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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a Party other than the Registrant /X/
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
IDS Precious Metals Fund, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2)
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:*
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4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
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<PAGE>
IDS PRECIOUS METALS FUND, INC.
901 S. MARQUETTE AVE.
SUITE 2810
MINNEAPOLIS, MINNESOTA 55402-3268
NOTICE OF REGULAR MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 9, 1994
September 17, 1994
Dear Shareholder:
We will hold a regular meeting of the shareholders of IDS Precious Metals
Fund, Inc. (the "Fund") at 2:00 p.m. on November 9, 1994, at the Marquette
Hotel, 7th and Marquette, Minneapolis, Minnesota in the Lake Superior Room on
the fourth floor. The purposes of the meeting include the election of Board
members, consideration of a new agreement between the Fund and IDS Financial
Corporation ("IDS") with changes in the fee structure, and changes to the Fund's
investment policies. The agenda for the meeting is on the next page.
Please take the time to read the proxy statement which discusses each agenda
item. The Board of Directors has approved the proposals and recommend that you
vote in favor of each item. If you were a shareholder on September 11, 1994, you
may vote at the meeting or any adjournment of the meeting. We hope you can
attend. For those of you who cannot attend, the enclosed card is for your vote.
Please be sure to sign the card and return it to us as soon as possible in the
enclosed postage-paid envelope. The latest annual report was previously mailed
to you.
LESLIE L. OGG
Secretary
IT IS IMPORTANT THAT YOU VOTE PROMPTLY. PLEASE FILL IN AND SIGN THE ENCLOSED
CARD. PROMPT RESPONSE WILL SAVE YOUR FUND THE COST OF ADDITIONAL MAILINGS.
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AGENDA
(1) To elect Board members;
(2) To ratify or reject the selection of KPMG Peat Marwick as the independent
auditors for the Fund;
(3) To approve or reject a new Investment Management and Services Agreement with
IDS;
(4) To approve or reject a change in the investment policies of the Fund to
permit the Fund to invest all of its assets in another investment company
with substantially the same investment objectives, policies and restrictions
as the Fund;
(5) To approve or reject changes to certain of the Fund's fundamental investment
policies;
(6) To approve or reject a change in the Fund's classification from diversified
to non-diversified;
(7) To transact any other business that comes before the meeting.
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PROXY STATEMENT
As a shareholder of IDS Precious Metals Fund (the "Fund"), you are invited
to attend a regular meeting of the Fund. At the meeting, the shareholders will
vote on the matters described below. Each share is entitled to one vote. For
those of you who cannot come to the meeting, the Board of Directors (the
"Board") is asking permission to vote for you. The shares will be voted the way
you mark the boxes on the enclosed card. For purposes of determining whether a
quorum is present, abstentions and broker "non-votes" will be counted as shares
that are present but have not voted. For this reason, abstentions and broker
"non-votes" will have the effect of a "no" vote.
To avoid the cost of further solicitation, it is important for you to vote
promptly. If you think you might not attend, please complete the card. If your
plans change and you can attend, simply see the Secretary at the meeting and
tell him you will be voting your shares in person. Also, if you change your mind
after you send in the card, you may change your vote or revoke it by writing us
or by sending another card. Make sure you sign and date the card and return it
to us.
On September 11, 1994, the Fund had shares outstanding. As far as the
Board has been able to determine, as of September 1, 1994, no shareholder owned
5% or more of the outstanding shares of the Fund. It is estimated that this
proxy statement will be mailed to shareholders on September 17, 1994.
(1) ELECTION OF BOARD MEMBERS
The Board has set the number of persons who serve on the Board at . Each
Board member will serve until the next regular shareholders' meeting or until he
or she reaches the mandatory retirement age established by resolution of the
Board. Under the current resolution of the Board, members who were serving on
the Board of any fund in the IDS MUTUAL FUND GROUP (the "GROUP") on January 1,
1988, serve until the end of the meeting of the Board following their 75th
birthday and all other members serve through the meeting following their 70th
birthday.
In voting for Board members, you may vote all of your shares cumulatively.
This means that you have the right to give each nominee an equal number of votes
or divide the votes among the nominees as you wish. You have as many votes as
the number of shares you own, including fractional shares, multiplied by the
number of members to be elected. By completing the card, you give the proxies
the right to vote for the persons named below. If you elect to withhold
authority for any individual nominee or nominees, you may do so by marking the
box labeled "Exception," and by striking the name of any excepted nominee, as is
further explained on the card itself. If
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you do withhold authority, the proxies will not vote shares equivalent to the
proportionate number applicable to the names for which authority is withheld.
The persons nominated to serve on the Board are set forth below. Each of the
nominees is a nominee for trustee or director of each of the other funds within
the GROUP. The GROUP currently consists of 42 funds with assets of approximately
$44 billion. Each nominee was elected a member of the Board at the last
shareholders' meeting except for Ms. Cheney and Mr. Hubers.
All of the nominees have agreed to serve. If an unforeseen event prevents a
nominee from serving, your votes will be cast for the election of a substitute
selected by the Board. Information about each nominee is provided below. It
includes the period of service as a Board member of funds in the GROUP, the
number of shares each owns in the Fund and in all the funds in the GROUP on
September 1, 1994 and the current committee assignments. Election requires a
vote by a majority of the shares present or represented at the meetings.
LYNNE V. CHENEY Board member since 1994 Age 53
Distinguished Fellow, American Enterprise Institute for Public Policy Research.
Former Chair of National Endowment of the Humanities. Director, The Reader's
Digest Association Inc., Lockhead Corporation, and the Interpublic Group of
Companies, Inc. (advertising).
Shares owned: Fund GROUP
Committee assignment: Audit
WILLIAM H. DUDLEY** Board member since 1991 Age 62
Executive vice president and director of IDS Financial Corporation ("IDS").
Shares owned: Fund GROUP
Committee assignment: Executive
ROBERT F. FROEHLKE Board member since 1987 Age 71
Former president of all funds in the GROUP. Director, the ICI Mutual Insurance
Co., Institute for Defense Analyses, Marshall Erdman and Associates, Inc.
(architectural engineering) and Public Oversight Board of the American Institute
of Certified Public Accountants.
Shares owned: Fund GROUP
Committee assignments: Contracts, Executive, Personnel
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DAVID R. HUBERS** Board member since 1993 Age 51
President, chief executive officer and director of IDS. Previously, senior vice
president, finance and chief financial officer of IDS.
Shares owned: Fund GROUP
ANNE P. JONES Board member since 1985 Age 59
Partner, law firm of Sutherland, Asbill & Brennan. Director, Motorola, Inc. and
C-Cor Electronics, Inc.
Shares owned: Fund GROUP
Committee assignment: Contracts
DONALD M. KENDALL Board member since 1968 Age 73
Former chairman and chief executive officer, PepsiCo, Inc.
Shares owned: Fund GROUP
Committee assignment: Audit
MELVIN R. LAIRD Board member since 1974 Age 72
Senior counsellor for national and international affairs, The Reader's Digest
Association, Inc. Chairman of the board, COMSAT Corporation, former nine-term
congressman, secretary of defense and presidential counsellor. Director, Martin
Marietta Corp., Metropolitan Life Insurance Co., The Reader's Digest
Association, Inc., Science Applications International Corp., Wallace Reader's
Digest Funds and Public Oversight Board (SEC Practice Section, American
Institute of Certified Public Accountants).
Shares owned: Fund GROUP
Committee assignment: Personnel
LEWIS W. LEHR Board member since 1986 Age 73
Former chairman of the board and chief executive officer, Minnesota Mining and
Manufacturing Company (3M). Director, Jack Eckerd Corporation (drugstores).
Advisory Director, Peregrine Inc. (microelectronics).
Shares owned: Fund GROUP
Committee assignments: Audit, Personnel
5
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WILLIAM R. PEARCE* Board member since 1980 Age 66
President of all funds in the GROUP since June 1993. Former vice chairman of the
board, Cargill, Incorporated (commodity merchants and processors).
Shares owned: Fund GROUP
Committee assignments: Contracts, Executive
EDSON W. SPENCER Board member since 1991 Age 68
President, Spencer Associates Inc. (consulting). Chairman of the board, Mayo
Foundation (healthcare). Former chairman of the board and chief executive
officer, Honeywell Inc. Director, Boise Cascade Corporation (forest products)
and CBS Inc. Member of International Advisory Councils, Robert Bosch (Germany)
and NEC (Japan).
Shares owned: Fund GROUP
Committee assignments: Audit, Executive
JOHN R. THOMAS** Board member since 1987 Age 57
Senior vice president and director of IDS.
Shares owned: Fund GROUP
WHEELOCK WHITNEY Board member since 1977 Age 68
Chairman, Whitney Management Company (manages family assets).
Shares owned: Fund GROUP
Committee assignment: Audit, Contracts, Executive, Personnel
*Interested person by reason of being an officer and employee of the Fund.
**Interested person by reason of being an officer, director, securityholder
and/or employee of IDS or American Express Company ("American Express").
+Shares owned by family members in which nominee disclaims any beneficial
ownership.
As of September 1, 1994, all executive officers and Board members as a group
beneficially owned directly or indirectly less than 1% of the shares of the
Fund.
The committees have been appointed to facilitate the work of the Board. The
Executive Committee has authority to act for the full Board between meetings. It
focuses on investment activities, routine compliance issues and oversight of
various operational functions. The Joint Audit Committee meets with
representatives of the independent auditors to consider the scope of annual
audits and reviews the results of those audits. It receives reports from IDS
Internal Audit that pertain to the Fund's operations and addresses special areas
of concern. The Contracts Committee, under the full Board's direction,
negotiates contracts and monitors, evaluates and reports
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to the Board the performance under the terms of those contracts. The Joint
Personnel Committee makes recommendations with respect to the composition of the
Board and the compensation of the members, officers and staff of the Fund.
Candidates for vacancies on the Board must have a background that gives promise
of making a significant contribution to furthering the interests of all
shareholders. Shareholders wishing to suggest candidates should write in care of
Joint Personnel Committee, IDS MUTUAL FUND GROUP, 901 Marquette Avenue South,
Suite 2810, Minneapolis, MN 55402-3268.
Over the last fiscal year, the Board held 10 meetings, the Executive
Committee met twice a month, and the Audit, Contracts and Personnel Committees
met 5, 4 and 7 times respectively. Average attendance at the Board was 93% and
no nominee attended less than 75% of the meetings of the Board and the
committees on which she or he serves.
Members who are not officers of the Fund or directors of IDS receive an
annual fee and retirement benefits from the Fund. They also receive attendance
and other fees, the cost of which the Fund shares with the other funds in the
GROUP. Members of this Fund's Board receive an annual fee of $ and upon
retirement at age 70, or earlier if for health reasons, such members receive
monthly payments equal to 1/2 of the annual fee divided by 12 for as many months
as the member served on the Board up to 120 months or until the date of death.
There are no death benefits and the plan is not funded. The fees shared with
other funds are those for attendance for meetings of the Contracts Committee or
Board, $500, meetings of the Audit, Executive, and Personnel Committees, $300,
out-of state, $500, and Chair of Contracts Committee, $5,000. Expenses also are
reimbursed.
During the last fiscal year, the members of the Board, for attending up to
50 meetings, received the following compensation, in total, from all the funds
in the GROUP.
