SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 33 (File No. 2-93745) [X]
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Post-Effective Amendment No. 35 (File No. 811-4132) [X]
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IDS PRECIOUS METALS FUND, INC.
IDS Tower 10
Minneapolis, MN 55440-0010
Leslie L. Ogg - 901 S. Marquette Ave., Suite 2810,
Minneapolis, MN 55402-3268
(612) 330-9283
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on May 28, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
IDS
Precious Metals Fund
PROSPECTUS
May 28, 1999
IDS Precious Metals Fund seeks to provide shareholders with long-term growth of
capital.
Please note that this Fund:
o is not a bank deposit
o is not federally insured
o is not endorsed by any bank or government agency
o is not guaranteed to achieve its goal
Like all mutual funds, the Securities and Exchange Commission has not approved
or disapproved these securities or passed upon the adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
<PAGE>
Table of Contents
TAKE A CLOSER LOOK AT:
The Fund 3p
Goal 3p
Investment Strategy 3p
Risks 5p
Past Performance 8p
Fees and Expenses 10p
Management 11p
Buying and Selling Shares 11p
Valuing Fund Shares 11p
Investment Options 12p
Purchasing Shares 13p
Sales Charges 16p
Exchanging/Selling Shares 20p
Distributions and Taxes 25p
Personalized Shareholder
Information 27p
About the Company 28p
Quick Telephone Reference 30p
Financial Highlights 31p
FUND INFORMATION KEY
Goal and Investment Strategy
The Fund's particular investment goal and the strategies it intends
to use in pursuing its goal.
Risks
The major risk factors associated with the Fund.
Fees and Expenses
The overall costs incurred by an investor in the Fund, including
sales charges and annual expenses.
Management
The individual or group designated by the investment manager to
handle the Fund's day-to-day management.
Financial Highlights
Tables showing the Fund's financial performance.
<PAGE>
The Fund
GOAL
IDS Precious Metals Fund (the Fund) seeks to provide shareholders with long-term
growth of capital. Because any investment involves risk, achieving this goal
cannot be guaranteed.
INVESTMENT STRATEGY
The Fund is a non-diversified mutual fund that primarily invests in securities
of companies engaged in exploration, mining, processing or distribution of gold
and other precious metals and related minerals. The Fund also may invest
directly in such metals and minerals. Under normal market conditions, at least
65% of the Fund's total assets are invested in the precious metal industry and
at least 50% of its total assets are invested in foreign securities. The Fund
may invest up to 10% of its total assets in gold, diamonds, silver bullion,
other precious metals and minerals, other such metals occurring naturally with
such metals, securities convertible into metals, and in illiquid securities.
The selection of domestic and foreign common stocks is the primary decision in
building the investment portfolio.
In pursuit of the Fund's goal, American Express Financial Corporation (AEFC),
the Fund's investment manager, chooses equity investments by:
o Identifying companies with:
-- an interest in the precious metals industry (a company will be
considered engaged in exploration, mining, processing or distribution
of gold and other precious metals and minerals if, as determined by
AEFC, at least 50% of the company's assets, revenues, or operating
earnings are related to or derived from precious metals activities).
Many of these companies are smaller in size and operate in emerging
markets.
-- exploration potential,
-- effective management,
-- financial strength, and
-- price, cost, and reserve advantages over others in the industry.
o Anticipating market trends.
<PAGE>
In evaluating whether to sell a security, AEFC considers, among other factors,
whether:
- -- the security is overvalued,
- -- the security has reached AEFC's price objective,
- -- the company has met AEFC's earnings and/or growth expectations,
- -- political, economic, or other events could affect the company's
performance,
- -- AEFC wishes to minimize potential losses (i.e., in a market down-turn),
- -- AEFC wishes to lock-in profits, and
- -- AEFC identifies a more attractive opportunity.
Although not a primary investment strategy, the Fund also may invest in money
market securities, debt obligations (of any rating), derivative instruments
(such as options and futures contracts), convertible securities, and other
instruments. Due to the size of the Fund and the cost of hedging devices, AEFC
has not traditionally attempted to hedge against currency fluctuations.
During weak or declining markets or when growth opportunities are unavailable,
the Fund may invest more of its assets in money market securities or debt
obligations. Although the Fund primarily will invest in these securities to
avoid losses, this type of investing also could reduce the benefit from any
improvement in the precious metals market. Additionally, in the event that
economic, political, or financial conditions adverse to gold or metals
industries or the metals themselves occur, the Fund temporarily may invest over
75% of its total assets in U.S. government securities or investment-grade
short-term obligations (denominated either in foreign currencies or U.S.
dollars). During these times, AEFC may make frequent securities trades that
could result in increased fees, expenses, and taxes. The Fund is not managed
with respect to tax-efficiency.
For more information on strategies and holdings, see the Fund's Statement of
Additional Information (SAI) and the annual/semiannual reports.
<PAGE>
RISKS
This Fund is extremely volatile and is designed for investors with high risk
tolerance. Please remember that with any mutual fund investment you may lose
money. Non-diversified mutual funds, however, may have more risk than funds that
have broader diversification. Principal risks associated with an investment in
the Fund include:
Market Risk
Foreign/Emerging Markets Risk
Issuer Risk
Small Company Risk
Liquidity Risk
Event Risk
Inflation Risk
Sector/Concentration Risk
Style Risk
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry, or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
Foreign/Emerging Markets Risk
The following are all components of foreign/emerging markets risk:
Country risk includes the political, economic, and other conditions of a
country. These conditions include lack of publicly available information, less
government oversight (including lack of accounting, auditing, and financial
reporting standards), the possibility of government-imposed restrictions, and
even the nationalization of assets.
Currency risk results from the constantly changing exchange rate between local
currency and the U.S. dollar. Whenever the Fund holds securities valued in a
foreign currency or holds the currency, changes in the exchange rate add or
subtract from the value of the investment.
<PAGE>
Custody risk refers to the process of clearing and settling trades. It also
covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the standard of care of the
local market. Governments or trade groups may compel local agents to hold
securities in designated depositories that are not subject to independent
evaluation. The less developed a country's securities market is, the greater the
likelihood of problems occurring.
Emerging markets risk includes the dramatic pace of change (economic, social,
and political) in emerging market countries as well as the other considerations
listed above. These markets are in early stages of development and are extremely
volatile. They can be marked by extreme inflation, devaluation of currencies,
dependence on trade partners, and hostile relations with neighboring countries.
Issuer Risk
The risk that an issuer, or the value of its stocks or bonds, will perform
poorly. Poor performance may be caused by poor management decisions, competitive
pressures, breakthroughs in technology, reliance on suppliers, labor problems or
shortages, corporate restructurings, fraudulent disclosures, or other factors.
Small Company Risk
Investments in small and medium companies often involve greater risks than
investments in larger, more established companies because small and medium
companies may lack the management experience, financial resources, product
diversification, and competitive strengths of larger companies. In addition, in
many instances the securities of small and medium companies are traded only
over-the-counter or on regional securities exchanges and the frequency and
volume of their trading is substantially less than is typical of larger
companies.
<PAGE>
Liquidity Risk
Securities may be difficult or impossible to sell at the time that the Fund
would like. The Fund may have to lower the selling price, sell other
investments, or forego an investment opportunity.
Event Risk
Occasionally, the value of a security may be seriously and unexpectedly changed
by a natural or industrial accident or occurrence.
Inflation Risk
Also known as purchasing power risk, inflation risk measures the effects of
continually rising prices on investments. If an investment's yield is lower than
the rate of inflation, your money will have less purchasing power as time goes
on.
Sector/Concentration Risk
Investments that are concentrated in a particular issuer, geographic region, or
industry will be more susceptible to changes in price (the more you diversify,
the more you spread risk).
Style Risk
Investments related to gold and other precious metals and minerals involve
extreme risk. They are impacted by a host of world-wide economic, financial and
political factors. Prices of gold and other precious metals (and the companies
involved in the industry) may fluctuate sharply over short periods of time due
to changes in inflation or expectations regarding inflation in various
countries, the availability of supplies of these precious metals, changes in
industrial and commercial demand, exploration fraud, metal sales by governments,
and government restrictions on the private ownership of precious metals and
minerals.
<PAGE>
PAST PERFORMANCE
The following bar chart and table indicate the risks and variability of
investing in the Fund by showing:
o how the Fund's performance has varied for each full calendar year shown on
the chart below, and
o how the Fund's average annual total returns compare to other recognized
indexes.
How the Fund has performed in the past does not indicate how the Fund will
perform in the future.
<TABLE>
<CAPTION>
Class A Performance (based on calendar years)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
+17.90% -23.66% -3.71% -8.83% +80.80% -9.58% +25.31% +34.22% -49.25% -7.21%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
</TABLE>
During the period shown in the bar chart, the highest return for a calendar
quarter was +38.61% (quarter ending March 1996) and the lowest return for a
calendar quarter was -31.25% (quarter ending December 1997).
The 5% sales charge applicable to Class A shares of the Fund is not reflected in
the bar chart; if reflected, returns would be lower than those shown. The
performance of Class B and Class Y may vary from that shown above because of
differences in sales charges and fees.
The Fund's year to date return as of March 31, 1999 was -4.97%.
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Returns (as of Dec. 31, 1998)
1 year Since inception (B&Y) 5 years 10 years (A)
==========================================================================================================
Precious Metals:
<S> <C> <C> <C>
Class A -11.85% -- -7.41% -0.29%
Class B -11.63% -6.61%a -- --
Class Y -7.11% -5.04%a -- --
S&P 500 Index +28.57% +27.45%b +24.01% +18.29%
==========================================================================================================
Lipper Gold Fund Index-12.80% -15.93%b -14.29% -3.46%
==========================================================================================================
</TABLE>
a Inception date was March 20, 1995.
b Measurement period started April 1, 1995.
This table shows total returns from hypothetical investments in Class A, Class B
and Class Y shares of the Fund. These returns are compared to the indexes shown
for the same periods. The performance of Classes A, B and Y vary because of
differences in sales charges and fees. Past performance for Class Y for the
periods prior to March 20, 1995 may be calculated based on the performance of
Class A, adjusted to reflect differences in sales charges, although not for
other differences in expenses.
For purposes of this calculation we assumed:
o a sales charge of 5% for Class A shares,
o sales at the end of the period and deduction of the applicable contingent
deferred sales charge (CDSC) for Class B shares,
o no sales charge for Class Y shares,
o conversion of Class B shares to Class A shares in the ninth calendar year
of ownership, and
o no adjustments for taxes paid by an investor on the reinvested income and
capital gains.
S&P 500 Index, an unmanaged list of common stocks, is frequently used as a
general measure of market performance. The index reflects reinvestment of all
distributions and changes in market prices, but excludes brokerage commissions
or other fees.
Lipper Gold Fund Index, an unmanaged index published by Lipper Analytical
Services, Inc., includes 10 funds that are generally similar to the Fund,
although some funds in the index may have somewhat different investment policies
or objectives.
<PAGE>
FEES AND EXPENSES
Fund investors pay various expenses. The table below describes the fees and
expenses that you may pay if you buy and hold shares of the Fund.
Shareholder Fees (fees paid directly from your investment)
Class A Class B Class Y
Maximum sales charge (load) imposed on purchasesa
(as a percentage of offering price) 5% none none
Maximum deferred sales charge (load) imposed on sales
(as a percentage of offering price at time of purchase)
none 5% none
Annual Fund operating expenses (expenses that are deducted from Fund assets)
As a percentage of average daily net assets:Class A Class B Class Y
Management feesb 0.82% 0.82% 0.82%
Distribution (12b-1) fees 0.00% 0.75% 0.00%
Other expensesc 0.92% 0.97% 0.61%
Total 1.74% 2.54% 1.43%
a This charge may be reduced depending on your total investments in IDS
funds. See "Sales Charges."
b Includes the impact of a performance adjustment fee that increased the
management fee by 0.02% for the most recent fiscal year.
c Other expenses include an administrative services fee, a shareholder
services fee, a transfer agency fee and other nonadvisory expenses.
Effective Feb. 1, 1999, the transfer agency fee for Class A and Class B
increased to $19 and $20 per shareholder account, respectively. Effective
April 1, 1999, the transfer agency fee for Class Y increased to $17 per
shareholder account. The percentages above reflect these increases in
transfer agency fees.
<PAGE>
Example
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
Assume you invest $10,000 and the Fund earns a 5% annual return. The operating
expenses remain the same each year. If you hold your shares until the end of the
years shown, your costs would be:
1 year 3 years 5 years 10 years
Class Aa $668 $1,021 $1,398 $2,454
Class Bb $757 $1,191 $1,551 $2,683d
Class Bc $257 $ 791 $1,351 $2,683d
Class Y $146 $ 453 $ 783 $1,718
a Includes a 5% sales charge.
b Assumes you sold your Class B shares at the end of the period and incurred
the applicable CDSC.
c Assumes you did not sell your Class B shares at the end of the period.
d Based on conversion of Class B shares to Class A shares in the ninth year
of ownership.
This example does not represent actual expenses, past or future. Actual expenses
may be higher or lower than those shown.
MANAGEMENT
Dick Warden, portfolio manager, joined AEFC in 1962. He has managed this Fund
since 1991 and also serves as co-portfolio manager of Equity Portfolio.
Buying and Selling Shares
VALUING FUND SHARES
The public offering price for Class A is the net asset value (NAV) adjusted for
the sales charge. For Class B and Class Y, it is the NAV.
The NAV is the value of a single Fund share. The NAV usually changes daily, and
is calculated at the close of business of the New York Stock Exchange, normally
3 p.m. Central Standard Time (CST), each business day (any day the New York
Stock Exchange is open).
<PAGE>
The Fund's investments are valued based on market value, or where market
quotations are not readily available, on methods selected in good faith by the
board. Because the Fund invests in securities that are listed on foreign stock
exchanges that trade on weekends or other days when the Fund does not price its
shares, the value of the Fund's underlying investments may change on days when
you could not buy or sell shares of the Fund. Please see the SAI for further
information.
INVESTMENT OPTIONS
1. Class A shares are sold to the public with a sales charge at the time of
purchase.
2. Class B shares are sold to the public with a CDSC and an annual
distribution (12b-1) fee.
3. Class Y shares are sold to qualifying institutional investors without a
sales charge or distribution fee. Please see the SAI for information on
eligibility to purchase Class Y shares.
<TABLE>
<CAPTION>
<S> <C>
==========================================================================================================
Investment options summary:
Class A Maximum sales charge of 5%
Initial sales charge waived or reduced for certain purchases
No annual distribution fee
Service fee of 0.175% of average daily net assets
Lower annual expenses than Class B shares
- ----------------------------------------------------------------------------------------------------------
Class B No initial sales charge
CDSC on shares sold in the first six years (maximum of 5% in first year, reduced
to 0% after year six)
CDSC waived in certain circumstances
Shares convert to Class A in ninth year of ownership
Annual distribution fee of 0.75% of average daily net assets*
Service fee of 0.175% of average daily net assets
Higher annual expenses than Class A shares
- ----------------------------------------------------------------------------------------------------------
Class Y No initial sales charge
No annual distribution fee
Service fee of 0.10% of average daily net assets
Available only to certain qualifying institutional investors
- ----------------------------------------------------------------------------------------------------------
* The Fund has adopted a plan under Rule 12b-1 of the Investment Company Act of
1940 that allows it to pay distribution fees for the sale of Class B shares.
Because these fees are paid out of the Fund's assets on an on-going basis,
long-term shareholders of Class B shares may end up paying more than the 6.25%
sales charge permitted by the National Association of Securities Dealers.
</TABLE>
<PAGE>
Should you purchase Class A or Class B shares?
If your investments in IDS funds total $250,000 or more, Class A shares may be
the better option. If you qualify for a waiver of the sales charge, Class A
shares will be the best option.
If you invest less than $250,000, consider how long you plan to hold your
shares. Class B shares have an additional annual distribution fee of 0.75% and a
CDSC for six years. To help you determine what is best for you, consult your
financial advisor.
Class B shares convert to Class A shares in the ninth calendar year of
ownership. Class B shares purchased through reinvested dividends and
distributions also will convert to Class A shares in the same proportion as the
other Class B shares.
PURCHASING SHARES
If you do not have a mutual fund account, you need to establish one. Your
financial advisor will help you fill out and submit an application. Once your
account is set up, you can choose among several convenient ways to invest.
When you purchase shares for a new or existing account, your order will be
priced at the next NAV calculated after your order is accepted by the Fund. If
your application does not specify which class of shares you are purchasing, we
will assume you are investing in Class A shares.
Important: When you open an account, you must provide your correct Taxpayer
Identification Number (TIN), which is either your Social Security or Employer
Identification number.
If you do not provide the correct TIN, you could be subject to backup
withholding of 31% of taxable distributions and proceeds from certain sales and
exchanges. You also could be subject to further penalties, such as: o a $50
penalty for each failure to supply your correct TIN, o a civil penalty of $500
if you make a false statement that results in no backup withholding, and o
criminal penalties for falsifying information.
You also could be subject to backup withholding if the IRS requires us to do so
or if you failed to report required interest or dividends on your tax return.
<PAGE>
<TABLE>
<CAPTION>
How to determine the correct TIN
<S> <C>
For this type of account: Use the Social Security or Employer Identification number of:
Individual or joint account The individual or one of the individuals listed on the joint
account
Custodian account of a minor The minor
(Uniform Gifts/Transfers to Minors Act)
A living trust The grantor-trustee (the person who puts the money into the
trust)
An irrevocable trust, pension trust or estate The legal entity (not the personal representative
or trustee, unless no legal entity is designated in the account title)
Sole proprietorship The owner
Partnership The partnership
Corporate The corporation
Association, club or tax-exempt organization The organization
For details on TIN requirements, ask your financial advisor or contact your
local American Express Financial Advisors office for federal Form W-9, "Request
for Taxpayer Identification Number and Certification."
</TABLE>
Three ways to invest
1 By mail:
Once your account has been established, send your check with the
account number on it to:
American Express Financial Advisors Inc.
P.O. Box 74
Minneapolis, MN 55440-0074
Minimum amounts
Initial investment: $2,000
Additional investments: $100
Account balances: $300
Qualified accounts: none
If your account balance falls below $300, you will be asked to increase it to
$300 or establish a scheduled investment plan. If you do not do so within 30
days, your shares can be sold and the proceeds mailed to you.
<PAGE>
2 By scheduled investment plan:
Contact your financial advisor to set up one of the following scheduled plans:
o automatic payroll deduction,
o bank authorization,
o direct deposit of Social Security check, or
o other plan approved by the Fund.
Minimum amounts
Initial investment: $100
Additional investments: $50/mo. for qualified accounts; $100/mo. for
nonqualified accounts
Account balances: none (on active plans of monthly payments)
If your account falls below $2,000, you must make payments at least monthly.
3 By wire or electronic funds transfer:
If you have an established account, you may wire money to:
Norwest Bank Minnesota
Routing Transit No. 091000019
Give these instructions:
Credit American Express Financial Advisors Account #0000030015 for personal
account # (your account number) for (your name). Please remember that you need
to provide all 10 digits.
If this information is not included, the order may be rejected, and all money
received by the Fund, less any costs the Fund or American Express Client Service
Corporation (AECSC) incurs, will be returned promptly.
Minimum amounts
Each wire investment: $1,000
If you are in a wrap fee program sponsored by AEFA and your balance falls below
the required program minimum or your program is terminated, your shares will be
sold and the proceeds will be mailed to you.
<PAGE>
SALES CHARGES
Class A -- initial sales charge alternative
When you purchase Class A shares, you pay a 5% sales charge on the first $50,000
of your total investment and less on investments after the first $50,000:
Total investment Sales charge as percentage of:a
Public offering priceb Net amount invested
Up to $50,000 5.0% 5.26%
Next $50,000 4.5 4.71
Next $400,000 3.8 3.95
Next $500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
a To calculate the actual sales charge on an investment greater than $50,000 and
less than $1,000,000, you must total the amounts of all increments that apply.
b Offering price includes a 5% sales charge.
The sales charge on Class A shares may be lower than 5%, depending on the total
amount:
o you now are investing in this Fund,
o you have previously invested in this Fund, or
o you and your primary household group are investing or have invested in
other funds in the IDS MUTUAL FUND GROUP that have a sales charge. (The
primary household group consists of accounts in any ownership for spouses
or domestic partners and their unmarried children under 21. Domestic
partners are individuals who maintain a shared primary residence and have
joint property or other insurable interests.) IDS Tax-Free Money Fund and
Class A shares of IDS Cash Management Fund do not have sales charges.
Other Class A sales charge policies:
o IRA purchases or other employee benefit plan purchases made through a
payroll deduction plan or through a plan sponsored by an employer,
association of employers, employee organization or other similar group, may
be added together to reduce sales charges for all shares purchased through
that plan, and
o if you intend to invest $1 million over a period of 13 months, you can
reduce the sales charges in Class A by filing a letter of intent. For more
details, please see the SAI.
<PAGE>
Waivers of the sales charge for Class A shares
Sales charges do not apply to:
o current or retired board members, officers or employees of the Fund or AEFC
or its subsidiaries, their spouses, and unmarried children under 21.
o current or retired American Express financial advisors, their spouses, and
unmarried children under 21.
o investors who have a business relationship with a newly associated
financial advisor who joined AEFA from another investment firm provided
that (1) the purchase is made within sixmonths of the advisor's appointment
date with AEFA, (2) the purchase is made with proceeds of shares sold that
were sponsored by the financial advisor's previous broker-dealer, and (3)
the proceeds are the result of a sale of an equal or greater value where a
sales load was assessed.
o qualified employee benefit plans using a daily transfer recordkeeping
system offering participants daily access to funds of the IDS MUTUAL FUND
GROUP. Eligibility must be determined in advance by AEFA. For assistance,
please contact your financial advisor. (Participants in certain qualified
plans where the initial sales charge is waived may be subject to a deferred
sales charge of up to 4%.)
o shareholders who have at least $1 million invested in funds of the IDS
MUTUAL FUND GROUP. If the investment is sold in the first year after
purchase, a CDSC of 1% will be charged. The CDSC will be waived only in the
circumstances described for waivers for Class B shares.
o purchases made within 30 days after a sale of shares (up to the amount
sold):
-- of a product distributed by AEFA in a qualified plan subject to a
deferred sales charge, or
-- in a qualified plan or account where American Express Trust Company
has a recordkeeping, trustee, investment management, or investment
servicing relationship.
<PAGE>
Send the Fund a written request along with your payment, indicating the date and
the amount of the sale.
o purchases made:
- -- with dividend or capital gain distributions from this Fund or from the same
class of another fund in the IDS MUTUAL FUND GROUP that has a sales charge,
- -- through or under a wrap fee product sponsored by AEFA,
- -- within the University of Texas System ORP,
- -- within a segregated separate account offered by Nationwide Life Insurance
Company or Nationwide Life and Annuity Insurance Company,
- -- within the University of Massachusetts After-Tax Savings Program,
- -- with the proceeds from IDS Life Real Estate Variable Annuity surrenders, or
- -- through or under a subsidiary of AEFC offering Personal Trust Services'
Asset-Based pricing alternative.
Class B -- contingent deferred sales charge (CDSC) alternative
A CDSC is based on the sale amount and the number of calendar years -- including
the year of purchase -- between purchase and sale. The following table shows how
CDSC percentages on sales decline after a purchase:
If the sale is made during the: The CDSC percentage rate is:
First year 5%
Second year 4%
Third year 4%
Fourth year 3%
Fifth year 2%
Sixth year 1%
Seventh year 0%
If the amount you are selling causes the value of your investment in Class B
shares to fall below the cost of the shares you have purchased during the last
six years including the current year, the CDSC is based on the lower of the cost
of those shares purchased or market value.
<PAGE>
Example:
Assume you had invested $10,000 in Class B shares and that your investment had
appreciated in value to $12,000 after 15 months, including reinvested dividends
and capital gain distributions. You could sell up to $2,000 worth of shares
without paying a CDSC ($12,000 current value less $10,000 purchase amount). If
you sold $2,500 worth of shares, the CDSC would apply to the $500 representing
part of your original purchase price. The CDSC rate would be 4% because the sale
was made during the second year after the purchase.
Because the CDSC is imposed only on sales that reduce your total purchase
payments, you never have to pay a CDSC on any amount that represents
appreciation in the value of your shares, income earned by your shares or
capital gains. In addition, the CDSC rate on your sale will be based on your
oldest purchase payment. The CDSC on the next amount sold will be based on the
next oldest purchase payment.
The CDSC on Class B shares will be waived on sales of shares:
o in the event of the shareholder's death, o held in trust for an employee
benefit plan, or
o held in IRAs or certain qualified plans if American Express Trust Company
is the custodian, such as Keogh plans, tax-sheltered custodial accounts or
corporate pension plans, provided that the shareholder is:
-- at least 59 1/2 years old AND
-- taking a retirement distribution (if the sale is part of a transfer to
an IRA or qualified plan in a product distributed by AEFA, or a
custodian-to-custodian transfer to a product not distributed by AEFA,
the CDSC will not be waived) OR
-- selling under an approved substantially equal periodic payment
arrangement.
<PAGE>
EXCHANGING/SELLING SHARES
Exchanges
You can exchange your Fund shares at no charge for shares of the same class of
any other publicly offered fund in the IDS MUTUAL FUND GROUP. Exchanges into IDS
Tax-Free Money Fund may only be made from Class A shares. For complete
information on the other funds, including fees and expenses, read that fund's
prospectus carefully. Your exchange will be priced at the next NAV calculated
after it is accepted by that fund.
You may make up to three exchanges within any 30-day period, with each limited
to $300,000. These limits do not apply to scheduled exchange programs and
certain employee benefit plans or other arrangements through which one
shareholder represents the interests of several. Exceptions may be allowed with
pre-approval of the Fund.
Other exchange policies:
o Exchanges must be made into the same class of shares of the new fund.
o If your exchange creates a new account, it must satisfy the minimum
investment amount for new purchases.
o Once we receive your exchange request, you cannot cancel it.
o Shares of the new fund may not be used on the same day for another
exchange.
o If your shares are pledged as collateral, the exchange will be delayed
until AECSC receives written approval from the secured party.
AECSC and the Fund reserve the right to reject any exchange, limit the amount,
or modify or discontinue the exchange privilege, to prevent abuse or adverse
effects on the Fund and its shareholders. For example, if exchanges are too
numerous or too large, they may disrupt the Fund's investment strategies or
increase its costs.
Selling Shares
You can sell your shares at any time. AECSC will mail payment within seven days
after accepting your request.
When you sell shares, the amount you receive may be more or less than the amount
you invested. Your sale price will be the next NAV calculated after your request
is accepted by the Fund, minus any applicable CDSC.
<PAGE>
You can change your mind after requesting a sale and use all or part of the
proceeds to purchase new shares in the same account from which you sold. If you
reinvest in Class A, you will purchase the new shares at NAV rather than the
offering price on the date of a new purchase. If you reinvest in Class B, any
CDSC you paid on the amount you are reinvesting also will be reinvested. To take
advantage of this option, send a request within 30 days of the date your sale
request was received and include your account number. This privilege may be
limited or withdrawn at any time and may have tax consequences.
Requests to sell shares of the Fund are not allowed within 30 days of a
telephoned-in address change.
The Fund reserves the right to redeem in kind.
Important: If you request a sale of shares you recently purchased by a check or
money order that is not guaranteed, the Fund will wait for your check to clear.
It may take up to 10 days from the date of purchase before payment is made.
(Payment may be made earlier if your bank provides evidence satisfactory to the
Fund and AECSC that your check has cleared.)
For more details and a description of other sales policies, please see the SAI.
<PAGE>
Two ways to request an exchange or sale of shares
1 By letter:
Include in your letter:
o the name of the fund(s),
o the class of shares to be exchanged or sold,
o your mutual fund account number(s) (for exchanges, both funds must be
registered in the same ownership),
o your TIN,
o the dollar amount or number of shares you want to exchange or sell,
o signature(s) of all registered account owners,
o for sales, indicate how you want your money delivered to you, and
o any paper certificates of shares you hold.
Regular mail:
American Express Client Service Corporation
Attn: Transactions
P.O. Box 534
Minneapolis, MN 55440-0534
Express mail:
American Express Client Service Corporation
Attn: Transactions
733 Marquette Ave.
Minneapolis, MN 55402
<PAGE>
2 By telephone:
American Express Financial Advisors
Telephone Transaction Service
800-437-3133
o The Fund and AECSC will use reasonable procedures to confirm authenticity
of telephone exchange or sale requests.
o Telephone exchange and sale privileges automatically apply to all accounts
except custodial, corporate or qualified retirement accounts. You may
request that these privileges NOT apply by writing AECSC. Each registered
owner must sign the request.
o Acting on your instructions, your financial advisor may conduct telephone
transactions on your behalf.
o Telephone privileges may be modified or discontinued at any time.
Minimum sale amount: $100 Maximum sale amount: $50,000
<PAGE>
Three ways to receive payment when you sell shares
1 By regular or express mail:
o Mailed to the address on record.
o Payable to names listed on the account.
NOTE: The express mail delivery charges you pay
will vary depending on the courier you select.
2 By wire or electronic funds transfer:
o Minimum wire: $1,000.
o Request that money be wired to your bank.
o Bank account must be in the same ownership as the IDS fund account.
NOTE: Pre-authorization required. For instructions,
contact your financial advisor or AECSC.
3 By scheduled payout plan:
o Minimum payment: $50.
o Contact your financial advisor or AECSC
to set up regular payments on a monthly,
bimonthly, quarterly, semiannual or annual basis.
o Purchasing new shares while under a payout
plan may be disadvantageous because of the sales charges.
<PAGE>
Distributions and Taxes
As a shareholder you are entitled to your share of the Fund's net income and net
gains. The Fund distributes dividends and capital gains to qualify as a
regulated investment company and to avoid paying corporate income and excise
taxes.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTION
The Fund's net investment income is distributed to you as dividends. Capital
gains are realized when a security is sold for a higher price than was paid for
it. Net short-term capital gains are included in net investment income.
Long-term capital gains are realized when a security is held for more than one
year. The Fund offsets any net realized capital gains by any available capital
loss carryovers. Net realized long-term capital gains, if any, are distributed
by the end of the calendar year as capital gain distributions.
REINVESTMENTS
Dividends and capital gain distributions are automatically reinvested in
additional shares in the same class of the Fund, unless:
o you request distributions in cash, or
o you direct the Fund to invest your distributions in the same class of any
publicly offered fund in the IDS MUTUAL FUND GROUP for which you have
previously opened an account.
We reinvest the distributions for you at the next calculated NAV after the
distribution is paid.
If you choose cash distributions, you will receive cash only for distributions
declared after your request has been processed.
<PAGE>
TAXES
Distributions are subject to federal income tax and may be subject to state and
local taxes in the year they are declared. You must report distributions on your
tax returns, even if they are reinvested in additional shares.
Income received by the Fund may be subject to foreign tax and withholding. Tax
conventions between certain countries and the U.S. may reduce or eliminate these
taxes. You may be entitled to claim foreign tax credits or deductions subject to
provisions and limitations of the Internal Revenue Code.
If you buy shares shortly before a distribution you will pay taxes on money
earned by the Fund before you were a shareholder. You pay the full
pre-distribution price for the shares, then receive a portion of your investment
back as a distribution, which is taxable.
For tax purposes, an exchange is considered a sale and purchase, and may result
in a gain or loss. A sale is a taxable transaction. If you sell shares for more
than their cost, the difference is a capital gain. Your gain may be short term
(for shares held for one year or less) or long term (for shares held for more
than one year). If you sell shares for less than their cost, the difference is a
capital loss. If you buy Class A shares of this or another fund in the IDS
MUTUAL FUND GROUP and within 91 days exchange into this Fund, you may not
include the sales charge in your calculation of tax gain or loss on the sale of
the first fund you purchased. The sales charge may be included in the
calculation of your tax gain or loss on a subsequent sale.
Selling shares held in an IRA or qualified retirement account may subject you to
federal taxes, penalties and reporting requirements. Please consult your tax
advisor.
Important: This information is a brief and selective summary of some of the tax
rules that apply to this Fund. Because tax matters are highly individual and
complex, you should consult a qualified tax advisor.
<PAGE>
Personalized Shareholder Information
To help you track and evaluate the performance of your investments, AECSC
provides these individualized reports:
QUARTERLY STATEMENTS
List your holdings and transactions during the previous three months, as well as
individualized return information.
YEARLY TAX STATEMENTS
Feature average-cost-basis reporting of capital gains or losses if you sell your
shares, along with distribution information to simplify tax calculations.
PERSONALIZED MUTUAL FUND PROGRESS REPORTS
Detail returns on your initial investment and cash-flow activity in your
account. This report calculates a total return reflecting your individual
history in owning Fund shares and is available from your financial advisor.
<PAGE>
<TABLE>
<CAPTION>
About the Company
BUSINESS STRUCTURE
<S> <C> <C> <C>
---------------------
Shareholders
---------------------
---------------------
Your American
Express financial
advisor and other
servicing agents
May receive a fee
for their sales
efforts and ongoing
service.
---------------------
- ----------------------- --------------------- --------------------- ---------------------
Transfer Agent: Administrative Distributor and
American Express Services Agent: Shareholder
Client Service American Express Services Agent:
Corporation Financial American Express
Corporation Financial Advisors
Maintains shareholder
accounts and records Provides <- -> Markets and
for the Fund; administrative and distributes shares;
receives a fee based accounting services receives portion of
on the number of for the Fund; sales charge or
accounts it services. receives a fee CDSC and
based on assets. The Fund distribution fee.
Also provides a
variety of ongoing
shareholder
services.
- ----------------------- --------------------- ---------------------
--------------------- ---------------------
Investment Manager: Custodian:
American Express American Express
Financial Trust Company
Corporation
Provides
Manages the Fund's <- -> safekeeping of
investments and assets; receives a
receives a fee fee that varies
based on average based on the number
daily net assets.* of securities held.
--------------------- --------------------- ---------------------
* The Fund pays AEFC a fee for managing its assets. Under the Investment
Management Services Agreement, the fee for the most recent fiscal year was 0.82%
of its average daily net assets. Under the Agreement, the Fund also pays taxes,
brokerage commissions and nonadvisory expenses.
</TABLE>
<PAGE>
AMERICAN EXPRESS FINANCIAL CORPORATION
AEFC has been a provider of financial services since 1894. Its family of
companies offers not only mutual funds but also insurance, annuities, investment
certificates and a broad range of financial management services.
In addition to managing assets of more than $87 billion for all funds in the IDS
MUTUAL FUND GROUP, AEFC manages investments for itself and its subsidiaries, IDS
Certificate Company and IDS Life Insurance Company. Total assets under
management as of the end of the most recent fiscal year were more than $219
billion.
AEFA serves individuals and businesses through its nationwide network of more
than 180 offices and more than 9,200 advisors.
AEFC, located at IDS Tower 10, Minneapolis, MN 55440-0010, is a wholly-owned
subsidiary of American Express Company, a financial services company with
headquarters at American Express Tower, World Financial Center, New York, NY
10285.
YEAR 2000
The Fund could be adversely affected if the computer systems used by AEFC and
the Fund's other service providers do not properly process and calculate
date-related information from and after Jan. 1, 2000.
While Year 2000-related computer problems could have a negative effect on the
Fund, AEFC is working to avoid such problems and to obtain assurances from
service providers that they are taking similar steps. The companies or
governments in which the Fund invests also may be adversely affected by Year
2000 issues.
