<PAGE>
PAGE 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 16 (File No. 2-97636) X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 16 (File No. 811-4299) X
IDS LIFE SERIES FUND, INC.
___________________________________________________________________
IDS Tower 10, Minneapolis, Minnesota 55440-0010
___________________________________________________________________
(612) 671-3678
___________________________________________________________________
Mary Ellyn Minenko - IDS Tower 10, Minneapolis, MN 55440-0010
___________________________________________________________________
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)
on (date) pursuant to paragraph (b) of rule 485
_____60 days after filing pursuant to paragraph (a)
X on April 28, 1995 pursuant to paragraph (a) of rule 485
Registrant has filed its 24f-2 Notice for the fiscal year ending
April 30, 1994 on or about June 30, 1994.
<PAGE>
PAGE 2
Cross reference sheet for the IDS Life Series Fund showing location
in the prospectuses and Statements of Additional Information of the
information called for by the items enumerated in Part A and Part B
of Form N-1A.
Negative answers omitted from Part A or Part B are
so indicated.
<TABLE><CAPTION>
PART A
Item No. Page Number in Prospectus
<S> <C>
1 Cover page of prospectus
2 Sales charge; Expenses
3(a) Financial highlights
(b) NA
(c) Performance
(d) Financial Highlights
4(a) The fund in brief; Investment policies and risks; How the fund is organized
(b) Investment policies and risks
(c) Investment policies and risks
5(a) How the fund is organized; Directors and officers
(b)(i) About IDS Life and American Express Financial Corporation
(b)(ii) About IDS Life and American Express Financial
Corporation; Investment Advisory Agreement
(b)(iii) Investment Advisory Agreement
(c) Portfolio managers
(d) Investment manager
(e) How the fund is organized: Investment manager
(f) How the fund is organized: Investment manager and
Investment Advisory Agreement
(g) How the fund is organized: Investment manager
5A(a) *
(b) *
6(a) How the fund is organized: Shares; Voting rights
(b) NA
(c) NA
(d) Voting rights
(e) Cover page
(f) Distributions and taxes: Dividends and capital gain distributions
(g) Distributions and taxes: Taxes
7(a) NA
(b) Performance: Key terms; Valuing assets
(c) How to invest, transfer or redeem shares
(d) How to invest, transfer or redeem shares
(e) NA
(f) NA
8(a) How to invest, transfer or redeem shares
(b) NA
(c) How to invest, transfer or redeem shares
(d) How to invest, transfer or redeem shares
9 None
</TABLE>
<PAGE>
PAGE 3
<TABLE><CAPTION>
PART B
Item No. Section in Statement of Additional Information
<S> <C>
10 Cover page of SAI
11 Table of contents
12 NA
13(a) Additional Investment Policies; all appendices except Dollar Cost Averaging
(b) Additional Investment Policies
(c) Additional Investment Policies
(d) NA
14(a) Management of the fund
(b) Management of the fund
(c) NA
15(a) NA
(b) NA
(c) NA
16(a)(i) How the fund is organized; About IDS Life and American Express Financial
Corporation**
(a)(ii) Investment Management and other services
(a)(iii) Investment Management and other services
(b) Investment Management and other services
(c) NA
(d) NA
(e) NA
(f) Investment Management and other services
(g) NA
(h) Custodian; Independent Auditors
(i) Custodian
17(a) Portfolio Transactions
(b) Brokerage Commissions Paid to Brokers Affiliated with IDS Life
(c) Portfolio Transactions
(d) Portfolio Transactions
(e) Portfolio Transactions
18(a) How the fund is organized: Shares and Voting rights**
(b) NA
19(a) Investing in the Fund
(b) Valuing Each Portfolio's Shares; Investing in the Fund
(c) NA
20 NA
21(a) NA
(b) NA
(c) NA
22(a) Calculation of Yield
(b) Calculation of Total Return
23 Financial Statements
* Designates information is located in annual report.
**Designates section in prospectus.
/TABLE
<PAGE>
PAGE 4
IDS Life Series Fund
Prospectus
April 28, 1995
IDS Life Series Fund, Inc. (the fund) is a series mutual fund with
five portfolios, each with a different investment objective.
Equity Portfolio is a stock portfolio.
Income Portfolio is a bond portfolio.
Money Market Portfolio is a money market portfolio.
An investment in Money Market Portfolio is neither insured nor
guaranteed by the U.S. government, and there can be no assurance
that the portfolio will be able to maintain a stable net asset
value of $1 per share.
Managed Portfolio is a managed portfolio.
Government Securities Portfolio is a government securities
portfolio.
This prospectus contains information about the fund that you should
know before investing. Read it along with your variable life
insurance policy prospectus before you invest and keep them for
future reference.
Additional facts about the fund are in a Statement of Additional
Information (SAI) and the IDS Life Series Fund, Inc. Semiannual
Report, filed with the Securities and Exchange Commission. The
SAI, dated April 28, 1995, and the Semiannual Report are
incorporated here by reference. For free copies, contact IDS Life
Series Fund, Inc.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
IDS LIFE IS NOT A BANK, AND THE SECURITIES IT OFFERS ARE NOT
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY ANY BANK
NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
IDS Life Series Fund, Inc.
IDS Tower 10
Minneapolis, MN 55440-0010
612-671-3733
TTY: 800-285-8846
New York Service:
518-869-8613
<PAGE>
PAGE 5
Table of contents
The fund in brief
Goals and types of portfolio investments
Manager and distributor
Variable accounts
Sales charge
Expenses
Performance
Financial highlights
Total returns
Yield calculations
Key terms
Investment policies and risks
Facts about investments and their risks
Valuing assets
How to invest, transfer or redeem shares
How to invest
How to transfer among subaccounts
Redeeming shares
Distributions and taxes
Dividend and capital gain distributions
Taxes
How the fund is organized
Shares
Voting rights
Shareholder meetings
Portfolio managers
Directors and officers
Investment manager
Investment Advisory Agreement
About IDS Life and American Express Financial Corporation
General information
<PAGE>
PAGE 6
The fund in brief
Goals and types of portfolio investments
IDS Life Series Fund is a series mutual fund. It has five
portfolios whose goals and types of investments are as follows:
Equity Portfolio's goal is capital appreciation. The portfolio
invests primarily in U.S. common stocks and securities convertible
into common stock.
Income Portfolio's goal is to maximize current income while
attempting to conserve the value of the investment and to continue
the high level of income for the longest period of time. The
portfolio invests primarily in corporate bonds of the four highest
ratings.
Money Market Portfolio's goal is to provide maximum current income
consistent with liquidity and conservation of capital. The
portfolio invests primarily in high-quality, short-term debt
securities.
Managed Portfolio's goal is to maximize total investment return
through a combination of capital appreciation and current income.
The portfolio invests in common and preferred stocks, convertible
securities, debt securities and money market instruments.
Government Securities Portfolio's goal is to provide a high level
of current income and safety of principal. The portfolio invests
in debt obligations issued or guaranteed by U.S. governmental
units.
Because any investment involves risk, achieving these goals cannot
be guaranteed. Only the portfolio owners can change the goals.
Manager and distributor
The fund is managed by IDS Life Insurance Company (IDS Life), a
subsidiary of American Express Financial Corporation. American
Express Financial Corporation has an agreement with IDS Life to
furnish investment advice for funds managed by IDS Life. IDS Life
and IDS Life Insurance Company of New York (IDS Life of New York)
buy fund shares for their variable accounts used in connection with
their variable life insurance policies. In the future, the fund
may offer shares to the owners of other variable life and variable
annuity contracts issued by IDS Life or by IDS Life of New York.
Variable accounts
You may not buy (nor will you own) shares of the fund directly.
You invest by buying a variable life insurance policy from IDS Life
or IDS Life of New York and allocating your premium payments among
different subaccounts of the variable accounts that invest in the
portfolios.
<PAGE>
PAGE 7
Sales charge
Cost of insurance charges, premium expense charges, surrender
charges, mortality and expense risk fees and other charges under
your policy are described in the variable life insurance policy
prospectus. There is no sales charge for the sale or redemption of
fund shares.
Expenses
The fund pays IDS Life a fee for managing its investment portfolios
and for certain administrative services. The fund also pays
certain nonadvisory expenses. See "Investment manager" under "How
the fund is organized."
Performance
Financial highlights
<TABLE>
<CAPTION>
Equity Portfolio
Financial highlights
The tables below show certain important financial information for evaluating each portfolio's
results.
Fiscal period ended April 30,
Per share income and capital changes*
1994++++ 1994 1993 1992 1991 1990 1989 1988 1987 1986**
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $16.87 $16.01 $13.94 $12.77 $12.16 $10.79 $12.05 $9.94 $10.00
Income (loss) from
investment operations:
Net investment income .06 .03 .03 .13 .35 .36 .15 .16 .13
Net gains (losses) on
securities (both realized
and unrealized 3.26 1.40 2.90 2.09 .61 1.37 (1.13) 2.17 (.06)
Total from investment
operations 3.32 1.43 2.93 2.22 .96 1.73 (0.98) 2.33 .07
Less distributions:
Dividends from net
investment income (.06) (.03) (.03) (.13) (.35) (.36) (.15) (.16) (.13)
Distributions from
realized gains (2.03) (.54) (.83) (.92) - - (.13) (.06) -
Total distributions (2.09) (.57) (.86) (1.05) (.35) (.36) (.28) (.22) (.13)
Net asset value,
end of period $18.10 $16.87 $16.01 $13.94 $12.77 $12.16 $10.79 $12.05 $9.94
Ratios/supplemental data
1994 1993 1992 1991 1990 1989 1988 1987 1986**
Net assets, end of period
(in thousands) $151,860 $87,742 $55,265 $33,933 $16,355 $11,620 $7,247 $2,984 $211
Ratio of expenses to average
daily net assets .75% .79% .80% .80%+ .80%+ .80%+ 1.10% 1.23% .95%++
Ratio of net income to average
daily net assets .33% .21% .17% 1.03% 2.61% 3.32% 1.21% 1.40% 3.83%++
<PAGE>
PAGE 8
Portfolio turnover rate
(excluding short-term
securities) 109% 81% 52% 79% 190% 48% 57% 57% 15%
Total return+++ 19.72% 8.92% 21.06% 18.55% 7.84% 16.18% (8.04)% 23.66% .69%***
* For a share outstanding throughout the period. Rounded to the nearest cent.
**Commencement of operations. Period from Jan. 20, 1986 to April 30, 1986.
***For the period from Jan. 20, 1986 to April 30, 1986, the annualized total return is 2.50%.
+ Commencing on May 1, 1989, IDS Life voluntarily limited total operating expenses to 0.8% of average daily net assets.
Had IDS Life not done so, the expenses per share and the ratio of expenses to average daily net assets would have been
$.11 and 0.86% and $.13 and 0.90% for the years ended April 30, 1991 and 1990, respectively.
++Adjusted to an annual basis.
+++Total return does not reflect the expenses that apply to the subaccounts or the policies.
++++Semiannual period, ended Oct. 31, 1994 (unaudited).
</TABLE>
<PAGE>
PAGE 9
<TABLE>
<CAPTION>
Income Portfolio
Financial highlights (continued)
Fiscal period ended April 30,
Per share income and capital changes*
1994++++ 1994 1993 1992 1991 1990 1989 1988 1987 1986**
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.19 $9.40 $9.19 $8.55 $8.93 $9.05 $9.42 $10.35 $10.00
Income (loss) from
investment operations:
Net investment income .71 .76 .73 .75 .75 .70 .68 .74 .35
Net gains (losses) on
securities (both realized
and unrealized) (.48) .80 .21 .64 (.40) (.12) (.37) (.93) .35
Total from investment
operations .23 1.56 .94 1.39 .35 .58 .31 (.19) .70
Less distributions:
Dividends from net
investment income (.71) (.77) (.73) (.75) (.73) (.70) (.68) (.74) (.35)
Net asset value,
end of period $9.71 $10.19 $9.40 $9.19 $8.55 $8.93 $9.05 $9.42 $10.35
Ratios/supplemental data
1994 1993 1992 1991 1990 1989 1988 1987 1986**
Net assets, end of period
(in thousands) $33,770 $22,641 $16,306 $11,949 $8,831 $6,203 $4,456 $2,397 $215
Ratio of expenses to average
daily net assets .80% .80%+ 80%+ .80%+ .80%+ 1.11% 1.13% 1.72% .68%++
Ratio of net income to
average daily net assets 6.83% 7.66% 7.86% 8.41% 8.02% 7.87% 7.50% 6.27% 13.99%++
Portfolio turnover rate (excluding
short-term securities) 60% 47% 75% 55% 60% 99% 64% 38% -
Total return+++ 2.12% 17.17% 10.60% 16.77% 3.75% 6.70% 3.59% (1.58)% 6.98%***
* For a share outstanding throughout the period. Rounded to the nearest cent.
**Commencement of operations. Period from Jan. 20, 1986 to April 30, 1986.
*** For the period from Jan. 20, 1986 to April 30, 1986, the annualized total return is 25.49%.
+ Commencing on May 1, 1989, IDS Life voluntarily limited total operating expenses to 0.8% of average daily net
assets. Had IDS Life not done so, the expenses per share and the ratio of expenses to average daily net assets would
have been $.08 and 0.83%, $.08 and 0.88%, $.08 and 0.93% and $09.and 0.96% for the years ended April 30,
1993, 1992, 1991 and 1990, respectively.
++Adjusted to an annual basis.
+++Total return does not reflect the expenses that apply to the subaccounts or the policies.
++++Semiannual period, ended Oct. 31, 1994 (unaudited).
</TABLE>
<PAGE>
PAGE 10
<TABLE>
<CAPTION>
Money Market Portfolio
Financial highlights (continued)
Fiscal period ended April 30,
Per share income and capital changes*
1994++++ 1994 1993 1992 1991 1990 1989 1988 1987 1986**
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Income from
investment operations:
Net investment income .03 .03 .05 .07 .08 .07 .06 .05 .02
Total from investment
operations .03 .03 .05 .07 .08 .07 .06 .05 .02
Less distributions:
Dividends from net
investment income (.03) (.03) (.05) (.07) (.08) (.07) (.06) (.05) (.02)
Net asset value,
end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Ratios/supplemental data
1994 1993 1992 1991 1990 1989 1988 1987 1986**
Net assets, end of period
(in thousands) $9,557 $8,181 $9,771 $9,596 $6,321 $4,721 $2,748 $1,007 $199
Ratio of expenses to
average daily net assets .60%+ .60%+ .60%+ .60%+ .60%+ 1.10%+ .96% 1.35% .64%++
Ratio of net income to
average daily net assets 2.61% 3.00% 4.60% 7.06% 8.26% 7.38% 5.89% 4.46% 6.01%++
Total return+++ 2.61% 3.04% 4.71% 7.41% 8.61% 7.52% 6.13% 5.38% 1.74%***
* For a share outstanding throughout the period. Rounded to the nearest cent.
**Commencement of operations. Period from Jan. 20, 1986 to April 30, 1986.
***For the period from Jan. 20, 1986 to April 30, 1986, the annualized total return is 6.35%.
+ Commencing on April 5, 1989, IDS Life voluntarily limited total operating expenses to 0.6% of average daily net
assets. Had IDS Life not done so, the expenses per share and the ratio of expenses to average daily net assets would
have been $.01 and 0.71%, $.01 and 0.74%, $.01 and 0.75%, $.01 and 0.86%, $.01 and 0.96% and $.01 and
1.35% for the years ended April 30, 1994, 1993, 1992, 1991, 1990 and 1989, respectively.
++Adjusted to an annual basis.
+++Total return does not reflect the expenses that apply to the subaccounts or the policies.
++++Semiannual period, ended Oct. 31, 1994 (unaudited).
</TABLE>
<PAGE>
PAGE 11
<TABLE>
<CAPTION>
Managed Portfolio
Financial highlights (continued)
Fiscal period ended April 30,
Per share income and capital changes*
1994++++ 1994 1993 1992 1991 1990 1989 1988 1987 1986**
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.84 $13.55 $13.29 $12.80 $11.22 $10.42 $11.40 $10.06 $10.00
Income (loss) from
investment operation:
Net investment income .42 .44 .48 .57 .57 .61 .42 .40 .18
Net gains (losses) on
securities (both realized
and unrealized) 1.40 1.44 1.87 1.90 1.58 .80 (.84) 1.41 .06
Total from investment
operations 1.82 1.88 2.35 2.47 2.15 1.41 (.42) 1.81 .24
Less distributions:
Dividends from net
investment income (.42) (.44) (.48) (.57) (.57) (.61) (.42) (.40) (.18)
Distributions from
realized gains (1.39) (1.15) (1.61) (1.41) - - (.14) (.07) -
Total distributions (1.81) (1.59) (2.09) (1.98) (.57) (.61) (.56) (.47) (.18)
Net asset value, end of period $13.85 $13.84 $13.55 $13.29 $12.80 $11.22 $10.42 $11.40 $10.06
Ratios/supplemental data
1994 1993 1992 1991 1990 1989 1988 1987 1986**
Net assets, end of period
(in thousands) $160,706 $100,139 $72,366 $51,442 $32,725 $25,807 $21,901 $10,779 $588
Ratio of expenses to
average daily net assets .77% .79% .80% .80%+ .80%+ .72%+ 1.03% 1.30% .68%++
Ratio of net income to
average daily net assets 2.83% 3.15% 3.40% 4.38% 4.54% 5.76% 3.86% 3.53% 6.41%++
Portfolio turnover rate
(excluding short-term
securities) 106% 118% 122% 71% 107% 58% 67% 43% -
Total return+++ 13.30% 14.03% 17.84% 20.18% 19.37% 13.88% (3.57%) 18.32% 2.38%***
* For a share outstanding throughout the period. Rounded to the nearest cent.
**Commencement of operations. Period from Jan. 20, 1986 to April 30, 1986.
***For the period from Jan. 20, 1986 to April 30, 1986, the annualized total return is 8.71%.
+ Commencing on April 5, 1989, IDS Life voluntarily limited total operating expenses to 0.8% of average daily net
assets. Had IDS Life not done so, the expenses per share and the ratio of expenses to average daily net assets would
have been $.11 and 0.81%, $.10 and 0.82% and $.09 and 0.84% for the years ended April 30, 1991, 1990 and
1989 respectively.
++Adjusted to an annual basis.
+++Total return does not reflect the expenses that apply to the subaccounts or the policies.
++++Semiannual period, ended Oct. 31, 1994 (unaudited).
</TABLE>
<PAGE>
PAGE 12
<TABLE>
<CAPTION>
Government Securities Portfolio
Financial highlights (continued)
Fiscal period ended April 30,
Per share income and capital changes*
1994++++ 1994 1993 1992 1991 1990 1989 1988 1987 1986**
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value
beginning of period $10.54 $9.69 $9.44 $8.88 $8.97 $9.00 $9.40 $10.32 $10.00
Income (loss) from
investment operations:
Net investment income .60 .63 .66 .67 .69 .64 .64 .66 .34
Net gains (losses) on
securities (both realized
and unrealized) (.56) .94 .28 .56 (.09) (.03) (.40) (.92) .32
Total from investment
operations .04 1.57 .94 1.23 .60 .61 .24 (.26) .66
Less distributions:
Dividends from net
investment income (.60) (.63) (.66) (.67) (.69) (.64) (.64) (.66) (.34)
Distributions from
realized gains (.10) (.09) (.03) - - - - - -
Total distributions (.70) (.72) (.69) (.67) (.69) (.64) (.64) (.66) (.34)
Net asset value, end of period $ 9.88 $10.54 $9.69 $9.44 $8.88 $8.97 $9.00 $ 9.40 $10.32
Ratios/supplemental data
1994 1993 1992 1991 1990 1989 1988 1987 1986**
Net assets, end of period
(in thousands) $11,185 $9,619 $7,853 $6,314 $3,184 $2,773 $2,170 $1,230 $309
Ratio of expenses to
average daily net assets .80%+ .80%+ .80%+ .80%+ .80%+ 1.12%+ 1.13% 1.56% .68%++
Ratio of net income to
average daily net assets 5.59% 6.10% 6.79% 7.24% 7.34% 7.19% 7.04% 5.90% 1.47%++
Portfolio turnover rate
(excluding short-term
securities) 32% 15% 11% 18% 18% 14% 13% 43% -
Total return+++ 0.16% 16.58% 10.20% 14.30% 6.50% 7.12% 2.77% (2.73)% 6.60%***
* For a share outstanding throughout the period. Rounded to the nearest cent.
**Commencement of operations. Period from Jan. 20, 1986 to April 30, 1986.
***For the period from Jan. 20, 1986 to April 30, 1986, the annualized total return is 24.09%.
+ Commencing on April 5, 1989, IDS Life voluntarily limited total operating expenses to 0.8% of average daily net
assets. Had IDS Life not done so, the expenses per share and the ratio of expenses to average daily net assets would
have been $.09 and 0.85%, $.09 and 0.88%, $.09 and 0.92%, $.10 and 1.08%, $.11 and 1.12%, and $.11 and
1.21% for the years ended April 30, 1994, 1993, 1992, 1991, 1990 and 1989 respectively.
++Adjusted to an annual basis.
+++Total return does not reflect the expenses that apply to the subaccounts or the policies.
++++Semiannual period, ended Oct. 31, 1994 (unaudited).
</TABLE>
Except for the semiannual period ended October 31, 1994, the
information in the preceding tables has been audited by KPMG Peat
Marwick LLP, independent auditors. The independent auditors'
report and additional information about the performance of the fund
is contained in the fund's annual report which, if not included
with this prospectus, may be obtained without charge.
<PAGE>
PAGE 13
Total returns
Average annual total returns as of April 30, 1994
Purchase 1 year 5 years Since
made ago ago inception*
Equity Portfolio +19.72% +15.07% +12.67%
S&P 500 + 5.32% +11.25% +13.17%
Lipper Growth
and Income Fund
Index + 7.76% +10.73% +12.21%
Cumulative total returns as of April 30, 1994
Purchase 1 year 5 years Since
made ago ago inception*
Equity Portfolio +19.72% +101.79% +168.42%
S&P 500 + 5.32% + 70.38% +178.37%
Lipper Growth
and Income Fund
Index + 7.76% + 66.43% +159.48%
Average annual total returns as of April 30, 1994
Purchase 1 year 5 years Since
made ago ago inception*
Income Portfolio +2.12% +9.90% +7.77%
Lehman Aggregate
Bond Index +0.83% +9.74% +9.31%
Cumulative total returns as of April 30, 1994
Purchase 1 year 5 years Since
made ago ago inception*
Income Portfolio +2.12% +60.36% + 85.77%
Lehman Aggregate
Bond Index +0.83% +59.18% +108.95%
<PAGE>
PAGE 14
Average annual total returns as of April 30, 1994
Purchase 1 year 5 years Since
made ago ago inception*
Managed Portfolio +13.30% +16.91% +13.76%
S&P 500 + 5.32% +11.25% +13.17%
Lipper Balanced
Fund Index + 4.61% +10.37% +10.49%
Cumulative total returns as of April 30, 1994
Purchase 1 year 5 years Since
made ago ago inception*
Managed Portfolio +13.30% +118.41% +190.55%
S&P 500 + 5.32% + 70.38% +178.37%
Lipper Balanced
Fund Index + 4.61% + 63.77% +128.42%
Average annual total returns as of April 30, 1994
Purchase 1 year 5 years Since
made ago ago inception*
Government
Securities Portfolio +0.16% +9.39% +7.27%
Merrill Lynch 1-3
Gov't Index +1.62% +7.98% +7.79%
Cumulative total returns as of April 30, 1994
Purchase 1 year 5 years Since
made ago ago inception*
Government
Securities Portfolio +0.16% +56.62% +78.78%
Merrill Lynch 1-3
Gov't Index +1.62% +46.83% +86.06%
*Jan. 20, 1986
These examples show total returns from hypothetical investments in
each portfolio. These returns are compared to those of popular
indexes for the same periods. The results do not reflect the
expenses that apply to the subaccounts or the policies. Inclusion
of these charges would reduce total return for all periods shown.
<PAGE>
PAGE 15
For purposes of calculation, information about each portfolio
assumes the deduction of applicable portfolio expenses, makes no
adjustments for taxes that may have been paid on the reinvested
income and capital gains, and covers a period of widely fluctuating
securities prices. Returns shown should not be considered a
representation of the fund's future performance.
The portfolio's investments may be different from those in the
indexes. The indexes reflect reinvestment of all distributions and
changes in market prices, but exclude brokerage commissions or
other fees.
Standard & Poor's 500 Stock Index (S&P 500), an unmanaged list of
common stocks, is frequently used as a general measure of market
performance. However, the S&P 500 companies are generally larger
than those in which the fund invests.
Lipper Growth and Income Fund Index, published by Lipper Analytical
Services, Inc., includes 30 funds that are generally similar to
Equity Portfolio, although some funds in the index may have
somewhat different investment policies or objectives.
Lehman Aggregate Bond Index is made up of a representative list of
government and corporate bonds as well as asset-backed securities
and mortgage-backed securities. The index is frequently used as a
general measure of bond market performance. However, the
securities used to create the index may not be representative of
the bonds held in the Income Portfolio.
Merrill Lynch 1-3 Year Government Index is an unmanaged list of all
treasury and agency securities. The index is used here as a
general measure of performance. However, the securities used to
create the index may not be representative of the debt securities
held in the Government Securities Portfolio.
Lipper Balanced Fund Index, published by Lipper Analytical
Services, Inc., includes 10 funds that are generally similar to the
Managed Portfolio, although some funds in the index may have
somewhat different investment policies or objectives.
Yield calculations
Income Portfolio and Government Securities Portfolio may calculate
a 30-day annualized yield by dividing:
o net investment income per share deemed earned during a 30-day
period by
o the net asset value per share on the last day of the period,
and
o converting the result to a yearly equivalent figure.
<PAGE>
PAGE 16
This yield calculation does not include any surrender charge or
life insurance policy charges, which would reduce the yield quoted.
A portfolio's yield varies from day to day, mainly because share
values and net asset values (which are calculated daily) vary in
response to changes in interest rates. Net investment income
normally changes much less in the short run. Thus, when interest
rates rise and share values fall, yield tends to rise. When
interest rates fall, yield tends to follow.
Money Market Portfolio calculates annualized simple and compound
yields based on a seven-day period.
Past yields should not be considered an indicator of future yields.
Key terms
Average annual total return - The annually compounded rate of
return over a given time period (usually two or more years) - total
return for the period converted to an equivalent annual figure.
Capital gains or losses - Increase or decrease in value of the
securities the portfolio holds. Gains are realized when securities
that have increased in value are sold. A portfolio also may have
unrealized gains or losses when securities increase or decrease in
value but are not sold.
Close of business - Normally 3 p.m. Central time each business day
(any day the New York Stock Exchange is open).
Distributions - Payments to the subaccounts of two types:
investment income (dividends) and realized net long-term capital
gains (capital gains distributions).
Investment income - Dividends and interest earned on securities
held by the portfolio.
Net asset value (NAV) - Value of a single share held by the
portfolio. It is the total market value of all of a portfolio's
investments and other assets, less any liabilities, divided by the
number of shares outstanding.
The NAV is the price the subaccount receives when it sells shares.
It usually changes from day to day, and is calculated at the close
of business. For the Income and Government Securities Portfolios,
NAV generally declines as interest rates increase and rises as
interest rates decline.
Total return - Sum of all returns for a given period, assuming
reinvestment of all distributions. Calculated by taking the total
value of shares at the end of the period (including shares acquired
by reinvestment), less the price of shares purchased at the
beginning of the period.
Yield - Net investment income earned per share for a specified time
period, divided by the share price at the end of the period.<PAGE>
PAGE 17
Investment policies and risks
Equity Portfolio - Under normal market conditions, Equity Portfolio
invests in U.S. common stocks listed on national securities
exchanges that the investment manager believes have potential for
capital appreciation. The companies in which the portfolio invests
may be well-seasoned or relatively new and lesser-known as long as
the investment manager believes the stock is attractive for capital
growth.
The portfolio also may invest in convertible securities, derivative
instruments, money market instruments and foreign investments.
Neither foreign investments nor derivative instruments will exceed
25% of the portfolio's total assets.
Income Portfolio - Under normal market conditions, Income Portfolio
primarily invests in debt securities. At least 50% of its net
assets are invested in corporate bonds of the four highest ratings,
in other corporate bonds the investment manager believes have the
same investment qualities, and in government bonds.
The portfolio also may invest in corporate bonds with lower
ratings, convertible securities, preferred stocks, derivative
instruments, foreign investments and money market instruments.
Foreign investments are limited to 25% of the portfolio's total
assets. The portfolio does not have a minimum rating requirement
for corporate bonds.
Money Market Portfolio - Under normal market conditions, Money
Market Portfolio invests primarily in high-quality, short-term,
marketable debt securities and other money market instruments. For
a description of money market securities, see Appendix B in the
SAI.
Managed Portfolio - This portfolio invests in common and preferred
stocks, convertible securities, debt securities, derivative
instruments, foreign securities and money market instruments. The
portfolio manager continuously will adjust the mix of investments
subject to the following three net asset limits: 1) up to 75% in
equity securities (stocks), 2) up to 75% in bonds or other debt
securities, and 3) up to 100% in money market instruments. Stocks
and debt securities will be selected for capital appreciation,
income or both. Money market instruments will be selected for
current income and safety of principal.
Of the assets invested in bonds, at least 50% will be in corporate
bonds of the four highest ratings, in other corporate bonds the
investment manager believes have the same investment qualities, and
in government bonds. For the other 50% invested in corporate
bonds, there is no minimum rating requirement. Foreign investments
are limited to 25% of the portfolio's total assets.
Government Securities Portfolio - Under normal market conditions,
Government Securities Portfolio invests in securities that are
issued or guaranteed by a U.S. governmental unit. The portfolio <PAGE>
PAGE 18
also may invest in derivative instruments on U.S. government
securities. Shares of this portfolio are not insured or guaranteed
by the U.S. government or by any other person or entity.
The various types of investments the portfolio managers use to
achieve investment performance are described in more detail in the
next section and in the SAI.
Facts about investments and their risks
Common stocks: Stock prices are subject to market fluctuations.
Stocks of smaller or foreign companies may be subject to abrupt or
erratic price movements. Also, small companies often have limited
product lines, smaller markets or fewer financial resources.
Therefore, some of the securities in which a portfolio invests
involve substantial risk and may be considered speculative.
Preferred stocks: If a company earns a profit, it generally must
pay its preferred stockholders a dividend at a pre-established
rate.
Convertible securities: These securities generally are preferred
stocks or bonds that can be exchanged for other securities, usually
common stock, at prestated prices. When the trading price of the
common stock makes the exchange likely, the convertible securities
trade more like common stock.
Investment grade bonds: The price of an investment grade bond
fluctuates as interest rates change or if its credit rating is
upgraded or downgraded.
Debt securities below investment grade: The price of these bonds
may react more to the ability of a company to pay interest and
principal when due than to changes in interest rates. They have
greater price fluctuations, are more likely to experience a
default, and sometimes are referred to as "junk bonds." Reduced
market liquidity for these bonds may occasionally make it more
difficult to value them. In valuing bonds, a portfolio relies both
on independent rating agencies and the investment manager's credit
analysis. Securities that are subsequently downgraded in quality
may continue to be held and will be sold only when the portfolio's
investment manager believes it is advantageous to do so.
<PAGE>
PAGE 19
Bond ratings of holdings for period ended
April 30, 1994 for Income Portfolio
<TABLE><CAPTION>
American Express Financial Corporation's
S&P Rating Protection of Assessment
Percent of (or Moody's principal and of unrated
net assets equivalent) interest securities
<S> <C> <C> <C>
3.10% AAA Highest quality -- %
3.80 AA High quality --
12.70 A Upper medium grade 0.63
26.17 BBB Medium grade 0.32
10.70 BB Moderately speculative --
13.68 B Speculative --
0.17 CCC Highly speculative --
-- CC Poor quality --
-- C Lowest quality --
-- D In default --
1.35 NR Unrated securities 0.40
</TABLE>
<TABLE><CAPTION>
Bond ratings of holdings for period ended
April 30, 1994 for Managed Portfolio
American Express Financial Corporation's
S&P Rating Protection of Assessment
Percent of (or Moody's principal and of unrated
net assets equivalent) interest securities
<S> <C> <C> <C>
2.49% AAA Highest quality -- %
1.30 AA High quality --
4.28 A Upper medium grade 0.11
5.21 BBB Medium grade --
4.61 BB Moderately speculative --
5.36 B Speculative 0.08
0.09 CCC Highly speculative --
-- CC Poor quality --
-- C Lowest quality --
-- D In default --
0.82 NR Unrated securities 0.63
</TABLE>
(See Appendix G to the SAI for further information regarding
ratings.)
Debt securities sold at a deep discount: Some bonds are sold at
deep discounts because they do not pay interest until maturity.
They include zero coupon bonds and PIK (pay-in-kind) bonds. To
comply with tax laws, a portfolio has to recognize a computed
amount of interest income and pay dividends to shareholders even
though no cash has been received. In some instances, a portfolio
may have to sell securities to have sufficient cash to pay the
dividends.
Mortgage-backed securities: All portfolios except Money Market may
invest in U.S. government securities representing part ownership of
pools of mortgage loans. A pool, or group, of mortgage loans
issued by such lenders as mortgage bankers, commercial banks and
savings and loan associations, is assembled and mortgage pass-
through certificates are offered to investors through securities
dealers. In pass-through certificates, both principal and interest
payments, including prepayments, are passed through to the holder
of the certificate. Prepayments on underlying mortgages result in
<PAGE>
PAGE 20
a loss of anticipated interest, and the actual yield (or total
return) to the portfolio, which is influenced by both stated
interest rates and market conditions, may be different than the
quoted yield on the certificates.
Foreign investments: Securities of foreign companies and
governments may be traded in the United States, but often they are
traded only on foreign markets. Frequently, there is less
information about foreign companies and less government supervision
of foreign markets. Foreign investments are subject to political
and economic risks of the countries in which the investments are
made including the possibility of seizure or nationalization of
companies, imposition of withholding taxes on income, establishment
of exchange controls or adoption of other restrictions that might
affect an investment adversely. If an investment is made in a
foreign market, the local currency must be purchased. This is done
by using a forward contract in which the price of the foreign
currency in U.S. dollars is established on the date the trade is
made, but delivery of the currency is not made until the securities
are received. As long as the portfolio holds foreign currencies or
securities valued in foreign currencies, the price of a portfolio
share will be affected by changes in the value of the currencies
relative to the U.S. dollar. Because of the limited trading volume
in some foreign markets, efforts to buy or sell a security may
change the price of the security, and it may be difficult to
complete the transaction.
Derivative instruments: The portfolio managers may use derivative
instruments in addition to securities to achieve investment
performance. Derivative instruments include futures, options and
forward contracts. Such instruments may be used to maintain cash
reserves while remaining fully invested, to offset anticipated
declines in values of investments, to facilitate trading, to reduce
transaction costs, or to pursue higher investment returns.
Derivative instruments are characterized by requiring little or no
initial payment and a daily change in price based on or derived
from a security, a currency, a group of securities or currencies,
or an index. A number of strategies or combination of instruments
can be used to achieve the desired investment performance
characteristics. A small change in the value of the underlying
security, currency or index will cause a sizable gain or loss in
the price of the derivative instrument. Derivative instruments
allow a portfolio manager to change the investment performance
characteristics very quickly and at lower costs. Risks include
losses of premiums, rapid changes in prices, defaults by other
parties, and inability to close such instruments. A portfolio will
use derivative instruments only to achieve the same investment
performance characteristics it could achieve by directly holding
those securities and currencies permitted under the investment
policies. The portfolios' custodian will maintain, in a segregated
account, cash or liquid high-grade debt securities that are marked
to market daily and are at least equal in value to the portfolios'
obligations. No more than 5% of each portfolio's net assets can be
used at any one time for good faith deposits on futures and
<PAGE>
PAGE 21
premiums for options on futures that do not offset existing
investment positions. For further information, see the options and
futures appendixes in the SAI.
Securities and derivative instruments that are illiquid: Illiquid
means the security or derivative instrument cannot be sold quickly
in the normal course of business. Some investments cannot be
resold to the U.S. public because of their terms or government
regulations. All securities and derivative instruments, however,
can be sold in private sales, and many may be sold to other
institutions and qualified buyers or on foreign markets. Each
portfolio manager will follow guidelines established by the board
of directors and consider relevant factors such as the nature of
the security and the number of likely buyers when determining
whether a security is illiquid. No more than 10% of each
portfolio's net assets will be held in securities and derivative
instruments that are illiquid.
Money market instruments: Short-term debt securities rated in the
top two grades are used to meet daily cash needs and at various
times to hold assets until better investment opportunities arise.
Generally less than 25% of each of Equity, Income, Managed and
Government Securities Portfolio's assets are in these money market
instruments. However, for temporary defensive purposes these
investments could exceed that amount for a limited period of time.
The investment policies described above may be changed by the board
of directors.
Lending portfolio securities: Each portfolio may lend its
securities to earn income so long as borrowers provide collateral
equal to the market value of the loans. The risks are that
borrowers will not provide collateral when required or return
securities when due. Unless shareholders approve otherwise, loans
may not exceed 30% of a portfolio's net assets.
Alternative investment option
In the future, the board of the fund may determine for operating
efficiencies to use a master/feeder structure. Under that
structure, the fund's investment portfolios would be managed by
another investment company with the same goal as the fund, rather
than being invested directly in a portfolio of securities.
Valuing assets
Money Market Portfolio's securities are valued at amortized cost.
In valuing assets of Equity, Income, Managed and Government
Securities Portfolios:
o Securities and assets with available market values are valued
on that basis.
<PAGE>
PAGE 22
o Securities maturing in 60 days or less are valued at amortized
cost.
o Securities and assets without readily available market values
are valued according to methods selected in good faith by the
board of directors.
o Assets and liabilities denominated in foreign currencies are
translated daily into U.S. dollars at a rate of exchange set
as near to the close of the day as practicable.
How to invest, transfer or redeem shares
How to invest
You may invest in the portfolios of the fund only by buying a
variable life insurance policy offered by IDS Life or IDS Life of
New York. Your financial planner will help you fill out and submit
an application. For further information concerning acceptance of
your application, see the variable life insurance policy
prospectus.
How to transfer among subaccounts
You can transfer all or part of your value in a subaccount to one
or more of the other subaccounts. That way, you transfer to a
portfolio with a different investment objective. Please refer to
your variable life insurance policy prospectus for more information
about transfers among subaccounts.
Redeeming shares
The fund will buy (redeem) any shares presented by the subaccounts.
Policy surrender details are described in your variable life
insurance policy prospectus. Payment generally will be made within
seven days of the surrender request. The amount may be more or
less than the amount invested. Shares will be redeemed at net
asset value at the close of business on the day the request is
accepted at the Minneapolis office for IDS Life or at the Albany
office for IDS Life of New York. If the request arrives after the
close of business, the price per share will be the net asset value
at the close of business on the next business day.
Distributions and taxes
The fund distributes to shareholders (the subaccounts) net
investment income and net capital gains. It does so to qualify as
a regulated investment company and to avoid paying corporate income
and excise taxes.
Dividend and capital gain distributions
The fund distributes its net investment income (dividends and
interest earned on securities held by the fund, less operating
expenses) to shareholders (the subaccounts) at the end of each
<PAGE>
PAGE 23
calendar quarter for the Equity and Managed Portfolios. For the
Income, Money Market and Government Securities Portfolios, net
investment income is distributed monthly. Short-term capital gains
distributed are included in net investment income. Net realized
capital gains, if any, from selling securities are distributed at
the end of the calendar year. Before they're distributed, both net
investment income and net capital gains are included in the value
of each share. After they're distributed, the value of each share
drops by the per-share amount of the distribution. (Since the
distributions are reinvested, the total value of the holdings will
not change.) The reinvestment price is the net asset value at
close of business on the day the distribution is paid.
Taxes
The Internal Revenue Service (IRS) has issued final regulations
relating to the diversification requirements under section 817(h)
of the Internal Revenue Code. Each portfolio intends to comply
with these requirements.
Federal income taxation of separate accounts, life insurance
companies and variable life insurance policies is discussed in the
variable life insurance policy prospectus.
How the fund is organized
IDS Life Series Fund, Inc. is a series mutual fund with five
portfolios: Equity Portfolio, Income Portfolio, Money Market
Portfolio, Managed Portfolio and Government Securities Portfolio.
The fund is a diversified, open-end management investment company,
as defined in the Investment Company Act of 1940. It was
incorporated in Minnesota on May 8, 1985. The fund headquarters
are at IDS Tower 10, Minneapolis, MN 55440-0010.
Shares
The fund is owned by the subaccounts, its shareholders. Each of
the five portfolios issues its own series of common stock. All
shares issued by each portfolio are of the same class-capital
stock. Par value is $.001 per share. Both full and fractional
shares can be issued. The shares of each portfolio making up IDS
Life Series Fund, Inc. represent an interest in that portfolio's
assets only (and profits or losses) and, in the event of
liquidation, each share of a portfolio would have the same rights
to dividends and assets as every other share of that portfolio.
Voting rights
For a discussion of the rights of policy owners concerning the
voting of shares held by the subaccounts, please see the variable
life insurance policy prospectus. Each share of a portfolio has
one vote. On an issue affecting a particular portfolio, its shares
vote as a separate series. On some issues, all shares of the fund
vote together as one series. All shares have cumulative voting
when voting on the election of directors.
<PAGE>
PAGE 24
The goals of the portfolios can be changed only if the majority of
the outstanding shares agree. The vote of a majority of the
outstanding voting shares means the vote:
o of 67% or more of the voting shares present at such meeting, if
the holders of more than 50% of the outstanding voting shares are
present or represented by proxy; or
o of more than 50% of the outstanding voting shares, whichever is
less.
Shareholder meetings
The fund does not hold annual shareholder meetings. However, the
directors may call meetings at their discretion, or on demand by
holders of 10% or more of the outstanding shares, to elect or
remove directors.
Portfolio managers
Equity Portfolio
Marty Hurwitz joined American Express Financial Corporation in 1987
and serves as portfolio manager. He was appointed to manage this
portfolio in July 1993. He also manages accounts for IDS Advisory
Portfolio Management Group, a division of American Express
Financial Advisors Inc. and serves as co-manager of IDS Life Funds
A and B.
Income Portfolio
Lorraine Hart joined American Express Financial Corporation in 1984
and serves as vice president and investment officer-insurance
investments. She has managed this portfolio since 1991. She also
manages the invested asset portfolios of IDS Life Insurance
Company, IDS Life Insurance Company of New York, and American
Enterprise Life Insurance Company.
Money Market Portfolio
Gregg Syverson joined American Express Financial Corporation in
1984 and serves as portfolio manager. He has managed this
portfolio since 1992. He also manages the short-term investments
and debt for American Express Financial Corporation, American
Express Financial Advisors Inc., IDS Life and IDS Certificate
Company.
Managed Portfolio
Jeanie Tebault joined American Express Financial Corporation in
1985 as an analyst, becoming associate portfolio manager in 1991,
helping to manage Wealth Management Portfolios and the IDS Stock
Fund. She became portfolio manager in 1993 and was appointed to
manage this portfolio in January 1995.
Government Securities Portfolio
Jim Snyder joined American Express Financial Corporation in 1989
and serves as portfolio manager. He was appointed to manage this
portfolio in April 1994. He also serves as associate portfolio
<PAGE>
PAGE 25
manager of IDS Federal Income Fund. Prior to joining American
Express Financial Corporation, he had been a Quantitative
Investment Analyst at Harris Trust.
Directors and officers
Shareholders elect a board of directors that oversees the
operations of the fund and chooses its officers. Its officers are
responsible for day-to-day business decisions based on policies set
by the board. The board has named an executive committee that has
authority to act on its behalf between meetings.
On April 30, 1994 the fund's directors and officers did not own any
shares of the fund.
Investment manager
The fund pays IDS Life for managing its portfolio, providing
administrative services and serving as transfer agent.
Under its Investment Management and Services Agreement, IDS Life
determines which securities will be purchased, held or sold
(subject to the direction and control of the fund's board of
directors). For these services the fund pays IDS Life a fee based
on the average daily net assets of the portfolios at the following
rates: 0.7% on an annual basis for Equity, Income, Managed and
Government Securities Portfolios and 0.5% for Money Market
Portfolio.
Under the Agreement, the fund also pays taxes, brokerage
commissions and nonadvisory expenses. However, IDS Life has agreed
to a voluntary limit of the annual charge of 0.1% of the average
daily net assets of the fund for these nonadvisory expenses. Total
net fees and expenses incurred after the limitations by each
portfolio amounted to 0.8% of average daily net assets for Equity,
Income, Managed and Government Securities Portfolios and 0.6% for
Money Market Portfolio for the period ended April 30, 1994.
IDS Life reserves the right to discontinue limiting these
nonadvisory expenses at 0.1%. However, its present intention is to
continue the limit until the time that actual expenses are less
than the limit.
Investment Advisory Agreement
IDS Life and American Express Financial Corporation have an
Investment Advisory Agreement which calls for IDS Life to pay
American Express Financial Corporation a fee for investment advice
about the fund's Portfolios. The fee paid by IDS Life is 0.25% of
the fund's average net assets for the year. American Express
Financial Corporation also executes purchases and sales and
negotiates brokerage as directed by IDS Life.
Total fees and expenses (excluding taxes and brokerage commissions)
cannot exceed the most restrictive applicable state expense
limitation.<PAGE>
PAGE 26
About IDS Life and American Express Financial Corporation
General information
IDS Life Series Fund is managed by IDS Life, a wholly owned
subsidiary of American Express Financial Corporation, which itself
is a wholly owned subsidiary of the American Express Company, a
financial services company headquartered in New York City.