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NOMINEE COMPENSATION FROM GROUP
<TABLE>
<CAPTION>
Retirement Estimated
Aggregate Benefits Annual Total Cash
Compensation Accrued as Benefit on Compensation
Nominee from Fund Fund Expenses Retirement from GROUP
- ---------------------- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Lynne V. Cheney
Robert F. Froehlke
(part of year)
Anne P. Jones
Donald M. Kendall
Melvin R. Laird
Lewis W. Lehr
William R. Pearce
(part of year)
Edson W. Spencer
Wheelock Whitney
</TABLE>
Besides Mr. Pearce, who is president, the Fund's other officer is:
Leslie L. Ogg, 56, Vice president and general counsel of all publicly
offered funds in the GROUP since 1978. Vice president and secretary of the Life
Funds and treasurer and secretary of all publicly offered funds in the GROUP
since July 1989.
Officers serve at the pleasure of the Board.
During the last fiscal year, no officer earned more than $60,000 from the
Fund. All officers as a group (two persons) earned cash compensation, including
salaries and thrift plan, of $ for the last fiscal year.
(2) RATIFY OR REJECT THE SELECTION OF
KPMG PEAT MARWICK AS INDEPENDENT AUDITORS
For the fiscal year ending March 31, 1995, KPMG Peat Marwick has been
selected to serve as the independent auditors for the Fund. This selection was
made by the members of the Board who are not officers of the Fund or associated
with the investment manager pursuant to a recommendation by the Joint Audit
Committee. When a meeting of shareholders is held, the selection also is
considered by the shareholders.
The audit services provided to the funds in the GROUP by KPMG Peat Marwick
include the examination of the annual financial statements, assistance in
connection with filings with the Securities and Exchange Commission (the "SEC")
and meeting with the Joint Audit Committee. A representative of KPMG Peat
Marwick is expected to be at the meeting and will have the opportunity to make a
statement and answer questions.
RECOMMENDATION AND VOTE REQUIRED. The Board recommends that you vote to
ratify the selection of the independent auditors. Ratification of
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the selection requires a vote by a majority of the shares present or represented
at the meeting. If the selection of the independent auditors is not ratified,
the Board will consider what further action must be taken.
(3) APPROVE OR REJECT A NEW INVESTMENT
MANAGEMENT AND SERVICES AGREEMENT
IDS has provided the Fund investment advice, administrative services,
transfer agent services and distribution since the Fund began operation. These
services are now provided under four separate contracts.
The Fund is considering two changes in its current structure. First, it is
considering issuing multiple classes of shares. This would permit investors to
choose when and how to pay a sales charge. Second, at some future time, the Fund
may separate the asset management function from the investor services function,
creating what are known as master/feeder funds. The master fund will offer its
shares only to other investment companies and investment groups including
pension plans and trust accounts. The master/feeder structure facilitates the
use of a number of different distribution channels. The master/feeder structure
will not necessarily be used by all funds in the GROUP and will be implemented
for this Fund only if the Board determines that it is in the best interests of
the Fund and its shareholders.
In order to proceed with the changes, new contracts with IDS are necessary.
Under the proposed contracts, based on the net asset values and the number of
shareholder accounts in the Fund in 1993, shareholders would have paid an
additional $.40 for each $1,000 invested. In return for that increase, IDS
believes it can provide more and better services to shareholders.
The proposed contracts will become effective only if and when the Fund
issues multiple classes of shares. If the proposed contracts are approved, the
Fund plans to offer multiple classes of shares before the end of March 1995.
BOARD DELIBERATIONS. In considering the desirability of issuing multiple
classes of shares, the members of the Board took several steps. First, they
asked the Board's Contracts Committee, composed of members who are not
affiliated with IDS ("independent members"), to test and evaluate a plan to
offer multiple classes of shares. The Committee determined that many investment
companies are now offering multiple classes of shares because they give
investors the choice among several sales load options. Also, they determined
that issuing multiple classes of shares enables an investment company to offer
shares more effectively to institutional and retirement accounts. Second, the
Board asked the Committee to consider terms of the new contracts. By the end of
1993, proposed contract terms were deemed sufficiently complete to be considered
and evaluated by all independent members of the Board. Third, the members of the
Board approved the filing of an application with the SEC for the necessary
authority to offer multiple classes of shares. An order approving the
application was granted on March 16, 1994. Fourth,
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the Board authorized the Fund to seek a private letter ruling from the Internal
Revenue Service to assure the plan to offer multiple classes of shares would not
create any tax problems for the Fund or its shareholders. Multiple classes of
shares will be issued only if that assurance is provided. If the private letter
ruling has not yet been issued at the time the Fund intends to implement
multiple classes of shares, the Fund may rely on an opinion of tax counsel.
In February, the independent members of the Board began an evaluation of the
plan and the proposed contracts against two standards: first, they had to offer
important benefits both to the Fund and its shareholders and, second, they had
to be fair to the Fund and its shareholders. In the course of this evaluation,
independent members met with representatives of American Express, the parent
company of IDS, and IDS to discuss the business plans of both companies. Also,
they reviewed the changes taking place in the money management industry with
noted research analysts and industry executives. And, they considered the
benefits existing shareholders derive from continued growth of the Fund and
tested the fairness of contract terms by employing the services of consultants
considered experts in their fields.
Independent members of the Board also reviewed five performance reports
prepared by IDS and an extensive review of those reports by Price Waterhouse, a
service it has provided the Fund in each of the past 13 years. The five reports,
prepared for the Fund each year by IDS, cover investment performance,
shareholder services, compliance, sales and marketing, and IDS' profitability
from its relationships with all funds in the GROUP. In addition, they considered
information provided by IDS in response to questions asked by the independent
members and the Fund's staff and from various periodic reports given to the
Board or to committees of the Board.
CURRENT INVESTMENT MANAGEMENT AND SERVICES AGREEMENT. Currently IDS
provides investment advice and administrative services to the Fund under an
Investment Management and Services Agreement (the "IMS Agreement") which was
last approved by shareholders on November 13, 1991. At that time, shareholders
approved a change in the rate of the fee payable to IDS, a new performance
incentive adjustment, a change in the language pertaining to payment of
expenses, and the elimination of the contractual provisions applicable to
services provided as transfer agent and dividend-disbursing agent. The Fund and
IDS then entered into a separate Transfer Agent Agreement (the "TA Agreement").
The fee paid IDS for its services under the IMS Agreement is based on three
components. The first component of the fee, a group asset charge, is based on a
graduated scale applied to the net assets of all the funds, except the
money-market funds, in the GROUP. The scale begins at 0.46% of net assets for
the first $5 billion and declines for each additional $5 billion until a fee of
0.32% is paid for net assets exceeding $50 billion. The second component, an
individual asset charge, is a fixed fee of 0.46% of the net assets of the
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Fund itself. The complete group asset charge schedule and net assets for all
funds in the GROUP appear under the caption "Certain Information Concerning IDS"
which follows later in this proxy statement.
The third component of the fee is the performance incentive adjustment. It
is computed by measuring the percentage difference over a rolling 12-month
period between the performance of one capital share of the Fund and the change
in the Lipper Gold Average. One percentage point is subtracted from the
calculation to help assure that incentive adjustments are attributable to IDS'
investment decisions rather than random fluctuations. The maximum adjustment for
a year is .012% of assets.
The Fund pays its taxes, brokerage commissions and nonadvisory expenses,
which include custodian fees; audit and certain legal fees; fidelity bond
premiums; registration fees for shares; office expenses of the Fund; consultant
fees; compensation of Board members, officers and employees (except anyone who
is also an officer, director or employee of IDS or its affiliates); corporate
filing fees; a portion of the Investment Company Institute dues; organizational
expenses; expenses incurred in connection with lending portfolio securities; and
other expenses properly payable by the Fund, approved by the Board.
If, at the end of any month, the fees payable by the Fund under the IMS
Agreement and its nonadvisory expenses exceed the most restrictive applicable
state expense limitation -- which at the current time is 2.5% of the first $30
million of the average daily net assets, 2% of the next $70 million and 1.5% of
average daily net assets over $100 million on an annual basis -- IDS will assume
all expenses in excess of the limit. IDS then may bill the Fund for those
expenses in subsequent months up to the end of that fiscal year, but not after
that date.
PROPOSED INVESTMENT MANAGEMENT AND SERVICES AGREEMENT. The proposed
agreement covering investment advice and administration retains features of the
current IMS Agreement. The proposed contract has the same performance incentive
adjustment, the Fund pays the same expenses it now pays, and the services to be
provided by IDS are the same. But, there are also two important differences. The
fee is based solely on the assets of the Fund, not on assets of the GROUP, and
on the unique characteristics of the Fund, including the Fund's use of the
services provided by IDS in the areas of
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investment research, portfolio management and investment services. Moreover, the
contract is designed to become two separate contracts if the Board ultimately
approves a master/feeder structure. A copy of the proposed IMS Agreement is set
forth as Exhibit A. The proposed fee is shown below:
PROPOSED FEE
<TABLE>
<CAPTION>
Assets Annual Rate At
(Billions) Each Asset Level
- --------------- ----------------
<S> <C>
First $0.25 0.86%
Next $0.25 0.83
Next $0.25 0.80
Next $0.25 0.77
Next $1 0.74
Over $2 0.71
</TABLE>
Based on the current net assets in the GROUP, the effective rate paid by the
Fund under the current IMS Agreement is 0.89% and under the proposed IMS
Agreement is 0.86%. Should the IMS Agreement become two separate contracts, the
fee for accounting and administration would be 0.06% for the first $250 million
in net assets, 0.055% for the second $250 million, 0.05% for the next $250
million, 0.045% for the next $250 million, 0.040% for the next $1 billion and
0.035% for assets above $2 billion. The fee for investment advice would be the
same as it is under the proposed IMS Agreement less those amounts. In subsequent
years, the Board could consider changing the fees for administration without
shareholder approval.
On July 31, 1994, the Fund's daily net assets were approximately $71
million; for 1993, approximately $77 million; and for 1992, approximately $54
million.
The Board's independent members based their evaluation of the proposed IMS
Agreement on a number of factors. The IDS annual report on investment
performance describes the total return of each of the funds in the GROUP;
reviews IDS' organizational structure and the performance of the portfolio
managers; and provides other information about IDS' qualifications to serve as
investment advisor. Periodic reports to committees of the Board reflect the
ability of IDS to actually carry out the duties of administrator which include,
among other things, pricing portfolios, maintaining accurate accounting records,
issuing timely financial and tax reports, and complying with federal and state
requirements. Terms of the proposed contract, especially the graduated fee scale
and the types of expenses paid by the Fund, were compared to those of other
investment companies deemed by a respected, independent industry authority most
comparable to the Fund. The independent members concluded that IDS has the
qualifications needed to serve the Fund as investment adviser and administrator
under the IMS
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Agreement. Overall the funds in the GROUP have benefited from IDS' accurate and
timely recordkeeping and, as a GROUP, a majority of funds are consistently in
the second quartile of their competitive groupings.
NEW CONTRACTS TO BE APPROVED BY THE BOARD. If shareholders approve the
proposed IMS Agreement, the Board will approve a 12b-1 plan and new contracts
necessary for issuing multiple classes of shares. The Fund intends to offer
shares with a front-end sales charge and a service fee (Class A), a rear-end
sales charge, service fee and 12b-1 fee (Class B) and, for certain institutional
retirement and fixed fee accounts, no sales charge or service fee (Class Y). The
12b-1 plan and the contracts the Board will approve are discussed below. The
shares you currently own will become Class A shares.