<PAGE>
Quick Telephone Reference
AMERICAN EXPRESS FINANCIAL ADVISORS TELEPHONE TRANSACTION SERVICE
Sales and exchanges, dividend payments or reinvestments and automatic payment
arrangements: 800-437-3133
AMERICAN EXPRESS CLIENT SERVICE CORPORATION
Fund performance, fund prices, account values, recent account transactions and
account inquiries: 800-862-7919
TTY SERVICE
For the hearing impaired: 800-846-4852
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
Fiscal period ended March 31,
==========================================================================================================
Per share income and capital changesa
Class A
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $6.82 $10.47 $13.75 $7.99 $8.44
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.01) -- (.08) (.05) .04
Net gains (losses) (both realized and unrealized) (1.31) (3.46) (2.54) 5.82 (.45)
- ----------------------------------------------------------------------------------------------------------
Total from investment operations (1.32) (3.46) (2.62) 5.77 (.41)
Less distributions:
Dividends from net investment income (.05) (.08) -- (.01) (.04)
Distributions from realized gains -- (.11) (.66) -- --
- ----------------------------------------------------------------------------------------------------------
Total distributions (.05) (.19) (.66) (.01) (.04)
Net asset value, end of period $5.45 $6.82 $10.47 $13.75 $7.99
==========================================================================================================
Ratios/supplemental data
Class A
1999 1998 1997 1996 1995
Net assets, end of period
--------
<S> <C> <C> <C> <C> <C>
(in millions) ....................... $ 51 $ 61 $ 83 $ 101 $ 72
Ratio of expenses to
average daily net assetsb ........... 1.66% 1.51% 1.50% 1.65% 1.61%
Ratio of net investment income (loss)
to average daily net assets ......... (.20%) .06% (.58%) (.64%) .31%
Portfolio turnover rate
(excluding short-term securities) ... 44% 112% 76% 50% 37%
Total returnc ....................... (19.40%) (32.87%) (19.91%) 72.10% (4.89%)
--------
</TABLE>
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Effective fiscal year 1996, expense ratio is based on total expenses of the
Fund before reduction of earnings credits on cash balances.
c Total return does not reflect payment of a sales charge.
<PAGE>
<TABLE>
<CAPTION>
Fiscal period ended March 31,
==========================================================================================================
Per share income and capital changesa
Class B Class Y
1999 1998 1997 1996 1995b 1999 1998 1997 1996 1995b
Net asset value,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
beginning of period $6.73 $10.30 $13.65 $7.99 $7.72 $6.80 $10.52 $13.76 $7.99 $7.62
Income from investment operations:
Net investment income (loss) (.05) (.04) (.14) (.09) .01 (.01) .03 (.05) (.04) --
Net gains (losses) (both
realized and unrealized) (1.29) (3.41) (2.55) 5.75 .26 (1.30) (3.52) (2.53) 5.81 .37
Total from investment operations (1.34) (3.45) (2.69) 5.66 .27 (1.31) (3.49) (2.58) 5.77 .37
Less distributions:
Dividends from net
investment income (.01) (.01) -- -- -- (.06) (.12) -- -- --
Distributions from realized gains -- (.11) (.66) -- -- -- (.11) (.66) -- --
Total distributions (.01) (.12) (.66) -- -- (.06) (.23) (.66) -- --
Net asset value, end of period $5.38 $6.73 $10.30 $13.65 $7.99 $5.43 $6.80 $10.52 $13.76 $7.99
Ratios/supplemental data
Class B Class Y
1999 1998 1997 1996 1995b 1999 1998 1997 1996 1995b
Net assets, end of period
(in millions) $8 $9 $8 $3 $-- $-- $-- $-- $-- $--
Ratio of expenses to
average daily net assetsc 2.46% 2.28% 2.27% 2.31% .08%e 1.38% 1.26% 1.27% 1.39% --%f
Ratio of net investment income
(loss) to average daily net assets (.97%) (.74%)(1.46%)(1.18%) .28%e .01% .36% (.33%) (.43%) --%f
Portfolio turnover rate (excluding
short-term securities) 44% 112% 76% 50% 37% 44% 112% 76% 50% 37%
Total returnd (20.02%)(33.41%)(20.52%)70.80% 3.50% (19.31%)(32.79%)(19.75%)72.30% 4.94%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Inception date was March 20, 1995.
c Effective fiscal year 1996, expense ratio is based on total expenses of the
Fund before reduction of earnings credits on cash balances.
d Total return does not reflect payment of a sales charge.
e Adjusted to an annual basis.
f Ratio of expenses and net investment income to average daily net assets is
not presented for Class Y as only three shares were outstanding during the
period.
The information in these tables has been audited by KPMG Peat Marwick LLP,
independent auditors. The independent auditors' report and additional
information about the performance of the Fund are contained in the Fund's annual
report which, if not included with this prospectus, may be obtained without
charge.
<PAGE>
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<PAGE>
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<PAGE>
AMERICAN
EXPRESS
Financial
Advisors
This Fund, along with the other funds in the IDS MUTUAL FUND GROUP, is
distributed by American Express Financial Advisors Inc. and can be found under
the "Amer Express" banner in most mutual fund quotations.
Additional information about the Fund and its investments is available in the
Fund's SAI, annual and semi-annual reports to shareholders. In the Fund's annual
report, you will find a discussion of market conditions and investment
strategies that significantly affected the Fund during its last fiscal year. The
SAI is incorporated by reference in this prospectus. For a free copy of the SAI,
the annual report or the semi-annual report contact American Express Client
Service Corporation.
American Express Client Service Corporation
P.O. Box 534, Minneapolis, MN 55440-0534
800-862-7919 TTY: 800-846-4852
Web site address:
http://www.americanexpress.com/advisors
You may review and copy information about the Fund, including the SAI, at the
Securities and Exchange Commission's (Commission) Public Reference Room in
Washington, D.C. (for information about the public reference room call
1-800-SEC-0330). Reports and other information about the Fund are available on
the Commission's Internet site at http://www.sec.gov. Copies of this information
may be obtained by writing and paying a duplicating fee to the Public Reference
Section of the Commission, Washington, D.C.
20549-6009.
Investment Company Act File #811-4132
TICKER SYMBOL
Class A: INPMX Class B: INPBX Class Y: N/A
S-6142-99 N (5/99)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FOR
IDS PRECIOUS METALS FUND (the Fund)
May 28, 1999
This Statement of Additional Information (SAI) is not a prospectus. It should be
read together with the prospectus and the financial statements contained in the
most recent Annual Report to shareholders (Annual Report) that may be obtained
from your American Express financial advisor or by writing to American Express
Shareholder Service, P.O. Box 534, Minneapolis, MN 55440-0534 or by calling
800-862-7919.
The Independent Auditors' Report and the Financial Statements, including Notes
to the Financial Statements and the Schedule of Investments in Securities,
contained in the Annual Report are incorporated in this SAI by reference. No
other portion of the Annual Report, however, is incorporated by reference. The
prospectus for the Fund, dated the same date as this SAI, also is incorporated
in this SAI by reference.
<PAGE>
TABLE OF CONTENTS
Mutual Fund Checklist..........................................p. 3
Fundamental Investment Policies................................p. 5
Investment Strategies and Types of Investments.................p. 7
Information Regarding Risks and Investment Strategies..........p. 9
Security Transactions.........................................p. 31
Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation........................p. 33
Performance Information.......................................p. 34
Valuing Fund Shares...........................................p. 35
Investing in the Fund.........................................p. 36
Selling Shares................................................p. 39
Pay-out Plans.................................................p. 40
Capital Loss Carryover........................................p. 41
Taxes.........................................................p. 41
Agreements....................................................p. 43
Organizational Information....................................p. 46
Board Members and Officers....................................p. 48
Compensation for Board Members................................p. 51
Independent Auditors..........................................p. 51
Appendix: Description of Ratings..............................p. 52
<PAGE>
MUTUAL FUND CHECKLIST
|X| Mutual funds are NOT guaranteed or insured by any
bank or government agency. You can lose money.
|X| Mutual funds ALWAYS carry investment risks. Some
types carry more risk than others.
|X| A higher rate of return typically involves a
higher risk of loss.
|X| Past performance is not a reliable indicator of
future performance.
|X| ALL mutual funds have costs that lower investment
return.
|X| You can buy some mutual funds by contacting them
directly. Others, like this one, are sold mainly
through brokers, banks, financial planners, or
insurance agents. If you buy through these
financial professionals, you generally will pay a
sales charge.
|X| Shop around. Compare a mutual fund with others of
the same type before you buy.
OTHER IDEAS FOR SUCCESSFUL MUTUAL FUND INVESTING:
Develop a Financial Plan
Have a plan - even a simple plan can help you take control of your financial
future. Review your plan with your advisor at least once a year or more
frequently if your circumstances change.
Dollar-Cost Averaging
An investment technique that works well for many investors is one that
eliminates random buy and sell decisions. One such system is dollar-cost
averaging. Dollar-cost averaging involves building a portfolio through the
investment of fixed amounts of money on a regular basis regardless of the price
or market condition. This may enable an investor to smooth out the effects of
the volatility of the financial markets. By using this strategy, more shares
will be purchased when the price is low and less when the price is high. As the
accompanying chart illustrates, dollar-cost averaging tends to keep the average
price paid for the shares lower than the average market price of shares
purchased, although there is no guarantee.
While this does not ensure a profit and does not protect against a loss if the
market declines, it is an effective way for many shareholders who can continue
investing through changing market conditions to accumulate shares to meet
long-term goals.
<PAGE>
Dollar-cost averaging:
- -------------------------------------------------------------
Regular Market Price Shares
Investment of a Share Acquired
- -------------------------------------------------------------
$100 $6.00 16.7
100 4.00 25.0
100 4.00 25.0
100 6.00 16.7
100 5.00 20.0
----- -------- ------
$500 $25.00 103.4
Average market price of a share over 5 periods: $5.00 ($25.00 divided by 5)
The average price you paid for each share: $4.84 ($500 divided by 103.4)
Diversify
Diversify your portfolio. By investing in different asset classes and different
economic environments you help protect against poor performance in one type of
investment while including investments most likely to help you achieve your
important goals.
Understand Your Investment
Know what you are buying. Make sure you understand the potential risks, rewards,
costs, and expenses associated with each of your investments.
<PAGE>
FUNDAMENTAL INVESTMENT POLICIES
Fundamental investment policies adopted by the Fund cannot be changed without
the approval of a majority of the outstanding voting securities of the Fund as
defined in the Investment Company Act of 1940, as amended (the 1940 Act).
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.
The policies below are fundamental policies that apply to the Fund and may be
changed only with shareholder approval. Unless holders of a majority of the
outstanding voting securities agree to make the change, the Fund will not:
o Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it
purchases securities directly from the issuer and later resells them.
o Borrow money or property, except as a temporary measure for extraordinary
or emergency purposes, in an amount not exceeding one-third of the market
value of its total assets (including borrowings) less liabilities (other
than borrowings) immediately after the borrowing.
o Make cash loans if the total commitment amount exceeds 5% of the Fund's
total assets.
o 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 or real estate
investment trusts. For purposes of this policy, real estate includes real
estate limited partnerships.
<PAGE>
o Buy or sell physical commodities unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent the Fund
from buying or selling options and future contracts or from investing in
securities or other instruments backed by, or whose value is derived from,
physical commodities. Additionally, the Fund may purchase gold, silver or
other precious metals, strategic metals or other metals occurring naturally
with such metals.
o Make a loan of any part of its assets to American Express Financial
Corporation (AEFC), to the board members and officers of AEFC or to its own
board members and officers.
o Purchase securities of an issuer if the board members and officers of the
Fund and of AEFC hold more than a certain percentage of the issuer's
outstanding securities. If the holdings of all board members and officers
of the Fund and of AEFC who own more than 0.5% of an issuer's securities
are added together, and if in total they own more than 5%, the Fund will
not purchase securities of that issuer.
o Lend Fund securities in excess of 30% of its net assets.
o Issue senior securities, except to the extent that borrowing from banks or
the use of options or futures contracts (as discussed elsewhere in the SAI)
may be deemed to constitute the issuance of a senior security.
o Invest less than 25% of its total assets in the precious metals industry,
based on current market value at the time of purchase, unless market
conditions temporarily require a defensive investment strategy.
Except for the fundamental investment policies listed above, the other
investment policies described in the prospectus and in this SAI are not
fundamental and may be changed by the board at any time.
<PAGE>
INVESTMENT STRATEGIES AND TYPES OF INVESTMENTS
This table shows various investment strategies and investments that many funds
are allowed to engage in and purchase. It also lists certain percentage
guidelines that are generally followed by the Fund's investment manager. This
table is intended to show the breadth of investments that the investment manager
may make on behalf of the Fund. For a description of principal risks, please see
the prospectus. Notwithstanding the Fund's ability to utilize these strategies
and techniques, the investment manager is not obligated to use them at any
particular time. For example, even though the investment manager is authorized
to adopt temporary defensive positions and is authorized to attempt to hedge
against certain types of risk, these practices are left to the investment
manager's sole discretion.
- -----------------------------------------------------------------------------
Investment strategies & types of investments: IDS Precious Metals
Allowable for the Fund?
- -----------------------------------------------------------------------------
Agency and Government Securities yes
- -----------------------------------------------------------------------------
Borrowing yes
- -----------------------------------------------------------------------------
Cash/Money Market Instruments yes
- -----------------------------------------------------------------------------
Collateralized Bond Obligations yes
- -----------------------------------------------------------------------------
Commercial Paper yes
- -----------------------------------------------------------------------------
Common Stock yes
- -----------------------------------------------------------------------------
Convertible Securities yes
- -----------------------------------------------------------------------------
Corporate Bonds yes
- -----------------------------------------------------------------------------
Debt Obligations yes
- -----------------------------------------------------------------------------
Depositary Receipts yes
- -----------------------------------------------------------------------------
Derivative Instruments yes
- -----------------------------------------------------------------------------
Foreign Currency Transactions yes
- -----------------------------------------------------------------------------
Foreign Securities yes
- -----------------------------------------------------------------------------
High-Yield (High-Risk) Securities (Junk Bonds) yes
- -----------------------------------------------------------------------------
Illiquid and Restricted Securities yes
- -----------------------------------------------------------------------------
Indexed Securities yes
- -----------------------------------------------------------------------------
Inverse Floaters no
- -----------------------------------------------------------------------------
Investment Companies yes
- -----------------------------------------------------------------------------
Lending of Portfolio Securities yes
- -----------------------------------------------------------------------------
Loan Participations yes
- -----------------------------------------------------------------------------
Mortgage- and Asset-Backed Securities yes
- -----------------------------------------------------------------------------
Mortgage Dollar Rolls no
- -----------------------------------------------------------------------------
Municipal Obligations yes
- -----------------------------------------------------------------------------
Preferred Stock yes
- -----------------------------------------------------------------------------
Real Estate Investment Trusts yes
- -----------------------------------------------------------------------------
Repurchase Agreements yes
- -----------------------------------------------------------------------------
Reverse Repurchase Agreements yes
- -----------------------------------------------------------------------------
Short Sales no
- -----------------------------------------------------------------------------
Sovereign Debt yes
- -----------------------------------------------------------------------------
Structured Products yes
- -----------------------------------------------------------------------------
Variable- or Floating-Rate Securities yes
- -----------------------------------------------------------------------------
Warrants yes
- -----------------------------------------------------------------------------
When-Issued Securities yes
- -----------------------------------------------------------------------------
Zero-Coupon, Step-Coupon, and Pay-in-Kind Securities yes
- -----------------------------------------------------------------------------
<PAGE>
The following are guidelines that may be changed by the board at any time:
o In the event economic, political or financial conditions adverse to gold or
metals industries or the metals themselves occur, the Fund temporarily may
invest over 75% of its total assets in U.S. government securities or
investment-grade short-term obligations (denominated either in foreign
currencies or U.S. dollars).
o The Fund may invest up to 10% of its total assets in gold and silver
bullion, other precious metals, strategic metals and other metals occurring
naturally with such metals and securities convertible into metals. The Fund
will invest only in metals and securities convertible into metals that are
readily marketable.
o The Fund will not invest more than 5% of its net assets in bonds below
investment grade. Securities that are subsequently downgraded in quality
may continue to be held and will be sold only when the investment manager
believes it is advantageous to do so.
o Under normal market conditions, the Fund intends to invest at least 50% of
its total assets in foreign investments.
o No more than 5% of the Fund's net assets can be used at any one time for
good faith deposits on futures and premiums for options on futures that do
not offset existing investment positions.
o No more than 10% of the Fund's net assets will be held in securities and
other instruments that are illiquid.
o Ordinarily, less than 25% of the Fund's total assets are invested in money
market instruments.
o The Fund will not buy on margin or sell short, except the Fund may make
margin payments in connection with transactions in stock index futures
contracts.
o The Fund will not invest more than 10% of its assets in securities of
investment companies.
o The Fund will not invest in a company to control or manage it.
o Under normal market conditions, the Fund does not intend to commit more
than 5% of its total assets to when-issued securities or forward
commitments.
o The Fund may maintain a portion of its assets in the form of cash in the
currencies of countries other than the U.S., Canada and the United Kingdom.
This could occur because of a distribution from a foreign issuer, or it may
be done in connection with the purchase or sale of foreign securities.
o 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.
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INFORMATION REGARDING RISKS AND INVESTMENT STRATEGIES
RISKS
The following is a summary of common risk characteristics. Following this
summary is a description of certain investments and investment strategies and
the risks most commonly associated with them (including certain risks not
described below and, in some cases, a more comprehensive discussion of how the
risks apply to a particular investment or investment strategy). Please remember
that a mutual fund's risk profile is largely defined by the fund's primary
securities and investment strategies. However, most mutual funds are allowed to
use certain other strategies and investments that may have different risk
characteristics. Accordingly, one or more of the following types of risk will be
associated with the Fund at any time (for a description of principal risks,
please see the prospectus):
Call/Prepayment Risk
The risk that a bond or other security might be called (or otherwise converted,
prepaid, or redeemed) before maturity. This type of risk is closely related to
"reinvestment risk."
Credit Risk
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise become unable to honor a financial obligation (such as
payments due on a bond or a note). The price of junk bonds may react more to the
ability of the issuing company to pay interest and principal when due than to
changes in interest rates. They have greater price fluctuations and are more
likely to experience a default.
Event Risk
Occasionally, the value of a security may be seriously and unexpectedly changed
by a natural or industrial accident or occurrence.
Foreign/Emerging Markets Risk
The following are all components of foreign/emerging markets risk:
Country risk includes the political, economic, and other conditions of
a country. These conditions include lack of publicly available information, less
government oversight (including lack of accounting, auditing, and financial
reporting standards), the possibility of government-imposed restrictions, and
even the nationalization of assets.
Currency risk results from the constantly changing exchange rate
between local currency and the U.S. dollar. Whenever the Fund holds securities
valued in a foreign currency or holds the currency, changes in the exchange rate
add or subtract from the value of the investment.
Custody risk refers to the process of clearing and settling trades. It
also covers holding securities with local agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the standard of care of the
local market. Governments or trade groups may compel local agents to hold
securities in designated depositories that are not subject to independent
evaluation. The less developed a country's securities market is, the greater the
likelihood of problems occurring.
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Emerging markets risk includes the dramatic pace of change (economic,
social, and political) in emerging market countries as well as the other
considerations listed above. These markets are in early stages of development
and are extremely volatile. They can be marked by extreme inflation, devaluation
of currencies, dependence on trade partners, and hostile relations with
neighboring countries.
Inflation Risk
Also known as purchasing power risk, inflation risk measures the effects of
continually rising prices on investments. If an investment's yield is lower than
the rate of inflation, your money will have less purchasing power as time goes
on.
Interest Rate Risk
The risk of losses attributable to changes in interest rates. This term is
generally associated with bond prices (when interest rates rise, bond prices
fall).
Issuer Risk
The risk that an issuer, or the value of its stocks or bonds, will perform
poorly. Poor performance may be caused by poor management decisions, competitive
pressures, breakthroughs in technology, reliance on suppliers, labor problems or
shortages, corporate restructurings, fraudulent disclosures, or other factors.
Legal/Legislative Risk
Congress and other governmental units have the power to change existing laws
affecting securities. A change in law might affect an investment adversely.
Leverage Risk
Some derivative investments (such as options, futures, or options on futures)
require little or no initial payment and base their price on a security, a
currency, or an index. A small change in the value of the underlying security,
currency, or index may cause a sizable gain or loss in the price of the
instrument.
Liquidity Risk
Securities may be difficult or impossible to sell at the time that the Fund
would like. The Fund may have to lower the selling price, sell other
investments, or forego an investment opportunity.
Management Risk
The risk that a strategy or selection method utilized by the investment manager
may fail to produce the intended result. When all other factors have been
accounted for and the investment manager chooses an investment, there is always
the possibility that the choice will be a poor one.
Market Risk
The market may drop and you may lose money. Market risk may affect a single
issuer, sector of the economy, industry, or the market as a whole. The market
value of all securities may move up and down, sometimes rapidly and
unpredictably.
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Reinvestment Risk
The risk that an investor will not be able to reinvest their income or principal
at the same rate as it currently is earning.
Sector/Concentration Risk
Investments that are concentrated in a particular issuer, geographic region, or
industry will be more susceptible to changes in price (the more you diversify,
the more you spread risk).
Small Company Risk
Investments in small and medium companies often involve greater risks than
investments in larger, more established companies because small and medium
companies may lack the management experience, financial resources, product
diversification, and competitive strengths of larger companies. In addition, in
many instances the securities of small and medium companies are traded only
over-the-counter or on regional securities exchanges and the frequency and
volume of their trading is substantially less than is typical of larger
companies.
<PAGE>
INVESTMENT STRATEGIES
The following information supplements the discussion of the Fund's investment
objectives, policies, and strategies that are described in the prospectus and in
this SAI. The following describes many strategies that many mutual funds use and
types of securities that they purchase. Please refer to the section entitled
Investment Strategies and Types of Investments to see which are applicable to
the Fund.
Agency and Government Securities
The U.S. government and its agencies issue many different types of securities.
U.S. Treasury bonds, notes, and bills and securities including mortgage pass
through certificates of the Government National Mortgage Association (GNMA) are
guaranteed by the U.S. government. Other U.S. government securities are issued
or guaranteed by federal agencies or government-sponsored enterprises but are
not guaranteed by the U.S. government. This may increase the credit risk
associated with these investments.
Government-sponsored entities issuing securities include privately owned,
publicly chartered entities created to reduce borrowing costs for certain
sectors of the economy, such as farmers, homeowners, and students. They include
the Federal Farm Credit Bank System, Farm Credit Financial Assistance
Corporation, Federal Home Loan Bank, FHLMC, FNMA, Student Loan Marketing
Association (SLMA), and Resolution Trust Corporation (RTC). Government-sponsored
entities may issue discount notes (with maturities ranging from overnight to 360
days) and bonds. Agency and government securities are subject to the same
concerns as other debt obligations. (See also Debt Obligations and Mortgage- and
Asset-Backed Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with agency and government securities include:
Call/Prepayment Risk, Inflation Risk, Interest Rate Risk, Management Risk, and
Reinvestment Risk.
Borrowing
The Fund may borrow money from banks for temporary or emergency purposes and
make other investments or engage in other transactions permissible under the
1940 Act that may be considered a borrowing (such as derivative instruments).
Borrowings are subject to costs (in addition to any interest that may be paid)
and typically reduce the Fund's total return. Except as qualified above,
however, the Fund will not buy securities on margin.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with borrowing include: Inflation Risk and Management
Risk.
Cash/Money Market Instruments
The Fund may maintain a portion of its assets in cash and cash-equivalent
investments. Cash-equivalent investments include short-term U.S. and Canadian
government securities and negotiable certificates of deposit, non-negotiable
fixed-time deposits, bankers' acceptances, and letters of credit of banks or
savings and loan associations having capital, surplus, and undivided profits (as
of the date of its most recently published annual financial statements) in
excess of $100 million (or the equivalent in the instance of a foreign branch of
a U.S. bank) at the date of investment. The Fund also may purchase short-term
notes and obligations of U.S. and foreign banks and corporations and may use
repurchase agreements with broker-dealers registered under the Securities
Exchange Act of 1934 and with commercial banks. (See also Commercial Paper, Debt
Obligations, Repurchase Agreements, and Variable- or Floating-Rate Securities.)
These types of instruments generally offer low rates of return and subject the
Fund to certain costs and expenses.
See the appendix for a discussion of securities ratings.
<PAGE>
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with cash/money market instruments include: Credit
Risk, Inflation Risk, and Management Risk.
Collateralized Bond Obligations
Collateralized bond obligations (CBOs) are investment grade bonds backed by a
pool of junk bonds. CBOs are similar in concept to collateralized mortgage
obligations (CMOs), but differ in that CBOs represent different degrees of
credit quality rather than different maturities. (See also Mortgage- and
Asset-Backed Securities.) Underwriters of CBOs package a large and diversified
pool of high-risk, high-yield junk bonds, which is then separated into "tiers."
Typically, the first tier represents the higher quality collateral and pays the
lowest interest rate; the second tier is backed by riskier bonds and pays a
higher rate; the third tier represents the lowest credit quality and instead of
receiving a fixed interest rate receives the residual interest payments--money
that is left over after the higher tiers have been paid. CBOs, like CMOs, are
substantially overcollateralized and this, plus the diversification of the pool
backing them earns them investment-grade bond ratings. Holders of third-tier
CBOs stand to earn high yields or less money depending on the rate of defaults
in the collateral pool. (See also High-Yield (High-Risk) Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with CBOs include: Call/Prepayment Risk, Credit Risk,
Interest Rate Risk, and Management Risk.
Commercial Paper
Commercial paper is a short-term debt obligation with a maturity ranging from 2
to 270 days issued by banks, corporations, and other borrowers. It is sold to
investors with temporary idle cash as a way to increase returns on a short-term
basis. These instruments are generally unsecured, which increases the credit
risk associated with this type of investment. (See also Debt Obligations and
Illiquid and Restricted Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with commercial paper include: Credit Risk, Liquidity
Risk, and Management Risk.
Common Stock
Common stock represents units of ownership in a corporation. Owners typically
are entitled to vote on the selection of directors and other important matters
as well as to receive dividends on their holdings. In the event that a
corporation is liquidated, the claims of secured and unsecured creditors and
owners of bonds and preferred stock take precedence over the claims of those who
own common stock.
The price of a common stock is generally determined by corporate earnings, type
of products or services offered, projected growth rates, experience of
management, liquidity, and general market conditions for the markets on which
the stock trades.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with common stock include: Issuer Risk, Management
Risk, Market Risk, and Small Company Risk.
Convertible Securities
Convertible securities are bonds, debentures, notes, preferred stocks, or other
securities that may be converted into common stock of the same or a different
issuer within a particular period of time at a specified price. Some convertible
securities, such as preferred equity-redemption cumulative stock (PERCs), have
mandatory conversion features. Others are voluntary. A convertible security
entitles the holder to receive interest normally paid or accrued on debt or the
dividend paid on preferred stock until the
<PAGE>
convertible security matures or is redeemed, converted, or exchanged.
Convertible securities have unique investment characteristics in that they
generally (i) have higher yields than common stocks but lower yields than
comparable non-convertible securities, (ii) are less subject to fluctuation in
value than the underlying stock since they have fixed income characteristics,
and (iii) provide the potential for capital appreciation if the market price of
the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value. Generally,
the conversion value decreases as the convertible security approaches maturity.
To the extent the market price of the underlying common stock approaches or
exceeds the conversion price, the price of the convertible security will be
increasingly influenced by its conversion value. A convertible security
generally will sell at a premium over its conversion value by the extent to
which investors place value on the right to acquire the underlying common stock
while holding a fixed income security.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with convertible securities include: Call/Prepayment
Risk, Interest Rate Risk, Issuer Risk, Management Risk, Market Risk, and
Reinvestment Risk.
Corporate Bonds
Corporate bonds are debt obligations issued by private corporations, as distinct
from bonds issued by a government agency or a municipality. Corporate bonds
typically have four distinguishing features: (1) they are taxable; (2) they have
a par value of $1000; (3) they have a term maturity, which means they come due
all at once; and (4) many are traded on major exchanges. Corporate bonds are
subject to the same concerns as other debt obligations. (See also Debt
Obligations and High-Yield (High-Risk) Securities.)
Corporate bonds may be either secured or unsecured. Unsecured corporate bonds
are generally referred to as "debentures." See the appendix for a discussion of
securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with corporate bonds include: Call/Prepayment Risk,
Credit Risk, Interest Rate Risk, Issuer Risk, Management Risk, and Reinvestment
Risk.
Debt Obligations
Many different types of debt obligations exist (for example, bills, bonds, or
notes). Issuers of debt obligations have a contractual obligation to pay
interest at a specified rate on specified dates and to repay principal on a
specified maturity date. Certain debt obligations (usually intermediate- and
long-term bonds) have provisions that allow the issuer to redeem or "call" a
bond before its maturity. Issuers are most likely to call these securities
during periods of falling interest rates. When this happens, an investor may
have to replace these securities with lower yielding securities, which could
result in a lower return.
The market value of debt obligations is affected primarily by changes in
prevailing interest rates and the issuers perceived ability to repay the debt.
The market value of a debt obligation generally reacts inversely to interest
rate changes. When prevailing interest rates decline, the price usually rises,
and when prevailing interest rates rise, the price usually declines.
<PAGE>
In general, the longer the maturity of a debt obligation, the higher its yield
and the greater the sensitivity to changes in interest rates. Conversely, the
shorter the maturity, the lower the yield but the greater the price stability.
As noted, the values of debt obligations also may be affected by changes in the
credit rating or financial condition of their issuers. Generally, the lower the
quality rating of a security, the higher the degree of risk as to the payment of
interest and return of principal. To compensate investors for taking on such
increased risk, those issuers deemed to be less creditworthy generally must
offer their investors higher interest rates than do issuers with better credit
ratings. (See also Agency and Government Securities, Corporate Bonds, and
High-Yield (High-Risk) Securities.)
See the appendix for a discussion of securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with debt obligations include: Call/Prepayment Risk,
Credit Risk, Interest Rate Risk, Issuer Risk, Management Risk, and Reinvestment
Risk.
Depositary Receipts
Some foreign securities are traded in the form of American Depositary Receipts
(ADRs). ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities of foreign issuers. European
Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs) are receipts
typically issued by foreign banks or trust companies, evidencing ownership of
underlying securities issued by either a foreign or U.S. issuer. Generally,
depositary receipts in registered form are designed for use in the U.S. and
depositary receipts in bearer form are designed for use in securities markets
outside the U.S. Depositary receipts may not necessarily be denominated in the
same currency as the underlying securities into which they may be converted.
Depositary receipts involve the risks of other investments in foreign
securities. (See also Common Stock and Foreign Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with depositary receipts include: Foreign/Emerging
Markets Risk, Issuer Risk, Management Risk, and Market Risk.
Derivative Instruments
Derivative instruments are commonly defined to include securities or contracts
whose values depend on (or "derive" from) the value of one or more other assets,
such as securities, currencies, or commodities.
A derivative instrument generally consists of, is based upon, or exhibits
characteristics similar to options or forward contracts. Such instruments may be
used to maintain cash reserves while remaining fully invested, to offset
anticipated declines in values of investments, to facilitate trading, to reduce
transaction costs, or to pursue higher investment returns. Derivative
instruments are characterized by requiring little or no initial payment. Their
value changes daily based on a security, a currency, a group of securities or
currencies, or an index. A small change in the value of the underlying security,
currency, or index can cause a sizable gain or loss in the price of the
derivative instrument.
Options and forward contracts are considered to be the basic "building blocks"
of derivatives. For example, forward-based derivatives include forward
contracts, swap contracts, and exchange-traded futures. Forward-based
derivatives are sometimes referred to generically as "futures contracts."
Option-based derivatives include privately negotiated, over-the-counter (OTC)
options (including caps, floors, collars, and options on futures) and
exchange-traded options on futures. Diverse types of derivatives may be created
by combining options or futures in different ways, and by applying these
structures to a wide range of underlying assets.
<PAGE>
Options. An option is a contract. A person who buys a call option for a
security has the right to buy the security at a set price for the length of the
contract. A person who sells a call option is called a writer. The writer of a
call option agrees to sell the security at the set price when the buyer wants to
exercise the option, no matter what the market price of the security is at that
time. A person who buys a put option has the right to sell a security at a set
price for the length of the contract. A person who writes a put option agrees to
buy the security at the set price if the purchaser wants to exercise the option,
no matter what the market price of the security is at that time. An option is
covered if the writer owns the security (in the case of a call) or sets aside
the cash or securities of equivalent value (in the case of a put) that would be
required upon exercise.
The price paid by the buyer for an option is called a premium. In addition to
the premium, the buyer generally pays a broker a commission. The writer receives
a premium, less another commission, at the time the option is written. The
premium received by the writer is retained whether or not the option is
exercised. A writer of a call option may have to sell the security for a
below-market price if the market price rises above the exercise price. A writer
of a put option may have to pay an above-market price for the security if its
market price decreases below the exercise price.
When an option is purchased, the buyer pays a premium and a commission. It then
pays a second commission on the purchase or sale of the underlying security when
the option is exercised. For record keeping and tax purposes, the price obtained
on the sale of the underlying security is the combination of the exercise price,
the premium, and both commissions.
One of the risks an investor assumes when it buys an option is the loss of the
premium. To be beneficial to the investor, the price of the underlying security
must change within the time set by the option contract. Furthermore, the change
must be sufficient to cover the premium paid, the commissions paid both in the
acquisition of the option and in a closing transaction or in the exercise of the
option and sale (in the case of a call) or purchase (in the case of a put) of
the underlying security. Even then, the price change in the underlying security
does not ensure a profit since prices in the option market may not reflect such
a change.
Options on many securities are listed on options exchanges. If the Fund writes
listed options, it will follow the rules of the options exchange. Options are
valued at the close of the New York Stock Exchange. An option listed on a
national exchange, CBOE, or NASDAQ will be valued at the last quoted sales price
or, if such a price is not readily available, at the mean of the last bid and
ask prices.
Options on certain securities are not actively traded on any exchange, but may
be entered into directly with a dealer. These options may be more difficult to
close. If an investor is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security until the call written by the
investor expires or is exercised.
Futures Contracts. A futures contract is a sales contract between a buyer
(holding the "long" position) and a seller (holding the "short" position) for an
asset with delivery deferred until a future date. The buyer agrees to pay a
fixed price at the agreed future date and the seller agrees to deliver the
asset. The seller hopes that the market price on the delivery date is less than
the agreed upon price, while the buyer hopes for the contrary. Many futures
contracts trade in a manner similar to the way a stock trades on a stock
exchange and the commodity exchanges.
Generally, a futures contract is terminated by entering into an offsetting
transaction. An offsetting transaction is effected by an investor taking an
opposite position. At the time a futures contract is made, a good faith deposit
called initial margin is set up. Daily thereafter, the futures contract is
valued and the payment of variation margin is required so that each day an
investor would pay out cash in an amount
<PAGE>
equal to any decline in the contract's value or receive cash equal to any
increase. At the time a futures contract is closed out, a nominal commission is
paid, which is generally lower than the commission on a comparable transaction
in the cash market. Futures contracts may be based on various securities,
securities indices (such as the S & P 500 Index), foreign currencies and other
financial instruments and indices.
Options on Futures Contracts. Options on futures contracts give the holder
a right to buy or sell futures contracts in the future. Unlike a futures
contract, which requires the parties to the contract to buy and sell a security
on a set date (some futures are settled in cash), an option on a futures
contract merely entitles its holder to decide on or before a future date (within
nine months of the date of issue) whether to enter into a contract. If the
holder decides not to enter into the contract, all that is lost is the amount
(premium) paid for the option. Further, because the value of the option is fixed
at the point of sale, there are no daily payments of cash to reflect the change
in the value of the underlying contract. However, since an option gives the
buyer the right to enter into a contract at a set price for a fixed period of
time, its value does change daily.
One of the risks in buying an option on a futures contract is the loss of the
premium paid for the option. The risk involved in writing options on futures
contracts an investor owns, or on securities held in its portfolio, is that
there could be an increase in the market value of these contracts or securities.
If that occurred, the option would be exercised and the asset sold at a lower
price than the cash market price. To some extent, the risk of not realizing a
gain could be reduced by entering into a closing transaction. An investor could
enter into a closing transaction by purchasing an option with the same terms as
the one previously sold. The cost to close the option and terminate the
investor's obligation, however, might still result in a loss. Further, the
investor might not be able to close the option because of insufficient activity
in the options market. Purchasing options also limits the use of monies that
might otherwise be available for long-term investments.
Options on Stock Indexes. Options on stock indexes are securities traded
on national securities exchanges. An option on a stock index is similar to an
option on a futures contract except all settlements are in cash. A fund
exercising a put, for example, would receive the difference between the exercise
price and the current index level.
Tax Treatment. As permitted under federal income tax laws and to the
extent the Fund is allowed to invest in futures contacts, the Fund intends to
identify futures contracts as mixed straddles and not mark them to market, that
is, not treat them as having been sold at the end of the year at market value.
Such an election may result in the Fund being required to defer recognizing
losses incurred by entering into futures contracts and losses on underlying
securities identified as being hedged against.