IDS Life is a stock life insurance company organized in 1957 under
the laws of the State of Minnesota and located at IDS Tower 10,
Minneapolis, MN 55440-0010. IDS Life conducts a conventional life
insurance business in the District of Columbia and all states
except New York.
The American Express Financial Corporation family of companies
offers not only insurance and annuities, but also mutual funds,
investment certificates and a broad range of financial management
services.
American Express Financial Corporation has been providing financial
services since 1894. Besides managing investments for all publicly
offered funds in the IDS MUTUAL FUND GROUP, American Express
Financial Corporation also manages investments for itself and its
subsidiaries, IDS Certificate Company and IDS Life. Total assets
under management on April 30, 1994 were more than $100 billion.
American Express Financial Advisors Inc. serves individuals and
businesses through its nationwide network of more than 175 offices
and more than 7,500 planners.
Other subsidiaries provide investment management and related
services for pension, profit-sharing, employee savings and
endowment funds of businesses and institutions.
<PAGE>
PAGE 27
IDS Life Series Fund
Prospectus
April 28, 1995
IDS Life Series Fund, Inc. (the fund) is a series mutual fund with
six portfolios, each with a different investment objective.
Equity Portfolio is a stock portfolio.
Income Portfolio is a bond portfolio.
Money Market Portfolio is a money market portfolio.
An investment in Money Market Portfolio is neither insured nor
guaranteed by the U.S. Government and there can be no assurance
that the portfolio will be able to maintain a stable net asset
value of $1 per share.
Managed Portfolio is a managed portfolio.
Government Securities Portfolio is a government securities
portfolio.
International Equity Portfolio is an international stock portfolio.
This prospectus contains information about the fund that you should
know before investing. Read it along with your variable life
insurance policy prospectus before you invest and keep them for
future reference.
Additional facts about the fund are in a Statement of Additional
Information (SAI), and the IDS Life Series Fund, Inc. Semiannual
Report, filed with the Securities and Exchange Commission (SEC).
The SAI, dated April 28, 1995, and the Semiannual Report are
incorporated here by reference. For free copies, contact IDS Life
Series Fund, Inc.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC
OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
IDS LIFE IS NOT A BANK, AND THE SECURITIES IT OFFERS ARE NOT
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY ANY BANK
NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
IDS Life Series Fund, Inc.
IDS Tower 10
Minneapolis, MN 55440-0010
612-671-3733, or TTY: 800-285-8846
New York Service: 518-869-8613<PAGE>
PAGE 28
Table of contents
The fund in brief
Goals and types of portfolio investments
Manager and distributor
Variable accounts
Sales charge
Expenses
Performance
Financial highlights
Total returns
Yield calculations
Key terms
Investment policies and risks
Facts about investments and their risks
Valuing assets
How to invest, transfer or redeem shares
How to invest
How to transfer among subaccounts
Redeeming shares
Distributions and taxes
Dividend and capital gain distributions
Taxes
How the fund is organized
Shares
Voting rights
Shareholder meetings
Portfolio managers
Directors and officers
Investment manager
Investment advisory agreement
About IDS Life and American Express Financial Corporation
General information
<PAGE>
PAGE 29
The fund in brief
Goals and types of portfolio investments
IDS Life Series Fund is a series mutual fund. It has six
portfolios whose goals and types of investments are as follows:
Equity Portfolio's goal is capital appreciation. The portfolio
invests primarily in U.S. common stocks and securities convertible
into common stock.
Income Portfolio's goal is to maximize current income while
attempting to conserve the value of the investment and to continue
the high level of income for the longest period of time. The
portfolio invests primarily in corporate bonds of the four highest
ratings.
Money Market Portfolio's goal is to provide maximum current income
consistent with liquidity and conservation of capital. The
portfolio invests primarily in high-quality, short-term debt
securities.
Managed Portfolio's goal is to maximize total investment return
through a combination of capital appreciation and current income.
The portfolio invests in common and preferred stocks, convertible
securities, debt securities and money market instruments.
Government Securities Portfolio's goal is to provide a high level
of current income and safety of principal. The portfolio invests
in debt obligations issued or guaranteed by U.S. governmental
units.
International Equity Portfolio's goal is capital appreciation and
it invests primarily in common stocks of foreign issuers.
Because any investment involves risk, achieving these goals cannot
be guaranteed. Only the portfolio owners can change the goals.
Manager and distributor
The fund is managed by IDS Life Insurance Company (IDS Life), a
subsidiary of American Express Financial Corporation. American
Express Financial Corporation has an agreement with IDS Life to
furnish investment advice for funds managed by IDS Life. IDS Life
and IDS Life Insurance Company of New York (IDS Life of New York)
buy fund shares for their variable accounts used in connection with
their variable life insurance policies. In the future, the fund
may offer shares to the owners of other variable life and variable
annuity contracts issued by IDS Life or by IDS Life of New York.
<PAGE>
PAGE 30
Variable accounts
You may not buy (nor will you own) shares of the fund directly.
You invest by buying a variable life insurance policy from IDS Life
or IDS Life of New York and allocating your premium payments among
different subaccounts of the variable accounts that invest in these
portfolios.
Sales charge
Cost of insurance charges, premium expense charges, surrender
charges, mortality and expense risk fees and other charges under
your policy are described in the variable life insurance policy
prospectus. There is no sales charge for the sale or redemption of
fund shares.
Expenses
The fund pays IDS Life a fee for managing its investment portfolios
and for certain administrative services. The fund also pays
certain nonadvisory expenses. See "Investment manager" under "How
the fund is organized."
<PAGE>
PAGE 31
Performance
Financial highlights
<TABLE>
<CAPTION>
Equity Portfolio
Financial highlights
The tables below show certain important financial information for evaluating each portfolio's results.
Fiscal period ended April 30,
Per share income and capital changes*
1994++++ 1994 1993 1992 1991 1990 1989 1988 1987 1986**
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $16.87 $16.01 $13.94 $12.77 $12.16 $10.79 $12.05 $9.94 $10.00
Income (loss from
investment operations:
Net investment income .06 .03 .03 .13 .35 .36 .15 .16 .13
Net gains (losses) on
securities (both realized
and unrealized 3.26 1.40 2.90 2.09 .61 1.37 (1.13) 2.17 (.06)
Total from investment
operations 3.32 1.43 2.93 2.22 .96 1.73 (0.98) 2.33 .07
Less distributions:
Dividends from net
investment income (.06) (.03) (.03) (.13) (.35) (.36) (.15) (.16) (.13)
Distributions from
realized gains (2.03) (.54) (.83) (.92) - - (.13) (.06) -
Total distributions (2.09) (.57) (.86) (1.05) (.35) (.36) (.28) (.22) (.13)
Net asset value,
end of period $18.10 $16.87 $16.01 $13.94 $12.77 $12.16 $10.79 $12.05 $9.94
Ratios/supplemental data
1994 1993 1992 1991 1990 1989 1988 1987 1986**
Net assets, end of period
(in thousands) $151,860 $87,742 $55,265 $33,933 $16,355 $11,620 $7,247 $2,984 $211
Ratio of expenses to average
daily net assets .75% .79% .80% .80%+ .80%+ .80%+ 1.10% 1.23% .95%++
Ratio of net income to average
daily net assets .33% .21% .17% 1.03% 2.61% 3.32% 1.21% 1.40% 3.83%++
Portfolio turnover rate
(excluding short-term
securities) 109% 81% 52% 79% 190% 48% 57% 57% 15%
Total return+++ 19.72% 8.92% 21.06% 18.55% 7.84% 16.18% (8.04)% 23.66% .69%***
* For a share outstanding throughout the period. Rounded to the nearest cent.
**Commencement of operations. Period from Jan. 20, 1986 to April 30, 1986.
***For the period from Jan. 20, 1986 to April 30, 1986, the annualized total return is 2.50%.
+ Commencing on May 1, 1989, IDS Life voluntarily limited total operating expenses to 0.8% of average daily net assets.
Had IDS Life not done so, the expenses per share and the ratio of expenses to average daily net assets would have been
$.11 and 0.86% and $.13 and 0.90% for the years ended April 30, 1991 and 1990, respectively.
++Adjusted to an annual basis.
+++Total return does not reflect the expenses that apply to the subaccounts or the policies.
++++Semiannual period, ended Oct. 31, 1994 (unaudited).
</TABLE>
<PAGE>
PAGE 32
<TABLE>
<CAPTION>
Income Portfolio
Financial highlights (continued)
Fiscal period ended April 30,
Per share income and capital changes*
1994++++ 1994 1993 1992 1991 1990 1989 1988 1987 1986**
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.19 $9.40 $9.19 $8.55 $8.93 $9.05 $9.42 $10.35 $10.00
Income (loss) from
investment operations:
Net investment income .71 .76 .73 .75 .75 .70 .68 .74 .35
Net gains (losses) on
securities (both realized
and unrealized) (.48) .80 .21 .64 (.40) (.12) (.37) (.93) .35
Total from investment
operations .23 1.56 .94 1.39 .35 .58 .31 (.19) .70
Less distributions:
Dividends from net
investment income (.71) (.77) (.73) (.75) (.73) (.70) (.68) (.74) (.35)
Net asset value,
end of period $9.71 $10.19 $9.40 $9.19 $8.55 $8.93 $9.05 $9.42 $10.35
Ratios/supplemental data
1994 1993 1992 1991 1990 1989 1988 1987 1986**
Net assets, end of period
(in thousands) $33,770 $22,641 $16,306 $11,949 $8,831 $6,203 $4,456 $2,397 $215
Ratio of expenses to average
daily net assets .80% .80%+ 80%+ .80%+ .80%+ 1.11% 1.13% 1.72% .68%++
Ratio of net income to
average daily net assets 6.83% 7.66% 7.86% 8.41% 8.02% 7.87% 7.50% 6.27% 13.99%++
Portfolio turnover rate
(excluding short-term
securities) 60% 47% 75% 55% 60% 99% 64% 38% -
Total return+++ 2.12% 17.17% 10.60% 16.77% 3.75% 6.70% 3.59% (1.58)% 6.98%***
* For a share outstanding throughout the period. Rounded to the nearest cent.
**Commencement of operations. Period from Jan. 20, 1986 to April 30, 1986.
*** For the period from Jan. 20, 1986 to April 30, 1986, the annualized total return is 25.49%.
+ Commencing on May 1, 1989, IDS Life voluntarily limited total operating expenses to 0.8% of average daily net
assets. Had IDS Life not done so, the expenses per share and the ratio of expenses to average daily net assets would
have been $.08 and 0.83%, $.08 and 0.88%, $.08 and 0.93% and $09.and 0.96% for the years ended April 30,
1993, 1992, 1991 and 1990, respectively.
++Adjusted to an annual basis.
+++Total return does not reflect the expenses that apply to the subaccounts or the policies.
++++Semiannual period, ended Oct. 31, 1994 (unaudited).
</TABLE>
<PAGE>
PAGE 33
<TABLE>
<CAPTION>
Money Market Portfolio
Financial highlights (continued)
Fiscal period ended April 30,
Per share income and capital changes*
1994++++ 1994 1993 1992 1991 1990 1989 1988 1987 1986**
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Income from
investment operations:
Net investment income .03 .03 .05 .07 .08 .07 .06 .05 .02
Total from investment
operations .03 .03 .05 .07 .08 .07 .06 .05 .02
Less distributions:
Dividends from net
investment income (.03) (.03) (.05) (.07) (.08) (.07) (.06) (.05) (.02)
Net asset value,
end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Ratios/supplemental data
1994 1993 1992 1991 1990 1989 1988 1987 1986**
Net assets, end of period
(in thousands) $9,557 $8,181 $9,771 $9,596 $6,321 $4,721 $2,748 $1,007 $199
Ratio of expenses to
average daily net assets .60%+ .60%+ .60%+ .60%+ .60%+ 1.10%+ .96% 1.35% .64%++
Ratio of net income to
average daily net assets 2.61% 3.00% 4.60% 7.06% 8.26% 7.38% 5.89% 4.46% 6.01%++
Total return+++ 2.61% 3.04% 4.71% 7.41% 8.61% 7.52% 6.13% 5.38% 1.74%***
* For a share outstanding throughout the period. Rounded to the nearest cent.
**Commencement of operations. Period from Jan. 20, 1986 to April 30, 1986.
***For the period from Jan. 20, 1986 to April 30, 1986, the annualized total return is 6.35%.
+ Commencing on April 5, 1989, IDS Life voluntarily limited total operating expenses to 0.6% of average daily net
assets. Had IDS Life not done so, the expenses per share and the ratio of expenses to average daily net assets would
have been $.01 and 0.71%, $.01 and 0.74%, $.01 and 0.75%, $.01 and 0.86%, $.01 and 0.96% and $.01 and
1.35% for the years ended April 30, 1994, 1993, 1992, 1991, 1990 and 1989, respectively.
++Adjusted to an annual basis.
+++Total return does not reflect the expenses that apply to the subaccounts or the policies.
++++Semiannual period, ended Oct. 31, 1994 (unaudited).
</TABLE>
<PAGE>
PAGE 34
<TABLE>
<CAPTION>
Managed Portfolio
Financial highlights (continued)
Fiscal period ended April 30,
Per share income and capital changes*
1994++++ 1994 1993 1992 1991 1990 1989 1988 1987 1986**
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.84 $13.55 $13.29 $12.80 $11.22 $10.42 $11.40 $10.06 $10.00
Income (loss) from
investment operation:
Net investment income .42 .44 .48 .57 .57 .61 .42 .40 .18
Net gains (losses) on
securities (both realized
and unrealized) 1.40 1.44 1.87 1.90 1.58 .80 (.84) 1.41 .06
Total from investment
operations 1.82 1.88 2.35 2.47 2.15 1.41 (.42) 1.81 .24
Less distributions:
Dividends from net
investment income (.42) (.44) (.48) (.57) (.57) (.61) (.42) (.40) (.18)
Distributions from
realized gains (1.39) (1.15) (1.61) (1.41) - - (.14) (.07) -
Total distributions (1.81) (1.59) (2.09) (1.98) (.57) (.61) (.56) (.47) (.18)
Net asset value,
end of period $13.85 $13.84 $13.55 $13.29 $12.80 $11.22 $10.42 $11.40 $10.06
Ratios/supplemental data
1994 1993 1992 1991 1990 1989 1988 1987 1986**
Net assets, end of period
(in thousands) $160,706 $100,139 $72,366 $51,442 $32,725 $25,807 $21,901 $10,779 $588
Ratio of expenses to
average daily net assets .77% .79% .80% .80%+ .80%+ .72%+ 1.03% 1.30% .68%++
Ratio of net income to
average daily net assets 2.83% 3.15% 3.40% 4.38% 4.54% 5.76% 3.86% 3.53% 6.41%++
Portfolio turnover rate
(excluding short-term
securities) 106% 118% 122% 71% 107% 58% 67% 43% -
Total return+++ 13.30% 14.03% 17.84% 20.18% 19.37% 13.88% (3.57%) 18.32% 2.38%***
* For a share outstanding throughout the period. Rounded to the nearest cent.
**Commencement of operations. Period from Jan. 20, 1986 to April 30, 1986.
***For the period from Jan. 20, 1986 to April 30, 1986, the annualized total return is 8.71%.
+ Commencing on April 5, 1989, IDS Life voluntarily limited total operating expenses to 0.8% of average daily net
assets. Had IDS Life not done so, the expenses per share and the ratio of expenses to average daily net assets would
have been $.11 and 0.81%, $.10 and 0.82% and $.09 and 0.84% for the years ended April 30, 1991, 1990 and
1989 respectively.
++Adjusted to an annual basis.
+++Total return does not reflect the expenses that apply to the subaccounts or the policies.
++++Semiannual period, ended Oct. 31, 1994 (unaudited).
</TABLE>
<PAGE>
PAGE 35
<TABLE>
<CAPTION>
Government Securities Portfolio
Financial highlights (continued)
Fiscal period ended April 30,
Per share income and capital changes*
1994++++ 1994 1993 1992 1991 1990 1989 1988 1987 1986**
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $10.54 $9.69 $9.44 $8.88 $8.97 $9.00 $9.40 $10.32 $10.00
Income (loss) from
investment operations:
Net investment income .60 .63 .66 .67 .69 .64 .64 .66 .34
Net gains (losses) on
securities (both realized
and unrealized) (.56) .94 .28 .56 (.09) (.03) (.40) (.92) .32
Total from investment
operations .04 1.57 .94 1.23 .60 .61 .24 (.26) .66
Less distributions:
Dividends from net
investment income (.60) (.63) (.66) (.67) (.69) (.64) (.64) (.66) (.34)
Distributions from
realized gains (.10) (.09) (.03) - - - - - -
Total distributions (.70) (.72) (.69) (.67) (.69) (.64) (.64) (.66) (.34)
Net asset value, end of period $ 9.88 $10.54 $9.69 $9.44 $8.88 $8.97 $9.00 $ 9.40 $10.32
Ratios/supplemental data
1994 1993 1992 1991 1990 1989 1988 1987 1986**
Net assets, end of period
(in thousands) $11,185 $9,619 $7,853 $6,314 $3,184 $2,773 $2,170 $1,230 $309
Ratio of expenses to
average daily net assets .80%+ .80%+ .80%+ .80%+ .80%+ 1.12%+ 1.13% 1.56% .68%++
Ratio of net income to
average daily net assets 5.59% 6.10% 6.79% 7.24% 7.34% 7.19% 7.04% 5.90% 1.47%++
Portfolio turnover rate
(excluding short-term
securities) 32% 15% 11% 18% 18% 14% 13% 43% -
Total return+++ 0.16% 16.58% 10.20% 14.30% 6.50% 7.12% 2.77% (2.73)% 6.60%***
* For a share outstanding throughout the period. Rounded to the nearest cent.
**Commencement of operations. Period from Jan. 20, 1986 to April 30, 1986.
***For the period from Jan. 20, 1986 to April 30, 1986, the annualized total return is 24.09%.
+ Commencing on April 5, 1989, IDS Life voluntarily limited total operating expenses to 0.8% of average daily net
assets. Had IDS Life not done so, the expenses per share and the ratio of expenses to average daily net assets would
have been $.09 and 0.85%, $.09 and 0.88%, $.09 and 0.92%, $.10 and 1.08%, $.11 and 1.12%, and $.11 and
1.21% for the years ended April 30, 1994, 1993, 1992, 1991, 1990 and 1989 respectively.
++Adjusted to an annual basis.
+++Total return does not reflect the expenses that apply to the subaccounts or the policies.
++++Semiannual period, ended Oct. 31, 1994 (unaudited).
Except for the semiannual period ended Oct. 31, 1994, the
information in the preceding tables has been audited by KPMG Peat
Marwick LLP, independent auditors. The independent auditors'
report and additional information about the performance of the fund
is contained in the fund's annual report which, if not included
with this prospectus, may be obtained without charge.
<PAGE>
PAGE 36
Total returns
Average annual total returns as of April 30, 1994
Purchase 1 year 5 years Since
made ago ago inception*
Equity Portfolio +19.72% +15.07% +12.67%
S&P 500 + 5.32% +11.25% +13.17%
Lipper Growth
and Income Fund
Index + 7.76% +10.73% +12.21%
Cumulative total returns as of April 30, 1994
Purchase 1 year 5 years Since
made ago ago inception*
Equity Portfolio +19.72% +101.79% +168.42%
S&P 500 + 5.32% + 70.38% +178.37%
Lipper Growth
and Income Fund
Index + 7.76% + 66.43% +159.48%
Average annual total returns as of April 30, 1994
Purchase 1 year 5 years Since
made ago ago inception*
Income Portfolio +2.12% +9.90% +7.77%
Lehman Aggregate
Bond Index +0.83% +9.74% +9.31%
Cumulative total returns as of April 30, 1994
Purchase 1 year 5 years Since
made ago ago inception*
Income Portfolio +2.12% +60.36% + 85.77%
Lehman Aggregate
Bond Index +0.83% +59.18% +108.95%
<PAGE>
PAGE 37
Average annual total returns as of April 30, 1994
Purchase 1 year 5 years Since
made ago ago inception*
Managed Portfolio +13.30% +16.91% +13.76%
S&P 500 + 5.32% +11.25% +13.17%
Lipper Balanced
Fund Index + 4.61% +10.37% +10.49%
Cumulative total returns as of April 30, 1994
Purchase 1 year 5 years Since
made ago ago inception*
Managed Portfolio +13.30% +118.41% +190.55%
S&P 500 + 5.32% + 70.38% +178.37%
Lipper Balanced
Fund Index + 4.61% + 63.77% +128.42%
Average annual total returns as of April 30, 1994
Purchase 1 year 5 years Since
made ago ago inception*
Government
Securities Portfolio +0.16% +9.39% +7.27%
Merrill Lynch 1-3
Gov't Index +1.62% +7.98% +7.79%
Cumulative total returns as of April 30, 1994
Purchase 1 year 5 years Since
made ago ago inception*
Government
Securities Portfolio +0.16% +56.62% +78.78%
Merrill Lynch 1-3
Gov't Index +1.62% +46.83% +86.06%
*Jan. 20, 1986
These examples show total returns from hypothetical investments in
each portfolio. These returns are compared to those of popular
indexes for the same periods. The results do not reflect the
expenses that apply to the subaccounts or the policies. Inclusion
of these charges would reduce total return for all periods shown.
<PAGE>
PAGE 38
For purposes of calculation, information about each portfolio
assumes the deduction of applicable portfolio expenses, makes no
adjustments for taxes that may have been paid on the reinvested
income and capital gains, and covers a period of widely fluctuating
securities prices. Returns shown should not be considered a
representation of the fund's future performance.
The portfolio's investments may be different from those in the
indexes. The indexes reflect reinvestment of all distributions and
changes in market prices, but exclude brokerage commissions or
other fees.
Standard & Poor's 500 Stock Index (S&P 500), an unmanaged list of
common stocks, is frequently used as a general measure of market
performance. However, the S&P 500 companies are generally larger
than those in which the fund invests.
Lipper Growth and Income Fund Index, published by Lipper Analytical
Services, Inc., includes 30 funds that are generally similar to
Equity Portfolio, although some funds in the index may have
somewhat different investment policies or objectives.
Lehman Aggregate Bond Index is made up of a representative list of
government and corporate bonds as well as asset-backed securities
and mortgage-backed securities. The index is frequently used as a
general measure of bond market performance. However, the
securities used to create the index may not be representative of
the bonds held in the Income Portfolio.
Merrill Lynch 1-3 Year Government Index is an unmanaged list of all
treasury and agency securities. The index is used here as a
general measure of performance. However, the securities used to
create the index may not be representative of the debt securities
held in the Government Securities Portfolio.
Lipper Balanced Fund Index, published by Lipper Analytical
Services, Inc., includes 10 funds that are generally similar to the
Managed Portfolio, although some funds in the index may have
somewhat different investment policies or objectives.
Yield calculations
Income Portfolio and Government Securities Portfolio may calculate
a 30-day annualized yield by dividing:
o net investment income per share deemed earned during a 30-day
period by
o the net asset value per share on the last day of the period,
and
o converting the result to a yearly equivalent figure.
This yield calculation does not include any surrender charge or
life insurance policy charges, which would reduce the yield quoted.
<PAGE>
PAGE 39
A portfolio's yield varies from day to day, mainly because share
values and net asset values (which are calculated daily) vary in
response to changes in interest rates. Net investment income
normally changes much less in the short run. Thus, when interest
rates rise and share values fall, yield tends to rise. When
interest rates fall, yield tends to follow.
Money Market Portfolio calculates annualized simple and compound
yields based on a seven-day period.
Past yields should not be considered an indicator of future yields.
Key terms
Average annual total return - The annually compounded rate of
return over a given time period (usually two or more years) - total
return for the period converted to an equivalent annual figure.
Capital gains or losses - Increase or decrease in value of the
securities the portfolio holds. Gains are realized when securities
that have increased in value are sold. A portfolio also may have
unrealized gains or losses when securities increase or decrease in
value but are not sold.
Close of business - Normally 3 p.m. Central time each business day
(any day the New York Stock Exchange is open).
Distributions - Payments to the subaccounts of two types:
investment income (dividends) and realized net long-term capital
gains (capital gains distributions).
Investment income - Dividends and interest earned on securities
held by the portfolio.
Net asset value (NAV) - Value of a single share held by the
portfolio. It is the total market value of all of a portfolio's
investments and other assets, less any liabilities, divided by the
number of shares outstanding.
The NAV is the price the subaccount receives when it sells shares.
It usually changes from day to day, and is calculated at the close
of business. For the Income and Government Securities Portfolios,
NAV generally declines as interest rates increase and rises as
interest rates decline.
Total return - Sum of all returns for a given period, assuming
reinvestment of all distributions. Calculated by taking the total
value of shares at the end of the period (including shares acquired
by reinvestment), less the price of shares purchased at the
beginning of the period.
Yield - Net investment income earned per share for a specified time
period, divided by the share price at the end of the period.
<PAGE>
PAGE 40
Investment policies and risks
Equity Portfolio - Under normal market conditions, Equity Portfolio
invests in U.S. common stocks listed on national securities
exchanges that the investment manager believes have potential for
capital appreciation. The companies in which the portfolio invests
may be well-seasoned or relatively new and lesser-known as long as
the investment manager believes the stock is attractive for capital
growth.
The portfolio also may invest in convertible securities, derivative
instruments, money market instruments and foreign investments.
Neither foreign investments nor derivative instruments will exceed
25% of the portfolio's total assets.
Income Portfolio - Under normal market conditions, Income Portfolio
primarily invests in debt securities. At least 50% of its net
assets are invested in corporate bonds of the four highest ratings,
in other corporate bonds the investment manager believes have the
same investment qualities, and in government bonds.
The portfolio also may invest in corporate bonds with lower
ratings, convertible securities, preferred stocks, derivative
instruments, foreign investments and money market instruments.
Foreign investments are limited to 25% of the portfolio's total
assets. The portfolio does not have a minimum rating requirement
for corporate bonds.
Money Market Portfolio - Under normal market conditions, Money
Market Portfolio invests primarily in high-quality, short-term,
marketable debt securities and other money market instruments. For
a description of money market securities, see Appendix B in the
SAI.
Managed Portfolio - This portfolio invests in common and preferred
stocks, convertible securities, debt securities, derivative
instruments, foreign securities and money market instruments. The
portfolio manager continuously will adjust the mix of investments
subject to the following three net asset limits: 1) up to 75% in
equity securities (stocks), 2) up to 75% in bonds or other debt
securities, and 3) up to 100% in money market instruments. Stocks
and debt securities will be selected for capital appreciation,
income or both. Money market instruments will be selected for
current income and safety of principal.
Of the assets invested in bonds, at least 50% will be in corporate
bonds of the four highest ratings, in other corporate bonds the
investment manager believes have the same investment qualities, and
in government bonds. For the other 50% invested in corporate
bonds, there is no minimum rating requirement. Foreign investments
are limited to 25% of the portfolio's total assets.
Government Securities Portfolio - Under normal market conditions,
Government Securities Portfolio invests in securities that are
issued or guaranteed by a U.S. governmental unit. The portfolio <PAGE>
PAGE 41
also may invest in derivative instruments on U.S. government
securities. Shares of this portfolio are not insured or guaranteed
by the U.S. government or by any other person or entity.
International Equity Portfolio - Under normal market conditions,
International Equity Portfolio invests at least 80% of its total
assets in foreign equity securities having a potential for superior
growth. Superior means portfolio performance better than the
Morgan Stanley Capital International World Index.
The Morgan Stanley Capital International World Index, compiled from
a composite of securities listed on the markets of North America,
Europe, Australasia and the Far East is widely recognized by
investors as the measurement index for portfolios that invest in
the major markets of the world.
The portfolio's investments will be primarily in common stocks and
securities convertible into common stocks of foreign issuers.
However, if the investment manager believes they have more
potential for capital growth, the portfolio may invest in bonds
issued or guaranteed either by countries that are members of the
Organization for Economic Cooperation and Development (OECD) or by
international agencies such as the World Bank or the European
Investment Bank. These bonds will not be purchased unless, in the
judgment of the investment manager, they are comparable in quality
to bonds rated AA by Standard & Poor's Corporation (S&P).
The percentage of portfolio assets invested in particular countries
or regions of the world will change according to their political
stability and economic condition. Ordinarily, the portfolio will
invest in companies domiciled in at least three foreign countries.
Normally, investments in U.S. issuers will constitute less than 20%
of the portfolio's investments. However, as a temporary measure,
the portfolio may invest any portion of its assets in securities of
U.S. issuers that appear to have greater potential for superior
growth than foreign securities. U.S. investments would include
common stocks, convertible securities and corporate and government
bonds. The bonds must bear one of the four highest ratings given
by Moody's or S&P or must be of comparable quality. The portfolio
also may invest in money market instruments and derivative
instruments. No more than 5% of the portfolio's total assets may
be invested in options on individual securities.
The various types of investments the portfolio managers use to
achieve investment performance are described in more detail in the
next section and in the SAI.
Facts about investments and their risks
Common stocks: Stock prices are subject to market fluctuations.
Stocks of smaller or foreign companies may be subject to abrupt or
erratic price movements. Also, small companies often have limited
<PAGE>
PAGE 42
product lines, smaller markets or fewer financial resources.
Therefore, some of the securities in which a portfolio invests
involve substantial risk and may be considered speculative.
Preferred stocks: If a company earns a profit, it generally must
pay its preferred stockholders a dividend at a pre-established
rate.
Convertible securities: These securities generally are preferred
stocks or bonds that can be exchanged for other securities, usually
common stock, at prestated prices. When the trading price of the
common stock makes the exchange likely, the convertible securities
trade more like common stock.
Investment grade bonds: The price of an investment grade bond
fluctuates as interest rates change or if its credit rating is
upgraded or downgraded.
Debt securities below investment grade: The price of these bonds
may react more to the ability of a company to pay interest and
principal when due than to changes in interest rates. They have
greater price fluctuations, are more likely to experience a
default, and sometimes are referred to as "junk bonds." Reduced
market liquidity for these bonds may occasionally make it more
difficult to value them. In valuing bonds, a portfolio relies both
on independent rating agencies and the investment manager's credit
analysis. Securities that are subsequently downgraded in quality
may continue to be held and will be sold only when the portfolio's
investment manager believes it is advantageous to do so.
Bond ratings of holdings for fiscal year ended
April 30, 1994 for Income Portfolio
American Express Financial Corporation's
S&P Rating Protection of Assessment
Percent of (or Moody's principal and of unrated
net assets equivalent) interest securities
3.10% AAA Highest quality --%
3.80 AA High quality --
12.70 A Upper medium grade 0.63
26.17 BBB Medium grade 0.32
10.70 BB Moderately speculative --
13.68 B Speculative --
0.17 CCC Highly speculative --
-- CC Poor quality --
-- C Lowest quality --
-- D In default --
1.35 NR Unrated securities 0.40
<PAGE>
PAGE 43
Bond ratings of holdings for fiscal year ended
April 30, 1994 for Managed Portfolio
American Express Financial Corporation's
S&P Rating Protection of Assessment
Percent of (or Moody's principal and of unrated
net assets equivalent) interest securities
2.49% AAA Highest quality --%
1.30 AA High quality --
4.28 A Upper medium grade 0.11
5.21 BBB Medium grade --
4.61 BB Moderately speculative --
5.36 B Speculative 0.08
0.09 CCC Highly speculative --
-- CC Poor quality --
-- C Lowest quality --
-- D In default --
0.82 NR Unrated securities 0.63
(See Appendix G to the SAI for further information regarding
ratings.)
Debt securities sold at a deep discount: Some bonds are sold at
deep discounts because they do not pay interest until maturity.
They include zero coupon bonds and PIK (pay-in-kind) bonds. To
comply with tax laws, a portfolio has to recognize a computed
amount of interest income and pay dividends to shareholders even
though no cash has been received. In some instances, a portfolio
may have to sell securities to have sufficient cash to pay the
dividends.
Mortgage-backed securities: All portfolios except Money Market may
invest in U.S. government securities representing part ownership of
pools of mortgage loans. A pool, or group, of mortgage loans
issued by such lenders as mortgage bankers, commercial banks and
savings and loan associations, is assembled and mortgage pass-
through certificates are offered to investors through securities
dealers. In pass-through certificates, both principal and interest
payments, including prepayments, are passed through to the holder
of the certificate. Prepayments on underlying mortgages result in
a loss of anticipated interest, and the actual yield (or total
return) to the portfolio, which is influenced by both stated
interest rates and market conditions, may be different than the
quoted yield on the certificates.
Foreign investments: Securities of foreign companies and
governments may be traded in the United States, but often they are
traded only on foreign markets. Frequently, there is less
information about foreign companies and less government supervision
of foreign markets. Foreign investments are subject to political
and economic risks of the countries in which the investments are
made including the possibility of seizure or nationalization of
companies, imposition of withholding taxes on income, establishment
of exchange controls or adoption of other restrictions that might
affect an investment adversely. If an investment is made in a
foreign market, the local currency must be purchased. This is done
by using a forward contract in which the price of the foreign
currency in U.S. dollars is established on the date the trade is
made, but delivery of the currency is not made until the securities<PAGE>
PAGE 44
are received. As long as the portfolio holds foreign currencies or
securities valued in foreign currencies, the price of a portfolio
share will be affected by changes in the value of the currencies
relative to the U.S. dollar. Because of the limited trading volume
in some foreign markets, efforts to buy or sell a security may
change the price of the security, and it may be difficult to
complete the transaction.
Derivative instruments: The portfolio managers may use derivative
instruments in addition to securities to achieve investment
performance. Derivative instruments include futures, options and
forward contracts. Such instruments may be used to maintain cash
reserves while remaining fully invested, to offset anticipated
declines in values of investments, to facilitate trading, to reduce
transaction costs, or to pursue higher investment returns.
Derivative instruments are characterized by requiring little or no
initial payment and a daily change in price based on or derived
from a security, a currency, a group of securities or currencies,
or an index. A number of strategies or combination of instruments
can be used to achieve the desired investment performance
characteristics. A small change in the value of the underlying
security, currency or index will cause a sizable gain or loss in
the price of the derivative instrument. Derivative instruments
allow a portfolio manager to change the investment performance
characteristics very quickly and at lower costs. Risks include
losses of premiums, rapid changes in prices, defaults by other
parties, and inability to close such instruments. A portfolio will
use derivative instruments only to achieve the same investment
performance characteristics it could achieve by directly holding
those securities and currencies permitted under the investment
policies. The portfolios' custodian will maintain, in a segregated
account, cash or liquid high-grade debt securities that are marked
to market daily and are at least equal in value to the portfolios'
obligations. No more than 5% of each portfolio's net assets can be
used at any one time for good faith deposits on futures and
premiums for options on futures that do not offset existing
investment positions. For further information, see the options and
futures appendixes in the SAI.
Securities and derivative instruments that are illiquid: Illiquid
means the security or derivative instrument cannot be sold quickly
in the normal course of business. Some investments cannot be
resold to the U.S. public because of their terms or government
regulations. All securities and derivative instruments, however,
can be sold in private sales, and many may be sold to other
institutions and qualified buyers or on foreign markets. Each
portfolio manager will follow guidelines established by the board
of directors and consider relevant factors such as the nature of
the security and the number of likely buyers when determining
whether a security is illiquid. No more than 10% of each
portfolio's net assets will be held in securities and derivative
instruments that are illiquid.
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PAGE 45
Money market instruments: Short-term debt securities rated in the
top two grades are used to meet daily cash needs and at various
times to hold assets until better investment opportunities arise.
Generally less than 25% of each of Equity, Income, Managed,
Government Securities and International Equity Portfolio's assets
are in these money market instruments. However, for temporary
defensive purposes these investments could exceed that amount for a
limited period of time.
Securities of other investment companies: Equity, Income and
International Equity Portfolio may invest in securities of
investment companies by purchase in the open market where the
dealer's or sponsor's profit is the regular commission. If any
such investment is made, not more than 5% of the portfolio's net
assets (10% for International Equity Portfolio) will be so
invested. To the extent the portfolio were to make such
investments, you may be subject to duplicative advisory,
administrative and distribution fees.
The investment policies described above may be changed by the board
of directors.
Lending portfolio securities: Each portfolio may lend its
securities to earn income so long as borrowers provide collateral
equal to the market value of the loans. The risks are that
borrowers will not provide collateral when required or return
securities when due. Unless shareholders approve otherwise, loans
may not exceed 30% of a portfolio's net assets.
Alternative investment option
In the future, the board of the fund may determine for operating
efficiencies to use a master/feeder structure. Under that
structure, the fund's investment portfolios would be managed by
another investment company with the same goal as the fund, rather
than being invested directly in a portfolio of securities.
Valuing assets
Money Market Portfolio's securities are valued at amortized cost.
In valuing assets of Equity, Income, Managed, Government Securities
and International Equity Portfolios:
o Securities and assets with available market values are valued
on that basis.
o Securities maturing in 60 days or less are valued at amortized
cost.
o Securities and assets without readily available market values
are valued according to methods selected in good faith by the
board of directors.
<PAGE>
PAGE 46
o Assets and liabilities denominated in foreign currencies are
translated daily into U.S. dollars at a rate of exchange set
as near to the close of the day as practicable.
How to invest, transfer or redeem shares
How to invest
You may invest in the portfolios of the fund only by buying a
variable life insurance policy offered by IDS Life or IDS Life of
New York. Your financial planner will help you fill out and submit
an application. For further information concerning acceptance of
your application, see the variable life insurance policy
prospectus.
How to transfer among subaccounts
You can transfer all or part of your value in a subaccount to one
or more of the other subaccounts. That way, you transfer to a
portfolio with a different investment objective. Please refer to
your variable life insurance policy prospectus for more information
about transfers among subaccounts.
Redeeming shares
The fund will buy (redeem) any shares presented by the subaccounts.
Policy surrender details are described in your variable life
insurance policy prospectus. Payment generally will be made within
seven days of the surrender request. The amount may be more or
less than the amount invested. Shares will be redeemed at net
asset value at the close of business on the day the request is
accepted at the Minneapolis office for IDS Life or at the Albany
office for IDS Life of New York. If the request arrives after the
close of business, the price per share will be the net asset value
at the close of business on the next business day.
Distributions and taxes
The fund distributes to shareholders (the subaccounts) net
investment income and net capital gains. It does so to qualify as
a regulated investment company and to avoid paying corporate income
and excise taxes.
Dividend and capital gain distributions
The fund distributes its net investment income (dividends and
interest earned on securities held by the fund, less operating
expenses) to shareholders (the subaccounts) at the end of each
calendar quarter for Equity, Managed and International Equity
Portfolios. For Income, Money Market and Government Securities
Portfolios, net investment income is distributed monthly. Short-
term capital gains distributed are included in net investment
income. Net realized capital gains, if any, from selling
securities are distributed at the end of the calendar year. Before
they're distributed, both net investment income and net capital
<PAGE>
PAGE 47
gains are included in the value of each share. After they're
distributed, the value of each share drops by the per-share amount
of the distribution. (Since the distributions are reinvested, the
total value of the holdings will not change.) The reinvestment
price is the net asset value at close of business on the day the
distribution is paid.
Taxes
The Internal Revenue Service (IRS) has issued final regulations
relating to the diversification requirements under section 817(h)
of the Internal Revenue Code. Each portfolio intends to comply
with these requirements.
Federal income taxation of separate accounts, life insurance
companies and variable life insurance policies is discussed in the
variable life insurance policy prospectus.
Income received by the International Equity Portfolio may be
subject to foreign tax and withholding. Tax conventions between
certain countries and the United States may reduce or eliminate
these taxes.
How the fund is organized
IDS Life Series Fund, Inc. is a series mutual fund. The fund is a
diversified, open-end management investment company, as defined in
the Investment Company Act of 1940. It was incorporated in
Minnesota on May 8, 1985. The fund headquarters are at IDS Tower
10, Minneapolis, MN 55440-0010.
Shares
The fund is owned by the subaccounts, its shareholders. Each of
the portfolios issues its own series of common stock. All shares
issued by each portfolio are of the same class-capital stock. Par
value is $.001 per share. Both full and fractional shares can be
issued. The shares of each portfolio making up IDS Life Series
Fund, Inc. represent an interest in that portfolio's
assets only (and profits or losses) and, in the event of
liquidation, each share of a portfolio would have the same rights
to dividends and assets as every other share of that portfolio.
Voting rights
For a discussion of the rights of policy owners concerning the
voting of shares held by the subaccounts, please see the variable
life insurance policy prospectus. Each share of a portfolio has
one vote. On an issue affecting a particular portfolio, its shares
vote as a separate series. On some issues, all shares of the fund
vote together as one series. All shares have cumulative voting
when voting on the election of directors.
<PAGE>
PAGE 48
The goals of the portfolios can be changed only if the majority of
the outstanding shares agree. The vote of a majority of the
outstanding voting shares means the vote:
o of 67% or more of the voting shares present at such meeting,
if the holders of more than 50% of the outstanding voting
shares are present or represented by proxy; or
o of more than 50% of the outstanding voting shares, whichever
is less.
Shareholder meetings
The fund does not hold annual shareholder meetings. However, the
directors may call meetings at their discretion, or on demand by
holders of 10% or more of the outstanding shares, to elect or
remove directors.
Portfolio managers
Equity Portfolio
Marty Hurwitz joined American Express Financial Corporation in 1987
and serves as portfolio manager. He was appointed to manage this
portfolio in July 1993. He also manages accounts for IDS Advisory
Portfolio Management Group, a division of American Express
Financial Advisors Inc., and serves as co-manager of IDS Life Funds
A and B.
Income Portfolio
Lorraine Hart joined American Express Financial Corporation in 1984
and serves as vice president and investment officer-insurance
investments. She has managed this portfolio since 1991. She also
manages the invested asset portfolios of IDS Life Insurance
Company, IDS Life Insurance Company of New York, and American
Enterprise Life Insurance Company.
Money Market Portfolio
Gregg Syverson joined American Express Financial Corporation in
1984 and serves as portfolio manager. He has managed this
portfolio since 1992. He also manages the short-term investments
and debt for American Express Financial Corporation, American
Express Financial Advisors Inc., IDS Life and IDS Certificate
Company.
Managed Portfolio
Jeanie Tebault joined American Express Financial Corporation in
1985 as an analyst, becoming associate portfolio manager in 1991,
helping to manage Wealth Management Portfolios and the IDS Stock
Fund. She became portfolio manager in 1993 and was appointed to
manage this portfolio in January 1995.
Government Securities Portfolio
Jim Snyder joined American Express Financial Corporation in 1989
and serves as portfolio manager. He was appointed to manage this
portfolio in April 1994. He also serves as associate portfolio
<PAGE>
PAGE 49
manager of IDS Federal Income Fund. Prior to joining American
Express Financial Corporation, he had been a Quantitative
Investment Analyst at Harris Trust.
International Equity Portfolio
Richard Lazarchic joined American Express Financial Corporation in
1979 and serves as portfolio manager. He was associate portfolio
manager of IDS Mutual from 1988 through 1989 and served as
portfolio manager of IDS Utilities Income Fund from 1989 through
mid 1993 and Diversified Equity Income Fund from 1990 through mid
1994. He also serves as portfolio manager of IDS Managed
Retirement Fund.
Directors and officers
Shareholders elect a board of directors that oversees the
operations of the fund and chooses its officers. Its officers are
responsible for day-to-day business decisions based on policies set
by the board. The board has named an executive committee that has
authority to act on its behalf between meetings.
On April 30, 1994 the fund's directors and officers did not own any
shares of the fund.
Investment manager
The fund pays IDS Life for managing its portfolio, providing
administrative services and serving as transfer agent.
Under its Investment Management and Services Agreement, IDS Life
determines which securities will be purchased, held or sold
(subject to the direction and control of the fund's board of
directors). For these services the fund pays IDS Life a fee based
on the average daily net assets of the portfolios at the following
rates: 0.7% on an annual basis for Equity, Income, Managed and
Government Securities Portfolios, 0.5% for Money Market Portfolio,
and 0.95% for International Equity Portfolio.
Under the Agreement, the fund also pays taxes, brokerage
commissions and nonadvisory expenses. However, IDS Life has agreed
to a voluntary limit of the annual charge of 0.1% of the average
daily net assets of the fund for these nonadvisory expenses. Total
net fees and expenses incurred after the limitations by each
portfolio amounted to 0.8% of average daily net assets for Equity,
Income, Managed and Government Securities Portfolios and 0.6% for
Money Market Portfolio for the period ended April 30, 1994.
IDS Life reserves the right to discontinue limiting these
nonadvisory expenses at 0.1%. However, its present intention is to
continue the limit until the time that actual expenses are less
than the limit.
<PAGE>
PAGE 50
Investment Advisory Agreement
IDS Life and American Express Financial Corporation have an
Investment Advisory Agreement that calls for IDS Life to pay
American Express Financial Corporation a fee for investment advice
about the fund's Portfolios. The fee paid by IDS Life is 0.25% of
Equity, Income, Money Market, Managed and Government Securities
portfolios' average net assets for the year. The fee paid by IDS
Life is 0.50% of International Equity portfolio's average net
assets for the year. American Express Financial Corporation also
executes purchases and sales and negotiates brokerage as directed
by IDS Life.
Total fees and expenses (excluding taxes and brokerage commissions)
cannot exceed the most restrictive applicable state expense
limitation.
About IDS Life and American Express Financial Corporation
General information
IDS Life Series Fund is managed by IDS Life, a wholly owned
subsidiary of American Express Financial Corporation, which itself
is a wholly owned subsidiary of the American Express Company
(American Express), a financial services company headquartered in
New York City.
IDS Life is a stock life insurance company organized in 1957 under
the laws of the State of Minnesota and located at IDS Tower 10,
Minneapolis, MN 55440-0010. IDS Life conducts a conventional life
insurance business in the District of Columbia and all states
except New York.
The American Express Financial Corporation family of companies
offers not only insurance and annuities, but also mutual funds,
investment certificates and a broad range of financial management
services.