- SHAREHOLDER SERVICES. IDS now provides shareholder services under a plan
and supplemental agreement of distribution. Because distribution services are
included, it is considered a 12b-1 plan (so called because it is authorized
under Rule 12b-1, a regulation issued under the Investment Company Act of 1940,
the "1940 Act"). The Fund currently pays a fee determined by multiplying all the
active shareholder accounts by $6. The fee is intended to help IDS defray that
portion of its distribution costs not covered by the sales charges, further
costs incurred in maintaining and improving shareholder services and in
financing the sale of shares. The fee paid to IDS in 1993 under this plan was
equal to 0.14% of net assets.
The proposed contract for shareholder services does not cover any
distribution costs and is not a 12b-1 plan. The Fund will pay 0.15% of net
assets of accounts holding Class A or Class B shares directly for the benefit of
planners and servicing agents for the services they provide shareholders. The
Fund also will pay IDS 0.025% for use in monitoring those services and providing
additional training and support to planners and servicing agents to assure the
Fund shareholders receive good service. The services provided are designed to
help shareholders consider thoughtfully their investment goals and monitor the
progress they are making in achieving those goals. The Fund will pay the service
fee only with respect to net assets of accounts actually serviced by an IDS
planner or other servicing agents. The fee will not be used to finance the sale
of shares.
In evaluating the proposed contract, the independent members of the Board
considered both the general use of such fees in the industry and the proposed
level in relation to the services provided and similar fees charged by others.
They concluded the services contemplated will provide important benefits to
shareholders and that the terms of the proposed contract are fair both to the
Fund and its shareholders. Accordingly, the Board will approve the contract for
shareholder services if shareholders approve the proposed IMS Agreement.
- 12B-1 PLAN. IDS, as exclusive underwriter for the Fund, has agreed to
offer multiple classes of shares for the Fund. IDS will incur substantial
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costs on the date Class B shares (those shares that do not pay a sales charge at
the time of purchase) are sold. IDS is repaid those costs by the Fund over
several years out of the assets of Class B shares.
The 12b-1 plan applies only to Class B shares. Under the plan, the Fund will
pay IDS 0.75% of the assets of that class each year to cover the sales costs IDS
incurs. After eight years, Class B shares will be converted to Class A shares.
Class B shares redeemed before being converted to Class A shares will be
assessed a contingent deferred sales charge designed to approximate the sales
charge that would have been paid had the shares been held for eight years. The
sales charges for Class A and Class B shares are structured so that investors
will have approximately the same total returns at the end of eight years
regardless of which class is chosen.
The independent members concluded that the proposed contract should
contribute to positive cash flows, growing asset size, and services of enhanced
scope and quality that can be provided by a growing and profitable investment
manager and distributor. The ability to offer multiple classes of shares should
help IDS develop new markets for the Fund in light of current trends in the
investment market. The members of the Board have approved the adoption of the
multiple class structure believing that it serves the best interest of the Fund
and its shareholders. Accordingly, the Board will approve the 12b-1 plan if the
shareholders approve the proposed IMS Agreement. Any changes in the 12b-1 plan
will require the approval of the Class B shareholders, if and when shares of
that class are sold.
- TRANSFER AGENT SERVICES. The Board reviewed the annual report provided by
IDS with respect to the scope and quality of the services it provides
shareholders as transfer agent. The report describes the standards by which IDS
measures the quality of transfer agent services and assesses how well it has met
those standards. The report describes the types of services IDS offers
(including providing shareholders with an average cost basis of their
investments in the Fund made over time) and compares them to the services
offered by others.
Under the proposed TA Agreement, IDS will be paid a fee by the Fund for
these services out of the assets of Class A shares determined by multiplying the
number of Class A shareholder accounts by $15 and, from the assets of Class B
shares, by multiplying the number of Class B accounts by $16 and, from the
assets of Class Y shares, by multiplying the number of Class Y accounts by $15.
The members of the Board will approve the proposed TA Agreement if shareholders
approve the proposed IMS Agreement. The TA Agreement is reviewed annually. It
may be changed at any time by agreement between IDS and the Fund.
- DISTRIBUTION. The distribution contract between IDS and the Fund provides
that IDS has the exclusive right to act as principal underwriter for the Fund.
The contract will be modified to reflect the changes that result from
implementation of the multiple class structure.
14
<PAGE>
- BROKERAGE. The Fund executes portfolio transactions through American
Enterprise Investment Services Inc., a wholly owned subsidiary of IDS. Execution
of the Fund's portfolio transactions through other brokerage firms enables IDS
to receive services, such as market research, that benefit the Fund.
- CUSTODIAN. IDS Trust Company serves as custodian for the assets of the
Fund. The contract is reviewed annually to determine that IDS Trust Company
provides required custodial services at least equal in scope and quality to
those provided by others at rates that are fair and reasonable in light of the
usual and customary charges made by others.
CURRENT AND PRO FORMA DATA. For the last calendar year, fees and expenses
the Fund actually paid as well as fees and expenses the Fund would have paid if
the proposed IMS Agreement, proposed shareholder service agreement and proposed
TA Agreement had been in effect are shown below:
FUND EXPENSES
(AS A PERCENT OF AVERAGE DAILY NET ASSETS)
<TABLE>
<CAPTION>
Pro Forma
Actual Class A*
---------- -------------
<S> <C> <C>
Shareholder Transaction Expense $ 206,564 $ 206,564
Annual Operating Expenses
IMS Agreement 533,683 518,212
12b-1 Plan 83,023 0
Other Expenses 132,163 132,163
Total Fund Operating Expenses 955,433 962,054
<FN>
*The figures for Class A include a small percentage of shares that will be moved
into Class Y.
</TABLE>
EXAMPLE: Suppose for each year for the next 10 years, fund expenses are as
above and annual return is 5%. If you sold your shares at the end of the
following years, for each $1,000 invested, you would pay total expenses of:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
- ----------- ----------- ----------- -----------
<S> <C> <C> <C>
$ 65 $ 98 $ 133 $ 231
</TABLE>
If the proposed IMS Agreement had been in effect, in the last fiscal year
the Fund would have paid $583,305 to IDS under that agreement, a decrease of
1.9%.
For the fiscal year ended March 31, 1994, IDS received $594,587 from the
Fund under the IMS Agreement, $82,514 under the 12b-1 Plan and $205,259 under
the TA Agreement. In addition, IDS Financial Services Inc., a wholly owned
subsidiary of IDS, received $363,925 in sales charges from sales of shares of
the Fund.
BASIS OF RECOMMENDATION BY THE BOARD ON THE PROPOSED IMS AGREEMENT. In
reaching its recommendation to shareholders, the members of the Board considered
the scope and quality of all services IDS has provided and expects to provide
under the proposed contracts. They considered IDS'
15
<PAGE>
present distribution strategies, its past success and its willingness to invest
additional resources in developing new markets for the Fund. They noted IDS'
commitment to compliance with all applicable laws and regulations and the
benefits IDS receives from its relationships with the Fund. The members
considered IDS' investment performance; the Fund's expense ratio; the
profitability IDS realizes from its investment company operations; and the trend
of IDS profitability from fund operations as well as that of other investment
managers. The members of the Board concluded the services provided, measured in
both scope and quality, have been above average in the industry; investment
performance for all funds in the GROUP in most years has been consistent and
generally above the median of a group of competitive funds; the expense ratio
remains in line with other funds; and IDS' profitability is not unreasonable.
Based on its conclusions, the members of the Board have approved the proposed
IMS Agreement and recommend unanimously that the shareholders approve it.
On May 12, 1994, at a meeting called for the purpose of considering the
proposed IMS Agreement, the independent members first and then the Board as a
whole, by vote, cast in person, approved the terms of the proposed IMS
Agreement. After the second year, the proposed IMS Agreement will continue from
year to year provided continuance is approved at least annually by the Board.
The proposed IMS Agreement may be terminated without penalty either by the
Board, by IDS or by a vote of a majority of the outstanding shares of the Fund.
RECOMMENDATION AND VOTE REQUIRED. The Board recommends that shareholders
approve the proposed IMS Agreement. Approval requires the affirmative vote of
the majority of the outstanding shares of the Fund which the 1940 Act defines as
67% or more of the shares represented at the meeting held to consider the issue
if more than 50% are represented or more than 50% of the shares entitled to
vote, whichever is less.
(4) APPROVE OR DISAPPROVE A NEW INVESTMENT POLICY
TO PERMIT THE FUND TO INVEST ALL OF
ITS ASSETS IN AN INVESTMENT COMPANY WITH
SUBSTANTIALLY THE SAME INVESTMENT OBJECTIVES,
POLICIES AND RESTRICTIONS AS THE FUND
As discussed in Proposal 3 above, at some future time the Board may
determine that it is in the best interests of the Fund and its shareholders to
create what is known as a master/feeder fund structure. Such a structure allows
several investment companies and other investment groups, including pensions
plans and trust accounts, to have their investment portfolios managed as a
combined pool called the master fund. The purpose of the structure is to achieve
operational efficiencies.
Currently, the Fund's investment policies, including those pertaining to
investing all of its assets in one company, would prohibit the master/feeder
16
<PAGE>
structure. The Board recommends that shareholders adopt the following investment
policy: "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."
Adoption of this policy will permit the Fund to invest its assets in a
master fund, without any additional vote of shareholders. The Fund's operations
and shareholder services will not be affected. Even though the assets are
invested in securities of the master fund, you will continue to receive
information about the underlying investments the same as you now receive in your
annual and semi-annual reports. Proposal 3 discusses that the IMS Agreement will
become two agreements, the Investment Advisory Agreement and the Administration
Agreement, if the Board determines to create the master/feeder structure. Fees
and expenses are not expected to increase as a result of that split.
RECOMMENDATION AND VOTE REQUIRED. The Board recommends that shareholders
approve the new investment policy. Approval requires the affirmative vote of 67%
or more of the shares represented at the meeting if more than 50% are
represented or more than 50% of the shares entitled to vote, whichever is less.
If the change is not approved, the Fund will continue to operate in the same
fashion as it is now operating.
(5) APPROVE OR REJECT CHANGES TO FUNDAMENTAL POLICIES
The Fund has a number of investment policies that can be changed only with
approval of shareholders. These policies are referred to as "fundamental"
policies. Policies that can be changed by the Board are called "non-
fundamental". The Board recommends changing the fundamental policies described
below. These policies were established a number of years ago. New investment
strategies and new investment instruments continue to be created and developed.
If the policies are changed to non-fundamental or revised, the Board will be
able to change those policies in order to allow the Fund the flexibility to use
those strategies and instruments promptly without incurring the cost of
shareholder meetings. Some policies were established to conform to the
requirements of federal or state law that existed at the time. These policies do
not need to be fundamental under those laws and, if changed to non-fundamental,
the Board could react to changes in the laws.
A. PERMIT THE FUND TO BUY ON MARGIN OR SELL SHORT TO THE EXTENT PERMITTED
BY THE BOARD. Currently, the Fund is prohibited from buying on margin or
selling short. Buying on margin is borrowing money to buy securities and selling
short is selling securities the Fund does not own. Both strategies are cash
market transactions that create leverage but are appropriate if properly used.