Federal income tax treatment of gains or losses from transactions in options on
futures contracts and indexes will depend on whether the option is a section
1256 contract. If the option is a non-equity option, the Fund will either make a
1256(d) election and treat the option as a mixed straddle or mark to market the
option at fiscal year end and treat the gain/loss as 40% short-term and 60%
long-term. Certain provisions of the Internal Revenue Code also may limit the
Fund's ability to engage in futures contracts and related options transactions.
For example, at the close of each quarter of the Fund's taxable year, at least
50% of the value of its assets must consist of cash, government securities and
other securities, subject to certain diversification requirements.
The IRS has ruled publicly that an exchange-traded call option is a security for
purposes of the 50%-of-assets test and that its issuer is the issuer of the
underlying security, not the writer of the option, for purposes of the
diversification requirements.
Accounting for futures contracts will be according to generally accepted
accounting principles. Initial margin deposits will be recognized as assets due
from a broker (the Fund's agent in acquiring the futures
<PAGE>
position). During the period the futures contract is open, changes in value of
the contract will be recognized as unrealized gains or losses by marking to
market on a daily basis to reflect the market value of the contract at the end
of each day's trading. Variation margin payments will be made or received
depending upon whether gains or losses are incurred. All contracts and options
will be valued at the last-quoted sales price on their primary exchange.
Other Risks of Derivatives.
Derivatives are risky investments.
The primary risk of derivatives is the same as the risk of the underlying asset,
namely that the value of the underlying asset may go up or down. Adverse
movements in the value of an underlying asset can expose an investor to losses.
Derivative instruments may include elements of leverage and, accordingly, the
fluctuation of the value of the derivative instrument in relation to the
underlying asset may be magnified. The successful use of derivative instruments
depends upon a variety of factors, particularly the investment manager's ability
to predict movements of the securities, currencies, and commodity markets, which
requires different skills than predicting changes in the prices of individual
securities.
There can be no assurance that any particular strategy will succeed.
Another risk is the risk that a loss may be sustained as a result of the failure
of a counterparty to comply with the terms of a derivative instrument. The
counterparty risk for exchange-traded derivative instruments is generally less
than for privately-negotiated or OTC derivative instruments, since generally a
clearing agency, which is the issuer or counterparty to each exchange-traded
instrument, provides a guarantee of performance. For privately-negotiated
instruments, there is no similar clearing agency guarantee. In all transactions,
an investor will bear the risk that the counterparty will default, and this
could result in a loss of the expected benefit of the derivative transaction and
possibly other losses.
When a derivative transaction is used to completely hedge another position,
changes in the market value of the combined position (the derivative instrument
plus the position being hedged) result from an imperfect correlation between the
price movements of the two instruments. With a perfect hedge, the value of the
combined position remains unchanged for any change in the price of the
underlying asset. With an imperfect hedge, the values of the derivative
instrument and its hedge are not perfectly correlated. For example, if the value
of a derivative instrument used in a short hedge (such as writing a call option,
buying a put option, or selling a futures contract) increased by less than the
decline in value of the hedged investment, the hedge would not be perfectly
correlated. Such a lack of correlation might occur due to factors unrelated to
the value of the investments being hedged, such as speculative or other
pressures on the markets in which these instruments are traded.
Derivatives also are subject to the risk that they cannot be sold, closed out,
or replaced quickly at or very close to their fundamental value. Generally,
exchange contracts are very liquid because the exchange clearinghouse is the
counterparty of every contract. OTC transactions are less liquid than
exchange-traded derivatives since they often can only be closed out with the
other party to the transaction.
Another risk is caused by the legal unenforcibility of a party's obligations
under the derivative. A counterparty that has lost money in a derivative
transaction may try to avoid payment by exploiting various legal uncertainties
about certain derivative products.
(See also Foreign Currency Transactions.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with derivative instruments include: Leverage Risk,
Liquidity Risk, and Management Risk.
<PAGE>
Foreign Currency Transactions
Since investments in foreign countries usually involve currencies of foreign
countries, the value of the Fund's assets as measured in U.S. dollars may be
affected favorably or unfavorably by changes in currency exchange rates and
exchange control regulations. Also, the Fund may incur costs in connection with
conversions between various currencies. Currency exchange rates may fluctuate
significantly over short periods of time causing the Fund's NAV to fluctuate.
Currency exchange rates are generally determined by the forces of supply and
demand in the foreign exchange markets, actual or anticipated changes in
interest rates, and other complex factors. Currency exchange rates also can be
affected by the intervention of U.S. or foreign governments or central banks, or
the failure to intervene, or by currency controls or political developments.
Spot Rates and Derivative Instruments. The Fund conducts its foreign currency
exchange transactions either at the spot (cash) rate prevailing in the foreign
currency exchange market or by entering into forward currency exchange contracts
(forward contracts) as a hedge against fluctuations in future foreign exchange
rates. (See also Derivative Instruments). These contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. Because foreign currency transactions
occurring in the interbank market might involve substantially larger amounts
than those involved in the use of such derivative instruments, the Fund could be
disadvantaged by having to deal in the odd lot market for the underlying foreign
currencies at prices that are less favorable than for round lots.
The Fund may enter into forward contracts to settle a security transaction or
handle dividend and interest collection. When the Fund enters into a contract
for the purchase or sale of a security denominated in a foreign currency or has
been notified of a dividend or interest payment, it may desire to lock in the
price of the security or the amount of the payment in dollars. By entering into
a forward contract, the Fund will be able to protect itself against a possible
loss resulting from an adverse change in the relationship between different
currencies from the date the security is purchased or sold to the date on which
payment is made or received or when the dividend or interest is actually
received.
The Fund also may enter into forward contracts when management of the Fund
believes the currency of a particular foreign country may change in relationship
to another currency. The precise matching of forward contract amounts and the
value of securities involved generally will not be possible since the future
value of securities in foreign currencies more than likely will change between
the date the forward contract is entered into and the date it matures. The
projection of short-term currency market movements is extremely difficult and
successful execution of a short-term hedging strategy is highly uncertain. The
Fund will not enter into such forward contracts or maintain a net exposure to
such contracts when consummating the contracts would obligate the Fund to
deliver an amount of foreign currency in excess of the value of the Fund's
securities or other assets denominated in that currency.
The Fund will designate cash or securities in an amount equal to the value of
the Fund's total assets committed to consummating forward contracts entered into
under the second circumstance set forth above. If the value of the securities
declines, additional cash or securities will be designated on a daily basis so
that the value of the cash or securities will equal the amount of the Fund's
commitments on such contracts.
At maturity of a forward contract, the Fund may either sell the security and
make delivery of the foreign currency or retain the security and terminate its
contractual obligation to deliver the foreign currency by purchasing an
offsetting contract with the same currency trader obligating it to buy, on the
same maturity date, the same amount of foreign currency.
If the Fund retains the security and engages in an offsetting transaction, the
Fund will incur a gain or loss (as described below) to the extent there has been
movement in forward contract prices. If the Fund engages
<PAGE>
in an offsetting transaction, it may subsequently enter into a new forward
contract to sell the foreign currency. Should forward prices decline between the
date the Fund enters into a forward contract for selling foreign currency and
the date it enters into an offsetting contract for purchasing the foreign
currency, the Fund will realize a gain to the extent that the price of the
currency it has agreed to sell exceeds the price of the currency it has agreed
to buy. Should forward prices increase, the Fund will suffer a loss to the
extent the price of the currency it has agreed to buy exceeds the price of the
currency it has agreed to sell.
It is impossible to forecast what the market value of securities will be at the
expiration of a contract. Accordingly, it may be necessary for the Fund to buy
additional foreign currency on the spot market (and bear the expense of that
purchase) if the market value of the security is less than the amount of foreign
currency the Fund is obligated to deliver and a decision is made to sell the
security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received on
the sale of the portfolio security if its market value exceeds the amount of
foreign currency the Fund is obligated to deliver.
The Fund's dealing in forward contracts will be limited to the transactions
described above. This method of protecting the value of the Fund's securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange that can be achieved at some point in time. Although forward contracts
tend to minimize the risk of loss due to a decline in value of hedged currency,
they tend to limit any potential gain that might result should the value of such
currency increase.
Although the Fund values its assets each business day in terms of U.S. dollars,
it does not intend to convert its foreign currencies into U.S. dollars on a
daily basis. It will do so from time to time, and shareholders should be aware
of currency conversion costs. Although foreign exchange dealers do not charge a
fee for conversion, they do realize a profit based on the difference (spread)
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.
Options on Foreign Currencies. The Fund may buy options on foreign currencies
for hedging purposes. For example, a decline in the dollar value of a foreign
currency in which securities are denominated will reduce the dollar value of
such securities, even if their value in the foreign currency remains constant.
In order to protect against the diminutions in the value of securities, the Fund
may buy options on the foreign currency. If the value of the currency does
decline, the Fund will have the right to sell the currency for a fixed amount in
dollars and will offset, in whole or in part, the adverse effect on its
portfolio that otherwise would have resulted.
As in the case of other types of options, however, the benefit to the Fund
derived from purchases of foreign currency options will be reduced by the amount
of the premium and related transaction costs. In addition, where currency
exchange rates do not move in the direction or to the extent anticipated, the
Fund could sustain losses on transactions in foreign currency options that would
require it to forego a portion or all of the benefits of advantageous changes in
rates.
The Fund may write options on foreign currencies for the same types of hedging
purposes. For example, when the Fund anticipates a decline in the dollar value
of foreign-denominated securities due to adverse fluctuations in exchange rates
it could, instead of purchasing a put options, write a call option on the
relevant currency. If the expected decline occurs, the option will most likely
not be exercised and the diminution in value of securities will be fully or
partially offset by the amount of the premium received.
As in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of the
premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Fund would be required to buy or sell
the
<PAGE>
underlying currency at a loss that may not be offset by the amount of the
premium. Through the writing of options on foreign currencies, the Fund also may
be required to forego all or a portion of the benefits that might otherwise have
been obtained from favorable movements on exchange rates.
All options written on foreign currencies will be covered. An option written on
foreign currencies is covered if the Fund holds currency sufficient to cover the
option or has an absolute and immediate right to acquire that currency without
additional cash consideration upon conversion of assets denominated in that
currency or exchange of other currency held in its portfolio. An option writer
could lose amounts substantially in excess of its initial investments, due to
the margin and collateral requirements associated with such positions.
Options on foreign currencies are traded through financial institutions acting
as market-makers, although foreign currency options also are traded on certain
national securities exchanges, such as the Philadelphia Stock Exchange and the
Chicago Board Options Exchange, subject to SEC regulation. In an
over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchaser of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost.
Foreign currency option positions entered into on a national securities exchange
are cleared and guaranteed by the Options Clearing Corporation (OCC), thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting the Fund to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in certain foreign countries
for that purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on OCC or
its clearing member, impose special procedures on exercise and settlement, such
as technical changes in the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions on exercise.
Foreign Currency Futures and Related Options. The Fund may enter into currency
futures contracts to sell currencies. It also may buy put options and write
covered call options on currency futures. Currency futures contracts are similar
to currency forward contracts, except that they are traded on exchanges (and
have margin requirements) and are standardized as to contract size and delivery
date. Most currency futures call for payment of delivery in U.S. dollars. The
Fund may use currency futures for the same purposes as currency forward
contracts, subject to Commodity Futures Trading Commission (CFTC) limitations.
Currency futures and options on futures values can be expected to correlate with
exchange rates, but will not reflect other factors that may affect the value of
the Fund's investments. A currency hedge, for example, should protect a
Yen-denominated bond against a decline in the Yen, but will not protect the Fund
against price decline if the issuer's creditworthiness deteriorates. Because the
value of the Fund's investments denominated in foreign currency will change in
response to many factors other than exchange rates, it may not be possible to
match the amount of a forward contract to the value of the Fund's investments
denominated in that currency over time.
<PAGE>
The Fund will hold securities or other options or futures positions whose values
are expected to offset its obligations. The Fund will not enter into an option
or futures position that exposes the Fund to an obligation to another party
unless it owns either (i) an offsetting position in securities or (ii) cash,
receivables and short-term debt securities with a value sufficient to cover its
potential obligations.
(See also Derivative Instruments and Foreign Securities.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with foreign currency transactions include: Correlation
Risk, Interest Rate Risk, Leverage Risk, Liquidity Risk, and Management Risk.
Foreign Securities and Domestic Companies with Foreign Operations
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations involve special risks, including those set
forth below, which are not typically associated with investing in U.S.
securities. Foreign companies are not generally subject to uniform accounting,
auditing, and financial reporting standards comparable to those applicable to
domestic companies. Additionally, many foreign stock markets, while growing in
volume of trading activity, have substantially less volume than the New York
Stock Exchange, and securities of some foreign companies are less liquid and
more volatile than securities of domestic companies. Similarly, volume and
liquidity in most foreign bond markets are less than the volume and liquidity in
the U.S. and, at times, volatility of price can be greater than in the U.S.
Further, foreign markets have different clearance, settlement, registration, and
communication procedures and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in such
procedures could result in temporary periods when assets are uninvested and no
return is earned on them. The inability of an investor to make intended security
purchases due to such problems could cause the investor to miss attractive
investment opportunities. Payment for securities without delivery may be
required in certain foreign markets and, when participating in new issues, some
foreign countries require payment to be made in advance of issuance (at the time
of issuance, the market value of the security may be more or less than the
purchase price). Some foreign markets also have compulsory depositories (i.e.,
an investor does not have a choice as to where the securities are held). Fixed
commissions on some foreign stock exchanges are generally higher than negotiated
commissions on U.S. exchanges. Further, an investor may encounter difficulties
or be unable to pursue legal remedies and obtain judgments in foreign courts.
There is generally less government supervision and regulation of business and
industry practices, stock exchanges, brokers, and listed companies than in the
U.S. It may be more difficult for an investor's agents to keep currently
informed about corporate actions such as stock dividends or other matters that
may affect the prices of portfolio securities. Communications between the U.S.
and foreign countries may be less reliable than within the U.S., thus increasing
the risk of delays or loss of certificates for portfolio securities. In
addition, with respect to certain foreign countries, there is the possibility of
nationalization, expropriation, the imposition of additional withholding or
confiscatory taxes, political, social, or economic instability, diplomatic
developments that could affect investments in those countries, or other
unforeseen actions by regulatory bodies (such as changes to settlement or
custody procedures).
The risks of foreign investing may be magnified for investments in emerging
markets, which may have relatively unstable governments, economies based on only
a few industries, and securities markets that trade a small number of
securities.
The introduction of a single currency, the euro, on January 1, 1999 for
participating European nations in the Economic and Monetary Union ("EU")
presents unique uncertainties, including whether the payment and operational
systems of banks and other financial institutions will be ready by the scheduled
launch date; the creation of suitable clearing and settlement payment systems
for the new currency; the legal treatment of certain outstanding financial
contracts after January 1, 1999 that refer to existing currencies
<PAGE>
rather than the euro; the establishment and maintenance of exchange rates; the
fluctuation of the euro relative to non-euro currencies during the transaction
period from January 1, 1999 to December 31, 2000 and beyond; whether the
interest rate, tax or labor regimes of European countries participating in the
euro will converge over time; and whether the conversion of the currencies of
other EU countries such as the United Kingdom, Denmark, and Greece into the euro
and the admission of other non-EU countries such as Poland, Latvia, and
Lithuania as members of the EU may have an impact on the euro.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with foreign securities include: Foreign/Emerging
Markets Risk, Issuer Risk, and Management Risk.
High-Yield (High-Risk) Securities (Junk Bonds)
High yield (high-risk) securities are sometimes referred to as "junk bonds."
They are non-investment grade (lower quality) securities that have speculative
characteristics. Lower quality securities, while generally offering higher
yields than investment grade securities with similar maturities, involve greater
risks, including the possibility of default or bankruptcy. They are regarded as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. The special risk considerations in connection with
investments in these securities are discussed below.
See the appendix for a discussion of securities ratings. (See also Debt
Obligations.)
The lower-quality and comparable unrated security market is relatively new and
its growth has paralleled a long economic expansion. As a result, it is not
clear how this market may withstand a prolonged recession or economic downturn.
Such conditions could severely disrupt the market for and adversely affect the
value of such securities.
All interest-bearing securities typically experience appreciation when interest
rates decline and depreciation when interest rates rise. The market values of
lower-quality and comparable unrated securities tend to reflect individual
corporate developments to a greater extent than do higher rated securities,
which react primarily to fluctuations in the general level of interest rates.
Lower-quality and comparable unrated securities also tend to be more sensitive
to economic conditions than are higher-rated securities. As a result, they
generally involve more credit risks than securities in the higher-rated
categories. During an economic downturn or a sustained period of rising interest
rates, highly leveraged issuers of lower-quality securities may experience
financial stress and may not have sufficient revenues to meet their payment
obligations. The issuer's ability to service its debt obligations also may be
adversely affected by specific corporate developments, the issuer's inability to
meet specific projected business forecast, or the unavailability of additional
financing. The risk of loss due to default by an issuer of these securities is
significantly greater than issuers of higher-rated securities because such
securities are generally unsecured and are often subordinated to other
creditors. Further, if the issuer of a lower quality security defaulted, an
investor might incur additional expenses to seek recovery.
Credit ratings issued by credit rating agencies are designed to evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of lower-quality securities and,
therefore, may not fully reflect the true risks of an investment. In addition,
credit rating agencies may or may not make timely changes in a rating to reflect
changes in the economy or in the condition of the issuer that affect the market
value of the securities. Consequently, credit ratings are used only as a
preliminary indicator of investment quality.
An investor may have difficulty disposing of certain lower-quality and
comparable unrated securities because there may be a thin trading market for
such securities. Because not all dealers maintain markets in all lower quality
and comparable unrated securities, there is no established retail secondary
market for many of these securities. To the extent a secondary trading market
does exist, it is generally not as liquid as the secondary market for
higher-rated securities. The lack of a liquid secondary market may have an
<PAGE>
adverse impact on the market price of the security. The lack of a liquid
secondary market for certain securities also may make it more difficult for an
investor to obtain accurate market quotations. Market quotations are generally
available on many lower-quality and comparable unrated issues only from a
limited number of dealers and may not necessarily represent firm bids of such
dealers or prices for actual sales.
Legislation may be adopted from time to time designed to limit the use of
certain lower quality and comparable unrated securities by certain issuers.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with high-yield (high-risk) securities include:
Call/Prepayment Risk, Credit Risk, Currency Risk, Interest Rate Risk, and
Management Risk.
Illiquid and Restricted Securities
The Fund may invest in illiquid securities (i.e., securities that are not
readily marketable). These securities may include, but are not limited to,
certain securities that are subject to legal or contractual restrictions on
resale, certain repurchase agreements, and derivative instruments.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with illiquid and restricted securities include:
Liquidity Risk and Management Risk.
Indexed Securities
The value of indexed securities is linked to currencies, interest rates,
commodities, indexes, or other financial indicators. Most indexed securities are
short- to intermediate-term fixed income securities whose values at maturity or
interest rates rise or fall according to the change in one or more specified
underlying instruments. Indexed securities may be more volatile than the
underlying instrument itself and they may be less liquid than the securities
represented by the index. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with indexed securities include: Liquidity Risk,
Management Risk, and Market Risk.
Inverse Floaters
Inverse floaters are created by underwriters using the interest payment on
securities. A portion of the interest received is paid to holders of instruments
based on current interest rates for short-term securities. The remainder, minus
a servicing fee, is paid to holders of inverse floaters. As interest rates go
down, the holders of the inverse floaters receive more income and an increase in
the price for the inverse floaters. As interest rates go up, the holders of the
inverse floaters receive less income and a decrease in the price for the inverse
floaters. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with inverse floaters include: Interest Rate Risk and
Management Risk.
Investment Companies
The Fund may invest in securities issued by registered and unregistered
investment companies. These investments may involve the duplication of advisory
fees and certain other expenses.
Although one or more of the other risks described in this SAI may apply, the
largest risk associated with the securities of other investment companies
includes: Management Risk and Market Risk.
<PAGE>
Lending of Portfolio Securities
The Fund may lend certain of its portfolio securities to broker-dealers. The
current policy of the Fund's board is to make these loans, either long- or
short-term, to broker-dealers. In making loans, the Fund receives the market
price in cash, U.S. government securities, letters of credit, or such other
collateral as may be permitted by regulatory agencies and approved by the board.
If the market price of the loaned securities goes up, an investor will get
additional collateral on a daily basis. The risks are that the borrower may not
provide additional collateral when required or return the securities when due.
During the existence of the loan, the Fund receives cash payments equivalent to
all interest or other distributions paid on the loaned securities. The Fund may
pay reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or money market
instruments held as collateral to the borrower or placing broker. The Fund will
receive reasonable interest on the loan or a flat fee from the borrower and
amounts equivalent to any dividends, interest, or other distributions on the
securities loaned.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with the lending of portfolio securities include:
Credit Risk and Management Risk.
Loan Participations
Loans, loan participations, and interests in securitized loan pools are
interests in amounts owed by a corporate, governmental, or other borrower to a
lender or consortium of lenders (typically banks, insurance companies,
investment banks, government agencies, or international agencies). Loans involve
a risk of loss in case of default or insolvency of the borrower and may offer
less legal protection to an investor in the event of fraud or misrepresentation.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with loan participations include: Credit Risk and
Management Risk.
Mortgage- and Asset-Backed Securities
Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property, and
include single- and multi-class pass-through securities and Collateralized
Mortgage Obligations (CMOs). These securities may be issued or guaranteed by
U.S. government agencies or instrumentalities (see also Agency and Government
Securities), or by private issuers, generally originators and investors in
mortgage loans, including savings associations, mortgage bankers, commercial
banks, investment bankers, and special purpose entities. Mortgage-backed
securities issued by private lenders may be supported by pools of mortgage loans
or other mortgage-backed securities that are guaranteed, directly or indirectly,
by the U.S. government or one of its agencies or instrumentalities, or they may
be issued without any governmental guarantee of the underlying mortgage assets
but with some form of non-governmental credit enhancement.
Stripped mortgage-backed securities are a type of mortgage-backed security that
receive differing proportions of the interest and principal payments from the
underlying assets. Generally, there are two classes of stripped mortgage-backed
securities: Interest Only (IO) and Principal Only (PO). IOs entitle the holder
to receive distributions consisting of all or a portion of the interest on the
underlying pool of mortgage loans or mortgage-backed securities. POs entitle the
holder to receive distributions consisting of all or a portion of the principal
of the underlying pool of mortgage loans or mortgage-backed securities. The cash
flows and yields on IOs and POs are extremely sensitive to the rate of principal
payments (including prepayments) on the underlying mortgage loans or
mortgage-backed securities. A rapid rate of principal payments may adversely
affect the yield to maturity of IOs. A slow rate of principal payments
<PAGE>
may adversely affect the yield to maturity of POs. If prepayments of principal
are greater than anticipated, an investor in IOs may incur substantial losses.
If prepayments of principal are slower than anticipated, the yield on a PO will
be affected more severely than would be the case with a traditional
mortgage-backed security.
CMOs are hybrid mortgage-related instruments secured by pools of mortgage loans
or other mortgage-related securities, such as mortgage pass through securities
or stripped mortgage-backed securities. CMOs may be structured into multiple
classes, often referred to as "tranches," with each class bearing a different
stated maturity and entitled to a different schedule for payments of principal
and interest, including prepayments. Principal prepayments on collateral
underlying a CMO may cause it to be retired substantially earlier than its
stated maturity.
The yield characteristics of mortgage-backed securities differ from those of
other debt securities. Among the differences are that interest and principal
payments are made more frequently on mortgage-backed securities, usually
monthly, and principal may be repaid at any time. These factors may reduce the
expected yield.
Asset-backed securities have structural characteristics similar to
mortgage-backed securities. Asset-backed debt obligations represent direct or
indirect participation in, or secured by and payable from, assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans, leases of various types of property, and receivables from credit
card or other revolving credit arrangements. The credit quality of most
asset-backed securities depends primarily on the credit quality of the assets
underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement of the
securities. Payments or distributions of principal and interest on asset-backed
debt obligations may be supported by non-governmental credit enhancements
including letters of credit, reserve funds, overcollateralization, and
guarantees by third parties. The market for privately issued asset-backed debt
obligations is smaller and less liquid than the market for government sponsored
mortgage-backed securities. (See also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with mortgage- and asset-backed securities include:
Call/Prepayment Risk, Credit Risk, Interest Rate Risk, Liquidity Risk, and
Management Risk.
Mortgage Dollar Rolls
Mortgage dollar rolls are investments whereby an investor would sell
mortgage-backed securities for delivery in the current month and simultaneously
contract to purchase substantially similar securities on a specified future
date. While an investor would forego principal and interest paid on the
mortgage-backed securities during the roll period, the investor would be
compensated by the difference between the current sales price and the lower
price for the future purchase as well as by any interest earned on the proceeds
of the initial sale. The investor also could be compensated through the receipt
of fee income equivalent to a lower forward price.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with mortgage dollar rolls include: Credit Risk,
Interest Rate Risk, and Management Risk.
Municipal Obligations
Municipal obligations include debt obligations issued by or on behalf of states,
territories, or possessions of the United States (including the District of
Columbia). The interest on these obligations is generally exempt from federal
income tax. Municipal obligations are generally classified as either "general
obligations" or "revenue obligations."
<PAGE>
General obligation bonds are secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of interest and principal. Revenue
bonds are payable only from the revenues derived from a project or facility or
from the proceeds of a specified revenue source. Industrial development bonds
are generally revenue bonds secured by payments from and the credit of private
users. Municipal notes are issued to meet the short-term funding requirements of
state, regional, and local governments. Municipal notes include tax anticipation
notes, bond anticipation notes, revenue anticipation notes, tax and revenue
anticipation notes, construction loan notes, short-term discount notes,
tax-exempt commercial paper, demand notes, and similar instruments.
Municipal lease obligations may take the form of a lease, an installment
purchase, or a conditional sales contract. They are issued by state and local
governments and authorities to acquire land, equipment, and facilities. An
investor may purchase these obligations directly, or it may purchase
participation interests in such obligations. Municipal leases may be subject to
greater risks than general obligation or revenue bonds. State constitutions and
statutes set forth requirements that states or municipalities must meet in order
to issue municipal obligations. Municipal leases may contain a covenant by the
state or municipality to budget for and make payments due under the obligation.
Certain municipal leases may, however, provide that the issuer is not obligated
to make payments on the obligation in future years unless funds have been
appropriated for this purpose each year.
Yields on municipal bonds and notes depend on a variety of factors, including
money market conditions, municipal bond market conditions, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. The municipal bond market has a large number of different issuers, many
having smaller sized bond issues, and a wide choice of different maturities
within each issue. For these reasons, most municipal bonds do not trade on a
daily basis and many trade only rarely. Because many of these bonds trade
infrequently, the spread between the bid and offer may be wider and the time
needed to develop a bid or an offer may be longer than other security markets.
See the appendix for a discussion of securities ratings. (See also Debt
Obligations.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with municipal obligations include: Credit Risk, Event
Risk, Inflation Risk, Interest Rate Risk, Legal/Legislative Risk, and Market
Risk.
Preferred Stock
Preferred stock is a type of stock that pays dividends at a specified rate and
that has preference over common stock in the payment of dividends and the
liquidation of assets. Preferred stock does not ordinarily carry voting rights.
The price of a preferred stock is generally determined by earnings, type of
products or services, projected growth rates, experience of management,
liquidity, and general market conditions of the markets on which the stock
trades.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with preferred stock include: Issuer Risk, Management
Risk, and Market Risk.
Real Estate Investment Trusts
Real estate investment trusts (REITs) are entities that manage a portfolio of
real estate to earn profits for their shareholders. REITs can make investments
in real estate such as shopping centers, nursing homes, office buildings,
apartment complexes, and hotels. REITs can be subject to extreme volatility due
to fluctuations in the demand for real estate, changes in interest rates, and
adverse economic conditions. Additionally, the failure of a REIT to continue to
qualify as a REIT for tax purposes can materially affect its value.
<PAGE>
Although one or more of the other risks described in this SAI may apply, the
largest associated with REITs include: Issuer Risk, Management Risk, and Market
Risk.
Repurchase Agreements
The Fund may enter into repurchase agreements with certain banks or non-bank
dealers. In a repurchase agreement, the Fund buys a security at one price, and
at the time of sale, the seller agrees to repurchase the obligation at a
mutually agreed upon time and price (usually within seven days). The repurchase
agreement, thereby, determines the yield during the purchaser's holding period,
while the seller's obligation to repurchase is secured by the value of the
underlying security. Repurchase agreements could involve certain risks in the
event of a default or insolvency of the other party to the agreement, including
possible delays or restrictions upon the Fund's ability to dispose of the
underlying securities.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with repurchase agreements include: Credit Risk and
Management Risk.
Reverse Repurchase Agreements
In a reverse repurchase agreement, the investor would sell a security and enter
into an agreement to repurchase the security at a specified future date and
price. The investor generally retains the right to interest and principal
payments on the security. Since the investor receives cash upon entering into a
reverse repurchase agreement, it may be considered a borrowing. (See also
Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with reverse repurchase agreements include: Credit
Risk, Interest Rate Risk, and Management Risk.
Short Sales
With short sales, an investor sells a security that it does not own in
anticipation of a decline in the market value of the security. To complete the
transaction, the investor must borrow the security to make delivery to the
buyer. The investor is obligated to replace the security that was borrowed by
purchasing it at the market price on the replacement date. The price at such
time may be more or less than the price at which the investor sold the security.
A fund that is allowed to utilize short sales will designate cash or liquid
securities to cover its open short positions. Those funds also may engage in
"short sales against the box," a form of short-selling that involves selling a
security that an investor owns (or has an unconditioned right to purchase) for
delivery at a specified date in the future. This technique allows an investor to
hedge protectively against anticipated declines in the market of its securities.
If the value of the securities sold short increased prior to the scheduled
delivery date, the investor loses the opportunity to participate in the gain.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with short sales include: Management Risk and Market
Risk.
Sovereign Debt
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by a variety of factors, including its cash
flow situation, the extent of its reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
international lenders, and the political constraints to which a sovereign debtor
may be subject. (See also Foreign Securities.)
With respect to sovereign debt of emerging market issuers, investors should be
aware that certain emerging
<PAGE>
market countries are among the largest debtors to commercial banks and foreign
governments. At times, certain emerging market countries have declared moratoria
on the payment of principal and interest on external debt.
Certain emerging market countries have experienced difficulty in servicing their
sovereign debt on a timely basis that led to defaults and the restructuring of
certain indebtedness.
Sovereign debt includes Brady Bonds, which are securities issued under the
framework of the Brady Plan, an initiative announced by former U.S. Treasury
Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to
restructure their outstanding external commercial bank indebtedness.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with sovereign debt include: Credit Risk,
Foreign/Emerging Markets Risk, and Management Risk.
Structured Products
Structured products are over-the-counter financial instruments created
specifically to meet the needs of one or a small number of investors. The
instrument may consist of a warrant, an option, or a forward contract embedded
in a note or any of a wide variety of debt, equity, and/or currency
combinations. Risks of structured products include the inability to close such
instruments, rapid changes in the market, and defaults by other parties. (See
also Derivative Instruments.)
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with structured products include: Credit Risk,
Liquidity Risk, and Management Risk.
Variable- or Floating-Rate Securities
The Fund may invest in securities that offer a variable- or floating-rate of
interest. Variable-rate securities provide for automatic establishment of a new
interest rate at fixed intervals (e.g., daily, monthly, semi-annually, etc.).
Floating-rate securities generally provide for automatic adjustment of the
interest rate whenever some specified interest rate index changes.
Variable- or floating-rate securities frequently include a demand feature
enabling the holder to sell the securities to the issuer at par. In many cases,
the demand feature can be exercised at any time. Some securities that do not
have variable or floating interest rates may be accompanied by puts producing
similar results and price characteristics.
Variable-rate demand notes include master demand notes that are obligations that
permit the Fund to invest fluctuating amounts, which may change daily without
penalty, pursuant to direct arrangements between the Fund as lender, and the
borrower. The interest rates on these notes fluctuate from time to time. The
issuer of such obligations normally has a corresponding right, after a given
period, to prepay in its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified number of days' notice to the
holders of such obligations. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that such
instruments generally will be traded. There generally is not an established
secondary market for these obligations. Accordingly, where these obligations are
not secured by letters of credit or other credit support arrangements, the
Fund's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Such obligations frequently are not rated by
credit rating agencies and may involve heightened risk of default by the issuer.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with variable- or floating-rate securities include:
Credit Risk and Management Risk.
<PAGE>
Warrants
Warrants are securities giving the holder the right, but not the obligation, to
buy the stock of an issuer at a given price (generally higher than the value of
the stock at the time of issuance) during a specified period or perpetually.
Warrants may be acquired separately or in connection with the acquisition of
securities. Warrants do not carry with them the right to dividends or voting
rights and they do not represent any rights in the assets of the issuer.
Warrants may be considered to have more speculative characteristics than certain
other types of investments. In addition, the value of a warrant does not
necessarily change with the value of the underlying securities, and a warrant
ceases to have value if it is not exercised prior to its expiration date.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with warrants include: Management Risk and Market Risk.
When-Issued Securities
These instruments are contracts to purchase securities for a fixed price at a
future date beyond normal settlement time (when-issued securities or forward
commitments). The price of debt obligations purchased on a when-issued basis,
which may be expressed in yield terms, generally is fixed at the time the
commitment to purchase is made, but delivery and payment for the securities take
place at a later date. Normally, the settlement date occurs within 45 days of
the purchase although in some cases settlement may take longer. The investor
does not pay for the securities or receive dividends or interest on them until
the contractual settlement date. Such instruments involve a risk of loss if the
value of the security to be purchased declines prior to the settlement date,
which risk is in addition to the risk of decline in value of the investor's
other assets.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with when-issued securities include: Credit Risk and
Management Risk.
Zero-Coupon, Step-Coupon, and Pay-in-Kind Securities
These securities are debt obligations that do not make regular cash interest
payments (see also Debt Obligations). Zero-coupon and step-coupon securities are
sold at a deep discount to their face value because they do not pay interest
until maturity. Pay-in-kind securities pay interest through the issuance of
additional securities. Because these securities do not pay current cash income,
the price of these securities can be extremely volatile when interest rates
fluctuate. See the appendix for a discussion of securities ratings.
Although one or more of the other risks described in this SAI may apply, the
largest risks associated with zero-coupon, step-coupon, and pay-in-kind
securities include: Credit Risk, Interest Rate Risk, and Management Risk.
<PAGE>
SECURITY TRANSACTIONS
Subject to policies set by the board, AEFC is authorized to determine,
consistent with the Fund's investment goal and policies, which securities will
be purchased, held, or sold. In determining where the buy and sell orders are to
be placed, AEFC has been directed to use its best efforts to obtain the best
available price and the most favorable execution except where otherwise
authorized by the board. In selecting broker-dealers to execute transactions,
AEFC may consider the price of the security, including commission or mark-up,
the size and difficulty of the order, the reliability, integrity, financial
soundness, and general operation and execution capabilities of the broker, the
broker's expertise in particular markets, and research services provided by the
broker.
AEFC has a strict Code of Ethics that prohibits its affiliated personnel from
engaging in personal investment activities that compete with or attempt to take
advantage of planned portfolio transactions for any fund or trust for which it
acts as investment manager.
The Fund's securities may be traded on a principal rather than an agency basis.
In other words, AEFC will trade directly with the issuer or with a dealer who
buys or sells for its own account, rather than acting on behalf of another
client. AEFC does not pay the dealer commissions. Instead, the dealer's profit,
if any, is the difference, or spread, between the dealer's purchase and sale
price for the security.
On occasion, it may be desirable to compensate a broker for research services or
for brokerage services by paying a commission that might not otherwise be
charged or a commission in excess of the amount another broker might charge. The
board has adopted a policy authorizing AEFC to do so to the extent authorized by
law, if AEFC determines, in good faith, that such commission is reasonable in
relation to the value of the brokerage or research services provided by a broker
or dealer, viewed either in the light of that transaction or AEFC's overall
responsibilities with respect to the Fund and the other funds and trusts in the
IDS MUTUAL FUND GROUP for which it acts as investment manager.