American Express Financial Corporation has been providing financial
services since 1894. Besides managing investments for all publicly
offered funds in the IDS MUTUAL FUND GROUP, American Express
Financial Corporation also manages investments for itself and its
subsidiaries, IDS Certificate Company and IDS Life. Total assets
under management on April 30, 1994 were more than $105 billion.
American Express Financial Advisors Inc. serves individuals and
businesses through its nationwide network of more than 175 offices
and more than 7,800 planners.
Other subsidiaries provide investment management and related
services for pension, profit-sharing, employee savings and
endowment funds of businesses and institutions.
<PAGE>
PAGE 51
STATEMENT OF ADDITIONAL INFORMATION
for
IDS LIFE SERIES FUND, INC.
Equity Portfolio
Government Securities Portfolio
Income Portfolio
Managed Portfolio
Money Market Portfolio
April 28, 1995
This Statement of Additional Information is not a prospectus. It
should be read together with the Fund's prospectus which may be
obtained from your American Express financial advisor, or by
writing or calling IDS Life Series Fund, Inc. at the address or
telephone number below.
The date of this Statement of Additional Information is
April 28, 1995, and is to be used with the Fund's Prospectus dated
April 28, 1995, the Fund's Annual Report for the fiscal year ended
April 30, 1994, and the Semiannual Report for the period ended Oct.
31, 1994.
IDS Life Series Fund, Inc.
IDS Tower 10
Minneapolis, MN 55440-0010
(612) 671-3733
TTY: 800-285-8846
New York Service: (518) 869-8613
<PAGE>
PAGE 52
TABLE OF CONTENTS
Goals and Investment Policies........................See Prospectus
Additional Investment Policies................................p.
Portfolio Transactions........................................p.
Brokerage Commissions Paid to
Brokers Affiliated with IDS Life..............................p.
Calculation of Total Return...................................p.
Calculation of Yield..........................................p.
Valuing Each Portfolio's Shares...............................p.
Investing in the Fund.........................................p.
Redeeming Shares..............................................p.
Capital Gains and Losses......................................p.
Investment Management and Other Services......................p.
Management of the Fund........................................p.
Custodian.....................................................p.
Independent Auditors..........................................p.
Financial Statements..............................See Annual Report
Appendix A: Foreign Currency Transactions, for
Investments of Equity, Income and Managed
Portfolios.......................................p.
Appendix B: Description of Money Market Securities, for
Investments of all Portfolios except
Government Securities............................p.
Appendix C: Options and Stock Index Futures Contracts,
for Investments of Equity and Managed
Portfolios.......................................p.
Appendix D: Options and Interest Rate Futures Contracts,
for Investments of Income, Managed and
Government Securities Portfolios.................p.
Appendix E: Mortgage-Backed Securities and Additional
Information on Investment Policies for all
Portfolios except Money Market...................p.
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PAGE 53
Appendix F: Dollar-Cost Averaging............................p.
Appendix G: Description of Corporate Bond Ratings............p.
<PAGE>
PAGE 54
ADDITIONAL INVESTMENT POLICIES
In addition to the investment goals and policies presented in the
prospectus, each Portfolio has the investment policies stated
below.
Unless the holders of a majority of the outstanding shares (as
defined in the section entitled "Voting rights" of the prospectus)
of Equity Portfolio agree to a change, Equity Portfolio will not:
Underwrite securities of other issuers. However, this shall not
preclude the purchase of securities for investment, on original
issue or otherwise, and shall not preclude the acquisition of
portfolio securities under circumstances where the portfolio would
not be free to sell them without being deemed an underwriter for
purposes of the Securities Act of 1933 (1933 Act) and without
registration of such securities or the filing of a notification
under that Act, or the taking of similar action under other
securities laws relating to the sale of securities.
Buy securities of an issuer if the officers and directors of the
portfolio and of American Express Financial Corporation hold more
than a certain percent of the issuer's outstanding securities. The
holdings of all officers and directors of the portfolio who own
more than 0.5% of an issuer's securities are added together and if
in total they own more than 5%, the portfolio will not purchase
securities of that issuer.
Buy or sell real estate, unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent
the portfolio from investing in securities or other instruments
backed by real estate or securities of companies engaged in the
real estate business.
Buy or sell physical commodities unless acquired as a result of
ownership of securities or other instruments, except this shall not
prevent the portfolio from buying or selling options and futures
contracts or from investing in securities or other instruments
backed by, or whose value is derived from, physical commodities.
Make cash loans if the total commitment amount exceeds 5% of the
portfolio's total assets.
Lend portfolio securities in excess of 30% of its net assets, at
market value. The current policy of the board of directors is to
make these loans, either long- or short-term, to broker-dealers.
In making such loans the portfolio gets the market price in cash,
U.S. government securities, letters of credit or such other
collateral as may be permitted by regulatory agencies and approved
by the board of directors. If the market price of the loaned
securities goes up, the portfolio will get additional collateral on
a daily basis. The risks are that the borrower may not provide
additional collateral when required or return the securities when
due. A loan will not be made unless the opportunity for additional
income outweighs the risks. During the existence of the loan, the
portfolio receives cash payments equivalent to all interest or
other distributions paid on the loaned securities.<PAGE>
PAGE 55
Invest more than 5% of its total assets, at market value, in
securities of any one company, government or political subdivision
thereof, except the limitation will not apply to investments in
securities issued by the U.S. government, its agencies or
instrumentalities. Up to 25% of the portfolio's total assets may
be invested without regard to this 5% limitation.
Borrow money or property except as a temporary measure for
extraordinary or emergency purposes, and in an amount not exceeding
one-third of the market value of its total assets (including
borrowings) less liabilities (other than borrowings) immediately
after the borrowing. The portfolio will not purchase additional
portfolio securities at any time borrowing for temporary purposes
exceeds 5%. The portfolio has not borrowed in the past and has no
present intention to borrow.
Concentrate its investments in any particular industry, but
reserves freedom of action to do so provided that not more than 25%
of its assets, taken at cost, may be so invested at any one time.
Purchase securities of any issuer if immediately after and as a
result of such purchase the Portfolio would own more than 10% of
the outstanding voting securities of such issuer.
Unless changed by the board of directors, the following policies
apply to Equity Portfolio:
The portfolio will not invest in companies for the purpose of, or
with the effect of, acquiring control.
The portfolio will not buy on margin or sell short.
The portfolio will not invest in securities of any investment
company except in the open market where no commission or profit to
a sponsor or dealer results from such purchase other than customary
broker's commission. The portfolio does not intend to invest in
such securities but may do so to the extent of not more than 5% of
its total assets (taken at market or other current value). The
portfolio may acquire limited amounts of securities of one or more
investment companies as permitted by the Investment Company Act of
1940 (1940 Act), in connection with the acquisition of or merger
with such companies. Except for these instances, the portfolio
will not purchase securities of investment companies.
The portfolio may make contracts to purchase securities for a fixed
price at a future date beyond normal settlement time (when issued
securities or forward commitments). A portfolio does not pay for
the securities or receive dividends or interest on them until the
contractual settlement date. The portfolio's custodian will
maintain, in a segregated account, cash or liquid high-grade debt
securities that are marked to market daily and are at least equal
in value to the portfolio's commitments to purchase the securities.
When-issued securities or forward commitments are subject to market
fluctuations and they may affect the portfolio's total assets the
same as owned securities.
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PAGE 56
The portfolio may maintain a portion of its assets in cash and
cash-equivalent investments. The cash-equivalent investments the
Portfolio may use are short-term U.S. and Canadian government
securities and negotiable certificates of deposit, non-negotiable
fixed-time deposits, bankers' acceptances and letters of credit of
banks or savings and loan associations having capital, surplus and
undivided profits (as of the date of its most recently published
annual financial statements) in excess of $100 million (or the
equivalent in the instance of a foreign branch of a U.S. bank) at
the date of investment. Any cash-equivalent investments in foreign
securities will be subject to the limitations on foreign
investments described in the prospectus. The portfolio also may
purchase short-term corporate notes and obligations rated in the
top two classifications by Moody's Investors Service, Inc. or
Standard & Poor's Corporation or the equivalent and may use
repurchase agreements with broker-dealers registered under the
Securities Exchange Act of 1934 and with commercial banks. A risk
of a repurchase agreement is that if the seller seeks the
protection of the bankruptcy laws, the portfolio's ability to
liquidate the security involved could be impaired.
The portfolio does not intend to invest more than 2% of its net
assets in warrants that are not listed on a national securities
exchange. In no event will the investment in warrants exceed 5% of
the portfolio's net assets. A warrant is a right to buy a certain
security at a set price for a certain period of time and is freely
traded in the market.
The portfolio may invest in Rule 144A securities, which are
unregistered securities offered to qualified institutional buyers,
and interest-only and principal-only fixed mortgage-backed
securities (IOs and POs) issued by the United States government or
its agencies and instrumentalities. In determining the liquidity
of Rule 144A securities, IOs and POs, the investment manager, under
guidelines established by the board of directors, will consider any
relevant factors including the frequency of trades, the number of
dealers willing to purchase or sell the security and the nature of
marketplace trades.
The portfolio may invest in commercial paper issued in transactions
not involving a public offering under Section 4(2) of the
Securities Act of 1933 (4(2) paper). In determining the liquidity
of 4(2) paper, the investment manager, under guidelines established
by the board of directors, will evaluate relevant factors such as
the issuer and the size and nature of its commercial paper
programs, the willingness and ability of the issuer or dealer to
repurchase the paper, and the nature of the clearance and
settlement procedures for the paper.
The portfolio will not invest in securities which are not readily
marketable (including restricted securities and repurchase
agreements over 7 days) without registration or the filing of a
notification under the 1933 Act, or the taking of similar action
under other securities laws relating to the sale of securities, if
immediately after the making of any such investment more than 10%
of the portfolio's net assets (taken at market or other current
value) are invested in such securities.
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PAGE 57
The portfolio will not invest in interests in oil, gas and other
mineral exploration or development programs.
Notwithstanding any of the portfolio's other investment policies,
the portfolio may invest its assets in an open-end management
investment company having substantially the same investment
objectives, policies and restrictions as the portfolio for the
purpose of having those assets managed as part of a combined pool.
Unless the holders of a majority of the outstanding shares (as
defined in the section entitled "Voting rights" of the prospectus)
of Government Securities Portfolio agree to a change, Government
Securities Portfolio will not:
Act as an underwriter (sell securities for others). However, under
the securities laws, the portfolio may be deemed to be an
underwriter when it purchases securities directly from the issuer
and later resells them.
Buy securities of an issuer if the officers and directors of the
portfolio and of American Express Financial Corporation hold more
than a certain percent of the issuer's outstanding securities. The
holdings of all officers and directors of the portfolio and of
American Express Financial Corporation who own more than 0.5% of an
issuer's securities are added together and if in total they own
more than 5%, the portfolio will not purchase securities of that
issuer.
Buy or sell real estate, unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent
the portfolio from investing in securities or other instruments
backed by real estate or securities of companies engaged in the
real estate business.
Buy or sell physical commodities unless acquired as a result of
ownership of securities or other instruments, except this shall not
prevent the portfolio from buying or selling options and futures
contracts or from investing in securities or other instruments
backed by, or whose value is derived from, physical commodities.
Make cash loans if the total commitment amount exceeds 5% of the
portfolio's total assets.
Lend portfolio securities in excess of 30% of its net assets, at
market value. The current policy of the board of directors is to
make these loans, either long- or short-term, to broker-dealers.
In making such loans the portfolio gets the market price in cash,
U.S. government securities, letters of credit or such other
collateral as may be permitted by regulatory agencies and approved
by the board of directors. If the market price of the loaned
securities goes up, the portfolio will get additional collateral on
a daily basis. The risks are that the borrower may not provide
additional collateral when required or return the securities when
due. A loan will not be made unless the opportunity for additional
income outweighs the risks. During the existence of the loan, the
portfolio receives cash payments equivalent to all interest or
other distributions paid on the loaned securities.
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Invest more than 5% of its total assets, at market value, in
securities of any one company, government or political subdivision
thereof, except the limitation will not apply to investments in
securities issued by the U.S. government, its agencies or
instrumentalities. Up to 25% of the portfolio's total assets may
be invested without regard to this 5% limitation.
Borrow money or property except as a temporary measure for
extraordinary or emergency purposes, and in an amount not exceeding
one-third of the market value of its total assets (including
borrowings) less liabilities (other than borrowings) immediately
after the borrowing. The portfolio will not purchase additional
portfolio securities at any time borrowing for temporary purposes
exceeds 5%. The portfolio has not borrowed in the past and has no
present intention to borrow.
Make a loan of any part of its assets to American Express Financial
Corporation, to the officers and directors of American Express
Financial Corporation or to its own officers and directors.
Buy any property or security (other than securities issued by the
portfolio) from any officer or director of American Express
Financial Corporation or the portfolio, nor will the portfolio sell
any property or security to them.
Issue senior securities, except that this restriction shall not be
deemed to prohibit the portfolio from borrowing money from banks,
lending its securities, or entering into repurchase agreements or
options or futures contracts.
Unless changed by the board of directors, the following policies
will apply to Government Securitites Portfolio:
The portfolio will not invest in illiquid securities if,
immediately after making such an investment, more than 10% of the
portfolio's net assets, at market, would be invested in such
securities.
The portfolio will not invest for the purpose of exercising control
or management.
The portfolio will not buy on margin or sell short, except that it
may enter into interest rate futures contracts.
The portfolio will not invest in securities of investment companies
except by purchase in the open market where the dealer's or
sponsor's profit is just the regular commission.
The portfolio may make contracts to purchase securities for a fixed
price at a future date beyond normal settlement time (when issued
securities or forward commitments). A portfolio does not pay for
the securities or receive dividends or interest on them until the
contractual settlement date. The portfolio's custodian will
maintain, in a segregated account, cash or liquid high-grade debt
securities that are marked to market daily and are at least equal
in value to the portfolio's commitments to purchase the securities.
When-issued securities or forward commitments are subject to market<PAGE>
PAGE 59
fluctuations and they may affect the portfolio's total assets the
same as owned securities.
The portfolio may maintain a portion of its assets in cash and
cash-equivalent investments. The cash-equivalent investments the
portfolio may use are short-term U.S. and Canadian government
securities and negotiable certificates of deposit, non-negotiable
fixed-time deposits, bankers' acceptances and letters of credit of
banks or savings and loan associations having capital, surplus and
undivided profits (as of the date of its most recently published
annual financial statements) in excess of $100 million (or the
equivalent in the instance of a foreign branch of a U.S. bank) at
the date of investment. Any cash-equivalent investments in foreign
securities will be subject to the limitations on foreign
investments described in the prospectus. The portfolio also may
purchase short-term corporate notes and obligations rated in the
top two classifications by Moody's Investors Service, Inc. or
Standard & Poor's Corporation or the equivalent and may use
repurchase agreements with broker-dealers registered under the
Securities Exchange Act of 1934 and with commercial banks. A risk
of a repurchase agreement is that if the seller seeks the
protection of the bankruptcy laws, the portfolio's ability to
liquidate the security involved could be impaired.
The portfolio may invest in repurchase agreements. Repurchase
agreements involve investment in debt securities whereby the seller
agrees to repurchase the securities at cost plus an agreed to
interest rate within a specified time. A risk of a repurchase
agreement is that if the party with whom this portfolio has entered
into such an agreement seeks the protection of bankruptcy laws, the
portfolio's ability to liquidate the security involved could be
temporarily impaired, and it subsequently may incur a loss if the
value of the security declines, or if the other party defaults on
its obligation. There also is the risk that the portfolio may be
delayed or prevented from exercising its rights to dispose of the
collateral securities.
The portfolio may invest in Rule 144A securities, which are
unregistered securities offered to qualified institutional buyers,
and interest-only and principal-only fixed mortgage-backed
securities (IOs and POs) issued by the United States government or
its agencies and instrumentalities. In determining the liquidity
of Rule 144A securities, IOs and POs, the investment manager, under
guidelines established by the board of directors, will consider any
relevant factors including the frequency of trades, the number of
dealers willing to purchase or sell the security and the nature of
marketplace trades.
The portfolio may invest in commercial paper issued in transactions
not involving a public offering under Section 4(2) of the
Securities Act of 1933 (4(2) paper). In determining the liquidity
of 4(2) paper, the investment manager, under guidelines established
by the board of directors, will evaluate relevant factors such as
the issuer and the size and nature of its commercial paper
programs, the willingness and ability of the issuer or dealer to
repurchase the paper, and the nature of the clearance and
settlement procedures for the paper.
<PAGE>
PAGE 60
The portfolio will not pledge or mortgage its assets beyond 15% of
the cost of its gross assets. For purposes of this restriction,
collateral arrangements with respect to margin for interest rate
futures contracts are not deemed to be a pledge of assets.
Notwithstanding any of the portfolio's other investment policies,
the portfolio may invest its assets in an open-end management
investment company having substantially the same investment
objectives, policies and restrictions as the portfolio for the
purpose of having those assets managed as part of a combined pool.
Unless the holders of a majority of the outstanding shares (as
defined in the section entitled "Voting rights" of the prospectus)
of Income Portfolio agree to a change, Income Portfolio will not:
Underwrite securities of other issuers. However, this shall not
preclude the purchase of securities for investment, on original
issue or otherwise, and shall not preclude the acquisition of
portfolio securities under circumstances where the portfolio would
not be free to sell them without being deemed an underwriter for
purposes of the Securities Act of 1933 (1933 Act) and without
registration of such securities or the filing of a notification
under that Act, or the taking of similar action under other
securities laws relating to the sale of securities.
Buy securities of an issuer if the officers and directors of the
portfolio and of American Express Financial Corporation hold more
than a certain percent of the issuer's outstanding securities. The
holdings of all officers and directors of the portfolio who own
more than 0.5% of an issuer's securities are added together and if
in total they own more than 5%, the portfolio will not purchase
securities of that issuer.
Buy or sell real estate, unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent
the portfolio from investing in securities or other instruments
backed by real estate or securities of companies engaged in the
real estate business.
Buy or sell physical commodities unless acquired as a result of
ownership of securities or other instruments, except this shall not
prevent the portfolio from buying or selling options and futures
contracts or from investing in securities or other instruments
backed by, or whose value is derived from, physical commodities.
Make cash loans if the total commitment amount exceeds 5% of the
portfolio's total assets.
Lend portfolio securities in excess of 30% of its net assets, at
market value. The current policy of the board of directors is to
make these loans, either long- or short-term, to broker-dealers.
In making such loans the portfolio gets the market price in cash,
U.S. government securities, letters of credit or such other
collateral as may be permitted by regulatory agencies and approved
by the board of directors. If the market price of theloaned
securities goes up, the portfolio will get additional collateral on<PAGE>
PAGE 61
a daily basis. The risks are that the borrower may not provide
additional collateral when required or return the securities when
due. A loan will not be made unless the opportunity for additional
income outweighs the risks. During the existence of the loan, the
portfolio receives cash payments equivalent to all interest or
other distributions paid on the loaned securities.
Invest more than 5% of its total assets, at market value, in
securities of any one company, government or political subdivision
thereof, except the limitation will not apply to investments in
securities issued by the U.S. government, its agencies or
instrumentalities. Up to 25% of the portfolio's total assets may
be invested without regard to this 5% limitation.
Borrow money or property except as a temporary measure for
extraordinary or emergency purposes, and in an amount not exceeding
one-third of the market value of its total assets (including
borrowings) less liabilities (other than borrowings) immediately
after the borrowing. The portfolio will not purchase additional
portfolio securities at any time borrowing for temporary purposes
exceeds 5%. The portfolio has not borrowed in the past and has no
present intention to borrow.
Concentrate its investments in any particular industry, but
reserves freedom of action to do so provided that not more than 25%
of its assets, taken at cost, may be so invested at any one time.
Purchase securities of any issuer if immediately after and as a
result of such purchase the portfolio would own more than 10% of
the outstanding voting securities of such issuer.
Unless changed by the board of directors, the following policies
apply to Income Portfolio:
The portfolio will not invest in companies for the purpose of, or
with the effect of, acquiring control.
The portfolio will not buy on margin or sell short.
The portfolio will not invest in securities of any investment
company except in the open market where no commission or profit to
a sponsor or dealer results from such purchase other than customary
broker's commission. The portfolio does not intend to invest in
such securities but may do so to the extent of not more than 5% of
its total assets (taken at market or other current value). The
portfolio may acquire limited amounts of securities of one or more
investment companies as permitted by the Investment Company Act of
1940 (1940 Act), in connection with the acquisition of or merger
with such companies. Except for these instances, the portfolio
will not purchase securities of investment companies.
The portfolio may make contracts to purchase securities for a fixed
price at a future date beyond normal settlement time (when issued
securities or forward commitments). A portfolio does not pay for
the securities or receive dividends or interest on them until the
contractual settlement date. The portfolio's custodian will
maintain, in a segregated account, cash or liquid high-grade debt <PAGE>
PAGE 62
securities that are marked to market daily and are at least equal
in value to the portfolio's commitments to purchase the securities.
When-issued securities or forward commitments are subject to market
fluctuations and they may affect the portfolio's total assets the
same as owned securities.
The portfolio may maintain a portion of its assets in cash and
cash-equivalent investments. The cash-equivalent investments the
portfolio may use are short-term U.S. and Canadian government
securities and negotiable certificates of deposit, non-negotiable
fixed-time deposits, bankers' acceptances and letters of credit of
banks or savings and loan associations having capital, surplus and
undivided profits (as of the date of its most recently published
annual financial statements) in excess of $100 million (or the
equivalent in the instance of a foreign branch of a U.S. bank) at
the date of investment. Any cash-equivalent investments in foreign
securities will be subject to the limitations on foreign
investments described in the prospectus. The portfolio also may
purchase short-term corporate notes and obligations rated in the
top two classifications by Moody's Investors Service, Inc. or
Standard & Poor's Corporation or the equivalent and may use
repurchase agreements with broker-dealers registered under the
Securities Exchange Act of 1934 and with commercial banks. A risk
of a repurchase agreement is that if the seller seeks the
protection of the bankruptcy laws, the portfolio's ability to
liquidate the security involved could be impaired.
The portfolio may invest in Rue 144A securities, which are
unregistered securities offered to qualified institutional buyers,
and interest-only and principal-only fixed mortgage-backed
securities (IOs and POs) issued by the United States government or
its agencies and instrumentalities. In determining the liquidity
of Rule 144A securities, IOs and POs, the investment manager, under
guidelines established by the board of directors, will consider any
relevant factors including the frequency of trades, the number of
dealers willing to purchase or sell the security and the nature of
marketplace trades.
The portfolio may invest in commercial paper issued in transactions
not involving a public offering under Section 4(2) of the
Securities Act of 1933 (4(2) paper). In determining the liquidity
of 4(2) paper, the investment manager, under guidelines established
by the board of directors, will evaluate relevant factors such as
the issuer and the size and nature of its commercial paper
programs, the willingness and ability of the issuer or dealer to
repurchase the paper, and the nature of the clearance and
settlement procedures for the paper.
The portfolio will not invest in securities which are not readily
marketable (including restricted securities and repurchase
agreements over 7 days) without registration or the filing of a
notification under the 1933 Act, or the taking of similar action
under other securities laws relating to the sale of securities, if
immediately after the making of any such investment more than 10%
of the portfolio's net assets (taken at market or other current
value) are invested in such securities.
<PAGE>
PAGE 63
The portfolio will not invest in interests in oil, gas and other
mineral exploration or development programs.
Notwithstanding any of the portfolio's other investment policies,
the portfolio may invest its assets in an open-end management
investment company having substantially the same investment
objectives, policies and restrictions as the portfolio for the
purpose of having those assets managed as part of a combined pool.
Unless the holders of a majority of the outstanding shares (as
defined in the section entitled "Voting rights" of the prospectus)
of Managed Portfolio agree to a change, Managed Portfolio will not:
Act as an underwriter (sell securities for others). However, under
the securities laws, the portfolio may be deemed to be an
underwriter when it purchases securities directly from the issuer
and later resells them.
Buy securities of an issuer if the officers and directors of the
portfolio and of American Express Financial Corporation hold more
than a certain percentage of the issuer's outstanding securities.
The holdings of all officers and directors of the portfolio and of
American Express Financial Corporation who own more than 0.5% of an
issuer's securities are added together and if in total they own
more than 5%, the portfolio will not purchase securities of that
issuer.
Buy or sell real estate, unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent
the portfolio from investing in securities or other instruments
backed by real estate or securities of companies engaged in the
real estate business.
Buy or sell physical commodities unless acquired as a result of
ownership of securities or other instruments, except this shall not
prevent the portfolio from buying or selling options and futures
contracts or from investing in securities or other instruments
backed by, or whose value is derived from, physical commodities.
Make cash loans if the total commitment amount exceeds 5% of the
portfolio's total assets.
Lend portfolio securities in excess of 30% of its net assets, at
market value. The current policy of the board of directors is to
make these loans, either long- or short-term, to broker-dealers.
In making such loans the portfolio gets the market price in cash,
U.S. government securities, letters of credit or such other
collateral as may be permitted by regulatory agencies and approved
by the board of directors. If the market price of the loaned
securities goes up, the portfolio will get additional collateral on
a daily basis. The risks are that the borrower may not provide
additional collateral when required or return the securities when
due. A loan will not be made unless the opportunity for additional
income outweighs the risks. During the existence of the loan, the
portfolio receives cash payments equivalent to all interest or
other distributions paid on the loaned securities.
<PAGE>
PAGE 64
Invest more than 5% of its total assets, at market value, in
securities of any one company, government or political subdivision
thereof, except the limitation will not apply to investments in
securities issued by the U.S. government, its agencies or
instrumentalities. Except for Money Market Portfolio, up to 25% of
each Portfolio's total assets may be invested without regard to
this 5% limitation.
Borrow money or property except as a temporary measure for
extraordinary or emergency purposes, and in an amount not exceeding
one-third of the market value of its total assets (including
borrowings) less liabilities (other than borrowings) immediately
after the borrowing. The portfolio will not purchase additional
portfolio securities at any time borrowing for temporary purposes
exceeds 5%. The portfolio has not borrowed in the past and has no
present intention to borrow.
Concentrate in any one industry. (According to the present
interpretation of the staff of the Securities and Exchange
Commission this means no more than 25% of the portfolio's total
assets, based on current market value at the time of purchase, can
be invested in any one industry).
Make a loan of any part of its assets to American Express Financial
Corporation, to the officers and directors of American Express
Financial Corporation or to its own officers and directors.
Issue senior securities, except that this restriction shall not be
deemed to prohibit the portfolio from borrowing money from banks,
lending its securities, or entering into repurchase agreements or
options or futures contracts.
Unless changed by the board of directors, the following policies
apply to Managed Portfolio:
The portfolio will not invest in a company to get control or manage
it.
The portfolio will not buy on margin or sell short, but it may make
margin payments in connection with transactions in futures
contracts.
The portfolio will not invest in securities of investment companies
except by purchases in the open market where the dealer's or
sponsor's profit is just the regular commission.
The portfolio may make contracts to purchase securities for a fixed
price at a future date beyond normal settlement time (when issued
securities or forward commitments). A portfolio does not pay for
the securities or receive dividends or interest on them until the
contractual settlement date. The portfolio's custodian will
maintain, in a segregated account, cash or liquid high-grade debt
securities that are marked to market daily and are at least equal
in value to the portfolio's commitments to purchase the securities.
When-issued securities or forward commitments are subject to market
fluctuations and they may affect the portfolio's total assets the
same as owned securities.<PAGE>
PAGE 65
The portfolio may maintain a portion of its assets in cash and
cash-equivalent investments. The cash-equivalent investments the
portfolio may use are short-term U.S. and Canadian government
securities and negotiable certificates of deposit, non-negotiable
fixed-time deposits, bankers' acceptances and letters of credit of
banks or savings and loan associations having capital, surplus and
undivided profits (as of the date of its most recently published
annual financial statements) in excess of $100 million (or the
equivalent in the instance of a foreign branch of a U.S. bank) at
the date of investment. Any cash-equivalent investments in foreign
securities will be subject to the limitations on foreign
investments described in the prospectus. The portfolio also may
purchase short-term corporate notes and obligations rated in the
top two classifications by Moody's Investors Service, Inc. or
Standard & Poor's Corporation or the equivalent and may use
repurchase agreements with broker-dealers registered under the
Securities Exchange Act of 1934 and with commercial banks. A risk
of a repurchase agreement is that if the seller seeks the
protection of the bankruptcy laws, the portfolio's ability to
liquidate the security involved could be impaired.
The portfolio will not invest more than 5% of its total assets,
taken at cost, in securities of companies, including any
predecessor, which have a record of less than three years
continuous operations.
The portfolio does not intend to invest in exploration or
development programs, such as oil, gas or mineral programs.
The portfolio may invest in repurchase agreements. Repurchase
agreements involve investment in debt securities whereby the seller
agrees to repurchase the securities at cost plus an agreed to
interest rate within a specified time. A risk of a repurchase
agreement is that if the party with whom this portfolio has entered
into such an agreement seeks the protection of bankruptcy laws, the
portfolio's ability to liquidate the security involved could be
temporarily impaired, and it subsequently may incur a loss if the
value of the security declines, or if the other party defaults on
its obligation. There also is the risk that the portfolio may be
delayed or prevented from exercising its rights to dispose of the
collateral securities.
The portfolio may invest in Rule 144A securities, which are
unregistered securities offered to qualified institutional buyers,
and interest-only and principal-only fixed mortgage-backed
securities (IOs and POs) issued by the United States government or
its agencies and instrumentalities. In determining the liquidity
of Rule 144A securities, IOs and POs, the investment manager, under
guidelines established by the board of directors, will consider any
relevant factors including the frequency of trades, the number of
dealers willing to purchase or sell the security and the nature of
marketplace trades.
The portfolio may invest in commercial paper issued in transactions
not involving a public offering under Section 4(2) of the
Securities Act of 1933 (4(2) paper). In determining the liquidity
of 4(2) paper, the investment manager, under guidelines established
by the board of directors, will evaluate relevant factors such as<PAGE>
PAGE 66
the issuer and the size and nature of its commercial paper
programs, the willingness and ability of the issuer or dealer to
repurchase the paper, and the nature of the clearance and
settlement procedures for the paper.
The portfolio does not intend to invest in illiquid securities if,
immediately after making such an investment, more than 10% of the
portfolio's net assets, at market, would be invested in such
securities.
The portfolio will not pledge or mortgage its assets beyond 15% of
the cost of its gross assets taken at cost. For the purposes of
this restriction, collateral arrangements with respect to margin
for futures contracts are not deemed to be a pledge of assets.
Notwithstanding any of the portfolio's other investment policies,
the portfolio may invest its assets in an open-end management
investment company having substantially the same investment
objectives, policies and restrictions as the portfolio for the
purpose of having those assets managed as part of a combined pool.
Unless the holders of a majority of the outstanding shares (as
defined in the section entitled "Voting rights" of the prospectus)
of Money Market Portfolio agree to a change, Money Market Portfolio
will not:
Act as an underwriter (sell securities for others). However, under
securities laws the portfolio may be deemed to be an underwriter
when it purchases securities directly from the issuer and later
resells them.
Buy securities of an issuer if the directors and officers of the
portfolio and of American Express Financial Corporation hold more
than a certain percentage of the issuer's outstanding securities.
The holdings of all directors and officers of the portfolio who own
more than 0.5% of an issuer's securities are added together, and if
in total they own more than 5%, the portfolio will not purchase
securities of that issuer.
Buy or sell real estate, commodities, or commodity contracts.
Make cash loans. However, it does make short-term investments
which it may have an agreement with the seller to reacquire (See
Appendix B).
Lend portfolio securities in excess of 30% of its net assets, at
market value. The current policy of the board of directors is to
make these loans, either long- or short-term, to broker-dealers.
In making such loans the portfolio gets the market price in cash,
U.S. government securities, letters of credit or such other
collateral as may be permitted by regulatory agencies and approved
by the board of directors. If the market price of the loaned
securities goes up, the portfolio will get additional collateral on
a daily basis. The risks are that the borrower may not provide
additional collateral when required or return the securities when
due. A loan will not be made unless the opportunity for additional
income outweighs the risks. During the existence of the loan, the<PAGE>
PAGE 67
portfolio receives cash payments equivalent to all interest or
other distributions paid on the loaned securities.
Invest more than 5% of its total assets, at market value, in
securities of any one company, government or political subdivision
thereof, except the limitation will not apply to investments in
securities issued by the U.S. government, its agencies or
instrumentalities. Except for Money Market Portfolio, up to 25% of
each portfolio's total assets may be invested without regard to
this 5% limitation.
Borrow money or property except as a temporary measure for
extraordinary or emergency purposes, and in an amount not exceeding
one-third of the market value of its total assets (including
borrowings) less liabilities (other than borrowings) immediately
after the borrowing. The portfolio will not purchase additional
portfolio securities at any time borrowing for temporary purposes
exceeds 5%. The portfolio has not borrowed in the past and has no
present intention to borrow.
Buy on margin or sell short.
Invest in exploration or development programs, such as oil, gas or
mineral programs.
Purchase common stocks, preferred stocks, warrants, other equity
securities, corporate bonds or debentures, state bonds, municipal
bonds, or industrial revenue bonds.
Pledge or mortgage portfolio assets beyond 15% of the cost of the
portfolio's gross assets. If the portfolio should engage in such
transactions, valuation of its assets for such purposes would be
based on their market value.
Invest in an investment company beyond 5% of its total assets taken
at market and then only on the open market where the dealer's or
sponsor's profit is just the regular commission. However, the
portfolio will not purchase or retain the securities of other open-
end investment companies.
Invest in a company to get control or manage it.
Invest more than 25% of the portfolio's assets taken at market
value in any particular industry, except there is no limitation
with respect to investing in U.S. government or agency securities
and bank obligations. Investments are varied according to what is
judged advantageous under different economic conditions.
Unless changed by the board of directors, the following policies
apply to Money Market Portfolio:
The portfolio will not invest in illiquid securities if,
immediately after making such an investment, more than 10% of the
portfolio's net assets, at market, would be invested in such
securities.
The portfolio may make contracts to purchase securities for a fixed
price at a future date beyond normal settlement time (when issued<PAGE>
PAGE 68
securities or forward commitments). A portfolio does not pay for
the securities or receive dividends or interest on them until the
contractual settlement date. The portfolio's custodian will
maintain, in a segregated account, cash or liquid high-grade debt
securities that are marked to market daily and are at least equal
in value to the portfolio's commitments to purchase the securities.
When-issued securities or forward commitments are subject to market
fluctuations and they may affect the portfolio's total assets the
same as owned securities.
The portfolio may maintain a portion of its assets in cash and
cash-equivalent investments. The cash-equivalent investments the
portfolio may use are short-term U.S. and Canadian government
securities and negotiable certificates of deposit, non-negotiable
fixed-time deposits, bankers' acceptances and letters of credit of
banks or savings and loan associations having capital, surplus and
undivided profits (as of the date of its most recently published
annual financial statements) in excess of $100 million (or the
equivalent in the instance of a foreign branch of a U.S. bank) at
the date of investment. Any cash-equivalent investments in foreign
securities will be subject to the limitations on foreign
investments described in the prospectus. The portfolio also may
purchase short-term corporate notes and obligations rated in the
top two classifications by Moody's Investors Service, Inc. or
Standard & Poor's Corporation or the equivalent and may use
repurchase agreements with broker-dealers registered under the
Securities Exchange Act of 1934 and with commercial banks. A risk
of a repurchase agreement is that if the seller seeks the
protection of the bankruptcy laws, the portfolio's ability to
liquidate the security involved could be impaired.
The portfolio may invest in repurchase agreements. Repurchase
agreements involve investment in debt securities whereby the seller
agrees to repurchase the securities at cost plus an agreed to
interest rate within a specified time. A risk of a repurchase
agreement is that if the party with whom this portfolio has entered
into such an agreement seeks the protection of bankruptcy laws, the
portfolio's ability to liquidate the security involved could be
temporarily impaired, and it subsequently may incur a loss if the
value of the security declines, or if the other party defaults on
its obligation. There also is the risk that the portfolio may be
delayed or prevented from exercising its rights to dispose of the
collateral securities.
Notwithstanding any of the portfolio's other investment policies,
the portfolio may invest its assets in an open-end management
investmetn company having substantially the same investment
objectives, policies and restrictions as the portfolio for the
purpose of having those assets managed as part of a combined pool.
For a discussion on foreign currency transactions, see Appendix A.
For a discussion on money market securities, see Appendix B. For a
discussion on options and stock index futures contracts, see
Appendix C. For a discussion on options and interest rate futures
contracts, see Appendix D. For a discussion on mortgage-backed
securities, see Appendix E. For a discussion on dollar-cost
averaging, see Appendix F. For a description of corporate bond
ratings, see Appendix G.
<PAGE>
PAGE 69
PORTFOLIO TRANSACTIONS
Subject to policies set by the Board of Directors, IDS Life is
authorized to determine, consistent with each Portfolio's
investment goals and policies, which securities shall be purchased,
held or sold. In determining where the buy and sell orders are to
be placed, IDS Life 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 of Directors. IDS
Life intends to direct American Express Financial Corporation to
execute trades and negotiate commissions on its behalf. In
selecting broker-dealers to execute transactions, American Express
Financial Corporation 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. These services are covered by the Investment Advisory
agreement between American Express Financial Corporation and IDS
Life. When American Express Financial Corporation acts on IDS
Life's behalf for the Fund, it follows the rules described here for
IDS Life.
Because Income Portfolio's investments are primarily in bonds,
which are traded in the over-the-counter market, IDS Life generally
will deal through a dealer acting as a principal. The price
usually includes a dealer's mark-up without a separate brokerage
charge. When IDS Life believes that dealing through a broker as
agent for a commission will produce the best results, it will do
so. The Portfolio also may buy securities directly from an issuing
company which may be resold only privately to other institutional
investors.
On occasion it may be desirable to compensate a broker for research
services or for brokerage services, by paying a commission which
might not otherwise be charged or a commission in excess of the
amount another broker might charge. The Board of Directors has
adopted a policy authorizing IDS Life to do so to the extent
authorized by law, if IDS Life 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 IDS Life's or American Express
Financial Corporation's overall responsibilities.
Research provided by brokers supplements IDS Life's own research
activities. Research services provided by brokers 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 stock
and bonds; portfolio strategy services; political, economic,
business and industry trend assessments; historical statistical
information; market data services providing information on specific
issues and prices; and technical analysis of various aspects of the
securities markets, including technical charts. Research services
may take the form of written reports, computer software or personal
contact by telephone or at seminars or other meetings. IDS Life
has obtained and, in the near future, may obtain computer hardware
from brokers, including but not limited to personal computers that<PAGE>
PAGE 70
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 Securities and Exchange Commission.
When paying a commission that might not otherwise be charged or a
commission in excess of that which another broker might charge, IDS
Life must follow procedures authorized by the Board of Directors.
To date, three procedures have been authorized. One procedure
permits IDS Life to direct an order to buy or sell a security
traded on a national securities exchange to a specific broker for
research services it has provided. The second procedure permits
IDS Life, in order to obtain research, to direct an order on an
agency basis to buy or sell a security traded only in the over-the-
counter market to a firm that does not make a market in the
security. The commission paid generally includes compensation for
research services. The third procedure permits IDS Life, in order
to obtain research and brokerage services, to cause a Portfolio to
pay a commission in excess of the amount another broker might have
charged. IDS Life has advised the Fund that it is necessary to do
business with a number of brokerage firms on a continuous basis to
obtain such services as: handling large orders; the willingness of
a broker to risk its own money by taking a position in a security;
and 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 IDS Life believes it may obtain better
overall execution. IDS Life has assured the Fund that under all
three procedures the amount of commission paid will be reasonable
and competitive in relation to the value of the brokerage services
performed or research provided.
All other transactions shall be executed on the basis of the policy
to obtain 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 IDS Life and American
Express Financial Corporation in providing advice to all the funds
and other accounts advised by IDS Life even though it is not
possible to relate the benefits to any particular fund or account.
Each investment decision made for a Portfolio is made independently
from any decision made for another Portfolio or fund or other
account advised by IDS Life or any of its subsidiaries. When the
Portfolio buys or sells the same security as another fund or
account, IDS Life 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. IDS Life has assured the Fund it will continue to seek
ways to reduce brokerage costs.
On a periodic basis, IDS Life makes a comprehensive review of the
broker-dealers and the overall reasonableness of their commissions.
The review evaluates execution, back office efficiency and research
services.<PAGE>
PAGE 71
The Fund paid total brokerage commissions of $190,220 for fiscal
year 1992, $210,093 for fiscal year 1993, and $405,141 for fiscal
year ended April 30, 1994. The majority of all firms through whom
transactions were executed provide research services. There were
no transactions directed to brokers by the Fund because of research
services received for the fiscal year ended April 30, 1994.
Income and Managed Portfolios' acquisition during the period ended
April 30, 1994, of securities of its regular brokers or dealers or
of the parents of those brokers or dealers that derive more than
15% of gross revenue from securities-related activities is
presented below:
Value of Securities
Owned at End of
Name of Issuer Fiscal Year
Bank of America $1,081,250
Bankers Trust 298,000
Citicorp 303,375
Goldman Sachs 191,250
Salomon Brothers 450,000
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH IDS LIFE
Affiliates of American Express Company (of which IDS Life is a
wholly owned indirect subsidiary) may engage in brokerage and other
securities transactions on behalf of the Fund in accordance with
procedures adopted by the Fund's Board of Directors and to the
extent consistent with applicable provisions of the federal
securities laws. IDS Life will use an American Express affiliate
only if (i) IDS Life 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) if such use is consistent with terms of the
Investment Management and Services Agreement.
Information about brokerage commissions paid by the Fund for the
last three fiscal years to brokers affiliated with IDS Life is
contained in the following table:
For the Fiscal Year Ended April 30,
1994 1993 1992
Aggregate Percent of Aggregate Aggregate
Dollar Aggregate Dollar Dollar Dollar
Amount of Percent of Amount of Amount of Amount of
Nature Commissions Aggregate Transactions Commissions Commissions
of Paid to Brokerage Involving Payment Paid to Paid to
Broker Affiliation Broker Commissions of Commissions Broker Broker
American (2) $19,878 4.91% .01% $35,204 $27,081
Enterprise
Investment
Services Inc.
Lehman (1) $ 4,851 1.19% 0% $ 8,390 $ 5,660
Brothers
Inc.
The Robinson (3) none none none none $ 1,680
Humphrey
Company, Inc.
<PAGE>
PAGE 72
(1) Under common control with American Express Financial
Corporation as a subsidiary of American Express Company (American
Express) until July 30, 1993.
(2) Wholly owned subsidiary of American Express Financial
Corporation.
(3) Under common control with American Express Financial
Corporation as an indirect subsidiary of American Express until
July 30, 1993.
PERFORMANCE INFORMATION
Each Portfolio may quote various performance figures to illustrate
past performance. Average annual total return and current yield
quotations used by a Fund are based on standardized methods of
computing performance as required by the SEC. An explanation of
these and any other methods used by each Portfolio to compute
performance follows below.
CALCULATION OF TOTAL RETURN
Each Portfolio may calculate average annual total return 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 at the beginning of a period, at
the end of the period (or fractional portion
thereof)
Aggregate total return
Each Portfolio may calculate aggregate total return for certain
periods representing the cumulative change in the value of an
investment in a Portfolio 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 at the beginning of a period, at the end of
the period (or fractional portion thereof)
CALCULATION OF YIELD
Government Securities and Income Portfolios - These portfolios may
calculate an annualized yield by dividing the average net
investment income per share earned during a 30-day period by the<PAGE>
PAGE 73
net asset value per share on the last day of the period and
annualizing the results.
Yield is calculated according to the following formula:
Yield = 2[ (a-b + 1)6 - 1]
cd
where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of
reimbursements)
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = the maximum offering price per share on the
last day of the period
Government Securities Portfolio's yield was 5.31% for the 30-day
period ended April 30, 1994 and Income Portfolio's yield was 6.67%.
IDS Life has agreed to a voluntary limitation of non-advisory
expenses at an annual charge not to exceed 0.1% of the average
daily net assets of the Fund. If non-advisory expenses had not
been limited, Government Securities Portfolio's yield would have
been 5.27%. Income Portfolio's yield would have been 6.67*%.
*Expenses did not exceed .1% of average daily net assets.
Money Market Portfolio calculates annualized simple and compound
yields based on a seven-day period.
The simple yield is calculated by determining the net change in the
value of a hypothetical account having a balance of one share at
the beginning of the seven day period, dividing the net change in
account value by the value of the account at the beginning of the
period to obtain the return for the period, and multiplying that
return by 365/7 to obtain an annualized figure. The value of the
hypothetical account includes the amount of any declared dividends,
the value of any shares purchased with any dividend paid during the
period and any dividends declared for such shares. The Portfolio's
yield does not include any realized or unrealized gain or loss.
The Portfolio calculates its compound yield according to the
following formula:
Compound Yield = (return for seven day period + 1) 365/7 - 1
The Portfolio's simple annualized yield was 2.99% and its compound
yield was 3.03% on April 30, 1994, the last business day of the
fund's fiscal year. If direct expenses had not been limited, the
simple annualized yield would have been 2.89% and its compound
yield would have been 2.93%.
Yield, or rate of return, on Portfolio shares may fluctuate daily
and does not provide a basis for determining future yields.
However, it may be used as one element in assessing how the
Portfolio is meeting its goal. When comparing an investment in the
Portfolio with savings accounts and similar investment<PAGE>
PAGE 74
alternatives, you must consider that such alternatives often
provide an agreed to or guaranteed fixed yield for a stated period
of time, whereas the Portfolio's yield fluctuates. In comparing
the yield of one money market fund to another, you should consider
each fund's investment policies, including the types of investments
permitted.