Leveraging occurs when the market value of an investment changes significantly
more than the amount of cash invested. Under
17
<PAGE>
existing investment policies, the Fund can implement the same type of strategies
using derivative instruments. Depending on market conditions, however, it may be
preferable to pursue a strategy in the cash market instead of the derivatives
market. To assure the proper use of leverage transactions, the Fund imposes
limitations. One limitation is that its investment portfolio must have
investment performance characteristics similar to those it would have if all of
its assets were invested in the cash market. Accordingly, its investment
portfolio overall will not be leveraged. If the policies pertaining to use of
margin and short-selling are non-fundamental, as market conditions change, the
Board can consider requests of the portfolio manager to employ investment
strategies using these techniques.
B. PERMIT THE FUND TO PLEDGE ASSETS AS COLLATERAL TO THE EXTENT PERMITTED
BY THE BOARD. The Fund is prohibited from pledging more than % of its
assets as collateral for loans or other purposes. If the policy is changed to
non-fundamental, when appropriate, the Board would be able to raise or lower the
maximum percentage in order to implement investment strategies or to meet other
possible needs.
C. PERMIT THE BOARD TO CHANGE THE LIMIT ON INVESTMENTS IN ISSUERS WITH LESS
THAN THREE YEARS OF OPERATING HISTORY. The Fund may not invest more than 5% of
its assets in companies that have less than three years of operating history.
This percentage currently is set by a state law which may change in the future.
If the policy is made non-fundamental and the state changes its law, the Board
could take such action as appropriate.
D. PERMIT THE BOARD TO ESTABLISH POLICIES FOR INVESTING IN OTHER INVESTMENT
COMPANIES. The Fund is prohibited from investing in other investment companies
except by purchases in the open market where the dealer's or sponsor's profit is
the regular commission. This policy was adopted to conform to a state law. It
may be appropriate to make such investments in ways other than open market
purchases in the future if the state changes its position. If the policy is
changed to non-fundamental, the Board could react to changes by the state.
E. PERMIT THE BOARD TO ESTABLISH POLICIES WHEN THE FUND COULD MAKE AN
INVESTMENT FOR THE PURPOSE OF EXERCISING CONTROL OR MANAGING THE COMPANY. The
Fund is prohibited from making investments to control or manage a company. While
it is not the intent of the Fund to control or manage a company and it generally
is precluded from doing so by various laws, from time to time one of its
investments may experience financial difficulties. It may be in the interest of
the Fund to make an additional investment while at the same time asserting some
influence regarding management.
F. PERMIT THE BOARD TO ESTABLISH POLICIES FOR INVESTING IN OIL, GAS OR
OTHER MINERAL EXPLORATION OR DEVELOPMENT PROGRAMS. Currently, a state law
limits investments by the Fund in oil, gas or other mineral exploration or
development programs. Should the law change, the Board could establish
appropriate guidelines.
18
<PAGE>
G. PERMIT THE BOARD TO ESTABLISH RESTRICTIONS ON OWNERSHIP OF SECURITIES OF
COMPANIES WHOSE SECURITIES ARE OWNED OR MAY BE PURCHASED BY THE FUND. Under a
state law, the Fund may not purchase the securities of a company if officers,
members of the Board and IDS together own more than 5% of the securities of that
company. If the law should change, the Board could establish appropriate new
limits.
H. REVISE THE FUNDAMENTAL POLICY ON MAKING LOANS. Currently, the
Fund has a fundamental policy prohibiting it from making cash loans. It is
proposed to revise the policy to state that "THE FUND MAY MAKE CASH LOANS,
PROVIDED THAT THE TOTAL COMMITMENT AMOUNT DOES NOT EXCEED 5% OF THE FUND'S TOTAL
ASSETS." In certain circumstances the Fund may make investments, such as
purchasing short-term debt instruments from banks, that may be considered cash
loans. The Fund will not make loans to affiliated companies or to any
individual.
I. REVISE THE FUNDAMENTAL POLICY ON INVESTING IN REAL ESTATE. Currently,
the Fund has a fundamental policy that states that the Fund will not buy or sell
real estate, commodities or commodity contracts, except the Fund may enter into
futures contracts. It is proposed to separate the policy into two parts. The
commodities policy will remain unchanged. The real estate policy will be revised
as follows: "THE FUND WILL NOT BUY OR SELL REAL ESTATE, UNLESS ACQUIRED AS A
RESULT OF OWNERSHIP OF SECURITIES OR OTHER INSTRUMENTS, EXCEPT THIS SHALL NOT
PREVENT THE FUND FROM INVESTING IN SECURITIES OR OTHER INSTRUMENTS BACKED BY
REAL ESTATE OR SECURITIES OF COMPANIES ENGAGED IN THE REAL ESTATE BUSINESS." The
Fund does not expect to hold real estate directly. However, it may invest in
securities issued or guaranteed by companies engaged in acquiring, constructing,
financing, developing or operating real estate projects, including real estate
investment trusts (REITs).
RECOMMENDATION AND VOTE REQUIRED. The Board recommends that shareholders
approve the proposed changes in the Fund's fundamental policies. Approval
requires the affirmative vote of 67% or more of the shares represented at the
meeting if more than 50% are represented or more than 50% of the shares entitled
to vote, whichever is less. If the changes are not approved, the Fund will
continue to operate in accordance with its current investment policies.
(6) APPROVE OR REJECT A CHANGE IN THE FUND'S
CLASSIFICATION FROM DIVERSIFIED TO NON-DIVERSIFIED
Currently, the Fund is a diversified fund which means that the Fund may not
invest more than 5% of its total assets in the securities of any one company,
government or political subdivision, although up to 25% of the Fund's total
assets may be invested without regard to the 5% limitation. In addition, the
Fund may not purchase more than 10% of the outstanding
19
<PAGE>
voting securities of any one issuer. Because of the limited number of issuers
whose securities meet the Fund's investment objective, it has become
increasingly difficult to manage the Fund as it increases in size.
In order to provide the portfolio manager with more flexibility in investing
the Fund's assets, IDS has proposed that the Fund's classification be changed
from diversified to non-diversified. This means the Fund would not be subject to
the limitations described above, although it still would be subject to
diversification requirements under federal tax law. The Fund would be able to
concentrate its investments in the securities of only a few companies. As a
result, the Fund would have more risk than funds with broader diversification.
RECOMMENDATION AND VOTE REQUIRED. The Board recommends that shareholders
approve the proposed change in the Fund's classification. Approval requires the
affirmative vote of 67% or more of the shares represented at the meeting if more
than 50% are represented or more than 50% of the shares entitled to vote,
whichever is less. If the change is not approved, the Fund will continue to
operate as a diversified fund.
20
<PAGE>
CERTAIN INFORMATION CONCERNING IDS
IDS is the adviser or subadviser for the 42 funds in the GROUP. The size of
each fund, as of July 31, 1994, and the fee schedule for each fund under its
management agreement are shown below:
<TABLE>
<CAPTION>
Name Net Assets
- ---------------------------------------- -----------
<S> <C>
Publicly Offered Funds
(Non-Money Market):
- --------------------
Blue Chip Advantage..................... $
Bond....................................
California
Tax-Exempt............................
Discovery...............................
Diversified Equity
Income................................
Equity Plus.............................
Extra Income............................
Federal Income..........................
Global Bond.............................
Global Growth...........................
Growth..................................
High Yield..............................
Insured
Tax-Exempt............................
International...........................
Managed
Retirement............................
Massachusetts
Tax-Exempt............................
Michigan
Tax-Exempt............................
<CAPTION>
Name Net Assets
- ---------------------------------------- -----------
<S> <C>
Minnesota
Tax-Exempt............................ $
Mutual..................................
New Dimensions..........................
New York
Tax-Exempt............................
Ohio
Tax-Exempt............................
Precious Metals.........................
Progressive.............................
Selective...............................
Stock...................................
Strategy --
Aggressive Equity.....................
Equity................................
Income................................
Short-Term Income.....................
Worldwide Growth......................
Tax-Exempt Bond.........................
Utilities Income........................
</TABLE>
Life Funds Offered Only Through Annuities
(Non-Money Market):
- --------------------
<TABLE>
<S> <C>
Aggressive Growth....................... $
Capital Resource........................
International Equity.................... $
Managed.................................
Special Income..........................
</TABLE>
21
<PAGE>
Group Asset Charge
- ----------------------------------------------------------------
<TABLE>
<CAPTION>
Group Assets Annual Rate at Effective
(in billions) Each Asset Level Annual Rate
- --------------- ---------------- -----------
<S> <C> <C>
First $5 0.46% 0.46%
Next $5 0.44 0.45
Next $5 0.42 0.44
Next $5 0.40 0.43
Next $5 0.39 0.422
Next $5 0.38 0.415
Next $5 0.36 0.407
Next $5 0.35 0.40
Next $5 0.34 0.393
Next $5 0.33 0.387
Over $50 0.32
- ---------------------------------------------------
</TABLE>
Individual Asset Charge
- ----------------------------------------------------------------
(% of average daily net assets)
<TABLE>
<S> <C>
Blue Chip Advantage..................... 0.10%
Bond.................................... 0.13
California
Tax-Exempt............................. 0.13
Discovery............................... 0.23
Diversified
Equity Income.......................... 0.14
Equity Plus............................. 0.14
Extra Income............................ 0.21
Federal Income.......................... 0.13
Global Bond............................. 0.46
Global Growth........................... 0.46
Growth.................................. 0.23
High Yield.............................. 0.11
Insured Tax-Exempt...................... 0.13
International........................... 0.46
Managed Retirement...................... 0.14
Massachusetts
Tax-Exempt............................. 0.13
Michigan
Tax-Exempt............................. 0.13
Minnesota
Tax-Exempt............................. 0.13
Mutual.................................. 0.14%
New Dimensions.......................... 0.23
New York
Tax-Exempt............................. 0.13
Ohio Tax-Exempt......................... 0.13
Precious Metals......................... 0.46
Progressive............................. 0.23
Selective............................... 0.13
Stock................................... 0.14
Strategy --
Aggressive Equity..................... 0.23
Equity................................ 0.14
Income................................ 0.13
Short-Term Income..................... 0.13
Worldwide Growth...................... 0.46
Tax-Exempt Bond......................... 0.13
Utilities Income........................ 0.14
Life Aggressive Growth.................. 0.25
Life Capital Resource................... 0.25
Life International Equity............... 0.50
Life Managed............................ 0.25
Life Special Income..................... 0.25
</TABLE>
- ----------------------------------------------------------------
Money Market Funds:
- -------------------
<TABLE>
<CAPTION>
Name Net Assets
- ---------------------------------------- -----------
<S> <C>
Cash $
Planned Investment
<CAPTION>
Name Net Assets
- ---------------------------------------- -----------
<S> <C>
Tax-Free $
Life Moneyshare
</TABLE>
- ----------------------------------------------------------------
22
<PAGE>
<TABLE>
<CAPTION>
Asset Charge
(in Cash Planned
Money Market Funds billions) Tax-Free Investment Moneyshare
- ---------------------- ------------ ----------- ------------- ---------------
<S> <C> <C> <C> <C>
Cash First $1 0.34% 0.20% 0.54%
Planned Investment Next 0.5 0.32 0.18 0.52
Tax-Free Next 0.5 0.30 0.16 0.50
Life Moneyshare Next 0.5 0.28 0.14 0.48
Over 2.5 0.26 0.12 0.46
</TABLE>
IDS manages investments for its own account and has an investment advisory
agreement with a subsidiary, IDS Certificate Company ("IDSC"), a face amount
certificate company having total assets, as of July 31, 1994, of approximately
$ . The current advisory agreement between IDS and IDSC provides for a
graduated scale of fees equal on an annual basis to 0.75% of the first $250
million total book value (carrying cost) of assets of IDSC, 0.65% on the next
$250 million, 0.55% on the next $250 million, 0.50% on the next $250 million and
0.45% on the value in excess of $1 billion. Not included in this computation are
mortgages, real estate and other assets on which IDSC pays a service fee leaving
a balance of approximately $ .
