<PAGE>
PAGE 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 18 (File No. 33-20872) X
---- ---
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY (ACT OF 1940)
Amendment No. 21 (File No. 811-5522)
IDS UTILITIES INCOME FUND, INC.
IDS Tower 10, Minneapolis, MN 55440-0010
Leslie L. Ogg - 901 S. Marquette Ave., Suite 2810
Minneapolis, MN 55402-3268
(612) 330-9283
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check
appropriate box)
immediately upon filing pursuant to paragraph (b)
X on August 29, 1997 pursuant to paragraph (b) of Rule 485
60 days after filing pursuant to paragraph (a)(i)
on (date) pursuant to paragraph (a)(i)
75 days after filing pursuant to paragraph (a)(ii)
on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant has registered an indefinite number or amount of securities under
the Securities Act of 1933 pursuant to Section 24-f of the Investment Company
Act of 1940. Registrant's Rule 24f-2 Notice for its most recent fiscal year was
filed on Aug. 18, 1997.
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PAGE 2
Cross reference sheet showing the location in its prospectus and the Statement
of Additional Information of the information called for by the items enumerated
in Parts A and B of Form N-1A.
Negative answers omitted from prospectus are so indicated.
<TABLE>
<CAPTION>
PART A PART B
Section Section in
Item No. in Prospectus Item No. Statement of Additional Information
<S> <C> <C> <C>
1 Cover page of prospectus 10 Cover page of SAI
2(a) Sales charge and Fund expenses 11 Table of Contents
(b) The Fund in brief
(c) The Fund in brief 12 NA
3(a) Financial highlights 13(a) Additional Investment Policies; all
(b) NA appendices except Dollar-Cost Averaging
(c) Performance (b) Additional Investment Policies
(d) Financial highlights (c) Additional Investment Policies
(d) Security Transactions
4(a) The Fund in brief; Investment policies and
risks; How the Fund is organized 14(a) Board members and officers of the Fund;**
(b) Investment policies and risks Board Members and Officers
(c) Investment policies and risks (b) Board Members and Officers
(c) Board Members and Officers
5(a) Board members and officers; Board members
and officers of the Fund (listing) 15(a) NA
(b)(i) Investment manager; (b) NA
About American Express Financial (c) Board Members and Officers
Corporation -- General Information
(b)(ii) Investment manager 16(a)(i) How the Fund is organized; About American
(b)(iii) Investment manager Express Financial Corporation**
(c) Portfolio manager (a)(ii) Agreements: Investment Management Services
(d) Administrator and transfer Agent Agreement, Plan and
(e) Administrator and transfer Agent Agreement of Distribution
(f) Distributor (a)(iii) Agreements: Investment Management Services Agreement
(g) Investment manager; (b) Agreements: Investment Management Services Agreement
About American Express Financial (c) NA
Corporation -- General Information (d) Agreements: Administrative Services Agreement,
Shareholder Service Agreement
5A(a) * (e) NA
(b) * (f) Agreements: Distribution Agreement
(g) NA
6(a) Shares; Voting rights (h) Custodian; Independent Auditors
(b) NA (i) Agreements: Transfer Agency Agreement; Custodian
(c) NA
(d) Voting rights 17(a) Security Transactions
(e) Cover page; Special shareholder services (b) Brokerage Commissions Paid to Brokers Affiliated
(f) Dividend and capital gain distributions; with American Express Financial Corporation
Reinvestments (c) Security Transactions
(g) Taxes (d) Security Transactions
(h) Alternative purchase arrangements (e) Security Transactions
7(a) Distributor 18(a) Shares; Voting rights**
(b) Valuing Fund shares (b) NA
(c) How to purchase, exchange or redeem shares
(d) How to purchase shares 19(a) Investing in the Fund
(e) NA (b) Valuing Fund Shares; Investing in the Fund
(f) Distributor (c) Redeeming Shares
8(a) How to redeem shares 20 Taxes
(b) NA
(c) How to purchase shares: Three ways to invest 21(a) Agreements: Distribution Agreement
(d) How to purchase, exchange or redeem shares: (b) Agreements: Distribution Agreement
Redemption policies -- "Important..." (c) NA
9 None 22(a) Performance Information (for money market
funds only)
(b) Performance Information (for all funds except
money market funds)
23 Financial Statements
*Designates information is located in annual report.
<PAGE>
**Designates location in prospectus.
</TABLE>
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PAGE 3
IDS Utilities Income Fund
Prospectus
Aug. 29, 1997
The primary goal of IDS Utilities Income Fund, Inc. is a high level
of current income. Secondary goals are growth of income and
capital. The Fund invests primarily in securities of public
utility companies.
This prospectus contains facts that can help you decide if the Fund is the right
investment for you. Read it before you invest and keep it for future reference.
Additional facts about the Fund are in a Statement of Additional Information
(SAI), filed with the Securities and Exchange Commission (SEC) and available for
reference, along with other related materials, on the SEC Internet web site
(http://www.sec.gov). The SAI is incorporated here by reference. For a free
copy, contact American Express Shareholder Service.
Like all mutual fund shares, these securities have not been approved or
disapproved by the Securities and Exchange Commission or any state securities
commission, nor has the Securities and Exchange Commission or any state
securities commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
Please note that the Fund:
o is not a bank deposit
o is not federally insured
o is not endorsed by any bank or government agency
o is not guaranteed to achieve its goals
American Express Shareholder Service
P.O. Box 534
Minneapolis, MN
55440-0534
800-862-7919
TTY: 800-846-4852
Web site address: http://www.americanexpress.com/advisors
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PAGE 4
Table of contents
The Fund in brief
Goals
Investment policies and risks
Manager and distributor
Portfolio manager
Alternative purchase arrangements
Sales charge and Fund expenses
Performance
Financial highlights
Total returns
Investment policies and risks
Facts about investments and their risks
Alternative investment option
Valuing Fund shares
How to purchase, exchange or redeem shares
Alternative purchase arrangements
How to purchase shares
How to exchange shares
How to redeem shares
Reductions and waivers of the sales charge
Special shareholder services
Services
Quick telephone reference
Distributions and taxes
Dividend and capital gain distributions
Reinvestments
Taxes
How to determine the correct TIN
How the Fund is organized
Shares
Voting rights
Shareholder meetings
Board members and officers
Investment manager
Administrator and transfer agent
Distributor
About American Express Financial Corporation
General information
Appendix
Description of derivative instruments
<PAGE>
PAGE 5
The Fund in brief
Goals
IDS Utilities Income Fund (the Fund) seeks to provide shareholders with a high
level of current income. Secondary goals are growth of income and capital.