In its sales material and other communications, the Fund may quote
rankings, yields or returns as published by independent statistical
services or publishers and publications such as The Bank Rate
Monitor National Index, Barron's, Business Week, Donoghue's Money
Market Fund Report, Financial Services Week, Financial Times,
Financial World, Forbes, Fortune, Global Investor, Institutional
Investor, Investor's Daily, Kiplinger's Personal Finance, Lipper
Analytical Services, Money, Mutual Fund Forecaster, Newsweek, The
New York Times, Personal Investor, 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.
VALUING EACH PORTFOLIO'S SHARES
The value of an individual share in the Equity, Income, Managed and
Government Securities Portfolios, is determined by using the net
asset value before the shareholder transactions for the day. On
April 30, 1994, the computation looked like this for Equity,
Income, Managed and Government Securities Portfolios:
Net assets before Shares outstanding Net asset
shareholder transactions at end of previous day value of one share
Equity Portfolio $151,860,163 divided by 8,391,259 = $18.10
Income Portfolio $ 33,769,928 divided by 3,476,335 = $ 9.71
Managed Portfolio $160,719,325 divided by 11,604,807 = $13.85
Government Securities $ 11,184,851 divided by 1,132,254 = $ 9.88
Portfolio
The net asset value per share is determined by dividing the total
market value of the Fund's investments and other assets, less any
liabilities, by the number of outstanding shares of the Fund. To
establish the net assets, all securities are valued as of the close
of each business day, which is the closing time of the New York
Stock Exchange (currently 3 p.m. Central time). A business day for
the Fund is any day the New York Stock Exchange is open. The
portfolio securities are valued at amortized cost, which
approximates market value.
In determining net assets, the Fund's portfolio securities are
valued as follows:
`Stocks, convertible bonds, warrants, futures and options traded on
major exchanges are valued each day at their last quoted sales
price on their primary exchange as of the close of the New York
Stock Exchange. If the last quoted sales price is not readily
available for a particular security, the value is the average price
between the last offer to buy and the last offer to sell.
`Stocks, convertible bonds and warrants with readily available
market quotations but without a listing on an exchange are also
valued at the average between the last bid (offer to buy) and asked<PAGE>
PAGE 75
(offer to sell) price at the time of the close of the New York
Stock Exchange.
`Short-term securities maturing in 60 days or less at the
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 systematically reducing the carrying value if acquired
at a premium, so that the carrying value is equal to maturity value
on the maturity date.)
`Securities without a readily available market price, bonds other
than convertibles and other assets are valued at fair value. In
valuing these, the Fund directors are responsible for selecting
methods which they believe give the fair value. For nonconvertible
bonds, the usual method is to use the pricing service of an outside
organization. Such pricing service may take into consideration
yield, quality, coupon, maturity, type of issue, trading
characteristics and other market data in determining valuations for
normal institutional-size trading units of debt securities and does
not rely exclusively on quoted prices.
`Generally, trading in foreign securities is substantially
completed each day at various times prior to the close of the New
York Stock Exchange. The values of such securities used in
determining the net asset value of the Fund's shares are computed
as of such times. Occasionally, events affecting the value of such
securities may occur between such times and the close of the New
York Stock Exchange which 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, then these
securities will be valued at their fair value according to
procedures decided upon in good faith by the Fund's Board of
Directors. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at the current exchange rate.
Valuing Money Market Portfolio's shares
Money Market Portfolio intends to use its best efforts to maintain
a constant net asset value of $1 per share although there is no
assurance it will be able to do so. Accordingly, it uses the
amortized cost method in valuing its Portfolio.
Short-term securities maturing in 60 days or less 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. It does not take into
consideration unrealized capital gains or losses. All of the
securities in the portfolio will be valued at their amortized cost.
In addition, the Portfolio must abide by certain conditions. It
must only invest in securities of high quality which present
minimal credit risks as determined by the Board of Directors. This
means that the rated commercial paper in the Fund's portfolio will
be issues that have been rated in the highest rating category by at
least two nationally recognized statistical rating organizations<PAGE>
PAGE 76
(or by one if only one rating is assigned) and in unrated paper
determined by the Fund's Board of Directors to be comparable. The
Portfolio must also purchase securities with original or remaining
maturities of no more than 13 months or less, and maintain a
dollar-weighted average portfolio maturity of 90 days or less.
In addition, the Board of Directors must establish procedures
designed to stabilize the Portfolio's price per share for purposes
of sales and redemptions at $1 to the extent that it is reasonably
possible to do so. These procedures include review of the
portfolio securities by the Board, at intervals deemed appropriate
by it, to determine whether the net asset value per share computed
by using the available market quotations deviates from a share
value of $1 as computed using the amortized cost method. The Board
must consider any deviation that appears, and if it exceeds 0.5
percent, it must determine what action, if any, needs to be taken.
If the Board determines that a deviation exists that may result in
a material dilution of the holdings of current shareholders or
investors, or in other unfair consequences for such people, it must
undertake remedial action that it deems necessary and appropriate.
Such action may include withholding dividends, calculating net
asset value per share for purposes of sales and redemptions using
available market quotations, making redemptions in kind, and
selling portfolio securities before maturity in order to realize
capital gain or loss or to shorten average portfolio maturity.
In other words, while the amortized cost method provides certainty
and consistency in portfolio valuation, it may, from time to time,
result in valuations of portfolio securities which are either
somewhat higher or lower than the prices at which the securities
could be sold. This means that during times of declining interest
rates, the yield on the Portfolio's shares may be higher than if
valuations of securities were made based on actual market prices
and estimates of market prices. Accordingly, if use of the
amortized cost method were to result in a lower portfolio value at
a given time, a prospective investor would be able to obtain a
somewhat higher yield than he or she would get if portfolio
valuation were based on actual market values. Existing
shareholders, on the other hand, would receive a somewhat lower
yield than they would otherwise receive. The opposite would happen
during a period of rising interest rates.
INVESTING IN THE FUND
You cannot buy shares of the Fund directly. The only way you can
invest in the Fund at the present time is by buying a Variable Life
Insurance Policy from IDS Life or IDS Life of New York and
directing the allocation of part or all of your net purchase
payment to the Variable Accounts which will invest in shares of the
Fund. Read this fund's prospectus along with your Variable Life
Insurance Policy prospectus.
Sales Charges and Surrender Charges
The Fund does not assess any sales charge, either when it sells or
when it redeems securities. The surrender charges which may be
assessed under your Variable Life Insurance Policy are described in<PAGE>
PAGE 77
the Variable Life Insurance Policy prospectus, as are mortality and
expense risk fees and other charges.
REDEEMING SHARES
The Fund will redeem any shares presented by the shareholders (the
Variable Accounts) for redemption. The Variable Accounts' policy
on when or whether to buy or redeem Fund shares is described in the
Variable Life Insurance Policy prospectus.
During an emergency the Board of Directors can suspend the
computation of net asset value, stop accepting payments for
purchase of shares, or suspend the duty of the Fund to redeem
shares for more than seven days. Such emergency situations would
occur if:
`The New York Stock Exchange closes for reasons other than the
usual weekend and holiday closings, or trading on the Exchange is
restricted,
`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
`The Securities and Exchange Commission, under the provisions of
the Investment Company Act of 1940, declares a period of emergency
to exist.
Should the Fund stop selling shares, the directors 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 contract owners.
CAPITAL GAINS AND LOSSES
For federal income tax purposes, Income and Money Market Portfolios
had a capital loss carryover of $3,648 and $174 respectively, at
April 30, 1994, which, if not offset by subsequent capital gains,
will expire in 1996 through 2000. It is unlikely the Board of
Directors will authorize a distribution of any net realized gain
for this Portfolio until the capital loss carryover has been offset
or expires.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Management and Services Agreement
The Fund does not maintain its own research department or record-
keeping services. These are provided by IDS Life under the
Investment Management and Services Agreement.
For its services, IDS Life is paid a fee based on the net assets of
the Portfolios. The asset charge is based on the aggregate average
daily net assets of each of the Portfolios at the following rates:
0.7 percent, on an annual basis, for Equity Portfolio;
0.7 percent, on an annual basis, for Income Portfolio;
0.5 percent, on an annual basis, for Money Market Portfolio;<PAGE>
PAGE 78
0.7 percent, on an annual basis, for Managed Portfolio; and
0.7 percent, on an annual basis, for Government Securities
Portfolio.
The management fee is paid monthly. The total amount paid for
fiscal year ended April 30, 1994 was $850,524 for Equity Portfolio,
$199,578 for Income Portfolio, $41,168 for Money Market Portfolio,
$920,594 for Managed Portfolio, and $75,428 for Government
Securities Portfolio. The total amount paid for fiscal year ended
April 30, 1993 was $504,402 for Equity Portfolio, $136,217 for
Income Portfolio, $47,061 for Money Market Portfolio, $596,745 for
Managed Portfolio and $61,668 for Government Securities Portfolio.
The total amount paid for fiscal year ended April 30, 1992 was
$327,914 for Equity Portfolio, $94,784 for Income Portfolio,
$48,939 for Money Market Portfolio, $436,549 for Managed Portfolio
and $48,470 for Government Securities Portfolio.
All non-advisory expenses incurred by the Fund will be paid at an
annual charge not to exceed 0.1% of the aggregate average daily net
assets of the Fund. The voluntary limitation of 0.1% has been
established by IDS Life at that figure and IDS Life reserves the
right to discontinue the voluntary limitation.
Investment Advisory Agreement
IDS Life and American Express Financial Corporation have an
Investment Advisory Agreement. It calls for IDS Life to pay
American Express Financial Corporation a fee for investment advice
about the Fund's Portfolios. American Express Financial
Corporation also executes purchases and sales and
negotiates brokerage as directed by IDS Life. The fee paid by IDS
Life is 0.25% of the Fund's average net assets for the year.
IDS Life paid American Express Financial Corporation 751,255 for
investment advice for the fiscal year ended April 30, 1994. IDS
Life paid American Express Financial Corporation $487,415 for
investment advice for the fiscal year ended April 30, 1993. IDS
Life paid American Express Financial Corporation $348,615 for
investment advice for the fiscal year ended April 30, 1992.
Information concerning other funds advised by IDS Life or American
Express Financial Corporation is contained in the prospectus.
MANAGEMENT OF THE FUND
The Fund has a Board of Directors elected by policyholders that
oversees the operations of the Fund as required by state law. The
Board has named an executive committee of directors that has
authority to act on its behalf between meetings.
The Fund's directors and officers do not own any of the outstanding
shares of the Fund.
<PAGE>
PAGE 79
Directors of the Fund
The following is a list of the Fund's directors.
Carl N. Platou
President Emeritus and Chief Executive Officer, Fairview Hospital
and Healthcare Services, Retired 1990. Director, St. Thomas
University since 1990.
*Richard W. Kling
President, IDS Life since March 1994. Director and Executive Vice
President, Marketing and Products from January 1988 to March 1994.
Manager of IDS Life Variable Annuity Funds A&B.
Edward Landes
Retired, former Development Consultant.
*Janis E. Miller
Director and Executive Vice President, Variable Assets, IDS Life
since March 1994. Vice President, American Express Financial
Corporation since June 1990. Manager of IDS Life Variable Annuity
Funds A & B.
Gordon H. Ritz
President, Con Rad Broadcasting Corp. (radio broadcasting).
Director, Sunstar Foods and Mid-America Publishing.
*Interested person of IDS Life and of the Fund as the term
"interested person" is defined in the 1940 Act.
Officers of the Fund
Besides Mr. Kling, who is the President, the Fund's other executive
officers are listed below:
Colleen Curran
IDS Tower 10
Minneapolis, MN
Secretary
Senior Counsel, American Express Financial Corporation, since 1990.
Louis C. Fornetti
IDS Tower 10
Minneapolis, MN
Vice President
Director, IDS Life, since March 1994. Director and Senior Vice
President--Corporate Controller, American Express Financial<PAGE>
PAGE 80
Corporation, since August 1988. Vice President--Corporate
Controller, from 1985 to 1988.
Morris Goodwin, Jr.
IDS Tower 10
Minneapolis, MN
Vice President and Treasurer
Vice President and Treasurer, IDS Life since March 1994. Vice
President and Corporate Treasurer, American Express Financial
Corporation, since July 1989. Chief Financial Officer and
Treasurer, American Express Trust Company from 1988 to 1989.
Paul F. Kolkman
IDS Tower 10
Minneapolis, MN
Vice President and Chief Actuary
Director and Vice President--Finance, IDS Life. Vice President--
Insurance Finance, American Express Financial Corporation.
William A. Stoltzmann
IDS Tower 10
Minneapolis, MN
General Counsel and Assistant Secretary
General Counsel and Assistant Secretary, IDS Life. Vice President
and Assistant General Counsel, American Express Financial
Corporation.
Melinda S. Urion
IDS Tower
Minneapolis, MN
Vice President and Controller
Vice President and Corporate Controller, American Express Financial
Corporation, since April 1994; Vice President - Insurance
Controller, American Express Financial Corporation, from September
1991 to April 1994. Chief Accounting Officer for American Express
Financial Advisors Inc. from July 1988 to September 1991.
CUSTODIAN
The Fund's securities and cash are held by American Express Trust
Company, 1200 Northstar Center West, 625 Marquette Ave.,
Minneapolis, MN 55402, 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.
The custodian has entered into a sub-custodian arrangement with
Morgan Stanley Trust Co. (Morgan Stanley), One Pierrepont Plaza,
8th Floor, Brooklyn NY 11201-2775. As part of this arrangement,
portfolio securities purchased outside the United States are
maintained in the custody of various foreign branches of Morgan
Stanley or in such other financial institutions as may be permitted
by law and by the Fund's sub-custodian agreement.
<PAGE>
PAGE 81
INDEPENDENT AUDITORS
The Fund's financial statements contained in its Annual Report to
shareholders at the end of its fiscal year are audited by
independent auditors, KPMG Peat Marwick LLP, 4200 Norwest Center,
90 South Seventh Street, Minneapolis, MN 55402-3900. IDS Life has
agreed that it will send a copy of this report and the unaudited
Semi-Annual Report to every Variable Life Insurance policyowner
having an interest in the Fund. The independent auditors also
provide other accounting and tax-related services as requested by
the Fund from time to time.
FINANCIAL STATEMENTS
The Independent Auditors' Report and the Financial Statements,
including the Notes to the Financial Statements and the Schedule of
Investments in Securities, contained in the 1994 Annual Report to
IDS Life Series Fund, Inc. shareholders, pursuant to Section 30(d)
of the 1940 Act, are hereby incorporated in this Statement of
Additional Information by reference. No other portion of the
Annual Report, however, is incorporated by reference. The 1994
Semiannual Report to shareholders is also incorporated in this SAI
by reference.
The prospectus, dated April 28, 1995, is hereby incorporated in
this Statement of Additional Information by reference.
<PAGE>
PAGE 82
APPENDIX A
FOREIGN CURRENCY TRANSACTIONS, FOR INVESTMENTS OF EQUITY, INCOME
AND MANAGED PORTFOLIOS
Since investments in foreign countries usually involve currencies
of foreign countries, and since the Portfolio may hold cash and
cash-equivalent investments in foreign currencies, the value of the
Portfolio's assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency exchange rates and
exchange control regulations. Also, the Portfolio may incur costs
in connection with conversions between various currencies.
Spot Rates and Forward Contracts. The Portfolio conducts its
foreign currency exchange transactions either at the spot (cash)
rate prevailing in the foreign currency exchange market or by
entering into forward currency exchange contracts (forward
contracts) as a hedge against fluctuations in future foreign
exchange rates. A forward contract involves an obligation to buy
or sell a specific currency at a future date, which may be any
fixed number of days from the contract date, at a price set at the
time of the contract. These contracts are traded in the interbank
market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract
generally has no deposit requirements. No commissions are charged
at any stage for trades.
The Portfolio may enter into forward contracts to settle a security
transaction or handle dividend and interest collection. When the
Portfolio enters into a contract for the purchase or sale of a
security denominated in a foreign currency or has been notified of
a dividend or interest payment, it may desire to lock in the price
of the security or the amount of the payment in dollars. By
entering into a forward contract, the Portfolio will be able to
protect itself against a possible loss resulting from an adverse
change in the relationship between different currencies from the
date the security is purchased or sold to the date on which payment
is made or received or when the dividend or interest is actually
received.
The Portfolio also may enter into forward contracts when management
of the Portfolio believes the currency of a particular foreign
country may suffer a substantial decline against another currency.
It may enter into a forward contract to sell, for a fixed amount of
dollars, the amount of foreign currency approximating the value of
some or all of the Portfolio's portfolio securities denominated in
such foreign currency. The precise matching of forward contract
amounts and the value of securities involved generally will not be
possible since the future value of such securities in foreign
currencies more than likely will change between the date the
forward contract is entered into and the date it matures. The
projection of short-term currency market movements is extremely
difficult and successful execution of a short-term hedging strategy
is highly uncertain. The Portfolio will not enter into such
<PAGE>
PAGE 83
forward contracts or maintain a net exposure to such contracts when
consummating the contracts would obligate the Portfolio to deliver
an amount of foreign currency in excess of the value of the
Portfolio's portfolio securities or other assets denominated in
that currency.
The Portfolio will designate cash or securities in an amount equal
to the value of the Portfolio's total assets committed to
consummating forward contracts entered into under the second
circumstance set forth above. If the value of the securities
declines, additional cash or securities will be designated on a
daily basis so that the value of the cash or securities will equal
the amount of the Portfolio's commitments on such contracts.
At maturity of a forward contract, the Portfolio may either sell
the portfolio security and make delivery of the foreign currency or
retain the security and terminate its contractual obligation to
deliver the foreign currency by purchasing an offsetting contract
with the same currency trader obligating it to buy, on the same
maturity date, the same amount of foreign currency.
If the Portfolio retains the portfolio security and engages in an
offsetting transaction, the Portfolio will incur a gain or a loss
(as described below) to the extent there has been movement in
forward contract prices. If the Portfolio engages in an offsetting
transaction, it may subsequently enter into a new forward contract
to sell the foreign currency. Should forward prices decline
between the date the Portfolio enters into a forward contract for
selling foreign currency and the date it enters into an offsetting
contract for purchasing the foreign currency, the Portfolio will
realize a gain to the extent that the price of the currency it has
agreed to sell exceeds the price of the currency it has agreed to
buy. Should forward prices increase, the Portfolio will suffer a
loss to the extent the price of the currency it has agreed to buy
exceeds the price of the currency it has agreed to sell.
It is impossible to forecast what the market value of portfolio
securities will be at the expiration of a contract. Accordingly,
it may be necessary for the Portfolio to buy additional foreign
currency on the spot market (and bear the expense of such purchase)
if the market value of the security is less than the amount of
foreign currency the Portfolio is obligated to deliver and a
decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the
spot market some of the foreign currency received on the sale of
the portfolio security if its market value exceeds the amount of
foreign currency the Portfolio is obligated to deliver.
The Portfolio's dealing in forward contracts will be limited to the
transactions described above. This method of protecting the value
of the Portfolio's portfolio securities against a decline in the
value of a currency does not eliminate fluctuations in the
underlying prices of the securities. It simply establishes a rate
of exchange that can be achieved at some point in time. Although
such forward contracts tend to minimize the risk of loss due to a
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decline in value of hedged currency, they tend to limit any
potential gain that might result should the value of such currency
increase.
Although the Portfolio values its assets each business day in terms
of U.S. dollars, it does not intend to convert its foreign
currencies into U.S. dollars on a daily basis. It will do so from
time to time, and shareholders should be aware of currency
conversion costs. Although foreign exchange dealers do not charge
a fee for conversion, they do realize a profit based on the
difference (spread) between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a
foreign currency to the Portfolio at one rate, while offering a
lesser rate of exchange should the Portfolio desire to resell that
currency to the dealer.
Options on Foreign Currencies. The Portfolio may buy put and write
covered call options on foreign currencies for hedging purposes.
For example, a decline in the dollar value of a foreign currency in
which portfolio securities are denominated will reduce the dollar
value of such securities, even if their value in the foreign
currency remains constant. In order to protect against such
diminutions in the value of portfolio securities, the Portfolio may
buy put options on the foreign currency. If the value of the
currency does decline, the Portfolio will have the right to sell
such currency for a fixed amount in dollars and will thereby
offset, in whole or in part, the adverse effect on its portfolio
which otherwise would have resulted.
As in the case of other types of options, however, the benefit to
the Portfolio derived from purchases of foreign currency options
will be reduced by the amount of the premium and related
transaction costs. In addition, where currency exchange rates do
not move in the direction or to the extent anticipated, the
Portfolio could sustain losses on transactions in foreign currency
options which would require it to forego a portion or all of the
benefits of advantageous changes in such rates.
The Portfolio may write options on foreign currencies for the same
types of hedging purposes. For example, when the Portfolio
anticipates a decline in the dollar value of foreign-denominated
securities due to adverse fluctuations in exchange rates, it could,
instead of purchasing a put option, write a call option on the
relevant currency. If the expected decline occurs, the option will
most likely not be exercised and the diminution in value of
portfolio securities will be fully or partially offset by the
amount of the premium received.
As in the case of other types of options, however, the writing of a
foreign currency option will constitute only a partial hedge up to
the amount of the premium, and only if rates move in the expected
direction. If this does not occur, the option may be exercised and
the Portfolio would be required to buy or sell the underlying
currency at a loss which may not be offset by the amount of the
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premium. Through the writing of options on foreign currencies, the
Portfolio also may be required to forego all or a portion of the
benefits which might otherwise have been obtained from favorable
movements on exchange rates.
All options written on foreign currencies will be covered. An
option written on foreign currencies is covered if the Portfolio
holds currency sufficient to cover the option or has an absolute
and immediate right to acquire that currency without additional
cash consideration upon conversion of assets denominated in that
currency or exchange of other currency held in its portfolio. An
option writer could lose amounts substantially in excess of its
initial investments, due to the margin and collateral requirements
associated with such positions.
Options on foreign currencies are traded through financial
institutions acting as market-makers, although foreign currency
options also are traded on certain national securities exchanges,
such as the Philadelphia Stock Exchange and the Chicago Board
Options Exchange, subject to SEC regulation. In an over-the-
counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there
are no daily price fluctuation limits, and adverse market movements
could therefore continue to an unlimited extent over a period of
time. Although the purchaser of an option cannot lose more than
the amount of the premium plus related transaction costs, this
entire amount could be lost.
Foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the OCC, thereby
reducing the risk of counterparty default. Further, a liquid
secondary market in options traded on a national securities
exchange may be more readily available than in the over-the-counter
market, potentially permitting the Portfolio to liquidate open
positions at a profit prior to exercise or expiration, or to limit
losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of availability of a liquid
secondary market described above, as well as the risks regarding
adverse market movements, margining of options written, the nature
of the foreign currency market, possible intervention by
governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-
counter market. For example, exercise and settlement of such
options must be made exclusively through the OCC, which has
established banking relationships in certain foreign countries for
the purpose. As a result, the OCC may, if it determines that
foreign governmental restrictions or taxes would prevent the
orderly settlement of foreign currency option exercises, or would
result in undue burdens on OCC or its clearing member, impose
special procedures on exercise and settlement, such as technical
changes in the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions on exercise.
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Foreign Currency Futures and Related Options. The Portfolio may
enter into currency futures contracts to sell currencies. It also
may buy put and write covered call options on currency futures.
Currency futures contracts are similar to currency forward
contracts, except that they are traded on exchanges (and have
margin requirements) and are standardized as to contract size and
delivery date. Most currency futures call for payment of delivery
in U.S. dollars. The Portfolio may use currency futures for the
same purposes as currency forward contracts, subject to CFTC
limitations, including the limitation on the percentage of assets
that may be used, described in the prospectus. All futures
contracts are aggregated for purposes of the percentage
limitations.
Currency futures and options on futures values can be expected to
correlate with exchange rates, but will not reflect other factors
that may affect the values of the Portfolio's investments. A
currency hedge, for example, should protect a Yen-denominated bond
against a decline in the Yen, but will not protect the Portfolio
against price decline if the issuer's creditworthiness
deteriorates. Because the value of the Portfolio's investments
denominated in foreign currency will change in response to many
factors other than exchange rates, it may not be possible to match
the amount of a forward contract to the value of the Portfolio's
investments denominated in that currency over time.
The Portfolio will not use leverage in its options and futures
strategies. The Portfolio will hold securities or other options or
futures positions whose values are expected to offset its
obligations. The Portfolio will not enter into an option or
futures position that exposes the Portfolio to an obligation to
another party unless it owns either (i) an offsetting position in
securities or (ii) cash, receivables and short-term debt securities
with a value sufficient to cover its potential obligations.
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APPENDIX B
DESCRIPTION OF MONEY MARKET SECURITIES
Certificates of Deposit -- A certificate of deposit is a negotiable
receipt issued by a bank or savings and loan association in
exchange for the deposit of funds. The issuer agrees to pay the
amount deposited, plus interest, on the date specified on the
certificate.
Time Deposit -- A time deposit is a non-negotiable deposit in a
bank for a fixed period of time.
Bankers' Acceptances -- A bankers' acceptance arises from a short-
term credit arrangement designed to enable businesses to obtain
funds to finance commercial transactions. It is a time draft drawn
on a bank by an exporter or an importer to obtain a stated amount
of funds to pay for specific merchandise. The draft is then
"accepted" by a bank that, in effect, unconditionally guarantees to
pay the face value of the instrument on its maturity date.
Commercial Paper -- Commercial paper is generally defined as
unsecured short-term notes issued in bearer form by large well-
known corporations and finance companies. Maturities on commercial
paper range from one day to nine months.
Commercial paper rated A by Standard & Poor's Corporation has the
following characteristics: Liquidity ratios are better than the
industry average. Long-term senior debt rating is "A" or better.
The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow have an upward trend with
allowances made for unusual circumstances. Typically, the issuer's
industry is well established, the issuer has a strong position
within its industry and the reliability and quality of management
is unquestioned. Issuers rated A are further rated by use of
numbers 1, 2 and 3 to denote relative strength within this highest
classification.
A Prime rating is the highest commercial paper rating assigned by
Moody's Investors Services Inc. Issuers rated Prime are further
rated by use of numbers 1, 2 and 3 to denote relative strength
within this highest classification. Among the factors considered
by Moody's in assigning ratings for an issuer are the following:
(1) management; (2) economic evaluation of the industry and an
appraisal of speculative type risks which may be inherent in
certain areas; (3) competition and customer acceptance of products;
(4) liquidity; (5) amount and quality of long-term debt; (6) ten
year earnings trends; (7) financial strength of a parent company
and the relationships which exist with the issuer; and (8)
recognition by management of obligations which may be present or
may arise as a result of public interest questions and preparations
to meet such obligations.
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Letters of Credit -- A letter of credit is a short-term note issued
in bearer form with a bank letter of credit which provides that the
bank pay to the bearer the amount of the note upon presentation.
U.S. Treasury Bills -- Treasury bills are issued with maturities of
any period up to one year. Three-month and six-month bills are
currently offered by the Treasury on 13-week and 26-week cycles
respectively and are auctioned each week by the Treasury. Treasury
bills are issued in book entry form and are sold only on a discount
basis, i.e. the difference between the purchase price and the
maturity value constitutes interest income for the investor. If
they are sold before maturity, a portion of the income received may
be a short-term capital gain.
U.S. Government Agency Securities -- Federal agency securities are
debt obligations which principally result from lending programs of
the U.S. government. Housing and agriculture have traditionally
been the principal beneficiaries of Federal credit programs, and
agencies involved in providing credit to agriculture and housing
account for the bulk of the outstanding agency securities.
Repurchase Agreements -- A repurchase agreement involves the
acquisition of securities by the Portfolio, with the concurrent
agreement by a bank (or securities dealer if permitted by law or
regulation), to reacquire the securities at the portfolio's cost,
plus interest, within a specified time. The Portfolio thereby
receives a fixed rate of return on this investment, one that is
insulated from market and rate fluctuations during the holding
period. In these transactions, the securities acquired by the
Portfolio have a total value equal to or in excess of the value of
the repurchase agreement and are held by the Portfolio's custodian
until required. Pursuant to guidelines established by the
Portfolio's Board of Directors, the creditworthiness of the other
party to the transaction is considered and the value of those
securities held as collateral is monitored to ensure that such
value is maintained at the required level.
If IDS Life becomes aware that a security owned by a Portfolio is
downgraded below the second highest rating, IDS Life will either
sell the security or recommend to the Fund's Board of Directors why
it should not be sold.
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APPENDIX C
OPTIONS AND STOCK INDEX FUTURES CONTRACTS, FOR INVESTMENTS OF
EQUITY AND MANAGED PORTFOLIOS
Each Portfolio may buy or write options traded on any U.S. or
foreign exchange or in the over-the-counter market. Each Portfolio
may enter into stock index futures contracts traded on any U.S. or
foreign exchange. Each Portfolio also may buy or write put and
call options on these futures and on stock indexes. Options in the
over-the-counter market will be purchased only when the investment
manager believes a liquid secondary market exists for the options
and only from dealers and institutions the investment manager
believes present a minimal credit risk. Some options are
exercisable only on a specific date. In that case, or if a liquid
secondary market does not exist, a Portfolio could be required to
buy or sell securities at disadvantageous prices, thereby incurring
losses. Managed Portfolio also may enter into interest rate
futures contracts (see Appendix D).
OPTIONS. An option is a contract. A person who buys a call option
for a security has the right to buy the security at a set price for
the length of the contract. A person who sells a call option is
called a writer. The writer of a call option agrees to sell the
security at the set price when the buyer wants to exercise the
option, no matter what the market price of the security is at that
time. A person who buys a put option has the right to sell a
security at a set price for the length of the contract. A person
who writes a put option agrees to buy the security at the set price
if the purchaser wants to exercise the option, no matter what the
market price of the security is at that time. An option is covered
if the writer owns the security (in the case of a call) or sets
aside the cash or securities of equivalent value (in the case of a
put) that would be required upon exercise.
The price paid by the buyer for an option is called a premium. In
addition, the buyer generally pays a broker a commission. The
writer receives a premium, less another commission, at the time the
option is written. The cash received is retained by the writer
whether or not the option is exercised. A writer of a call option
may have to sell the security for a below-market price if the
market price rises above the exercise price. A writer of a put
option may have to pay an above-market price for the security if
its market price decreases below the exercise price. The risk of
the writer is potentially unlimited, unless the option is covered.
Options can be used to produce incremental earnings, protect gains
and facilitate buying and selling securities for investment
purposes. The use of options and futures contracts may benefit a
Portfolio and its shareholders by improving the Portfolio's
liquidity and by helping to stabilize the value of its net assets.
Buying options. Put and call options may be used as a trading
technique to facilitate buying and selling securities for
investment reasons. They also may be used for investment. Options<PAGE>
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are used as a trading technique to take advantage of any disparity
between the price of the underlying security in the securities
market and its price on the options market. It is anticipated the
trading technique will be utilized only to effect a transaction
when the price of the security plus the option price will be as
good or better than the price at which the security could be bought
or sold directly. When the option is purchased, the Portfolio pays
a premium and a commission. It then pays a second commission on
the purchase or sale of the underlying security when the option is
exercised. For record keeping and tax purposes, the price obtained
on the purchase of the underlying security will be the combination
of the exercise price, the premium and both commissions. When
using options as a trading technique, commissions on the option
will be set as if only the underlying securities were traded.
Put and call options also may be held by a Portfolio for investment
purposes. Options permit a Portfolio to experience the change in
the value of a security with a relatively small initial cash
investment.
The risk a Portfolio assumes when it buys an option is the loss of
the premium. To be beneficial to a Portfolio, the price of the
underlying security must change within the time set by the option
contract. Furthermore, the change must be sufficient to cover the
premium paid, the commissions paid both in the acquisition of the
option and in a closing transaction or in the exercise of the
option and subsequent sale (in the case of a call) or purchase (in
the case of a put) of the underlying security. Even then, the
price change in the underlying security does not ensure a profit
since prices in the option market may not reflect such a change.
Writing covered options. Each Portfolio will write covered options
when it feels it is appropriate and will follow these guidelines:
'Underlying securities will continue to be bought or sold solely on
the basis of investment considerations consistent with each
Portfolio's goal.
'All options written by a Portfolio will be covered. For covered
call options, if a decision is made to sell the security, each
Portfolio will attempt to terminate the option contract through a
closing purchase transaction.
'Each Portfolio will deal only in standard option contracts traded
on national securities exchanges or those that may be quoted on
NASDAQ (a system of price quotations developed by the National
Association of Securities Dealers, Inc.)
'Each Portfolio will write options only as permitted under federal
laws or regulations, such as those that limit the amount of total
assets subject to the options. Some regulations also affect the
Custodian. When a covered option is written, the Custodian
segregates the underlying securities, and issues a receipt. There
are certain rules regarding banks issuing such receipts that may
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restrict the amount of covered call options written. Furthermore,
each Portfolio is limited to pledging not more than 15 percent of
the cost of its total assets.
Net premiums on call options closed or premiums on expired call
options are treated as short-term capital gains. Since each
Portfolio is taxed as a regulated investment company under the
Internal Revenue Code, any gains on options and other securities
held less than three months must be limited to less than 30 percent
of its annual gross income.
If a covered call option is exercised, the security is sold by the
Portfolio. The premium received upon writing the option is added
to the proceeds received from the sale of the security. The
Portfolio will recognize a capital gain or loss based upon the
difference between the proceeds and the security's basis. Premiums
received from writing outstanding options are included as a
deferred credit in the Statement of Assets and Liabilities and
adjusted daily to the current market value.
Options are valued at the close of the New York Stock Exchange. An
option listed on a national exchange, CBOE or NASDAQ will be valued
at the last-quoted sales price or, if such a price is not readily
available, at the mean of the last bid and asked prices.
STOCK INDEX FUTURES CONTRACTS. Stock index futures contracts are
commodity contracts listed on commodity exchanges. They currently
include contracts on the Standard & Poor's 500 Stock Index (S&P 500
Index) and other broad stock market indexes such as the New York
Stock Exchange Composite Stock Index and the Value Line Composite
Stock Index, as well as narrower sub-indexes such as the S&P 100
Energy Stock Index and the New York Stock Exchange Utilities Stock
Index. A stock index assigns relative values to common stocks
included in the index and the index fluctuates with the value of
the common stocks so included.
A futures contract is a legal agreement between a buyer or seller
and the clearinghouse of a futures exchange in which the parties
agree to make a cash settlement on a specified future date in an
amount determined by the stock index on the last trading day of the
contract. The amount is a specified dollar amount (usually $100 or
$500) multiplied the difference between the index value on the last
trading day and the value on the day the contract was struck.
For example, the S&P 500 Index consists of 500 selected common
stocks, most of which are listed on the New York Stock Exchange.
The S&P 500 Index assigns relative weightings to the common stocks
included in the Index, and the Index fluctuates with changes in the
market values of those stocks. In the case of S&P 500 Index
futures contracts, the specified multiple is $500. Thus, if the
value of the S&P 500 Index were 150, the value of one contract
would be $75,000 (150 x $500). Unlike other futures contracts, a
stock index futures contract specifies that no delivery of the
actual stocks making up the index will take place. Instead,
settlement in cash must occur upon the termination of the contract.<PAGE>
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For example, excluding any transaction costs, if a Portfolio enters
into one futures contract to buy the S&P 500 Index at a specified
future date at a contract value of 150 and the S&P 500 Index is at
154 on that future date, the Portfolio will gain $500 x (154-150)
or $2,000. If the Portfolio enters into one futures contract to
sell the S&P 500 Index at a specified future date at a contract
value of 150 and the S&P 500 Index is at 152 on that future date,
the Portfolio will lose $500 x (152-150) or $1,000.
Unlike the purchase or sale of an equity security, no price would
be paid or received by the Portfolio upon entering into stock index
futures contracts. However, the Portfolio would be required to
deposit with its custodian, in a segregated account in the name of
the futures broker, an amount of cash or U.S. Treasury bills equal
to approximately 5 percent of the contract value. This amount is
known as initial margin. The nature of initial margin in futures
transactions is different from that of margin in security
transactions in that futures contract margin does not involve
borrowing funds by the Portfolio to finance the transactions.
Rather, the initial margin is in the nature of a performance bond
or good-faith deposit on the contract that is returned to the
Portfolio upon termination of the contract, assuming all
contractual obligations have been satisfied.
Subsequent payments, called variation margin, to and from the
broker would be made on a daily basis as the price of the
underlying stock index fluctuates, making the long and short
positions in the contract more or less valuable, a process known as
marking to market. For example, when a Portfolio enters into a
contract in which it benefits from a rise in the value of an index
and the price of the underlying stock index has risen, the
Portfolio will receive from the broker a variation margin payment
equal to that increase in value. Conversely, if the price of the
underlying stock index declines, the Portfolio would be required to
make a variation margin payment to the broker equal to the decline
in value.
How These Portfolios Would Use Stock Index Futures Contracts. The
Portfolios intend to use stock index futures contracts and related
options for hedging and not for speculation. Hedging permits a
Portfolio to gain rapid exposure to or protect itself from changes
in the market. For example, a Portfolio may find itself with a
high cash position at the beginning of a market rally.
Conventional procedures of purchasing a number of individual issues
entail the lapse of time and the possibility of missing a
significant market movement. By using futures contracts, the
Portfolio can obtain immediate exposure to the market and benefit
from the beginning stages of a rally. The buying program can then
proceed and once it is completed (or as it proceeds), the contracts
can be closed. Conversely, in the early stages of a market
decline, market exposure can be promptly offset by entering into
stock index futures contracts to sell units of an index and
individual stocks can be sold over a longer period under cover of
the resulting short contract position.
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A Portfolio may enter into contracts with respect to any stock
index or sub-index. To hedge the Portfolio's investment portfolio
successfully, however, the Portfolio must enter into contracts with
respect to indexes or sub-indexes whose movements will have a
significant correlation with movements in the prices of the
Portfolio's individual portfolio securities.
Special Risks of Transactions in Stock Index Futures Contracts.
1. Liquidity. Each Portfolio may elect to close some or all of
its contracts prior to expiration. The purpose of making such a
move would be to reduce or eliminate the hedge position held by the
Portfolio. The Portfolio may close its positions by taking
opposite positions. Final determinations of variation margin are
then made, additional cash as required is paid by or to the
Portfolio, and the Portfolio realizes a gain or a loss.
Positions in stock index futures contracts may be closed only on an
exchange or board of trade providing a secondary market for such
futures contracts. For example, futures contracts transactions can
currently be entered into with respect to the S&P 500 Stock Index
on the Chicago Mercantile Exchange, the New York Stock Exchange
Composite Stock Index on the New York Futures Exchange and the
Value Line Composite Stock Index on the Kansas City Board of Trade.
Although the Portfolios intend to enter into futures contracts only
on exchanges or boards of trade where there appears to be an active
secondary market, there is no assurance that a liquid secondary
market will exist for any particular contract at any particular
time. In such event, it may not be possible to close a futures
contract position, and in the event of adverse price movements, the
Portfolio would have to make daily cash payments of variation
margin. Such price movements, however, will be offset all or in
part by the price movements of the securities subject to the hedge.
Of course, there is no guarantee the price of the securities will
correlate with the price movements in the futures contract and thus
provide an offset to losses on a futures contract.
2. Hedging Risks. There are several risks in using stock index
futures contracts as a hedging device. One risk arises because the
prices of futures contracts may not correlate perfectly with
movements in the underlying stock index due to certain market
distortions. First, all participants in the futures market are
subject to initial margin and variation margin requirements.
Rather than making additional variation margin payments, investors
may close the contracts through offsetting transactions which could
distort the normal relationship between the index and futures
markets. Second, the margin requirements in the futures market are
lower than margin requirements in the securities market, and as a
result the futures market may attract more speculators than does
the securities market. Increased participation by speculators in
the futures market also may cause temporary price distortions.
Because of price distortion in the futures market and because of
imperfect correlation between movements in stock indexes and
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movements in prices of futures contracts, even a correct forecast
of general market trends may not result in a successful hedging
transaction over a short period.
Another risk arises because of imperfect correlation between
movements in the value of the stock index futures contracts and
movements in the value of securities subject to the hedge. If this
occurred, a Portfolio could lose money on the contracts and also
experience a decline in the value of its portfolio securities.
While this could occur, IDS Life believes that over time the value
of the Portfolio's investment portfolio will tend to move in the
same direction as the market indexes and will attempt to reduce
this risk, to the extent possible, by entering into futures
contracts on indexes whose movements it believes will have a
significant correlation with movements in the value of the
Portfolio's investment portfolio securities sought to be hedged.
It is also possible that if the Portfolio has hedged against a
decline in the value of the stocks held in its portfolio and stock
prices increase instead, the Portfolio will lose part or all of the
benefit of the increased value of its stock which it has hedged
because it will have offsetting losses in its futures positions.
In addition, in such situations, if the Portfolio has insufficient
cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising
market. The Portfolio may have to sell securities at a time when
it may be disadvantageous to do so.
OPTIONS ON STOCK INDEX FUTURES CONTRACTS. Options on stock index
futures contracts are similar to options on stock except that
options on futures contracts give the purchaser the right, in
return for the premium paid, to assume a position in a stock index
futures contract (a long position if the option is a call and a
short position if the option is a put) at a specified exercise
price at any time during the period of the option. If the option
is closed instead of exercised, the holder of the option receives
an amount that represents the amount by which the market price of
the contract exceeds (in the case of a call) or is less than (in
the case of a put) the exercise price of the option on the futures
contract. If the option does not appreciate in value prior to the
exercise date, the Portfolio will suffer a loss of the premium
paid.
OPTIONS ON STOCK INDEXES. Options on stock indexes are securities
traded on national securities exchanges. An option on a stock
index is similar to an option on a futures contract except all
settlements are in cash. A Portfolio exercising a put, for
example, would receive the difference between the exercise price
and the current index level. Such options would be used in the
same manner as options on futures contracts.
SPECIAL RISKS OF TRANSACTIONS IN OPTIONS ON STOCK INDEX FUTURES
CONTRACTS AND OPTIONS ON STOCK INDEXES. As with options on stocks,
the holder of an option on a stock index futures contract or on a
<PAGE>
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stock index may terminate a position by selling an option covering
the same contract or index and having the same exercise price and
expiration date. The ability to establish and close out positions
on such options will be subject to the development and maintenance
of a liquid secondary market. The Portfolios will not purchase
options unless the market for such options has developed
sufficiently, so that the risks in connection with options are not
greater than the risks in connection with stock index futures
contracts transactions themselves. Compared to using futures
contracts, purchasing options involves less risk to the Portfolios
because the maximum amount at risk is the premium paid for the
options (plus transaction costs). There may be circumstances,
however, when using an option would result in a greater loss to a
Portfolio than using a futures contract, such as when there is no
movement in the level of the stock index.
TAX TREATMENT. As permitted under federal income tax laws, each
Portfolio intends to identify futures contracts as mixed straddles
and not mark them to market, that is, not treat them as having been
sold at the end of the year at market value. Such an election may
result in the Portfolio being required to defer recognizing losses
incurred by entering into futures contracts and losses on
underlying securities identified as being hedged against.
Federal income tax treatment of gains or losses from transactions
in options on futures contracts and stock indexes is currently
unclear, although the Portfolios' tax advisors currently believe
marking to market is not required. Depending on developments, a
Portfolio may seek IRS rulings clarifying questions concerning such
treatment. Certain provisions of the Code also may limit a
Portfolio's ability to engage in futures contracts and related
options transactions. For example, at the close of each quarter of
the Portfolio's taxable year, at least 50 percent of the value of
its assets must consist of cash, government securities and other
securities, subject to certain diversification requirements. Less
than 30 percent of its gross income must be derived from sales of
securities held less than three months.
The IRS has ruled publicly that an exchange-traded call option is a
security for purposes of the 50-percent-of-assets test and that its
issuer is the issuer of the underlying security, not the writer of
the option, for purposes of the diversification requirements. In
order to avoid realizing a gain within the three-month period, a
Portfolio may be required to defer closing out a contract beyond
the time when it might otherwise be advantageous to do so. The
Portfolio also may be restricted in purchasing put options for the
purpose of hedging underlying securities because of applying the
short sale holding period rules with respect to such underlying
securities.
Accounting for futures contracts will be according to generally
accepted accounting principles. Initial margin deposits will be
recognized as assets due from a broker (the Portfolio's agent in
acquiring the futures position). During the period the futures
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contract is open, changes in value of the contract will be62
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.
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APPENDIX D
OPTIONS AND INTEREST RATE FUTURES CONTRACTS, FOR INVESTMENTS OF
INCOME, MANAGED AND GOVERNMENT SECURITIES PORTFOLIOS
Income and Managed Portfolios may buy or write options traded on
any U.S. or foreign exchange or in the over-the-counter market.
Each Portfolio may enter into interest rate futures contracts
traded on any U.S. or foreign exchange. Each Portfolio also may
buy or write put and call options on these futures. Options in the
over-the-counter market will be purchased only when the investment
manager believes a liquid secondary market exists for the options
and only from dealers and institutions the investment manager
believes present a minimal credit risk. Some options are
exercisable only on a specific date. In that case, or if a liquid
secondary market does not exist, a Portfolio could be required to
buy or sell securities at disadvantageous prices, thereby incurring
losses. Managed Portfolio also may enter into stock index futures
contracts (see Appendix C).
Government Securities Portfolio may buy or write options traded on
any U.S. exchange or in the over-the-counter market. The Portfolio
may enter into interest rate futures contracts traded on any U.S.
exchange. The Portfolio also may buy or write put and call options
on these futures. Options in the over-the-counter market will be
purchased only when the investment manager believes a liquid
secondary market exists for the options and only from dealers and
institutions the investment manager believes present a minimal
credit risk. Some options are exercisable only on a specific date.
In that case, or if a liquid secondary market does not exist, the
Portfolio could be required to buy or sell securities at
disadvantageous prices, thereby incurring losses.