IDS has advisory agreements to furnish investment advice to IDS Life
relative to investment of the six Life Funds in the GROUP described above as
well as the three additional funds listed below. The fee under each advisory
agreement is 0.25% of the Fund's average daily net assets. The size of the three
additional funds, as of July 31, 1994 is:
<TABLE>
<CAPTION>
Net Assets
--------------
<S> <C>
IDS Life Variable Annuity A $
IDS Life Variable Annuity B
IDS Life Series Fund, Inc. --
Equity Portfolio
Government Securities Portfolio
Income Portfolio
Managed Portfolio
Money Market Portfolio
</TABLE>
In addition to the charges under the advisory agreement, IDS Life Insurance
Company ("IDS Life") charges Variable Annuity Funds A and B a fee equal on an
annual basis to 1% of the average net assets for mortality and expense
assurance.
IDS is paid at a rate of 1% of the net assets for providing investment
advice to Sunrise Fund which had net assets of $ as of July 31, 1994.
23
<PAGE>
PRESIDENT AND BOARD OF DIRECTORS OF IDS. David R. Hubers is President and
Chief Executive Officer of IDS. Listed below are the names and principal
occupations of the directors of IDS as of July 31, 1994. Except as otherwise
noted below, the address of each director is IDS Tower, Minneapolis, MN 55440.
<TABLE>
<CAPTION>
Name and Address Principal Occupation
- --------------------------------------- ---------------------------------------
<S> <C>
Peter J. Anderson Sr. Vice President
Karl J. Breyer Sr. Vice President and General Counsel
James E. Choat Sr. Vice President
William H. Dudley Executive Vice President
Roger S. Edgar Sr. Vice President
Gordon L. Eid Sr. Vice President and Deputy General
Counsel
Louis C. Fornetti Sr. Vice President and Chief Financial
Officer
Harvey Golub Chairman, American Express
American Express
New York, New York
David R. Hubers President and Chief Executive Officer
Marietta L. Johns Sr. Vice President
Susan D. Kinder Sr. Vice President
Steven C. Kumagai Sr. Vice President
Peter A. Lefferts Sr. Vice President
Douglas A. Lennick Exec. Vice President
Jonathan S. Linen Vice Chairman, American Express
American Express
New York, New York
James A. Mitchell Exec. Vice President
Barry Murphy Sr. Vice President
Erven A. Samsel Sr. Vice President
R. Reed Saunders Sr. Vice President
Jeffrey E. Stiefler President, American Express
American Express
New York, New York
Fenton R. Talbot Sr. Vice President, American Express
American Express
New York, New York
John R. Thomas Sr. Vice President
Norman Weaver, Jr. Sr. Vice President
William N. Westhoff Sr. Vice President
Michael R. Woodward Sr. Vice President
</TABLE>
24
<PAGE>
IDS is a wholly owned subsidiary of American Express. American Express is a
financial services company located at American Express Tower, World Financial
Center, New York, New York.
MISCELLANEOUS
INVESTMENT DECISIONS, PORTFOLIO TRANSACTIONS AND BROKERAGE. Each investment
decision made for the Fund is made independently from any decision made for
another fund in the GROUP or other account advised by IDS or any of its
subsidiaries. On occasion the Fund and one of the other funds in the GROUP or
another client of the investment manager may simultaneously purchase or sell the
same security. In that case, IDS executes the transaction in a manner which the
Fund agrees in advance is fair. Ordinarily, the transactions of the Fund and
another fund or client of IDS will be averaged as to price and allocated as to
amount between the Fund and the other fund or client pursuant to a formula
considered equitable by the parties to the transactions. Although sharing in
large transactions may at times adversely affect the price or volume of
securities purchased or sold by the Fund, the Fund hopes to gain an overall
advantage in execution.
In selecting broker-dealers to execute transactions, IDS may consider the
price of the security, including commission or mark-up, the size and difficulty
of the order, the reliability, integrity, financial soundness and general
operation and execution capabilities of the broker, the broker's expertise in
particular markets, and research services provided by the broker.
IDS is directed to use its best efforts to obtain the best available price
and most favorable execution except where otherwise authorized by the Board. 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
that basis, consideration will be given to those firms that offer research
services. Research services may be used by IDS in providing advice to all the
funds in the GROUP or to other accounts advised by IDS and, according to IDS, it
is not possible to relate the benefits to any particular fund or account.
Research provided by brokers supplements the research activities of IDS.
Such services include economic data on, and analysis of, the 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. IDS has obtained, and in
the future may obtain, computer hardware from brokers, including but not limited
to personal computers, that will
25
<PAGE>
be used exclusively for investment decision-making purposes, which include the
research, portfolio management and trading functions and such other services to
the extent permitted under an interpretation by the SEC.
The Board also has adopted a policy authorizing IDS to compensate a broker
for research services, or for brokerage services, by paying a commission which
might not otherwise be charged or a commission in excess of that another broker
might charge to the extent authorized by law, if IDS determines, in good faith,
that the amount of 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 overall responsibilities of IDS to the funds in
the GROUP.
When paying a commission that might not otherwise be charged or a commission
in excess of the amount another broker might charge, IDS must follow procedures
authorized by the Board. To date, three procedures have been authorized. One
procedure permits IDS 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 IDS, 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 IDS, in order to obtain research and brokerage services,
to cause the Fund to pay a commission in excess of the amount another broker
might have charged. IDS has assured the Fund that under all three procedures the
amount of commission paid will be reasonable and competitive in relation to the
value of the brokerage services performed or research provided.
During the last fiscal year, the Fund paid brokerage commissions aggregating
$199,505. Substantially all firms through whom transactions were executed
provide research services. Transactions amounting to $ , on which $
in commissions were paid, were specifically directed to firms.
Certain brokerage transactions were executed through broker-dealer
affiliates of IDS as shown in the table below:
<TABLE>
<CAPTION>
Percent of
Total Value of
Percent Trades Where
Nature of Amount of of All Commissions
Broker Affiliation* Commissions Commissions Were Paid
- ------------------------- ----------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Shearson Lehman Hutton,
Inc. 1 $
American Enterprise
Investment Services
Inc. 2
<FN>
* Nature of affiliation
(1) Under common control with IDS as a subsidiary of American Express
(2) Wholly owned subsidiary of IDS.
</TABLE>
26
<PAGE>
These transactions were executed at rates determined to be reasonable and
fair as compared to the rates another broker would charge, pursuant to
procedures adopted by the Board.
OTHER BUSINESS. At this time the Board does not know of any other business
to come before the meetings. If something does come up, the proxies will use
their best judgment to vote for you on the matter.
SIMULTANEOUS MEETINGS. The regular meeting of shareholders of the Fund is
called to be held at the same time as the regular meetings of shareholders of
the other funds in the GROUP. It is anticipated that all meetings will be held
simultaneously. If any shareholder at the Fund's meeting objects to the holding
of a simultaneous meeting, the shareholder may move for an adjournment of the
Fund's meeting to a time immediately after the simultaneous meetings so that a
meeting of the Fund may be held separately. Should such a motion be made, the
persons named as proxies will take into consideration the reasons for the
objection in deciding whether to vote in favor of the adjournment.
SOLICITATION OF PROXIES. The Board is asking for your vote and for you to
return the proxy card by mail as promptly as possible. The Fund will pay the
expenses for the proxy material and the postage. Supplementary solicitations may
be made by mail, telephone, telegraph or personal contact by financial planners.
The expenses of supplementary solicitation will be paid by the Fund.
SHAREHOLDER PROPOSALS. The Fund does not hold regular meetings of
shareholders on an annual basis. Therefore, no anticipated date of the next
regular meeting can be provided. If a shareholder has a proposal which she or he
feels should be presented to all shareholders, the shareholder should send the
proposal to the President of the Fund. The proposal will be considered at a
meeting of the Board as soon as practicable. Should it be a matter which would
have to be submitted to shareholders, it will be presented at the next special
or regular meeting of shareholders. In addition, should it be a matter which the
Board deems of such significance as to require a special meeting, such a meeting
will be called.
ADJOURNMENT. In the event that sufficient votes in favor of any of the
proposals set forth in the Notice of the Meeting and Proxy Statement are not
received by the time scheduled for the meeting, the persons named as proxies may
move for one or more adjournments of the meeting for a period or periods of not
more than 60 days in the aggregate to permit further solicitation of proxies
with respect to any of the proposals. Any adjournment will require the
affirmative vote of a majority of the shares present at the meeting. The persons
named as proxies will vote in favor of adjournment those shares which they are
entitled to vote which have voted in favor of the
27
<PAGE>
proposals. They will vote against any adjournment those proxies which have voted
against any of the proposals. The costs of any additional solicitation and of
any adjourned session will be borne by the Fund.
<TABLE>
<S> <C>
By Order of the Board LESLIE L. OGG
September 17, 1994 Secretary
</TABLE>
IMPORTANT! IF YOU DO NOT INTEND TO BE AT THE MEETING IN PERSON, PLEASE FILL IN
AND SIGN THE ENCLOSED PROXY AND MAIL IT AT ONCE. A RETURN ENVELOPE IS ENCLOSED
FOR YOUR CONVENIENCE.
28
<PAGE>
IDS FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
($ THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Investments:
Bonds, notes and stocks at amortized cost -- fair value
$23,253,854........................................... $22,156,263
Other securities generally at cost -- fair value
$214,108.............................................. 191,718
Mortgage loans -- fair value $2,301,866................. 2,231,302
Cash and cash equivalents................................. 90,715
Life insurance policy and investment certificate loans.... 417,931
Accounts and notes receivable............................. 563,450
Deferred acquisition costs................................ 1,746,291
Consumer loans............................................ 296,161
Land, buildings and equipment -- less accumulated
depreciation, $103,460.................................. 213,984
Goodwill -- less accumulated amortization, $83,970........ 251,897
Other assets.............................................. 199,805
Assets held in segregated asset accounts -- primarily
common stocks at market................................. 8,991,694
-------------
$37,351,211
-------------
-------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Fixed annuity reserves.................................. $18,492,135
Life and disability insurance reserves.................. 3,169,569
Investment certificate reserves......................... 2,751,825
Career Distributors' Retirement Plan.................... 234,112
Open securities transactions............................ 299,710
Short-term borrowings................................... 302,894
Accounts payable, accrued expenses and other
liabilities........................................... 961,428
Liabilities related to segregated asset accounts........ 8,991,694
-------------
Total liabilities................................. 35,203,367
-------------
Stockholder's Equity:
Common stock -- $.01 par -- 100 shares authorized,
issued and outstanding................................ --
Additional paid-in capital.............................. 1,150,119
Net unrealized appreciation on equity securities........ 114
Retained earnings....................................... 997,611
-------------
Total stockholder's equity........................ 2,147,844
-------------
Commitments and contingencies............................. $37,351,211
-------------
-------------
</TABLE>
See accompanying notes to condensed consolidated balance sheet.
F-1
<PAGE>
IDS FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED
BALANCE SHEET
($ THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
IDS Financial Corporation (hereinafter referred to as IDS) is a wholly owned
subsidiary of American Express Company (parent).