Research provided by brokers supplements AEFC's own research activities. Such
services include economic data on, and analysis of, U.S. and foreign economies;
information on specific industries; information about specific companies,
including earnings estimates; purchase recommendations for stocks and bonds;
portfolio strategy services; political, economic, business, and industry trend
assessments; historical statistical information; market data services providing
information on specific issues and prices; and technical analysis of various
aspects of the securities markets, including technical charts. Research services
may take the form of written reports, computer software, or personal contact by
telephone or at seminars or other meetings. AEFC has obtained, and in the future
may obtain, computer hardware from brokers, including but not limited to
personal computers that will be used exclusively for investment decision-making
purposes, which include the research, portfolio management, and trading
functions and other services to the extent permitted under an interpretation by
the SEC.
When paying a commission that might not otherwise be charged or a commission in
excess of the amount another broker might charge, AEFC must follow procedures
authorized by the board. To date, three procedures have been authorized. One
procedure permits AEFC to direct an order to buy or sell a security traded on a
national securities exchange to a specific broker for research services it has
provided. The second procedure permits AEFC, in order to obtain research, to
direct an order on an agency basis to buy or sell a security traded in the
over-the-counter market to a firm that does not make a market in that security.
The commission paid generally includes compensation for research services. The
third procedure permits AEFC, in order to obtain research and brokerage
services, to cause the Fund to pay a commission in excess of the amount another
broker might have charged. AEFC has advised the Fund that it is necessary
<PAGE>
to do business with a number of brokerage firms on a continuing basis to obtain
such services as the handling of large orders, the willingness of a broker to
risk its own money by taking a position in a security, and the specialized
handling of a particular group of securities that only certain brokers may be
able to offer. As a result of this arrangement, some portfolio transactions may
not be effected at the lowest commission, but AEFC believes it may obtain better
overall execution. AEFC has represented that under all three procedures the
amount of commission paid will be reasonable and competitive in relation to the
value of the brokerage services performed or research provided.
All other transactions will be placed on the basis of obtaining the best
available price and the most favorable execution. In so doing, if in the
professional opinion of the person responsible for selecting the broker or
dealer, several firms can execute the transaction on the same basis,
consideration will be given by such person to those firms offering research
services. Such services may be used by AEFC in providing advice to all the funds
in the IDS Mutual Fund Group even though it is not possible to relate the
benefits to any particular fund.
Each investment decision made for the Fund is made independently from any
decision made for another portfolio, fund, or other account advised by AEFC or
any of its subsidiaries. When the Fund buys or sells the same security as
another portfolio, fund, or account, AEFC carries out the purchase or sale in a
way the Fund agrees in advance is fair. Although sharing in large transactions
may adversely affect the price or volume purchased or sold by the Fund, the Fund
hopes to gain an overall advantage in execution.
On a periodic basis, AEFC makes a comprehensive review of the broker-dealers and
the overall reasonableness of their commissions. The review evaluates execution,
operational efficiency, and research services.
The Fund paid total brokerage commissions of $196,852 for fiscal year ended
March 31, 1999, $372,878 for fiscal year 1998, and $308,973 for fiscal year
1997. Substantially all firms through whom transactions were executed provide
research services.
In fiscal year 1999, transactions amounting to $8,573,000, on which $38,125 in
commissions were imputed or paid, were specifically directed to firms in
exchange for research services.
As of the end of the most recent fiscal year, the Fund held no securities of its
regular brokers or dealers or of the parent of those brokers or dealers that
derived more than 15% of gross revenue from securities-related activities.
The portfolio turnover rate was 44% in the most recent fiscal year, and 112% in
the year before.
<PAGE>
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH AMERICAN EXPRESS FINANCIAL
CORPORATION
Affiliates of American Express Company (of which AEFC is a wholly-owned
subsidiary) may engage in brokerage and other securities transactions on behalf
of the Fund according to procedures adopted by the board and to the extent
consistent with applicable provisions of the federal securities laws. AEFC will
use an American Express affiliate only if (i) AEFC determines that the Fund will
receive prices and executions at least as favorable as those offered by
qualified independent brokers performing similar brokerage and other services
for the Fund and (ii) the affiliate charges the Fund commission rates consistent
with those the affiliate charges comparable unaffiliated customers in similar
transactions and if such use is consistent with terms of the Investment
Management Services Agreement.
Information about brokerage commissions paid by the Fund for the last three
fiscal years to brokers affiliated with AEFC is contained in the following
table:
<TABLE>
<CAPTION>
As of the end of Fiscal Year,
1999 1998 1997
------------------------------------------------ --------------- --------------
Percent of
--------------- --------------- -------------- Aggregate --------------- --------------
Dollar Amount
of
Aggregate Percent of Transactions Aggregate Aggregate
Dollar amount Aggregate Involving Dollar Amount Dollar Amount
Broker Nature of of Commissions Brokerage Payment of of Commissions of
Affiliation Paid to Broker Commissions Commissions Paid to Broker Commissions
Paid to Broker
<S> <C> <C> <C> <C> <C>
American Wholly-owned $612 0.31% 0.85% $6,300 $3,400
Enterprise subsidiary of
Investment AEFC
Services Inc.
</TABLE>
<PAGE>
PERFORMANCE INFORMATION
The Fund may quote various performance figures to illustrate past performance.
Average annual total return and current yield quotations, if applicable, used by
the Fund are based on standardized methods of computing performance as required
by the SEC. An explanation of the methods used by the Fund to compute
performance follows below.
AVERAGE ANNUAL TOTAL RETURN
The Fund may calculate average annual total return for a class for certain
periods by finding the average annual compounded rates of return over the period
that would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment,
made at the beginning of a period, at the end of the period
(or fractional portion thereof)
AGGREGATE TOTAL RETURN
The Fund may calculate aggregate total return for a class for certain periods
representing the cumulative change in the value of an investment in the Fund
over a specified period of time according to the following formula:
ERV - P
P
where: P = a hypothetical initial payment of $1,000
ERV = ending redeemable value of a hypothetical $1,000 payment,
made at the beginning of a period, at the end of the period
(or fractional portion thereof)
In its sales material and other communications, the Fund may quote, compare or
refer to rankings, yields, or returns as published by independent statistical
services or publishers and publications such as The Bank Rate Monitor National
Index, Barron's, Business Week, CDA Technologies, Donoghue's Money Market Fund
Report, Financial Services Week, Financial Times, Financial World, Forbes,
Fortune, Global Investor, Institutional Investor, Investor's Daily, Kiplinger's
Personal Finance, Lipper Analytical Services, Money, Morningstar, Mutual Fund
Forecaster, Newsweek, The New York Times, Personal Investor, Shearson Lehman
Aggregate Bond Index, Stanger Report, Sylvia Porter's Personal Finance, USA
Today, U.S. News and World Report, The Wall Street Journal, and Wiesenberger
Investment Companies Service.
<PAGE>
VALUING FUND SHARES
The value of an individual share for each class is determined by using the net
asset value (NAV) before shareholder transactions for the day. On the first
business day following the end of the fiscal year, the computation looked like
this:
<TABLE>
<CAPTION>
Net assets Shares
before outstanding at Net asset value
shareholder the end of of one share
transactions previous day
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Class A $51,474,629 divided by 9,444,886 equals $5.45
Class B 7,638,325 1,419,763 5.38
Class Y 740 136 5.44
</TABLE>
In determining net assets before shareholder transactions, the Fund's securities
are valued as follows as of the close of business of the New York Stock Exchange
(the Exchange):
o Securities traded on a securities exchange for which a last-quoted sales
price is readily available are valued at the last-quoted sales price on the
exchange where such security is primarily traded.
o Securities traded on a securities exchange for which a last-quoted sales
price is not readily available are valued at the mean of the closing bid
and asked prices, looking first to the bid and asked prices on the exchange
where the security is primarily traded and, if none exist, to the
over-the-counter market.
o Securities included in the NASDAQ National Market System are valued at the
last-quoted sales price in this market.
o Securities included in the NASDAQ National Market System for which a
last-quoted sales price is not readily available, and other securities
traded over-the-counter but not included in the NASDAQ National Market
System are valued at the mean of the closing bid and asked prices.
o Futures and options traded on major exchanges are valued at the last-quoted
sales price on their primary exchange.
o Foreign securities traded outside the United States are generally valued as
of the time their trading is complete, which is usually different from the
close of the Exchange. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at the current rate of exchange. Occasionally,
events affecting the value of such securities may occur between such times
and the close of the Exchange that will not be reflected in the computation
of the Fund's net asset value. If events materially affecting the value of
such securities occur during such period, these securities will be valued
at their fair value according to procedures decided upon in good faith by
the board.
o Short-term securities maturing more than 60 days from the valuation date
are valued at the readily available market price or approximate market
value based on current interest rates. Short-term securities maturing in 60
days or less that originally had maturities of more than 60 days at
acquisition date are valued at amortized cost using the market value on the
61st day before maturity. Short-term securities maturing in 60 days or less
at acquisition date are valued at amortized cost. Amortized cost is an
approximation of market value determined by systematically increasing the
carrying value of a security if acquired at a discount, or reducing the
carrying value if acquired at a premium, so that the carrying value is
equal to maturity value on the maturity date.
<PAGE>
o Securities without a readily available market price and other assets
including investments in metals are valued at fair value as determined in
good faith by the board. The board is responsible for selecting methods it
believes provide fair value. When possible, bonds are valued by a pricing
service independent from the Fund. If a valuation of a bond is not
available from a pricing service, the bond will be valued by a dealer
knowledgeable about the bond if such a dealer is available.
INVESTING IN THE FUND
SALES CHARGE
Shares of the Fund are sold at the public offering price. The public offering
price is the NAV of one share adjusted for the sales charge for Class A. For
Class B and Class Y, there is no initial sales charge so the public offering
price is the same as the NAV. For Class A, the public offering price for an
investment of less than $50,000, made on the first business day following the
end of the fiscal year, was determined by dividing the NAV of one share, $5.45,
by 0.95 (1.00-0.05 for a maximum 5% sales charge) for a public offering price of
$5.74. The sales charge is paid to American Express Financial Advisors Inc.
(AEFA) by the person buying the shares.
Class A - Calculation of the Sales Charge
Sales charges are determined as follows:
Within each increment, sales
charge as a percentage of:
------------------------------------------------------
Public Net
Amount of Investment Offering Price Amount Invested
- -------------------- -------------- ---------------
First $ 50,000 5.0% 5.26%
Next 50,000 4.5 4.71
Next 400,000 3.8 3.95
Next 500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
Sales charges on an investment greater than $50,000 and less than $1,000,000 are
calculated for each increment separately and then totaled. The resulting total
sales charge, expressed as a percentage of the public offering price and of the
net amount invested, will vary depending on the proportion of the investment at
different sales charge levels.
For example, compare an investment of $60,000 with an investment of $85,000. The
$60,000 investment is composed of $50,000 that incurs a sales charge of $2,500
(5.0% x $50,000) and $10,000 that incurs a sales charge of $450 (4.5% x
$10,000). The total sales charge of $2,950 is 4.92% of the public offering price
and 5.17% of the net amount invested.
In the case of the $85,000 investment, the first $50,000 also incurs a sales
charge of $2,500 (5.0% x $50,000) and $35,000 incurs a sales charge of $1,575
(4.5% x $35,000). The total sales charge of $4,075 is 4.79% of the public
offering price and 5.04% of the net amount invested.
<PAGE>
The following table shows the range of sales charges as a percentage of the
public offering price and of the net amount invested on total investments at
each applicable level.
On total investment, sales
charge as a percentage of:
------------------------------------------
Public Net
Offering Price Amount Invested
Amount of investment ranges from:
- --------------------------------------
First $ 50,000 5.00% 5.26%
Next 50,000 to 100,000 5.00-4.50 5.26-4.71
Next 100,000 to 500,000 4.50-3.80 4.71-3.95
Next 500,000 to 999,999 3.80-2.00 3.95-2.04
$1,000,000 or more 0.00 0.00
The initial sales charge is waived for certain qualified plans. Participants in
these qualified plans may be subject to a deferred sales charge on certain
redemptions. The Fund will waive the deferred sales charge on certain
redemptions if the redemption is a result of a participant's death, disability,
retirement, attaining age 59 1/2, loans, or hardship withdrawals. The deferred
sales charge varies depending on the number of participants in the qualified
plan and total plan assets as follows:
Deferred Sales Charge
Number of Participants
Total Plan Assets 1-99 100 or more
- ----------------- ---- -----------
Less than $1 million 4% 0%
$1 million or more 0% 0%
Class A - Reducing the Sales Charge
Your total investments in the Fund determine your sales charges. The amount of
all prior investments plus any new purchase is referred to as your "total amount
invested." For example, suppose you have made an investment of $20,000 and later
decide to invest $40,000 more. Your total amount invested would be $60,000. As a
result, $10,000 of your $40,000 investment qualifies for the lower 4.5% sales
charge that applies to investments of more than $50,000 and up to $100,000.
Class A - Letter of Intent (LOI)
If you intend to invest $1 million over a period of 13 months, you can reduce
the sales charges in Class A by filing a LOI. The agreement can start at any
time and will remain in effect for 13 months. Your investment will be charged
normal sales charges until you have invested $1 million. At that time, your
account will be credited with the sales charges previously paid. Class A
investments made prior to signing a LOI may be used to reach the $1 million
total, excluding IDS Cash Management Fund and IDS Tax-Free Money Fund. However,
we will not adjust for sales charges on investments made prior to the signing of
the LOI. If you do not invest $1 million by the end of 13 months, there is no
penalty, you will just miss out on the sales charge adjustment. A LOI is not an
option (absolute right) to buy shares.
<PAGE>
Class Y Shares
Class Y shares are offered to certain institutional investors. Class Y shares
are sold without a front-end sales charge or a CDSC and are not subject to a
distribution fee. The following investors are eligible to purchase Class Y
shares:
o Qualified employee benefit plans* if the plan:
- uses a daily transfer recordkeeping service offering participants
daily access to IDS funds and has
- at least $10 million in plan assets or
- 500 or more participants; or
- does not use daily transfer recordkeeping and has
- at least $3 million invested in funds of the IDS MUTUAL FUND
GROUP or
- 500 or more participants.
o Trust companies or similar institutions, and charitable organizations that
meet the definition in Section 501(c)(3) of the Internal Revenue Code.*
These institutions must have at least $10 million in funds of the IDS
MUTUAL FUND GROUP.
o Nonqualified deferred compensation plans* whose participants are included
in a qualified employee benefit described above.
* Eligibility must be determined in advance by AEFA. To do so, contact your
financial advisor.
SYSTEMATIC INVESTMENT PROGRAMS
After you make your initial investment of $100 or more, you must make additional
payments of $100 or more on at least a monthly basis until your balance reaches
$2,000. These minimums do not apply to all systematic investment programs. You
decide how often to make payments - monthly, quarterly, or semiannually. You are
not obligated to make any payments. You can omit payments or discontinue the
investment program altogether. The Fund also can change the program or end it at
any time.
AUTOMATIC DIRECTED DIVIDENDS
Dividends, including capital gain distributions, paid by another fund in the IDS
MUTUAL FUND GROUP subject to a sales charge, may be used to automatically
purchase shares in the same class of this Fund without paying a sales charge.
Dividends may be directed to existing accounts only. Dividends declared by a
fund are exchanged to this Fund the following day. Dividends can be exchanged
into the same class of another fund in the IDS MUTUAL FUND GROUP but cannot be
split to make purchases in two or more funds. Automatic directed dividends are
available between accounts of any ownership except:
o Between a non-custodial account and an IRA, or 401(k) plan account or other
qualified retirement account of which American Express Trust Company acts
as custodian;
o Between two American Express Trust Company custodial accounts with
different owners (for example, you may not exchange dividends from your IRA
to the IRA of your spouse); and
<PAGE>
o Between different kinds of custodial accounts with the same ownership (for
example, you may not exchange dividends from your IRA to your 401(k) plan
account, although you may exchange dividends from one IRA to another IRA).
Dividends may be directed from accounts established under the Uniform Gifts to
Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) only into other UGMA
or UTMA accounts with identical ownership.
The Fund's investment goal is described in its prospectus along with other
information, including fees and expense ratios. Before exchanging dividends into
another fund, you should read that fund's prospectus. You will receive a
confirmation that the automatic directed dividend service has been set up for
your account.
REJECTION OF BUSINESS
The Fund reserves the right to reject any business, in its sole discretion.
SELLING SHARES
You have a right to sell your shares at any time. For an explanation of sales
procedures, please see the prospectus.
During an emergency, the board can suspend the computation of NAV, stop
accepting payments for purchase of shares, or suspend the duty of the Fund to
redeem shares for more than seven days. Such emergency situations would occur
if:
o The Exchange closes for reasons other than the usual weekend and holiday
closings or trading on the Exchange is restricted, or
o Disposal of the Fund's securities is not reasonably practicable or it is
not reasonably practicable for the Fund to determine the fair value of its
net assets, or
o The SEC, under the provisions of the 1940 Act, declares a period of
emergency to exist.
Should the Fund stop selling shares, the board may make a deduction from the
value of the assets held by the Fund to cover the cost of future liquidations of
the assets so as to distribute fairly these costs among all shareholders.
The Fund has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates the Fund to redeem shares in cash, with respect to any one shareholder
during any 90-day period, up to the lesser of $250,000 or 1% of the net assets
of the Fund at the beginning of the period. Although redemptions in excess of
this limitation would normally be paid in cash, the Fund reserves the right to
make these payments in whole or in part in securities or other assets in case of
an emergency, or if the payment of a redemption in cash would be detrimental to
the existing shareholders of the Fund as determined by the board. In these
circumstances, the securities distributed would be valued as set forth in this
SAI. Should the Fund distribute securities, a shareholder may incur brokerage
fees or other transaction costs in converting the securities to cash.
<PAGE>
PAY-OUT PLANS
You can use any of several pay-out plans to redeem your investment in regular
installments. If you redeem Class B shares you may be subject to a contingent
deferred sales charge as discussed in the prospectus. While the plans differ on
how the pay-out is figured, they all are based on the redemption of your
investment. Net investment income dividends and any capital gain distributions
will automatically be reinvested, unless you elect to receive them in cash. If
you are redeeming a tax-qualified plan account for which American Express Trust
Company acts as custodian, you can elect to receive your dividends and other
distributions in cash when permitted by law. If you redeem an IRA or a qualified
retirement account, certain restrictions, federal tax penalties, and special
federal income tax reporting requirements may apply. You should consult your tax
advisor about this complex area of the tax law.
Applications for a systematic investment in a class of the Fund subject to a
sales charge normally will not be accepted while a pay-out plan for any of those
funds is in effect. Occasional investments, however, may be accepted.
To start any of these plans, please write American Express Shareholder Service,
P.O. Box 534, Minneapolis, MN 55440-0534, or call American Express Financial
Advisors Telephone Transaction Service at 800-437-3133. Your authorization must
be received in the Minneapolis headquarters at least five days before the date
you want your payments to begin. The initial payment must be at least $50.
Payments will be made on a monthly, bimonthly, quarterly, semiannual, or annual
basis. Your choice is effective until you change or cancel it.
The following pay-out plans are designed to take care of the needs of most
shareholders in a way AEFC can handle efficiently and at a reasonable cost. If
you need a more irregular schedule of payments, it may be necessary for you to
make a series of individual redemptions, in which case you will have to send in
a separate redemption request for each pay-out. The Fund reserves the right to
change or stop any pay-out plan and to stop making such plans available.
Plan #1: Pay-out for a fixed period of time
If you choose this plan, a varying number of shares will be redeemed at regular
intervals during the time period you choose. This plan is designed to end in
complete redemption of all shares in your account by the end of the fixed
period.
Plan #2: Redemption of a fixed number of shares
If you choose this plan, a fixed number of shares will be redeemed for each
payment and that amount will be sent to you. The length of time these payments
continue is based on the number of shares in your account.
Plan #3: Redemption of a fixed dollar amount
If you decide on a fixed dollar amount, whatever number of shares is necessary
to make the payment will be redeemed in regular installments until the account
is closed.
Plan #4: Redemption of a percentage of net asset value
Payments are made based on a fixed percentage of the net asset value of the
shares in the account computed on the day of each payment. Percentages range
from 0.25% to 0.75%. For example, if you are on this plan and arrange to take
0.5% each month, you will get $50 if the value of your account is $10,000 on the
payment date.
<PAGE>
CAPITAL LOSS CARRYOVER
For federal income tax purposes, the Fund had total capital loss carryovers of
$16,477,515 at the end of the most recent fiscal year, that if not offset by
subsequent capital gains will expire as follows:
2006 2007
---- ----
$6,151,660 $10,325,855
It is unlikely that the board will authorize a distribution of any net realized
capital gains until the available capital loss carryover has been offset or has
expired except as required by Internal Revenue Service rules.
TAXES
If you buy shares in the Fund and then exchange into another fund, it is
considered a redemption and subsequent purchase of shares. Under the tax laws,
if this exchange is done within 91 days, any sales charge waived on Class A
shares on a subsequent purchase of shares applies to the new shares acquired in
the exchange. Therefore, you cannot create a tax loss or reduce a tax gain
attributable to the sales charge when exchanging shares within 91 days.
For example:
You purchase 100 shares of one fund having a public offering price of $10.00 per
share. With a sales load of 5%, you pay $50.00 in sales load. With a NAV of
$9.50 per share, the value of your investment is $950.00. Within 91 days of
purchasing that fund, you decide to exchange out of that fund, now at a NAV of
$11.00 per share, up from the original NAV of $9.50, and purchase into a second
fund, at a NAV of $15.00 per share. The value of your investment is now
$1,100.00 ($11.00 x 100 shares). You cannot use the $50.00 paid as a sales load
when calculating your tax gain or loss in the sale of the first fund shares. So
instead of having $100.00 gain ($1,100.00 - $1,000.00), you have a $150.00 gain
($1,100.00 - $950.00). You can include the $50.00 sales load in the calculation
of your tax gain or loss when you sell shares in the second fund.
If you have a nonqualified investment in the Fund and you wish to move part or
all of those shares to an IRA or qualified retirement account in the Fund, you
can do so without paying a sales charge. However, this type of exchange is
considered a redemption of shares and may result in a gain or loss for tax
purposes. In addition, this type of exchange may result in an excess
contribution under IRA or qualified plan regulations if the amount exchanged
plus the amount of the initial sales charge applied to the amount exchanged
exceeds annual contribution limitations. For example: If you were to exchange
$2,000 in Class A shares from a nonqualified account to an IRA without
considering the 5% ($100) initial sales charge applicable to that $2,000, you
may be deemed to have exceeded current IRA annual contribution limitations. You
should consult your tax advisor for further details about this complex subject.
Net investment income dividends received should be treated as dividend income
for federal income tax purposes. Corporate shareholders are generally entitled
to a deduction equal to 70% of that portion of the Fund's dividend that is
attributable to dividends the Fund received from domestic (U.S.) securities. For
the most recent fiscal year, 28.33% of the Fund's net investment income
dividends qualified for the corporate deduction.
The Fund may be subject to U.S. taxes resulting from holdings in a passive
foreign investment company (PFIC). A foreign corporation is a PFIC when 75% or
more of its gross income for the taxable year is passive income or 50% or more
of the average value of its assets consists of assets that produce or could
produce passive income.
<PAGE>
Income earned by the Fund may have had foreign taxes imposed and withheld on it
in foreign countries. Tax conventions between certain countries and the U.S. may
reduce or eliminate such taxes. If more than 50% of the Fund's total assets at
the close of its fiscal year consists of securities of foreign corporations, the
Fund will be eligible to file an election with the Internal Revenue Service
under which shareholders of the Fund would be required to include their pro rata
portions of foreign taxes withheld by foreign countries as gross income in their
federal income tax returns. These pro rata portions of foreign taxes withheld
may be taken as a credit or deduction in computing federal income taxes. If the
election is filed, the Fund will report to its shareholders the per share amount
of such foreign taxes withheld and the amount of foreign tax credit or deduction
available for federal income tax purposes.
Capital gain distributions, if any, received by corporate shareholders should be
treated as long-term capital gains regardless of how long they owned their
shares. Capital gain distributions, if any, received by individuals should be
treated as long-term if held for more than one year. Short-term capital gains
earned by the Fund are paid to shareholders as part of their ordinary income
dividend and are taxable. A special 28% rate on capital gains applies to sales
of precious metals owned directly by the Fund. A special 25% rate on capital
gains may apply to investments in REITs.
Under the Internal Revenue Code of 1986 (the Code), gains or losses attributable
to fluctuations in exchange rates that occur between the time the Fund accrues
interest or other receivables, or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss. Similarly, gains or losses on disposition of debt securities
denominated in a foreign currency attributable to fluctuations in the value of
the foreign currency between the date of acquisition of the security and the
date of disposition also are treated as ordinary gains or losses. These gains or
losses, referred to under the Code as "section 988" gains or losses, may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to its shareholders as ordinary income. If the Fund incurs a
loss, a portion of the dividends distributed to shareholders may be considered a
return of capital.
Under federal tax law, by the end of a calendar year the Fund must declare and
pay dividends representing 98% of ordinary income for that calendar year and 98%
of net capital gains (both long-term and short-term) for the 12-month period
ending Oct. 31 of that calendar year. The Fund is subject to an excise tax equal
to 4% of the excess, if any, of the amount required to be distributed over the
amount actually distributed. The Fund intends to comply with federal tax law and
avoid any excise tax.
For purposes of the excise tax distributions, "section 988" ordinary gains and
losses are distributable based on an Oct. 31 year end. This is an exception to
the general rule that ordinary income is paid based on a calendar year end.
If a mutual fund is the holder of record of any share of stock on the record
date for any dividend payable with respect to such stock, such dividend shall be
included in gross income by the Fund as of the later of (1) the date such share
became ex-dividend or (2) the date the Fund acquired such share. Because the
dividends on some foreign equity investments may be received some time after the
stock goes ex-dividend, and in certain rare cases may never be received by the
Fund, this rule may cause the Fund to take into income dividend income that it
has not received and pay such income to its shareholders. To the extent that the
dividend is never received, the Fund will take a loss at the time that a
determination is made that the dividend will not be received.
This is a brief summary that relates to federal income taxation only.
Shareholders should consult their tax advisor as to the application of federal,
state, and local income tax laws to Fund distributions.
<PAGE>
AGREEMENTS
INVESTMENT MANAGEMENT SERVICES AGREEMENT
AEFC, a wholly-owned subsidiary of American Express Company, is the investment
manager for the Fund. Under the Investment Management Services Agreement, AEFC,
subject to the policies set by the board, provides investment management
services.
For its services, AEFC is paid a fee based on the following schedule. Each class
of the Fund pays its proportionate share of the fee.
Assets Annual rate at
(billions) each asset level
- --------- ----------------
First $0.25 0.800%
Next 0.25 0.775
Next 0.25 0.750
Next 0.25 0.725
Next 1.00 0.700
Over 2.00 0.675
On the last day of the most recent fiscal year, the daily rate applied to the
Fund's net assets was equal to 0.80% on an annual basis. The fee is calculated
for each calendar day on the basis of net assets as of the close of business two
business days prior to the day for which the calculation is made.
Before the fee based on the asset charge is paid, it is adjusted for investment
performance. The adjustment, determined monthly, will be calculated using the
percentage point difference between the change in the net asset value of one
Class A share of the Fund and the change in the Lipper Gold Fund Index (Index).
The performance of one Class A share of the Fund is measured by computing the
percentage difference between the opening and closing net asset value of one
Class A share of the Fund, as of the last business day of the period selected
for comparison, adjusted for dividend or capital gain distributions which are
treated as reinvested at the end of the month during which the distribution was
made. The performance of the Index for the same period is established by
measuring the percentage difference between the beginning and ending Index for
the comparison period. The performance is adjusted for dividend or capital gain
distributions (on the securities which comprise the Index), which are treated as
reinvested at the end of the month during which the distribution was made. One
percentage point will be subtracted from the calculation to help assure that
incentive adjustments are attributable to AEFC's management abilities rather
than random fluctuations and the result multiplied by 0.01%. That number will be
multiplied times the Fund's average net assets for the comparison period and
then divided by the number of months in the comparison period to determine the
monthly adjustment.
Where the Fund's Class A share performance exceeds that of the Index, the base
fee will be increased. Where the performance of the Index exceeds the
performance of the Fund's Class A share, the base fee will be decreased. The
maximum monthly increase or decrease will be 0.12% of the Fund's average net
assets on an annual basis.
The 12 month comparison period rolls over with each succeeding month, so that it
always equals 12 months, ending with the month for which the performance
adjustment is being computed. The adjustment increased the fee by $9,779 for
fiscal year 1999.
The management fee is paid monthly. Under the agreement, the total amount paid
was $508,640 for fiscal year 1999, $578,106 for fiscal year 1998, and $1,008,365
for fiscal year 1997.
<PAGE>
Under the agreement, the Fund also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees; audit and certain legal
fees; fidelity bond premiums; registration fees for shares; office expenses;
postage of confirmations except purchase confirmations; consultants' fees;
compensation of board members, officers and employees; corporate filing fees;
organizational expenses; expenses incurred in connection with lending
securities; and expenses properly payable by the Fund, approved by the board.
Under the agreement, nonadvisory expenses, net of earnings credits, paid by the
Fund were $146,807 for fiscal year 1999, $137,826 for fiscal year 1998, and
$188,674 for fiscal year 1997.
Administrative Services Agreement
The Fund has an Administrative Services Agreement with AEFC. Under this
agreement, the Fund pays AEFC for providing administration and accounting
services. The fee is calculated as follows:
Assets Annual rate
(billions) each asset level
- --------- ----------------
First $0.25 0.060%
Next 0.25 0.055
Next 0.25 0.050
Next 0.25 0.045
Next 1.00 0.040
Over 2.00 0.035
On the last day of the most recent fiscal year, the daily rate applied to the
Fund's net assets was equal to 0.06% on an annual basis. The fee is calculated
for each calendar day on the basis of net assets as of the close of business two
business days prior to the day for which the calculation is made. Under the
agreement, the Fund paid fees of $39,166 for fiscal year 1999, $49,033 for
fiscal year 1998, and $67,376 for fiscal year 1997.
Transfer Agency Agreement
The Fund has a Transfer Agency Agreement with American Express Client Service
Corporation (AECSC). This agreement governs AECSC's responsibility for
administering and/or performing transfer agent functions, for acting as service
agent in connection with dividend and distribution functions and for performing
shareholder account administration agent functions in connection with the
issuance, exchange and redemption or repurchase of the Fund's shares. Under the
agreement, AECSC will earn a fee from the Fund determined by multiplying the
number of shareholder accounts at the end of the day by a rate determined for
each class per year and dividing by the number of days in the year. The rate for
Class A is $19.00 per year, for Class B is $20.00 per year and for Class Y is
$17.00 per year. The fees paid to AECSC may be changed by the board without
shareholder approval.
DISTRIBUTION AGREEMENT
AEFA is the Fund's principal underwriter (distributor). The Fund's shares are
offered on a continuous basis.
Under a Distribution Agreement, sales charges deducted for distributing Fund
shares are paid to AEFA daily. These charges amounted to $160,476 for fiscal
year 1999. After paying commissions to personal financial advisors, and other
expenses, the amount retained was $31,703. The amounts were $255,594 and $31,958
for fiscal year 1998, and $495,141 and $34,844 for fiscal year 1997.
<PAGE>
SHAREHOLDER SERVICE AGREEMENT
The Fund pays a fee for service provided to shareholders by financial advisors
and other servicing agents. The fee is calculated at a rate of 0.175% of average
daily net assets for Class A and Class B and 0.10% for Class Y.
PLAN AND AGREEMENT OF DISTRIBUTION
For Class B shares, to help AEFA defray the cost of distribution and servicing,
not covered by the sales charges received under the Distribution Agreement, the
Fund and AEFA entered into a Plan and Agreement of Distribution (Plan). These
costs cover almost all aspects of distributing the Fund's shares.
These costs do not include compensation to the sales force. A substantial
portion of the costs are not specifically identified to any one fund in the IDS
MUTUAL FUND GROUP. Under the Plan, AEFA is paid a fee up to actual expenses
incurred at an annual rate of 0.75% of the Fund's average daily net assets
attributable to Class B shares.
The Plan must be approved annually by the board, including a majority of the
disinterested board members, if it is to continue for more than a year. At least
quarterly, the board must review written reports concerning the amounts expended
under the Plan and the purposes for which such expenditures were made. The Plan
and any agreement related to it may be terminated at any time by vote of a
majority of board members who are not interested persons of the Fund and have no
direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan, or by vote of a majority of the outstanding
voting securities of the Fund's Class B shares or by AEFA. The Plan (or any
agreement related to it) will terminate in the event of its assignment, as that
term is defined in the 1940 Act. The Plan may not be amended to increase the
amount to be spent for distribution without shareholder approval, and all
material amendments to the Plan must be approved by a majority of the board
members, including a majority of the board members who are not interested
persons of the Fund and who do not have a financial interest in the operation of
the Plan or any agreement related to it. The selection and nomination of
disinterested board members is the responsibility of the other disinterested
board members. No board member who is not an interested person, has any direct
or indirect financial interest in the operation of the Plan or any related
agreement. For the most recent fiscal year, under the agreement, the Fund paid
fees of $59,419. The fee is not allocated to any one service (such as
advertising, payments to underwriters, or other uses). However, a significant
portion of the fee is generally used for sales and promotional expenses.
Custodian Agreement
The Fund's securities and cash are held by American Express Trust Company, 1200
Northstar Center West, 625 Marquette Ave., Minneapolis, MN 55402-2307, through a
custodian agreement. The custodian is permitted to deposit some or all of its
securities in central depository systems as allowed by federal law. For its
services, the Fund pays the custodian a maintenance charge and a charge per
transaction in addition to reimbursing the custodian's out-of-pocket expenses.
The custodian has entered into a sub-custodian arrangement with the Morgan
Stanley Trust Company (Morgan Stanley), One Pierrepont Plaza, Eighth Floor,
Brooklyn, NY 11201-2775. As part of this arrangement, securities purchased
outside the United States are maintained in the custody of various foreign
branches of Morgan Stanley or in other financial institutions as permitted by
law and by the Fund's sub-custodian agreement.
<PAGE>
ORGANIZATIONAL INFORMATION
The Fund is an open-end management investment company. The Fund headquarters are
at 901 S. Marquette Ave., Suite 2810, Minneapolis, MN 55402-3268.
SHARES
The shares of the Fund represent an interest in that fund's assets only (and
profits or losses), and, in the event of liquidation, each share of the Fund
would have the same rights to dividends and assets as every other share of that
Fund.
VOTING RIGHTS
As a shareholder in the Fund, you have voting rights over the Fund's management
and fundamental policies. You are entitled to one vote for each share you own.
Each class, if applicable, has exclusive voting rights with respect to matters
for which separate class voting is appropriate under applicable law. All shares
have cumulative voting rights with respect to the election of board members.
This means that you have as many votes as the number of shares you own,
including fractional shares, multiplied by the number of members to be elected.
Dividend Rights
Dividends paid by the Fund, if any, with respect to each class of shares, if
applicable, will be calculated in the same manner, at the same time, on the same
day, and will be in the same amount, except for differences resulting from
differences in fee structures.