Because any investment involves risk, achieving these goals cannot be
guaranteed. Only shareholders can change the goals.
Investment policies and risks
The Fund is a diversified mutual fund that invests primarily in securities of
public utilities. These include companies that produce or supply electric power,
natural gas, water, sanitary services, telecommunications and other
communications services (excluding radio and television broadcasters) for public
use or consumption. Other investments include derivative instruments, money
market instruments and securities that are not public utilities. Some of the
Fund's investments may be considered speculative and involve additional
investment risks. For further information, refer to the later section in the
prospectus titled "Investment policies and risks."
Manager and distributor
The Fund is managed by American Express Financial Corporation (AEFC), a provider
of financial services since 1894. AEFC currently manages more than $65 billion
in assets for the IDS MUTUAL FUND GROUP. Shares of the Fund are sold through
American Express Financial Advisors Inc., a wholly-owned subsidiary of AEFC.
Portfolio manager
Bern Fleming joined AEFC in 1985 and worked as a utility analyst until becoming
portfolio manager of this Fund in January 1995.
Alternative purchase arrangements
The Fund offers its shares in three classes. Class A shares are subject to a
sales charge at the time of purchase. Class B shares are subject to a contingent
deferred sales charge (CDSC) on redemptions made within six years of purchase
and an annual distribution (12b-1) fee. Class Y shares are sold without a sales
charge to qualifying institutional investors.
Sales charge and Fund expenses
Shareholder transaction expenses are incurred directly by an investor on the
purchase or redemption of Fund shares. Fund operating expenses are paid out of
Fund assets for each class of shares. Operating expenses are reflected in the
Fund's daily share price and dividends, and are not charged directly to
shareholder accounts.
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Shareholder transaction expenses
Class A Class B Class Y
Maximum sales charge on purchases*
(as a percentage of offering price).......5% 0% 0%
Maximum deferred sales charge
imposed on redemptions (as a
percentage of original purchase price)....0% 5% 0%
Annual Fund operating expenses (as a percentage of average daily net assets):
Class A Class B Class Y
Management fee 0.52% 0.52% 0.52%
12b-1 fee 0.00% 0.75% 0.00%
Other expenses** 0.37% 0.38% 0.30%
Total 0.89% 1.65% 0.82%
*This charge may be reduced depending on your total investments in
IDS funds. See "Reductions of the sales charge."
**Other expenses include an administrative services fee, a shareholder services
fee, a transfer agency fee and other nonadvisory expenses.
Example: Suppose for each year for the next 10 years, Fund expenses are as above
and annual return is 5%. If you sold your shares at the end of the following
years, for each $1,000 invested, you would pay total expenses of:
1 year 3 years 5 years 10 years
Class A $59 $77 $ 97 $155
Class B $67 $92 $110 $176**
Class B* $17 $52 $ 90 $176**
Class Y $ 8 $26 $ 46 $102
*Assuming Class B shares are not redeemed at the end of the period.
**Based on conversion of Class B shares to Class A shares after
eight years.
This example does not represent actual expenses, past or future. Actual expenses
may be higher or lower than those shown. Because Class B pays annual
distribution (12b-1) fees, long-term shareholders of Class B may indirectly pay
an equivalent of more than a 6.25% sales charge, the maximum permitted by the
National Association of Securities Dealers.
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PAGE 7
Performance
Financial highlights
<TABLE>
<CAPTION>
Fiscal period ended June 30,
Per share income and capital changes(a)
Class A
1997 1996 1995 1994 1993 1992 1991 1990 1989(b)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $7.24 $6.26 $6.23 $7.05 $6.35 $5.67 $5.67 $5.54 $5.00
beginning of period
Income from investment operations:
Net investment income .25 .30 .29 .31 .32 .33 .35 .37 .34
Net gains (losses) 1.01 .96 .21 (.38) .89 .73 .05 .19 .54
(both realized
and unrealized)
Total from investment 1.26 1.26 .50 (.07) 1.21 1.06 .40 .56 .88
operations
Less distributions:
Dividends from net (.24) (.28) (.31) (.31) (.33) (.32) (.35) (.37) (.34)
investment income
Distributions from (.22) -- (.16) (.44) (.18) (.06) (.05) (.06) --
realized gains
Total distributions (.46) (.28) (.47) (.75) (.51) (.38) (.40) (.43) (.34)
Net asset value, $8.04 $7.24 $6.26 $6.23 $7.05 $6.35 $5.67 $5.67 $5.54
end of period
Ratios/supplemental data
Class A
1997 1996 1995 1994 1993 1992 1991 1990 1989(b)
Net assets, end of $740 $677 $601 $651 $655 $406 $252 $197 $72
period (in millions)
Ratio of expenses to .89% .90% .89% .82% .86% .92% .90% .96% .87%(c)
average daily net assets(d)
Ratio of net income 3.42% 4.03% 4.84% 4.55% 4.78% 5.37% 6.37% 6.65% 7.09%(c)
to average daily net assets
Portfolio turnover rate 90% 84% 68% 102% 64% 49% 57% 53% 41%
(excluding short-term
securities)
Total return(e) 18.1% 20.2% 8.4% (1.7%) 19.9% 19.2% 7.3% 10.3% 18.2%
Average brokerage
commisson rate(g) $.0454 -- -- -- -- -- -- -- --
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date. Period from Aug. 1, 1988 to June 30, 1989.
(c) Adjusted to an annual basis
(d) Effective fiscal year 1996, expense ratio is based on total
expenses of the Fund before reduction of earnings credits on
cash balances.
(e) Total return does not reflect payment of a sales charge.