OPTIONS. An option is a contract. A person who buys a call option
for a security has the right to buy the security at a set price for
the length of the contract. A person who sells a call option is
called a writer. The writer of a call option agrees to sell the
security at the set price when the buyer wants to exercise the
option, no matter what the market price of the security is at that
time. A person who buys a put option has the right to sell a
security at a set price for the length of the contract. A person
who writes a put option agrees to buy the security at the set price
if the purchaser wants to exercise the option, no matter what the
market price of the security is at that time. An option is covered
if the writer owns the security (in the case of a call) or sets
aside the cash (in the case of a put) that would be required upon
exercise.
The price paid by the buyer for an option is called a premium. In
addition the buyer generally pays a broker a commission. The
writer receives a premium, less a commission, at the time the
option is written. The cash received is retained by the writer
whether or not the option is exercised. A writer of a call option
may have to sell the security for a below-market price if the
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market price rises above the exercise price. A writer of a put
option may have to pay an above-market price for the security if
its market price decreases below the exercise price.
Options can be used to produce incremental earnings, protect gains
and facilitate buying and selling securities for investment
purposes. The use of options and futures contracts may benefit a
Portfolio and its shareholders by improving the Portfolio's
liquidity and by helping to stabilize the value of its net assets.
Buying options. Put and call options may be used as a trading
technique to facilitate buying and selling securities for
investment reasons. They also may be used for investment. Options
are used as a trading technique to take advantage of any disparity
between the price of the underlying security in the securities
market and its price on the options market. It is anticipated the
trading technique will be utilized only to effect a transaction
when the price of the security plus the option price will be as
good or better than the price at which the security could be bought
or sold directly. When the option is purchased, the Portfolio pays
a premium and a commission. It then pays a second commission on
the purchase or sale of the underlying security when the option is
exercised. For record keeping and tax purposes, the price obtained
on the purchase of the underlying security will be the combination
of the exercise price, the premium and both commissions. When
using options as a trading technique, commissions on the option
will be set as if only the underlying securities were traded.
Put and call options also may be held by a Portfolio for investment
purposes. Options permit the Portfolio to experience the change in
the value of a security with a relatively small initial cash
investment. The risk the Portfolio assumes when it buys an option
is the loss of the premium. To be beneficial to the Portfolio, the
price of the underlying security must change within the time set by
the option contract. Furthermore, the change must be sufficient to
cover the premium paid, the commissions paid both in the
acquisition of the option and in a closing transaction or in the
exercise of the option and sale (in the case of a call) or purchase
(in the case of a put) of the underlying security. Even then the
price change in the underlying security does not ensure a profit
since prices in the option market may not reflect such a change.
Writing covered options. A Portfolio will write covered options
when it feels it is appropriate and will follow these guidelines:
'Underlying securities will continue to be bought or sold solely on
the basis of investment considerations consistent with the
Portfolio's goal.
'All options written by the Portfolio will be covered. For covered
call options if a decision is made to sell the security, the
Portfolio will attempt to terminate the option contract through a
closing purchase transaction.
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'The Portfolio will write options only as permitted under federal
laws or regulations, such as those that limit the amount of total
assets subject to the options. Some regulations also affect the
Custodian. When a covered call option is written, the Custodian
segregates the underlying securities and issues a receipt. There
are certain rules regarding banks issuing such receipts that may
restrict the amount of covered call options written. Furthermore,
a Portfolio is limited to pledging not more than 15 percent of the
cost of its total assets.
Net premiums on call options closed or premiums on expired call
options are treated as short-term capital gains. Since a Portfolio
is taxed as a regulated investment company under the Code, any
gains on options and other securities held less than three months
must be limited to less than 30 percent of its annual gross income.
If a covered call option is exercised, the security is sold by the
Portfolio. The Portfolio will recognize a capital gain or loss
based upon the difference between the proceeds and the security's
basis.
Options on many securities are listed on options exchanges. If a
Portfolio writes listed options, it will follow the rules of the
options exchange. Options are valued at the close of the New York
Stock Exchange. An option listed on a national exchange, CBOE or
NASDAQ will be valued at the last quoted sales price or, if such a
price is not readily available, at the mean of the last bid and
asked prices.
FUTURES CONTRACTS. A futures contract is an agreement between two
parties to buy and sell a security for a set price on a future
date. They have been established by boards of trade which have
been designated contracts markets by the Commodity Futures Trading
Commission (CFTC). Futures contracts trade on these markets in a
manner similar to the way a stock trades on a stock exchange, and
the boards of trade, through their clearing corporations, guarantee
performance of the contracts. Currently, there are futures
contracts based on such debt securities as long-term U.S. Treasury
bonds, Treasury notes, GNMA modified pass-through mortgate-backed
securities, three-month U.S. Treasury bills and bank certificates
of deposit. While futures contracts based on debt securities do
provide for the delivery and acceptance of securities, such
deliveries and acceptances are very seldom made. Generally, the
futures contract is terminated by entering into an offsetting
transaction. An offsetting transaction for a futures contract sale
is effected by the Portfolio entering into a futures contract
purchase for the same aggregate amount of the specific type of
financial instrument and same delivery date. If the price in the
sale exceeds the price in the offsetting purchase, the Portfolio
immediately is paid the difference and realizes a gain. If the
offsetting purchase price exceeds the sale price, the Portfolio
pays the difference and realizes a loss. Similarly, closing out a
futures contract purchase is effected by the Portfolio entering
into a futures contract sale. If the offsetting sale price
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exceeds the purchase price, the Portfolio realizes a gain, and if
the offsetting sale price is less than the purchase price, the
Portfolio realizes a loss. At the time a futures contract is made,
a good-faith deposit called initial margin is set up within a
segregated account at the Portfolios' custodian bank. The initial
margin deposit is approximately 1.5 percent of a contract's face
value. Daily thereafter, the futures contract is valued and the
payment of variation margin is required so that each day the
Portfolio would pay out cash in an amount equal to any decline in
the contract's value or receive cash equal to any increase. At the
time a futures contract is closed out, a nominal commission is
paid, which is generally lower than the commission on a comparable
transaction in the cash markets.
The purpose of a futures contract, in the case of a fund holding
long-term debt securities, is to gain the benefit of changes in
interest rates without actually buying or selling long-term debt
securities. For example, if a Portfolio owned long-term bonds and
interest rates were expected to increase, it might enter into
futures contracts to sell securities which would have much the same
effect as selling some of the long-term bonds it owned. Futures
contracts are based on types of debt securities referred to above,
which have historically reacted to an increase or decline in
interest rates in a fashion similar to the debt securities the
Portfolio owns. If interest rates did increase, the value of the
debt securities in the portfolio would decline, but the value of
the Portfolio's futures contracts would increase at approximately
the same rate, thereby keeping the net asset value of the Portfolio
from declining as much as it otherwise would have. If, on the
other hand, the Portfolio held cash reserves and interest rates
were expected to decline, the Portfolio might enter into interest
rate futures contracts for the purchase of securities. If short-
term rates were higher than long-term rates, the ability to
continue holding these cash reserves would have a very beneficial
impact on the Portfolio's earnings. Even if short-term rates were
not higher, the Portfolio would still benefit from the income
earned by holding these short-term investments. At the same time,
by entering into futures contracts for the purchase of securities,
the Portfolio could take advantage of the anticipated rise in the
value of long-term bonds without actually buying them until the
market had stabilized. At that time, the futures contracts could
be liquidated and the Portfolio's cash reserves could then be used
to buy long-term bonds on the cash market. The Portfolio could
accomplish similar results by selling bonds with long maturities
and investing in bonds with short maturities when interest rates
are expected to increase or by buying bonds with long maturities
and selling bonds with short maturities when interest rates are
expected to decline. But by using futures contracts as an
investment tool, given the greater liquidity in the futures market
than in the cash market, it might be possible to accomplish the
same result more easily and more quickly. Successful use of
futures contracts depends on the investment manager's ability to
predict the future direction of interest rates. If the investment
manager's prediction is incorrect, the Portfolio would have been
better off had it not entered into futures contracts.
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OPTIONS ON FUTURES CONTRACTS. Options give the holder a right to
buy or sell futures contracts in the future. Unlike a futures
contract, which requires the parties to the contract to buy and
sell a security on a set date, an option on a futures contract
merely entitles its holder to decide on or before a future date
(within nine months of the date of issue) whether to enter into
such a contract. If the holder decides not to enter into the
contract, all that is lost is the amount (premium) paid for the
option. Furthermore, because the value of the option is fixed at
the point of sale, there are no daily payments of cash to reflect
the change in the value of the underlying contract.
However, since an option gives the buyer the right to enter into a
contract at a set price for a fixed period of time, its value does
change daily and that change is reflected in the net asset value of
the Portfolio.
RISKS. There are risks in engaging in each of the management tools
described above. The risk a Portfolio assumes when it buys an
option is the loss of the premium paid for the option. Purchasing
options also limits the use of monies that might otherwise be
available for long-term investments.
The risk involved in writing options on futures contracts the
Portfolio owns, or on securities held in its portfolio, is that
there could be an increase in the market value of such contracts or
securities. If that occurred, the option would be exercised and
the asset sold at a lower price than the cash market price. To
some extent, the risk of not realizing a gain could be reduced by
entering into a closing transaction. The Portfolio could enter
into a closing transaction by purchasing an option with the same
terms as the one it had previously sold. The cost to close the
option and terminate the Portfolio's obligation, however, might be
more or less than the premium received when it originally wrote the
option. Furthermore, the Portfolio might not be able to close the
option because of insufficient activity in the options market.
A risk in employing futures contracts to protect against the price
volatility of securities is that the prices of securities subject
to futures contracts may not correlate perfectly with the behavior
of the cash prices of the Portfolio's securities. The correlation
may be distorted because the futures market is dominated by short-
term traders seeking to profit from the difference between a
contract or security price and their cost of borrowed funds. Such
distortions are generally minor and would diminish as the contract
approached maturity.
Another risk is that the Portfolio's investment manager could be
incorrect in anticipating as to the direction or extent of various
interest rate movements or the time span within which the movements
take place. For example, if the Portfolio sold futures contracts
for the sale of securities in anticipation of an increase in
interest rates, and interest rates declined instead, the Portfolio
would lose money on the sale.
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TAX TREATMENT. As permitted under federal income tax laws, each
Portfolio intends to identify futures contracts as mixed straddles
and not mark them to market, that is, not treat them as having been
sold at the end of the year at market value. Such an election may
result in the Portfolio being required to defer recognizing losses
incurred by entering into futures contracts and losses on
underlying securities identified as being hedged against.
Federal income tax treatment of gains or losses from transactions
in options on futures contracts and indexes currently is unclear,
although the Portfolios' tax advisors currently believe marking to
market is not required. Depending on developments, a Portfolio may
seek IRS rulings clarifying questions concerning such treatment.
Certain provisions of the Code also may limit a Portfolio's ability
to engage in futures contracts and related options transactions.
For example, at the close of each quarter of the Portfolio's
taxable year, at least 50 percent of the value of its assets must
consist of cash, government securities and other securities,
subject to certain diversification requirements. Less than 30
percent of its gross income must be derived from sales of
securities held less than three months.
The IRS has ruled publicly that an exchange-traded call option is a
security for purposes of the 50-percent-of-assets test and that its
issuer is the issuer of the underlying security, not the writer of
the option, for purposes of the diversification requirements. In
order to avoid realizing a gain within the three-month period, the
Portfolio may be required to defer closing out a contract beyond
the time when it might otherwise be advantageous to do so. The
Portfolio also may be restricted in purchasing put options for the
purpose of hedging underlying securities because of applying the
short sale holding period rules with respect to such underlying
securities.
Accounting for futures contracts will be according to generally
accepted accounting principles. Initial margin deposits will be
recognized as assets due from a broker (the Portfolio's agent in
acquiring the futures position). During the period the futures
contract is open, changes in value of the contract will be
recognized as unrealized gains or losses by marking to market on a
daily basis to reflect the market value of the contract at the end
of each day's trading. Variation margin payments will be made or
received depending upon whether gains or losses are incurred. All
contracts and options will be valued at the last-quoted sales price
on their primary exchange.
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APPENDIX E
MORTGAGE-BACKED SECURITIES AND ADDITIONAL INFORMATION ON INVESTMENT
POLICIES (FOR ALL PORTFOLIOS EXCEPT MONEY MARKET)
GNMA Certificates
The Government National Mortgage Association (GNMA) is a wholly
owned corporate instrumentality of the United States within the
Department of Housing and Urban Development. GNMA certificates are
mortgage-backed securities of the modified pass-through type, which
means that both interest and principal payments (including
prepayments) are passed through monthly to the holder of the
certificate. Each certificate evidences an interest in a specific
pool of mortgage loans insured by the Federal Housing
Administration or the Farmers Home Administration or guaranteed by
the Veterans Administration. The National Housing Act provides
that the full faith and credit of the United States is pledged to
the timely payment of principal and interest by GNMA of amounts due
on these certificates. GNMA is empowered to borrow without
limitation from the U.S. Treasury, if necessary, to make such
payments.
Underlying Mortgages of the Pool. Pools consist of whole mortgage
loans or participations in loans. The majority of these loans are
made to purchasers of 1-4 member family homes. The terms and
characteristics of the mortgage instruments generally are uniform
within a pool but may vary among pools. For example, in addition
to fixed-rate fixed-term mortgages, the Portfolio may purchase
pools of variable rate mortgages, growing equity mortgages,
graduated payment mortgages and other types.
All servicers apply standards for qualification to local lending
institutions which originate mortgages for the pools. Servicers
also establish credit standards and underwriting criteria for
individual mortgages included in the pools. In addition, many
mortgages included in pools are insured through private mortgage
insurance companies.
Average Life of GNMA Certificates. The average life of GNMA
certificates varies with the maturities of the underlying mortgage
instruments which have maximum maturities of 30 years. The average
life is likely to be substantially less than the original maturity
of the mortgage pools underlying the securities as the result of
prepayments or refinancing of such mortgages. Such prepayments are
passed through to the registered holder with the regular monthly
payments of principal and interest.
As prepayment rates vary widely, it is not possible to accurately
predict the average life of a particular pool. It is customary in
the mortgage industry in quoting yields on a pool of 30-year
mortgages to compute the yield as if the pool were a single loan
that is amortized according to a 30-year schedule and that is
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prepaid in full at the end of the 12th year. For this reason, it
is standard practice to treat GNMA certificates as 30-year
mortgage-backed securities which prepay fully in the 12th year.
Calculation of Yields. Yields on pass-through securities are
typically quoted based on the maturity of the underlying
instruments and the associated average life assumption.
Actual pre-payment experience may cause the yield to differ from
the assumed average life yield. When mortgage rates drop, pre-
payments will increase, thus reducing the yield. Reinvestment of
pre-payments may occur at higher or lower interest rates than the
original investment, thus affecting the yield of a Portfolio. The
compounding effect from reinvestments of monthly payments received
by the Portfolio will increase the yield to shareholders compared
to bonds that pay interest semi-annually. The yield also may be
affected if the certificate was issued at a premium or discount,
rather than at par. This also applies after issuance to
certificates trading in the secondary market at a premium or
discount.
"When-Issued" GNMA Certificates. Some U.S. government securities
may be purchased on a "when-issued" basis, which means that it may
take as long as 45 days after the purchase before the securities
are delivered to the Portfolio. Payment and interest terms,
however, are fixed at the time the purchaser enters into the
commitment. However, the yield on a comparable GNMA certificate
when the transaction is consummated may vary from the yield on the
GNMA certificate at the time that the when-issued transaction was
made. A Portfolio does not pay for the securities or start earning
interest on them until the contractual settlement date. When-
issued securities are subject to market fluctuations and they may
affect the Portfolio's gross assets the same as owned securities.
Market for GNMA Certificates. Since the inception of the GNMA
mortgage-backed securities program in 1970, the amount of GNMA
certificates outstanding has grown rapidly. The size of the market
and the active participation in the secondary market by securities
dealers and many types of investors make the GNMA certificates a
highly liquid instrument. Prices of GNMA certificates are readily
available from securities dealers and depend on, among other
things, the level of market interest rates, the certificate's
coupon rate and the prepayment experience of the pool of mortgages
underlying each certificate.
Stripped mortgage-backed securities. Generally, there are two
classes of stripped mortgage-backed securities: Interest Only (IO)
and Principal Only (PO). IOs entitle the holder to receive
distributions consisting of all or a portion of the interest on the
underlying pool of mortgage loans or mortgage-backed securities.
POs entitle the holder to receive distributions consisting of all
or a portion of the principal of the underlying pool of mortgage
loans or mortgage-backed securities. The cash flows and yields on
IOs and POs are extremely sensitive to the rate of principal
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payments (including prepayments) on the underlying mortgage loans
or mortgage-backed securities. A rapid rate of principal payments
may adversely affect the yield to maturity of IOs. A slow rate of
principal payments may adversely affect the yield to maturity of
POs. If prepayments of principal are greater than anticipated, an
investor may incur substantial losses. If prepayments of principal
are slower than anticipated, the yield on a PO will be affected
more severely than would be the case with a traditional mortgage-
backed security.
Income, Managed and Government Securities Portfolios may invest in
securities called "inverse floaters". Inverse floaters are created
by underwriters using the interest payments on securities. A
portion of the interest received is paid to holders of instruments
based on current interest rates for short-term securities. What is
left over, less a servicing fee, is paid to holders of the 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.
Income, Managed and Government Securities Portfolios may purchase
some securities in advance of when they are issued. Price and rate
of interest are set on the date the commitments are given but no
payment is made or interest earned until the date the securities
are issued, usually within two months, but other terms may be
negotiated. The commitment requires the portfolio to buy the
security when it is issued so the commitment is valued daily the
same way as owning a security would be valued. The Portfolio's
custodian will maintain, in a segregated account, cash or liquid
high-grade debt securities that are marked to market daily and are
at least equal in value to the Portfolio's commitments to purchase
the securities. The Portfolio may sell the commitment just like it
can sell a security. Frequently, the Portfolio has the opportunity
to sell the commitment back to the institution that plans to issue
the security and at the same time enter into a new commitment to
purchase a when-issued security in the future. For rolling its
commitment forward, the Portfolio realizes a gain or loss on the
sale of the current commitment or receives a fee for entering into
the new commitment.
Income, Managed and Government Securities Portfolios may purchase
mortgage-backed security (MBS) put spread options and write covered
MBS call spread options. MBS spread options are based upon the
changes in the price spread between a specified mortgage-backed
security and a like-duration Treasury security. MBS spread options
are traded in the OTC market and are of short duration, typically
one to two months. The Portfolio would buy or sell covered MBS
call spread options in situations where mortgage-backed securities
are expected to under perform like-duration Treasury securities.
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APPENDIX F
DOLLAR-COST AVERAGING
A technique that works well for many investors is one that
eliminates random buy and sell decisions. One such system is
dollar-cost averaging. Dollar-cost averaging involves building a
portfolio through the investment of fixed amounts of money on a
regular basis regardless of the price or market condition. This
may enable an investor to smooth out the effects of the volatility
of the financial markets. By using this strategy, more units 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 units lower than the average
market price of units 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 policy
owners who can continue investing through changing market
conditions to accumulate units to meet long term goals.
Dollar-cost averaging
Regular Market Price Units
Investment of a Unit 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 unit over 5 periods:
$5.00 ($25.00 divided by 5).
The average price you paid for each unit:
$4.84 ($500 divided by 103.4).
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APPENDIX G
Description of corporate bond ratings
Bond ratings concern the quality of the issuing corporation. They
are not an opinion of the market value of the security. Such
ratings are opinions on whether the principal and interest will be
repaid when due. A security's rating may change which could affect
its price. Ratings by Moody's Investors Service, Inc. are Aaa, Aa,
A, Baa, Ba, B, Caa, Ca, C and D. Ratings by Standard & Poor's
Corporation are AAA, AA, A, BBB, BB, B, CCC, CC, C and D.
Aaa/AAA - Judged to be of the best quality and carry the smallest
degree of investment risk. Interest and principal are secure.
Aa/AA - Judged to be high-grade although margins of protection for
interest and principal may not be quite as good as Aaa or AAA rated
securities.
A - Considered upper-medium grade. Protection for interest and
principal is deemed adequate but may be susceptible to future
impairment.
Baa/BBB - Considered medium-grade obligations. Protection for
interest and principal is adequate over the short-term; however,
these obligations may have certain speculative characteristics.
Ba/BB - Considered to have speculative elements. The protection of
interest and principal payments may be very moderate.
B - Lack characteristics of the desirable investments. There may
be small assurance over any long period of time of the payment of
interest and principal.
Caa/CCC - Are of poor standing. Such issues may be in default or
there may be risk with respect to principal or interest.
Ca/CC - Represent obligations that are highly speculative. Such
issues are often in default or have other marked shortcomings.
C - Are obligations with a higher degree of speculation. These
securities have major risk exposures to default.
D - Are in payment default. The D rating is used when interest
payments or principal payments are not made on the due date.
Definitions of Zero-Coupon and Pay-In-Kind Securities
A zero-coupon security is a security that is sold at a deep
discount from its face value and makes no periodic interest
payments. The buyer of such a security receives a rate of return
by gradual appreciation of the security, which is redeemed at face
value on the maturity date.
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A pay-in-kind security is a security in which the issuer has the
option to make interest payments in cash or in additional
securities. The securities issued as interest usually have the
same terms, including maturity date, as the pay-in-kind securities.
Non-rated securities will be considered for investment when they
possess a risk comparable to that of rated securities consistent
with the Fund's objectives and policies. When assessing the risk
involved in each non-rated security, the Fund will consider the
financial condition of the issuer or the protection afforded by the
terms of the security.
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STATEMENT OF ADDITIONAL INFORMATION
for
IDS LIFE SERIES FUND, INC.
Equity Portfolio
Government Securities Portfolio
Income Portfolio
International Equity Portfolio
Managed Portfolio
Money Market Portfolio
April 28, 1995
This Statement of Additional Information is not a prospectus. It
should be read together with the Fund's prospectus which may be
obtained from your American Express financial advisor, or by
writing or calling IDS Life Series Fund, Inc. at the address or
telephone number below.
The date of this Statement of Additional Information is April 28,
1995, and is to be used with the Fund's Prospectus dated April 28,
1995, the Fund's Annual Report for the fiscal year ended April 30,
1994, and the Semiannual Report for the period ended Oct. 31, 1994.
IDS Life Series Fund, Inc.
IDS Tower 10
Minneapolis, MN 55440-0010
(612) 671-3733
TTY: 800-285-8846
New York Service:
(518) 869-8613
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TABLE OF CONTENTS
Goals and Investment Policies........................See Prospectus
Additional Investment Policies................................p.
Portfolio Transactions........................................p.
Brokerage Commissions Paid to
Brokers Affiliated with IDS Life..............................p.
Calculation of Total Return...................................p.
Calculation of Yield..........................................p.
Valuing Each Portfolio's Shares...............................p.
Investing in the Fund.........................................p.
Redeeming Shares..............................................p.
Capital Gains and Losses......................................p.
Investment Management and Other Services......................p.
Management of the Fund........................................p.
Custodian.....................................................p.
Independent Auditors..........................................p.
Financial Statements..............................See Annual Report
Appendix A: Foreign Currency Transactions, for
Investments of Equity, Income, Managed
and International Equity Portfolios..............p.
Appendix B: Description of Money Market Securities, for
Investments of all Portfolios except
Government Securities............................p.
Appendix C: Options and Stock Index Futures Contracts,
for Investments of Equity, Managed and
International Equity Portfolios..................p.
Appendix D: Options and Interest Rate Futures Contracts,
for Investments of Income, Managed and
Government Securities Portfolios.................p.
Appendix E: Mortgage-Backed Securities and Additional
Information on Investment Policies for all
Portfolios except Money Market...................p.
<PAGE>
PAGE 111
Appendix F: Dollar-Cost Averaging............................p.
Appendix G: Description of Corporate Bond Ratings............p.
<PAGE>
PAGE 112
ADDITIONAL INVESTMENT POLICIES
In addition to the investment goals and policies presented in the
prospectus, each Portfolio has the investment policies stated
below.
Unless the holders of a majority of the outstanding shares (as
defined in the section entitled "Voting rights" of the prospectus)
of Equity Portfolio agree to a change, Equity Portfolio will not:
Underwrite securities of other issuers. However, this shall not
preclude the purchase of securities for investment, on original
issue or otherwise, and shall not preclude the acquisition of
portfolio securities under circumstances where the portfolio would
not be free to sell them without being deemed an underwriter for
purposes of the Securities Act of 1933 (1933 Act) and without
registration of such securities or the filing of a notification
under that Act, or the taking of similar action under other
securities laws relating to the sale of securities.
Buy securities of an issuer if the officers and directors of the
Portfolio and of American Express Financial Corporation hold more
than a certain percent of the issuer's outstanding securities. The
holdings of all officers and directors of the Portfolio who own
more than 0.5% of an issuer's securities are added together and if
in total they own more than 5%, the Portfolio will not purchase
securities of that issuer.
Buy or sell real estate, unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent
the portfolio from investing in securities or other instruments
backed by real estate or securities of companies engaged in the
real estate business.
Buy or sell physical commodities unless acquired as a result of
ownership of securities or other instruments, except this shall not
prevent the portfolio from buying or selling options and futures
contracts or from investing in securities or other instruments
backed by, or whose value is derived from, physical commodities.
Make cash loans if the total commitment amount exceeds 5% of the
portfolio's total assets.
Lend portfolio securities in excess of 30% of its net assets, at
market value. The current policy of the board of directors is to
make these loans, either long- or short-term, to broker-dealers.
In making such loans the portfolio gets the market price in cash,
U.S. government securities, letters of credit or such other
collateral as may be permitted by regulatory agencies and approved
by the board of directors. If the market price of the loaned
securities goes up, the portfolio will get additional collateral on
a daily basis. The risks are that the borrower may not provide
additional collateral when required or return the securities when
due. A loan will not be made unless the opportunity for additional
income outweighs the risks. During the existence of the loan, the<PAGE>
PAGE 113
portfolio receives cash payments equivalent to all interest or
other distributions paid on the loaned securities.
Invest more than 5% of its total assets, at market value, in
securities of any one company, government or political subdivision
thereof, except the limitation will not apply to investments in
securities issued by the U.S. government, its agencies or
instrumentalities. Up to 25% of the portfolio's total assets may
be invested without regard to this 5% limitation.
Borrow money or property except as a temporary measure for
extraordinary or emergency purposes, and in an amount not exceeding
one-third of the market value of its total assets (including
borrowings) less liabilities (other than borrowings) immediately
after the borrowing. The portfolio will not purchase additional
portfolio securities at any time borrowing for temporary purposes
exceeds 5%. The portfolio has not borrowed in the past and has no
present intention to borrow.
Concentrate its investments in any particular industry, but
reserves freedom of action to do so provided that not more than 25%
of its assets, taken at cost, may be so invested at any one time.
Purchase securities of any issuer if immediately after and as a
result of such purchase the Portfolio would own more than 10% of
the outstanding voting securities of such issuer.
Unless changed by the board of directors, the following policies
apply to Equity Portfolio:
The portfolio will not invest in companies for the purpose of, or
with the effect of, acquiring control.
The portfolio will not buy on margin or sell short.
The portfolio will not invest in securities of any investment
company except in the open market where no commission or profit to
a sponsor or dealer results from such purchase other than customary
broker's commission. The portfolio does not intend to invest in
such securities but may do so to the extent of not more than 5% of
its total assets (taken at market or other current value). The
portfolio may acquire limited amounts of securities of one or more
investment companies as permitted by the Investment Company Act of
1940 (1940 Act), in connection with the acquisition of or merger
with such companies. Except for these instances, the portfolio
will not purchase securities of investment companies.
The portfolio may make contracts to purchase securities for a fixed
price at a future date beyond normal settlement time (when issued
securities or forward commitments). A portfolio does not pay for
the securities or receive dividends or interest on them until the
contractual settlement date. The portfolio's custodian will
maintain, in a segregated account, cash or liquid high-grade debt
securities that are marked to market daily and are at least equal
in value to the portfolio's commitments to purchase the securities.<PAGE>
PAGE 114
When-issued securities or forward commitments are subject to market
fluctuations and they may affect the portfolio's total assets the
same as owned securities.
The portfolio may maintain a portion of its assets in cash and
cash-equivalent investments. The cash-equivalent investments the
Portfolio may use are short-term U.S. and Canadian government
securities and negotiable certificates of deposit, non-negotiable
fixed-time deposits, bankers' acceptances and letters of credit of
banks or savings and loan associations having capital, surplus and
undivided profits (as of the date of its most recently published
annual financial statements) in excess of $100 million (or the
equivalent in the instance of a foreign branch of a U.S. bank) at
the date of investment. Any cash-equivalent investments in foreign
securities will be subject to the limitations on foreign
investments described in the prospectus. The portfolio also may
purchase short-term corporate notes and obligations rated in the
top two classifications by Moody's Investors Service, Inc. or
Standard & Poor's Corporation or the equivalent and may use
repurchase agreements with broker-dealers registered under the
Securities Exchange Act of 1934 and with commercial banks. A risk
of a repurchase agreement is that if the seller seeks the
protection of the bankruptcy laws, the portfolio's ability to
liquidate the security involved could be impaired.
The portfolio does not intend to invest more than 2% of its net
assets in warrants that are not listed on a national securities
exchange. In no event will the investment in warrants exceed 5% of
the portfolio's net assets. A warrant is a right to buy a certain
security at a set price for a certain period of time and is freely
traded in the market.
The portfolio may invest in Rule 144A securities, which are
unregistered securities offered to qualified institutional buyers,
and interest-only and principal-only fixed mortgage-backed
securities (IOs and POs) issued by the United States government or
its agencies and instrumentalities. In determining the liquidity
of Rule 144A securities, IOs and POs, the investment manager, under
guidelines established by the board of directors, will consider any
relevant factors including the frequency of trades, the number of
dealers willing to purchase or sell the security and the nature of
marketplace trades.
The portfolio may invest in commercial paper issued in transactions
not involving a public offering under Section 4(2) of the
Securities Act of 1933 (4(2) paper). In determining the liquidity
of 4(2) paper, the investment manager, under guidelines established
by the board of directors, will evaluate relevant factors such as
the issuer and the size and nature of its commercial paper
programs, the willingness and ability of the issuer or dealer to
repurchase the paper, and the nature of the clearance and
settlement procedures for the paper.
The portfolio will not invest in securities which are not readily
marketable (including restricted securities and repurchase<PAGE>
PAGE 115
agreements over 7 days) without registration or the filing of a
notification under the 1933 Act, or the taking of similar action
under other securities laws relating to the sale of securities, if
immediately after the making of any such investment more than 10%
of the portfolio's net assets (taken at market or other current
value) are invested in such securities.
The portfolio will not invest in interests in oil, gas and other
mineral exploration or development programs.
Notwithstanding any of the portfolio's other investment policies,
the portfolio may invest its assets in an open-end management
investment company having substantially the same investment
objectives, policies and restrictions as the portfolio for the
purpose of having those assets managed as part of a combined pool.
Unless the holders of a majority of the outstanding shares (as
defined in the section entitled "Voting rights" of the prospectus)
of Government Securities Portfolio agree to a change, Government
Securities Portfolio will not:
Act as an underwriter (sell securities for others). However, under
the securities laws, the portfolio may be deemed to be an
underwriter when it purchases securities directly from the issuer
and later resells them.
Buy securities of an issuer if the officers and directors of the
portfolio and of American Express Financial Corporation hold more
than a certain percent of the issuer's outstanding securities. The
holdings of all officers and directors of the portfolio and of
American Express Financial Corporation who own more than 0.5% of an
issuer's securities are added together and if in total they own
more than 5%, the portfolio will not purchase securities of that
issuer.
Buy or sell real estate, unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent
the portfolio from investing in securities or other instruments
backed by real estate or securities of companies engaged in the
real estate business.
Buy or sell physical commodities unless acquired as a result of
ownership of securities or other instruments, except this shall not
prevent the portfolio from buying or selling options and futures
contracts or from investing in securities or other instruments
backed by, or whose value is derived from, physical commodities.
Make cash loans if the total commitment amount exceeds 5% of the
portfolio's total assets.
Lend portfolio securities in excess of 30% of its net assets, at
market value. The current policy of the board of directors is to
make these loans, either long- or short-term, to broker-dealers.
In making such loans the portfolio gets the market price in cash,
U.S. government securities, letters of credit or such other<PAGE>
PAGE 116
collateral as may be permitted by regulatory agencies and approved
by the board of directors. If the market price of the loaned
securities goes up, the portfolio will get additional collateral on
a daily basis. The risks are that the borrower may not provide
additional collateral when required or return the securities when
due. A loan will not be made unless the opportunity for additional
income outweighs the risks. During the existence of the loan, the
portfolio receives cash payments equivalent to all interest or
other distributions paid on the loaned securities.
Invest more than 5% of its total assets, at market value, in
securities of any one company, government or political subdivision
thereof, except the limitation will not apply to investments in
securities issued by the U.S. government, its agencies or
instrumentalities. Up to 25% of the portfolio's total assets may
be invested without regard to this 5% limitation.
Borrow money or property except as a temporary measure for
extraordinary or emergency purposes, and in an amount not exceeding
one-third of the market value of its total assets (including
borrowings) less liabilities (other than borrowings) immediately
after the borrowing. The portfolio will not purchase additional
portfolio securities at any time borrowing for temporary purposes
exceeds 5%. The portfolio has not borrowed in the past and has no
present intention to borrow.
Make a loan of any part of its assets to American Express Financial
Corporation, to the officers and directors of American Express
Financial Corporation or to its own officers and directors.
Buy any property or security (other than securities issued by the
portfolio) from any officer or director of American Express
Financial Corporation or the Fund, nor will the portfolio sell any
property or security to them.
Issue senior securities, except that this restriction shall not be
deemed to prohibit the portfolio from borrowing money from banks,
lending its securities, or entering into repurchase agreements or
options or futures contracts.
Unless changed by the board of directors, the following policies
will apply to Government Securitites Portfolio:
The portfolio will not invest in illiquid securities if,
immediately after making such an investment, more than 10% of the
portfolio's net assets, at market, would be invested in such
securities.
The portfolio will not invest for the purpose of exercising control
or management.
The portfolio will not buy on margin or sell short, except that it
may enter into interest rate futures contracts.
<PAGE>
PAGE 117
The portfolio will not invest in securities of investment companies
except by purchase in the open market where the dealer's or
sponsor's profit is just the regular commission.
The portfolio may make contracts to purchase securities for a fixed
price at a future date beyond normal settlement time (when issued
securities or forward commitments). A portfolio does not pay for
the securities or receive dividends or interest on them until the
contractual settlement date. The portfolio's custodian will
maintain, in a segregated account, cash or liquid high-grade debt
securities that are marked to market daily and are at least equal
in value to the portfolio's commitments to purchase the securities.
When-issued securities or forward commitments are subject to market
fluctuations and they may affect the portfolio's total assets the
same as owned securities.
The portfolio may maintain a portion of its assets in cash and
cash-equivalent investments. The cash-equivalent investments the
portfolio may use are short-term U.S. and Canadian government
securities and negotiable certificates of deposit, non-negotiable
fixed-time deposits, bankers' acceptances and letters of credit of
banks or savings and loan associations having capital, surplus and
undivided profits (as of the date of its most recently published
annual financial statements) in excess of $100 million (or the
equivalent in the instance of a foreign branch of a U.S. bank) at
the date of investment. Any cash-equivalent investments in foreign
securities will be subject to the limitations on foreign
investments described in the prospectus. The portfolio also may
purchase short-term corporate notes and obligations rated in the
top two classifications by Moody's Investors Service, Inc. or
Standard & Poor's Corporation or the equivalent and may use
repurchase agreements with broker-dealers registered under the
Securities Exchange Act of 1934 and with commercial banks. A risk
of a repurchase agreement is that if the seller seeks the
protection of the bankruptcy laws, the portfolio's ability to
liquidate the security involved could be impaired.
The portfolio may invest in repurchase agreements. Repurchase
agreements involve investment in debt securities whereby the seller
agrees to repurchase the securities at cost plus an agreed to
interest rate within a specified time. A risk of a repurchase
agreement is that if the party with whom this portfolio has entered
into such an agreement seeks the protection of bankruptcy laws, the
portfolio's ability to liquidate the security involved could be
temporarily impaired, and it subsequently may incur a loss if the
value of the security declines, or if the other party defaults on
its obligation. There also is the risk that the portfolio may be
delayed or prevented from exercising its rights to dispose of the
collateral securities.
The portfolio may invest in Rule 144A securities, which are
unregistered securities offered to qualified institutional buyers,
and interest-only and principal-only fixed mortgage-backed
securities (IOs and POs) issued by the United States government or
its agencies and instrumentalities. In determining the liquidity<PAGE>
PAGE 118
of Rule 144A securities, IOs and POs, the investment manager, under
guidelines established by the board of directors, will consider any
relevant factors including the frequency of trades, the number of
dealers willing to purchase or sell the security and the nature of
marketplace trades.
The portfolio may invest in commercial paper issued in transactions
not involving a public offering under Section 4(2) of the
Securities Act of 1933 (4(2) paper). In determining the liquidity
of 4(2) paper, the investment manager, under guidelines established
by the board of directors, will evaluate relevant factors such as
the issuer and the size and nature of its commercial paper
programs, the willingness and ability of the issuer or dealer to
repurchase the paper, and the nature of the clearance and
settlement procedures for the paper.
The portfolio will not pledge or mortgage its assets beyond 15% of
the cost of its gross assets. For purposes of this restriction,
collateral arrangements with respect to margin for interest rate
futures contracts are not deemed to be a pledge of assets.
Notwithstanding any of the portfolio's other investment policies,
the portfolio may invest its assets in an open-end management
investment company having substantially the same investment
objectives, policies and restrictions as the portfolio for the same
purpose of having those assets managed as part of a combined pool.
Unless the holders of a majority of the outstanding shares (as
defined in the section entitled "Voting rights" of the prospectus)
of Income Portfolio agree to a change, Income Portfolio will not:
Underwrite securities of other issuers. However, this shall not
preclude the purchase of securities for investment, on original
issue or otherwise, and shall not preclude the acquisition of
portfolio securities under circumstances where the portfolio would
not be free to sell them without being deemed an underwriter for
purposes of the Securities Act of 1933 (1933 Act) and without
registration of such securities or the filing of a notification
under that Act, or the taking of similar action under other
securities laws relating to the sale of securities.
Buy securities of an issuer if the officers and directors of the
Portfolio and of American Express Financial Corporation hold more
than a certain percent of the issuer's outstanding securities. The
holdings of all officers and directors of the Portfolio who own
more than 0.5% of an issuer's securities are added together and if
in total they own more than 5%, the Portfolio will not purchase
securities of that issuer.
Buy or sell real estate, unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent
the portfolio from investing in securities or other instruments
backed by real estate or securities of companies engaged in the
real estate business.
<PAGE>
PAGE 119
Buy or sell physical commodities unless acquired as a result of
ownership of securities or other instruments, except this shall not
prevent the portfolio from buying or selling options and futures
contracts or from investing in securities or other instruments
backed by, or whose value is derived from, physical commodities.
Make cash loans if the total commitment amount exceeds 5% of the
portfolio's total assets.
Lend portfolio securities in excess of 30% of its net assets, at
market value. The current policy of the board of directors is to
make these loans, either long- or short-term, to broker-dealers.
In making such loans the portfolio gets the market price in cash,
U.S. government securities, letters of credit or such other
collateral as may be permitted by regulatory agencies and approved
by the board of directors. If the market price of theloaned
securities goes up, the portfolio will get additional collateral on
a daily basis. The risks are that the borrower may not provide
additional collateral when required or return the securities when
due. A loan will not be made unless the opportunity for additional
income outweighs the risks. During the existence of the loan, the
portfolio receives cash payments equivalent to all interest or
other distributions paid on the loaned securities.
Invest more than 5% of its total assets, at market value, in
securities of any one company, government or political subdivision
thereof, except the limitation will not apply to investments in
securities issued by the U.S. government, its agencies or
instrumentalities. Up to 25% of the portfolio's total assets may
be invested without regard to this 5% limitation.
Borrow money or property except as a temporary measure for
extraordinary or emergency purposes, and in an amount not exceeding
one-third of the market value of its total assets (including
borrowings) less liabilities (other than borrowings) immediately
after the borrowing. The portfolio will not purchase additional
portfolio securities at any time borrowing for temporary purposes
exceeds 5%. The portfolio has not borrowed in the past and has no
present intention to borrow.
Concentrate its investments in any particular industry, but
reserves freedom of action to do so provided that not more than 25%
of its assets, taken at cost, may be so invested at any one time.
Purchase securities of any issuer if immediately after and as a
result of such purchase the portfolio would own more than 10% of
the outstanding voting securities of such issuer.
Unless changed by the board of directors, the following policies
apply to Income Portfolio:
The portfolio will not invest in companies for the purpose of, or
with the effect of, acquiring control.
The portfolio will not buy on margin or sell short.
<PAGE>
PAGE 120
The portfolio will not invest in securities of any investment
company except in the open market where no commission or profit to
a sponsor or dealer results from such purchase other than customary
broker's commission. The portfolio does not intend to invest in
such securities but may do so to the extent of not more than 5% of
its total assets (taken at market or other current value). The
portfolio may acquire limited amounts of securities of one or more
investment companies as permitted by the Investment Company Act of
1940 (1940 Act), in connection with the acquisition of or merger
with such companies. Except for these instances, the portfolio
will not purchase securities of investment companies.
The portfolio may make contracts to purchase securities for a fixed
price at a future date beyond normal settlement time (when issued
securities or forward commitments). A portfolio does not pay for
the securities or receive dividends or interest on them until the
contractual settlement date. The portfolio's custodian will
maintain, in a segregated account, cash or liquid high-grade debt
securities that are marked to market daily and are at least equal
in value to the portfolio's commitments to purchase the securities.
When-issued securities or forward commitments are subject to market
fluctuations and they may affect the portfolio's total assets the
same as owned securities.
The portfolio may maintain a portion of its assets in cash and
cash-equivalent investments. The cash-equivalent investments the
portfolio may use are short-term U.S. and Canadian government
securities and negotiable certificates of deposit, non-negotiable
fixed-time deposits, bankers' acceptances and letters of credit of
banks or savings and loan associations having capital, surplus and
undivided profits (as of the date of its most recently published
annual financial statements) in excess of $100 million (or the
equivalent in the instance of a foreign branch of a U.S. bank) at
the date of investment. Any cash-equivalent investments in foreign
securities will be subject to the limitations on foreign
investments described in the prospectus. The portfolio also may
purchase short-term corporate notes and obligations rated in the
top two classifications by Moody's Investors Service, Inc. or
Standard & Poor's Corporation or the equivalent and may use
repurchase agreements with broker-dealers registered under the
Securities Exchange Act of 1934 and with commercial banks. A risk
of a repurchase agreement is that if the seller seeks the
protection of the bankruptcy laws, the portfolio's ability to
liquidate the security involved could be impaired.
The portfolio may invest in Rue 144A securities, which are
unregistered securities offered to qualified institutional buyers,
and interest-only and principal-only fixed mortgage-backed
securities (IOs and POs) issued by the United States government or
its agencies and instrumentalities. In determining the liquidity
of Rule 144A securities, IOs and POs, the investment manager, under
guidelines established by the board of directors, will consider any
relevant factors including the frequency of trades, the number of
dealers willing to purchase or sell the security and the nature of
marketplace trades.
<PAGE>
PAGE 121
The portfolio may invest in commercial paper issued in transactions
not involving a public offering under Section 4(2) of the
Securities Act of 1933 (4(2) paper). In determining the liquidity
of 4(2) paper, the investment manager, under guidelines established
by the board of directors, will evaluate relevant factors such as
the issuer and the size and nature of its commercial paper
programs, the willingness and ability of the issuer or dealer to
repurchase the paper, and the nature of the clearance and
settlement procedures for the paper.
The portfolio will not invest in securities which are not readily
marketable (including restricted securities and repurchase
agreements over 7 days) without registration or the filing of a
notification under the 1933 Act, or the taking of similar action
under other securities laws relating to the sale of securities, if
immediately after the making of any such investment more than 10%
of the portfolio's net assets (taken at market or other current
value) are invested in such securities.
The portfolio will not invest in interests in oil, gas and other
mineral exploration or development programs.
Notwithstanding any of the portfolio's other investment policies,
the portfolio may invest its assets in an open-end management
investment company having substantially the same investment
objectives, policies and restrictions as the portfolio for the
purpose of having those assets managed as part of a combined pool.
Unless the holders of a majority of the outstanding shares (as
defined in the section entitled "Voting rights" of the prospectus)
of International Equity Portfolio agree to a change, International
Equity Portfolio will not:
Act as an underwriter (sell securities for others). However, under
the securities laws, the portfolio may be deemed to be an
underwriter when it purchases securities directly from the issuer
and later resells them. It may be considered an underwriter under
securities laws when its sells restricted securities.
Purchase securities of an issuer if the directors and officers of
the portfolio, American Express Financial Corporation and IDS Life
Insurance Company (IDS Life) hold more than a certain percentage of
the issuer's outstanding securities. The holdings of all officers
and directors of the portfolio, American Express Financial
Corporation and IDS Life who own more than 0.5% of an issuer's
securities are added together, and if in total they own more than
5%, the portfolio will not purchase securities of that issuer.
Buy or sell real estate, unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent
the portfolio from investing in securities or other instruments
backed by real estate or securities of companies engaged in the
real estate business.
Buy or sell physical commodities unless acquired as a result of
ownership of securities or other instruments, except this shall not<PAGE>
PAGE 122
prevent the portfolio from buying or selling options and futures
contracts or from investing in securities or other instruments
backed by, or whose value is derived from, physical commodities.
Make cash loans if the total commitment amount exceeds 5% of the
portfolio's total assets.