<PAGE>
<TABLE>
<CAPTION>
FUND HISTORY TABLE FOR ALL PUBLICLY OFFERED FUNDS IN THE IDS MUTUAL FUND GROUP
Date of Form of State of Fiscal
Fund Organization Organization Organization Year End Diversified
<S> <C> <C> <C> <C> <C>
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Bond Fund, Inc. 6/27/74, Corporation NV/MN 8/31 Yes
6/31/86*
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Discovery Fund, Inc. 4/29/81, Corporation NV/MN 7/31 Yes
6/13/86*
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Equity Select Fund, Inc. 3/18/57, Corporation NV/MN 11/30 Yes
6/13/86*
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Extra Income Fund, Inc. 8/17/83 Corporation MN 5/31 Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Federal Income Fund, Inc. 3/12/85 Corporation MN 5/31 Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Global Series, Inc. 10/28/88 Corporation MN 10/31
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Emerging Markets Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Global Balanced Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Global Bond Fund No
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Global Growth Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Innovations Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Growth Fund, Inc. 5/21/70, Corporation NV/MN 7/31
6/13/86*
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Growth Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Research Opportunities Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS High Yield Tax-Exempt Fund, Inc. 12/21/78, Corporation NV/MN 11/30 Yes
6/13/86*
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS International Fund, Inc. 7/18/84 Corporation MN 10/31 Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Investment Series, Inc. 1/18/40, Corporation NV/MN 9/30
6/13/86*
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Diversified Equity Income Yes
Fund
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Mutual Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Managed Retirement Fund, Inc. 10/9/84 Corporation MN 9/30
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Managed Allocation Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Market Advantage Series, Inc. 8/25/89 Corporation MN 1/31
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Blue Chip Advantage Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Small Company Index Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Money Market Series, Inc. 8/22/75, Corporation NV/MN 7/31
6/13/86*
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Cash Management Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS New Dimensions Fund, Inc. 2/20/68, Corporation NV/MN 7/31 Yes
6/13/86*
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Precious Metals Fund, Inc. 10/5/84 Corporation MN 3/31 No
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Progressive Fund, Inc. 4/23/68, Corporation NV/MN 9/30 Yes
6/13/86*
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Selective Fund, Inc. 2/10/45, Corporation NV/MN 5/31 Yes
6/13/86*
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Stock Fund, Inc. 2/10/45, Corporation NV/MN 9/30 Yes
6/13/86*
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Strategy Fund, Inc. 1/24/84 Corporation MN 3/31
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
AXP Small Cap Advantage Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Strategy Aggressive Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Equity Value Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Tax-Exempt Bond Fund, Inc. 9/30/76, Corporation NV/MN 11/31
6/13/86*
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Tax-Exempt Bond Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Intermediate Tax-Exempt Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Tax-Free Money Fund, Inc. 2/29/80, Corporation NV/MN 12/31 Yes
6/13/86*
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Utilities Income Fund, Inc. 3/25/88 Corporation MN 6/30 Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS California Tax-Exempt Trust 4/7/86 Business MA 6/30
Trust**
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS California Tax-Exempt Fund No
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Special Tax-Exempt Series Trust 4/7/86 Business MA 6/30
Trust**
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Insured Tax-Exempt Fund Yes
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Massachusetts Tax-Exempt Fund No
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Michigan Tax-Exempt Fund No
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Minnesota Tax-Exempt Fund No
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS New York Tax-Exempt Fund No
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
IDS Ohio Tax-Exempt Fund No
- -------------------------------------- ---------------- --------------- ------------- ----------- -----------
* Date merged into a Minnesota corporation incorporated on 4/7/86.
** Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the
trust itself is unable to meet its obligations.
</TABLE>
<PAGE>
BOARD MEMBERS AND OFFICERS
Shareholders elect a board that oversees the Fund's operations. The board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the board.
The following is a list of the Fund's board members. They serve 15 Master Trust
portfolios and 48 IDS and IDS Life funds (except for William H. Dudley, who does
not serve on the nine IDS Life fund boards).
H. Brewster Atwater, Jr.'
Born in 1931
4900 IDS Tower
Minneapolis, MN
Retired chairman and chief executive officer, General Mills, Inc. Director,
Merck & Co., Inc. and Darden Restaurants, Inc.
Arne H. Carlson+'*
Born in 1934
901 S. Marquette Ave.
Minneapolis, MN
Chairman and Chief executive officer of the Fund. Chairman: Board Services
Corporation (provides administrative services to boards). Former Governor of
Minnesota.
Lynne V. Cheney'
Born in 1941
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W. Washington, D.C.
Distinguished Fellow AEI. Former Chair of National Endowment of the Humanities.
Director, The Reader's Digest Association Inc., Lockheed-Martin, and Union
Pacific Resources.
William H. Dudley**
Born in 1932
2900 IDS Tower
Minneapolis, MN
Senior advisor to the chief executive officer of AEFC.
David R. Hubers**
Born in 1943
2900 IDS Tower
Minneapolis, MN
President, chief executive officer and director of AEFC.
<PAGE>
Heinz F. Hutter+
Born in 1929
P.O. Box 2187
Minneapolis, MN
Retired president and chief operating officer, Cargill, Incorporated (commodity
merchants and processors).
Anne P. Jones'+
Born in 1935
5716 Bent Branch Rd.
Bethesda, MD
Attorney and telecommunications consultant. Former partner, law firm of
Sutherland, Asbill & Brennan. Director, Motorola, Inc. (electronics), C-Cor
Electronics, Inc., and Amnex, Inc. (communications).
William R. Pearce
Born in 1927
2050 One Financial Plaza
Minneapolis, MN
R11 Weyerhauser World Timberfund, L.P. (develops timber resources). Retired vice
chairman of the board, Cargill, Incorporated (commodity merchants and
processors). Former chairman: Board Services Corporation.
Alan K. Simpson'+
Born in 1931
1201 Sunshine Ave.
Cody, WY
Director of the Institute of Politics, Harvard University. Former three-term
United States Senator for Wyoming. Former Assistant Republican Leader, U.S.
Senate. Director, PacifiCorp (electric power) and Biogen (bio-pharmaceuticals).
Edson W. Spencer
Born in 1926
4900 IDS Center
80 S. 8th St.
Minneapolis, MN
President, Spencer Associates Inc. (consulting). Retired chairman of the board
and chief executive officer, Honeywell Inc. Director, Boise Cascade Corporation
(forest products). Member of International Advisory Council of NEC (Japan).
John R. Thomas**
Born in 1937
2900 IDS Tower
Minneapolis, MN
Senior vice president of AEFC.
<PAGE>
Wheelock Whitney
Born in 1926
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN
Chairman, Whitney Management Company (manages family assets).
C. Angus Wurtele+
Born in 1934
Valspar Corporation
Suite 1700
Foshay Tower
Minneapolis, MN
Retired chairman of the board and chief executive officer, The Valspar
Corporation (paints). Director, Valspar, Bemis Corporation (packaging), and
General Mills, Inc. (consumer foods).
+ Member of executive committee.
' Member of joint audit committee.
* Interested person by reason of being an officer and employee of the Fund.
**Interested person by reason of being an officer, board member, employee and/or
shareholder of AEFC or American Express.
The board also has appointed officers who are responsible for day-to-day
business decisions based on policies it has established.
In addition to Mr. Pearce, who is chairman of the board and Mr. Thomas, who is
president, the Fund's other officers are:
Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN
President of Board Services Corporation. Vice president, general counsel and
secretary for the Fund.
Officers who also are officers and employees of AEFC:
Peter J. Anderson
Born in 1942
IDS Tower 10
Minneapolis, MN
Director and senior vice president-investments of AEFC. Vice
president-investments for the Fund.
Frederick C. Quirsfeld
Born in 1947
IDS Tower 10
Minneapolis, MN
Vice president - taxable mutual fund investments of AEFC. Vice president - fixed
income investments for the Fund.
<PAGE>
John M. Knight
Born in 1952
IDS Tower 10
Minneapolis, MN
Vice president - investment accounting of AEFC. Treasurer for the Fund.
COMPENSATION FOR BOARD MEMBERS
During the most recent fiscal year, the independent members of the Fund board,
for attending up to 28 meetings, received the following compensation:
<TABLE>
<CAPTION>
Compensation Table
Total cash compensation from the
Board member Aggregate IDS MUTUAL FUND GROUP and
compensation from the Fund Preferred Master Trust Group
<S> <C> <C>
H. Brewster Atwater, Jr. $1,125 $111,900
Lynne V. Cheney 831 96,900
Heinz F. Hutter 950 101,400
Anne P. Jones 1,057 110,900
Alan K. Simpson 806 95,400
Edson W. Spencer 917 99,400
Wheelock Whitney 800 92,400
C. Angus Wurtele 1,217 117,400
</TABLE>
As of 30 days prior to the date of this SAI, the Fund's board members and
officers as a group owned less than 1% of the outstanding shares of any class.
INDEPENDENT AUDITORS
The financial statements contained in the Annual Report were audited by
independent auditors, KPMG Peat Marwick LLP, 4200 Norwest Center, 90 S. Seventh
St., Minneapolis, MN 55402-3900. The independent auditors also provide other
accounting and tax-related services as requested by the Fund.
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
Standard & Poor's Debt Ratings
A Standard & Poor's corporate or municipal debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of such information or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
o Likelihood of default capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation.
o Nature of and provisions of the obligation.
o Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization, or other arrangement
under the laws of bankruptcy and other laws affecting creditors'
rights.
Investment Grade
Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
Debt rated AA has a very strong capacity to pay interest and repay principal and
differs from the highest rated issues only in a small degree.
Debt rated A has a strong capacity to pay interest and repay principal, although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher-rated categories.
Speculative grade
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
<PAGE>
Debt rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainies or exposure to adverse
business, financial, or economic conditions that could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
also is used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category also is used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
Debt rated CCC has a currently identifiable vulnerability to default and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category also is
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
Debt rated CC typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating.
Debt rated C typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued.
The rating CI is reserved for income bonds on which no interest is being paid.
Debt rated D is in payment default. The D rating category is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Moody's Long-Term Debt Ratings
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risk appear somewhat larger than in Aaa securities.
A - Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment some time in the future.
Baa - Bonds that are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
<PAGE>
Ba - Bonds that are rated Ba are judged to have speculative elements--their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or maintenance of other
terms of the contract over any long period of time may be small.
Caa - Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds that are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Fitch Investors Service, Inc. Bond Ratings
Fitch investment grade bond and preferred stock ratings provide a guide to
investors in determining the credit risk associated with a particular security.
The ratings represent Fitch's assessment of the issuer's ability to meet the
obligations of a specific debt or preferred issue in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guaranties unless otherwise indicated.
Bonds and preferred stock carrying the same rating are of similar but not
necessarily identical credit quality since the rating categories do not fully
reflect small differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other obligors,
underwriters, their experts, and other sources Fitch believes to be reliable.
Fitch does not audit or verify the truth or accuracy of such information.
Ratings may be changed, suspended, or withdrawn as a result of changes in, or
the unavailability of, information or for other reasons.
AAA Bonds and preferred stock considered to be investment grade
and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and/or dividends
and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA Bonds and preferred stock considered to be investment grade
and of very high credit quality. The obligor's ability to pay
interest and/or dividends and repay principal is very strong,
although not quite as strong as bonds rated AAA.
<PAGE>
A Bonds and preferred stock considered to be investment grade
and of high credit quality. The obligor's ability to pay
interest and/or dividends and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than debt or preferred
securities with higher ratings.
BBB Bonds and preferred stock considered to be investment grade
and of satisfactory credit quality. The obligor's ability to
pay interest or dividends and repay principal is considered to
be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact
on these securities and, therefore, impair timely payment. The
likelihood that the ratings of these bonds or preferred stock
will fall below investment grade is higher than for securities
with higher ratings.
Fitch speculative grade bond or preferred stock ratings provide a guide to
investors in determining the credit risk associated with a particular security.
The ratings (BB to C) represent Fitch's assessment of the likelihood of timely
payment of principal and interest or dividends in accordance with the terms of
obligation for issues not in default. For defaulted bonds or preferred stock,
the rating (DDD to D) is an assessment of the ultimate recovery value through
reorganization or liquidation.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer or possible recovery value in
bankruptcy, the current and prospective financial condition and operating
performance of the issuer and any guarantor, as well as the economic and
political environment that might affect the issuer's future financial strength.
Bonds or preferred stock that have the same rating are of similar but not
necessarily identical credit quality since the rating categories cannot fully
reflect the differences in the degrees of credit risk.
BB Bonds or preferred stock are considered speculative. The
obligor's ability to pay interest or dividends and repay
principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be
identified, which could assist the obligor in satisfying its
debt service requirements.
B Bonds or preferred stock are considered highly speculative.
While bonds in this class are currently meeting debt service
requirements or paying dividends, the probability of continued
timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable
business and economic activity throughout the life of the
issue.
CCC Bonds or preferred stock have certain identifiable
characteristics that if not remedied, may lead to default. The
ability to meet obligations requires an advantageous business
and economic environment.
CC Bonds or preferred stock are minimally protected. Default in
payment of interest and/or principal seems probable over time.
C Bonds are in imminent default in payment of interest or
principal or suspension of preferred stock dividends is
imminent.
<PAGE>
DDD,
DD,
and D Bonds are in default on interest and/or principal payments
or preferred stock dividends are suspended. Such securities
are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization
of the obligor. DDD represents the highest potential for
recovery of these securities and D represents the lowest
potential for recovery.
Duff & Phelps, Inc. Long-Term Debt Ratings
These ratings represent a summary opinion of the issuer's long-term fundamental
quality. Rating determination is based on qualitative and quantitative factors
that may vary according to the basic economic and financial characteristics of
each industry and each issuer. Important considerations are vulnerability to
economic cycles as well as risks related to such factors as competition,
government action, regulation, technological obsolescence, demand shifts, cost
structure, and management depth and expertise. The projected viability of the
obligor at the trough of the cycle is a critical determination.
Each rating also takes into account the legal form of the security (e.g. first
mortgage bonds, subordinated debt, preferred stock, etc.). The extent of rating
dispersion among the various classes of securities is determined by several
factors including relative weightings of the different security classes in the
capital structure, the overall credit strength of the issuer, and the nature of
covenant protection. Review of indenture restrictions is important to the
analysis of a company's operating and financial constraints.
The Credit Rating Committee formally reviews all ratings once per quarter (more
frequently, if necessary). Ratings of BBB- and higher fall within the definition
of investment grade securities, as defined by bank and insurance supervisory
authorities. Structured finance issues, including real estate, asset-backed and
mortgage-backed financings, use this same rating scale with minor modification
in the definitions. Thus, an investor can compare the credit quality of
investment alternatives across industries and structural types. A "Cash Flow
Rating" (as noted for specific ratings) addresses the likelihood that aggregate
principal and interest will equal or exceed the rated amount under appropriate
stress conditions.
<TABLE>
<CAPTION>
Rating Scale Definition
<S> <C>
-------------------------- --------------------------------------------------------------------------------
AAA Highest credit quality. The risk factors are
negligible, being only slightly more than for
risk-free U.S. Treasury debt.
-------------------------- --------------------------------------------------------------------------------
AA+ High credit quality. Protection factors are strong. Risk is modest, but may
AA vary slightly from time to time because of economic conditions.
AA-
-------------------------- --------------------------------------------------------------------------------
A+ Protection factors are average but adequate. However, risk factors are more
A variable and greater in periods of economic stress.
A-
-------------------------- --------------------------------------------------------------------------------
BBB+ Below-average protection factors but still considered sufficient for prudent
BBB investment. Considerable variability in risk during economic cycles.
BBB-
<PAGE>
-------------------------- --------------------------------------------------------------------------------
BB+ Below investment grade but deemed likely to meet obligations when due. Present
BB or prospective financial protection factors fluctuate according to industry
BB- conditions or company fortunes. Overall quality may move up or down frequently
within this category.
-------------------------- --------------------------------------------------------------------------------
B+ Below investment grade and possessing risk that obligations will not be met
B when due. Financial protection factors will fluctuate widely according to
B- economic cycles, industry conditions, and/or company fortunes. Potential
exists for frequent changes in the rating within
this category or into a higher or lower rating
grade.
-------------------------- --------------------------------------------------------------------------------
CCC Well below investment grade securities. Considerable
uncertainty exists as to timely payment of
principal, interest, or preferred dividends.
Protection factors are narrow and risk can be
substantial with unfavorable economic/industry
conditions, and or with unfavorable company
developments.
-------------------------- --------------------------------------------------------------------------------
DD Defaulted debt obligations. Issuer failed to meet
scheduled principal and/or interest payments.
DP Preferred stock with dividend arrearages.
-------------------------- --------------------------------------------------------------------------------
</TABLE>
IBCA Long-Term Debt Ratings
AAA Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic, or
financial conditions are unlikely to increase investment risk
substantially.
AA Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic, or financial
conditions may increase investment risk, albeit not very significantly.
A Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic, or financial conditions
may lead to increased investment risk.
BBB Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic,
or financial conditions are more likely to lead to increased investment
risk than for obligations in other categories.
BB Obligations for which there is a possibility of investment risk
developing. Capacity for timely repayment of principal and interest
exists, but is susceptible over time to adverse changes in business,
economic, or financial conditions.
B Obligations for which investment risk exists. Timely repayment of
principal and interest is not sufficiently protected against adverse
changes in business, economic, or financial conditions.
CCC Obligations for which there is a current perceived possibility of
default. Timely repayment of principal and interest is dependent on
favorable business, economic, or financial conditions.
<PAGE>
CC Obligations that are highly speculative or that have a high risk of default.
C Obligations that are currently in default.
Notes: "+" or "-" may be appended to a rating below AAA to denote relative
status within major rating categories. Ratings of BB and below are assigned
where it is considered that speculative characteristics are present.
Thomson Bank Watch Long-Term Debt Ratings
Investment Grade
AAA (LC-AAA) Indicates that the ability to repay principal and interest
on a timely basis is extremely high.
AA (LC-AA) Indicates a very strong ability to repay principal
and interest on a timely basis, with limited incremental
risk compared to issues rated in the highest category.
A (LC-A) Indicates the ability to repay principal and
interest is strong. Issues rated A could be more
vulnerable to adverse developments (both internal and
external) than obligations with higher ratings.
BBB (LC-BBB) The lowest investment-grade category: indicates
an acceptable capacity to repay principal and interest.
BBB issues are more vulnerable to adverse developments
(both internal and external) than obligations with higher
ratings.
Non-Investment Grade - may be speculative in the likelihood of timely repayment
of principal and interest.
BB (LC-BB) While not investment grade, the BB rating suggests
that the likelihood of default is considerably less than
for lower-rated issues. However, there are significant
uncertainties that could affect the ability to adequately
service debt obligations.
B (LC-B) Issues rated B show higher degree of uncertainty
and therefore greater likelihood of default than
higher-rated issues. Adverse developments could negatively
affect the payment of interest and principal on a timely
basis.
CCC (LC-CCC) Issues rated CCC clearly have a high likelihood
of default, with little capacity to address further
adverse changes in financial circumstances.
CC (LC-CC) CC is applied to issues that are subordinate to
other obligations rated CCC and are afforded less
protection in the event of bankruptcy or reorganization.
D (LC-D) Default.
<PAGE>
SHORT-TERM RATINGS
Standard & Poor's Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market.
Ratings are graded into several categories, ranging from A-1 for the highest
quality obligations to D for the lowest. These categories are as follows:
A-1 This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics are denoted
with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as
high as for issues designated A-1.
A-3 Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.
B Issues are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with
doubtful capacity for payment.
D Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made
on the date due, even if the applicable grace period has not
expired, unless S&P believes that such payments will be made
during such grace period.
Standard & Poor's Note Ratings
An S&P note rating reflects the liquidity factors and market-access risks unique
to notes. Notes maturing in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating.
Note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues
determined to possess very strong characteristics are given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over
the term of the notes.
SP-3 Speculative capacity to pay principal and interest.
<PAGE>
Moody's Short-Term Ratings
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-l (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-l
repayment ability will often be evidenced by many of the following
characteristics: (i) leading market positions in well-established
industries, (ii) high rates of return on funds employed, (iii)
conservative capitalization structure with moderate reliance on debt
and ample asset protection, (iv) broad margins in earnings coverage of
fixed financial charges and high internal cash generation, and (v) well
established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above, but
to a lesser degree. Earnings trends and coverage ratios, while sound,
may be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate liquidity is
maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Fitch Investors Service, Inc. Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+ Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated F.
F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment but the
margin of safety is not as great as for issues assigned F-1+
and F-1 ratings.
F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for
timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment
grade.
<PAGE>
F-S Weak Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse changes
in financial and economic conditions.
D Default Issues assigned this rating are in actual or
imminent payment default.
LOC The symbol LOC indicates that the rating is based on a letter
of credit issued by a commercial bank.
Duff & Phelps, Inc. Short-Term Debt Ratings
Duff & Phelps' short-term ratings are consistent with the rating criteria used
by money market participants. The ratings apply to all obligations with
maturities of under one year, including commercial paper, the uninsured portion
of certificates of deposit, unsecured bank loans, master notes, banker's
acceptances, irrevocable letters of credit, and current maturities of long-term
debt. Asset-backed commercial paper also is rated according to this scale.
Emphasis is placed on liquidity, which is defined as not only cash from
operations but also access to alternative sources of funds including trade
credit, bank lines, and the capital markets. An important consideration is the
level of an obligor's reliance on short-term funds on an ongoing basis.
Rating Scale: Definition
High Grade
D-1+ Highest certainty of timely payment. Short-term
liquidity, including internal operating factors and
or access to alternative sources of funds, is
outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
D-1 Very high certainty of timely payment. Liquidity
factors are excellent and supported by good
fundamental protection factors. Risk factors are
minor.
D-1- High certainty of timely payment. Liquidity factors
are strong and supported by good fundamental
protection factors. Risk factors are very small.
Good Grade
D-2 Good certainty of timely payment. Liquidity factors
and company fundamentals are sound. Although
ongoing funding needs may enlarge total financing
requirements, access to capital markets is good.
Risk factors are small.
Satisfactory Grade
D-3 Satisfactory liquidity and other protection factors
qualify issues as to investment grade. Risk factors
are larger and subject to more variation.
Nevertheless, timely payment is expected.
Non-Investment Grade
D-4 Speculative investment characteristics. Liquidity
is not sufficient to insure against disruption in
debt service. Operating factors and market access
may be subject to a high degree of variation.
Default
D-5 Issuer failed to meet scheduled principal and/or
interest payments.
Thomson BankWatch (TBW) Short-Term Ratings
The TBW Short-Term Ratings apply, unless otherwise noted, to specific debt
instruments of the rated entities with a maturity of one year or less. TBW
Short-Term Ratings are intended to assess the likelihood of untimely or
incomplete payments of principal or interest.
TBW-1 The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 The second highest category; while the degree of safety
regarding timely repayment of principal and interest is
strong, the relative degree of safety is not as high as
for issues rated TBW- I.
TBW-3 The lowest investment-grade category; indicates that while
the obligation is more susceptible to adverse developments
(both internal and external) than those with higher
ratings, the capacity to service principal and interest in
a timely fashion is considered adequate.
TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
IBCA Short-Term Ratings
IBCA Short-Term Ratings assess the borrowing characteristics of banks and
corporations, and the capacity for timely repayment of debt obligations. The
Short-Term Ratings relate to debt that has a maturity of less than one year.
A1 Obligations supported by the highest capacity for timely
repayment. Where issues possess a particularly strong credit
feature, a rating of A1+ is assigned.
A2 Obligations supported by a good capacity for timely repayment.
A3 Obligations supported by a satisfactory capacity for timely
repayment.
B Obligations for which there is an uncertainty as to the
capacity to ensure timely repayment.
C Obligations for which there is a high risk of default or which
are currently in default.
<PAGE>
Moody's & S&P's
Short-Term Muni Bonds and Notes
Short-term municipal bonds and notes are rated by Moody's and by S&P. The
ratings reflect the liquidity concerns and market access risks unique to notes.
Moody's MIG 1/VMIG 1 indicates the best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
Moody's MIG 2/VMIG 2 indicates high quality. Margins of protection are ample
although not so large as in the preceding group.
Moody's MIG 3/VMIG 3 indicates favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Moody' s MIG 4/VMIG 4 indicates adequate quality. Protection commonly regarded
as required of an investment security is present and although not distinctly or
predominantly speculative, there is specific risk.
Standard & Poor's rating SP-1 indicates very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
Standard & Poor's rating SP-2 indicates satisfactory capacity to pay principal
and interest.
Standard & Poor's rating SP-3 indicates speculative capacity to pay principal
and interest.
<PAGE>
Independent Auditors' Report
THE BOARD AND SHAREHOLDERS
IDS PRECIOUS METALS FUND, INC.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of IDS Precious Metals Fund, Inc. as
of March 31, 1999, and the related statement of operations for the year then
ended and the statements of changes in net assets for each of the years in the
two-year period ended March 31, 1999 and the financial highlights for each of
the years in the five-year period ended March 31, 1999. These financial
statements and the financial highlights are the responsibility of fund
management. Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. As to securities sold but not delivered, and securities on loan we
request confirmations from brokers, and where replies are not received, we carry
out other appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IDS Precious Metals Fund, Inc.
at March 31, 1999, and the results of its operations, changes in its net assets,
and the financial highlights for the periods stated in the first paragraph
above, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
May 7, 1999
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Statement of assets and liabilities
IDS Precious Metals Fund, Inc.
March 31, 1999
Assets
Investments in securities, at value (Note 1):
<S> <C>
Investments in securities of unaffiliated issuers (identified cost $61,446,370) $55,965,866
Investments in securities of affiliated issuers (identified cost $3,152,049) 775,594
-------
Total investments in securities (identified cost $64,598,419) 56,741,460
Cash in bank on demand deposit 3,126,012
Dividends and accrued interest receivable 82,169
Receivable for investment securities sold 1,078,924
---------
Total assets 61,028,565
----------
Liabilities
Payable upon return of securities loaned (Note 4) 1,925,000
Accrued investment management services fee 2,689
Accrued distribution fee 156
Accrued service fee 267
Accrued transfer agency fee 700
Accrued administrative services fee 92
Other accrued expenses 33,205
------
Total liabilities 1,962,109
---------
Net assets applicable to outstanding capital stock $59,066,456
===========
Represented by
Capital stock-- $.01 par value (Note 1) $ 108,648
Additional paid-in capital 96,315,617
Accumulated net realized gain (loss) (29,500,850)
Unrealized appreciation (depreciation) on investments and on translation
of assets and liabilities in foreign currencies (7,856,959)
----------
Total -- representing net assets applicable to outstanding capital stock $59,066,456
===========
Net assets applicable to outstanding shares: Class A $51,433,700
Class B $ 7,632,018
Class Y $ 738
Net asset value per share of outstanding capital stock: Class A shares 9,444,886 $ 5.45
Class B shares 1,419,763 $ 5.38
Class Y shares 136 $ 5.43
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
IDS Precious Metals Fund, Inc.
Year ended March 31, 1999
Investment income
Income:
<S> <C>
Dividends $ 366,969
Interest 556,330
Less foreign taxes withheld (16,038)
-------
Total income 907,261
-------
Expenses (Note 2):
Investment management services fee 508,640
Distribution fee-- Class B 59,419
Transfer agency fee 219,188
Incremental transfer agency fee
Class A 7,243
Class B 3,684
Service fee
Class A 93,394
Class B 13,774
Administrative services fees and expenses 39,166
Compensation of board members 7,702
Custodian fees 42,447
Postage 30,404
Registration fees 24,286
Reports to shareholders 24,462
Audit fees 21,500
Other 4,758
-----
Total expenses 1,100,067
Earnings credits on cash balances (Note 2) (8,752)
------
Total net expenses 1,091,315
---------
Investment income (loss) -- net (184,054)
--------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (including $672,642 realized loss
on investments of affiliated issuers) (Note 3) (22,568,177)
Foreign currency transactions (1,679)
------
Net realized gain (loss) on investments (22,569,856)
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 10,022,737
----------
Net gain (loss) on investments and foreign currencies (12,547,119)
-----------
Net increase (decrease) in net assets resulting from operations $(12,731,173)
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
IDS Precious Metals Fund, Inc.
Year ended March 31, 1999 1998
Operations and distributions
<S> <C> <C>
Investment income (loss) -- net $ (184,054) $ (17,343)
Net realized gain (loss) on investments (22,569,856) (6,702,372)
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 10,022,737 (22,579,414)
---------- -----------
Net increase (decrease) in net assets resulting from operations (12,731,173) (29,299,129)
----------- -----------
Distributions to shareholders from:
Net investment income
Class A (452,075) (689,009)
Class B (9,356) (8,688)
Class Y (8) (16)
Net realized gain
Class A -- (933,070)
Class B -- (121,916)
Class Y -- (14)
----- ---
Total distributions (461,439) (1,752,713)
-------- ----------
Capital share transactions (Note 5)
Proceeds from sales
Class A shares (Note 2) 199,772,930 213,456,021
Class B shares 4,080,111 7,860,617
Reinvestment of distributions at net asset value
Class A shares 415,613 1,544,415
Class B shares 9,356 130,311
Class Y shares 8 30
Payments for redemptions
Class A shares (198,890,935) (209,315,816)
Class B shares (Note 2) (3,382,627) (4,073,993)
---------- ----------
Increase (decrease) in net assets from capital share transactions 2,004,456 9,601,585
--------- ---------
Total increase (decrease) in net assets (11,188,156) (21,450,257)
Net assets at beginning of year 70,254,612 91,704,869
---------- ----------
Net assets at end of year $ 59,066,456 $ 70,254,612
============= =============
Undistributed net investment income $ -- $ 26,515
------------- -------------
</TABLE>
<PAGE>
Notes to Financial Statements
IDS Precious Metals Fund, Inc.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940 (as amended) as
a non-diversified, open-end management investment company. The Fund has 10
billion authorized shares of capital stock. The Fund invests primarily in
securities of companies engaged in the exploration, mining, processing or
distribution of gold and other precious metals. Most of these companies will be
located outside of the United States.
The Fund offers Class A, Class B and Class Y shares.
o Class A shares are sold with a front-end sales charge.
o Class B shares may be subject to a contingent deferred sales charge and such
shares automatically convert to Class A shares during the ninth calendar year
of ownership.
o Class Y shares have no sales charge and are offered only to qualifying
institutional investors.
All classes of shares have identical voting, dividend, and liquidation rights.
The distribution fee, transfer agency fee and service fee (class specific
expenses) differs among classes. Income, expenses (other than class specific
expenses) and realized and unrealized gains or losses on investments are
allocated to each class of shares based upon its relative net assets.
The Fund's significant accounting policies are summarized below:
Use of estimates
Preparing financial statements that conform to generally accepted accounting
principles requires management to make estimates (e.g., on assets and
liabilities) that could differ from actual results.
Valuation of securities
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
Securities for which market quotations are not readily available are valued at
fair value according to methods selected in good faith by the board. Short-term
securities maturing in more than 60 days from the valuation date are valued at
the market price or approximate market value based on current interest rates;
those maturing in 60 days or less are valued at amortized cost. Investments in
metals, if any, are valued daily using data from independent brokers and pricing
services.
Option transactions
To produce incremental earnings, protect gains, and facilitate buying and
selling of securities for investments, the Fund may buy and write options traded
on any U.S. or foreign exchange or in the over-the-counter market where
completing the obligation depends upon the credit standing of the other party.
The Fund also may buy and sell put and call options and write covered call
options on portfolio securities and may write cash-secured put options. The risk
in writing a call option is that the Fund gives up the opportunity for profit if
the market price of the security increases. The risk in writing a put option is
that the Fund may incur a loss if the market price of the security decreases and
the option is exercised. The risk in buying an option is that the Fund pays a
premium whether or not the option is exercised. The Fund also has the additional
risk of being unable to enter into a closing transaction if a liquid secondary
market does not exist.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Fund will
realize a gain or loss when the option transaction expires or closes. When an
option is exercised, the proceeds on sales for a written call option, the
purchase cost for a written put option or the cost of a security for a purchased
put or call option is adjusted by the amount of premium received or paid.
Futures transactions
To gain exposure to or protect itself from market changes, the Fund may buy and
sell financial futures contracts traded on any U.S. or foreign exchange. The
Fund also may buy and write put and call options on these futures contracts.
Risks of entering into futures contracts and related options include the
possibility of an illiquid market and that a change in the value of the contract
or option may not correlate with changes in the value of the underlying
securities.
Upon entering into a futures contract, the Fund is required to deposit either
cash or securities in an amount (initial margin) equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Fund each day. The variation margin payments are equal to the
daily changes in the contract value and are recorded as unrealized gains and
losses. The Fund recognizes a realized gain or loss when the contract is closed
or expires.
Foreign currency translations and foreign currency contracts
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars at the closing rate of exchange. Foreign
currency amounts related to the purchase or sale of securities and income and
expenses are translated at the exchange rate on the transaction date. The effect
of changes in foreign exchange rates on realized and unrealized security gains
or losses is reflected as a component of such gains or losses. In the statement
of operations, net realized gains or losses from foreign currency transactions,
if any, may arise from sales of foreign currency, closed forward contracts,
exchange gains or losses realized between the trade date and settlement date on
securities transactions, and other translation gains or losses on dividends,
interest income and foreign withholding taxes.
The Fund may enter into forward foreign currency exchange contracts for
operational purposes and to protect against adverse exchange rate fluctuation.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates from an
independent pricing service. The Fund is subject to the credit risk that the
other party will not complete its contract obligations.
Federal taxes
The Fund's policy is to comply with all sections of the Internal Revenue Code
that apply to regulated investment companies and to distribute all of its
taxable income to shareholders. No provision for income or excise taxes is thus
required.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of deferred losses on
certain futures contracts, the recognition of certain foreign currency gains
(losses) as ordinary income (loss) for tax purposes and losses deferred due to
"wash sale" transactions. The character of distributions made during the year
from net investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the year that the income or realized gains (losses) were recorded by
the Fund.
On the statement of assets and liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income has been increased by $618,978
and accumulated net realized loss has been increased by $1,721 resulting in a
net reclassification adjustment to decrease paid-in capital by $617,257.
Dividends to shareholders
An annual dividend from net investment income, declared and paid at the end of
the calendar year, is reinvested in additional shares of the Fund at net asset
value or payable in cash. Capital gains, when available, are distributed along
with the income dividend.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date and interest income,
including level-yield amortization of premium and discount, is accrued daily.
2. EXPENSES AND SALES CHARGES
The Fund entered into agreements with American Express Financial Corporation
(AEFC) for managing its portfolio and providing administrative services. Under
an Investment Management Services Agreement, AEFC determines which securities
will be purchased, held or sold. The management fee is a percentage of the
Fund's average daily net assets in reducing percentages from 0.8% to 0.675%
annually. The fee is adjusted upward or downward by a performance incentive
adjustment based on the Fund's average daily net assets over a rolling 12-month
period as measured against the change in the Lipper Gold Fund Index. The maximum
adjustment is 0.12% of the Fund's average daily net assets after deducting 1%
from the performance difference. If the performance difference is less than 1%,
the adjustment will be zero. The adjustment increased the fee by $9,779 for the
year ended March 31, 1999.
Under an Administrative Services Agreement, the Fund pays AEFC a fee for
administration and accounting services at a percentage of the Fund's average
daily net assets in reducing percentages from 0.06% to 0.035% annually.
Additional administrative service expenses paid by the Fund are office expenses,
consultants' fees and compensation of officers and employees. Under this
agreement, the Fund also pays taxes, audit and certain legal fees, registration
fees for shares, compensation of board members, corporate filing fees and any
other expenses properly payable by the Fund and approved by the board.
Under a separate Transfer Agency Agreement, American Express Client Service
Corporation (AECSC) maintains shareholder accounts and records. The Fund pays
AECSC an annual fee per shareholder account for this service as follows:
o Class A $19
o Class B $20
o Class Y $15
Under terms of a prior agreement that ended Jan. 31, 1999, the Fund paid a
transfer agency fee at an annual rate per shareholder account of $15 for Class A
and $16 for Class B. Effective April 1, 1999, the annual rate per shareholder
account will change to $17 for Class Y.
The Fund entered into agreements with American Express Financial Advisors Inc.
for distribution and shareholder services. Under a Plan and Agreement of
Distribution, the Fund pays a distribution fee at an annual rate of 0.75% of the
Fund's average daily net assets attributable to Class B shares for distribution
services.
Under a Shareholder Service Agreement, the Fund pays a fee for service provided
to shareholders by financial advisors and other servicing agents. The fee is
calculated at a rate of 0.175% of the Fund's average daily net assets
attributable to Class A and Class B shares and 0.10% of the Fund's average daily
net assets attributable to Class Y shares.
Sales charges received by American Express Financial Advisors for distributing
Fund shares were $142,665 for Class A and $17,811 for Class B for the year ended
March 31, 1999. The Fund also pays custodian fees to American Express Trust
Company, an affiliate of AEFC.
During the year ended March 31, 1999, the Fund's custodian and transfer agency
fees were reduced by $8,752 as a result of earnings credits from overnight cash
balances.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $23,346,231 and $23,986,174, respectively, for the year
ended March 31, 1999. Realized gains and losses are determined on an identified
cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $612 for the
year ended March 31, 1999.
4. LENDING OF PORTFOLIO SECURITIES
As of March 31, 1999, securities valued at $1,957,725 were on loan to brokers.
For collateral, the Fund received $1,925,000 in cash. Income from securities
lending amounted to $4,560 for the year ended March 31, 1999. The risks to the
Fund of securities lending are that the borrower may not provide additional
collateral when required or return the securities when due.
5. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the years indicated are as follows:
Year ended March 31, 1999
Class A Class B Class Y
Sold 34,476,704 695,352 --
Issued for reinvested distributions 75,529 1,771 2
Redeemed (34,123,406) (584,214) --
----------- -------- ---
Net increase (decrease) 428,827 112,909 2
Year ended March 31, 1998
Class A Class B Class Y
Sold 27,809,382 1,011,160 --
Issued for reinvested distributions 254,938 21,804 5
Redeemed (27,019,455) (528,034) --
----------- -------- ---
Net increase (decrease) 1,044,865 504,930 5
6. BANK BORROWINGS
The Fund entered into a revolving credit agreement with U.S. Bank, N.A., whereby
the Fund is permitted to have bank borrowings for temporary or emergency
purposes to fund shareholder redemptions. The Fund must have asset coverage for
borrowings not to exceed the aggregate of 333% of advances equal to or less than
five business days plus 367% of advances over five business days. The agreement,
which enables the Fund to participate with other IDS Funds, permits borrowings
up to $200 million, collectively. Interest is charged to each Fund based on its
borrowings at a rate equal to the Federal Funds Rate plus 0.30% or the
Eurodollar Rate (Reserve Adjusted) plus 0.20%. Borrowings are payable up to 90
days after such loan is executed. The Fund also pays a commitment fee equal to
its pro rata share of the amount of the credit facility at a rate of 0.05% per
annum. The Fund had no borrowings outstanding during the year ended March 31,
1999.
7. CAPITAL LOSS CARRYOVER
For federal income tax purposes, the Fund had a capital loss carryover of
$16,477,515 at March 31, 1999, that will expire in 2006 and 2007 if not offset
by capital gains. It is unlikely the board will authorize a distribution of any
net realized capital gains until the available capital loss carryover has been
offset or expires.
8. FINANCIAL HIGHLIGHTS
"Financial highlights" showing per share data and selected financial information
are presented on pages 31 and 32 of the prospectus.
<PAGE>
<TABLE>
<CAPTION>
Investments in Securities
IDS Precious Metals Fund, Inc.
March 31, 1999
(Percentages represent value of investments compared to net assets)
Common stocks (79.6%)
Issuer Shares Value(a)
Australia (10.3%)(c)
<S> <C> <C>
Acacia Resources 2,000,000 $2,373,000
Delta Gold 500,000 707,700
Kingsgate Consolidated 1,500,000(b) 409,050
Sons of Gwalia 800,000 2,501,120
Tanganyika Gold 375,000(b) 78,476
Zimbabwe Platinum Mines 100,000(b) 21,500
Total 6,090,846
Canada (39.1%)(c)
Agnico-Eagle Mines 100,000 540,093
Argentina Gold 300,000(b) 1,391,650
Barrick Gold 210,000 3,583,125
Dia Met Minerals Cl B 40,000(b) 523,526
Euro-Nevada Mining 125,000 1,669,152
Franco-Nevada Mining 200,000 3,167,661
Goldcorp Cl A 500,000(b) 3,015,242
Meridian Gold 1,000,000(b) 5,765,408
Minefinders 550,000(b,d) 619,616
Nevsun Resources 751,200(b) 448,031
Placer Dome 179,600(e) 2,009,275
Romarco Minerals 250,000(b) 198,807
Sedna Geotech 980,712(b,d) 155,978
Total 23,087,564
Colombia (1.8%)(c)
Compania de Minas Buenaventura ADR 80,000 1,060,000
United Kingdom (0.7%)(c)
Ashanti Goldfields GDR 50,000(b) 437,500
United States (27.7%)
Easco 70,000 507,500
Getchell Gold 150,000(b) 3,918,750
Homestake Mining 151,800 1,309,275
Newmont Mining 20,000 350,000
Rio Narcea Gold Mines 397,000(b) 173,638
Stillwater Mining 382,500(b) 10,088,437
Total 16,347,600
Total common stocks
(Cost: $54,220,091) $47,023,510
Other (0.3%)(c)
Canada
America Mineral Fields
Warrants 45,000(f) --
Minefinders
Special Warrants 125,000 140,821
Sedna Geotech
Warrants 814,454(f) --
South American Gold & Copper
Special Warrants 340,000(g) 9,014
Total other
(Cost: $809,908) $149,835
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Short-term securities (16.2%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agency
Federal Home Loan Mtge Corp Disc Nts
<S> <C> <C> <C> <C>
04-15-99 4.80% $200,000 $199,628
04-16-99 4.80 4,200,000 4,191,636
04-19-99 4.80 200,000 199,522
04-29-99 4.77 1,100,000 1,095,936
04-30-99 4.77 1,500,000 1,494,260
05-06-99 4.80 1,300,000 1,293,971
05-14-99 4.82 600,000 596,385
05-18-99 4.79 500,000 496,777
Total short-term securities
(Cost: $9,568,420) $9,568,115
Total investments in securities
(Cost: $64,598,419)(h) $56,741,460
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars. As of March 31, 1999,
the value of foreign securities represented 52.18% of net assets.
(d) Investments representing 5% or more of the outstanding voting securities of
the issuer. Transactions with companies that are or were affiliates during the
year ended March 31, 1999 are as follows:
Issuer Beginning Purchase Sales Ending Dividend Value(a)
cost cost cost cost income
<S> <C> <C> <C> <C> <C> <C>
First Dynasty* $1,887,642 $ -- $1,887,642 $ -- $-- $ --
Minefinders 1,580,275 -- -- 1,580,275 -- 619,616
Sedna Geotech* 1,571,774 1,500,001 1,500,001 1,571,774 -- 155,978
--------- --------- --------- --------- -------
Total $5,039,691 $1,500,001 $3,387,643 $3,152,049 $-- $775,594
*Issuer was not an affiliate for the entire year ended March 31, 1999.
(e) Security is partially or fully on loan. See Note 4 to the financial
statements.
(f) Negligible market value.
(g) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security has
been determined to be liquid under guidelines established by the board.
(h) At March 31, 1999, the cost of securities for federal income tax purposes
was $64,670,065 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation $7,123,926
Unrealized depreciation (15,052,531)
-----------
Net unrealized depreciation $(7,928,605)
</TABLE>
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits
(a) Articles of Incorporation, as amended Oct. 17, 1988, filed as Exhibit
No. 1 to Post-Effective Amendment No. 8 to Registration Statement No.
2-93745, are incorporated by reference.
(b) By-laws, as amended Jan. 12, 1989, filed as Exhibit No. 2 to
Post-Effective Amendment No. 8 to Registration Statement No. 2-93745,
are incorporated by reference.
(c) Stock Certificate for common stock, filed as Exhibit No. 4 to original
Registration Statement No. 2-93745, is incorporated by reference.
(d) Investment Management Services Agreement between Registrant and
American Express Financial Corporation, dated March 20, 1995, filed on
or about May 30, 1998 as Exhibit 5 to Registrant's Post-Effective
Amendment No. 31 is incorporated by reference.
(e) Distribution Agreement between Registrant and American Express
Financial Advisors Inc., dated March 20, 1995, filed on or about May
30, 1998 as Exhibit 6 to Registrant's Post-Effective Amendment No. 31
is incorporated by reference.
(f) All employees are eligible to participate in a profit sharing plan.
Entry into the plan is Jan. 1 or July 1. The Registrant contributes
each year an amount up to 15% of their annual salaries, the maximum
deductible amount permitted under Section 404(a) of the Internal
Revenue Code.
(g)(1) Custodian Agreement dated March 20, 1995 between Registrant and
American Express Trust Company filed on or about March 18, 1999 as
Exhibit (g)(1) to Registrant's Post-Effective Amendment No. 32 is
incorporated by reference.
(g)(2) Custodian Agreement Amendment between IDS International Fund and
American Express Trust Company, dated October 9, 1997, filed
electronically on or about December 23, 1997 as Exhibit 8(c) to IDS
International Fund Inc.'s Post-Effective Amendment No. 26 to
Registration Statement No. 2-92309 is incorporated by reference.
Registrant's Custodian Agreement differs from the one incorporated by
reference only by the fact that Registrant is one executing party.
(g)(3) Custodian Agreement between American Express Trust Company and The
Bank of New York dated May 13, 1999, is filed electronically herewith.
(h)(1) Administrative Services Agreement between Registrant and American
Express Financial Corporation, dated March 20, 1995, filed on or about
May 30, 1998 as Exhibit 9(d) to Registrant's Post-Effective Amendment
No. 31 is incorporated by reference.
(h)(2) License Agreement, between Registrant and IDS Financial Corporation,
dated Jan. 25, 1988, filed as Exhibit 9(b) to Post-Effective Amendment
No. 10 to Registration Statement No. 2-93745, is incorporated by
reference.
(h)(3) Shareholder Service Agreement between Registrant and American Express
Financial Advisors Inc., dated March 20, 1995, filed on or about May
30, 1998 as to Exhibit 9(c) to Registrant's Post-Effective Amendment
No. 31 is incorporated by reference.
(h)(4) Class Y Shareholder Service Agreement between Registrant and American
Express Financial Advisors Inc., dated May 9, 1997, filed
electronically as Exhibit 9(e) to Registrant's Post-Effective
Amendment No. 30 to Registration Statement No. 2-93745 is incorporated
by reference.
(h)(5) Transfer Agency Agreement between Registrant and American Express
Client Service Corporation, dated Feb. 1, 1999, filed on or about
March 18, 1999 as Exhibit (h)(5) to Registrant's Post-Effective
Amendment No. 32 is incorporated by reference.
(i) Opinion and consent of counsel as to the legality of the securities
being registered is filed electronically herewith.
<PAGE>
(j) Independent Auditors' Consent is filed electronically herewith.
(k) Omitted Financial Statements: None.
(l) Initial Capital Agreements: Not applicable.
(m) Plan and Agreement of Distribution between Registrant and American
Express Financial Advisors Inc., dated March 20, 1995, filed on or
about May 30, 1998 as to Exhibit 15 to Registrant's Post-Effective
Amendment No. 31 is incorporated by reference.
(n) Financial Data Schedule is filed electronically herewith.
(o) Plan under section 18f-3(d) dated April 1999, is filed electronically
herewith.
(p)(1) Directors' Power of Attorney, dated Jan. 14, 1999, filed as Exhibit
(p)(1) to Registrant's Post-Effective Amendment No. 32 is incorporated
by reference.
(p)(2) Officers' Power of Attorney, dated March 1, 1999, filed as Exhibit
(p)(2) to Registrant's Post-Effective Amendment No. 32 is incorporated
by reference.
Item 24. Persons Controlled by or Under Common Control with Registrant
None.
Item 25. Indemnification
The Articles of Incorporation of the registrant provide that the Fund shall
indemnify any person who was or is a party or is threatened to be made a party,
by reason of the fact that she or he is or was a director, officer, employee or
agent of the Fund, or is or was serving at the request of the Fund as a
director, officer, employee or agent of another company, partnership, joint
venture, trust or other enterprise, to any threatened, pending or completed
action, suit or proceeding, wherever brought, and the Fund may purchase
liability insurance and advance legal expenses, all to the fullest extent
permitted by the laws of the State of Minnesota, as now existing or hereafter
amended. The By-laws of the registrant provide that present or former directors
or officers of the Fund made or threatened to be made a party to or involved
(including as a witness) in an actual or threatened action, suit or proceeding
shall be indemnified by the Fund to the full extent authorized by the Minnesota
Business Corporation Act, all as more fully set forth in the By-laws filed as an
exhibit to this registration statement.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Any indemnification hereunder shall not be exclusive of any other rights of
indemnification to which the directors, officers, employees or agents might
otherwise be entitled. No indemnification shall be made in violation of the
Investment Company Act of 1940.
<TABLE>
<CAPTION>
Item 26. Business and Other Connections of Investment Adviser (American Express Financial
Corporation)
Directors and officers of American Express Financial Corporation who are
directors and/or officers of one or more other companies:
<S> <C> <C> <C>
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Name and Title Other company(s) Address Title within other
company(s)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Ronald G. Abrahamson, American Express Client IDS Tower 10 Director and Vice President
Vice President Service Corporation Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
Public Employee Payment Director and Vice President
Company
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Douglas A. Alger, American Express Financial IDS Tower 10 Senior Vice President
Senior Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Peter J. Anderson, Advisory Capital IDS Tower 10 Director
Director and Senior Vice Strategies Group Inc. Minneapolis, MN 55440
President
American Express Asset Director and Chairman of
Management Group Inc. the Board
American Express Asset Director, Chairman of the
Management International, Board and Executive Vice
Inc. President
American Express Financial Senior Vice President
Advisors Inc.
IDS Capital Holdings Inc. Director and President
IDS Futures Corporation Director
NCM Capital Management 2 Mutual Plaza Director
Group, Inc. 501 Willard Street
Durham, NC 27701
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Ward D. Armstrong, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Service Vice President
Corporation
American Express Trust Director and Chairman of
Company the Board
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
John M. Baker, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Trust Senior Vice President
Company
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Joseph M. Barsky III, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Timothy V. Bechtold, American Centurion Life IDS Tower 10 Director and President
Vice President Assurance Company Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
IDS Life Insurance Company Executive Vice President
IDS Life Insurance Company P.O. Box 5144 Director and President
of New York Albany, NY 12205
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
John C. Boeder, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company P.O. Box 5144 Director
of New York Albany, NY 12205
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Douglas W. Brewers, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Karl J. Breyer, American Express Financial IDS Tower 10 Senior Vice President
Director, Corporate Senior Advisors Inc. Minneapolis, MN 55440
Vice President
American Express Financial Director
Advisors Japan Inc.
American Express Minnesota Director
Foundation
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Cynthia M. Carlson, American Enterprise IDS Tower 10 Director, President and
Vice President Investment Services Inc. Minneapolis, MN 55440 Chief Executive Officer
American Express Financial Vice President
Advisors Inc.
American Express Service Vice President
Corporation
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Mark W. Carter, American Express Financial IDS Tower 10 Senior Vice President and
Senior Vice President and Advisors Inc. Minneapolis, MN 55440 Chief Marketing Officer
Chief Marketing Officer
IDS Life Insurance Company Executive Vice President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
James E. Choat, American Centurion Life IDS Tower 10 Executive Vice President
Director and Senior Vice Assurance Company Minneapolis, MN 55440
President
American Enterprise Life Director, President and
Insurance Company Chief Executive Officer
American Express Financial Senior Vice President
Advisors Inc.
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Alabama Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Massachusetts Inc.
IDS Insurance Agency of Vice President
New Mexico Inc.
IDS Insurance Agency of Vice President
North Carolina Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Insurance Agency of Vice President
Wyoming Inc.
IDS Life Insurance Company P.O. Box 5144 Executive Vice President
of New York Albany, NY 12205
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Kenneth J. Ciak, AMEX Assurance Company IDS Tower 10 Director and President
Vice President and General Minneapolis, MN 55440
Manager
American Express Financial Vice President and General
Advisors Inc. Manager
IDS Property Casualty 1 WEG Blvd. Director and President
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Paul A. Connolly, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Colleen Curran, American Express Financial IDS Tower 10 Vice President and
Vice President and Assistant Advisors Inc. Minneapolis, MN 55440 Assistant General Counsel
General Counsel
American Express Service Vice President and Chief
Corporation Legal Counsel
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Luz Maria Davis American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Douglas K. Dunning, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Gordon L. Eid, American Express Financial IDS Tower 10 Senior Vice President,
Director, Senior Vice Advisors Inc. Minneapolis, MN 55440 General Counsel and Chief
President, General Counsel Compliance Officer
and Chief Compliance Officer
American Express Financial Vice President and Chief
Advisors Japan Inc. Compliance Officer
American Express Insurance Director and Vice President
Agency of Arizona Inc.
American Express Insurance Director and Vice President
Agency of Idaho Inc.
American Express Insurance Director and Vice President
Agency of Nevada Inc.
American Express Insurance Director and Vice President
Agency of Oregon Inc.
American Express Property Director and Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Director and Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Director and Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Director and Vice President
Alabama Inc.
IDS Insurance Agency of Director and Vice President
Arkansas Inc.
IDS Insurance Agency of Director and Vice President
Massachusetts Inc.
IDS Insurance Agency of Director and Vice President
New Mexico Inc.
IDS Insurance Agency of Director and Vice President
North Carolina Inc.
IDS Insurance Agency of Director and Vice President
Ohio Inc.
IDS Insurance Agency of Director and Vice President
Wyoming Inc.
IDS Real Estate Services, Vice President
Inc.
Investors Syndicate Director
Development Corp.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Robert M. Elconin, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Vice President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Gordon M. Fines, American Express Asset IDS Tower 10 Senior Vice President and
Vice President Management Group Inc. Minneapolis, MN 55440 Chief Investment Officer
American Express Financial Vice President
Advisors Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Douglas L. Forsberg, American Centurion Life IDS Tower 10 Director
Vice President Assurance Company Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
American Express Financial Director, President and
Advisors Japan Inc. Chief Executive Officer
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Jeffrey P. Fox, American Enterprise Life IDS Tower 10 Vice President and
Vice President and Corporate Insurance Company Minneapolis, MN 55440 Controller
Controller
American Express Financial Vice President and
Advisors Inc. Corporate Controller
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Harvey Golub, American Express Company American Express Tower Chairman and Chief
Director World Financial Center Executive Officer
New York, NY 10285
American Express Travel Chairman and Chief
Related Services Company, Executive Officer
Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
David A. Hammer, American Express Financial IDS Tower 10 Vice President and
Vice President and Marketing Advisors Inc. Minneapolis, MN 55440 Marketing Controller
Controller
IDS Plan Services of Director and Vice President
California, Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Lorraine R. Hart, AMEX Assurance Company IDS Tower 10 Vice President
Vice President Minneapolis, MN 55440
American Centurion Life Vice President
Assurance Company
American Enterprise Life Vice President
Insurance Company
American Express Financial Vice President
Advisors Inc.
American Partners Life Director and Vice
Insurance Company President
IDS Certificate Company Vice President
IDS Life Insurance Company Vice President
IDS Life Series Fund, Inc. Vice President
IDS Life Variable Annuity Vice President
Funds A and B
Investors Syndicate Director and Vice
Development Corp. President
IDS Life Insurance Company P.O. Box 5144 Vice President
of New York Albany, NY 12205
IDS Property Casualty 1 WEG Blvd. Vice President
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Scott A. Hawkinson, American Express Financial IDS Tower 10 Vice President and
Vice President and Controller Advisors Inc. Minneapolis, MN 55440 Controller
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Janis K. Heaney, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
James G. Hirsh, American Express Financial IDS Tower 10 Vice President and
Vice President and Assistant Advisors Inc. Minneapolis, MN 55440 Assistant General Counsel
General Counsel
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Darryl G. Horsman, American Express Trust IDS Tower 10 Director and President
Vice President Company Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Jeffrey S. Horton, AMEX Assurance Company IDS Tower 10 Vice President, Treasurer
Vice President and Corporate Minneapolis, MN 55440 and Assistant Secretary
Treasurer
American Centurion Life Vice President and
Assurance Company Treasurer
American Enterprise Vice President and
Investment Services Inc. Treasurer
American Enterprise Life Vice President and
Insurance Company Treasurer
American Express Asset Vice President and
Management Group Inc. Treasurer
American Express Asset Vice President and
Management International Treasurer
Inc.
American Express Client Vice President and
Service Corporation Treasurer
American Express Vice President and
Corporation Treasurer
American Express Financial Vice President and
Advisors Inc. Treasurer
American Express Financial Vice President and
Advisors Japan Inc. Treasurer
American Express Insurance Vice President and
Agency of Arizona Inc. Treasurer
American Express Insurance Vice President and
Agency of Idaho Inc. Treasurer
American Express Insurance Vice President and
Agency of Nevada Inc. Treasurer
American Express Insurance Vice President and
Agency of Oregon Inc. Treasurer
American Express Minnesota Vice President and
Foundation Treasurer
American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Kentucky Inc.
American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Maryland Inc.
American Express Property Vice President and
Casualty Insurance Agency Treasurer
of Pennsylvania Inc.
American Partners Life Vice President and
Insurance Company Treasurer
IDS Cable Corporation Director, Vice President
and Treasurer
IDS Cable II Corporation Director, Vice President
and Treasurer
IDS Capital Holdings Inc. Vice President, Treasurer
and Assistant Secretary
IDS Certificate Company Vice President and
Treasurer
IDS Insurance Agency of Vice President and
Alabama Inc. Treasurer
IDS Insurance Agency of Vice President and
Arkansas Inc. Treasurer
IDS Insurance Agency of Vice President and
Massachusetts Inc. Treasurer
IDS Insurance Agency of Vice President and
New Mexico Inc. Treasurer
IDS Insurance Agency of Vice President and
North Carolina Inc. Treasurer
IDS Insurance Agency of Vice President and
Ohio Inc. Treasurer
IDS Insurance Agency of Vice President and
Wyoming Inc. Treasurer
IDS Life Insurance Company Vice President, Treasurer
and Assistant Secretary
IDS Life Insurance Company P.O. Box 5144 Vice President and
of New York Albany, NY 12205 Treasurer
IDS Life Series Fund Inc. Vice President and
Treasurer
IDS Life Variable Annuity Vice President and
Funds A & B Treasurer
IDS Management Corporation Director, Vice President
and Treasurer
IDS Partnership Services Vice President and
Corporation Treasurer
IDS Plan Services of Vice President and
California, Inc. Treasurer
IDS Real Estate Services, Vice President and
Inc. Treasurer
IDS Realty Corporation Vice President and
Treasurer
IDS Sales Support Inc. Vice President and
Treasurer
Investors Syndicate Vice President and
Development Corp. Treasurer
IDS Property Casualty 1 WEG Blvd. Vice President, Treasurer
Insurance Company DePere, WI 54115 and Assistant Secretary
Public Employee Payment Vice President and
Company Treasurer
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
David R. Hubers, AMEX Assurance Company IDS Tower 10 Director
Director, President and Chief Minneapolis, MN 55440
Executive Officer
American Express Financial Chairman, President and
Advisors Inc. Chief Executive Officer
American Express Service Director and President
Corporation
IDS Certificate Company Director
IDS Life Insurance Company Director
IDS Plan Services of Director and President
California, Inc.
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Martin G. Hurwitz, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
James M. Jensen, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Vice President
IDS Life Series Fund, Inc. Director
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Marietta L. Johns, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Nancy E. Jones, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Service Vice President
Corporation
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Ora J. Kaine, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Linda B. Keene, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
G. Michael Kennedy, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Susan D. Kinder, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Richard W. Kling, AMEX Assurance Company IDS Tower 10 Director
Director and Senior Vice Minneapolis, MN 55440
President
American Centurion Life Director and Chairman of
Assurance Company the Board
American Enterprise Life Director and Chairman of
Insurance Company the Board
American Express Director and President
Corporation
American Express Financial Senior Vice President
Advisors Inc.
American Express Insurance Director and President
Agency of Arizona Inc.
American Express Insurance Director and President
Agency of Idaho Inc.
American Express Insurance Director and President
Agency of Nevada Inc.
American Express Insurance Director and President
Agency of Oregon Inc.
American Express Property Director and President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Director and President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Director and President
Casualty Insurance Agency
of Pennsylvania Inc.
American Express Service Vice President
Corporation
American Partners Life Director and Chairman of
Insurance Company the Board
IDS Certificate Company Director and Chairman of
the Board
IDS Insurance Agency of Director and President
Alabama Inc.
IDS Insurance Agency of Director and President
Arkansas Inc.
IDS Insurance Agency of Director and President
Massachusetts Inc.
IDS Insurance Agency of Director and President
New Mexico Inc.
IDS Insurance Agency of Director and President
North Carolina Inc.
IDS Insurance Agency of Director and President
Ohio Inc.
IDS Insurance Agency of Director and President
Wyoming Inc.
IDS Life Insurance Company Director and President
IDS Life Series Fund, Inc. Director and President
IDS Life Variable Annuity Manager, Chairman of the
Funds A and B Board and President
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
IDS Life Insurance Company P.O. Box 5144 Director and Chairman of
of New York Albany, NY 12205 the Board
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
John M. Knight American Express Financial IDS Tower 10 Vice President
Advisors Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Paul F. Kolkman, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Director and Executive
Vice President
IDS Life Series Fund, Inc. Vice President and Chief
Actuary
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Claire Kolmodin, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Steve C. Kumagai, American Express Financial IDS Tower 10 Director and Senior Vice
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440 President
President
Kurt A Larson, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Lori J. Larson, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Daniel E. Laufenberg, American Express Financial IDS Tower 10 Vice President and Chief
Vice President and Chief U.S. Advisors Inc. Minneapolis, MN 55440 U.S. Economist
Economist
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Peter A. Lefferts, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Trust Director
Company
IDS Plan Services of Director
California, Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Douglas A. Lennick, American Express Financial IDS Tower 10 Director and Executive
Director and Executive Vice Advisors Inc. Minneapolis, MN 55440 Vice President
President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Jonathan S. Linen, IDS Tower 10
Director Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Mary J. Malevich, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Fred A. Mandell, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Sarah A. Mealey, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Paula R. Meyer, American Enterprise Life IDS Tower 10 Vice President
Vice President Insurance Company Minneapolis, MN 55440
American Express Director
Corporation
American Express Financial Vice President
Advisors Inc.
American Partners Life Director and President
Insurance Company
IDS Certificate Company Director and President
IDS Life Insurance Company Director and Executive
Vice President
Investors Syndicate Director, Chairman of the
Development Corporation Board and President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
James A. Mitchell, AMEX Assurance Company IDS Tower 10 Director
Director and Executive Vice Minneapolis, MN 55440
President
American Enterprise Director
Investment Services Inc.
American Express Financial Executive Vice President
Advisors Inc.
American Express Service Director and Senior Vice
Corporation President
American Express Tax and Director
Business Services Inc.
IDS Certificate Company Director
IDS Life Insurance Company Director, Chairman of the
Board and Chief Executive
Officer
IDS Plan Services of Director
California, Inc.
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
William P. Miller, Advisory Capital IDS Tower 10 Vice President
Vice President and Senior Strategies Group Inc. Minneapolis, MN 55440
Portfolio Manager
American Express Asset Senior Vice President and
Management Group Inc. Chief Investment Officer
American Express Financial Vice President and Senior
Advisors Inc. Portfolio Manager
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Pamela J. Moret, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
American Express Trust Vice President
Company
IDS Life Insurance Company Executive Vice President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Barry J. Murphy, American Express Client IDS Tower 10 Director and President
Director and Senior Vice Service Corporation Minneapolis, MN 55440
President
American Express Financial Senior Vice President
Advisors Inc.
IDS Life Insurance Company Director and Executive
Vice President
Mary Owens Neal, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Michael J. O'Keefe, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
James R. Palmer, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Life Insurance Company Vice President
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Carla P. Pavone, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Public Employee Payment Director and President
Company
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Thomas P. Perrine, American Express Financial IDS Tower 10 Senior Vice President
Senior Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Susan B. Plimpton, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Ronald W. Powell, American Express Financial IDS Tower 10 Vice President and
Vice President and Assistant Advisors Inc. Minneapolis, MN 55440 Assistant General Counsel
General Counsel
IDS Cable Corporation Vice President and
Assistant Secretary
IDS Cable II Corporation Vice President and
Assistant Secretary
IDS Management Corporation Vice President and
Assistant Secretary
IDS Partnership Services Vice President and
Corporation Assistant Secretary
IDS Plan Services of Vice President and
California, Inc. Assistant Secretary
IDS Realty Corporation Vice President and
Assistant Secretary
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
James M. Punch, American Express Financial IDS Tower 10 Vice President and Project
Vice President and Project Advisors Inc. Minneapolis, MN 55440 Manager
Manager
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Frederick C. Quirsfeld, American Express Asset IDS Tower 10 Senior Vice President and
Senior Vice President Management Group Inc. Minneapolis, MN 55440 Senior Portfolio Manager
American Express Financial Senior Vice President
Advisors Inc.
Rollyn C. Renstrom, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
ReBecca K. Roloff, American Express Financial IDS Tower 10 Senior Vice President
Senior Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Stephen W. Roszell, Advisory Capital IDS Tower 10 Director
Senior Vice President Strategies Group Inc. Minneapolis, MN 55440
American Express Asset Director, President and
Management Group Inc. Chief Executive Officer
American Express Asset Director
Management International,
Inc.
American Express Asset Director
Management Ltd.
American Express Financial Senior Vice President
Advisors Inc.
American Express Trust Director
Company
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Erven A. Samsel, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Alabama Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Massachusetts Inc.
IDS Insurance Agency of Vice President
New Mexico Inc.
IDS Insurance Agency of Vice President
North Carolina Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Insurance Agency of Vice President
Wyoming Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Stuart A. Sedlacek, AMEX Assurance Company IDS Tower 10 Director
Senior Vice President and Minneapolis, MN 55440
Chief Financial Officer
American Enterprise Life Executive Vice President
Insurance Company
American Express Financial Senior Vice President and
Advisors Inc. Chief Financial Officer
American Express Trust Director
Company
American Partners Life Director and Vice President
Insurance Agency
IDS Certificate Company Director and President
IDS Life Insurance Company Executive Vice President
and Controller
IDS Property Casualty 1 WEG Blvd. Director
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Donald K. Shanks, AMEX Assurance Company IDS Tower 10 Senior Vice President
Vice President Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
IDS Property Casualty 1 WEG Blvd. Senior Vice President
Insurance Company DePere, WI 54115
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
F. Dale Simmons, AMEX Assurance Company IDS Tower 10 Vice President
Vice President Minneapolis, MN 55440
American Centurion Life Vice President
Assurance Company
American Enterprise Life Vice President
Insurance
American Express Financial Vice President
Advisors Inc.
American Partners Life Vice President
Insurance Company
IDS Certificate Company Vice President
IDS Life Insurance Company Vice President
IDS Partnership Services Director and Vice President
Corporation
IDS Real Estate Services Chairman of the Board and
Inc. President
IDS Realty Corporation Director and Vice President
IDS Life Insurance Company P.O. Box 5144 Vice President
of New York Albany, NY 12205
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Judy P. Skoglund, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Bridget Sperl, American Express Client IDS Tower 10 Vice President
Vice President Service Corporation Minneapolis, MN 55440
American Express Financial Vice President
Advisors Inc.
Public Employee Payment Director and President
Company
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Lisa A. Steffes, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
William A. Stoltzmann, American Enterprise Life IDS Tower 10 Director, Vice President,
Vice President and Assistant Insurance Company Minneapolis, MN 55440 General Counsel and
General Counsel Secretary
American Express Director, Vice President
Corporation and Secretary
American Express Financial Vice President and
Advisors Inc. Assistant General Counsel
American Partners Life Director, Vice President,
Insurance Company General Counsel and
Secretary
IDS Life Insurance Company Vice President, General
Counsel and Secretary
IDS Life Series Fund Inc. General Counsel and
Assistant Secretary
IDS Life Variable Annuity General Counsel and
Funds A & B Assistant Secretary
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
James J. Strauss, American Express Financial IDS Tower 10 Vice President
Vice President and General Advisors Inc. Minneapolis, MN 55440
Auditor
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Jeffrey J. Stremcha, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
Barbara Stroup Stewart, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Wesley W. Wadman, American Express Asset IDS Tower 10 Executive Vice President
Vice President Management Group Inc. Minneapolis, MN 55440
American Express Asset Director and Senior Vice
Management International, President
Inc.
American Express Asset Director and Vice Chairman
Management Ltd.
American Express Financial Vice President
Advisors Inc.
IDS Fund Management Limited Director and Vice Chairman
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Norman Weaver Jr., American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Insurance Vice President
Agency of Arizona Inc.
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Alabama Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Massachusetts Inc.
IDS Insurance Agency of Vice President
New Mexico Inc.
IDS Insurance Agency of Vice President
North Carolina Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Insurance Agency of Vice President
Wyoming Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Michael L. Weiner, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
IDS Capital Holdings Inc. Vice President
IDS Futures Brokerage Group Vice President
IDS Futures Corporation Vice President, Treasurer
and Secretary
IDS Sales Support Inc. Director, Vice President
and Assistant Treasurer
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Lawrence J. Welte, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Jeffry F. Welter, American Express Financial IDS Tower 10 Vice President
Vice President Advisors Inc. Minneapolis, MN 55440
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Edwin M. Wistrand, American Express Financial IDS Tower 10 Vice President and
Vice President and Assistant Advisors Inc. Minneapolis, MN 55440 Assistant General Counsel
General Counsel
American Express Financial Vice President and Chief
Advisors Japan Inc. Legal Officer
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Michael D. Wolf, American Express Asset IDS Tower 10 Executive Vice President
Vice President Management Group Inc. Minneapolis, MN 55440 and Senior Portfolio
Manager
American Express Financial Vice President
Advisors Inc.
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Michael R. Woodward, American Express Financial IDS Tower 10 Senior Vice President
Director and Senior Vice Advisors Inc. Minneapolis, MN 55440
President
American Express Insurance Vice President
Agency of Idaho Inc.
American Express Insurance Vice President
Agency of Nevada Inc.
American Express Insurance Vice President
Agency of Oregon Inc.
American Express Property Vice President
Casualty Insurance Agency
of Kentucky Inc.
American Express Property Vice President
Casualty Insurance Agency
of Maryland Inc.
American Express Property Vice President
Casualty Insurance Agency
of Pennsylvania Inc.
IDS Insurance Agency of Vice President
Alabama Inc.
IDS Insurance Agency of Vice President
Arkansas Inc.
IDS Insurance Agency of Vice President
Massachusetts Inc.
IDS Insurance Agency of Vice President
New Mexico Inc.
IDS Insurance Agency of Vice President
North Carolina Inc.
IDS Insurance Agency of Vice President
Ohio Inc.
IDS Insurance Agency of Vice President
Wyoming Inc.
IDS Life Insurance Company P.O. Box 5144 Director
of New York Albany, NY 12205
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>
<TABLE>
<CAPTION>
Item 27. Principal Underwriters.
(a) American Express Financial Advisors acts as principal underwriter for the following investment
companies:
IDS Bond Fund, Inc.; IDS California Tax-Exempt Trust; IDS Discovery Fund, Inc.; IDS Equity
Select Fund, Inc.; IDS Extra Income Fund, Inc.; IDS Federal Income Fund, Inc.; IDS Global
Series, Inc.; IDS Growth Fund, Inc.; IDS High Yield Tax-Exempt Fund, Inc.; IDS International
Fund, Inc.; IDS Investment Series, Inc.; IDS Managed Retirement Fund, Inc.; IDS Market
Advantage Series, Inc.; IDS Money Market Series, Inc.; IDS New Dimensions Fund, Inc.; IDS
Precious Metals Fund, Inc.; IDS Progressive Fund, Inc.; IDS Selective Fund, Inc.; IDS Special
Tax-Exempt Series Trust; IDS Stock Fund, Inc.; IDS Strategy Fund, Inc.; IDS Tax-Exempt Bond
Fund, Inc.; IDS Tax-Free Money Fund, Inc.; IDS Utilities Income Fund, Inc., Growth Trust;
Growth and Income Trust; Income Trust, Tax-Free Income Trust, World Trust and IDS Certificate
Company.
(b) As to each director, officer or partner of the principal underwriter:
<S> <C> <C>
Name and Principal Business Address Position and Offices with Offices with Registrant
Underwriter
- ---------------------------------------------- ---------------------------------- ----------------------------
Ronald G. Abrahamson Vice President-Service Quality None
IDS Tower 10 and Reengineering
Minneapolis, MN 55440
Douglas A. Alger Senior Vice President-Human None
IDS Tower 10 Resources
Minneapolis, MN 55440
Peter J. Anderson Senior Vice President-Investment Vice President-Investments
IDS Tower 10 Operations
Minneapolis, MN 55440
Ward D. Armstrong Vice President-American Express None
IDS Tower 10 Retirement Services
Minneapolis, MN 55440
John M. Baker Vice President-Plan Sponsor None
IDS Tower 10 Services
Minneapolis, MN 55440
Joseph M. Barsky III Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Timothy V. Bechtold Vice President-Risk Management None
IDS Tower 10 Products
Minneapolis, MN 55440
John D. Begley Group Vice President-Ohio/Indiana None
Suite 100
7760 Olentangy River Rd.
Columbus, OH 43235
Brent L. Bisson Group Vice President-Los Angeles None
Suite 900, E. Westside Twr Metro
11835 West Olympic Blvd.
Los Angeles, CA 90064
John C. Boeder Vice President-Nonproprietary None
IDS Tower 10 Products
Minneapolis, MN 55440
Walter K. Booker Group Vice President-New Jersey None
Suite 200, 3500 Market Street
Camp Hill, NJ 17011
Bruce J. Bordelon Group Vice President-Gulf States None
Galleria One Suite 1900
Galleria Blvd.