(f) Effective fiscal year 1997, the Fund is required to
disclose an average brokerage commission rate per share for
security trades on which commissions are charged. The
comparability of this information may be affected by the
fact that commission rates per share vary significantly
among foreign countries.
</TABLE>
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PAGE 8
<TABLE>
<CAPTION>
Financial highlights
Fiscal period ended June 30,
Per share income and capital changes(a)
Class B Class Y
1997 1996 1995(b) 1997 1996 1995(b)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, $7.23 $6.26 $5.98 $7.24 $6.26 $5.98
beginning of period
Income from investment operations:
Net investment income .19 .23 .15 .26 .31 .16
Net gains (losses)(both 1.03 .96 .26 1.02 .96 .27
realized and unrealized)
Total from investment 1.22 1.19 .41 1.28 1.27 .43
operations
Less distributions:
Dividends from net (.19) (.22) (.13) (.26) (.29) (.15)
investment income
Distributions from (.22) -- -- (.22) -- --
realized gains
Total distributions (.41) (.22) (.13) (.48) (.29) (.15)
Net asset value, $8.04 $7.23 $6.26 $8.04 $7.24 $6.26
end of period
Ratios/supplemental data
Class B Class Y
1997 1996 1995(b) 1997 1996 1995(b)
Net assets, end of $93 $47 $7 $-- $-- $--
period (in millions)
Ratio of expenses to 1.65% 1.68% 1.83%c .74% .73% .84%(c)
average daily net assets(d)
Ratio of net income 2.66% 3.05% 4.83%(c) 3.57% 4.13% 5.84%(c)
to average daily net assets
Portfolio turnover rate 90% 84% 68% 90% 84% 68%
(excluding short-term
securities)
Total returne 17.3% 19.3% 6.9% 18.3% 20.4% 7.2%
Average brokerage
commission ratef $.0454 -- -- $.0454 -- --
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date was March 20, 1995.
(c) Adjusted to an annual basis.
(d) Effective fiscal year 1996, expense ratio is based on total expenses of the
Fund before reduction of earnings credits on cash balances.
(e) Total return does not reflect payment of a sales charge.
(f) Effective fiscal year 1997, the Fund is required to disclose
an average brokerage commission rate per share for security trades on which
commissions are charged. The comparability of this information may be
affected by the fact that commission rates per share vary significantly
among foreign countries.
</TABLE>
The information in these tables has been audited by KPMG Peat Marwick LLP,
independent auditors. The independent auditors' report and additional
information about the performance of the Fund are contained in the Fund's annual
report which, if not included with this prospectus, may be obtained without
charge.
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Total returns
Total return is the sum of all of your returns for a given period, assuming you
reinvest all distributions. It is calculated by taking the total value of shares
you own at the end of the period (including shares acquired by reinvestment),
less the price of shares you purchased at the beginning of the period.
Average annual total return is the annually compounded rate of return over a
given time period (usually two or more years). It is the total return for the
period converted to an equivalent annual figure.
Average annual total returns as of June 30, 1997
Purchase 1 year 5 years Since
made ago ago inception
Utilities:
Class A +12.21% +11.52% +12.58%*
Class B +13.27% --% +18.17%**
Class Y +18.30% --% +20.65%**
S&P 500 +34.67% +19.73% +17.50%***
*Inception date was Aug. 1, 1988.
**Inception date was March 20, 1995.
***Measurement period started Aug. 1, 1988.
Cumulative total returns as of June 30, 1997
Purchase 1 year 5 years Since
made ago ago inception
Utilities:
Class A +12.21% +72.56% +187.79%*
Class B +13.27% --% + 46.37%**
Class Y +18.30% --% + 53.47%**
S&P 500 +34.67% +146.14% +321.82%***
*Inception date was Aug. 1, 1988.
**Inception date was March 20, 1995.
***Measurement period started Aug. 1, 1988.
These examples show total returns from hypothetical investments in Class A,
Class B and Class Y shares of the Fund. These returns are compared to those of a
popular index for the same periods. The performance of Class B and Class Y will
vary from the performance of Class A based on differences in sales charges and
fees. March 20, 1995 was the inception date for Class B and Class Y. Past
performance for Class Y for the periods prior to March 20, 1995 may be
calculated based on the performance. of Class A, adjusted to reflect differences
in sales charges although not for other differences in expenses.
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For purposes of calculation, information about the Fund assumes:
o a sales charge of 5% for Class A shares
o redemption at the end of the period and deduction of the
applicable contingent deferred sales charge for Class B shares
o no sales charge for Class Y shares
o no adjustments for taxes an investor may have paid on the
reinvested income and capital gains
o a period of widely fluctuating securities prices. Returns
shown should not be considered a representation of the Fund's
future performance.
Standard & Poor's 500 Stock Index (S&P 500), an unmanaged list of common stocks,
is frequently used as a general measure of market performance. However, the S&P
500 companies are generally larger than those in which the Fund invests. The
index reflects reinvestment of all distributions and changes in market prices,
but excludes brokerage commissions or other fees.
Investment policies and risks
Under normal market conditions, the Fund will concentrate at least 65% of its
total assets in securities of public utility companies. Generally the Fund will
invest in dividend-paying stocks. These include companies that produce or supply
electric power, natural gas, water, sanitary services, telecommunications and
other communications services (but not radio or television broadcasters) for
public use or consumption.
The Fund also may invest in derivative instruments, money market instruments and
securities that are not public utilities.
The various types of investments the portfolio manager uses to achieve
investment performance are described in more detail in the next section and in
the SAI.
Facts about investments and their risks
Utility stocks: Utility stocks are sensitive to interest rate changes. As
interest rates rise, the price of utility stocks generally decreases, and as
interest rates fall, the price of utility stocks generally increases. Utilities
are subject to certain regulatory rulings that may affect the value of their
stocks. Such rules include regulation over growth, environmental protection, and
allocation of increased production cost to consumers. Other conditions that may
affect their stock value include fluctuations in demands for service,
availability and cost of fuels, and special risks associated with constructing
and operating nuclear power plants or other specialized types of power plants
and recently a trend toward deregulation. The latter trend has been evident for
the natural gas and telephone utilities and is occurring in varying degrees for
electric utilities in some states. Deregulation is increasing competition among
the electric companies, which in turn puts pressure on company performance.