PRINCIPLES OF CONSOLIDATION. The accompanying condensed consolidated
balance sheet is prepared in accordance with generally accepted accounting
principles. It includes the accounts of IDS and all of its subsidiaries. All
material intercompany accounts have been eliminated in consolidation.
ANNUITY ACCOUNTING. Liabilities for single premium deferred annuities and
installment annuities are accumulation values. Liabilities for fixed annuities
in benefit status are the present value of future benefits using established
industry mortality tables.
INSURANCE ACCOUNTING. Liabilities for future benefits on traditional life
and disability income and health insurance policies are generally calculated
using anticipated rates of mortality, morbidity, policy persistency and
investment yields. Liabilities for universal life-type life insurance are
accumulation values.
DEFERRED ACQUISITION COSTS. The costs of acquiring new business,
principally sales compensation, policy issue costs and underwriting, have been
deferred on annuity, life insurance and other long-term products.
For annuities, the costs are amortized in relation to surrender charge
revenue and a portion of the excess of investment income earned from investment
of contract considerations over the interest credited to contract owners. For
traditional life insurance, and disability income and health insurance policies,
the costs are amortized over an appropriate period in proportion to premium
revenue. For universal life-type insurance, the costs are amortized over the
lives of the policies as a percentage of the estimated gross profits expected to
be realized on the policies.
SEGREGATED ASSET ACCOUNTS. Assets and liabilities related to segregated
asset accounts represent funds held for the exclusive benefit of the variable
annuity and variable life insurance contract owners.
IDS makes contractual mortality assurances to the variable annuity contract
owners that the net assets of the segregated asset accounts will not be affected
by future variations in the actual life expectancy experience of the annuitants
and beneficiaries from the mortality assumptions implicit in the annuity
contracts. IDS makes periodic fund transfers to, or withdrawals from, the
segregated asset accounts for such actuarial adjustments for variable annuities
that are in the benefit payment period. IDS guarantees, for the
F-2
<PAGE>
IDS FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED
BALANCE SHEET -- CONTINUED
($ THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
variable life insurance funds, the cost of the contractual insurance rates and
that the death benefit will never be less than the death benefit at the date of
issuance.
INVESTMENT CERTIFICATES. Investment certificates entitle certificate
holders, who have either made lump-sum or installment payments, to receive a
definite sum of money at maturity. Payments from certificate holders are
credited to investment certificate reserves. Investment certificate reserves
accumulate at specified percentage rates of accumulation. For certificates that
allow for the deduction of a surrender charge, cash surrender values may be less
than accumulated investment certificate reserves prior to maturity dates.
Investment certificate reserves are maintained for advance payments by
certificate holders, additional credits granted and interest accrued on each.
The payment distribution, reserve accumulation rates, cash surrender values and
reserve values, among other matters, are governed by the Investment Company Act
of 1940.
GOODWILL. Goodwill represents the unamortized excess of cost over the
underlying fair value of the net tangible assets of IDS as of the date of
acquisition by its parent. Goodwill is being amortized on a straight-line basis
over the next 30 years.
INCOME TAXES. IDS taxable income is included in the consolidated Federal
tax return of IDS' parent. Each eligible subsidiary of IDS' parent provides for
income taxes on a separate return basis.
INVESTMENTS. Bonds and notes, mortgage-backed securities, and preferred
stocks that either must be redeemed by the issuer or may be redeemed by the
issuer at the holder's request are carried at amortized cost. The expected
maturities of these investments are, for the most part, matched with the
expected payments of fixed annuity, life and disability insurance, and
investment certificate future benefits. IDS has the ability to hold these
investments to their maturities and has the intent to hold them for the
foreseeable future. When there is a decline in value, which is other than
temporary, the investments are carried at estimated realizable value.
Marketable equity securities of IDS and its subsidiaries, other than the
life insurance subsidiary, are carried at the lower of aggregate cost or market
value. Common and nonredeemable preferred stocks of the life insurance
subsidiary are carried at market value. The net unrealized appreciation/
depreciation on such securities is included in stockholder's equity. When there
is a decline in value, which is other than temporary, the securities are carried
at estimated realizable value.
F-3
<PAGE>
IDS FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED
BALANCE SHEET -- CONTINUED
($ THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Prepayments are anticipated on certain investments in mortgage-backed
securities in determining the constant effective yield used to recognize
interest income. Prepayment estimates are based on information received from
brokerage firms which deal in mortgage-backed securities.
INTEREST RATE CAPS. IDS purchases interest rate caps as protection against
exposed interest rate positions. Cost is amortized to the expiration dates on a
straight-line basis. Benefits are recognized when realized.
MORTGAGE LOANS. Mortgage loans on real estate are carried at amortized cost
less reserve for losses. When credit and economic evaluations of the underlying
real estate indicate a loss on the loan is likely to occur, an allowance for
such loss is recorded. IDS generally stops accruing interest on loans for which
interest payments are delinquent more than three months.
The estimated fair value of the mortgage loans is determined by a discounted
cash flow analysis using mortgage interest rates currently offered for mortgages
of similar maturities.
LAND, BUILDINGS AND EQUIPMENT. Land, buildings and equipment are carried at
cost less accumulated depreciation. IDS generally utilizes the straight-line
method of computing depreciation.
2. QUALIFIED ASSETS AND ASSETS ON DEPOSIT
IDS' subsidiary, IDS Certificate Company, has issued investment certificates
to clients. The terms of the investment certificates and the provisions of the
Investment Company Act of 1940 require the maintenance of qualified assets. The
carrying value of qualified assets at December 31, 1993 aggregated $2,931,737
and exceeded legal requirements.
Under the terms of the investment certificates, the Investment Company Act
of 1940, depository agreements and the statutes of various states relating to
investment certificates, assets are required to be on deposit with the states or
authorized depositories. Investments, mortgage loans and other assets on deposit
at December 31, 1993, aggregated $2,814,974 and exceeded legal requirements.
IDS' banking subsidiaries are generally required to maintain reserve
balances with the Federal Reserve Bank, the Depository Trust Company and other
institutions. Based upon the dollar volumes and types of deposit liabilities,
the subsidiaries maintained $1,373 in reserves at December 31, 1993.
3. INVESTMENTS
Fair values of bonds and notes, mortgage-backed securities, and common and
preferred stocks represent quoted market prices where available. In
F-4
<PAGE>
IDS FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED
BALANCE SHEET -- CONTINUED
($ THOUSANDS)
3. INVESTMENTS -- CONTINUED
the absence of quoted market prices, estimated fair values are determined by
established procedures involving, among other things, review of market indices,
price levels of current offerings and comparable issues, price estimates and
market data from independent brokers.
Fair values, and gross unrealized gains and losses of bonds, notes and
stocks carried at amortized cost at December 31, 1993 were:
<TABLE>
<CAPTION>
Gross Gross
Fair Unrealized Unrealized
Cost Value Gains Losses
------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Mortgage-backed Securities $ 10,697,725 $ 10,995,052 $ 358,609 $ 61,284
Corporate Bonds and Obligations 10,373,609 11,112,009 792,684 54,282
Preferred Stocks 801,747 839,941 40,851 2,657
State and Municipal Obligations 258,447 283,010 24,602 39
U.S. Government Agency
Obligations 24,735 23,842 484 1,377
------------- ------------- ------------ -----------
Total Debt Securities $ 22,156,263 $ 23,253,854 $ 1,217,230 $ 119,639
------------- ------------- ------------ -----------
------------- ------------- ------------ -----------
</TABLE>
Contractual maturities of debt securities carried at amortized cost as of
December 31, 1993 are:
<TABLE>
<CAPTION>
Fair
Cost Value
------------- -------------
<S> <C> <C>
Due within 1 year $ 553,129 $ 558,107
Due after 1 year through 5 years 2,062,332 2,174,664
Due after five years through 10 years 6,107,705 6,581,514
Due after 10 years 2,735,372 2,944,517
------------- -------------
11,458,538 12,258,802
Mortgage-backed Securities 10,697,725 10,995,052
------------- -------------
Total Debt Securities $ 22,156,263 $ 23,253,854
------------- -------------
------------- -------------
</TABLE>
(The timing of actual receipts will differ from contractual maturities
because issuers may call or prepay obligations.)
At December 31, 1993, IDS had a valuation allowance of $114 reflecting the
net unrealized appreciation of equity securities carried at fair value at that
date. The amount is net of $160 of gross unrealized appreciation and deferred
taxes of $46.
IDS will implement, effective January 1, 1994, Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
F-5
<PAGE>
IDS FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED
BALANCE SHEET -- CONTINUED
($ THOUSANDS)
3. INVESTMENTS -- CONTINUED
and Equity Securities". Under the new rules, debt securities that IDS has both
the positive intent and ability to hold to maturity will be carried at amortized
cost. Debt securities that IDS does not have the positive intent and ability to
hold to maturity, as well as all marketable equity securities, will be
classified as available for sale or trading and carried at fair value.
Unrealized gains and losses on securities classified as available for sale will
be carried as a separate component of Shareholder's Equity. Unrealized holding
gains and losses on securities classified as trading will be reported in
earnings. The effect of the new rules will be to increase Shareholder's Equity
by approximately $200 million, net of taxes, as of January 1, 1994. The
measurement of unrealized securities gains (losses) in Shareholder's Equity is
affected by market conditions, and therefore, subject to volatility.
Other securities, at cost, include shares in affiliated mutual funds at
December 31, 1993 of $106,131. The fair value was $115,465.
Included in bonds and notes at December 31, 1993 are interest rate caps at
amortized cost of $51,733 with an estimated fair value of $21,117. These
interest rate caps carry a notional amount of $5,570,000 and expire on various
dates from 1994 to 1998.
4. SHORT-TERM BORROWINGS
IDS has lines of credit with various banks totaling $495,000, of which
$302,894 was outstanding at December 31, 1993. $75,000 of the amount outstanding
was borrowed from a related party. The weighted average interest rate on the
borrowings was 3.71 percent at December 31, 1993.
IDS has entered into an interest rate swap agreement expiring in 1999
enabling it to convert $21,000 of its variable-rate borrowings to a fixed
interest rate of 8.88 percent. IDS has estimated the cost to terminate the
agreement in the current interest rate environment at $2.0 million at December
31, 1993.
5. RETIREMENT PLANS
IDS and its subsidiaries have qualified and non-qualified pension plans
which cover all permanent employees age 21 and over and certain other employees.
Pension benefits generally depend upon length of service, compensation and other
factors. Funding of retirement costs for the qualified plan complies with the
applicable minimum funding requirements specified by the Employee Retirement
Income Security Act of 1974, as amended.
F-6
<PAGE>
IDS FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED
BALANCE SHEET -- CONTINUED
($ THOUSANDS)
5. RETIREMENT PLANS -- CONTINUED
The funded status of the plans at December 31, 1993 is set forth in the
table below:
<TABLE>
<CAPTION>
Funded Unfunded
Plan Plan
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation........................ $ (67,260) $ (2,283)
----------- -----------
----------- -----------
Projected benefit obligation for service rendered to
date................................................ (107,261) (7,003)
Fair value of plan assets, primarily invested in bonds
and equities........................................... 131,637 --
----------- -----------
Plan assets in excess of projected benefit obligation... 24,376 (7,003)
Unrecognized prior service cost being recognized over
14.2 years............................................. (1,395) 2,978
Unrecognized net gain from past experience different
from assumptions and effects of changes in
assumptions............................................ (10,266) 801
Unrecognized net asset transition being recognized over
13.7 years............................................. (10,812) --
----------- -----------
Prepaid pension cost included in other assets........... $ 1,903 $ (3,224)
----------- -----------
----------- -----------
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation of all plans was 7.25 percent. The
rate of increase in future compensation levels used in determining the actuarial
present value of the projected benefit obligation of all plans was 6.0 percent.