Lend portfolio securities in excess of 30% of its net assets, at
market value. The current policy of the board of directors is to
make these loans, either long- or short-term, to broker-dealers.
In making such loans the portfolio gets the market price in cash,
U.S. government securities, letters of credit or such other
collateral as may be permitted by regulatory agencies and approved
by the board of directors. If the market price of the loaned
securities goes up, the portfolio will get additional collateral on
a daily basis. The risks are that the borrower may not provide
additional collateral when required or return the securities when
due. A loan will not be made unless the opportunity for additional
income outweighs the risks. During the existence of the loan, the
portfolio receives cash payments equivalent to all interest or
other distributions paid on the loaned securities.
Invest more than 5% of its total assets, at market value, in
securities of any one company, government or political subdivision
thereof, except the limitation will not apply to investments in
securities issued by the U.S. government, its agencies or
instrumentalities. Up to 25% of the portfolio's total assets may
be invested without regard to this 5% limitation.
Borrow money or property except as a temporary measure for
extraordinary or emergency purposes, and in an amount not exceeding
one-third of the market value of its total assets (including
borrowings) less liabilities (other than borrowings) immediately
after the borrowing. The portfolio will not purchase additional
portfolio securities at any time borrowing for temporary purposes
exceeds 5%. The portfolio has not borrowed in the past and has no
present intention to borrow.
Concentrate in any one industry. According to the present
interpretation by the Securities and Exchange Commission (SEC),
this means no more than 25% of a portfolio's total assets, based on
current market value at time of purchase, can be invested in any
one industry.
Purchase more than 10% of the outstanding voting securities of an
issuer.
Make a loan of any part of its assets to American Express Financial
Corporation, to its directors and officers or to its own directors
and officers.
Issue senior securities, except to the extent that borrowing from
banks, lending its securities, or entering into repurchase
agreements or options or futures contracts may be deemed to
constitute issuing a senior security.
<PAGE>
PAGE 123
Unless changed by the board of directors, the following policies
apply to International Equity Portfolio:
The portfolio will not invest more than 10% of the portfolio's net
assets in illiquid securities and derivative instruments that are
illiquid. For purposes of this policy illiquid securities include
some privately placed securities, public securities and Rule 144A
securities that for one reason or another may no longer have a
readily available market, repurchase agreements with maturities
greater than seven days, non-negotiable fixed-time deposits and
over-the-counter options.
The portfolio will not invest in a company to control or manage it.
The portfolio will not buy on margin or sell short, but the
portfolio may make margin payments in connection with transactions
in stock index futures contracts.
The portfolio will not invest more than 10% of its net assets, at
market, in securities of investment companies. To the extent the
portfolio were to make such investments, the shareholders may be
subject to duplicate advisory, administrative and distribution
fees.
The portfolio may make contracts to purchase securities for a fixed
price at a future date beyond normal settlement time (when issued
securities or forward commitments). A portfolio does not pay for
the securities or receive dividends or interest on them until the
contractual settlement date. The portfolio's custodian will
maintain, in a segregated account, cash or liquid high-grade debt
securities that are marked to market daily and are at least equal
in value to the portfolio's commitments to purchase the securities.
When-issued securities or forward commitments are subject to market
fluctuations and they may affect the portfolio's total assets the
same as owned securities.
The portfolio may maintain a portion of its assets in cash and
cash-equivalent investments. The cash-equivalent investments the
Portfolio may use are short-term U.S. and Canadian government
securities and negotiable certificates of deposit, non-negotiable
fixed-time deposits, bankers' acceptances and letters of credit of
banks or savings and loan associations having capital, surplus and
undivided profits (as of the date of its most recently published
annual financial statements) in excess of $100 million (or the
equivalent in the instance of a foreign branch of a U.S. bank) at
the date of investment. Any cash-equivalent investments in foreign
securities will be subject to the limitations on foreign
investments described in the prospectus. The portfolio also may
purchase short-term corporate notes and obligations rated in the
top two classifications by Moody's Investors Service, Inc. or
Standard & Poor's Corporation or the equivalent and may use
repurchase agreements with broker-dealers registered under the
Securities Exchange Act of 1934 and with commercial banks. A risk
of a repurchase agreement is that if the seller seeks the
protection of the bankruptcy laws, the portfolio's ability to
liquidate the security involved could be impaired.<PAGE>
PAGE 124
The portfolio will not pledge or mortgage its assets beyond 15% of
the cost of its total assets. If the portfolio were ever to do so,
valuation of its assets would be based on market value and the
portfolio would comply with applicable state laws, one of which
requires 90% of the offering price to consist of net assets that
are not pledged or mortgaged. For the purpose of this restriction,
collateral arrangements with respect to margin for futures
contracts are not deemed to be a pledge of assets.
The portfolio may invest in Rule 144A securities, which are
unregistered securities offered to qualified institutional buyers,
and interest-only and principal-only fixed mortgage-backed
securities (IOs and POs) issued by the United States government or
its agencies and instrumentalities. In determining the liquidity
of Rule 144A securities, IOs and POs, the investment manager, under
guidelines established by the board of directors, will consider any
relevant factors including the frequency of trades, the number of
dealers willing to purchase or sell the security and the nature of
marketplace trades.
The portfolio may invest in commercial paper issued in transactions
not involving a public offering under Section 4(2) of the
Securities Act of 1933 (4(2) paper). In determining the liquidity
of 4(2) paper, the investment manager, under guidelines established
by the board of directors, will evaluate relevant factors such as
the issuer and the size and nature of its commercial paper
programs, the willingness and ability of the issuer or dealer to
repurchase the paper, and the nature of the clearance and
settlement procedures for the paper.
Notwithstanding any of the portfolio's other investment policies,
the portfolio may invest its assets in an open-end management
investment company having substantially the same investment
objectives, policies and restrictions as the portfolio for the
purpose of having those assets managed as part of a combined pool.
Unless the holders of a majority of the outstanding shares (as
defined in the section entitled "Voting rights" of the prospectus)
of Managed Portfolio agree to a change, Managed Portfolio will not:
Act as an underwriter (sell securities for others). However, under
the securities laws, the portfolio may be deemed to be an
underwriter when it purchases securities directly from the issuer
and later resells them.
Buy securities of an issuer if the officers and directors of the
portfolio and of American Express Financial Corporation hold more
than a certain percentage of the issuer's outstanding securities.
The holdings of all officers and directors of the portfolio and of
American Express Financial Corporation who own more than 0.5% of an
issuer's securities are added together and if in total they own
more than 5%, the portfolio will not purchase securities of that
issuer.
Buy or sell real estate, unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent<PAGE>
PAGE 125
the portfolio from investing in securities or other instruments
backed by real estate or securities of companies engaged in the
real estate business.
Buy or sell physical commodities unless acquired as a result of
ownership of securities or other instruments, except this shall not
prevent the portfolio from buying or selling options and futures
contracts or from investing in securities or other instruments
backed by, or whose value is derived from, physical commodities.
Make cash loans if the total commitment amount exceeds 5% of the
portfolio's total assets.
Lend portfolio securities in excess of 30% of its net assets, at
market value. The current policy of the board of directors is to
make these loans, either long- or short-term, to broker-dealers.
In making such loans the portfolio gets the market price in cash,
U.S. government securities, letters of credit or such other
collateral as may be permitted by regulatory agencies and approved
by the board of directors. If the market price of the loaned
securities goes up, the portfolio will get additional collateral on
a daily basis. The risks are that the borrower may not provide
additional collateral when required or return the securities when
due. A loan will not be made unless the opportunity for additional
income outweighs the risks. During the existence of the loan, the
portfolio receives cash payments equivalent to all interest or
other distributions paid on the loaned securities.
Invest more than 5% of its total assets, at market value, in
securities of any one company, government or political subdivision
thereof, except the limitation will not apply to investments in
securities issued by the U.S. government, its agencies or
instrumentalities. Except for Money Market Portfolio, up to 25% of
each Portfolio's total assets may be invested without regard to
this 5% limitation.
Borrow money or property except as a temporary measure for
extraordinary or emergency purposes, and in an amount not exceeding
one-third of the market value of its total assets (including
borrowings) less liabilities (other than borrowings) immediately
after the borrowing. The portfolio will not purchase additional
portfolio securities at any time borrowing for temporary purposes
exceeds 5%. The portfolio has not borrowed in the past and has no
present intention to borrow.
Concentrate in any one industry. (According to the present
interpretation of the staff of the Securities and Exchange
Commission this means no more than 25% of the portfolio's total
assets, based on current market value at the time of purchase, can
be invested in any one industry).
Make a loan of any part of its assets to American Express Financial
Corporation, to the officers and directors of American Express
Financial Corporation or to its own officers and directors.
<PAGE>
PAGE 126
Issue senior securities, except that this restriction shall not be
deemed to prohibit the portfolio from borrowing money from banks,
lending its securities, or entering into repurchase agreements or
options or futures contracts.
Unless changed by the board of directors, the following policies
apply to Managed Portfolio:
The portfolio will not invest in a company to get control or manage
it.
The portfolio will not buy on margin or sell short, but it may make
margin payments in connection with transactions in futures
contracts.
The portfolio will not invest in securities of investment companies
except by purchases in the open market where the dealer's or
sponsor's profit is just the regular commission.
The portfolio may make contracts to purchase securities for a fixed
price at a future date beyond normal settlement time (when issued
securities or forward commitments). A portfolio does not pay for
the securities or receive dividends or interest on them until the
contractual settlement date. The portfolio's custodian will
maintain, in a segregated account, cash or liquid high-grade debt
securities that are marked to market daily and are at least equal
in value to the portfolio's commitments to purchase the securities.
When-issued securities or forward commitments are subject to market
fluctuations and they may affect the portfolio's total assets the
same as owned securities.
The portfolio may maintain a portion of its assets in cash and
cash-equivalent investments. The cash-equivalent investments the
portfolio may use are short-term U.S. and Canadian government
securities and negotiable certificates of deposit, non-negotiable
fixed-time deposits, bankers' acceptances and letters of credit of
banks or savings and loan associations having capital, surplus and
undivided profits (as of the date of its most recently published
annual financial statements) in excess of $100 million (or the
equivalent in the instance of a foreign branch of a U.S. bank) at
the date of investment. Any cash-equivalent investments in foreign
securities will be subject to the limitations on foreign
investments described in the prospectus. The portfolio also may
purchase short-term corporate notes and obligations rated in the
top two classifications by Moody's Investors Service, Inc. or
Standard & Poor's Corporation or the equivalent and may use
repurchase agreements with broker-dealers registered under the
Securities Exchange Act of 1934 and with commercial banks. A risk
of a repurchase agreement is that if the seller seeks the
protection of the bankruptcy laws, the portfolio's ability to
liquidate the security involved could be impaired.
The portfolio will not invest more than 5% of its total assets,
taken at cost, in securities of companies, including any
predecessor, which have a record of less than three years
continuous operations.<PAGE>
PAGE 127
The portfolio does not intend to invest in exploration or
development programs, such as oil, gas or mineral programs.
The portfolio may invest in repurchase agreements. Repurchase
agreements involve investment in debt securities whereby the seller
agrees to repurchase the securities at cost plus an agreed to
interest rate within a specified time. A risk of a repurchase
agreement is that if the party with whom this portfolio has entered
into such an agreement seeks the protection of bankruptcy laws, the
portfolio's ability to liquidate the security involved could be
temporarily impaired, and it subsequently may incur a loss if the
value of the security declines, or if the other party defaults on
its obligation. There also is the risk that the portfolio may be
delayed or prevented from exercising its rights to dispose of the
collateral securities.
The portfolio may invest in Rule 144A securities, which are
unregistered securities offered to qualified institutional buyers,
and interest-only and principal-only fixed mortgage-backed
securities (IOs and POs) issued by the United States government or
its agencies and instrumentalities. In determining the liquidity
of Rule 144A securities, IOs and POs, the investment manager, under
guidelines established by the board of directors, will consider any
relevant factors including the frequency of trades, the number of
dealers willing to purchase or sell the security and the nature of
marketplace trades.
The portfolio may invest in commercial paper issued in transactions
not involving a public offering under Section 4(2) of the
Securities Act of 1933 (4(2) paper). In determining the liquidity
of 4(2) paper, the investment manager, under guidelines established
by the board of directors, will evaluate relevant factors such as
the issuer and the size and nature of its commercial paper
programs, the willingness and ability of the issuer or dealer to
repurchase the paper, and the nature of the clearance and
settlement procedures for the paper.
The portfolio does not intend to invest in illiquid securities if,
immediately after making such an investment, more than 10% of the
portfolio's net assets, at market, would be invested in such
securities.
The portfolio will not pledge or mortgage its assets beyond 15% of
the cost of its gross assets taken at cost. For the purposes of
this restriction, collateral arrangements with respect to margin
for futures contracts are not deemed to be a pledge of assets.
Notwithstanding any of the portfolio's other investment policies,
the portfolio may invest its assets in an open-end management
investment company having substantially the same investment
objectives, policies and restrictions as the portfolio for the
purpose of having those assets managed as part of a combined pool.
<PAGE>
PAGE 128
Unless the holders of a majority of the outstanding shares (as
defined in the section entitled "Voting rights" of the prospectus)
of Money Market Portfolio agree to a change, Money Market Portfolio
will not:
Act as an underwriter (sell securities for others). However, under
securities laws the portfolio may be deemed to be an underwriter
when it purchases securities directly from the issuer and later
resells them.
Buy securities of an issuer if the directors and officers of the
portfolio and of American Express Financial Corporation hold more
than a certain percentage of the issuer's outstanding securities.
The holdings of all directors and officers of the portfolio who own
more than 0.5% of an issuer's securities are added together, and if
in total they own more than 5%, the portfolio will not purchase
securities of that issuer.
Buy or sell real estate, commodities, or commodity contracts.
Make cash loans. However, it does make short-term investments
which it may have an agreement with the seller to reacquire (See
Appendix B).
Lend portfolio securities in excess of 30% of its net assets, at
market value. The current policy of the board of directors is to
make these loans, either long- or short-term, to broker-dealers.
In making such loans the portfolio gets the market price in cash,
U.S. government securities, letters of credit or such other
collateral as may be permitted by regulatory agencies and approved
by the board of directors. If the market price of the loaned
securities goes up, the portfolio will get additional collateral on
a daily basis. The risks are that the borrower may not provide
additional collateral when required or return the securities when
due. A loan will not be made unless the opportunity for additional
income outweighs the risks. During the existence of the loan, the
portfolio receives cash payments equivalent to all interest or
other distributions paid on the loaned securities.
Invest more than 5% of its total assets, at market value, in
securities of any one company, government or political subdivision
thereof, except the limitation will not apply to investments in
securities issued by the U.S. government, its agencies or
instrumentalities. Except for Money Market Portfolio, up to 25% of
each portfolio's total assets may be invested without regard to
this 5% limitation.
Borrow money or property except as a temporary measure for
extraordinary or emergency purposes, and in an amount not exceeding
one-third of the market value of its total assets (including
borrowings) less liabilities (other than borrowings) immediately
after the borrowing. The portfolio will not purchase additional
portfolio securities at any time borrowing for temporary purposes
exceeds 5%. The portfolio has not borrowed in the past and has no
present intention to borrow.
<PAGE>
PAGE 129
Buy on margin or sell short.
Invest in exploration or development programs, such as oil, gas or
mineral programs.
Purchase common stocks, preferred stocks, warrants, other equity
securities, corporate bonds or debentures, state bonds, municipal
bonds, or industrial revenue bonds.
Pledge or mortgage portfolio assets beyond 15% of the cost of the
portfolio's gross assets. If the portfolio should engage in such
transactions, valuation of its assets for such purposes would be
based on their market value.
Invest in an investment company beyond 5% of its total assets taken
at market and then only on the open market where the dealer's or
sponsor's profit is just the regular commission. However, the
portfolio will not purchase or retain the securities of other open-
end investment companies.
Invest in a company to get control or manage it.
Invest more than 25% of the portfolio's assets taken at market
value in any particular industry, except there is no limitation
with respect to investing in U.S. government or agency securities
and bank obligations. Investments are varied according to what is
judged advantageous under different economic conditions.
Unless changed by the board of directors, the following policies
apply to Money Market Portfolio:
The portfolio will not invest in illiquid securities if,
immediately after making such an investment, more than 10% of the
portfolio's net assets, at market, would be invested in such
securities.
The portfolio may make contracts to purchase securities for a fixed
price at a future date beyond normal settlement time (when issued
securities or forward commitments). A portfolio does not pay for
the securities or receive dividends or interest on them until the
contractual settlement date. The portfolio's custodian will
maintain, in a segregated account, cash or liquid high-grade debt
securities that are marked to market daily and are at least equal
in value to the portfolio's commitments to purchase the securities.
When-issued securities or forward commitments are subject to market
fluctuations and they may affect the portfolio's total assets the
same as owned securities.
The portfolio may maintain a portion of its assets in cash and
cash-equivalent investments. The cash-equivalent investments the
portfolio may use are short-term U.S. and Canadian government
securities and negotiable certificates of deposit, non-negotiable
fixed-time deposits, bankers' acceptances and letters of credit of
banks or savings and loan associations having capital, surplus and
undivided profits (as of the date of its most recently published
annual financial statements) in excess of $100 million (or the<PAGE>
PAGE 130
equivalent in the instance of a foreign branch of a U.S. bank) at
the date of investment. Any cash-equivalent investments in foreign
securities will be subject to the limitations on foreign
investments described in the prospectus. The portfolio also may
purchase short-term corporate notes and obligations rated in the
top two classifications by Moody's Investors Service, Inc. or
Standard & Poor's Corporation or the equivalent and may use
repurchase agreements with broker-dealers registered under the
Securities Exchange Act of 1934 and with commercial banks. A risk
of a repurchase agreement is that if the seller seeks the
protection of the bankruptcy laws, the portfolio's ability to
liquidate the security involved could be impaired.
The portfolio may invest in repurchase agreements. Repurchase
agreements involve investment in debt securities whereby the seller
agrees to repurchase the securities at cost plus an agreed to
interest rate within a specified time. A risk of a repurchase
agreement is that if the party with whom this portfolio has entered
into such an agreement seeks the protection of bankruptcy laws, the
portfolio's ability to liquidate the security involved could be
temporarily impaired, and it subsequently may incur a loss if the
value of the security declines, or if the other party defaults on
its obligation. There also is the risk that the portfolio may be
delayed or prevented from exercising its rights to dispose of the
collateral securities.
Notwithstanding any of the portfolio's other investment policies,
the portfolio may invest its assets in an open-end management
investment company having substantially the same investmetn
objectives, policies and restrictions as the portfolio for the
purpose of having those assets managed as part of a combined pool.
For a discussion on foreign currency transactions, see Appendix A.
For a discussion on money market securities, see Appendix B. For a
discussion on options and stock index futures contracts, see
Appendix C. For a discussion on options and interest rate futures
contracts, see Appendix D. For a discussion on mortgage-backed
securities, see Appendix E. For a discussion on dollar-cost
averaging, see Appendix F. For a description of corporate bond
ratings, see Appendix G.
PORTFOLIO TRANSACTIONS
Subject to policies set by the Board of Directors, IDS Life is
authorized to determine, consistent with each Portfolio's
investment goals and policies, which securities shall be purchased,
held or sold. In determining where the buy and sell orders are to
be placed, IDS Life 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 of Directors. IDS
Life intends to direct American Express Financial Corporation to
execute trades and negotiate commissions on its behalf. In
selecting broker-dealers to execute transactions, American Express
Financial Corporation may consider the price of the security,
including commission or mark-up, the size and difficulty of the
order, the reliability, integrity, financial soundness and general<PAGE>
PAGE 131
operation and execution capabilities of the broker, the broker's
expertise in particular markets, and research services provided by
the broker. These services are covered by the Investment Advisory
agreement between American Express Financial Corporation and IDS
Life. When American Express Financial Corporation acts on IDS
Life's behalf for the Fund, it follows the rules described here for
IDS Life.
Because Income Portfolio's investments are primarily in bonds,
which are traded in the over-the-counter market, IDS Life generally
will deal through a dealer acting as a principal. The price
usually includes a dealer's mark-up without a separate brokerage
charge. When IDS Life believes that dealing through a broker as
agent for a commission will produce the best results, it will do
so. The Portfolio also may buy securities directly from an issuing
company which may be resold only privately to other institutional
investors.
On occasion it may be desirable to compensate a broker for research
services or for brokerage services, by paying a commission which
might not otherwise be charged or a commission in excess of the
amount another broker might charge. The Board of Directors has
adopted a policy authorizing IDS Life to do so to the extent
authorized by law, if IDS Life 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 IDS Life's or American Express
Financial Corporation's overall responsibilities.
Research provided by brokers supplements IDS Life's own research
activities. Research services provided by brokers 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 stock
and bonds; portfolio strategy services; political, economic,
business and industry trend assessments; historical statistical
information; market data services providing information on specific
issues and prices; and technical analysis of various aspects of the
securities markets, including technical charts. Research services
may take the form of written reports, computer software or personal
contact by telephone or at seminars or other meetings. IDS Life
has obtained and, in the near 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 Securities and Exchange Commission.
When paying a commission that might not otherwise be charged or a
commission in excess of that which another broker might charge, IDS
Life must follow procedures authorized by the Board of Directors.
To date, three procedures have been authorized. One procedure
permits IDS Life to direct an order to buy or sell a security
traded on a national securities exchange to a specific broker for
research services it has provided. The second procedure permits
IDS Life, in order to obtain research, to direct an order on an<PAGE>
PAGE 132
agency basis to buy or sell a security traded only in the over-the-
counter market to a firm that does not make a market in the
security. The commission paid generally includes compensation for
research services. The third procedure permits IDS Life, in order
to obtain research and brokerage services, to cause a Portfolio to
pay a commission in excess of the amount another broker might have
charged. IDS Life has advised the Fund that it is necessary to do
business with a number of brokerage firms on a continuous basis to
obtain such services as: handling large orders; the willingness of
a broker to risk its own money by taking a position in a security;
and 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 IDS Life believes it may obtain better
overall execution. IDS Life has assured the Fund that under all
three procedures the amount of commission paid will be reasonable
and competitive in relation to the value of the brokerage services
performed or research provided.
All other transactions shall be executed on the basis of the policy
to obtain 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 IDS Life and American
Express Financial Corporation in providing advice to all the funds
and other accounts advised by IDS Life even though it is not
possible to relate the benefits to any particular fund or account.
Each investment decision made for a Portfolio is made independently
from any decision made for another Portfolio or fund or other
account advised by IDS Life or any of its subsidiaries. When the
Portfolio buys or sells the same security as another fund or
account, IDS Life 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. IDS Life has assured the Fund it will continue to seek
ways to reduce brokerage costs.
On a periodic basis, IDS Life makes a comprehensive review of the
broker-dealers and the overall reasonableness of their commissions.
The review evaluates execution, back office efficiency and research
services.
The Fund paid total brokerage commissions of $190,220 for fiscal
year 1992, $210,093 for fiscal year 1993, and $405,141 for fiscal
year ended April 30, 1994. The majority of all firms through whom
transactions were executed provide research services. There were
no transactions directed to brokers by the Fund because of research
services received for the fiscal year ended April 30, 1994.
Income and Managed Portfolios' acquisition during the period ended
April 30, 1994, of securities of its regular brokers or dealers or
of the parents of those brokers or dealers that derive more than<PAGE>
PAGE 133
15% of gross revenue from securities-related activities is
presented below:
Value of Securities
Owned at End of
Name of Issuer Fiscal Year
Bank of America $1,081,250
Bankers Trust 298,000
Citicorp 303,375
Goldman Sachs 191,250
Salomon Brothers 450,000
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH IDS LIFE
Affiliates of American Express Company (of which IDS Life is a
wholly owned indirect subsidiary) may engage in brokerage and other
securities transactions on behalf of the Fund in accordance with
procedures adopted by the Fund's Board of Directors and to the
extent consistent with applicable provisions of the federal
securities laws. IDS Life will use an American Express affiliate
only if (i) IDS Life 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) if such use is consistent with terms of the
Investment Management and Services Agreement.
Information about brokerage commissions paid by the Fund for the
last three fiscal years to brokers affiliated with IDS Life is
contained in the following table:
For the Fiscal Year Ended April 30,
1994 1993 1992
Aggregate Percent of Aggregate Aggregate
Dollar Aggregate Dollar Dollar Dollar
Amount of Percent of Amount of Amount of Amount of
Nature Commissions Aggregate Transactions Commissions Commissions
of Paid to Brokerage Involving Payment Paid to Paid to
Broker Affiliation Broker Commissions of Commissions Broker Broker
American (2) $19,878 4.91% .01% $35,204 $27,081
Enterprise
Investment
Services Inc.
Lehman (1) $ 4,851 1.19% 0% $ 8,390 $ 5,660
Brothers
Inc.
The Robinson (3) none none none none $ 1,680
Humphrey
Company, Inc.
(1) Under common control with American Express Financial
Corporation as a subsidiary of American Express Company (American
Express) until July 30, 1993.
(2) Wholly owned subsidiary of American Express Financial
Corporation.
(3) Under common control with American Express Financial
Corporation as an indirect subsidiary of American Express until
July 30, 1993.
<PAGE>
PAGE 134
PERFORMANCE INFORMATION
Each Portfolio may quote various performance figures to illustrate
past performance. Average annual total return and current yield
quotations used by a Fund are based on standardized methods of
computing performance as required by the SEC. An explanation of
these and any other methods used by each Portfolio to compute
performance follows below.
CALCULATION OF TOTAL RETURN
Each Portfolio may calculate average annual total return 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 at the beginning of a period, at
the end of the period (or fractional portion
thereof)
Aggregate total return
Each Portfolio may calculate aggregate total return for certain
periods representing the cumulative change in the value of an
investment in a Portfolio 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 at the beginning of a period, at the end of
the period (or fractional portion thereof)
CALCULATION OF YIELD
Government Securities and Income Portfolios - These portfolios may
calculate an annualized yield by dividing the average net
investment income per share earned during a 30-day period by the
net asset value per share on the last day of the period and
annualizing the results.
Yield is calculated according to the following formula:
Yield = 2[ (a-b + 1)6 - 1]
cd
<PAGE>
PAGE 135
where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of
reimbursements)
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = the maximum offering price per share on the
last day of the period
Government Securities Portfolio's yield was 5.31% for the 30-day
period ended April 30, 1994 and Income Portfolio's yield was 6.67%.
IDS Life has agreed to a voluntary limitation of non-advisory
expenses at an annual charge not to exceed 0.1 percent of the
average daily net assets of the Fund. If non-advisory expenses had
not been limited, Government Securities Portfolio's yield would
have been 5.27%. Income Portfolio's yield would have been 6.67*%.
*Expenses did not exceed .1% of average daily net assets.
Money Market Portfolio calculates annualized simple and compound
yields based on a seven-day period.
The simple yield is calculated by determining the net change in the
value of a hypothetical account having a balance of one share at
the beginning of the seven day period, dividing the net change in
account value by the value of the account at the beginning of the
period to obtain the return for the period, and multiplying that
return by 365/7 to obtain an annualized figure. The value of the
hypothetical account includes the amount of any declared dividends,
the value of any shares purchased with any dividend paid during the
period and any dividends declared for such shares. The Portfolio's
yield does not include any realized or unrealized gain or loss.
The Portfolio calculates its compound yield according to the
following formula:
Compound Yield = (return for seven day period + 1) 365/7 - 1
The Portfolio's simple annualized yield was 2.99% and its compound
yield was 3.03% on April 30, 1994, the last business day of the
fund's fiscal year. If direct expenses had not been limited, the
simple annualized yield would have been 2.89% and its compound
yield would have been 2.93%.
Yield, or rate of return, on Portfolio shares may fluctuate daily
and does not provide a basis for determining future yields.
However, it may be used as one element in assessing how the
Portfolio is meeting its goal. When comparing an investment in the
Portfolio with savings accounts and similar investment
alternatives, you must consider that such alternatives often
provide an agreed to or guaranteed fixed yield for a stated period
of time, whereas the Portfolio's yield fluctuates. In comparing
the yield of one money market fund to another, you should consider
each fund's investment policies, including the types of investments
permitted.<PAGE>
PAGE 136
In its sales material and other communications, the Fund may quote
rankings, yields or returns as published by independent statistical
services or publishers and publications such as The Bank Rate
Monitor National Index, Barron's, Business Week, Donoghue's Money
Market Fund Report, Financial Services Week, Financial Times,
Financial World, Forbes, Fortune, Global Investor, Institutional
Investor, Investor's Daily, Kiplinger's Personal Finance, Lipper
Analytical Services, Money, Mutual Fund Forecaster, Newsweek, The
New York Times, Personal Investor, 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.
VALUING EACH PORTFOLIO'S SHARES
The value of an individual share in the Equity, Income, Managed,
Government Securities and International Equity Portfolios, is
determined by using the net asset value before the shareholder
transactions for the day. On April 30, 1994 the computation looked
like this for Equity, Income, Managed and Government Securities
Portfolios:
Net assets before Shares outstanding Net asset
shareholder transactions at end of previous day value of one share
Equity Portfolio $151,860,163 divided by 8,391,259 = $18.10
Income Portfolio $ 33,769,928 divided by 3,476,335 = $ 9.71
Managed Portfolio $160,719,325 divided by 11,604,807 = $13.85
Government Securities
Portfolio $ 11,184,851 divided by 1,132,254 = $ 9.88
The net asset value per share is determined by dividing the total
market value of the Fund's investments and other assets, less any
liabilities, by the number of outstanding shares of the Fund. To
establish the net assets, all securities are valued as of the close
of each business day, which is the closing time of the New York
Stock Exchange (currently 3 p.m. Central time). A business day for
the Fund is any day the New York Stock Exchange is open. The
portfolio securities are valued at amortized cost, which
approximates market value.
In determining net assets, the Fund's portfolio securities are
valued as follows:
`Stocks, convertible bonds, warrants, futures and options traded on
major exchanges are valued each day at their last quoted sales
price on their primary exchange as of the close of the New York
Stock Exchange. If the last quoted sales price is not readily
available for a particular security, the value is the average price
between the last offer to buy and the last offer to sell.
`Stocks, convertible bonds and warrants with readily available
market quotations but without a listing on an exchange are also
valued at the average between the last bid (offer to buy) and asked
(offer to sell) price at the time of the close of the New York
Stock Exchange.
`Short-term securities maturing in 60 days or less at the
acquisition date are valued at amortized cost. (Amortized cost is<PAGE>
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an approximation of market value determined by systematically
increasing the carrying value of a security if acquired at a
discount, or systematically reducing the carrying value if acquired
at a premium, so that the carrying value is equal to maturity value
on the maturity date.)
`Securities without a readily available market price, bonds other
than convertibles and other assets are valued at fair value. In
valuing these, the Fund directors are responsible for selecting
methods which they believe give the fair value. For nonconvertible
bonds, the usual method is to use the pricing service of an outside
organization. Such pricing service may take into consideration
yield, quality, coupon, maturity, type of issue, trading
characteristics and other market data in determining valuations for
normal institutional-size trading units of debt securities and does
not rely exclusively on quoted prices.
`Generally, trading in foreign securities is substantially
completed each day at various times prior to the close of the New
York Stock Exchange. The values of such securities used in
determining the net asset value of the Fund's shares are computed
as of such times. Occasionally, events affecting the value of such
securities may occur between such times and the close of the New
York Stock Exchange which 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, then these
securities will be valued at their fair value according to
procedures decided upon in good faith by the Fund's Board of
Directors. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at the current exchange rate.
Valuing Money Market Portfolio's shares
Money Market Portfolio intends to use its best efforts to maintain
a constant net asset value of $1 per share although there is no
assurance it will be able to do so. Accordingly, it uses the
amortized cost method in valuing its Portfolio.
Short-term securities maturing in 60 days or less 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. It does not take into
consideration unrealized capital gains or losses. All of the
securities in the portfolio will be valued at their amortized cost.
In addition, the Portfolio must abide by certain conditions. It
must only invest in securities of high quality which present
minimal credit risks as determined by the Board of Directors. This
means that the rated commercial paper in the Fund's portfolio will
be issues that have been rated in the highest rating category by at
least two nationally recognized statistical rating organizations
(or by one if only one rating is assigned) and in unrated paper
determined by the Fund's Board of Directors to be comparable. The
Portfolio must also purchase securities with original or remaining<PAGE>
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maturities of no more than 13 months or less, and maintain a
dollar-weighted average portfolio maturity of 90 days or less.
In addition, the Board of Directors must establish procedures
designed to stabilize the Portfolio's price per share for purposes
of sales and redemptions at $1 to the extent that it is reasonably
possible to do so. These procedures include review of the
portfolio securities by the Board, at intervals deemed appropriate
by it, to determine whether the net asset value per share computed
by using the available market quotations deviates from a share
value of $1 as computed using the amortized cost method. The Board
must consider any deviation that appears, and if it exceeds 0.5
percent, it must determine what action, if any, needs to be taken.
If the Board determines that a deviation exists that may result in
a material dilution of the holdings of current shareholders or
investors, or in other unfair consequences for such people, it must
undertake remedial action that it deems necessary and appropriate.
Such action may include withholding dividends, calculating net
asset value per share for purposes of sales and redemptions using
available market quotations, making redemptions in kind, and
selling portfolio securities before maturity in order to realize
capital gain or loss or to shorten average portfolio maturity.
In other words, while the amortized cost method provides certainty
and consistency in portfolio valuation, it may, from time to time,
result in valuations of portfolio securities which are either
somewhat higher or lower than the prices at which the securities
could be sold. This means that during times of declining interest
rates, the yield on the Portfolio's shares may be higher than if
valuations of securities were made based on actual market prices
and estimates of market prices. Accordingly, if use of the
amortized cost method were to result in a lower portfolio value at
a given time, a prospective investor would be able to obtain a
somewhat higher yield than he or she would get if portfolio
valuation were based on actual market values. Existing
shareholders, on the other hand, would receive a somewhat lower
yield than they would otherwise receive. The opposite would happen
during a period of rising interest rates.
INVESTING IN THE FUND
You cannot buy shares of the Fund directly. The only way you can
invest in the Fund at the present time is by buying a Variable Life
Insurance Policy from IDS Life or IDS Life of New York and
directing the allocation of part or all of your net purchase
payment to the Variable Accounts which will invest in shares of the
Fund. Read this fund's prospectus along with your Variable Life
Insurance Policy prospectus.
Sales Charges and Surrender Charges
The Fund does not assess any sales charge, either when it sells or
when it redeems securities. The surrender charges which may be
assessed under your Variable Life Insurance Policy are described in
the Variable Life Insurance Policy prospectus, as are mortality and
expense risk fees and other charges. <PAGE>
PAGE 139
REDEEMING SHARES
The Fund will redeem any shares presented by the shareholders (the
Variable Accounts) for redemption. The Variable Accounts' policy
on when or whether to buy or redeem Fund shares is described in the
Variable Life Insurance Policy prospectus.
During an emergency the Board of Directors can suspend the
computation of net asset value, stop accepting payments for
purchase of shares, or suspend the duty of the Fund to redeem
shares for more than seven days. Such emergency situations would
occur if:
`The New York Stock Exchange closes for reasons other than the
usual weekend and holiday closings, or trading on the Exchange is
restricted,
`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
`The Securities and Exchange Commission, under the provisions of
the Investment Company Act of 1940, declares a period of emergency
to exist.
Should the Fund stop selling shares, the directors 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 contract owners.
CAPITAL GAINS AND LOSSES
For federal income tax purposes, Income and Money Market Portfolios
had a capital loss carryover of $3,648 and $174 respectively, at
April 30, 1994, which, if not offset by subsequent capital gains,
will expire in 1996 through 2000. It is unlikely the Board of
Directors will authorize a distribution of any net realized gain
for this Portfolio until the capital loss carryover has been offset
or expires.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Management and Services Agreement
The Fund does not maintain its own research department or record-
keeping services. These are provided by IDS Life under the
Investment Management and Services Agreement.
For its services, IDS Life is paid a fee based on the net assets of
the Portfolios. The asset charge is based on the aggregate average
daily net assets of each of the Portfolios at the following rates:
0.7 percent, on an annual basis, for Equity Portfolio;
0.7 percent, on an annual basis, for Income Portfolio;
0.95 percent, on an annual basis, for International Equity
Portfolio;<PAGE>
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0.5 percent, on an annual basis, for Money Market Portfolio;
0.7 percent, on an annual basis, for Managed Portfolio; and
0.7 percent, on an annual basis, for Government Securities
Portfolio.
The management fee is paid monthly. The total amount paid for
fiscal year ended April 30, 1994 was $850,524 for Equity Portfolio,
$199,578 for Income Portfolio, $41,168 for Money Market Portfolio,
$920,594 for Managed Portfolio, and $75,428 for Government
Securities Portfolio. The total amount paid for fiscal year ended
April 30, 1993 was $504,402 for Equity Portfolio, $136,217 for
Income Portfolio, $47,061 for Money Market Portfolio, $596,745 for
Managed Portfolio and $61,668 for Government Securities Portfolio.
The total amount paid for fiscal year ended April 30, 1992 was
$327,914 for Equity Portfolio, $94,784 for Income Portfolio,
$48,939 for Money Market Portfolio, $436,549 for Managed Portfolio
and $48,470 for Government Securities Portfolio.
All non-advisory expenses incurred by the Fund will be paid at an
annual charge not to exceed 0.1 percent of the aggregate average
daily net assets of the Fund. The voluntary limitation of 0.1
percent has been established by IDS Life at that figure and IDS
Life reserves the right to discontinue the voluntary limitation.
Investment Advisory Agreement
IDS Life and American Express Financial Corporation have an
Investment Advisory Agreement. It calls for IDS Life to pay
American Express Financial Corporation a fee for investment advice
about the Fund's Portfolios. American Express Financial
Corporation also executes purchases and sales and negotiates
brokerage as directed by IDS Life. The fee paid by IDS Life is
0.25 percent of the average net assets for the year of all
portfolios, except for International Equity. The fee paid by IDS
Life is 0.50 percent of International Equity portfolio's average
net assets.
IDS Life paid American Express Financial Corporation $751,255 for
investment advice for the fiscal year ended April 30, 1994. IDS
Life paid American Express Financial Corporation $487,415 for
investment advice for the fiscal year ended April 30, 1993. IDS
Life paid American Express Financial Corporation $348,615 for
investment advice for the fiscal year ended April 30, 1992.
Information concerning other funds advised by IDS Life or American
Express Financial Corporation is contained in the prospectus.
MANAGEMENT OF THE FUND
The Fund has a Board of Directors elected by policyholders that
oversees the operations of the Fund as required by state law. The
Board has named an executive committee of directors that has
authority to act on its behalf between meetings.
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The Fund's directors and officers do not own any of the outstanding
shares of the Fund.
Directors of the Fund
The following is a list of the Fund's directors.
Carl N. Platou
President Emeritus and Chief Executive Officer, Fairview Hospital
and Healthcare Services, Retired 1990. Director, St. Thomas
University since 1990.
*Richard W. Kling
President, IDS Life since March 1994. Director and Executive Vice
President, Marketing and Products from January 1988 to March 1994.
Manager of IDS Life Variable Annuity Funds A&B.
Edward Landes
Retired, former Development Consultant.
*Janis E. Miller
Director and Executive Vice President, Variable Assets, IDS Life
since March 1994. Vice President, American Express Financial
Corporation since June 1990. Manager of IDS Life Variable Annuity
Funds A & B.
Gordon H. Ritz
President, Con Rad Broadcasting Corp. (radio broadcasting).
Director, Sunstar Foods and Mid-America Publishing.
*Interested person of IDS Life and of the Fund as the term
"interested person" is defined in the 1940 Act.
Officers of the Fund
Besides Mr. Kling, who is the President, the Fund's other executive
officers are listed below:
Colleen Curran
IDS Tower 10
Minneapolis, MN
Secretary
Senior Counsel, American Express Financial Corporation, since 1990.
<PAGE>
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Louis C. Fornetti
IDS Tower 10
Minneapolis, MN
Vice President
Director, IDS Life, since March 1994. Director and Senior Vice
President--Corporate Controller, American Express Financial
Corporation, since August 1988. Vice President--Corporate
Controller, from 1985 to 1988.
Morris Goodwin, Jr.
IDS Tower 10
Minneapolis, MN
Vice President and Treasurer
Vice President and Treasurer, IDS Life since March 1994. Vice
President and Corporate Treasurer, American Express Financial
Corporation, since July 1989. Chief Financial Officer and
Treasurer, American Express Trust Compapny, from 1988 to 1989.
Paul F. Kolkman
IDS Tower 10
Minneapolis, MN
Vice President and Chief Actuary
Director and Vice President--Finance, IDS Life. Vice President--
Insurance Finance, American Express Financial Corporation.
William A. Stoltzmann
IDS Tower 10
Minneapolis, MN
General Counsel and Assistant Secretary
General Counsel and Assistant Secretary, IDS Life. Vice President
and Assistant General Counsel, American Express Financial
Corporation.
Melinda S. Urion
IDS Tower
Minneapolis, MN
Vice President and Controller
Vice President and Corporate Controller, American Express Financial
Corporation, since April 1994; Vice President - Insurance
Controller, American Express Financial Corporation, from September
1991 to April 1994. Chief Accounting Officer for American Express
Financial Advisors, Inc. from July 1988 to September 1991.
CUSTODIAN
The Fund's securities and cash are held by American Express Trust
Company, 1200 Northstar Center West, 625 Marquette Ave.,
Minneapolis, MN 55402, 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.<PAGE>
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The custodian has entered into a sub-custodian arrangement with
Morgan Stanley Trust Co. (Morgan Stanley), One Pierrepont Plaza,
8th Floor, Brooklyn, NY, 11201-2775. As part of this arrangement,
portfolio securities purchased outside the United States are
maintained in the custody of various foreign branches of Morgan
Stanley or in such other financial institutions as may be permitted
by law and by the Fund's sub-custodian agreement.
INDEPENDENT AUDITORS
The Fund's financial statements contained in its Annual Report to
shareholders at the end of its fiscal year are audited by
independent auditors, KPMG Peat Marwick LLP, 4200 Norwest Center,
90 South Seventh Street, Minneapolis, MN 55402-3900. IDS Life has
agreed that it will send a copy of this report and the unaudited
Semi-Annual Report to every Variable Life Insurance policyowner
having an interest in the Fund. The independent auditors also
provide other accounting and tax-related services as requested by
the Fund from time to time.
FINANCIAL STATEMENTS
The Independent Auditors' Report and the Financial Statements,
including the Notes to the Financial Statements and the Schedule of
Investments in Securities, contained in the 1994 Annual Report to
IDS Life Series Fund, Inc. shareholders, pursuant to Section 30(d)
of the 1940 Act, are hereby incorporated in this Statement of
Additional Information by reference. No other portion of the
Annual Report, however, is incorporated by reference. The 1994
Semiannual Report to shareholders is also incorporated in this SAI
by reference.
The prospectus dated April 28, 1995, is hereby incorporated in this
Statement of Additional Information by reference.
<PAGE>
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APPENDIX A
FOREIGN CURRENCY TRANSACTIONS, FOR INVESTMENTS OF EQUITY, INCOME,
MANAGED, AND INTERNATIONAL EQUITY PORTFOLIOS
Since investments in foreign countries usually involve currencies
of foreign countries, and since the Portfolio may hold cash and
cash-equivalent investments in foreign currencies, the value of the
Portfolio's assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency exchange rates and
exchange control regulations. Also, the Portfolio may incur costs
in connection with conversions between various currencies.
Spot Rates and Forward Contracts. The Portfolio conducts its
foreign currency exchange transactions either at the spot (cash)
rate prevailing in the foreign currency exchange market or by
entering into forward currency exchange contracts (forward
contracts) as a hedge against fluctuations in future foreign
exchange rates. A forward contract involves an obligation to buy
or sell a specific currency at a future date, which may be any
fixed number of days from the contract date, at a price set at the
time of the contract. These contracts are traded in the interbank
market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract
generally has no deposit requirements. No commissions are charged
at any stage for trades.
The Portfolio may enter into forward contracts to settle a security
transaction or handle dividend and interest collection. When the
Portfolio enters into a contract for the purchase or sale of a
security denominated in a foreign currency or has been notified of
a dividend or interest payment, it may desire to lock in the price
of the security or the amount of the payment in dollars. By
entering into a forward contract, the Portfolio will be able to
protect itself against a possible loss resulting from an adverse
change in the relationship between different currencies from the
date the security is purchased or sold to the date on which payment
is made or received or when the dividend or interest is actually
received.
The Portfolio also may enter into forward contracts when management
of the Portfolio believes the currency of a particular foreign
country may suffer a substantial decline against another currency.
It may enter into a forward contract to sell, for a fixed amount of
dollars, the amount of foreign currency approximating the value of
some or all of the Portfolio's portfolio securities denominated in
such foreign currency. The precise matching of forward contract
amounts and the value of securities involved generally will not be
possible since the future value of such securities in foreign
currencies more than likely will change between the date the
forward contract is entered into and the date it matures. The
projection of short-term currency market movements is extremely
difficult and successful execution of a short-term hedging strategy
is highly uncertain. The Portfolio will not enter into such
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forward contracts or maintain a net exposure to such contracts when
consummating the contracts would obligate the Portfolio to deliver
an amount of foreign currency in excess of the value of the
Portfolio's portfolio securities or other assets denominated in
that currency.
The Portfolio will designate cash or securities in an amount equal
to the value of the Portfolio's total assets committed to
consummating forward contracts entered into under the second
circumstance set forth above. If the value of the securities
declines, additional cash or securities will be designated on a
daily basis so that the value of the cash or securities will equal
the amount of the Portfolio's commitments on such contracts.
At maturity of a forward contract, the Portfolio may either sell
the portfolio security and make delivery of the foreign currency or
retain the security and terminate its contractual obligation to
deliver the foreign currency by purchasing an offsetting contract
with the same currency trader obligating it to buy, on the same
maturity date, the same amount of foreign currency.