Metairie, LA 70001
Charles R. Branch Group Vice President-Northwest None
Suite 200
West 111 North River Dr.
Spokane, WA 99201
Douglas W. Brewers Vice President-Sales Support None
IDS Tower 10
Minneapolis, MN 55440
Karl J. Breyer Corporate Senior Vice President None
IDS Tower 10
Minneapolis, MN 55440
Cynthia M. Carlson Vice President-American Express None
IDS Tower 10 Securities Services
Minneapolis, MN 55440
Mark W. Carter Senior Vice President and Chief None
IDS Tower 10 Marketing Officer
Minneapolis, MN 55440
James E. Choat Senior Vice None
IDS Tower 10 President-Institutional Products
Minneapolis, MN 55440 Group
Kenneth J. Ciak Vice President and General None
IDS Property Casualty Manager-IDS Property Casualty
1400 Lombardi Avenue
Green Bay, WI 54304
Paul A. Connolly Vice President-Advisor Staffing, None
IDS Tower 10 Training and Support
Minneapolis, MN 55440
Henry J. Cormier Group Vice President-Connecticut None
Commerce Center One
333 East River Drive
East Hartford, CT 06108
John M. Crawford Group Vice President-Arkansas/ None
Suite 200 Springfield/Memphis
10800 Financial Ctr Pkwy
Little Rock, AR 72211
Kevin F. Crowe Group Vice None
Suite 312 President-Carolinas/Eastern
7300 Carmel Executive Pk Georgia
Charlotte, NC 28226
Colleen Curran Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
Luz Maria Davis Vice President-Communications None
IDS Tower 10
Minneapolis, MN 55440
Scott M. DiGiammarino Group Vice None
Suite 500, 8045 Leesburg Pike President-Washington/Baltimore
Vienna, VA 22182
Bradford L. Drew Group Vice President-Eastern None
Two Datran Center Florida
Penthouse One B
9130 S. Dadeland Blvd.
Miami, FL 33156
Douglas K. Dunning Vice President-Assured Assets None
IDS Tower 10 Product Development and
Minneapolis, MN 55440 Management
James P. Egge Group Vice President-Western None
4305 South Louise, Suite 202 Iowa, Nebraska, Dakotas
Sioux Falls, SD 57103
Gordon L. Eid Senior Vice President, General None
IDS Tower 10 Counsel and Chief Compliance
Minneapolis, MN 55440 Officer
Robert M. Elconin Vice President-Government None
IDS Tower 10 Relations
Minneapolis, MN 55440
Phillip W. Evans Group Vice President-Rocky None
Suite 600 Mountain
6985 Union Park Center
Midvale, UT 84047-4177
Gordon M. Fines Vice President-Mutual Fund None
IDS Tower 10 Equity Investments
Minneapolis, MN 55440
Douglas L. Forsberg Vice President-Institutional None
IDS Tower 10 Products Group
Minneapolis, MN 55440
Jeffrey P. Fox Vice President and Corporate None
IDS Tower 10 Controller
Minneapolis, MN 55440
William P. Fritz Group Vice President-Gateway None
Suite 160
12855 Flushing Meadows Dr
St. Louis, MO 63131
Carl W. Gans Group Vice President-Twin City None
8500 Tower Suite 1770 Metro
8500 Normandale Lake Blvd.
Bloomington, MN 55437
David A. Hammer Vice President and Marketing None
IDS Tower 10 Controller
Minneapolis, MN 55440
Teresa A. Hanratty Group Vice President-Northern None
Suites 6&7 New England
169 South River Road
Bedford, NH 03110
Robert L. Harden Group Vice President-Boston Metro None
Two Constitution Plaza
Boston, MA 02129
Lorraine R. Hart Vice President-Insurance None
IDS Tower 10 Investments
Minneapolis, MN 55440
Scott A. Hawkinson Vice President and None
IDS Tower 10 Controller-Private Client Group
Minneapolis, MN 55440
Brian M. Heath Group Vice President-North Texas None
Suite 150
801 E. Campbell Road
Richardson, TX 75081
Janis K. Heaney Vice President-Incentive None
IDS Tower 10 Management
Minneapolis, MN 55440
James G. Hirsh Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
Jon E. Hjelm Group Vice President-Rhode None
319 Southbridge Street Island/Central-Western
Auburn, MA 01501 Massachusetts
David J. Hockenberry Group Vice President-Tennessee None
30 Burton Hills Blvd. Valley
Suite 175
Nashville, TN 37215
Jeffrey S. Horton Vice President and Treasurer None
IDS Tower 10
Minneapolis, MN 55440
David R. Hubers Chairman, President and Chief Board member
IDS Tower 10 Executive Officer
Minneapolis, MN 55440
Martin G. Hurwitz Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
James M. Jensen Vice President-Insurance Product None
IDS Tower 10 Development and Management
Minneapolis, MN 55440
Marietta L. Johns Senior Vice President-Field None
IDS Tower 10 Management
Minneapolis, MN 55440
Nancy E. Jones Vice President-Business None
IDS Tower 10 Development
Minneapolis, MN 55440
Ora J. Kaine Vice President-Financial None
IDS Tower 10 Advisory Services
Minneapolis, MN 55440
Linda B. Keene Vice President-Market Development None
IDS Tower 10
Minneapolis, MN 55440
G. Michael Kennedy Vice President-Investment None
IDS Tower 10 Services and Investment Research
Minneapolis, MN 55440
Susan D. Kinder Senior Vice None
IDS Tower 10 President-Distribution Services
Minneapolis, MN 55440
Richard W. Kling Senior Vice President-Products None
IDS Tower 10
Minneapolis, MN 55440
John M. Knight Vice President-Investment Treasurer
IDS Tower 10 Accounting
Minneapolis, MN 55440
Paul F. Kolkman Vice President-Actuarial Finance None
IDS Tower 10
Minneapolis, MN 55440
Claire Kolmodin Vice President-Service Quality None
IDS Tower 10
Minneapolis, MN 55440
David S. Kreager Group Vice President-Greater None
Suite 108 Michigan
Trestle Bridge V
5136 Lovers Lane
Kalamazoo, MI 49002
Steven C. Kumagai Director and Senior Vice None
IDS Tower 10 President-Field Management and
Minneapolis, MN 55440 Business Systems
Mitre Kutanovski Group Vice President-Chicago None
Suite 680 Metro
8585 Broadway
Merrillville, IN 48410
Kurt A. Larson Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Lori J. Larson Vice President-Brokerage and None
IDS Tower 10 Direct Services
Minneapolis, MN 55440
Daniel E. Laufenberg Vice President and Chief U.S. None
IDS Tower 10 Economist
Minneapolis, MN 55440
Peter A. Lefferts Senior Vice President-Corporate None
IDS Tower 10 Strategy and Development
Minneapolis, MN 55440
Douglas A. Lennick Director and Executive Vice None
IDS Tower 10 President-Private Client Group
Minneapolis, MN 55440
Mary J. Malevich Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Fred A. Mandell Vice President-Field Marketing None
IDS Tower 10 Readiness
Minneapolis, MN 55440
Daniel E. Martin Group Vice President-Pittsburgh None
Suite 650 Metro
5700 Corporate Drive
Pittsburgh, PA 15237
Sarah A. Mealey Vice President-Mutual Funds None
IDS Tower 10
Minneapolis, MN 55440
Paula R. Meyer Vice President-Assured Assets None
IDS Tower 10
Minneapolis, MN 55440
William P. Miller Vice President and Senior None
IDS Tower 10 Portfolio Manager
Minneapolis, MN 55440
James A. Mitchell Executive Vice None
IDS Tower 10 President-Marketing and Products
Minneapolis, MN 55440
Pamela J. Moret Vice President-Variable Assets None
IDS Tower 10
Minneapolis, MN 55440
Alan D. Morgenstern Group Vice President-Central None
Suite 200 California/Western Nevada
3500 Market Street
Camp Hill, NJ 17011
Barry J. Murphy Senior Vice President-Client None
IDS Tower 10 Service
Minneapolis, MN 55440
Mary Owens Neal Vice President-Mature Market None
IDS Tower 10 Segment
Minneapolis, MN 55440
Thomas V. Nicolosi Group Vice President-New York None
Suite 220 Metro Area
500 Mamaroneck Avenue
Harrison, NY 10528
Michael J. O'Keefe Vice President-Advisory Business None
IDS Tower 10 Systems
Minneapolis, MN 55440
James R. Palmer Vice President-Taxes None
IDS Tower 10
Minneapolis, MN 55440
Marc A. Parker Group Vice None
10200 SW Greenburg Road President-Portland/Eugene
Suite 110
Portland, OR 97223
Carla P. Pavone Vice President-Compensation and None
IDS Tower 10 Field Administration
Minneapolis, MN 55440
Thomas P. Perrine Senior Vice President-Group None
IDS Tower 10 Relationship Leader/American
Minneapolis, MN 55440 Express Technologies Financial
Services
Susan B. Plimpton Vice President-Marketing Services None
IDS Tower 10
Minneapolis, MN 55440
Larry M. Post Group Vice None
One Tower Bridge President-Philadelphia Metro
100 Front Street 8th Fl
West Conshohocken, PA 19428
Ronald W. Powell Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
Diana R. Prost Group Vice None
3030 N.W. Expressway President-Kansas/Oklahoma
Suite 900
Oklahoma City, OK 73112
James M. Punch Vice President and Project None
IDS Tower 10 Manager-Platform I Value Enhanced
Minneapolis, MN 55440
Frederick C. Quirsfeld Senior Vice President-Fixed Vice President - Fixed
IDS Tower 10 Income Income Investments
Minneapolis, MN 55440
Rollyn C. Renstrom Vice President-Corporate None
IDS Tower 10 Planning and Analysis
Minneapolis, MN 55440
R. Daniel Richardson III Group Vice President-Southern None
Suite 800 Texas
Arboretum Plaza One
9442 Capital of Texas Hwy N.
Austin, TX 78759
ReBecca K. Roloff Senior Vice President-Field None
IDS Tower 10 Management and Financial
Minneapolis, MN 55440 Advisory Service
Stephen W. Roszell Senior Vice None
IDS Tower 10 President-Institutional
Minneapolis, MN 55440
Max G. Roth Group Vice None
Suite 201 S IDS Ctr President-Wisconsin/Upper
1400 Lombardi Avenue Michigan
Green Bay, WI 54304
Erven A. Samsel Senior Vice President-Field None
45 Braintree Hill Park Management
Suite 402
Braintree, MA 02184
Russell L. Scalfano Group Vice None
Suite 201 President-Illinois/Indiana/Kentucky
101 Plaza East Blvd.
Evansville, IN 47715
William G. Scholz Group Vice President-Arizona/Las None
Suite 205 Vegas
7333 E Doubletree Ranch Rd
Scottsdale, AZ 85258
Stuart A. Sedlacek Senior Vice President and Chief None
IDS Tower 10 Financial Officer
Minneapolis, MN 55440
Donald K. Shanks Vice President-Property Casualty None
IDS Tower 10
Minneapolis, MN 55440
F. Dale Simmons Vice President-Senior Portfolio None
IDS Tower 10 Manager, Insurance Investments
Minneapolis, MN 55440
Judy P. Skoglund Vice President-Quality and None
IDS Tower 10 Service Support
Minneapolis, MN 55440
James B. Solberg Group Vice President-Eastern None
466 Westdale Mall Iowa Area
Cedar Rapids, IA 52404
Bridget Sperl Vice President-Geographic None
IDS Tower 10 Service Teams
Minneapolis, MN 55440
Paul J. Stanislaw Group Vice President-Southern None
Suite 1100 California
Two Park Plaza
Irvine, CA 92714
Lisa A. Steffes Vice President-Cardmember None
IDS Tower 10 Initiatives
Minneapolis, MN 55440
Lois A. Stilwell Group Vice President-Outstate None
Suite 433 Minnesota Area/ North
9900 East Bren Road Dakota/Western Wisconsin
Minnetonka, MN 55343
William A. Stoltzmann Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
James J. Strauss Vice President and General None
IDS Tower 10 Auditor
Minneapolis, MN 55440
Jeffrey J. Stremcha Vice President-Information None
IDS Tower 10 Resource Management/ISD
Minneapolis, MN 55440
Barbara Stroup Stewart Vice President-Channel None
IDS Tower 10 Development
Minneapolis, MN 55440
Craig P. Taucher Group Vice None
Suite 150 President-Orlando/Jacksonville
4190 Belfort Road
Jacksonville, FL 32216
Neil G. Taylor Group Vice None
Suite 425 President-Seattle/Tacoma/Hawaii
101 Elliott Avenue West
Seattle, WA 98119
John R. Thomas Senior Vice President Board Member
IDS Tower 10
Minneapolis, MN 55440
Peter S. Velardi Group Vice None
Suite 180 President-Atlanta/Birmingham
1200 Ashwood Parkway
Atlanta, GA 30338
Charles F. Wachendorfer Group Vice President-Detroit None
8115 East Jefferson Avenue Metro
Detroit, MI 48214
Wesley W. Wadman Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Donald F. Weaver Group Vice President-Greater None
3500 Market Street, Suite 200 Pennsylvania
Camp Hill, PA 17011
Norman Weaver Jr. Senior Vice President-Field None
1010 Main St. Suite 2B Management
Huntington Beach, CA 92648
Michael L. Weiner Vice President-Tax Research and None
IDS Tower 10 Audit
Minneapolis, MN 55440
Lawrence J. Welte Vice President-Investment None
IDS Tower 10 Administration
Minneapolis, MN 55440
Jeffry M. Welter Vice President-Equity and Fixed None
IDS Tower 10 Income Trading
Minneapolis, MN 55440
Thomas L. White Group Vice President-Cleveland None
Suite 200 Metro
28601 Chagrin Blvd.
Woodmere, OH 44122
Eric S. Williams Group Vice President-Virginia None
Suite 250
3951 Westerre Parkway
Richmond, VA 23233
William J. Williams Group Vice President-Western None
Two North Tamiami Trail Florida
Suite 702
Sarasota, FL 34236
Edwin M. Wistrand Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
Michael D. Wolf Vice President-Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Michael R. Woodward Senior Vice President-Field None
32 Ellicott St Management
Suite 100
Batavia, NY 14020
</TABLE>
Item 27(c). Not applicable.
Item 28. Location of Accounts and Records
American Express Financial Corporation
IDS Tower 10
Minneapolis, MN 55440
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company
Act the Registrant, IDS Precious Metals Fund, Inc. certifies that it meets the
requirements for the effectiveness of this Amendment to Registration Statement
pursuant to Rule 485(b) under the securities Act, and has duly caused this
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Minneapolis and the State
of Minnesota on the 24th day of May, 1999.
IDS PRECIOUS METALS FUND, INC.
By /s/ Arne H. Carlson**
Arne H. Carlson, Chief Executive Officer
By/s/ John M. Knight, Treasurer
John M. Knight, Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
its Registration Statement has been signed below by the following persons in the
capacities indicated the 24th day of May, 1999.
Signature Capacity
/s/ H. Brewster Atwater, Jr.* Director
H. Brewster Atwater, Jr.
/s/ Arne H. Carlson* Chairman of the Board
Arne H. Carlson
/s/ Lynne V. Cheney* Director
Lynne V. Cheney
/s/ William H. Dudley* Director
William H. Dudley
/s/ David R. Hubers* Director
David R. Hubers
/s/ Heinz F. Hutter* Director
Heinz F. Hutter
/s/ Anne P. Jones* Director
Anne P. Jones
/s/ William R. Pearce* Director
William R. Pearce
<PAGE>
Signature Capacity
/s/ Alan K. Simpson* Director
Alan K. Simpson
/s/ Edson W. Spencer* Director
Edson W. Spencer
/s/ John R. Thomas* Director
John R. Thomas
/s/ Wheelock Whitney* Director
Wheelock Whitney
/s/ C. Angus Wurtele* Director
C. Angus Wurtele
*Signed pursuant to Directors' Power of Attorney, dated Jan. 14, 1999, filed on
or about March 18, 1999 as Exhibit (p)(1) to Registrant's Post-Effective
Amendment No. 32, by:
/s/ Leslie L. Ogg
Leslie L. Ogg
**Signed pursuant to Officers' Power of Attorney dated March 1, 1999, filed on
or about March 18, 1999 as Exhibit (p)(2) to Registrant's Post-Effective
Amendment No. 32, by:
/s/ Leslie L. Ogg
Leslie L. Ogg
<PAGE>
CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 33 TO REGISTRATION STATEMENT NO.
2-93745
This Post-Effective Amendment comprises the following papers and documents:
The facing sheet.
Part A.
The prospectus.
Part B.
Statement of Additional Information.
Part C.
Other information.
Exhibits.
The signatures.
IDS Precious Metals Fund, Inc.
Registration Number 2-93745/811-4132
EXHIBIT INDEX
Exhibit (g)(3) Custodian Agreement Dated May 1, 1999
Exhibit (i) Opinion and consent of counsel
Exhibit (j) Independent Auditors' Consent
Exhibit (n) Financial Data Schedule
Exhibit (o) Plan under section 18f-3(d) dated April, 1999
CUSTODIAN AGREEMENT
This Agreement is made and entered into as of May 13, 1999 by and
between American Express Trust Company, a Minnesota trust company (the
"Customer") and The Bank of New York, a New York trust company (the
"Custodian").
WHEREAS, the Customer serves as the custodian of the assets of certain
open-end management investment companies or portfolios thereof represented by
separate series of certain of such companies' common shares (each, a "Fund" and,
collectively, the "Funds"), collective investment funds, common trust funds,
employee benefit plans and other accounts (each, including each Fund, an
"Account" and, collectively, the "Accounts"); and
WHEREAS, the Customer wishes to engage the Custodian, and the Custodian
wishes to be engaged. to serve as a custodian of certain of the assets of each
Account deposited with the Customer, all in accordance with the terms and
conditions of this Agreement.
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian.
The Customer hereby appoints the Custodian as a custodian of securities
and other property owned or under the control of the Customer which are
delivered to the Custodian, or any Sub-Custodian as appointed below, from time
to time to be held in custody for the Customer. The Custodian agrees to
establish and maintain a custody account or accounts on its books in the name of
the Customer or in such other name as the Customer may direct. The Custodian
shall record in the account or accounts, and shall, subject to the terms of this
Agreement, have general responsibility for the safekeeping of all securities,
cash and other property of the Customer so delivered for custody (all such
securities, cash and other property being collectively the "Property"). Customer
shall advise Custodian of each Account whose underlying assets are subject to
ERISA. The services to be provided by the Custodian in accordance with this
Agreement are more fully described in the Service Agreement attached hereto as
Appendix 1, as such Service Agreement may be amended by mutual agreement by
Customer and Custodian from time to time.
2. Appointment of Sub-Custodians.
2.1 The Property may be held in custody and deposit accounts that have
been established by the Custodian with one or more domestic banks, or with
Depository Trust Company ("DTC"), Participants Trust Company ("PTC") or any
"clearing corporation" within the United States as defined in the New York
Uniform Commercial Code (DTC,
PTC and each such clearing corporation hereinafter referred to as a
"Depository") or with one or more banks located outside the United States or
with any Securities Depository as defined in Rule l7f-5 promulgated under the
Investment Company Act of 1940, as amended ("the Rule") (each such Securities
Depository, Depository and bank hereinafter a "Sub-Custodian") as listed on
Schedules I and II hereto, as such Schedules may be amended from time to time by
the Custodian by written notice to the Customer, provided, however, each
Sub-Custodian holding Property outside the United States and each Securities
Depository shall be an Eligible Foreign Sub-Custodian as defined in the Rule or
which by order of the Securities and Exchange Commission is exempted therefrom.
The Custodian shall furnish to the Customer each calendar quarter updates of the
information with respect to Sub-Custodians furnished Customer by Custodian in
connection with the execution of this Agreement, and with such other updates, if
any, as Custodian shall determine.
<PAGE>
3. Duties of the Custodian.
3.1 Holding Securities.
The Custodian may hold Property for all of its customers,
including the Accounts, with any Sub-Custodian in an account that is identified
as belonging to the Custodian for the benefit of its customers, provided
however, that (i) the records of the Custodian with respect to the Property of
each Account which is maintained in such account shall identify the Property as
belonging to the Account, (ii) the Custodian shall require that Property so held
by the Sub-Custodian for the Custodian's account be identified on the
Sub-Custodian's books as separate from any assets of such Sub-Custodian or of
other customers of such Sub-Custodian, (iii) the Sub-Custodian, including any
Securities Depository and any Depository, in which such Sub-Custodian holds
Property, or any of their creditors, may not assert any right, charge, security
interest, lien, encumbrance or other claim of any kind to such Property except a
claim of payment for its safe custody or administration, (iv) beneficial
ownership of the Property may be freely transferred without the payment of money
or value other than for safe custody or administration, and (v) in the event
that a Sub-Custodian holds Property in a Depository or Securities Depository,
such Sub-Custodian will be required by its agreement with the Custodian to
identify on its books such Property as being held for the account of the
Custodian as a custodian for its customers. . Notwithstanding the foregoing,
Property deposited by the Custodian in a Sub-Custodian which is a Depository or
a Securities Depository will be held subject to the rules, terms and conditions
of such Depository or Securities Depository.
Customer hereby represents and warrants to Custodian with
respect to each Account subject to the Employee Retirement Income Security Act
of 1974, as amended, ("ERISA") other than an American Express Company Retirement
Plan whose investment manager is not described in clause (y) of this sentence
and such other Accounts subject to ERISA, if any, as Customer and the Bank may
agree upon, that either (x) Customer has "management and control" of all
Property subject to 29 U.S.C. . ss.1104(b)(2) ("ERISA"] within the meaning of 29
C.F.R. ss.2550.404b-l(c)(1), or (y) Customer has been advised that an entity
specified in 29 C.F.R. ss.2550.404b-(a)(2)(i) has such "management and control"
of such Property. Such representation and warranty shall be deemed repeated on
each day on which Custodian holds any Property under the Agreement.
3.2 Transactions in Custody Accounts.
3.2.1 Delivery of Securities.
The Custodian or a Sub-Custodian shall release and deliver
securities of an Account held by the Custodian or Sub-Custodian only upon
receipt of Proper Instructions, which may be continuing instructions when deemed
appropriate by the parties. Release and delivery of securities shall only occur
in the following cases:
(a) upon the settlement of a sale of such securities for the
Account in accordance with prevailing market practice in the country
where such securities are held or traded, including, without
limitation: (i) delivery against expectation of receiving later
payment; or (ii) in the case of the settlement of a sale effected
through a Sub-Custodian which is a Depository or Securities
Depository, in accordance with the rules governing the operation of
the Depository or Securities Depository;
(b) in connection with any repurchase agreement related to
the securities;
(c) to the depository agent in connection with tender or
other similar offers for securities of the Account;
(d) to the issuer thereof or its agent when such securities
are called, redeemed, retired or otherwise become payable;
<PAGE>
(e) to the issuer thereof, or its agent, for transfer into
the name of the Custodian (or the name of the respective Sub-Custodian
or of any nominee of the Custodian or such Sub-Custodian) or for
exchange for a different number of bonds, certificates or other
evidence representing the same aggregate face amount or number of
units;
(f) to brokers, clearing banks or other clearing agents for
examination or trade execution in accordance with market custom (and,
under no circumstances shall the Custodian be liable for the acts or
omissions of such broker or agent, other than an affiliate of the
Custodian) provided, that Custodian shall be liable for its actions in
accordance with market customs if such actions are performed with
negligence or willful misconduct:
(g) for exchange or conversion pursuant to any plan of merger,
consolidation. recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions
for conversion contained in such securities, or pursuant to any deposit
agreement;
(h) in the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or similar
securities or the surrender of interim receipts or temporary securities
for definitive securities;
(i) for delivery as security in connection with any borrowing
by the Account requiring a pledge of assets by the Account;
(j) in connection with trading in options and futures
contracts, including delivery as original margin and variation margin;
(k) in connection with the lending of securities; and
(l) for any other proper purpose, but only upon receipt of
Proper Instructions specifying the securities to be delivered, setting
forth the purpose for which such delivery is to be made, and naming the
person or persons to whom delivery of such securities shall be made.
The Custodian may, as a matter of bookkeeping convenience or
by separate agreement with the Customer, credit the Account with the proceeds
from the sale, redemption or other disposition of securities or interest,
dividends or other distributions payable on securities prior to its actual
receipt of final payment therefor. All such credits shall be conditional until
the Custodian's actual receipt of final payment and may be reversed by the
Custodian to the extent that final payment is not received. Payment with respect
to a transaction will not be "final" until the Custodian shall have received
immediately available funds which under applicable local law, rule and/or
practice are irreversible and not subject to any security interest, levy or
other encumbrance, and which are specifically applicable to such transaction.
The Customer assumes full responsibility for all credit risks involved in
connection with the Custodian's delivery of securities pursuant to the Proper
Instructions of the Customer.
3.2.2 Payment of Account Monies.
Upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties, the Custodian shall pay
out, or direct the respective Sub-Custodian to pay out, monies of an Account in
the following cases only:
(a) upon the purchase of securities for the Account, unless
otherwise directed by Proper Instructions, by (i) delivering money to
the seller thereof or to a dealer therefor (or an agent for such
seller or dealer) against expectation of receiving later delivery of
such securities; or (ii) in the case of a purchase effected through a
Depository or a Securities Depository, in accordance with the rules
governing the operation of such Depository or Securities Depository;
<PAGE>
(b) in connection with the conversion, exchange or
surrender of securities of the Account;
(c) for the payment of any expense or liability of the
Account:
(d) for the purchase or sale of foreign exchange or
foreign exchange contracts for the Account;
(e) in connection with trading in options and futures
contracts, including, delivery as original margin and
variation margin;
f) in connection with the borrowing or lending of
securities; and
(g) for any other proper purpose, but only upon receipt
of Proper Instructions specifying the amount of such
payment, setting forth the purpose for which such
payment is to be made, and naming the person or
persons to whom such payment is to be made.
For the purpose of settling securities and foreign exchange
transactions, the Customer shall provide the Custodian with sufficient
immediately available funds for all transactions by such time and date as
conditions in the relevant market dictate. As used herein, "sufficient
immediately available funds" shall mean either (i) sufficient cash denominated
in the currency of the Customer's home jurisdiction to purchase the necessary
foreign currency, or (ii) sufficient applicable foreign currency, to settle the
transaction. The Custodian shall provide the Customer with immediately available
funds each day which result from the actual settlement of all sale transactions,
based upon advices received by the Custodian from its Sub-Custodians, including
Depositories and Securities Depositories. Such funds shall be in the currency of
the Customer's home jurisdiction or such other currency as the Customer may
specify to the Custodian.
The Custodian may act as the Customer's agent or act as a
principal in foreign exchange transactions at such rates as are agreed from time
to time between the Customer and the Custodian. Any foreign exchange transaction
effected by the Custodian in connection with this Agreement may be entered with
the Custodian or an affiliate of the Custodian acting as principal or otherwise
through customary banking channels. The Customer may issue standing Proper
Instructions with respect to foreign exchange transactions but the Custodian may
establish rules or limitations concerning any foreign exchange facility made
available to the Customer. The Customer shall bear all risks of investing in
securities or holding cash denominated in a foreign currency. Without limiting
the foregoing, the Customer shall bear the risks that rules or procedures
imposed by Depositories or Securities Depositories, exchange controls, asset
freezes or other laws, rules, regulations or orders shall prohibit or impose
burdens or costs on the transfer to, by or for the account of the Customer of
securities or cash held outside the Customer's jurisdiction or denominated in a
currency other than its home jurisdiction or the conversion of cash from one
currency into another currency. The Custodian shall not be obligated to
substitute another currency for a currency (including a currency that is a
component of a Composite Currency Unit) whose transferability, convertibility or
availability has been affected by such law, regulation, rule or procedure.
Neither the Custodian nor any Sub-Custodian shall be liable to the Customer for
any loss resulting from any of the foregoing events. No provision of this
Section 3.2 shall limit the rights provided the Customer under Section 10 of
this Agreement. The Custodian agrees that if an officer or employee of the
Custodian administering this Agreement obtains actual knowledge of any law,
rule, or regulation, or of a procedure of a Depository or a security Depository,
or of orders prohibiting or imposing burdens or costs on the transfer to, by or
for the account of the Customer of securities or cash held outside the
Customer's jurisdiction or denominated in a currency other than its home
jurisdiction or the conversion of cash from one currency into another currency,
such officer or employee shall promptly advise the Customer.
<PAGE>
3.3 Registration of Securities.
The securities maintained in the custody of the Custodian or
any Sub-Custodian (other than bearer securities) shall be registered in the name
of the applicable Account or in the name of any nominee of the Custodian or the
Sub-Custodian, or, if required by law, in the name of the Sub-custodian.
3.4 Security Interest with Respect to Property.
The Customer hereby grants and assigns to the Custodian such
lien, if any, with respect to Property as Customer is authorized to grant or
assign to the Custodian under Customer's custodian agreements with each Fund. If
an Account is subject to the requirements of ERISA, such grant and assignment,
if any, shall apply only to the extent not prohibited by ERISA.
3.5 Taxes.
The Customer shall be liable for all taxes, assessments,
duties and other governmental charges, including any interest or penalty with
respect thereto ("Taxes"), with respect to any cash or securities held on behalf
of the Customer or any transaction related thereto. The Customer shall indemnify
the Custodian and each Sub-Custodian for the amount of any Tax that the
Custodian, any such Sub-Custodian or any other withholding agent is required
under applicable laws (whether by assessment or otherwise) to pay on behalf of,
or in respect of income earned by or payments or distributions made to or for
the account of the Customer (including any payment of Tax required by reason of
an earlier failure to withhold). The Custodian shall, or shall instruct the
applicable Sub-Custodian or other withholding agent to, withhold the amount of
any Tax which is required to be withheld under applicable law upon collection of
any dividend, interest or other distribution made with respect to any security
and any proceeds or income from the sale, loan or other transfer of any
security. In the event that the Custodian or any Sub-Custodian is required under
applicable law to pay any Tax on behalf of the Customer, the Custodian is hereby
authorized to timely make, or instruct the Sub-Custodian to make, payment of
such Tax in the manner required by applicable law, and the amount of such tax so
paid shall be an obligation of Customer to Custodian payable on demand in the
currency in which such tax was paid. In the event that the Customer is eligible.
pursuant to applicable law or to the provisions of any tax treaty, for a reduced
rate of, or exemption from, any Tax which is otherwise required to be withheld
or paid on behalf of the Customer under any applicable law, the Custodian shall,
or shall instruct the applicable Sub-Custodian or withholding agent to, either
withhold or pay such Tax at such reduced rate or refrain from withholding or
paying such Tax, as appropriate; provided that the Custodian shall have received
from the Customer all documentary evidence of residence or other qualification
for such reduced rate or exemption required to be received under such applicable
law or treaty which Custodian has requested. In the event that a reduced rate
of, or exemption from, any Tax is obtainable only by means of an application for
refund, the Custodian and the applicable Sub-Custodian shall have no
responsibility for the accuracy or validity of any statements or information in
any forms or documentation provided by the Customer to the Custodian hereunder,
and the Customer hereby indemnifies and agrees to hold harmless the Custodian
and each Sub-Custodian in respect of any liability arising from any
underwithholding or underpayment of any Tax which results from the Customer's
inaccuracy or invalidity on any such statements or information in any forms or
other documentation.
3.6 Bank Accounts.
The Custodian shall identify on its books as belonging to the
appropriate Account cash (including cash denominated in foreign currencies)
deposited with the Custodian. If the Custodian and the Customer have agreed in
writing that such cash shall bear interest, the Customer shall earn interest at
the rates and times as agreed between the Custodian and Customer. The Customer
understands that any such cash balance will not be accompanied by the benefit
of any governmental insurance.
<PAGE>
Where the Custodian is unable to maintain, or market practice
does not facilitate the maintenance of, cash on the books of the Custodian, a
bank account or bank accounts opened and maintained outside the United States
on behalf of an Account with a Sub-Custodian shall be subject only to draft or
order by the Custodian or such Sub-Custodian, acting pursuant to the terms of
this Agreement to hold cash received by or from or for the account of the
Account.
The Custodian may in accordance with customary practice hold
any currency or Composite Currency Unit in which any subdivision of a cash
account is denominated on deposit in, and effect transactions relating thereto
through, an account (a "Foreign Account") with one of its affiliates or another
bank in the country where such currency is the lawful currency or in other
countries where such currency or Composite Currency Unit may be lawfully held
on deposit.
The Custodian shall have no liability for any loss or damage
arising from the applicability of any law or regulation now or hereafter in
effect, or from the occurrence of any event, which may affect the
transferability, convertibility, or availability of any currency or Composite
Currency Unit in the countries where such Foreign Accounts are maintained,
provided that after any such application of any law or regulation or the
occurrence of any such event, Custodian has acted or failed to act in accordance
with its standard of care. In no event shall the Custodian be obligated to
substitute another currency for a currency (including a currency that is a
component of a Composite Currency Unit) whose transferability, convertibility or
availability has been affected by such law, regulation or event. To the extent
that any such law, regulation or event imposes a cost or charge upon the
Custodian in relation to the transferability, convertibility, or availability of
any cash currency or Composite Currency Unit, such cost or charge shall be for
the account of the Customer. If pursuant to any such law or regulation, or as a
result of any such event, the Custodian cannot deal in any component currency of
a Composite Currency Unit or effect a particular transaction in a Composite
Currency Unit on the Customer's behalf, the Custodian may thereafter treat any
account denominated in an affected Composite Currency Unit as a group of
separate accounts denominated in the relevant component currencies.
3.7 Collection of Income, Principal and Other Payments.
The Custodian shall use reasonable commercial efforts to
collect all income, principal and other payments with respect to the Property
held hereunder to which the Accounts shall be entitled and shall credit such
income, principal and other payments, as collected, to the applicable Account.
In the event that extraordinary measures are required to collect such income,
principal or other payment, the Customer and the Custodian shall consult as to
such measures and as to the compensation and expenses of the Custodian relating
to such measures.
3.8 Shareholder Rights.
With respect to the securities held pursuant to this
Agreement, however registered, the voting rights shall be exercised by the
Customer or its designee. For securities issued in the United States, the
Custodian's only duty shall be to mail promptly to the Customer any documents
(including proxy statements, annual reports and signed proxies) relating to the
exercise of such voting rights which it has actually received from the issuer or
from a Depository. With respect to securities issued outside of the United
States, the Custodian's only duty shall be to provide in accordance with Proper
Instructions to the Customer's provider of global proxy services such
instructions with respect to the exercise of voting or other rights as may be
specified in such Proper Instructions. The Customer shall be responsible for all
costs associated with its use of such services.
<PAGE>
3.9 Communications Relating to Securities.
The Custodian shall transmit promptly to the Customer written
information (including, without limitation, pendency of calls and maturities of
securities and expirations of rights in connection therewith) received by the
Custodian provided that the Custodian has received, from the issuer or the
relevant Depository (with respect to securities issued in the United States) or
from the relevant Sub-Custodian, Securities Depository or a nationally or
internationally recognized bond or corporate action service to which the
Custodian subscribes, timely notice of such rights or discretionary corporate
action or of the date or dates such rights must be exercised or such action must
be taken. Absent actual receipt of such notice, or actual knowledge by an
officer or employee of the Custodian administering this Agreement, the Custodian
shall have no liability for failing to so notify the Customer.
3. 10 Lending.
From time to time, the Customer may upon execution of an
agreement with The Bank of New York borrow securities pursuant to such agreement
from The Bank of New York as agent for certain lenders.
If the Custodian in its sole discretion advances funds in any currency hereunder
or there shall arise for whatever reason an overdraft in an Account (including,
without limitation, overdrafts incurred in connection with the settlement of
securities transactions, funds transfers, or foreign exchange transactions) or
if the Customer is for any other reason indebted to the Custodian, the Customer
agrees to repay the Custodian on demand the amount of the advance, overdraft or
indebtedness plus accrued interest at a rate ordinarily charged by the Custodian
to its institutional custody customers in the relevant currency. After the close
of business on each day on which an advance or overdraft arises and remains
outstanding as of the close of business, Custodian shall provide a statement,
report, or advice to the Customer specifying such advance or overdraft.