The weighted average expected long-term rates of return on plan assets was 9.5
percent.
The Career Distributors' Retirement Plan is an unfunded, noncontributory,
non-qualified deferred compensation plan for IDS financial planners, district
managers and division vice presidents, based on their independent contractor
earnings.
IDS sponsors defined benefit health care plans that provide health care and
life insurance benefits to employees and financial planners who retire after
having worked five years and attained age 55 while in service with IDS or its
subsidiaries. Upon retirement, annual health care premiums will be paid through
participant contributions and fixed amounts contributed by IDS based on years of
service. For employees and financial planners who retired
F-7
<PAGE>
IDS FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED
BALANCE SHEET -- CONTINUED
($ THOUSANDS)
5. RETIREMENT PLANS -- CONTINUED
prior to April, 1990, IDS contributes a percentage of their annual health care
premiums. The cost of retiree life insurance will be paid entirely by IDS. IDS
funds the cost of these benefits as they are incurred.
The accrued postretirement benefit cost included in other liabilities at
December 31, 1993 was $31,883.
The weighted average discount rates used in determining the 1993
postretirement benefit obligation was 7.25. The rate of increase in the per
capita cost of covered benefits was assumed to be 13 percent for 1994; the rate
was assumed to decrease one percent per year to seven percent in 2000 and remain
at the level thereafter. An increase in the assumed health care cost trend rates
by one percentage point, in each year, would increase the accumulated
postretirement benefit obligation as of December 31, 1993 by $1,653.
6. STOCKHOLDER'S EQUITY
Various state laws, the Investment Company Act of 1940 and terms of
investment certificates restrict the amount of dividends that the subsidiaries
may pay to IDS. The amount of net assets of subsidiaries which may be
transferred to IDS was approximately $699.
7. COMMITMENTS AND CONTINGENCIES
IDS is committed to pay aggregate minimum rentals under noncancelable leases
for office facilities and equipment in future years as follows: 1994, $57,313;
1995, $50,341; 1996, $40,737; 1997, $30,572; 1998, $24,337 and an aggregate of
$70,334 thereafter.
Life insurance in force aggregated $46.1 billion at December 31, 1993, of
which $3.0 billion was reinsured. Reinsured risks could become a liability in
the event the reinsurers become unable to meet the obligations they have
assumed.
Approved but unused consumer lines of credit aggregated $457,038 at December
31, 1993. Of the amount approved, 95 percent is in lines of $25 or less, and
less than 1 percent is in lines exceeding $100.
IDS and certain of its subsidiaries are defendants in various lawsuits. In
the opinion of management, the ultimate resolution of these lawsuits, taken in
the aggregate, will not materially affect IDS' consolidated financial position.
F-8
<PAGE>
IDS FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED
BALANCE SHEET -- CONTINUED
($ THOUSANDS)
8. CREDIT RISK CONCENTRATIONS
Concentrations of credit risk of bonds, notes and stocks at cost at December
31, 1993 were:
<TABLE>
<CAPTION>
On Balance
Sheet
-------------
<S> <C>
By Investment Grade:
Mortgage-backed Securities $ 10,697,725
Aaa/AAA 493,228
Aa/AA 288,727
Aa/A 144,222
A/A 2,619,628
A/BBB 671,159
Baa/BBB 5,182,582
Below Investment Grade 2,058,992
-------------
$ 22,156,263
-------------
-------------
</TABLE>
Mortgage-backed securities are FHLMC, FNMA and GNMA pools which are
guaranteed as to principal and interest by agencies of the U.S. Government.
Other debt securities are rated by Moody's and Standard & Poors (S&P) except for
approximately $2.4 billion which is rated by IDS' analysts using criteria
similar to Moody's and S&P. Commitments to purchase investments were $nil at
December 31, 1993.
Concentrations of credit risk of mortgage loans at December 31, 1993 were:
<TABLE>
<CAPTION>
On Balance Commitments
Region Sheet to Purchase
- ------------------------------------------ ------------ -------------
<S> <C> <C>
Mortgage Loans By Region:
North Central $ 896,174 $ 36,325
Atlantic 819,082 94,345
New England 162,227 18,130
South Central 137,707 900
Pacific 128,311 15,140
Mountain 87,801 14,600
------------ -------------
$ 2,231,302 $ 179,440
------------ -------------
------------ -------------
</TABLE>
F-9
<PAGE>
IDS FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED
BALANCE SHEET -- CONTINUED
($ THOUSANDS)
8. CREDIT RISK CONCENTRATIONS -- CONTINUED
<TABLE>
<CAPTION>
On Balance Commitments
Sheet to Purchase
------------ -------------
<S> <C> <C>
Mortgage Loans By Property Type:
Apartments $ 821,645 $ 78,560
Shopping Ctrs/Retail 705,319 67,355
Office Buildings 261,673 15,675
Industrial Buildings 253,557 9,250
Retirement Homes 85,338 1,000
Hotels/Motels 36,743 --
Medical Buildings 30,430 6,100
Residential 142 --
Other 36,455 1,500
------------ -------------
$ 2,231,302 $ 179,440
------------ -------------
------------ -------------
</TABLE>
Mortgage loans are first mortgages on real estate. IDS' underwriting policy
is that at the time of loan origination, the loan amount cannot exceed 75
percent of appraised value. If a mortgage is in default, IDS can begin
foreclosure proceedings. Commitments to purchase mortgages are made in the
ordinary course of business. The estimated fair value of the mortgage
commitments is $nil.
Concentrations of credit risk of unsecured consumer loans at December 31,
1993 were:
<TABLE>
<CAPTION>
On Balance Approved
Sheet But Unused
----------- -------------
<S> <C> <C>
Consumer Loans By Region:
North Central $ 88,790 $ 165,829
Atlantic 76,827 120,307
Pacific 51,707 80,205
South Central 34,696 38,637
New England 25,805 27,541
Mountain 18,336 24,519
----------- -------------
$ 296,161 $ 457,038
----------- -------------
----------- -------------
</TABLE>
Consumer loans have a variable rate of interest. As a result, the estimated
fair value of the consumer loans is approximated to be the carrying value. The
estimated fair value of the approved but unused lines of credit is $nil.
F-10
<PAGE>
IDS FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED
BALANCE SHEET -- CONTINUED
($ THOUSANDS)
8. CREDIT RISK CONCENTRATIONS -- CONTINUED
Included in accounts receivable at December 31, 1993 are interest and
dividends receivable on investments of $350,098 and fees receivable from
affiliated mutual funds of $25,507.
9. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following are fair values of financial instruments not presented
elsewhere in the condensed consolidated balance sheet, and methods and
assumptions that were used to estimate these fair values.
The estimated fair values for short-term financial instruments, such as cash
and cash equivalents, short-term borrowings and customers' deposits are
approximated to be the carrying amounts disclosed in the condensed consolidated
balance sheet.
The estimated fair value of fixed annuities future policy benefits is based
on the status of the annuities at December 31, 1993. The estimated fair value
for deferred annuities approximates the carrying amount less any surrender
charges and related loans. The estimated fair value for annuities in non-life
contingent payout status approximates the present value of projected benefit
payments at the rate appropriate for contracts issued in 1993. At December 31,
1993, the carrying amount and fair value of fixed annuities future policy
benefits, after excluding life insurance-related contracts carried at $913,127
was $17,579,008 and $16,881,747, respectively. The fair value is net of policy
loans of $59,132 at December 31, 1993.
The estimated fair value of investment certificate reserves is based upon a
method appropriate for each class of certificate. The estimated fair value for
investment certificates that reprice within a year approximates the carrying
value. The estimated fair value for other investment certificates is determined
by a discounted cash flow analysis using investment rates currently offered for
investment certificates of similar remaining maturities. These amounts are
reduced by applicable surrender charges and related loans. At December 31, 1993,
the estimated fair value of the investment certificate reserves was $2,694,720,
net of certificate loans of $67,429.
The estimated fair value of liabilities related to segregated asset accounts
is the carrying amount less variable insurance contracts carried at $346,276 and
surrender charges, if applicable. At December 31, 1993, the estimated fair value
of these liabilities was $8,305,209.
10. RELATED PARTY TRANSACTIONS
IDS has entered into various related party transactions with its parent and
the parent's other affiliates.
F-11
<PAGE>
IDS FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED
BALANCE SHEET -- CONTINUED
($ THOUSANDS)
10. RELATED PARTY TRANSACTIONS -- CONTINUED
IDS has a reinsurance agreement to assume a single premium life line of
business from an affiliated company. The accompanying condensed consolidated
balance sheet at December 31, 1993 includes $759,714 of liabilities for future
policy benefits related to this agreement.
IDS has a reinsurance agreement to cede 50 percent of its long-term care
insurance business to an affiliated company. The accompanying condensed
consolidated balance sheet at December 31, 1993 includes $44,086 of reinsurance
receivables related to this agreement.
IDS purchased a $35,000 five year secured note from an affiliated company.
The note bears a market interest rate, revised semi-annually, which was 8.42
percent at December 31, 1993.
Included in other liabilities is $30,420 at December 31, 1993 for federal
income taxes payable to the parent.
11. INCOME TAXES
At December 31, 1993, the life insurance subsidiary had a policyholders'
surplus account balance of $19,032. The policyholders' surplus is only taxable
if dividends to shareholders exceed the shareholders' surplus account and/or the
company is liquidated. Deferred taxes of $6,661 have not been established
because no distributions of such amounts are contemplated.
F-12
<PAGE>
DRAFT CONSENT
The Board of Directors and Shareholders
IDS Financial Corporation
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of IDS Financial Corporation at December
31, 1993, not presented separately herein, and in our report dated February 3,
1994, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet is fairly stated in all material respects
in relation to the consolidated financial statements from which it has been
derived.
Ernst & Young
Minneapolis, Minnesota
February 3, 1994
F-13
<PAGE>
EXHIBIT A
FORM OF
INVESTMENT MANAGEMENT AND SERVICES AGREEMENT
AGREEMENT made the th day of , 199 , by and between IDS Precious
Metals Fund, Inc. (the "Fund"), a Minnesota corporation, and IDS Financial
Corporation ("IDS"), a Delaware corporation.
PART ONE: INVESTMENT MANAGEMENT AND OTHER SERVICES
(1) The Fund hereby retains IDS, and IDS hereby agrees, for the period of
this Agreement and under the terms and conditions hereinafter set forth, to
furnish the Fund continuously with suggested investment planning; to determine,
consistent with the Fund's investment objectives and policies, which securities
in IDS' discretion shall be purchased, held or sold and to execute or cause the
execution of purchase or sell orders; to prepare and make available to the Fund
all necessary research and statistical data in connection therewith; to furnish
all administrative, accounting, clerical, statistical, correspondence, corporate
and all other services of whatever nature required in connection with the
management and administration of the Fund as provided under this Agreement; and
to pay such expenses as may be provided for in Part Three; subject always to the
direction and control of the Board of Directors (the "Board"), the Executive
Committee and the authorized officers of the Fund. IDS agrees to maintain an
adequate organization of competent persons to provide the services and to
perform the functions herein mentioned. IDS agrees to meet with any persons at
such times as the Board deems appropriate for the purpose of reviewing IDS'
performance under this Agreement.