Other stocks: Stock prices are subject to market fluctuations. Stocks of smaller
companies may be subject to more abrupt or erratic price movements than stocks
of larger, established
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PAGE 11
companies or the stock market as a whole. While most of the Fund's investments
are in established companies having adequate financial reserves, some
investments 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,
convertible securities trade more like common stock.
Debt securities: The Fund may invest in bonds if they are rated in the top four
classifications by Moody's Investors Service, Inc. or Standard & Poor's
Corporation, or are of equivalent quality in the opinion of the portfolio
manager. The price of bonds generally falls as interest rates increase, and
rises as interest rates decrease. The price of bonds also fluctuates if the
credit rating is upgraded or downgraded. Securities that are subsequently
downgraded in quality may continue to be held by the Fund and will be sold only
when the investment manager believes it is advantageous to do so.
Foreign investments: Securities of foreign companies and governments may be
traded in the United States, but often they are traded only on foreign markets.
Frequently, there is less information about foreign companies and less
government supervision of foreign markets. Foreign investments are subject to
political and economic risks of the countries in which the investments are made,
including the possibility of seizure or nationalization of companies, imposition
of withholding taxes on income, establishment of exchange controls or adoption
of other restrictions that might affect an investment adversely. If an
investment is made in a foreign market, the local currency may be purchased
using a forward contract in which the price of the foreign currency in U.S.
dollars is established on the date the trade is made, but delivery of the
currency is not made until the securities are received. As long as the Fund
holds foreign currencies or securities valued in foreign currencies, the value
of those assets will be affected by changes in the value of the currencies
relative to the U.S. dollar. Because of the limited trading volume in some
foreign markets, efforts to buy or sell a security may change the price of the
security, and it may be difficult to complete the transaction. The Fund may
invest up to 25% of its total assets in foreign investments.
Derivative instruments: The portfolio manager may use derivative instruments in
addition to securities to achieve investment performance. Derivative instruments
include futures, options and forward contracts. Such instruments may be used to
maintain cash reserves while remaining fully invested, to offset anticipated
declines in values of investments, to facilitate trading, to reduce transaction
costs or to pursue higher investment returns. Derivative instruments are
characterized by requiring little or
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PAGE 12
no initial payment and a daily change in price based on or derived from a
security, a currency, a group of securities or currencies, or an index. A number
of strategies or combination of instruments can be used to achieve the desired
investment performance characteristics. A small change in the value of the
underlying security, currency or index will cause a sizable gain or loss in the
price of the derivative instrument. Derivative instruments allow the 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. The Fund 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 Fund will designate cash
or appropriate liquid assets to cover its portfolio obligations. No more than 5%
of the Fund's net assets can be used at any one time for good faith deposits on
futures and premiums for options on futures that do not offset existing
investment positions. This does not, however, limit the portion of the Fund's
assets at risk to 5%. The Fund is not limited as to the percentage of its assets
that may be invested in permissible investments, including derivatives, except
as otherwise explicitly provided in this prospectus or the SAI. For descriptions
of these and other types of derivative instruments, see the Appendix to this
prospectus and the SAI.
Securities and other instruments that are illiquid: A security or other
instrument is illiquid if it cannot be sold quickly in the normal course of
business. Some investments cannot be resold to the U.S. public because of their
terms or government regulations. Securities and instruments, however, can be
sold in private sales, and many may be sold to other institutions and qualified
buyers or on foreign markets. The portfolio manager will follow guidelines
established by the board and consider relevant factors such as the nature of the
security and the number of likely buyers when determining whether a security is
illiquid. No more than 10% of the Fund's net assets will be held in securities
and other instruments that are illiquid.
Money market instruments: Short-term debt securities rated in the top two grades
or the equivalent are used to meet daily cash needs and at various times to hold
assets until better investment opportunities arise. Generally, less than 25% of
the Fund's total assets are in these money market instruments. However, for
temporary defensive purposes these investments could exceed that amount for a
limited period of time.
The investment policies described above may be changed by the board.
Lending portfolio securities: The Fund may lend its securities to earn income so
long as borrowers provide collateral equal to the market value of the loans. The
risks are that borrowers will not provide collateral when required or return
securities when due. Unless a majority of the outstanding voting securities
approve otherwise, loans may not exceed 30% of the Fund's net assets.
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PAGE 13
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 assets would be
invested in an investment company with the same goal as the Fund, rather than
invested directly in a portfolio of securities.
Valuing Fund shares
The public offering price is the net asset value (NAV) adjusted for the sales
charge for Class A. It is the NAV for Class B and Class Y.
The NAV is the value of a single Fund share. The NAV usually changes daily, and
is calculated at the close of business, normally 3 p.m. Central time, each
business day (any day the New York Stock Exchange is open).
To establish the net assets, all securities are valued as of the close of each
business day. In valuing assets:
o Securities (except bonds) 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 Bonds and assets without readily available market values are
valued according to methods selected in good faith by the
board
How to purchase, exchange or redeem shares
Alternative purchase arrangements
The Fund offers three different classes of shares - Class A, Class B and Class
Y. The primary differences among the classes are in the sales charge structures
and in their ongoing expenses. These differences are summarized in the table
below. You may choose the class that best suits your circumstances and
objectives.
<TABLE>
<CAPTION>
Sales charge and
distribution
(12b-1) fee Service fee Other information
<S> <C> <C> <C>
Class A Maximum initial 0.175% of average Initial sales charge
sales charge of daily net assets waived or reduced
5%; no 12b-1 fee for certain purchases
Class B No initial sales 0.175% of average Shares convert to charge;
maximum CDSC daily net assets Class A after eight of 5% declines
to 0% years; CDSC waived in after six years; 12b-1 certain
circumstances fee of 0.75% of average daily net assets
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PAGE 14
Class Y None 0.10% of average Available only to
daily net assets certain qualifying
institutional
investors
</TABLE>
Conversion of Class B shares to Class A shares - During the ninth calendar year
of owning your Class B shares, Class B shares will convert to Class A shares and
will no longer be subject to a distribution fee. Class B shares that are
converts to Class A shares are not subject to a sales charge or distribution
fee. Class B shares purchased through reinvested dividends and distributions
also will convert to Class A shares in the same proportion as the other Class B
shares. This means more of your money will be put to work for you.
