a sales charge directly on the redemption proceeds to cover those expenses it
has previously incurred on the sale of those shares.
5. American Express Financial Advisors agrees to provide at least quarterly an
analysis of distribution expenses and to meet with representatives of the Fund
as reasonably requested to provide additional information.
6. The plan and agreement shall continue in effect for a period of more than one
year provided it is reapproved at least annually in the same manner in which it
was initially approved.
7. The plan and agreement may not be amended to increase materially the amount
that may be paid by the Fund without the approval of a least a majority of the
outstanding shares of Class B. Any other amendment must be approved in the
manner in which the plan and agreement was initially approved.
8. This agreement may be terminated at any time without payment of any penalty
by a vote of a majority of the members of the Board who are not interested
persons of the Fund and have no financial interest in the operation of the plan
and agreement, or by vote of a majority of the outstanding Class B shares, or by
American Express Financial Advisors. The plan and agreement will terminate
automatically in the event of its assignment as that term is defined in the
Investment Company Act of 1940.
Approved this 20th day of March, 1995.
IDS EXTRA INCOME FUND, INC.
/s/ Leslie L. Ogg
- ----------------------------------
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
/s/ Janis E. Miller
- ----------------------------------
Vice President
<TABLE> <S> <C>
<ARTICLE> 6
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<NAME> IDS EXTRA INCOME FUND CLASS A
<S> <C>
<PERIOD-TYPE> Year
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<PERIOD-END> MAY-31-1998
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<GROSS-EXPENSE> 39369700
<AVERAGE-NET-ASSETS> 2892776411
<PER-SHARE-NAV-BEGIN> 4.39
<PER-SHARE-NII> 0.40
<PER-SHARE-GAIN-APPREC> .17
<PER-SHARE-DIVIDEND> .38
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</TABLE>
<TABLE> <S> <C>
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<NAME> IDS EXTRA INCOME FUND CLASS B
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<PERIOD-END> MAY-31-1998
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<SHARES-REINVESTED> 11659883
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<OVERDIST-NET-GAINS-PRIOR> 244457392
<GROSS-ADVISORY-FEES> 5260181
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 39369700
<AVERAGE-NET-ASSETS> 833205359
<PER-SHARE-NAV-BEGIN> 4.39
<PER-SHARE-NII> 0.37
<PER-SHARE-GAIN-APPREC> .16
<PER-SHARE-DIVIDEND> .34
<PER-SHARE-DISTRIBUTIONS> .00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 4.58
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
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<NAME> IDS EXTRA INCOME FUND CLASS Y
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<PERIOD-END> MAY-31-1998
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<DISTRIBUTIONS-OF-INCOME> 46439
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<DISTRIBUTIONS-OTHER> 0
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<PER-SHARE-NII> 0.41
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<AVG-DEBT-OUTSTANDING> 0
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<TABLE> <S> <C>
<ARTICLE>6
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<NUMBER> 4
<NAME> HIGH YIELD PORTFOLIO
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<FISCAL-YEAR-END> MAY-31-1998
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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 7th day of January, 1998.
/s/ H. Brewster Atwater, Jr. /s/ William R. Pearce
H. Brewster Atwater, Jr. William R. Pearce
/s/ Lynne V. Cheney /s/ Alan K. Simpson
Lynne V. Cheney Alan K. Simpson
/s/ William H. Dudley /s/ Edson W. Spencer
William H. Dudley 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
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 7th day of January, 1998.
/s/ H. Brewster Atwater, Jr. /s/ William R. Pearce
H. Brewster Atwater, Jr. William R. Pearce
/s/ Lynne V. Cheney /s/ Alan K. Simpson
Lynne V. Cheney Alan K. Simpson
/s/ William H. Dudley /s/ Edson W. Spencer
William H. Dudley 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