If the Portfolio retains the portfolio security and engages in an
offsetting transaction, the Portfolio will incur a gain or a loss
(as described below) to the extent there has been movement in
forward contract prices. If the Portfolio engages in an offsetting
transaction, it may subsequently enter into a new forward contract
to sell the foreign currency. Should forward prices decline
between the date the Portfolio enters into a forward contract for
selling foreign currency and the date it enters into an offsetting
contract for purchasing the foreign currency, the Portfolio will
realize a gain to the extent that the price of the currency it has
agreed to sell exceeds the price of the currency it has agreed to
buy. Should forward prices increase, the Portfolio will suffer a
loss to the extent the price of the currency it has agreed to buy
exceeds the price of the currency it has agreed to sell.
It is impossible to forecast what the market value of portfolio
securities will be at the expiration of a contract. Accordingly,
it may be necessary for the Portfolio to buy additional foreign
currency on the spot market (and bear the expense of such purchase)
if the market value of the security is less than the amount of
foreign currency the Portfolio is obligated to deliver and a
decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the
spot market some of the foreign currency received on the sale of
the portfolio security if its market value exceeds the amount of
foreign currency the Portfolio is obligated to deliver.
The Portfolio's dealing in forward contracts will be limited to the
transactions described above. This method of protecting the value
of the Portfolio's portfolio 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
<PAGE>
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such forward contracts tend to minimize the risk of loss due to a
decline in value of hedged currency, they tend to limit any
potential gain that might result should the value of such currency
increase.
Although the Portfolio values its assets each business day in terms
of U.S. dollars, it does not intend to convert its foreign
currencies into U.S. dollars on a daily basis. It will do so from
time to time, and shareholders should be aware of currency
conversion costs. Although foreign exchange dealers do not charge
a fee for conversion, they do realize a profit based on the
difference (spread) between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a
foreign currency to the Portfolio at one rate, while offering a
lesser rate of exchange should the Portfolio desire to resell that
currency to the dealer.
Options on Foreign Currencies. The Portfolio may buy put and write
covered call options on foreign currencies for hedging purposes.
For example, a decline in the dollar value of a foreign currency in
which portfolio securities are denominated will reduce the dollar
value of such securities, even if their value in the foreign
currency remains constant. In order to protect against such
diminutions in the value of portfolio securities, the Portfolio may
buy put options on the foreign currency. If the value of the
currency does decline, the Portfolio will have the right to sell
such currency for a fixed amount in dollars and will thereby
offset, in whole or in part, the adverse effect on its portfolio
which otherwise would have resulted.
As in the case of other types of options, however, the benefit to
the Portfolio derived from purchases of foreign currency options
will be reduced by the amount of the premium and related
transaction costs. In addition, where currency exchange rates do
not move in the direction or to the extent anticipated, the
Portfolio could sustain losses on transactions in foreign currency
options which would require it to forego a portion or all of the
benefits of advantageous changes in such rates.
The Portfolio may write options on foreign currencies for the same
types of hedging purposes. For example, when the Portfolio
anticipates a decline in the dollar value of foreign-denominated
securities due to adverse fluctuations in exchange rates, it could,
instead of purchasing a put option, write a call option on the
relevant currency. If the expected decline occurs, the option will
most likely not be exercised and the diminution in value of
portfolio securities will be fully or partially offset by the
amount of the premium received.
As in the case of other types of options, however, the writing of a
foreign currency option will constitute only a partial hedge up to
the amount of the premium, and only if rates move in the expected
direction. If this does not occur, the option may be exercised and
the Portfolio would be required to buy or sell the underlying
<PAGE>
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currency at a loss which may not be offset by the amount of the
premium. Through the writing of options on foreign currencies, the
Portfolio also may be required to forego all or a portion of the
benefits which might otherwise have been obtained from favorable
movements on exchange rates.
All options written on foreign currencies will be covered. An
option written on foreign currencies is covered if the Portfolio
holds currency sufficient to cover the option or has an absolute
and immediate right to acquire that currency without additional
cash consideration upon conversion of assets denominated in that
currency or exchange of other currency held in its portfolio. An
option writer could lose amounts substantially in excess of its
initial investments, due to the margin and collateral requirements
associated with such positions.
Options on foreign currencies are traded through financial
institutions acting as market-makers, although foreign currency
options also are traded on certain national securities exchanges,
such as the Philadelphia Stock Exchange and the Chicago Board
Options Exchange, subject to SEC regulation. In an over-the-
counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there
are no daily price fluctuation limits, and adverse market movements
could therefore continue to an unlimited extent over a period of
time. Although the purchaser of an option cannot lose more than
the amount of the premium plus related transaction costs, this
entire amount could be lost.
Foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the OCC, thereby
reducing the risk of counterparty default. Further, a liquid
secondary market in options traded on a national securities
exchange may be more readily available than in the over-the-counter
market, potentially permitting the Portfolio to liquidate open
positions at a profit prior to exercise or expiration, or to limit
losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of availability of a liquid
secondary market described above, as well as the risks regarding
adverse market movements, margining of options written, the nature
of the foreign currency market, possible intervention by
governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-
counter market. For example, exercise and settlement of such
options must be made exclusively through the OCC, which has
established banking relationships in certain foreign countries for
the purpose. As a result, the OCC may, if it determines that
foreign governmental restrictions or taxes would prevent the
orderly settlement of foreign currency option exercises, or would
result in undue burdens on OCC or its clearing member, impose
<PAGE>
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special procedures on exercise and settlement, such as technical
changes in the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions on exercise.
Foreign Currency Futures and Related Options. The Portfolio may
enter into currency futures contracts to sell currencies. It also
may buy put and write covered call options on currency futures.
Currency futures contracts are similar to currency forward
contracts, except that they are traded on exchanges (and have
margin requirements) and are standardized as to contract size and
delivery date. Most currency futures call for payment of delivery
in U.S. dollars. The Portfolio may use currency futures for the
same purposes as currency forward contracts, subject to CFTC
limitations, including the limitation on the percentage of assets
that may be used, described in the prospectus. All futures
contracts are aggregated for purposes of the percentage
limitations.
Currency futures and options on futures values can be expected to
correlate with exchange rates, but will not reflect other factors
that may affect the values of the Portfolio's investments. A
currency hedge, for example, should protect a Yen-denominated bond
against a decline in the Yen, but will not protect the Portfolio
against price decline if the issuer's creditworthiness
deteriorates. Because the value of the Portfolio's investments
denominated in foreign currency will change in response to many
factors other than exchange rates, it may not be possible to match
the amount of a forward contract to the value of the Portfolio's
investments denominated in that currency over time.
The Portfolio will not use leverage in its options and futures
strategies. The Portfolio will hold securities or other options or
futures positions whose values are expected to offset its
obligations. The Portfolio will not enter into an option or
futures position that exposes the Portfolio to an obligation to
another party unless it owns either (i) an offsetting position in
securities or (ii) cash, receivables and short-term debt securities
with a value sufficient to cover its potential obligations.
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APPENDIX B
DESCRIPTION OF MONEY MARKET SECURITIES
Certificates of Deposit -- A certificate of deposit is a negotiable
receipt issued by a bank or savings and loan association in
exchange for the deposit of funds. The issuer agrees to pay the
amount deposited, plus interest, on the date specified on the
certificate.
Time Deposit -- A time deposit is a non-negotiable deposit in a
bank for a fixed period of time.
Bankers' Acceptances -- A bankers' acceptance arises from a short-
term credit arrangement designed to enable businesses to obtain
funds to finance commercial transactions. It is a time draft drawn
on a bank by an exporter or an importer to obtain a stated amount
of funds to pay for specific merchandise. The draft is then
"accepted" by a bank that, in effect, unconditionally guarantees to
pay the face value of the instrument on its maturity date.
Commercial Paper -- Commercial paper is generally defined as
unsecured short-term notes issued in bearer form by large well-
known corporations and finance companies. Maturities on commercial
paper range from one day to nine months.
Commercial paper rated A by Standard & Poor's Corporation has the
following characteristics: Liquidity ratios are better than the
industry average. Long-term senior debt rating is "A" or better.
The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow have an upward trend with
allowances made for unusual circumstances. Typically, the issuer's
industry is well established, the issuer has a strong position
within its industry and the reliability and quality of management
is unquestioned. Issuers rated A are further rated by use of
numbers 1, 2 and 3 to denote relative strength within this highest
classification.
A Prime rating is the highest commercial paper rating assigned by
Moody's Investors Services Inc. Issuers rated Prime are further
rated by use of numbers 1, 2 and 3 to denote relative strength
within this highest classification. Among the factors considered
by Moody's in assigning ratings for an issuer are the following:
(1) management; (2) economic evaluation of the industry and an
appraisal of speculative type risks which may be inherent in
certain areas; (3) competition and customer acceptance of products;
(4) liquidity; (5) amount and quality of long-term debt; (6) ten
year earnings trends; (7) financial strength of a parent company
and the relationships which exist with the issuer; and (8)
recognition by management of obligations which may be present or
may arise as a result of public interest questions and preparations
to meet such obligations.
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Letters of Credit -- A letter of credit is a short-term note issued
in bearer form with a bank letter of credit which provides that the
bank pay to the bearer the amount of the note upon presentation.
U.S. Treasury Bills -- Treasury bills are issued with maturities of
any period up to one year. Three-month and six-month bills are
currently offered by the Treasury on 13-week and 26-week cycles
respectively and are auctioned each week by the Treasury. Treasury
bills are issued in book entry form and are sold only on a discount
basis, i.e. the difference between the purchase price and the
maturity value constitutes interest income for the investor. If
they are sold before maturity, a portion of the income received may
be a short-term capital gain.
U.S. Government Agency Securities -- Federal agency securities are
debt obligations which principally result from lending programs of
the U.S. government. Housing and agriculture have traditionally
been the principal beneficiaries of Federal credit programs, and
agencies involved in providing credit to agriculture and housing
account for the bulk of the outstanding agency securities.
Repurchase Agreements -- A repurchase agreement involves the
acquisition of securities by the Portfolio, with the concurrent
agreement by a bank (or securities dealer if permitted by law or
regulation), to reacquire the securities at the portfolio's cost,
plus interest, within a specified time. The Portfolio thereby
receives a fixed rate of return on this investment, one that is
insulated from market and rate fluctuations during the holding
period. In these transactions, the securities acquired by the
Portfolio have a total value equal to or in excess of the value of
the repurchase agreement and are held by the Portfolio's custodian
until required. Pursuant to guidelines established by the
Portfolio's Board of Directors, the creditworthiness of the other
party to the transaction is considered and the value of those
securities held as collateral is monitored to ensure that such
value is maintained at the required level.
If IDS Life becomes aware that a security owned by a portfolio is
downgraded below the second highest rating, IDS Life will either
sell the security or recommend to the Fund's Board of Directors why
it should not be sold.
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APPENDIX C
OPTIONS AND STOCK INDEX FUTURES CONTRACTS, FOR INVESTMENTS OF
EQUITY, MANAGED AND INTERNATIONAL EQUITY PORTFOLIOS
Each Portfolio may buy or write options traded on any U.S. or
foreign exchange or in the over-the-counter market. Each Portfolio
may enter into stock index futures contracts traded on any U.S. or
foreign exchange. Each Portfolio also may buy or write put and
call options on these futures and on stock indexes. Options in the
over-the-counter market will be purchased only when the investment
manager believes a liquid secondary market exists for the options
and only from dealers and institutions the investment manager
believes present a minimal credit risk. Some options are
exercisable only on a specific date. In that case, or if a liquid
secondary market does not exist, a Portfolio could be required to
buy or sell securities at disadvantageous prices, thereby incurring
losses. Managed Portfolio also may enter into interest rate
futures contracts (see Appendix D).
OPTIONS. An option is a contract. A person who buys a call option
for a security has the right to buy the security at a set price for
the length of the contract. A person who sells a call option is
called a writer. The writer of a call option agrees to sell the
security at the set price when the buyer wants to exercise the
option, no matter what the market price of the security is at that
time. A person who buys a put option has the right to sell a
security at a set price for the length of the contract. A person
who writes a put option agrees to buy the security at the set price
if the purchaser wants to exercise the option, no matter what the
market price of the security is at that time. An option is covered
if the writer owns the security (in the case of a call) or sets
aside the cash or securities of equivalent value (in the case of a
put) that would be required upon exercise.
The price paid by the buyer for an option is called a premium. In
addition, the buyer generally pays a broker a commission. The
writer receives a premium, less another commission, at the time the
option is written. The cash received is retained by the writer
whether or not the option is exercised. A writer of a call option
may have to sell the security for a below-market price if the
market price rises above the exercise price. A writer of a put
option may have to pay an above-market price for the security if
its market price decreases below the exercise price. The risk of
the writer is potentially unlimited, unless the option is covered.
Options can be used to produce incremental earnings, protect gains
and facilitate buying and selling securities for investment
purposes. The use of options and futures contracts may benefit a
Portfolio and its shareholders by improving the Portfolio's
liquidity and by helping to stabilize the value of its net assets.
Buying options. Put and call options may be used as a trading
technique to facilitate buying and selling securities for
investment reasons. They also may be used for investment. Options<PAGE>
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are used as a trading technique to take advantage of any disparity
between the price of the underlying security in the securities
market and its price on the options market. It is anticipated the
trading technique will be utilized only to effect a transaction
when the price of the security plus the option price will be as
good or better than the price at which the security could be bought
or sold directly. When the option is purchased, the Portfolio pays
a premium and a commission. It then pays a second commission on
the purchase or sale of the underlying security when the option is
exercised. For record keeping and tax purposes, the price obtained
on the purchase of the underlying security will be the combination
of the exercise price, the premium and both commissions. When
using options as a trading technique, commissions on the option
will be set as if only the underlying securities were traded.
Put and call options also may be held by a Portfolio for investment
purposes. Options permit a Portfolio to experience the change in
the value of a security with a relatively small initial cash
investment.
The risk a Portfolio assumes when it buys an option is the loss of
the premium. To be beneficial to a Portfolio, the price of the
underlying security must change within the time set by the option
contract. Furthermore, the change must be sufficient to cover the
premium paid, the commissions paid both in the acquisition of the
option and in a closing transaction or in the exercise of the
option and subsequent sale (in the case of a call) or purchase (in
the case of a put) of the underlying security. Even then, the
price change in the underlying security does not ensure a profit
since prices in the option market may not reflect such a change.
Writing covered options. Each Portfolio will write covered options
when it feels it is appropriate and will follow these guidelines:
'Underlying securities will continue to be bought or sold solely on
the basis of investment considerations consistent with each
Portfolio's goal.
'All options written by a Portfolio will be covered. For covered
call options, if a decision is made to sell the security, each
Portfolio will attempt to terminate the option contract through a
closing purchase transaction.
'Each Portfolio will deal only in standard option contracts traded
on national securities exchanges or those that may be quoted on
NASDAQ (a system of price quotations developed by the National
Association of Securities Dealers, Inc.)
'Each Portfolio will write options only as permitted under federal
laws or regulations, such as those that limit the amount of total
assets subject to the options. Some regulations also affect the
Custodian. When a covered option is written, the Custodian
segregates the underlying securities, and issues a receipt. There
are certain rules regarding banks issuing such receipts that may
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restrict the amount of covered call options written. Furthermore,
each Portfolio is limited to pledging not more than 15 percent of
the cost of its total assets.
Net premiums on call options closed or premiums on expired call
options are treated as short-term capital gains. Since each
Portfolio is taxed as a regulated investment company under the
Internal Revenue Code, any gains on options and other securities
held less than three months must be limited to less than 30 percent
of its annual gross income.
If a covered call option is exercised, the security is sold by the
Portfolio. The premium received upon writing the option is added
to the proceeds received from the sale of the security. The
Portfolio will recognize a capital gain or loss based upon the
difference between the proceeds and the security's basis. Premiums
received from writing outstanding options are included as a
deferred credit in the Statement of Assets and Liabilities and
adjusted daily to the current market value.
Options are valued at the close of the New York Stock Exchange. An
option listed on a national exchange, CBOE or NASDAQ will be valued
at the last-quoted sales price or, if such a price is not readily
available, at the mean of the last bid and asked prices.
STOCK INDEX FUTURES CONTRACTS. Stock index futures contracts are
commodity contracts listed on commodity exchanges. They currently
include contracts on the Standard & Poor's 500 Stock Index (S&P 500
Index) and other broad stock market indexes such as the New York
Stock Exchange Composite Stock Index and the Value Line Composite
Stock Index, as well as narrower sub-indexes such as the S&P 100
Energy Stock Index and the New York Stock Exchange Utilities Stock
Index. A stock index assigns relative values to common stocks
included in the index and the index fluctuates with the value of
the common stocks so included.
A futures contract is a legal agreement between a buyer or seller
and the clearinghouse of a futures exchange in which the parties
agree to make a cash settlement on a specified future date in an
amount determined by the stock index on the last trading day of the
contract. The amount is a specified dollar amount (usually $100 or
$500) multiplied the difference between the index value on the last
trading day and the value on the day the contract was struck.
For example, the S&P 500 Index consists of 500 selected common
stocks, most of which are listed on the New York Stock Exchange.
The S&P 500 Index assigns relative weightings to the common stocks
included in the Index, and the Index fluctuates with changes in the
market values of those stocks. In the case of S&P 500 Index
futures contracts, the specified multiple is $500. Thus, if the
value of the S&P 500 Index were 150, the value of one contract
would be $75,000 (150 x $500). Unlike other futures contracts, a
stock index futures contract specifies that no delivery of the
actual stocks making up the index will take place. Instead,
settlement in cash must occur upon the termination of the contract.<PAGE>
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For example, excluding any transaction costs, if a Portfolio enters
into one futures contract to buy the S&P 500 Index at a specified
future date at a contract value of 150 and the S&P 500 Index is at
154 on that future date, the Portfolio will gain $500 x (154-150)
or $2,000. If the Portfolio enters into one futures contract to
sell the S&P 500 Index at a specified future date at a contract
value of 150 and the S&P 500 Index is at 152 on that future date,
the Portfolio will lose $500 x (152-150) or $1,000.
Unlike the purchase or sale of an equity security, no price would
be paid or received by the Portfolio upon entering into stock index
futures contracts. However, the Portfolio would be required to
deposit with its custodian, in a segregated account in the name of
the futures broker, an amount of cash or U.S. Treasury bills equal
to approximately 5 percent of the contract value. This amount is
known as initial margin. The nature of initial margin in futures
transactions is different from that of margin in security
transactions in that futures contract margin does not involve
borrowing funds by the Portfolio to finance the transactions.
Rather, the initial margin is in the nature of a performance bond
or good-faith deposit on the contract that is returned to the
Portfolio upon termination of the contract, assuming all
contractual obligations have been satisfied.
Subsequent payments, called variation margin, to and from the
broker would be made on a daily basis as the price of the
underlying stock index fluctuates, making the long and short
positions in the contract more or less valuable, a process known as
marking to market. For example, when a Portfolio enters into a
contract in which it benefits from a rise in the value of an index
and the price of the underlying stock index has risen, the
Portfolio will receive from the broker a variation margin payment
equal to that increase in value. Conversely, if the price of the
underlying stock index declines, the Portfolio would be required to
make a variation margin payment to the broker equal to the decline
in value.
How These Portfolios Would Use Stock Index Futures Contracts. The
Portfolios intend to use stock index futures contracts and related
options for hedging and not for speculation. Hedging permits a
Portfolio to gain rapid exposure to or protect itself from changes
in the market. For example, a Portfolio may find itself with a
high cash position at the beginning of a market rally.
Conventional procedures of purchasing a number of individual issues
entail the lapse of time and the possibility of missing a
significant market movement. By using futures contracts, the
Portfolio can obtain immediate exposure to the market and benefit
from the beginning stages of a rally. The buying program can then
proceed and once it is completed (or as it proceeds), the contracts
can be closed. Conversely, in the early stages of a market
decline, market exposure can be promptly offset by entering into
stock index futures contracts to sell units of an index and
individual stocks can be sold over a longer period under cover of
the resulting short contract position.
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A Portfolio may enter into contracts with respect to any stock
index or sub-index. To hedge the Portfolio's investment portfolio
successfully, however, the Portfolio must enter into contracts with
respect to indexes or sub-indexes whose movements will have a
significant correlation with movements in the prices of the
Portfolio's individual portfolio securities.
Special Risks of Transactions in Stock Index Futures Contracts.
1. Liquidity. Each Portfolio may elect to close some or all of
its contracts prior to expiration. The purpose of making such a
move would be to reduce or eliminate the hedge position held by the
Portfolio. The Portfolio may close its positions by taking
opposite positions. Final determinations of variation margin are
then made, additional cash as required is paid by or to the
Portfolio, and the Portfolio realizes a gain or a loss.
Positions in stock index futures contracts may be closed only on an
exchange or board of trade providing a secondary market for such
futures contracts. For example, futures contracts transactions can
currently be entered into with respect to the S&P 500 Stock Index
on the Chicago Mercantile Exchange, the New York Stock Exchange
Composite Stock Index on the New York Futures Exchange and the
Value Line Composite Stock Index on the Kansas City Board of Trade.
Although the Portfolios intend to enter into futures contracts only
on exchanges or boards of trade where there appears to be an active
secondary market, there is no assurance that a liquid secondary
market will exist for any particular contract at any particular
time. In such event, it may not be possible to close a futures
contract position, and in the event of adverse price movements, the
Portfolio would have to make daily cash payments of variation
margin. Such price movements, however, will be offset all or in
part by the price movements of the securities subject to the hedge.
Of course, there is no guarantee the price of the securities will
correlate with the price movements in the futures contract and thus
provide an offset to losses on a futures contract.
2. Hedging Risks. There are several risks in using stock index
futures contracts as a hedging device. One risk arises because the
prices of futures contracts may not correlate perfectly with
movements in the underlying stock index due to certain market
distortions. First, all participants in the futures market are
subject to initial margin and variation margin requirements.
Rather than making additional variation margin payments, investors
may close the contracts through offsetting transactions which could
distort the normal relationship between the index and futures
markets. Second, the margin requirements in the futures market are
lower than margin requirements in the securities market, and as a
result the futures market may attract more speculators than does
the securities market. Increased participation by speculators in
the futures market also may cause temporary price distortions.
Because of price distortion in the futures market and because of
imperfect correlation between movements in stock indexes and
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movements in prices of futures contracts, even a correct forecast
of general market trends may not result in a successful hedging
transaction over a short period.
Another risk arises because of imperfect correlation between
movements in the value of the stock index futures contracts and
movements in the value of securities subject to the hedge. If this
occurred, a Portfolio could lose money on the contracts and also
experience a decline in the value of its portfolio securities.
While this could occur, IDS Life believes that over time the value
of the Portfolio's investment portfolio will tend to move in the
same direction as the market indexes and will attempt to reduce
this risk, to the extent possible, by entering into futures
contracts on indexes whose movements it believes will have a
significant correlation with movements in the value of the
Portfolio's investment portfolio securities sought to be hedged.
It is also possible that if the Portfolio has hedged against a
decline in the value of the stocks held in its portfolio and stock
prices increase instead, the Portfolio will lose part or all of the
benefit of the increased value of its stock which it has hedged
because it will have offsetting losses in its futures positions.
In addition, in such situations, if the Portfolio has insufficient
cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising
market. The Portfolio may have to sell securities at a time when
it may be disadvantageous to do so.
OPTIONS ON STOCK INDEX FUTURES CONTRACTS. Options on stock index
futures contracts are similar to options on stock except that
options on futures contracts give the purchaser the right, in
return for the premium paid, to assume a position in a stock index
futures contract (a long position if the option is a call and a
short position if the option is a put) at a specified exercise
price at any time during the period of the option. If the option
is closed instead of exercised, the holder of the option receives
an amount that represents the amount by which the market price of
the contract exceeds (in the case of a call) or is less than (in
the case of a put) the exercise price of the option on the futures
contract. If the option does not appreciate in value prior to the
exercise date, the Portfolio will suffer a loss of the premium
paid.
OPTIONS ON STOCK INDEXES. Options on stock indexes are securities
traded on national securities exchanges. An option on a stock
index is similar to an option on a futures contract except all
settlements are in cash. A Portfolio exercising a put, for
example, would receive the difference between the exercise price
and the current index level. Such options would be used in the
same manner as options on futures contracts.
SPECIAL RISKS OF TRANSACTIONS IN OPTIONS ON STOCK INDEX FUTURES
CONTRACTS AND OPTIONS ON STOCK INDEXES. As with options on stocks,
the holder of an option on a stock index futures contract or on a
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stock index may terminate a position by selling an option covering
the same contract or index and having the same exercise price and
expiration date. The ability to establish and close out positions
on such options will be subject to the development and maintenance
of a liquid secondary market. The Portfolios will not purchase
options unless the market for such options has developed
sufficiently, so that the risks in connection with options are not
greater than the risks in connection with stock index futures
contracts transactions themselves. Compared to using futures
contracts, purchasing options involves less risk to the Portfolios
because the maximum amount at risk is the premium paid for the
options (plus transaction costs). There may be circumstances,
however, when using an option would result in a greater loss to a
Portfolio than using a futures contract, such as when there is no
movement in the level of the stock index.
TAX TREATMENT. As permitted under federal income tax laws, each
Portfolio intends to identify futures contracts as mixed straddles
and not mark them to market, that is, not treat them as having been
sold at the end of the year at market value. Such an election may
result in the Portfolio being required to defer recognizing losses
incurred by entering into futures contracts and losses on
underlying securities identified as being hedged against.
Federal income tax treatment of gains or losses from transactions
in options on futures contracts and stock indexes is currently
unclear, although the Portfolios' tax advisors currently believe
marking to market is not required. Depending on developments, a
Portfolio may seek IRS rulings clarifying questions concerning such
treatment. Certain provisions of the Code also may limit a
Portfolio's ability to engage in futures contracts and related
options transactions. For example, at the close of each quarter of
the Portfolio's taxable year, at least 50 percent of the value of
its assets must consist of cash, government securities and other
securities, subject to certain diversification requirements. Less
than 30 percent of its gross income must be derived from sales of
securities held less than three months.
The IRS has ruled publicly that an exchange-traded call option is a
security for purposes of the 50-percent-of-assets test and that its
issuer is the issuer of the underlying security, not the writer of
the option, for purposes of the diversification requirements. In
order to avoid realizing a gain within the three-month period, a
Portfolio may be required to defer closing out a contract beyond
the time when it might otherwise be advantageous to do so. The
Portfolio also may be restricted in purchasing put options for the
purpose of hedging underlying securities because of applying the
short sale holding period rules with respect to such underlying
securities.
Accounting for futures contracts will be according to generally
accepted accounting principles. Initial margin deposits will be
recognized as assets due from a broker (the Portfolio's agent in
acquiring the futures position). During the period the futures
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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.
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APPENDIX D
OPTIONS AND INTEREST RATE FUTURES CONTRACTS, FOR INVESTMENTS OF
INCOME, MANAGED AND GOVERNMENT SECURITIES PORTFOLIOS
Income and Managed Portfolios may buy or write options traded on
any U.S. or foreign exchange or in the over-the-counter market.
Each Portfolio may enter into interest rate futures contracts
traded on any U.S. or foreign exchange. Each Portfolio also may
buy or write put and call options on these futures. Options in the
over-the-counter market will be purchased only when the investment
manager believes a liquid secondary market exists for the options
and only from dealers and institutions the investment manager
believes present a minimal credit risk. Some options are
exercisable only on a specific date. In that case, or if a liquid
secondary market does not exist, a Portfolio could be required to
buy or sell securities at disadvantageous prices, thereby incurring
losses. Managed Portfolio also may enter into stock index futures
contracts (see Appendix C).
Government Securities Portfolio may buy or write options traded on
any U.S. exchange or in the over-the-counter market. The Portfolio
may enter into interest rate futures contracts traded on any U.S.
exchange. The Portfolio also may buy or write put and call options
on these futures. Options in the over-the-counter market will be
purchased only when the investment manager believes a liquid
secondary market exists for the options and only from dealers and
institutions the investment manager believes present a minimal
credit risk. Some options are exercisable only on a specific date.
In that case, or if a liquid secondary market does not exist, the
Portfolio could be required to buy or sell securities at
disadvantageous prices, thereby incurring losses.
OPTIONS. An option is a contract. A person who buys a call option
for a security has the right to buy the security at a set price for
the length of the contract. A person who sells a call option is
called a writer. The writer of a call option agrees to sell the
security at the set price when the buyer wants to exercise the
option, no matter what the market price of the security is at that
time. A person who buys a put option has the right to sell a
security at a set price for the length of the contract. A person
who writes a put option agrees to buy the security at the set price
if the purchaser wants to exercise the option, no matter what the
market price of the security is at that time. An option is covered
if the writer owns the security (in the case of a call) or sets
aside the cash (in the case of a put) that would be required upon
exercise.
The price paid by the buyer for an option is called a premium. In
addition the buyer generally pays a broker a commission. The
writer receives a premium, less a commission, at the time the
option is written. The cash received is retained by the writer
whether or not the option is exercised. A writer of a call option
may have to sell the security for a below-market price if the
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market price rises above the exercise price. A writer of a put
option may have to pay an above-market price for the security if
its market price decreases below the exercise price.
Options can be used to produce incremental earnings, protect gains
and facilitate buying and selling securities for investment
purposes. The use of options and futures contracts may benefit a
Portfolio and its shareholders by improving the Portfolio's
liquidity and by helping to stabilize the value of its net assets.
Buying options. Put and call options may be used as a trading
technique to facilitate buying and selling securities for
investment reasons. They also may be used for investment. Options
are used as a trading technique to take advantage of any disparity
between the price of the underlying security in the securities
market and its price on the options market. It is anticipated the
trading technique will be utilized only to effect a transaction
when the price of the security plus the option price will be as
good or better than the price at which the security could be bought
or sold directly. When the option is purchased, the Portfolio pays
a premium and a commission. It then pays a second commission on
the purchase or sale of the underlying security when the option is
exercised. For record keeping and tax purposes, the price obtained
on the purchase of the underlying security will be the combination
of the exercise price, the premium and both commissions. When
using options as a trading technique, commissions on the option
will be set as if only the underlying securities were traded.
Put and call options also may be held by a Portfolio for investment
purposes. Options permit the Portfolio to experience the change in
the value of a security with a relatively small initial cash
investment. The risk the Portfolio assumes when it buys an option
is the loss of the premium. To be beneficial to the Portfolio, the
price of the underlying security must change within the time set by
the option contract. Furthermore, the change must be sufficient to
cover the premium paid, the commissions paid both in the
acquisition of the option and in a closing transaction or in the
exercise of the option and sale (in the case of a call) or purchase
(in the case of a put) of the underlying security. Even then the
price change in the underlying security does not ensure a profit
since prices in the option market may not reflect such a change.
Writing covered options. A Portfolio will write covered options
when it feels it is appropriate and will follow these guidelines:
'Underlying securities will continue to be bought or sold solely on
the basis of investment considerations consistent with the
Portfolio's goal.
'All options written by the Portfolio will be covered. For covered
call options if a decision is made to sell the security, the
Portfolio will attempt to terminate the option contract through a
closing purchase transaction.
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'The Portfolio will write options only as permitted under federal
laws or regulations, such as those that limit the amount of total
assets subject to the options. Some regulations also affect the
Custodian. When a covered call option is written, the Custodian
segregates the underlying securities and issues a receipt. There
are certain rules regarding banks issuing such receipts that may
restrict the amount of covered call options written. Furthermore,
a Portfolio is limited to pledging not more than 15 percent of the
cost of its total assets.
Net premiums on call options closed or premiums on expired call
options are treated as short-term capital gains. Since a Portfolio
is taxed as a regulated investment company under the Code, any
gains on options and other securities held less than three months
must be limited to less than 30 percent of its annual gross income.
If a covered call option is exercised, the security is sold by the
Portfolio. The Portfolio will recognize a capital gain or loss
based upon the difference between the proceeds and the security's
basis.
Options on many securities are listed on options exchanges. If a
Portfolio writes listed options, it will follow the rules of the
options exchange. Options are valued at the close of the New York
Stock Exchange. An option listed on a national exchange, CBOE or
NASDAQ will be valued at the last quoted sales price or, if such a
price is not readily available, at the mean of the last bid and
asked prices.
FUTURES CONTRACTS. A futures contract is an agreement between two
parties to buy and sell a security for a set price on a future
date. They have been established by boards of trade which have
been designated contracts markets by the Commodity Futures Trading
Commission (CFTC). Futures contracts trade on these markets in a
manner similar to the way a stock trades on a stock exchange, and
the boards of trade, through their clearing corporations, guarantee
performance of the contracts. Currently, there are futures
contracts based on such debt securities as long-term U.S. Treasury
bonds, Treasury notes, GNMA modified pass-through mortgate-backed
securities, three-month U.S. Treasury bills and bank certificates
of deposit. While futures contracts based on debt securities do
provide for the delivery and acceptance of securities, such
deliveries and acceptances are very seldom made. Generally, the
futures contract is terminated by entering into an offsetting
transaction. An offsetting transaction for a futures contract sale
is effected by the Portfolio entering into a futures contract
purchase for the same aggregate amount of the specific type of
financial instrument and same delivery date. If the price in the
sale exceeds the price in the offsetting purchase, the Portfolio
immediately is paid the difference and realizes a gain. If the
offsetting purchase price exceeds the sale price, the Portfolio
pays the difference and realizes a loss. Similarly, closing out a
futures contract purchase is effected by the Portfolio entering
into a futures contract sale. If the offsetting sale price
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exceeds the purchase price, the Portfolio realizes a gain, and if
the offsetting sale price is less than the purchase price, the
Portfolio realizes a loss. At the time a futures contract is made,
a good-faith deposit called initial margin is set up within a
segregated account at the Portfolios' custodian bank. The initial
margin deposit is approximately 1.5 percent of a contract's face
value. Daily thereafter, the futures contract is valued and the
payment of variation margin is required so that each day the
Portfolio would pay out cash in an amount equal to any decline in
the contract's value or receive cash equal to any increase. At the
time a futures contract is closed out, a nominal commission is
paid, which is generally lower than the commission on a comparable
transaction in the cash markets.
The purpose of a futures contract, in the case of a fund holding
long-term debt securities, is to gain the benefit of changes in
interest rates without actually buying or selling long-term debt
securities. For example, if a Portfolio owned long-term bonds and
interest rates were expected to increase, it might enter into
futures contracts to sell securities which would have much the same
effect as selling some of the long-term bonds it owned. Futures
contracts are based on types of debt securities referred to above,
which have historically reacted to an increase or decline in
interest rates in a fashion similar to the debt securities the
Portfolio owns. If interest rates did increase, the value of the
debt securities in the portfolio would decline, but the value of
the Portfolio's futures contracts would increase at approximately
the same rate, thereby keeping the net asset value of the Portfolio
from declining as much as it otherwise would have. If, on the
other hand, the Portfolio held cash reserves and interest rates
were expected to decline, the Portfolio might enter into interest
rate futures contracts for the purchase of securities. If short-
term rates were higher than long-term rates, the ability to
continue holding these cash reserves would have a very beneficial
impact on the Portfolio's earnings. Even if short-term rates were
not higher, the Portfolio would still benefit from the income
earned by holding these short-term investments. At the same time,
by entering into futures contracts for the purchase of securities,
the Portfolio could take advantage of the anticipated rise in the
value of long-term bonds without actually buying them until the
market had stabilized. At that time, the futures contracts could
be liquidated and the Portfolio's cash reserves could then be used
to buy long-term bonds on the cash market. The Portfolio could
accomplish similar results by selling bonds with long maturities
and investing in bonds with short maturities when interest rates
are expected to increase or by buying bonds with long maturities
and selling bonds with short maturities when interest rates are
expected to decline. But by using futures contracts as an
investment tool, given the greater liquidity in the futures market
than in the cash market, it might be possible to accomplish the
same result more easily and more quickly. Successful use of
futures contracts depends on the investment manager's ability to
predict the future direction of interest rates. If the investment
manager's prediction is incorrect, the Portfolio would have been
better off had it not entered into futures contracts.<PAGE>
PAGE 163
OPTIONS ON FUTURES CONTRACTS. Options give the holder a right to
buy or sell futures contracts in the future. Unlike a futures
contract, which requires the parties to the contract to buy and
sell a security on a set date, an option on a futures contract
merely entitles its holder to decide on or before a future date
(within nine months of the date of issue) whether to enter into
such a contract. If the holder decides not to enter into the
contract, all that is lost is the amount (premium) paid for the
option. Furthermore, because the value of the option is fixed at
the point of sale, there are no daily payments of cash to reflect
the change in the value of the underlying contract.
However, since an option gives the buyer the right to enter into a
contract at a set price for a fixed period of time, its value does
change daily and that change is reflected in the net asset value of
the Portfolio.
RISKS. There are risks in engaging in each of the management tools
described above. The risk a Portfolio assumes when it buys an
option is the loss of the premium paid for the option. Purchasing
options also limits the use of monies that might otherwise be
available for long-term investments.
The risk involved in writing options on futures contracts the
Portfolio owns, or on securities held in its portfolio, is that
there could be an increase in the market value of such contracts or
securities. If that occurred, the option would be exercised and
the asset sold at a lower price than the cash market price. To
some extent, the risk of not realizing a gain could be reduced by
entering into a closing transaction. The Portfolio could enter
into a closing transaction by purchasing an option with the same
terms as the one it had previously sold. The cost to close the
option and terminate the Portfolio's obligation, however, might be
more or less than the premium received when it originally wrote the
option. Furthermore, the Portfolio might not be able to close the
option because of insufficient activity in the options market.
A risk in employing futures contracts to protect against the price
volatility of securities is that the prices of securities subject
to futures contracts may not correlate perfectly with the behavior
of the cash prices of the Portfolio's securities. The correlation
may be distorted because the futures market is dominated by short-
term traders seeking to profit from the difference between a
contract or security price and their cost of borrowed funds. Such
distortions are generally minor and would diminish as the contract
approached maturity.
Another risk is that the Portfolio's investment manager could be
incorrect in anticipating as to the direction or extent of various
interest rate movements or the time span within which the movements
take place. For example, if the Portfolio sold futures contracts
for the sale of securities in anticipation of an increase in
interest rates, and interest rates declined instead, the Portfolio
would lose money on the sale.
<PAGE>
PAGE 164
TAX TREATMENT. As permitted under federal income tax laws, each
Portfolio intends to identify futures contracts as mixed straddles
and not mark them to market, that is, not treat them as having been
sold at the end of the year at market value. Such an election may
result in the Portfolio being required to defer recognizing losses
incurred by entering into futures contracts and losses on
underlying securities identified as being hedged against.
Federal income tax treatment of gains or losses from transactions
in options on futures contracts and indexes currently is unclear,
although the Portfolios' tax advisors currently believe marking to
market is not required. Depending on developments, a Portfolio may
seek IRS rulings clarifying questions concerning such treatment.
Certain provisions of the Code also may limit a Portfolio's ability
to engage in futures contracts and related options transactions.
For example, at the close of each quarter of the Portfolio's
taxable year, at least 50 percent of the value of its assets must
consist of cash, government securities and other securities,
subject to certain diversification requirements. Less than 30
percent of its gross income must be derived from sales of
securities held less than three months.
The IRS has ruled publicly that an exchange-traded call option is a
security for purposes of the 50-percent-of-assets test and that its
issuer is the issuer of the underlying security, not the writer of
the option, for purposes of the diversification requirements. In
order to avoid realizing a gain within the three-month period, the
Portfolio may be required to defer closing out a contract beyond
the time when it might otherwise be advantageous to do so. The
Portfolio also may be restricted in purchasing put options for the
purpose of hedging underlying securities because of applying the
short sale holding period rules with respect to such underlying
securities.
Accounting for futures contracts will be according to generally
accepted accounting principles. Initial margin deposits will be
recognized as assets due from a broker (the Portfolio's agent in
acquiring the futures position). During the period the futures
contract is open, changes in value of the contract will be
recognized as unrealized gains or losses by marking to market on a
daily basis to reflect the market value of the contract at the end
of each day's trading. Variation margin payments will be made or
received depending upon whether gains or losses are incurred. All
contracts and options will be valued at the last-quoted sales price
on their primary exchange.
<PAGE>
PAGE 165
APPENDIX E
MORTGAGE-BACKED SECURITIES AND ADDITIONAL INFORMATION ON INVESTMENT
POLICIES (FOR ALL PORTFOLIOS EXCEPT MONEY MARKET)
GNMA Certificates
The Government National Mortgage Association (GNMA) is a wholly
owned corporate instrumentality of the United States within the
Department of Housing and Urban Development. GNMA certificates are
mortgage-backed securities of the modified pass-through type, which
means that both interest and principal payments (including
prepayments) are passed through monthly to the holder of the
certificate. Each certificate evidences an interest in a specific
pool of mortgage loans insured by the Federal Housing
Administration or the Farmers Home Administration or guaranteed by
the Veterans Administration. The National Housing Act provides
that the full faith and credit of the United States is pledged to
the timely payment of principal and interest by GNMA of amounts due
on these certificates. GNMA is empowered to borrow without
limitation from the U.S. Treasury, if necessary, to make such
payments.
Underlying Mortgages of the Pool. Pools consist of whole mortgage
loans or participations in loans. The majority of these loans are
made to purchasers of 1-4 member family homes. The terms and
characteristics of the mortgage instruments generally are uniform
within a pool but may vary among pools. For example, in addition
to fixed-rate fixed-term mortgages, the Portfolio may purchase
pools of variable rate mortgages, growing equity mortgages,
graduated payment mortgages and other types.
All servicers apply standards for qualification to local lending
institutions which originate mortgages for the pools. Servicers
also establish credit standards and underwriting criteria for
individual mortgages included in the pools. In addition, many
mortgages included in pools are insured through private mortgage
insurance companies.
Average Life of GNMA Certificates. The average life of GNMA
certificates varies with the maturities of the underlying mortgage
instruments which have maximum maturities of 30 years. The average
life is likely to be substantially less than the original maturity
of the mortgage pools underlying the securities as the result of
prepayments or refinancing of such mortgages. Such prepayments are
passed through to the registered holder with the regular monthly
payments of principal and interest.
As prepayment rates vary widely, it is not possible to accurately
predict the average life of a particular pool. It is customary in
the mortgage industry in quoting yields on a pool of 30-year
mortgages to compute the yield as if the pool were a single loan
that is amortized according to a 30-year schedule and that is
<PAGE>
PAGE 166
prepaid in full at the end of the 12th year. For this reason, it
is standard practice to treat GNMA certificates as 30-year
mortgage-backed securities which prepay fully in the 12th year.
Calculation of Yields. Yields on pass-through securities are
typically quoted based on the maturity of the underlying
instruments and the associated average life assumption.
Actual pre-payment experience may cause the yield to differ from
the assumed average life yield. When mortgage rates drop, pre-
payments will increase, thus reducing the yield. Reinvestment of
pre-payments may occur at higher or lower interest rates than the
original investment, thus affecting the yield of a Portfolio. The
compounding effect from reinvestments of monthly payments received
by the Portfolio will increase the yield to shareholders compared
to bonds that pay interest semi-annually. The yield also may be
affected if the certificate was issued at a premium or discount,
rather than at par. This also applies after issuance to
certificates trading in the secondary market at a premium or
discount.
"When-Issued" GNMA Certificates. Some U.S. government securities
may be purchased on a "when-issued" basis, which means that it may
take as long as 45 days after the purchase before the securities
are delivered to the Portfolio. Payment and interest terms,
however, are fixed at the time the purchaser enters into the
commitment. However, the yield on a comparable GNMA certificate
when the transaction is consummated may vary from the yield on the
GNMA certificate at the time that the when-issued transaction was
made. A Portfolio does not pay for the securities or start earning
interest on them until the contractual settlement date. When-
issued securities are subject to market fluctuations and they may
affect the Portfolio's gross assets the same as owned securities.
Market for GNMA Certificates. Since the inception of the GNMA
mortgage-backed securities program in 1970, the amount of GNMA
certificates outstanding has grown rapidly. The size of the market
and the active participation in the secondary market by securities
dealers and many types of investors make the GNMA certificates a
highly liquid instrument. Prices of GNMA certificates are readily
available from securities dealers and depend on, among other
things, the level of market interest rates, the certificate's
coupon rate and the prepayment experience of the pool of mortgages
underlying each certificate.
Stripped mortgage-backed securities. Generally, there are two
classes of stripped mortgage-backed securities: Interest Only (IO)
and Principal Only (PO). IOs entitle the holder to receive
distributions consisting of all or a portion of the interest on the
underlying pool of mortgage loans or mortgage-backed securities.
POs entitle the holder to receive distributions consisting of all
or a portion of the principal of the underlying pool of mortgage
loans or mortgage-backed securities. The cash flows and yields on
IOs and POs are extremely sensitive to the rate of principal
<PAGE>
PAGE 167
payments (including prepayments) on the underlying mortgage loans
or mortgage-backed securities. A rapid rate of principal payments
may adversely affect the yield to maturity of IOs. A slow rate of
principal payments may adversely affect the yield to maturity of
POs. If prepayments of principal are greater than anticipated, an
investor may incur substantial losses. If prepayments of principal
are slower than anticipated, the yield on a PO will be affected
more severely than would be the case with a traditional mortgage-
backed security.
Income, Managed and Government Securities Portfolios may invest in
securities called "inverse floaters". Inverse floaters are created
by underwriters using the interest payments on securities. A
portion of the interest received is paid to holders of instruments
based on current interest rates for short-term securities. What is
left over, less a servicing fee, is paid to holders of the 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.