Considerations in determining whether to purchase Class A or Class B shares -
You should consider the information below in determining whether to purchase
Class A or Class B shares. The distribution fee (included in "Ongoing expenses")
and sales charges are structured so that you will have approximately the same
total return at the end of eight years regardless of which class you chose.
Sales charges on purchase or redemption
If you purchase Class A If you purchase Class B
shares shares
o You will not have all o All of your money is
of your purchase price invested in shares of
invested. Part of your stock. However, you will
purchase price will go pay a sales charge if you
to pay the sales charge. redeem your shares within
You will not pay a sales six years of purchase.
charge when you redeem
your shares.
o You will be able to o No reductions of the
take advantage of sales charge are
reductions in the sales available for large
charge. purchases.
If your investments in IDS funds that are subject to a sales charge total
$250,000 or more, you are better off paying the reduced sales charge in Class A
than paying the higher fees in Class B. If you qualify for a waiver of the sales
charge, you should purchase Class A shares.
Ongoing expenses
If you purchase Class A If you purchase Class B
shares shares
o Your shares will have o The distribution and
a lower expense ratio transfer agency fees for
than Class B shares Class B will cause your
because Class A does not shares to have a higher
<PAGE>
PAGE 15
pay a distribution fee expense ratio and to pay
and the transfer agency lower dividends than
fee for Class A is lower Class A shares. After
than the fee for Class B. eight years, Class B
As a result, Class A shares shares will convert to
will pay higher dividends Class A shares and you
than Class B shares. will no longer be
subject to higher fees.
You should consider how long you plan to hold your shares and whether the
accumulated higher fees and CDSC on Class B shares prior to conversion would be
less than the initial sales charge on Class A shares. Also consider to what
extent the difference would be offset by the lower expenses on Class A shares.
To help you in this analysis, the example in the "Sales charge and Fund
expenses" section of the prospectus illustrates the charges applicable to each
class of shares.
Class Y shares - Class Y shares are offered to certain institutional investors.
Class Y shares are sold without a front-end sales charge or a CDSC and are not
subject to a distribution fee. The following investors are eligible to purchase
Class Y shares:
o Qualified employee benefit plans* if the plan:
- uses a daily transfer recordkeeping service offering
participants daily access to IDS funds and has
- at least $10 million in plan assets or
- 500 or more participants; or
- does not use daily transfer recordkeeping and has
- at least $3 million invested in funds of the IDS MUTUAL FUND GROUP or
- 500 or more participants.
o Trust companies or similar institutions, and charitable organizations
that meet the definition in Section 501(c)(3) of the Internal Revenue
Code.* These must have at least $10 million invested in funds of the IDS
MUTUAL FUND GROUP.
o Nonqualified deferred compensation plans* whose participants are
included in a qualified employee benefit plan described above.
* Eligibility must be determined in advance by American Express Financial
Advisors. To do so, contact your financial advisor.
How to purchase shares
If you're investing in this Fund for the first time, you'll need to set up an
account. Your financial advisor will help you fill out and submit an
application. Once your account is set up, you can choose among several
convenient ways to invest.
Important: When opening an account, you must provide AEFC with
your correct Taxpayer Identification Number (Social Security or
Employer Identification number). See "Distributions and taxes."
<PAGE>
PAGE 16
When you purchase shares for a new or existing account, the price you pay per
share is determined at the close of business on the day your investment is
received and accepted at the Minneapolis headquarters.
Purchase policies:
o Investments must be received and accepted in the Minneapolis headquarters
on a business day before 3 p.m. Central time to be included in your
account that day and to receive that day's share price. Otherwise, your
purchase will be processed the next business day and you will pay the next
day's share price.
o The minimums allowed for investment may change from time to
time.
o Wire orders can be accepted only on days when your bank, AEFC, the Fund
and Norwest Bank Minneapolis are open for business.
o Wire purchases are completed when wired payment is received
and the Fund accepts the purchase.
o AEFC and the Fund are not responsible for any delays that
occur in wiring funds, including delays in processing by the
bank.
o You must pay any fee the bank charges for wiring.
o The Fund reserves the right to reject any application for any
reason.
o If your application does not specify which class of shares you are
purchasing, it will be assumed that you are investing in Class A shares.
Three ways to invest
<TABLE>
<CAPTION>
<S> <C> <C>
1
By regular account Send your check and application Minimum amounts
(or your name and account number Initial investment: $2,000
if you have an established account) Additional
to: investments: $ 100
American Express Financial Advisors Inc. Account balances: $ 300*
P.O. Box 74 Qualified retirement
Minneapolis, MN 55440-0074 accounts: none
Your financial advisor will help you with this process.
2
By scheduled Contact your financial advisor Minimum amounts
investment plan to set up one of the following Initial investment: $100
scheduled plans: Additional
investments: $100/each payment
o automatic payroll deduction Account balances: none
(on active plans of
o bank authorization monthly payments)
o direct deposit of If account balance is below $2,000,
Social Security check frequency of payments must be at
least monthly.
o other plan approved by the Fund
<PAGE>
PAGE 17
3
By wire If you have an established account, If this information is not
you may wire money to: included, the order may be
rejected and all money
Norwest Bank Minneapolis received by the Fund, less
Routing No. 091000019 any costs the Fund or AEFC
Minneapolis, MN incurs, will be returned
Attn: Domestic Wire Dept. promptly.
Give these instructions: Minimum amounts
Credit IDS Account #00-30-015 Each wire investment: $1,000
for personal account # (your
account number) for (your name).
</TABLE>
*If your account balance falls below $300, you will be asked in writing to bring
it up to $300 or establish a scheduled investment plan. If you don't do so
within 30 days, your shares can be redeemed and the proceeds mailed to you.