(2) IDS agrees that the investment planning and investment decisions will be
in accordance with general investment policies of the Fund as disclosed to IDS
from time to time by the Fund and as set forth in its prospectuses and
registration statements filed with the United States Securities and Exchange
Commission (the "SEC").
(3) IDS agrees that it will maintain all required records, memoranda,
instructions or authorizations relating to the acquisition or disposition of
securities for the Fund.
(4) The Fund agrees that it will furnish to IDS any information that the
latter may reasonably request with respect to the services performed or to be
performed by IDS under this Agreement.
(5) IDS is authorized to select the brokers or dealers that will execute the
purchases and sales of portfolio securities for the Fund and is directed to use
its best efforts to obtain the best available price and most favorable
execution, except as prescribed herein. Subject to prior authorization by the
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<PAGE>
Fund's Board of appropriate policies and procedures, and subject to termination
at any time by the Board, IDS may also be authorized to effect individual
securities transactions at commission rates in excess of the minimum commission
rates available, to the extent authorized by law, if IDS determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or IDS' overall responsibilities
with respect to the Fund and other funds for which it acts as investment
adviser.
(6) It is understood and agreed that in furnishing the Fund with the
services as herein provided, neither IDS, 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 IDS may rely upon information furnished to it
reasonably believed to be accurate and reliable.
PART TWO: COMPENSATION TO INVESTMENT MANAGER
(1) The Fund agrees to pay to IDS, and IDS covenants and agrees to accept
from the Fund in full payment for the services furnished, a fee composed of an
asset charge and a performance incentive adjustment.
(a) The asset charge
(i) The asset charge for each calendar day of each year shall be
equal to the total of 1/365th (1/366th in each leap year) of the amount
computed in accordance with paragraph (ii) below. The computation shall
be made for each 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 asset charge 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. 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.
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<PAGE>
(ii) The asset charge shall be based on the net assets of the Fund
as set forth in the following table.
ASSET CHARGE
<TABLE>
<CAPTION>
Assets Annual Rate at
(Billions) Each Asset Level
- --------------- ----------------
<S> <C>
First $0.25 0.86%
Next 0.25 0.83
Next 0.25 0.80
Next 0.25 0.77
Next 1 0.74
Over 2 0.71
</TABLE>
(b) The performance incentive adjustment
(i) The performance incentive adjustment, determined monthly, shall
be computed by measuring the percentage point difference between the
performance of one Class A share of the Fund and the performance of the
Lipper Gold Average (the "Average"). The performance of one Class A
share of the Fund shall be measured by computing the percentage
difference, carried to two decimal places, between the opening net asset
value of one share of the Fund and the closing net asset value of such
share as of the last business day of the period selected for comparison,
adjusted for dividends or capital gain distributions treated as
reinvested at the end of the month during which the distribution was
made but without adjustment for expenses related to a particular class
of shares. The performance of the Average will then be established by
measuring the percentage difference, carried to two decimal places,
between the beginning and ending Average for the comparison period, with
dividends or capital gain distributions on the securities which comprise
the Average being treated as reinvested at the end of the month during
which the distribution was made.
(ii) In computing the adjustment, one percentage point shall be
deducted from the difference, as determined in (b)(i) above. The result
shall be converted to a decimal value (e.g., 2.38% to 0.0238),
multiplied by .01 and then multiplied by the Fund's average net assets
for the comparison period. This product next shall be divided by 12 to
put the adjustment on a monthly basis. Where the performance of the Fund
exceeds the Average, the amount so determined shall be an increase in
fees as computed under paragraph (a). Where Fund performance is exceeded
by the Average, the amount so determined shall be a decrease in such
fees. The
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<PAGE>
percentage point difference between the performance of the Fund and that
of the Average, as determined above, is limited to a maximum of 0.0012
per year.
(iii) The 12 month comparison period will roll over with each
succeeding month, so that it always equals 12 months, ending with the
month for which the performance adjustment is being computed.
(iv) If the Average ceases to be published for a period of more than
90 days, changes in any material respect or otherwise becomes
impracticable to use for purposes of the adjustment, no adjustment will
be made under this paragraph (b) until such time as the Board approves a
substitute index.
(2) The fee shall be paid on a monthly basis and, in the event of the
termination of this Agreement, the 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 fee provided for hereunder shall be paid in cash by the Fund to IDS
within five business days after the last day of each month.
PART THREE: ALLOCATION OF EXPENSES
(1) The Fund agrees to pay:
(a) Fees payable to IDS for its services under the terms of this
Agreement.
(b) Taxes.
(c) Brokerage commissions and charges in connection with the purchase
and sale of assets.
(d) Custodian fees and charges.
(e) Fees and charges of its independent certified public accountants for
services the Fund requests.
(f) Premium on the bond required by Rule 17g-1 under the Investment
Company Act of 1940.
(g) 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 against IDS, except that IDS shall reimburse the Fund for such
fees and expenses if it is ultimately determined by a court of competent
jurisdiction, or IDS 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.
(h) 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.
(i) Fees of consultants employed by the Fund.
A-4
<PAGE>
(j) 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
IDS or its affiliates.
(k) 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.
(l) Organizational expenses of the Fund.
(m) One half of the Investment Company Institute membership dues charged
jointly to the IDS MUTUAL FUND GROUP and IDS.
(n) Expenses incurred in connection with lending portfolio securities of
the Fund.
(o) Expenses properly payable by the Fund, approved by the Board.
(2) IDS agrees to pay all expenses associated with the services it provides
under the terms of this Agreement. Further, IDS 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 IDS, but excluding those expenses set forth in (1)(b) and
(1)(c) 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 (d)
through (o) of this Part Three to the extent necessary to keep the Fund's
expenses from exceeding the limitation, it being understood that IDS 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.
PART FOUR: MISCELLANEOUS
(1) IDS 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 IDS 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 IDS manages its own investments and/ or those of its
subsidiaries. IDS 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 any way affected by the fact that directors, officers,
A-5
<PAGE>
agents and/or shareholders of the Fund are or may be interested in IDS or any
successor or assignee thereof, as directors, officers, stockholders or
otherwise; that directors, officers, stockholders or agents of IDS are or may be
interested in the Fund as directors, officers, shareholders, or otherwise; or
that IDS or any successor or assignee, is or may be interested in the Fund as
shareholder or otherwise, provided, however, that neither IDS, 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 SEC.
(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) IDS agrees that no officer, director or employee of IDS 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 or employees of IDS from having a financial
interest in the Fund or in IDS.
(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 IDS, provided such transactions are handled in the capacity of
broker only and provided commissions charged do not exceed customary
brokerage charges for such services.
(c) Transactions with the Fund by a broker-dealer affiliate of IDS as
may be allowed by rule or order of the SEC, and if made pursuant to
procedures adopted by the Fund's Board.
(7) IDS agrees that, except as herein otherwise expressly provided or as may
be permitted consistent with the use of a broker-dealer affiliate of IDS 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 shares issued by the Fund) or other assets by or for the
Fund.
PART FIVE: RENEWAL AND TERMINATION
(1) This Agreement shall continue in effect until , 199 , or until a new
agreement is approved by a vote of the majority of the outstanding shares of the
Fund and by vote of the Fund's Board, including the vote required by (b) of this
paragraph, and if no new agreement is so approved, this Agreement shall continue
from year to year thereafter unless and until terminated
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<PAGE>
by either party as hereinafter provided, except that such continuance shall be
specifically approved at least annually (a) by the Board of the Fund or by a
vote of the majority of the outstanding shares of the Fund and (b) by the vote
of a majority of the 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. As used in this paragraph, the term
"interested person" shall have the same meaning as set forth in the Investment
Company Act of 1940, as amended (the "1940 Act").
(2) This Agreement may be terminated by either the Fund or IDS at any time
by giving the other party 60 days' written notice of such intention to
terminate, provided that any termination shall be made without the payment of
any penalty, and provided further that termination may be effected either by the
Board of the Fund or by a vote of the majority of the outstanding voting shares
of the Fund. The vote of the majority of the outstanding voting shares of the
Fund for the purpose of this Part Five shall be the vote at a shareholders'
regular meeting, or a special meeting duly called for the purpose, of 67% or
more of the Fund's shares present at such meeting if the holders of more than
50% of the outstanding voting shares are present or represented by proxy, or
more than 50% of the outstanding voting shares of the Fund, whichever is less.
(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 1940
Act.
IN WITNESS THEREOF, the parties hereto have executed the foregoing Agreement
as of the day and year first above written.
IDS PRECIOUS METALS FUND, INC.
By: -----------------------------
IDS FINANCIAL CORPORATION
By: -----------------------------
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<PAGE>
FORM OF PROXY CARD
VOTE THIS PROXY CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE YOUR FUND
THE EXPENSE OF ADDITIONAL MAILINGS
IDS PRECIOUS METALS FUND, INC.
PROXY/VOTING
INSTRUCTION CARD
_______________________________________________________________________________
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Leslie L. Ogg and _____________________________,
or either of them, as proxies, with full power of substitution, to represent and
to vote all of the shares of the undersigned at the regular meeting to be held
on November 9, 1994, and any adjournment thereof.
TO HAVE YOUR VOTE COUNTED, YOU MUST SIGN, DATE AND RETURN THIS PROXY. IT WILL
BE VOTED AS MARKED, OR IF NOT MARKED, WILL BE VOTED "FOR" EACH PROPOSAL.
THE BOARD RECOMMENDS A VOTE "FOR" ALL PROPOSALS.
(client name and address)
X_______________________________________
X_______________________________________
Date ____________________, 1994
Owners please sign as names appear at left. Executors, administrators,
trustees, etc., should indicate position when signing.
<PAGE>
For With- Excep-
held tion
1. Election of Board Members ( ) ( ) ( )
TO VOTE FOR ALL NOMINEES, MARK THE "FOR" BOX IN ITEM 1. TO WITHHOLD AUTHORITY
TO VOTE FOR ALL NOMINEES, MARK THE "WITHHOLD" BOX. TO WITHHOLD AUTHORITY TO
VOTE FOR ANY NOMINEE, MARK THE "EXCEPTION" BOX AND STRIKE A LINE THROUGH THE
NOMINEE'S NAME.
Twelve board members are to be elected at the meeting. The nominees are LYNNE
V. CHENEY, WILLIAM H. DUDLEY, ROBERT F. FROEHLKE, DAVID R. HUBERS, ANNE P.
JONES, DONALD M. KENDALL, MELVIN R. LAIRD, LEWIS W. LEHR, WILLIAM R. PEARCE,
EDSON W. SPENCER, JOHN R. THOMAS, WHEELOCK WHITNEY.
For Against Abstain
2. Ratification of
Independent Auditors ( ) ( ) ( )
3. Approval of New Investment
Management and
Services Agreement ( ) ( ) ( )
4. Approval of a Change in
Investment Policies to Permit
the Fund to Invest All its
Assets in Another Investment
Company ( ) ( ) ( )
5. Approval of Changes in
Fundamental Investment
Policies ( ) ( ) ( )
6. Approval of Changes in Fund's
Classification from
Diversified to Non-Diversified ( ) ( ) ( )