Any Property at any time held hereunder shall be security for
any advance of cash for any purpose made by the Custodian resulting form orders
of Customer or Proper Instructions, and for any taxes, charges, expenses,
assessments, claims or liabilities incurred by the Custodian, except as the same
may arise from it or its nominees own negligent action, negligent failure to act
or willful misconduct, but only to the extent of the grant and assignment of a
lien, if any, described in Section 3.4.. To the extent that an Account is
governed by ERISA, the foregoing provision shall apply only to the extent not
prohibited by ERISA.
3.11 Pledging Property
Except as otherwise provided in this Agreement, the Custodian
and any Sub-Custodian shall not pledge, assign, hypothecate or otherwise
encumber any Property from an Account without Proper Instructions from the
Customer.
4. Proper Instructions.
Proper Instructions as used throughout this Agreement means a writing
signed or initialed by one or more person or persons as the Customer shall have
from time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved, including a specific statement of
the purpose for which such action is requested. Oral instructions will be
considered Proper Instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such instructions with respect to the
transaction involved. The Customer shall cause all oral instructions to be
confirmed in writing by the close of business on the same day such oral
instructions are received by Custodian. The Customer agrees that the fact that
such confirming written instructions are not received or that contrary written
instructions are received by the Custodian shall in no way affect the validity
or enforceability of transactions authorized by such oral instructions and
effected by the Custodian. Custodian agrees to notify Customer by 10:00 a.m. New
York time on the next succeeding business day if Custodian receives contrary
written instructions or does not receive any confirming written instructions.
Proper
<PAGE>
Instructions may include communications effected by letter, facsimile,
telex, the Custodian's on-line communication system or by other
electro-mechanical or electronic devices provided that the Customer and the
Custodian agree to security procedures. If the Customer elects to transmit
written instructions through the Custodian's on-line communication system, the
Customer's use thereof shall be subject to the Terms and Conditions attached
hereto as Appendix 1.
5. Actions Permitted without Express Authority.
The Custodian may in its discretion, without express authority from
the Customer:
(a) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its duties under
this Agreement, provided that all such payments shall be accounted for
to the Customer;
(b) surrender securities at maturity or when called for
redemption upon receiving payment therefor-,
(c) endorse for collection, in the name of the Account,
checks, drafts and other negotiable instruments,
(d) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase, transfer
and other dealings with the Property of the Account except as otherwise
directed by the Customer;
(e) exchange securities when the exchange is purely ministerial
(including, without limitation, the exchange of interim receipts or
temporary securities for securities in definitive form and the exchange
of warrants, or other documents of entitlement to securities, for the
securities themselves);
(f) execute in the Customer's name such ownership and other
certificates as may be required to obtain the payment of income from
securities; and
(g) pay or cause to be paid, from the applicable Account, any
and all taxes and levies in the nature of taxes imposed on Property by
any governmental authority in connection with custody of and
transactions in such Property.
6. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income.
The Custodian shall cooperate with and supply information maintained
hereunder to the entity or entities appointed to keep the books of account of
each Account, or upon request by the Customer and the execution by Customer and
the Custodian of a written agreement, shall compute the net asset value per
share of the outstanding shares of an Account or calculate daily the net income
attributable to the Account as described in and subject to the terms and
conditions of such Agreement.
7. Records.
The Custodian shall with respect to each Account create and maintain
the records specified on Schedule III relating to its activities and obligations
under this Agreement in such form and manner, in the case of each Fund, as will
meet the obligations of the Fund under the 1940 Act, with respect to such
records. All such records shall be the property of the Account and shall at all
times during the regular business hours of the Custodian be open for inspection
by duly authorized officers, employees, agents or accountants of the Account and
the Customer. The Custodian shall, at the Customer's request, supply the
Customer with a tabulation of securities owned by each Account and held by the
Custodian and shall, when requested to do so by the Customer, include
certificate numbers in such tabulations.
<PAGE>
The Custodian shall obtain from any Sub-Custodian (and will require
each Sub-Custodian to use reasonable efforts to obtain from any Securities
Depository in which it deposits Property) an undertaking, to the extent
consistent with local practice and the laws of the jurisdiction or jurisdictions
to which such Sub-Custodian or Securities Depository is subject, to permit
independent public accountants such reasonable access to the records of such
Sub-Custodian or Securities Depository as may be reasonably required in
connection with the examination of the Customer's or Account's affairs or to
take such other action as the Custodian in its judgment may deem sufficient to
ensure such reasonable access.
8. SAS 70 Report.
The Custodian shall promptly provide the Customer annually an SAS 70
Report, and upon request any other related information reasonably requested by
Customer which is then maintained by Custodian in the form requested and
reasonably available. Any such additionally requested information may be
provided by Custodian in the form and manner then maintained by Custodian.
9. Compensation of Custodian.
The Customer on behalf of each Account shall compensate the Custodian
for its services rendered pursuant to this Agreement, and reimburse the
Custodian for reasonable out-of-pocket expenses, in accordance with the Fee
Schedule attached hereto.
10. Liability of the Custodian.
(a) Except as otherwise expressly provided herein, the
Custodian shall not be liable for any costs, expenses, damages, liabilities or
claims, including attorneys' and accountants' fees (collectively, "Losses"),
incurred by or asserted against the Customer, except those Losses arising out
of the negligence or willful misconduct of the Custodian, its affiliates, or
the officers or employees of Custodian or its affiliates. The Custodian shall
have no liability whatsoever for the action or inaction of any Depository or
any Securities Depository. If, however, as a result of any action or omission
of, or the bankruptcy or insolvency of, any Depository or Securities
Depository, the Customer suffers any loss or liability, at the written request
of the Customer and provided that the Custodian is assured to its satisfaction
of reimbursement of its costs and expenses, the Custodian will take such steps
with respect thereto in order to effect a recovery (including commencing or
settling of legal proceedings). Subject to Section (b) below, the Custodian's
responsibility with respect to any securities or cash held by a Sub-Custodian
which is a Schedule I Sub-Custodian (a "Schedule I Sub-Custodian" is defined as
a Sub-Custodian, including a Securities Depository or a Depository, from time
to time named on Schedule I attached hereto) or any Losses is limited to taking
appropriate action to recover such Losses from such Sub-Custodian, Securities
Depository, or Depository; and the Custodian's sole responsibility and
liability to the Customer shall be limited to amounts so received from such
Sub-Custodian, Securities Depository, or Depository (exclusive of costs and
expenses incurred by the Custodian). With respect to Losses incurred by the
Customer as a result of the acts or failure to act of any Sub-Custodian which
is a Schedule II Sub-Custodian (a "Schedule II Sub-Custodian" is any
Sub-Custodian from time to time named on Schedule 11), the Custodian shall be
liable to the Customer for such Losses, but only if and to the extent that
under the law governing the Custodian's agreement with such Schedule II
Sub-Custodian does not preclude the Custodian from recovering such Losses from
such Scheduled Sub-Custodian as a result of such acts or failure to act by such
Scheduled Sub-Custodian. In no event shall the Custodian or any Sub-Custodian
be liable for any Losses resulting from Country Risk. For purposes of this
Agreement, the term "Country Risk" shall mean systemic risks of holding assets
in particular country, including, but not limited to (a) the use of Compulsory
Depositories, (b) such country's financial infrastructure, (c) such country's
prevailing custody and settlement practices, (d) nationalization, expropriation
or other governmental actions, (e) regulation of the banking or securities
industry, (f) currency controls, restrictions, devaluations or fluctuations,
and (g) market conditions which affect the orderly execution of securities
transactions or affect the value of securities. As used herein the term
Compulsory Depositories means any securities depositories the use of which is
mandatory by law or regulation or because securities cannot be withdrawn
therefrom or because maintaining securities outside such securities
<PAGE>
depositories is not consistent with prevailing custodial
practices in the relevant market. In no event shall the Custodian be liable to
the Customer or any third party for special, indirect or consequential damages,
or lost profits or loss of business, arising in connection with this Agreement.
This provision shall be a continuing obligation of the Custodian, its
successors and assigns, notwithstanding any termination of this Agreement.
(b) The Custodian may enter into subcontracts, agreements and
understandings with any of its affiliates, whenever and on such terms and
conditions as it deems necessary or appropriate to perform its services
hereunder. No such subcontract, agreement or understanding shall discharge the
Custodian from its obligations hereunder.
(c) The Customer shall be liable to the Custodian for Losses
resulting from (i) any action or inaction taken or omitted pursuant to and in
accordance with Proper Instructions, or (ii) any breach of this Agreement by
the Customer. The Losses described in the immediately preceding sentence shall
be limited to direct money damages and the reasonable fees and expenses of
counsel, and shall not include any special, indirect, or consequential damages,
or lost profits or loss of business. This provision shall be a continuing
obligation of the Customer, its successors and assigns, notwithstanding the
termination of this Agreement, or the resignation or removal of the Custodian.
(d) Without limiting the generality of the foregoing, but
subject to the Custodian acting without negligence and willful misconduct, the
Custodian shall be under no obligation to inquire into, and shall not be liable
for, any losses incurred by the Customer or any other person as a result of the
receipt or acceptance of fraudulent, forged or invalid securities, or securities
which are otherwise not freely transferable or deliverable without encumbrance
in any relevant market.
(e) The Custodian shall be under no obligation to take action
to collect any amount payable on securities in default, or if payment is refused
after due demand and presentment, unless instructed to do so by Customer and
assured by the Customer of reimbursement of the reasonable costs and expenses
incurred by the Custodian in so doing.
(f) The Custodian shall have no duty or responsibility to
inquire into, make recommendations, supervise, or determine the suitability of
any transactions affecting any Account.
(g) The Customer shall pay to the Custodian the fees and
charges as may be specifically agreed upon from time to time. The Customer shall
reimburse the Custodian for all reasonable out-of-pocket expenses associated
with the conversion of the Customer's securities hereunder and the transfer of
securities and records kept in connection with this Agreement. The Customer
shall also reimburse the Custodian for reasonable out-of-pocket expenses which
are a normal incident of the services provided hereunder.
(h) It is understood that the Custodian is authorized to
supply any information regarding the Accounts which is required by any law,
regulation or rule now or hereafter in effect, provided that the Custodian shall
promptly give notice to the Customer whenever the Custodian supplies any such
information.
(i) The Custodian shall have no duties or responsibilities
whatsoever except such duties and responsibilities as are specifically set forth
in this Agreement or and in Appendix I attached hereto, and no covenant or
obligation shall be implied against the Custodian in connection with this
Agreement.
<PAGE>
11. Effective Period, Termination and Amendment.,
This Agreement shall become effective as of its execution and shall
continue in full force and effect until terminated as hereinafter provided. It
may be amended at any time by mutual agreement of the parties hereto, except
that the Custodian may, upon thirty (30) days written notice to the Customer,
amend Schedule II to delete any Sub-Custodian if Custodian reasonably believes
that material economic, legal or business changes, including securities
processing changes, have occurred in the market where such Sub-Custodian
operates. Upon the expiration of such 30 day period such Sub-Custodian shall
for all purposes under this Agreement be a Schedule I Sub-Custodian. This
Agreement may be terminated by either party by an instrument in writing
delivered or mailed, postage prepaid to the other party, such termination to
take effect not sooner than 90 days after the date of such delivery or mailing;
provided, however, that the Customer may immediately terminate this Agreement
in the event of the appointment of a conservator or receiver for the Custodian
by the Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction. Upon termination of the Agreement, the Customer shall pay to the
Custodian such compensation and reimbursable out-of-pocket expenses, as may be
due as of the date of such termination.
12. Successor Custodian.
If a successor custodian for one or more Accounts shall be appointed,
the Custodian shall, upon termination, deliver to such successor custodian at
the office of the Custodian, duly endorsed and in the form for transfer, all
securities, funds and other properties of each such Account then held by the
Custodian or any sub-custodian or agent and shall transfer to an account of the
successor custodian all of the securities of each such Account held in a
Depository or Securities Depository, provided that (a) the Custodian shall have
no liability for shipping and insurance costs associated therewith, and (b) full
payment shall have been made to the Custodian of its compensation, costs,
expenses and other amounts to which it is entitled hereunder.. If no such
successor custodian shall be appointed, the Custodian shall upon receipt of
Proper Instructions, in like manner deliver at the office of the Custodian and
transfer such securities, funds and other properties in accordance with such
instructions. In the event that securities, funds and other properties remain in
the possession of the Custodian or any sub-custodian or agent after the date of
termination owing to a failure of the Customer to appoint a successor custodian,
the Custodian shall be entitled to fair compensation for its services during
such period as the Custodian, sub-custodian or agent retains possession of such
securities, funds and other properties, and the provisions of this Agreement
relating to the duties and obligations of the Custodian, sub-custodians and
agents shall remain in full force and effect.
13. Governing Law-
This Agreement shall be construed in accordance with the substantive
laws of the State of New York, without regard to conflicts of laws principles
thereof The Customer and the Custodian hereby consent to the jurisdiction of a
federal court situated in New York City, New York in connection with any dispute
arising hereunder. The Customer hereby irrevocably waives, to the fullest extent
permitted by applicable law, any objection which it may now or hereafter have to
the laying of venue of any such proceeding brought in such a court and any claim
that such proceeding brought in such a court has been brought in an inconvenient
forum. The Customer and the Custodian each hereby irrevocably waives any and all
rights to trial by jury in any legal proceeding arising out of or relating to
this Agreement.
14. Entire Agreement.
This Agreement together with Appendix I attached hereto and any
Schedules attached hereto constitutes the entire agreement between the Customer
and the Custodian relating to the custody of the Accounts' assets.
<PAGE>
15. Notices.
Any notice, instruction or other instrument required to be given
hereunder may be delivered in person to the offices of the parties as set forth
herein during normal business hours or delivered by prepaid registered mail or
by courier or facsimile to the parties at the following addresses or such other
addresses as may be notified by any party from time to time:
To the Customer: American Express Trust Company
P.O. Box 534
Minneapolis, MN 55440-0534
Attention: Chan Patel N10/392
Telephone: (612) 671-2459
Facsimile: (612) 671-2409
To the Custodian: The Bank of New York
90 Washington Street, New York, NY 10286
Attention: Daniel J. Manniello, Vice President
Telephone: (212) 495-2375
Facsimile: (212) 495-2975
Such notice, instruction or other instrument shall be deemed to have been served
in the case of a registered letter at the expiration of five business days after
posting, in the case of courier or facsimile, upon receipt, and if delivered
outside normal business hours it shall be deemed to have been received at the
next time after delivery when normal business hours commence.
16. Year 2000 Compliance.
(a) The Custodian hereby warrants that it will use
commercially reasonable efforts to ensure that the computer software
and hardware (as used in this subsection, the "Systems") that are
owned by the Custodian and used to provide the services to be provided
by the Custodian under this Agreement (as used in this subsection
"Services") are 2000 Compliant or will be made 2000 Compliant before
December 31, 1999. With respect to software that the Custodian
licenses from third parties and uses in providing the Services ("Third
Party Software"), the Custodian warrants that it has used or will use
commercially reasonable efforts to test the same by August 31, 1999 to
certify, in accordance with the Custodian's standard practices, that
the Third Party Software is 2000 Compliant. If the Custodian cannot
certify any Third Party Software as 2000 Compliant, the Custodian will
use commercially reasonable efforts to replace such Third Party
Software with software that is warranted or certified by its vendor as
2000 Compliant, if such replacement is available, compatible with the
Custodian's Systems and deemed by the Custodian as appropriate under
the circumstances. In the event that the Custodian uses third party
service providers to provide the Services or any portion thereof
("Third Party Services"), the Custodian warrants that it has in place
a program under which it will use commercially reasonable efforts to
contact such service providers and obtain from them assurances that
the Systems use in providing Third Party Services are 2000 Compliant.
As used herein, the term "2000 Compliant" means that the Systems will
function without material error caused by the introduction of dates
falling on or after January 1, 2000. Notwithstanding the foregoing,
the parties hereto acknowledge and agree that the Custodian cannot and
does not warrant that the Systems, Third Party Software or Third Party
Services will continue to interface with the hardware, firmware,
software (including operating systems), records or data used by the
Fund or third parties, nor does the Custodian make any warranties
hereunder with respect to any public utility, communications service
provider, securities or commodities exchange, or funds transfer
network.
<PAGE>
(b) The Customer hereby warrants that it will use
commercially reasonable efforts to ensure that the computer software
and hardware (as used in this subsection, the "Systems") that are
owned by the Customer and used in connection with this Agreement are
2000 Compliant or will be made 2000 Compliant before December 31,
1999. With respect to software that the Customer licenses from third
parties ("Third Party Software"), the Customer warrants that it has
used or will use commercially reasonable efforts to test the same by
August 31, 1999 to certify, in accordance with the Customer's standard
practices, that the Third Party Software is 2000 Compliant. If the
Customer cannot certify any Third Party Software as 2000 Compliant,
the Customer will use commercially reasonable efforts to replace such
Third Party Software with software that is warranted or certified by
its vendor as 2000 Compliant, if such replacement is available,
compatible with the Customer's Systems and deemed by the Customer as
appropriate under the circumstances. As used herein, the term "2000
Compliant" means that the Systems will function without material error
caused by the introduction of dates falling on or after January 1,
2000. Notwithstanding the foregoing, the parties hereto acknowledge
and agree that the Customer cannot and does not warrant that the
Systems, Third Party Software or Third Party Services will continue to
interface with the hardware, firmware, software (including operating
systems), records or data used by the Fund or third parties, nor does
the Customer make any warranties hereunder with respect to any public
utility, communications service provider, securities or commodities
exchange, or funds transfer network
7. Representations.
Each party represents that: (i) the execution, delivery and performance
of this Agreement are within its power and authority and have been duly
authorized by all requisite action (corporate or otherwise); and (ii) this
Agreement constitutes its legal, valid and binding obligation enforceable
against it in accordance with its terms, except as may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditor's rights
in general and subject to the effect of general principles of equity (regardless
of whether considered in a proceeding in equity or at law).
Custodian further represents and warrants that its responses to the
American Express Financial Advisors Inc. Request for Proposal - Global Custody
Services are true, accurate and complete, in all material respects, and no event
or condition has occurred or exists, or is reasonably likely to occur or exist,
that could materially affect the services provided by Custodian as set forth in
this Agreement.
18. Confidentiality.
The Custodian, its agents and employees will maintain, and will cause the
Sub-Custodians to maintain, the confidentiality of information concerning the
Property of the Accounts, including in dealings with affiliates of the Custodian
and Sub-Custodians. In the event the Custodian or any Sub-Custodian is requested
or required to disclose any confidential information concerning the Property or
the Accounts, the Custodian shall to the extent practicable and legally
permissible, promptly notify the Customer of such request or requirement so that
the Customer may seek a protective order or waive the Custodian's or such
Sub-Custodian's compliance with this Section 19. In the absence of such a
waiver, if the Custodian or such Sub-Custodian is compelled, in the opinion of
its counsel, to disclose any confidential information, the Custodian or such
Sub-Custodian may disclose such information to such persons as, in the opinion
of counsel, is so required, but shall then promptly give notice to Customer of
such disclosure. In no event will the Custodian be required to seek such a
waiver in order to disclose such information to internal or external auditors,
internal or external accountants, regulators, internal or external counsel, or
any other person when it has been advised by counsel it may be liable for its
failure to do so.
<PAGE>
19. FCM Agreement.
Custodian shall cause The Bank of New York to execute a Foreign Custody
Manager Agreement in the form attached hereto as Exhibit A with each Fund listed
on Schedule IV which is an investment company registered under the Investment
Company Act of 1940, as amended, and with Customer with respect to each Account
which is a collective investment fund, a common trust fund, or an employee
benefit plan as if such Account were such a registered investment company.
20. Prudence.
Custodian shall perform its duties under this Agreement with the
prudence, diligence and skill of a professional custodian for hire.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of [date).
AMERICAN EXPRESS TRUST
COMPANY
By: /s/ Mark S. Ellis
Name: Mark S. Ellis
Title: Senior Vice President
THE BANK OF NEW YORK
By: /s/ Stephen E. Grunston
Name: Stephen E. Grunston
Title: Vice President
APPENDIX I
ON-LINE COMMUNICATIONS
TERMS AND CONDITIONS
1 . License: Use. Upon delivery to Customer of software (the
"Software") enabling Customer to obtain access to the System, Custodian grants
to Customer a personal, nontransferable and nonexclusive license to use the
Software solely for the purpose of transmitting Written Instructions,
receiving reports, making inquiries or otherwise communicating with Custodian
in connection with the Account(s). Customer shall use the Software solely for
its own internal and proper business purposes and not in the operation of a
service bureau. Except as set forth herein, no license or right of any kind is
granted to Customer with respect to the Software. Customer acknowledges that
Custodian and its suppliers retain and have title and exclusive proprietary
rights to the Software, including any trade secrets or other ideas, concepts,
know-how, methodologies, or information incorporated therein and the exclusive
rights to any copyrights, trademarks and patents (including registrations and
applications for registration of either), or other statutory or legal
protections available in respect thereof. Customer further acknowledges that
all or a part of the Software may be copyrighted or trademarked (or a
registration or claim made therefor) by Custodian or its suppliers. Customer
shall not take any action with respect to the Software inconsistent with the
foregoing acknowledgments, nor shall Customer attempt to decompile. reverse
engineer or modify the Software. Customer may not copy, sell, lease or
provide. directly or indirectly, any of the Software or any portion thereof to
any other person or entity without Custodian's prior written consent. Customer
may not remove any statutory copyright notice or other notice included in the
Software or on any media containing the Software. Customer shall reproduce any
such notice on any reproduction of the Software and shall add any statutory
copyright notice or other notice to the Software or media upon Custodian's
request.
2. Equipment. Customer shall obtain and maintain at its own cost and
expense all equipment and services, including but not limited to
communications services, necessary for it to utilize the Software and obtain
access to the System, and Custodian shall not be responsible for the
reliability or availability of any such equipment or services.
<PAGE>
3. Proprietary Information. The Software, any data base and any
proprietary data, processes, information and documentation made available to
Customer (other than which are or become part of the public domain or are
legally required to be made available to the public) (collectively, the
"Information"), are the exclusive and confidential property of Custodian or
its suppliers. Customer shall keep the Information confidential by using the
same care and discretion that Customer uses with respect to its own
confidential property and trade secrets, but not less than reasonable care.
Upon termination of the Agreement or the Software license granted herein for
any reason, Customer shall return to Custodian any and all copies of the
Information which are in its possession or under its control.
4. Modifications. Custodian reserves the right to modify the Software
from time to time and Customer shall install new releases of the Software as
Custodian may direct. Customer agrees not to modify or attempt to modify the
Software without Custodian's prior written consent. Customer acknowledges that
any modifications to the Software, whether by Customer or Custodian and
whether with or without Custodian's consent, shall become the property of
Custodian.
5. NO REPRESENTATIONS OR WARRANTIES. CUSTODIAN AND ITS MANUFACTURERS
AND SUPPLIERS MAKE NO WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE
SOFTWARE, OR ANY DATABASE MAINTAINED ON THE SOFTWARE, EXPRESS OR IMPLIED, IN
FACT OR IN LAW, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE. CUSTOMER ACKNOWLEDGES THAT THE SOFTWARE AND
ANY SUCH DATABASE ARE PROVIDED "AS IS." EXCEPT AS PROVIDED IN PARAGRAPHS 10
AND 11 OF THIS APPENDIX IN NO EVENT SHALL CUSTODIAN OR ANY SUPPLIER BE LIABLE
FOR ANY DAMAGES, WHETHER DIRECT, INDIRECT SPECIAL, OR CONSEQUENTIAL, WHICH
CUSTOMER MAY INCUR IN CONNECTION WITH THE SOFTWARE, OR ANY DATABASE MAINTAINED
ON THE SOFTWARE, EVEN IF CUSTODIAN OR SUCH SUPPLIER HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. IN NO EVENT SHALL CUSTODIAN OR ANY SUPPLIER BE
LIABLE FOR ACTS OF GOD, MACHINE OR COMPUTER BREAKDOWN OR MALFUNCTION,
INTERRUPTION OR MALFUNCTION OF COMMUNICATION FACILITIES, LABOR DIFFICULTIES OR
ANY OTHER SIMILAR OR DISSIMILAR CAUSE BEYOND THEIR REASONABLE CONTROL. THE
FOREGOING PROVISIONS SHALL APPLY ONLY WITH RESPECT TO THE SOFTWARE AND
DATABASES MAINTAINED ON THE SOFTWARE.
6. Security; Reliance, Unauthorized Use. Customer will cause all
persons utilizing the Software and System to treat all applicable user and
authorization codes, passwords and authentication keys with extreme care.
Custodian is hereby irrevocably authorized to act in accordance with and rely on
Written Instructions received by it through the System. Customer acknowledges
that it is its sole responsibility to assure that only Authorized Persons use
the System and that Custodian shall not be responsible nor liable for any
unauthorized use thereof
7. System Acknowledgments. Custodian shall acknowledge through the
System its receipt of each transmission communicated through the System, and in
the absence of such acknowledgment Custodian shall not be liable for any failure
to act in accordance with such transmission and Customer may not claim that such
transmission was received by Custodian.
8. EXPORT RESTRICTIONS. EXPORT OF THE SOFTWARE IS PROHIBITED BY UNITED
STATES LAW. CUSTOMER MAY NOT UNDER ANY CIRCUMSTANCES RESELL, DIVERT, TRANSFER,
TRANSSHIP OR OTHERWISE DISPOSE OF THE SOFTWARE (IN ANY FORM) IN OR TO ANY OTHER
COUNTRY. IF CUSTODIAN DELIVERED THE SOFTWARE TO CUSTOMER OUTSIDE OF THE UNITED
STATES, THE SOFTWARE WAS EXPORTED FROM THE UNITED STATES IN ACCORDANCE WITH THE
EXPORT ADMINISTRATION REGULATIONS. DIVERSION CONTRARY TO U.S. LAW IS PROHIBITED.
Customer hereby authorizes Custodian to report its name and address to
government agencies to which Custodian is required to provide such information
by law.
<PAGE>
9. Encryption. Customer acknowledges and agrees that encryption may not
be available for every communication through ACCESS, or for all data. Customer
agrees that Custodian may deactivate any encryption features at any time,
without notice or liability to Customer, for the purpose of maintaining,
repairing or troubleshooting ACCESS, the Software or any Custodian equipment.
10. Limitation of Liability. Except as set forth in succeeding
paragraph 11, the Custodian's liability to Customer with respect to all claims
in the aggregate relating to the Software described in this Appendix I shall not
exceed the total per transaction fees, if any, the Custodian charges Customer
for using such Software. This paragraph 10 relates only to the Software and
databases maintained on the Software.
11. Warranty and Indemnity. The Custodian hereby represents and
warrants (i) that it has and will have all rights, titles, licenses, permissions
and approvals necessary to perform its obligations under this Appendix and to
grant Customer the rights granted in this Appendix with respect to the Software,
and (ii) that the Software and its use by Customer do not and will not infringe,
violate or in any manner contravene or breach any patent, trademark, copyright,
license or other property or proprietary right or constitute the unauthorized
use or misappropriation of a trade secret of any third party.
The Custodian shall defend or settle at its own expense any action brought
against Customer based on or arising out of any claim that the Software or any
part thereof constitutes an infringement of any patent, copyright, trademark or
proprietary right of any third party, provided Customer notifies the Custodian
promptly in writing of the claim. The Custodian shall at all times control the
defense of any such claim, and Customer agrees not to settle any claim, or enter
into settlement negotiations, without the knowledge and approval of the
Custodian. Notwithstanding any limitations set forth in the Agreement, the
Custodian shall pay any final judgment awarded against Customer in any such
action which is attributable to such claim. If Customer is enjoined or otherwise
prohibited from using the Software, the Custodian shall, at its own expense, use
commercially reasonable efforts to, first, procure for Customer the right to
continue using the Software, or, second, substitute a non-infringing version of
the Software of equal or better performance as determined by the Custodian in
its sole discretion. If neither of the foregoing alternatives is available, the
Custodian may, at its option, terminate this Appendix, and Customer shall
receive a refund for any prepaid license fees paid to the Custodian.
<PAGE>
SCHEDULE I
Specified Countries
<PAGE>
SCHEDULE I
Each Depository, wherever located.
Each Securities Depository, wherever located.
Each Sub-Custodian which is neither a Depository nor a Securities Depository
which is located in a country other than Canada, France, Germany,
Italy, Japan, or the United Kingdom
<PAGE>
SCHEDULE II
Each Sub-Custodian which is neither a Depository nor a Securities
Depository which is located in Canada, France, Germany,
Italy, Japan, or the United Kingdom
<PAGE>
SCHEDULE III
The Custodian shall maintain the following records:
Securities held
Securities purchased
Securities sold
Dividends received
Interest received
Cash Receipts
Cash Disbursement
<PAGE>
SCHEDULE IV
Opinion of Counsel
May 24, 1999
IDS Precious Metals Fund
IDS Tower 10
Minneapolis, MN 55440-0010
Gentlemen:
I have examined the Articles of Incorporation and the By-Laws of IDS Precious
Metals Fund (the Company) and all necessary certificates, permits, minute books,
documents and records of the Company, and the applicable statutes of the State
of Minnesota, and it is my opinion that the shares sold in accordance with
applicable federal and state securities laws will be legally issued, fully paid,
and nonassessable.
This opinion may be used in connection with the Post-Effective Amendment.
Sincerely,
/s/ Leslie L. Ogg
Leslie L. Ogg
Attorney at Law
901 S. Marquette Ave., Suite 2810
Minneapolis, MN 55401-3268
Independent auditors' consent
The board and shareholders
IDS Precious Metals Fund, Inc.:
We consent to the use of our report incorporated herein by reference and to the
references to our Firm under the headings "Financial highlights" in Part A and
"INDEPENDENT AUDITORS" in Part B of the Registration Statement.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
May 24, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> IDS PRECIOUS METALS FUND CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 64598419
<INVESTMENTS-AT-VALUE> 56741460
<RECEIVABLES> 1161093
<ASSETS-OTHER> 3126012
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 61028565
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1962109
<TOTAL-LIABILITIES> 1962109
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 96424265
<SHARES-COMMON-STOCK> 9444886
<SHARES-COMMON-PRIOR> 9016059
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 29500850
<ACCUM-APPREC-OR-DEPREC> (7856959)
<NET-ASSETS> 51433700
<DIVIDEND-INCOME> 350931
<INTEREST-INCOME> 556330
<OTHER-INCOME> 0
<EXPENSES-NET> 1091315
<NET-INVESTMENT-INCOME> (184054)
<REALIZED-GAINS-CURRENT> (22569856)
<APPREC-INCREASE-CURRENT> 10022737
<NET-CHANGE-FROM-OPS> (12731173)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 452075
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 34476704
<NUMBER-OF-SHARES-REDEEMED> 34123406
<SHARES-REINVESTED> 75529
<NET-CHANGE-IN-ASSETS> (11188156)
<ACCUMULATED-NII-PRIOR> 26515
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 6929273
<GROSS-ADVISORY-FEES> 508640
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1100067
<AVERAGE-NET-ASSETS> 54434443
<PER-SHARE-NAV-BEGIN> 6.82
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> (1.31)
<PER-SHARE-DIVIDEND> .05
<PER-SHARE-DISTRIBUTIONS> .00
<RETURNS-OF-CAPITAL> .00
<PER-SHARE-NAV-END> 5.45
<EXPENSE-RATIO> 1.66
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> IDS PRECIOUS METALS FUND CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 64598419
<INVESTMENTS-AT-VALUE> 56741460
<RECEIVABLES> 1161093
<ASSETS-OTHER> 3126012
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 61028565
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1962109
<TOTAL-LIABILITIES> 1962109
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 96424265
<SHARES-COMMON-STOCK> 1419763
<SHARES-COMMON-PRIOR> 1306854
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 29500850
<ACCUM-APPREC-OR-DEPREC> (7856959)
<NET-ASSETS> 7632018
<DIVIDEND-INCOME> 350931
<INTEREST-INCOME> 556330
<OTHER-INCOME> 0
<EXPENSES-NET> 1091315
<NET-INVESTMENT-INCOME> (184054)
<REALIZED-GAINS-CURRENT> (22569856)
<APPREC-INCREASE-CURRENT> 10022737
<NET-CHANGE-FROM-OPS> (12731173)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9356
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 695352
<NUMBER-OF-SHARES-REDEEMED> 584214
<SHARES-REINVESTED> 1771
<NET-CHANGE-IN-ASSETS> (11188156)
<ACCUMULATED-NII-PRIOR> 26515
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 6929273
<GROSS-ADVISORY-FEES> 508640
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1100067
<AVERAGE-NET-ASSETS> 7922487
<PER-SHARE-NAV-BEGIN> 6.73
<PER-SHARE-NII> (.05)
<PER-SHARE-GAIN-APPREC> (1.29)
<PER-SHARE-DIVIDEND> .01
<PER-SHARE-DISTRIBUTIONS> .00
<RETURNS-OF-CAPITAL> .00
<PER-SHARE-NAV-END> 5.38
<EXPENSE-RATIO> 2.46
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> IDS PRECIOUS METALS FUND CLASS Y
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 64598419
<INVESTMENTS-AT-VALUE> 56741460
<RECEIVABLES> 1161093
<ASSETS-OTHER> 3126012
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 61028565
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1962109
<TOTAL-LIABILITIES> 1962109
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 96424265
<SHARES-COMMON-STOCK> 136
<SHARES-COMMON-PRIOR> 134
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 29500850
<ACCUM-APPREC-OR-DEPREC> (7856959)
<NET-ASSETS> 738
<DIVIDEND-INCOME> 350931
<INTEREST-INCOME> 556330
<OTHER-INCOME> 0
<EXPENSES-NET> 1091315
<NET-INVESTMENT-INCOME> (184054)
<REALIZED-GAINS-CURRENT> (22569856)
<APPREC-INCREASE-CURRENT> 10022737
<NET-CHANGE-FROM-OPS> (12731173)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> (11188156)
<ACCUMULATED-NII-PRIOR> 26515
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 6929273
<GROSS-ADVISORY-FEES> 508640
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1100067
<AVERAGE-NET-ASSETS> 780
<PER-SHARE-NAV-BEGIN> 6.80
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> (1.30)
<PER-SHARE-DIVIDEND> .06
<PER-SHARE-DISTRIBUTIONS> .00
<RETURNS-OF-CAPITAL> .00
<PER-SHARE-NAV-END> 5.43
<EXPENSE-RATIO> 1.38
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
Plan under Section 18f-3(d)
April 1999
Filed pursuant to Item 23(o) of Form N-1A
Separate Arrangements
Each class of shares will represent interests in the same portfolio of
investments of the Fund and be identical except those differences that relate to
(a) the impact of the disproportionate payments made under the Rule 12b-1 plan;
(b) the impact of the disproportionate payments made because of service fees;
(c) the differences in class expenses including transfer agent fees and any
other expense determined by the board to be a class expense; and (d) the
difference in voting rights on the 12b-1 plan, exchange privileges and class
designations. The current classes of shares are as follows:
Class A shares - 5% initial sales charge waived or reduced for certain
purchases.
Class B shares - contingent deferred sales charge ranging from 5% down to 0%
after six years.
Class Y shares - no sales charge.
Expense Allocation Procedures
American Express Financial Corporation, as the Fund's administrator, on a daily
basis shall allocate the income, expenses, and realized and unrealized gains and
losses of the Fund on the basis of the relative percentage of net assets of each
class of shares, except class specific expenses for service fees, 12b-1
distribution fees, and transfer agent fees which shall be paid directly by each
class as follows:
Service fee:
Class Y: 10 basis points
12b-1 fee:
Class A: 25 basis points*
Class B: 100 basis points*
*Subject to shareholder approval of a 7.5 basis point increase
at the June 16, 1999 shareholder meeting.
Transfer agent fee:
Class A: an additional $2 for each shareholder account
Class B: an additional $3 for each shareholder account
<PAGE>
Should at any time an expense of a class be waived or reimbursed, American
Express Financial Corporation first shall determine that such waiver or
reimbursement would not result in another class subsidizing the class, is fair
and equitable to all classes and does not operate to the detriment of another
class and then shall monitor the implementation and operation to assure the
waiver or reimbursement operates consistent with the determination. The board
shall monitor the actions of American Express Financial Corporation.
Exchange Privileges
Shares of a class may be exchanged for shares of the same class of another fund
in the IDS MUTUAL FUND GROUP.
Conversion Privileges
Class B shares including a proportionate amount of shares acquired through
reinvestment of distributions shall convert in the ninth year of ownership into
Class A shares at relative net asset values without the imposition of any fee.