How to exchange shares
You can exchange your shares of the Fund at no charge for shares of the same
class of any other publicly offered fund in the IDS MUTUAL FUND GROUP available
in your state. Exchanges into IDS Tax-Free Money Fund must be made from Class A
shares. For complete information on any other fund, including fees and expenses,
read that fund's prospectus carefully.
If your exchange request arrives at the Minneapolis headquarters before the
close of business, your shares will be redeemed at the net asset value set for
that day. The proceeds will be used to purchase new fund shares the same day.
Otherwise, your exchange will take place the next business day at that day's net
asset value.
For tax purposes, an exchange represents a redemption and purchase and may
result in a gain or loss. However, you cannot use the sales charge imposed on
the purchase of Class A shares to create or increase a tax loss (or reduce a
taxable gain) by exchanging from the Fund within 91 days of your purchase. For
further explanation, see the SAI.
How to redeem shares
You can redeem your shares at any time. American Express Shareholder Service
will mail payment within seven days after receiving your request.
When you redeem shares, the amount you receive may be more or less than the
amount you invested. Your shares will be redeemed at net asset value, minus any
applicable sales charge, at the close of business on the day your request is
accepted at the Minneapolis headquarters. If your request arrives after the
close of business, the price per share will be the net asset value, minus any
applicable sales charge, at the close of business on the next business day.
A redemption is a taxable transaction. If your proceeds from your redemption are
more or less than the cost of your shares, you will have a gain or loss, which
can affect your tax liability. Redeeming shares held in an IRA or qualified
retirement account may
<PAGE>
PAGE 18
subject you to certain federal taxes, penalties and reporting
requirements. Consult your tax advisor.
Two ways to request an exchange or redemption of shares
<TABLE>
<CAPTION>
<S> <C>
1
By letter Include in your letter:
o the name of the fund(s)
o the class of shares to be exchanged or redeemed
o your account number(s) (for exchanges, both
funds must be registered in the same ownership) o
your Taxpayer Identification Number (TIN) o the
dollar amount or number of shares you want to
exchange or redeem o signature of all registered
account owners o for redemptions, indicate how you
want your money delivered to you o any paper
certificates of shares you hold
Regular mail:
American Express Shareholder Service
Attn: Redemptions
P.O. Box 534
Minneapolis, MN 55440-0534
Express mail:
American Express Shareholder Service
Attn: Redemptions
733 Marquette Ave.
Minneapolis, MN 55402
2
By phone
American Express Financial o The Fund and AEFC will honor any telephone exchange
Advisors Telephone or redemption request believed to be authentic and will use
Transaction Service: reasonable procedures to confirm that they are. This includes
800-437-3133 or asking identifying questions and tape recording calls. If reasonable
612-671-3800 procedures are not followed, the Fund or AEFC will be liable for
any loss resulting from fraudulent requests.
o Phone exchange and redemption privileges
automatically apply to all accounts except
custodial, corporate or qualified retirement
accounts unless you request these privileges NOT
apply by writing American Express Shareholder
Service. Each registered owner must sign the
request. o AEFC answers phone requests promptly,
but you may experience delays when call volume is
high. If you are unable to get through, use mail
procedure as an alternative. o Acting on your
instructions, your financial advisor may conduct
telephone transactions on your behalf. o Phone
privileges may be modified or discontinued at any
time.
Minimum amount
Redemption: $100
Maximum amount
Redemption: $50,000
</TABLE>
Exchange policies:
o You may make up to three exchanges within any 30-day period, with each limited
to $300,000. These limits do not apply to scheduled exchange programs and
certain employee benefit plans or other arrangements through which one
shareholder represents the interests of several. Exceptions may be allowed with
pre-approval of the Fund.
o Exchanges must be made into the same class of shares of the new
fund.
o If your exchange creates a new account, it must satisfy the minimum investment
amount for new purchases.
o Once we receive your exchange request, you cannot cancel it.
<PAGE>
PAGE 19
o Shares of the new fund may not be used on the same day for
another exchange.
o If your shares are pledged as collateral, the exchange will be delayed until
written approval is obtained from the secured party.
o AEFC and the Fund reserve the right to reject any exchange, limit the amount,
or modify or discontinue the exchange privilege, to prevent abuse or adverse
effects on the Fund and its shareholders. For example, if exchanges are too
numerous or too large, they may disrupt the Fund's investment strategies or
increase its costs.
Redemption policies:
o A "change of mind" option allows you to change your mind after requesting a
redemption and to use all or part of the proceeds to purchase new shares in the
same account from which you redeemed. If you reinvest in Class A, you will
purchase the new shares at net asset value rather than the offering price on the
date of a new purchase. If you reinvest in Class B, any CDSC you paid on the
amount you are reinvesting also will be reinvested. To take advantage of this
option, send a written request within 30 days of the date your redemption
request was received. Include your account number and mention this option. This
privilege may be limited or withdrawn at any time, and it may have tax
consequences.
o A telephone redemption request will not be allowed within 30 days of a
phoned-in address change.
Important: If you request a redemption of shares you recently purchased by a
check or money order that is not guaranteed, the Fund will wait for your check
to clear. It may take up to 10 days from the date of purchase before a check is
mailed to you. (A check may be mailed earlier if your bank provides evidence
satisfactory to the Fund and AEFC that your check has cleared.)
Three ways to receive payment when you redeem shares
<TABLE>
<CAPTION>
<S> <C>
1
By regular or express mail o Mailed to the address on record
o Payable to names listed on the account
NOTE: You will be charged a fee if you
request express mail delivery.
2
By wire o Minimum wire redemption: $1,000
o Request that money be wired to your bank
o Bank account must be in the same
ownership as the IDS fund account
NOTE: Pre-authorization required. For
instructions, contact your financial
advisor or American Express Shareholder Service.