Income, Managed and Government Securities Portfolios may purchase
some securities in advance of when they are issued. Price and rate
of interest are set on the date the commitments are given but no
payment is made or interest earned until the date the securities
are issued, usually within two months, but other terms may be
negotiated. The commitment requires the portfolio to buy the
security when it is issued so the commitment is valued daily the
same way as owning a security would be valued. The Portfolio's
custodian will maintain, in a segregated account, cash or liquid
high-grade debt securities that are marked to market daily and are
at least equal in value to the Portfolio's commitments to purchase
the securities. The Portfolio may sell the commitment just like it
can sell a security. Frequently, the Portfolio has the opportunity
to sell the commitment back to the institution that plans to issue
the security and at the same time enter into a new commitment to
purchase a when-issued security in the future. For rolling its
commitment forward, the Portfolio realizes a gain or loss on the
sale of the current commitment or receives a fee for entering into
the new commitment.
Income, Managed and Government Securities Portfolios may purchase
mortgage-backed security (MBS) put spread options and write covered
MBS call spread options. MBS spread options are based upon the
changes in the price spread between a specified mortgage-backed
security and a like-duration Treasury security. MBS spread options
are traded in the OTC market and are of short duration, typically
one to two months. The Portfolio would buy or sell covered MBS
call spread options in situations where mortgage-backed securities
are expected to under perform like-duration Treasury securities.
<PAGE>
PAGE 168
APPENDIX F
DOLLAR-COST AVERAGING
A technique that works well for many investors is one that
eliminates random buy and sell decisions. One such system is
dollar-cost averaging. Dollar-cost averaging involves building a
portfolio through the investment of fixed amounts of money on a
regular basis regardless of the price or market condition. This
may enable an investor to smooth out the effects of the volatility
of the financial markets. By using this strategy, more units 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 units lower than the average
market price of units 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 policy
owners who can continue investing through changing market
conditions to accumulate units to meet long term goals.
Dollar-cost averaging
Regular Market Price Units
Investment of a Unit 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 unit over 5 periods:
$5.00 ($25.00 divided by 5).
The average price you paid for each unit:
$4.84 ($500 divided by 103.4).
<PAGE>
PAGE 169
APPENDIX G
Description of corporate bond ratings
Bond ratings concern the quality of the issuing corporation. They
are not an opinion of the market value of the security. Such
ratings are opinions on whether the principal and interest will be
repaid when due. A security's rating may change which could affect
its price. Ratings by Moody's Investors Service, Inc. are Aaa, Aa,
A, Baa, Ba, B, Caa, Ca, C and D. Ratings by Standard & Poor's
Corporation are AAA, AA, A, BBB, BB, B, CCC, CC, C and D.
Aaa/AAA - Judged to be of the best quality and carry the smallest
degree of investment risk. Interest and principal are secure.
Aa/AA - Judged to be high-grade although margins of protection for
interest and principal may not be quite as good as Aaa or AAA rated
securities.
A - Considered upper-medium grade. Protection for interest and
principal is deemed adequate but may be susceptible to future
impairment.
Baa/BBB - Considered medium-grade obligations. Protection for
interest and principal is adequate over the short-term; however,
these obligations may have certain speculative characteristics.
Ba/BB - Considered to have speculative elements. The protection of
interest and principal payments may be very moderate.
B - Lack characteristics of the desirable investments. There may
be small assurance over any long period of time of the payment of
interest and principal.
Caa/CCC - Are of poor standing. Such issues may be in default or
there may be risk with respect to principal or interest.
Ca/CC - Represent obligations that are highly speculative. Such
issues are often in default or have other marked shortcomings.
C - Are obligations with a higher degree of speculation. These
securities have major risk exposures to default.
D - Are in payment default. The D rating is used when interest
payments or principal payments are not made on the due date.
Definitions of Zero-Coupon and Pay-In-Kind Securities
A zero-coupon security is a security that is sold at a deep
discount from its face value and makes no periodic interest
payments. The buyer of such a security receives a rate of return
by gradual appreciation of the security, which is redeemed at face
value on the maturity date.
<PAGE>
PAGE 170
A pay-in-kind security is a security in which the issuer has the
option to make interest payments in cash or in additional
securities. The securities issued as interest usually have the
same terms, including maturity date, as the pay-in-kind securities.
Non-rated securities will be considered for investment when they
possess a risk comparable to that of rated securities consistent
with the Fund's objectives and policies. When assessing the risk
involved in each non-rated security, the Fund will consider the
financial condition of the issuer or the protection afforded by the
terms of the security.
<PAGE>
PAGE 171
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS:
Registrant's Semiannual Report to shareholders, filed
electronically on or about June 30, 1994, is incorporated herein by
reference.
(b) EXHIBITS:
1.(a) Copy of Articles of Incorporation dated May 8, 1985,
filed as Exhibit No. 1 to Registrant's Registration
Statement No. 2-97636, are incorporated herein by
reference.
(b) Articles of Amendment of the Articles of Incorporation,
dated December 20, 1994, are filed electronically
herewith.
2. Copy of By-laws, filed electronically as Exhibit 2 with Post-
Effective Amendment No. 15 to Registration Statement No. 2-
97636, is incorporated herein by reference.
3. Not Applicable.
4. Copy of Stock Certificate, filed as Exhibit No. 3 to
Registrant's Registration Statement No. 2-97636 is
incorporated herein by reference.
5.(a) Copy of Investment Management and Services Agreement
between IDS Life Insurance Company and the Registrant
dated December 17, 1985, filed electronically as Exhibit
5(a) with Post-Effective Amendment No. 15 to Registration
Statement No. 2-97636, is incorporated herein by
reference.
(b) Copy of Investment Advisory Agreement between IDS Life
Insurance Company and IDS/American Express Inc., dated
July 11, 1984, filed electronically as Exhibit 5(b) with
Post-Effective Amendment No. 15 to Registration Statement
No. 2-97636, is incorporated herein by reference.
6. Not Applicable.
7. All employees are eligible to participate in a profit sharing
plan. Entry into the plan is Jan. 1 or July 1. The
Registrant contributes each year an amount equal to 15 percent
of their annual salaries, the maximum amount permitted under
Section 404 (a) of the Internal Revenue Code.
8. Copy of Custodian Agreement between IDS Trust Company and
Registrant dated January 1, 1986, filed electronically as
Exhibit 8 with Post-Effective Amendment No. 15 to Registration
Statement No. 2-97636, is incorporated herein by reference.
9. None.<PAGE>
PAGE 172
10. Opinion and Consent of Counsel, filed as Exhibit No. 10 to
Registrant's Post-Effective Amendment No. 2 to Registration
Statement No. 2-97636, is incorporated herein by reference.
11. Not applicable.
12. None.
13. None.
14. None.
15. None.
16. Copy of Schedule for computation of each performance
quotation, filed concurrently on Form SE as Exhibit 16 to
Registrant's Post-Effective Amendment No. 9 to Registration
Statement No. 2-97636, is incorporated herein by reference.
17. Not applicable.
18. Power of Attorney dated Nov. 2, 1993, filed electronically as
Exhibit 17 to Registrant's Post-Effective Amendment No. 12 to
Registration Statement No. 2-97636, is incorporated herein by
reference.
Item 25. Persons Controlled by or Under Common Control with
Registrant
Not Applicable.
Item 26. Number of Holders of Securities
(1) (2)
Number of Record Holders as
of Jan. 31, 1995 for Equity,
Government Securities,
Income, Managed and Money
Title of Class Market Portfolios
Common Stock 5
Number of Record Holders as
of Jan. 31, 1995 for
Title of Class International Equity Portfolio
Common Stock 2
<PAGE>
PAGE 173
Item 27. Indemnification
The Articles of Incorporation of the registrant provide that the
Fund shall indemnify any person who was or is a party or is
threatened to be made a party, by reason of the fact that 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.
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>
<TABLE><CAPTION>
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)
Directors and officers of American Express Financial Corporation who are directors and/or officers of one or more other companies:
<S> <C> <C>
Ronald G. Abrahamson, Vice President--Service Quality and Reengineering
American Express Financial Advisors IDS Tower 10 Vice President-Field
Minneapolis, MN 55440 Service Quality
and Reengineering
American Express Service Corporation Vice President
Douglas A. Alger, Vice President--Total Compensation
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Total Compensation
Jerome R. Amundson, Vice President and Controller--Investment Accounting
American Express Financial Advisors IDS Tower 10 Vice President and
Minneapolis, MN 55440 Controller-Investment
Accounting
<PAGE>
PAGE 174
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd)
Peter J. Anderson, Director and Senior Vice President--Investments
American Express Financial Advisors IDS Tower 10 Senior Vice President-
Minneapolis, MN 55440 Investments
IDS Advisory Group Inc. Director and Chairman
of the Board
IDS Capital Holdings Inc. Director and President
IDS Fund Management Limited Director
IDS International, Inc. Director, Chairman of the
Board and Executive Vice
President
IDS Securities Corporation Executive Vice President-
Investments
NCM Capital Management Group, Inc. 2 Mutual Plaza Director
501 Willard Street
Durham, NC 27701
Ward D. Armstrong, Vice President-Sales and Marketing, American Express Institutional Services
American Express Financial Advisors IDS Tower 10 Vice President-Sales and
Minneapolis, MN 55440 Marketing, American
Express Institutional
Services
Kent L. Ashton, Vice President--Financial Education Services
American Express Financial Advisors IDS Tower 10 Vice President-Financial
Minneapolis, MN 55440 Education Services
Joseph M. Barsky III, Vice President--Senior Portfolio Manager
American Express Financial Advisors IDS Tower 10 Vice President-Senior
Minneapolis, MN 55440 Portfolio Manager
IDS Advisory Group Inc. Vice President
Robert C. Basten, Vice President--Tax and Business Services
American Express Financial Advisors IDS Tower 10 Vice President-Tax
Minneapolis, MN 55440 and Business Services
American Express Tax & Business Director, President and
Services Inc. Chief Executive Officer
Timothy V. Bechtold, Vice President--Insurance Product Development
American Express Financial Advisors IDS Tower 10 Vice President-Insurance
Minneapolis, MN 55440 Product Development
IDS Life Insurance Company Vice President-Insurance
Product Development
Carl E. Beihl, Vice President--Strategic Technology Planning
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Strategic Technology
Planning
Alan F. Bignall, Vice President--Financial Planning Systems
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Financial Planning
Systems
American Express Service Corporation Vice President
John C. Boeder, Vice President--Mature Market Group
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Mature Market Group
IDS Life Insurance Company of New York Box 5144 Director
Albany, NY 12205
Karl J. Breyer, Director and Senior Vice President--Corporate Affairs and General Counsel
American Express Financial Advisors IDS Tower 10 Senior Vice President-
Minneapolis, MN 55440 Corporate Affairs and
Special Counsel
American Express Minnesota Foundation Director
IDS Aircraft Services Corporation Director and President<PAGE>
PAGE 175
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd)
Harold E. Burke, Vice President and Assistant General Counsel
American Express Financial Advisors IDS Tower 10 Vice President and
Minneapolis, MN 55440 Assistant General Counsel
American Express Service Corporation Vice President
Daniel J. Candura, Vice President--Marketing Support
American Express Financial Advisors IDS Tower 10 Vice President-Marketing
Minneapolis, MN 55440 Support
Cynthia M. Carlson, Vice President--American Express Securities Services
American Enterprise Investment IDS Tower 10 Director, President and
Services Inc. Minneapolis, MN 55440 Chief Executive Officer
American Express Financial Advisors Vice President-IDS
Securities Services
Orison Y. Chaffee III, Vice President--Field Real Estate
American Express Financial Advisors IDS Tower 10 Vice President-Field
Minneapolis, MN 55440 Real Estate
James E. Choat, Director and Senior Vice President--Field Management
American Express Financial Advisors IDS Tower 10 Senior Vice President-
Minneapolis, MN 55440 Field Management
American Express Minnesota Foundation Director
American Express Service Corporation Vice President
IDS Insurance Agency of Alabama Inc. Vice President--North
Central Region
IDS Insurance Agency of Arkansas Inc. Vice President--North
Central Region
IDS Insurance Agency of Massachusetts Inc. Vice President--North
Central Region
IDS Insurance Agency of Nevada Inc. Vice President--North
Central Region
IDS Insurance Agency of New Mexico Inc. Vice President--North
Central Region
IDS Insurance Agency of North Carolina Inc. Vice President--North
Central Region
IDS Insurance Agency of Ohio Inc. Vice President--North
Central Region
IDS Insurance Agency of Wyoming Inc. Vice President-- North
Central Region
IDS Property Casualty Insurance Co. Director
<PAGE>
PAGE 176
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd)
Kenneth J. Ciak, Vice President and General Manager--IDS Property Casualty
American Express Financial Advisors IDS Tower 10 Vice President and General
Minneapolis, MN 55440 Manager-IDS Property
Casualty
IDS Property Casualty Insurance Co. I WEG Blvd. Director and President
DePere, Wisconsin 54115
Alan R. Dakay, Vice President--Institutional Insurance Marketing
American Enterprise Life Insurance Co. IDS Tower 10 Director and President
Minneapolis, MN 55440
American Express Financial Advisors Vice President -
Institutional Insurance
Marketing
American Partners Life Insurance Co. Director and President
IDS Life Insurance Company Vice President -
Institutional Insurance
Marketing
Regenia David, Vice President--Systems Services
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Systems Services
William H. Dudley, Director and Executive Vice President--Investment Operations
American Express Financial Advisors IDS Tower 10 Director and Executive
Minneapolis, MN 55440 Vice President-
Investment Operations
IDS Advisory Group Inc. Director
IDS Capital Holdings Inc. Director
IDS Futures Corporation Director
IDS Futures III Corporation Director
IDS International, Inc. Director
IDS Securities Corporation Director, Chairman of the
Board, President and
Chief Executive Officer
Roger S. Edgar, Director and Senior Vice President--Information Systems
American Express Financial Advisors IDS Tower 10 Senior Vice President-
Minneapolis, MN 55440 Information Systems
<PAGE>
PAGE 177
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd)
Gordon L. Eid, Director, Senior Vice President and Deputy General Counsel
American Express Financial Advisors IDS Tower 10 Senior Vice President and
Minneapolis, MN 55440 General Counsel
IDS Insurance Agency of Alabama Inc. Director and Vice President
IDS Insurance Agency of Arkansas Inc. Director and Vice President
IDS Insurance Agency of Massachusetts Inc. Director and Vice President
IDS Insurance Agency of Nevada Inc. Director and Vice President
IDS Insurance Agency of New Mexico Inc. Director and Vice President
IDS Insurance Agency of North Carolina Inc. Director and Vice President
IDS Insurance Agency of Ohio Inc. Director and Vice President
IDS Insurance Agency of Wyoming Inc. Director and Vice President
IDS Real Estate Services, Inc. Vice President
Investors Syndicate Development Corp. Director
Robert M. Elconin, Vice President--Government Relations
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Government Relations
IDS Life Insurance Company Vice President
Mark A. Ernst, Vice President--Retail Services
American Enterprise Investment IDS Tower 10 Director
Services Inc. Minneapolis, MN 55440
American Express Financial Advisors Vice President-
Retail Services
American Express Tax & Business Director and Chairman of
Services Inc. the Board
Gordon M. Fines, Vice President--Mutual Fund Equity Investments
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Mutual Fund Equity
Investments
IDS Advisory Group Inc. Executive Vice President
IDS International, Inc. Vice President and
Portfolio Manager
<PAGE>
PAGE 178
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd)
Louis C. Fornetti, Director, Senior Vice President and Chief Financial Officer
American Enterprise Investment IDS Tower 10 Vice President
Services Inc. Minneapolis, MN 55440
American Express Financial Advisors Senior Vice President and
Chief Financial Officer
American Express Tax & Business Director
Services Inc.
American Express Trust Company Director
IDS Cable Corporation Director
IDS Cable II Corporation Director
IDS Capital Holdings Inc. Senior Vice President
IDS Certificate Company Vice President
IDS Insurance Agency of Alabama Inc. Vice President
IDS Insurance Agency of Arkansas Inc. Vice President
IDS Insurance Agency of Massachusetts Inc. Vice President
IDS Insurance Agency of Nevada Inc. Vice President
IDS Insurance Agency of New Mexico Inc. Vice President
IDS Insurance Agency of North Carolina Inc. Vice President
IDS Insurance Agency of Ohio Inc. Vice President
IDS Insurance Agency of Wyoming Inc. Vice President
IDS Life Insurance Company Director
IDS Life Series Fund, Inc. Vice President
IDS Life Variable Annuity Funds A&B Vice President
IDS Property Casualty Insurance Co. Director and Vice President
IDS Real Estate Services, Inc. Vice President
IDS Sales Support Inc. Director
IDS Securities Corporation Vice President
Investors Syndicate Development Corp. Vice President
Robert G. Gilbert, Vice President--Real Estate
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Real Estate
John J. Golden, Vice President--Field Compensation Development
American Express Financial Advisors IDS Tower 10 Vice President-Field
Minneapolis, MN 55440 Compensation Development
Harvey Golub, Director
American Express Company American Express Tower Chairman and Chief
World Financial Center Executive Officer
New York, New York 10285
American Express Travel Chairman and Chief
Related Services Company, Inc. Executive Officer
National Computer Systems, Inc. 11000 Prairie Lakes Drive Director
Minneapolis, MN 55440
<PAGE>
PAGE 179
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd)
Morris Goodwin Jr., Vice President and Corporate Treasurer
American Enterprise Investment IDS Tower 10 Vice President and
Services Inc. Minneapolis, MN 55440 Treasurer
American Enterprise Life Insurance Vice President and
Company Treasurer
American Express Financial Advisors Vice President and
Corporate Treasurer
American Express Minnesota Foundation Director, Vice President
and Treasurer
American Express Service Corporation Vice President and
Treasurer
American Express Tax & Business Vice President and
Services Inc. Treasurer
IDS Advisory Group Inc. Vice President and
Treasurer
IDS Aircraft Services Corporation Vice President and
Treasurer
IDS Cable Corporation Vice President and
Treasurer
IDS Cable II Corporation Vice President and
Treasurer
IDS Capital Holdings Inc. Vice President and
Treasurer
IDS Certificate Company Vice President and
Treasurer
IDS Deposit Corp. Director, President
and Treasurer
IDS Insurance Agency of Alabama Inc. Vice President and
Treasurer
IDS Insurance Agency of Arkansas Inc. Vice President and
Treasurer
IDS Insurance Agency of Massachusetts Inc. Vice President and
Treasurer
IDS Insurance Agency of Nevada Inc. Vice President and
Treasurer
IDS Insurance Agency of New Mexico Inc. Vice President and
Treasurer
IDS Insurance Agency of North Carolina Inc. Vice President and
Treasurer
IDS Insurance Agency of Ohio Inc. Vice President and
Treasurer
IDS Insurance Agency of Wyoming Inc. Vice President and
Treasurer
IDS International, Inc. Vice President and
Treasurer
IDS Life Insurance Company Vice President and
Treasurer
IDS Life Series Fund, Inc. Vice President and
Treasurer
<PAGE>
PAGE 180
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd)
IDS Life Variable Annuity Funds A&B Vice President and
Treasurer
IDS Management Corporation Vice President and
Treasurer
IDS Partnership Services Corporation Vice President and
Treasurer
IDS Plan Services of California, Inc. Vice President and
Treasurer
IDS Property Casualty Insurance Co. Vice President and
Treasurer
IDS Real Estate Services, Inc Vice President and
Treasurer
IDS Realty Corporation Vice President and
Treasurer
IDS Sales Support Inc. Director, Vice President
and Treasurer
IDS Securities Corporation Vice President and
Treasurer
Investors Syndicate Development Corp. Vice President and
Treasurer
NCM Capital Management Group, Inc. 2 Mutual Plaza Director
501 Willard Street
Durham, NC 27701
Sloan Financial Group, Inc. Director
Suzanne Graf, Vice President--Systems Services
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Systems Services
David A. Hammer, Vice President and Marketing Controller
American Express Financial Advisors IDS Tower 10 Vice President and
Minneapolis, MN 55440 Marketing Controller
IDS Plan Services of California, Inc. Director and Vice President
Lorraine R. Hart, Vice President--Insurance Investments
American Enterprise Life IDS Tower 10 Vice President-Investments
Insurance Company Minneapolis, MN 55440
American Express Financial Advisors Vice President-Insurance
Investments
American Partners Life Insurance Co. Director and Vice
President-Investments
IDS Certificate Company Vice President-Investments
IDS Life Insurance Company Vice President-Investments
IDS Property Casualty Insurance Company Vice President-Investment
Officer
Investors Syndicate Development Corp. Vice President-Investments
<PAGE>
PAGE 181
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd)
Scott A. Hawkinson, Vice President--Assured Assets Product Development and Management
American Express Financial Advisors IDS Tower 10 Vice President-Assured
Minneapolis, MN 55440 Assets Product
Development & Management
Raymond E. Hirsch, Vice President--Senior Portfolio Manager
American Express Financial Advisors IDS Tower 10 Vice President-Senior
Minneapolis, MN 55440 Portfolio Manager
IDS Advisory Group Inc. Vice President
James G. Hirsh, Vice President and Assistant General Counsel
American Express Financial Advisors IDS Tower 10 Vice President and
Minneapolis, MN 55440 Assistant General Counsel
IDS Securities Corporation Director, Vice President
and General Counsel
Darryl G. Horsman, Vice President--Product Development and Technology, American Express
Institutional Services
American Express Trust Company IDS Tower 10 Vice President
Minneapolis, MN 55440
Kevin P. Howe, Vice President--Government and Customer Relations and Chief Compliance Officer
American Enterprise Investment IDS Tower 10 Vice President and
Services Inc. Minneapolis, MN 55440 Compliance Officer
American Express Financial Advisors Vice President-
Government and
Customer Relations
American Express Service Corporation Vice President
IDS Securities Corporation Vice President and Chief
Compliance Officer
David R. Hubers, Director, President and Chief Executive Officer
American Express Financial Advisors IDS Tower 10 Chairman, Chief Executive
Minneapolis, MN 55440 Officer and President
American Express Service Corporation Director and President
IDS Aircraft Services Corporation Director
IDS Certificate Company Director
IDS Life Insurance Company Director
IDS Plan Services of California, Inc. Director and President
IDS Property Casualty Insurance Co. Director
Marietta L. Johns, Director and Senior Vice President--Field Management
American Express Financial Advisors IDS Tower 10 Senior Vice President-
Minneapolis, MN 55440 Field Management
<PAGE>
PAGE 182
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd)
Douglas R. Jordal, Vice President--Taxes
American Express Financial Advisors IDS Tower 10 Vice President-Taxes
Minneapolis, MN 55440
IDS Aircraft Services Corporation Vice President
Craig A. Junkins, Vice President--IDS 1994 Implementation Planning and Financial Planning
Development
American Express Financial Advisors IDS Tower 10 Vice President-IDS 1994
Minneapolis, MN 55440 Implementation Planning
and Financial Planning
Development
American Express Service Corporation Vice President
James E. Kaarre, Vice President--Marketing Information
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Marketing Information
Linda B. Keene, Vice President--Market Development
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Market Development
G. Michael Kennedy, Vice President--Investment Services and Investment Research
American Express Financial Advisors IDS Tower 10 Vice President-Investment
Minneapolis, MN 55440 Services and Investment
Research
Susan D. Kinder, Director and Senior Vice President--Human Resources
American Express Financial Advisors IDS Tower 10 Senior Vice President-
Minneapolis, MN 55440 Human Resources
American Express Minnesota Foundation Director
American Express Service Corporation Vice President
<PAGE>
PAGE 183
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd)
Richard W. Kling, Director and Senior Vice President--Risk Management Products
American Enterprise Life Insurance Co. IDS Tower 10 Director and Chairman of
Minneapolis, MN 55440 the Board
American Express Financial Advisors Senior Vice President-
Risk Management Products
American Partners Life Insurance Co. Director and Chairman of
the Board
IDS Insurance Agency of Alabama Inc. Director and President
IDS Insurance Agency of Arkansas Inc. Director and President
IDS Insurance Agency of Massachusetts Inc. Director and President
IDS Insurance Agency of Nevada Inc. Director and President
IDS Insurance Agency of New Mexico Inc. Director and President
IDS Insurance Agency of North Carolina Inc. Director and President
IDS Insurance Agency of Ohio Inc. Director and President
IDS Insurance Agency of Wyoming Inc. Director and President
IDS Life Insurance Company Director and President
IDS Life Series Fund, Inc. Director and President
IDS Life Variable Annuity Funds A&B Member of Board of
Managers, Chairman of the
Board and President
IDS Property Casualty Insurance Co. Director and Chairman of
the Board
IDS Life Insurance Company P.O. Box 5144 Director, Chairman of the
of New York Albany, NY 12205 Board and President
Harold D. Knutson, Vice President--System Services
American Express Financial Advisors IDS Tower 10 Vice President--
Minneapolis, MN 55440 System Services
Paul F. Kolkman, Vice President--Actuarial Finance
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Actuarial Finance
IDS Life Insurance Company Director and Executive
Vice President
IDS Life Series Fund, Inc. Vice President and Chief
Actuary
Claire Kolmodin, Vice President--Service Quality
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Service Quality
Steven C. Kumagai, Director and Senior Vice President--Field Management and Business Systems
American Express Financial Advisors IDS Tower 10 Director and Senior Vice
Minneapolis, MN 55440 President-Field
Management and Business
Systems
American Express Service Corporation Vice President
<PAGE>
PAGE 184
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd)
Edward Labenski, Vice President--Senior Portfolio Manager
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Senior Portfolio
Manager
IDS Advisory Group Inc. Senior Vice President
Kurt A. Larson, Vice President--Senior Portfolio Manager
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Senior Portfolio Manager
Lori J. Larson, Vice President--Variable Assets Product Development
American Express Financial Advisors IDS Tower 10 Vice President-Variable
Minneapolis, MN 55440 Assets Product
Development
IDS Cable Corporation Director and Vice President
IDS Cable II Corporation Director and Vice President
IDS Futures Brokerage Group Assistant Vice President-
General Manager/Director
IDS Futures Corporation Director and Vice President
IDS Futures III Corporation Director and Vice President
IDS Management Corporation Director and Vice President
IDS Partnership Services Corporation Director and Vice President
IDS Realty Corporation Director and Vice President
Ryan R. Larson, Vice President--IPG Product Development
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 IPG Product Development
IDS Life Insurance Company Vice President-
Annuity Product
Development
Daniel E. Laufenberg, Vice President and Chief U.S. Economist
American Express Financial Advisors IDS Tower 10 Vice President and
Minneapolis, MN 55440 Chief U.S. Economist
Richard J. Lazarchic, Vice President--Senior Portfolio Manager
American Express Financial Advisors IDS Tower 10 Vice President-Senior
Minneapolis, MN 55440 Portfolio Manager
<PAGE>
PAGE 185
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd)
Peter A. Lefferts, Director, Senior Vice President and Chief Marketing Officer
American Express Financial Advisors IDS Tower 10 Senior Vice President and
Minneapolis, MN 55440 Chief Marketing Officer
American Express Trust Company Director and Chairman of
the Board
IDS Life Insurance Company Director and Executive
Vice President-Marketing
IDS Plan Services of California, Inc. Director
Investors Syndicate Development Corp. Director
Douglas A. Lennick, Director and Executive Vice President--Private Client Group
American Express Financial Advisors IDS Tower 10 Director and Executive
Minneapolis, MN 55440 Vice President-Private
Client Group
American Express Service Corporation Vice President
Mary J. Malevich, Vice President--Senior Portfolio Manager
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Senior Portfolio
Manager
IDS International, Inc. Vice President and
Portfolio Manager
Fred A. Mandell, Vice President--Field Marketing Readiness
American Express Financial Advisors IDS Tower 10 Vice President-Field
Minneapolis, MN 55440 Marketing Readiness
William J. McKinney, Vice President--Field Management Support
American Express Financial Advisors IDS Tower 10 Vice President-Field
Minneapolis, MN 55440 Management Support
Thomas W. Medcalf, Vice President--Senior Portfolio Manager
American Express Financial Advisors IDS Tower 10 Vice President-Senior
Minneapolis, MN 55440 Portfolio Manager
William C. Melton, Vice President-International Research and Chief International Economist
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 International Research
and Chief International
Economist
<PAGE>
PAGE 186
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd)
Janis E. Miller, Vice President--Variable Assets
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Variable Assets
IDS Cable Corporation Director and President
IDS Cable II Corporation Director and President
IDS Futures Corporation Director and President
IDS Futures III Corporation Director and President
IDS Life Insurance Company Director and Executive
Vice President-Variable
Assets
IDS Life Series Fund, Inc. Director
IDS Life Variable Annuity Funds A&B Director
IDS Management Corporation Director and President
IDS Partnership Services Corporation Director and President
IDS Realty Corporation Director and President
IDS Life Insurance Company of New York Box 5144 Executive Vice President
Albany, NY 12205
James A. Mitchell, Director and Executive Vice President--Marketing and Products
American Enterprise Investment IDS Tower 10 Director
Services Inc. Minneapolis, MN 55440
American Express Financial Advisors Executive Vice President-
Marketing and Products
IDS Certificate Company Director and Chairman of
the Board
IDS Life Insurance Company Director, Chairman of
the Board and Chief
Executive Officer
IDS Plan Services of California, Inc. Director
IDS Property Casualty Insurance Co. Director
Pamela J. Moret, Vice President--Corporate Communications
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Corporate Communications
American Express Minnesota Foundation Director and President
Barry J. Murphy, Director and Senior Vice President--Client Service
American Express Financial Advisors IDS Tower 10 Senior Vice President-
Minneapolis, MN 55440 Client Service
IDS Life Insurance Company Director and Executive
Vice President-Client
Service
<PAGE>
PAGE 187
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd)
Robert J. Neis, Vice President--Information Systems Operations
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Information Systems
Operations
James R. Palmer, Vice President--Insurance Operations
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Insurance Operations
IDS Life Insurance Company Vice President-Taxes
Carla P. Pavone, Vice President--Specialty Service Teams and Emerging Business
American Express Financial Advisors IDS Tower 10 Vice President-Specialty
Minneapolis, MN 55440 Service Teams and
Emerging Business
Judith A. Pennington, Vice President--Field Technology
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Field Technology
George M. Perry, Vice President--Corporate Strategy and Development
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Corporate Strategy
and Development
IDS Property Casualty Insurance Co. Director
Susan B. Plimpton, Vice President--Segmentation Development and Support
American Express Financial Advisors IDS Tower 10 Vice President--
Minneapolis, MN 55440 Segmentation Development
and Support
Ronald W. Powell, Vice President and Assistant General Counsel
American Express Financial Advisors IDS Tower 10 Vice President and
Minneapolis, MN 55440 Assistant General Counsel
IDS Cable Corporation Vice President and
Assistant Secretary
IDS Cable II Corporation Vice President and
Assistant Secretary
IDS Management Corporation Vice President and
Assistant Secretary
IDS Partnership Services Corporation Vice President and
Assistant Secretary
IDS Plan Services of California, Inc. Vice President and
Assistant Secretary
IDS Realty Corporation Vice President and
Assistant Secretary
<PAGE>
PAGE 188
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd)
James M. Punch, Vice President--TransAction Services
American Express Financial Advisors IDS Tower 10 Vice President-Trans
Minneapolis, MN 55440 Action Services
Frederick C. Quirsfeld, Vice President--Taxable Mutual Fund Investments
American Express Financial Advisors IDS Tower 10 Vice President--
Minneapolis, MN 55440 Taxable Mutual Fund
Investments
IDS Advisory Group Inc. Vice President
ReBecca K. Roloff, Vice President--1994 Program Director
American Express Financial Advisors IDS Tower 10 Vice President-1994
Minneapolis, MN 55440 Program Director
Stephen W. Roszell, Vice President--Advisory Institutional Marketing
American Express Financial Advisors IDS Tower 10 Vice President-Advisory
Minneapolis, MN 55440 Institutional Marketing
IDS Advisory Group Inc. President and Chief
Executive Officer
Robert A. Rudell, Vice President--American Express Institutional Services
American Express Financial Advisors IDS Tower 10 Vice President-American
Minneapolis, MN 55440 Express Institutional
Services
American Express Trust Company Director
IDS Sales Support Inc. Director and President
John P. Ryan, Vice President and General Auditor
American Express Financial Advisors IDS Tower 10 Vice President and General
Minneapolis, MN 55440 Auditor
<PAGE>
PAGE 189
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd)
Erven A. Samsel, Director and Senior Vice President--Field Management
American Express Financial Advisors IDS Tower 10 Senior Vice President-
Minneapolis, MN 55440 Field Management
American Express Service Corporation Vice President
IDS Insurance Agency of Alabama Inc. Vice President-
New England Region
IDS Insurance Agency of Arkansas Inc. Vice President-
New England Region
IDS Insurance Agency of Massachusetts Inc. Vice President-
New England Region
IDS Insurance Agency of Nevada Inc. Vice President-
New England Region
IDS Insurance Agency of New Mexico Inc. Vice President-
New England Region
IDS Insurance Agency of North Carolina Inc. Vice President-
New England Region
IDS Insurance Agency of Ohio Inc. Vice President-
New England Region
IDS Insurance Agency of Wyoming Inc. Vice President-
New England Region
Stuart A. Sedlacek, Vice President--Assured Assets
American Enterprise Life Insurance Co. IDS Tower 10 Director and Executive
Minneapolis, MN 55440 Vice President, Assured
Assets
American Express Financial Advisors Vice President-
Assured Assets
IDS Certificate Company Director and President
IDS Life Insurance Company Director and Executive
Vice President, Assured
Assets
Investors Syndicate Development Corp. Chairman of the Board
and President
Donald K. Shanks, Vice President--Property Casualty
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Property Casualty
IDS Property Casualty Insurance Co. Senior Vice President
<PAGE>
PAGE 190
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd)
F. Dale Simmons, Vice President--Senior Portfolio Manager, Insurance Investments
American Enterprise Life Insurance Co. IDS Tower 10 Vice President-Real
Minneapolis, MN 55440 Estate Loan Management
American Express Financial Advisors Vice President-Senior
Portfolio Manager
Insurance Investments
American Partners Life Insurance Co. Vice President-Real
Estate Loan Management
IDS Certificate Company Vice President-Real
Estate Loan Management
IDS Life Insurance Company Vice President-Real
Estate Loan Management
IDS Partnership Services Corporation Vice President
IDS Real Estate Services Inc. Director and Vice President
IDS Realty Corporation Vice President
IDS Life Insurance Company of New York Box 5144 Vice President and
Albany, NY 12205 Assistant Treasurer
Judy P. Skoglund, Vice President--Human Resources and Organization Development
American Express Financial Advisors IDS Tower 10 Vice President-Human
Minneapolis, MN 55440 Resources and
Organization Development
Ben C. Smith, Vice President--Workplace Marketing
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Workplace Marketing
William A. Smith, Vice President and Controller--Private Client Group
American Express Financial Advisors IDS Tower 10 Vice President and
Minneapolis, MN 55440 Controller-Private
Client Group
Bridget Sperl, Vice President--Human Resources Management Services
American Express Financial Advisors IDS Tower 10 Vice President-Human
Minneapolis, MN 55440 Resources Management
Services
Jeffrey E. Stiefler, Director
American Express Company American Express Tower Director and President
World Financial Center
New York, NY 10285
<PAGE>
PAGE 191
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd)
William A. Stoltzmann, Vice President and Assistant General Counsel
American Express Financial Advisors IDS Tower 10 Vice President and
Minneapolis, MN 55440 Assistant General Counsel
American Partners Life Insurance Co. Director, Vice President,
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 Funds A&B General Counsel and
Assistant Secretary
American Enterprise Life Insurance P.O. Box 534 Director, Vice President,
Company Minneapolis, MN 55440 General Counsel
and Secretary
James J. Strauss, Vice President--Corporate Planning and Analysis
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Corporate Planning and
Analysis
Jeffrey J. Stremcha, Vice President--Information Resource Management/ISD
American Express Financial Advisors IDS Tower 10 Vice President-Information
Minneapolis, MN 55440 Resource Management/ISD
Fenton R. Talbott, Director
ACUMA Ltd. ACUMA House President and Chief
The Glanty, Egham Executive Officer
Surrey TW 20 9 AT
UK
<PAGE>
PAGE 192
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd)
John R. Thomas, Director and Senior Vice President--Information and Technology
American Express Financial Advisors IDS Tower 10 Senior Vice President-
Minneapolis, MN 55440 Information and
Technology
IDS Bond Fund, Inc. Director
IDS California Tax-Exempt Trust Trustee
IDS Discovery Fund, Inc. Director
IDS Equity Select Fund, Inc. Director
IDS Extra Income Fund, Inc. Director
IDS Federal Income Fund, Inc. Director
IDS Global Series, Inc. Director
IDS Growth Fund, Inc. Director
IDS High Yield Tax-Exempt Fund, Inc. Director
IDS Investment Series, Inc. Director
IDS Managed Retirement Fund, Inc. Director
IDS Market Advantage Series, Inc. Director
IDS Money Market Series, Inc. Director
IDS New Dimensions Fund, Inc. Director
IDS Precious Metals Fund, Inc. Director
IDS Progressive Fund, Inc. Director
IDS Selective Fund, Inc. Director
IDS Special Tax-Exempt Series Trust Trustee
IDS Stock Fund, Inc. Director
IDS Strategy Fund, Inc. Director
IDS Tax-Exempt Bond Fund, Inc. Director
IDS Tax-Free Money Fund, Inc. Director
IDS Utilities Income Fund, Inc. Director
Melinda S. Urion, Vice President and Corporate Controller
American Enterprise Life IDS Tower 10 Vice President and
Insurance Company Minneapolis, MN 55440 Controller
American Express Financial Advisors Vice President and
Corporate Controller
American Partners Life Insurance Co. Director, Vice President,
Controller and Treasurer
IDS Life Insurance Company Director, Executive Vice
President and Controller
IDS Life Series Fund, Inc. Vice President and
Controller
Wesley W. Wadman, Vice President--Senior Portfolio Manager
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Senior Portfolio Manager
IDS Advisory Group Inc. Executive Vice President
IDS Fund Management Limited Director and Chairman
IDS International, Inc. Senior Vice President
<PAGE>
PAGE 193
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd)
Norman Weaver, Jr., Director and Senior Vice President--Field Management
American Express Financial Advisors IDS Tower 10 Senior Vice President-
Minneapolis, MN 55440 Field Management
American Express Service Corporation Vice President
IDS Insurance Agency of Alabama Inc. Vice President-
Pacific Region
IDS Insurance Agency of Arkansas Inc. Vice President-
Pacific Region
IDS Insurance Agency of Massachusetts Inc. Vice President-
Pacific Region
IDS Insurance Agency of Nevada Inc. Vice President-
Pacific Region
IDS Insurance Agency of New Mexico Inc. Vice President-
Pacific Region
IDS Insurance Agency of North Carolina Inc. Vice President-
Pacific Region
IDS Insurance Agency of Ohio Inc. Vice President-
Pacific Region
IDS Insurance Agency of Wyoming Inc. Vice President-
Pacific Region
Michael L. Weiner, Vice President--Corporate Tax Operations
American Express Financial Advisors IDS Tower 10 Vice President-Corporate
Minneapolis, MN 55440 Tax Operations
IDS Capital Holdings Inc. Vice President
IDS Futures Brokerage Group Vice President
IDS Futures Corporation Vice President, Treasurer
and Secretary
IDS Futures III Corporation Vice President, Treasurer
and Secretary
Lawrence J. Welte, Vice President--Investment Administration
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Investment Administration
IDS Securities Corporation Director, Executive Vice
President and Chief
Operating Officer
Jeffry F. Welter, Vice President--Equity and Fixed Income Trading
American Express Financial Advisors IDS Tower 10 Vice President-Equity
Minneapolis, MN 55440 and Fixed Income Trading
<PAGE>
PAGE 194
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd)
William N. Westhoff, Director, Senior Vice President and Global Chief Investment Officer
American Enterprise Life Insurance IDS Tower 10 Director
Company Minneapolis, MN 55440
American Express Financial Advisors Senior Vice President and
Global Chief Investment
Officer
IDS International, Inc. Director
IDS Partnership Services Corporation Director and Vice President
IDS Real Estate Services Inc. Director, Chairman of the
Board and President
IDS Realty Corporation Director and Vice President
Investors Syndicate Development Corp. Director
Edwin M. Wistrand, Vice President and Assistant General Counsel
American Express Financial Advisors IDS Tower 10 Vice President and
Minneapolis, MN 55440 Assistant General Counsel
Michael R. Woodward, Director and Senior Vice President--Field Management
American Express Financial Advisors IDS Tower 10 Senior Vice President-
Minneapolis, MN 55440 Field Management
American Express Service Corporation Vice President
IDS Insurance Agency of Alabama Inc. Vice President-
North Region
IDS Insurance Agency of Arkansas Inc. Vice President-
North Region
IDS Insurance Agency of Massachusetts Inc. Vice President-
North Region
IDS Insurance Agency of Nevada Inc. Vice President-
North Region
IDS Insurance Agency of New Mexico Inc. Vice President-
North Region
IDS Insurance Agency of North Carolina Inc. Vice President-
North Region
IDS Insurance Agency of Ohio Inc. Vice President-
North Region
IDS Insurance Agency of Wyoming Inc. Vice President-
North Region
IDS Life Insurance Company Box 5144 Director
of New York Albany, NY 12205
</TABLE>
Item 29. The Fund has no principal underwriter.
Item 30. Location of Accounts and Records
American Express Financial Corporation
IDS Tower 10
Minneapolis, Minnesota
Item 31. Management Services
Not applicable
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) The Registrant undertakes to furnish each person to
whom a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders,
upon request and without charge.
<PAGE>
PAGE 195
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, IDS Life Series
Fund, Inc., has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Minneapolis and State of Minnesota
on the 23rd day of February, 1995.
IDS LIFE SERIES FUND, INC.
By /s/ Richard W. Kling
Richard W. Kling
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by
the following persons in the capacities indicated on the 23rd day
of February, 1995.
Signature Capacity
/s/ Richard W. Kling* President and Director
Richard W. Kling
/s/ Louis C. Fornetti Vice President
Louis C. Fornetti
/s/ Morris Goodwin, Jr. Vice President and
Morris Goodwin, Jr. Treasurer
/s/ Paul Kolkman* Vice President and Chief
Paul Kolkman Actuary
/s/ Melinda S. Urion Vice President and
Melinda S. Urion Controller
/s/ Edward Landes* Director
Edward Landes
/s/ Carl N. Platou* Director
Carl N. Platou
/s/ Gordon H. Ritz* Director
Gordon H. Ritz
__________________________ Director
Janis E. Miller
*Signed pursuant to Power of Attorney dated November 2, 1993, filed
electronically as Exhibit 17 to Registrant's Post-Effective
Amendment No. 12 to Registration Statement No. 2-97636.
Mary Ellyn Minenko
<PAGE>
PAGE 196
CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 16
TO REGISTRATION STATEMENT NO. 2-97636
This Post-Effective Amendment comprises the following papers and
documents:
The facing sheet.
The cross-reference page.
Part A.
The prospectus.
Part B.
Statement of Additional Information.
Part C.
Other Information.
The signatures.
EXHIBIT INDEX
1(a) Articles of Incorporation
<PAGE>
PAGE 1
ARTICLES OF AMENDMENT OF ARTICLES OF INCORPORATION
IDS Life Series Fund, Inc., a corporation organized and existing
under and by virtue of the Minnesota Business Corporation Act does
hereby certify:
FIRST: That the name of the corporation is IDS Life Series Fund,
Inc.
SECOND: That the shareholders of said corporation, at a meeting
duly held, adopted resolutions proposing and declaring advisable
the following amendments to the Articles of Incorporation of said
corporation:
RESOLVED, That the Articles of Incorporation of IDS Life
Series Fund, Inc. be amended by changing Article III, Section
1. thereof so that, as amended, said Article III, Section 1.
shall be and read as follows:
ARTICLE III - CAPITALIZATION
Section 1. The amount of the total authorized Capital Stock
of the Fund shall be $100,000,000, consisting of
10,000,000,000 shares of the par value of one tenth of one
cent ($.001) per share. Any or all of said shares of Capital
Stock may be issued in such classes or series with such
designations, preferences and relative, participating,
optional or other special rights, or qualifications,
limitations or restrictions thereof, as shall be stated and
expressed in a resolution or resolutions providing for the
issuance of such class or series of stock as may be adopted
from time to time by the Fund's Board of Directors pursuant to
the authority hereby vested in said Board. Each class or
series of shares which the Board of Directors may establish,
as provided herein, may, if the Board shall so determine by
resolution, evidence an interest in a separate and distinct
portion of the Fund's assets, which may take the form of a
separate portfolio of investment securities and cash.
Authority to establish such separate portfolios is hereby
vested in the Board.
RESOLVED FURTHER, That the Articles of Incorporation of IDS
Life Series Fund, Inc. be amended by adding Section 6. to
Article IV thereof so that, as amended, said Article IV,
Section 6. shall be and read as follows:
ARTICLE IV - DIRECTORS
Section 6. To the full extent permitted by the laws of the
State of Minnesota, as now existing or hereafter amended, no
director of the Fund shall be liable to the Fund or its
shareholders for monetary damages for breach of fiduciary duty
as a director but such limit on liability shall be permitted
only to the extent allowable under the provisions of the
Investment Company Act of 1940.
THIRD: That a majority of the shareholders approved said
amendments at a meeting called for that purpose on November 9,
1994.<PAGE>
PAGE 2
FOURTH: That said amendments were adopted pursuant to the
provisions of the Minnesota Business Corporation Act, Chapter 302A.
IN WITNESS WHEREOF, said IDS Life Series Fund, Inc. has caused
these Articles of Amendment to be signed by Richard W. Kling, its
President, and attested by Colleen Curran, its Secretary, this 20th
day of December, 1994.
IDS LIFE SERIES FUND, INC.
/s/ R. W. Kling
President
ATTEST:
/s/ Colleen Curran
Secretary