3
By scheduled payout plan o Minimum payment: $50
o Contact your financial advisor or
American Express Shareholder
Service to set up regular payments
to you on a monthly, bimonthly,
quarterly, semiannual or annual
basis
<PAGE>
PAGE 20
o Purchasing new shares while under a payout
plan may be disadvantageous because of
the sales charges
</TABLE>
Reductions and waivers of the sales charge
Class A - initial sales charge alternative
On purchases of Class A shares, you pay a 5% sales charge on the first $50,000
of your total investment and less on investments after the first $50,000:
Total investment Sales charge as a
percent of:*
Public Net
offering amount
price invested
Up to $50,000 5.0% 5.26%
Next $50,000 4.5 4.71
Next $400,000 3.8 3.95
Next $500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
* To calculate the actual sales charge on an investment greater than $50,000 and
less than $1,000,000, amounts for each applicable increment must be totaled. See
the SAI.
Reductions of the sales charge on Class A shares
Your sales charge may be reduced, depending on the totals of:
o the amount you are investing in this Fund now,
o the amount of your existing investment in this Fund, if any, and
o the amount you and your primary household group are investing or have in other
funds in the IDS MUTUAL FUND GROUP that carry a sales charge. (The primary
household group consists of accounts in any ownership for spouses or domestic
partners and their unmarried children under 21. Domestic partners are
individuals who maintain a shared primary residence and have joint property or
other insurable interests.)
Other policies that affect your sales charge:
o IDS Tax-Free Money Fund and Class A shares of IDS Cash Management Fund do not
carry sales charges. However, you may count investments in these funds if you
acquired shares in them by exchanging shares from IDS funds that carry sales
charges.
o IRA purchases or other employee benefit plan purchases made through a payroll
deduction plan or through a plan sponsored by an employer, association of
employers, employee organization or other similar entity, may be added together
to reduce sales charges for all shares purchased through that plan.
<PAGE>
PAGE 21
o If you intend to invest $1 million over a period of 13 months, you can reduce
the sales charges in Class A by filing a letter of intent.
For more details, see the SAI.
Waivers of the sales charge for Class A shares
Sales charges do not apply to:
o Current or retired board members, officers or employees of the Fund or AEFC or
its subsidiaries, their spouses and unmarried children under 21.
o Current or retired American Express financial advisors, their spouses and
unmarried children under 21.
o Investors who have a business relationship with a newly associated financial
advisor who joined AEFA from another investment firm provided that (1) the
purchase is made within six months of the advisor's appointment date with AEFA,
(2) the purchase is made with proceeds of a redemption of shares that were
sponsored by the financial advisor's previous broker-dealer, and (3) the
proceeds must be the result of a redemption of an equal or greater value where a
sales load was previously assessed.
o Qualified employee benefit plans* using a daily transfer recordkeeping system
offering participants daily access to IDS funds.
(Participants in certain qualified plans for which the initial sales charge is
waived may be subject to a deferred sales charge of up to 4% on certain
redemptions. For more information, see the SAI.)
o Shareholders who have at least $1 million invested in funds of the IDS MUTUAL
FUND GROUP. If the investment is redeemed in the first year after purchase, a
CDSC of 1% will be charged on the redemption. The CDSC will be waived only in
the circumstances described for waivers for Class B shares.
o Purchases made within 30 days after a redemption of shares (up to the amount
redeemed):
- of a product distributed by American Express Financial
Advisors in a qualified plan subject to a deferred sales
charge or
- in a qualified plan where American Express Trust Company has a
recordkeeping, trustee, investment management or investment servicing
relationship.
Send the Fund a written request along with your payment, indicating the amount
of the redemption and the date on which it occurred.
o Purchases made with dividend or capital gain distributions from the same
class of another fund in the IDS MUTUAL FUND GROUP that has a sales
charge.
<PAGE>
PAGE 22
o Purchases made through or under a "wrap fee" product sponsored by American
Express Financial Advisors Inc. (total amount of all investments must be
$50,000); the University of Texas System ORP; or a segregated separate
account offered by Nationwide Life Insurance Company or Nationwide Life
and Annuity Insurance Company.
o Purchases made with the proceeds from IDS Life Real Estate Variable
Annuity surrenders through December 31, 1997.
*Eligibility must be determined in advance by American Express
Financial Advisors. To do so, contact your financial advisor.
Class B - contingent deferred sales charge alternative
Where a CDSC is imposed on a redemption, it is based on the amount of the
redemption and the number of calendar years, including the year of purchase,
between purchase and redemption. The following table shows the declining scale
of percentages that apply to redemptions during each year after a purchase:
If a redemption is The percentage rate
made during the for the CDSC is:
First year 5%
Second year 4%
Third year 4%
Fourth year 3%
Fifth year 2%
Sixth year 1%
Seventh year 0%
If the amount you are redeeming reduces the current net asset value of your
investment in Class B shares below the total dollar amount of all your purchase
payments during the last six years (including the year in which your redemption
is made), the CDSC is based on the lower of the redeemed purchase payments or
market value.
The following example illustrates how the CDSC is applied. Assume you had
invested $10,000 in Class B shares and that your investment had appreciated in
value to $12,000 after 15 months, including reinvested dividend and capital gain
distributions. You could redeem any amount up to $2,000 without paying a CDSC
($12,000 current value less $10,000 purchase amount). If you redeemed $2,500,
the CDSC would apply only to the $500 that represented part of your original
purchase price. The CDSC rate would be 4% because a redemption after 15 months
would take place during the second year after purchase.
Because the CDSC is imposed only on redemptions that reduce the total of your
purchase payments, you never have to pay a CDSC on any amount you redeem that
represents appreciation in the value of your shares, income earned by your
shares or capital gains. In addition, when determining the rate of any CDSC,
your redemption will be made from the oldest purchase payment you made. Of
course, once a purchase payment is considered to have been redeemed, the next
amount redeemed is the next oldest purchase payment. By
<PAGE>
PAGE 23
redeeming the oldest purchase payments first, lower CDSCs are imposed than would
otherwise be the case.
Waivers of the contingent deferred sales charge
The CDSC on Class B shares will be waived on redemptions of shares:
o In the event of the shareholder's death,
o Purchased by any board member, officer or employee of a fund or
AEFC or its subsidiaries,
o Held in a trusteed employee benefit plan, o Held in IRAs or certain qualified
plans for which American Express Trust Company acts as custodian, such as Keogh
plans, tax-sheltered custodial accounts or corporate pension plans, provided
that the shareholder is:
- at least 59-1/2 years old, and
- taking a retirement distribution (if the redemption is part of a
transfer to an IRA or qualified plan in a product distributed by American
Express Financial Advisors, or a custodian-to-custodian transfer to a
product not distributed by American Express Financial Advisors, the CDSC
will not be waived), or
- redeeming under an approved substantially equal periodic payment
arrangement.
For investors in Class A shares who have over $1 million invested in one year,
the 1% CDSC on redemption of those shares will be waived in the same
circumstances described for Class B.
Special shareholder services
Services
To help you track and evaluate the performance of your investments, AEFC
provides these services:
Quarterly statements listing all of your holdings and transactions during the
previous three months.
Yearly tax statements featuring average-cost-basis reporting of capital gains or
losses if you redeem your shares along with distribution information which
simplifies tax calculations.
A personalized mutual fund progress report detailing returns on your initial
investment and cash-flow activity in your account. It calculates a total return
to reflect your individual history in owning Fund shares. This report is
available from your financial advisor.
Quick telephone reference
American Express Financial Advisors Telephone Transaction Service
Redemptions and exchanges, dividend payments or reinvestments and
automatic payment arrangements
National/Minnesota: 800-437-3133
Mpls./St. Paul area: 671-3800
<PAGE>
PAGE 24
TTY Service
For the hearing impaired
800-846-4852
American Express Financial Advisors Easy Access Line Automated account
information (TouchToneR phones only), including current Fund prices and
performance, account values and recent account transactions 800-862-7919
Distributions and taxes
As a shareholder you are entitled to your share of the Fund's net income and any
net gains realized on its investments. The Fund distributes dividends and
capital gain distributions to qualify as a regulated investment company and to
avoid paying corporate income and excise taxes. Dividend and capital gain
distributions will have tax consequences you should know about.
Dividend and capital gain distributions
The Fund will offset any net realized capital gains by any available capital
loss carryovers. Net realized long-term capital gains, if any, are distributed
at the end of the calendar year as capital gain distributions. Before they are
distributed, both net investment income and net long-term capital gains are
included in the value of each share. After they are distributed, the value of
each share drops by the per-share amount of the distribution. (If your
distributions are reinvested, the total value of your holdings will not change.)
Dividends for each class will be calculated at the same time, in the same manner
and will be the same amount prior to deduction of expenses. Expenses
attributable solely to a class of shares will be paid exclusively by that class.
Reinvestments
Dividends and capital gain distributions are automatically reinvested in
additional shares in the same class of the Fund, unless:
o you request the Fund in writing or by phone to pay
distributions to you in cash, or
o you direct the Fund to invest your distributions in the same class of
another publicly available IDS fund for which you've previously opened an
account.
The reinvestment price is the net asset value at close of business on the day
the distribution is paid. (Your quarterly statement will confirm the amount
invested and the number of shares purchased.)
If you choose cash distributions, you will receive only those declared after
your request has been processed.
<PAGE>
PAGE 25
If the U.S. Postal Service cannot deliver the checks for the cash distributions,
we will reinvest the checks into your account at the then-current net asset
value and make future distributions in the form of additional shares.
Taxes
Distributions are subject to federal income tax and also may be subject to state
and local taxes. Distributions are taxable in the year the Fund declares them
regardless of whether you take them in cash or reinvest them.
Corporate shareholders of the Fund generally are entitled to a deduction equal
to 70% of that portion of the Fund's dividend that is attributable to dividends
the Fund received from domestic securities. To calculate any dividends-received
deduction the Fund will report to corporate shareholders annually the percentage
of the Fund's income that comes from dividends from domestic securities. Receipt
of income that qualifies for the dividends-received deduction is incidental to
the Fund's investment activity.
Each January, you will receive a tax statement showing the kinds and total
amount of all distributions you received during the previous year. You must
report distributions on your tax returns, even if they are reinvested in
additional shares.
Buying a dividend creates a tax liability. This means buying shares shortly
before a net investment income or a capital gain distribution. You pay the full
pre-distribution price for the shares, then receive a portion of your investment
back as a distribution, which is taxable.
Redemptions and exchanges subject you to a tax on any capital gain. If you sell
shares for more than their cost, the difference is a capital gain. Your gain may
be either short term (for shares held for one year or less) or long term (for
shares held for more than one year).
Your Taxpayer Identification Number (TIN) is important. As with any financial
account you open, you must list your current and correct Taxpayer Identification
Number (TIN) -- either your Social Security or Employer Identification number.
The TIN must be certified under penalties of perjury on your application when
you open an account at AEFC.
If you don't provide the TIN, or the TIN you report is incorrect, you could be
subject to backup withholding of 31% of taxable distributions and proceeds from
certain sales and exchanges. You also could be subject to further penalties,
such as:
o a $50 penalty for each failure to supply your correct TIN
o a civil penalty of $500 if you make a false statement that
results in no backup withholding
o criminal penalties for falsifying information
You also could be subject to backup withholding because you failed to report
interest or dividends on your tax return as required.
<PAGE>
PAGE 26
<TABLE>
<CAPTION>
How to determine the correct TIN
Use the Social Security or
For this type of account: Employer Identification number
of:
<S> <C>
Individual or joint account The individual or individuals
listed on the account
Custodian account of a minor The minor
(Uniform Gifts/Transfers to
Minors Act)
A living trust The grantor-trustee (the person
who puts the money into the
trust)
An irrevocable trust, pension The legal entity (not the
trust or estate personal representative or
trustee, unless no legal entity
is designated in the account
title)
Sole proprietorship The owner
Partnership The partnership
Corporate The corporation
Association, club or The organization
tax-exempt organization
</TABLE>
For details on TIN requirements, ask your financial advisor or local American
Express Financial Advisors office for federal Form W-9, "Request for Taxpayer
Identification Number and Certification."
Important: This information is a brief and selective summary of certain federal
tax rules that apply to this Fund. Tax matters are highly individual and
complex, and you should consult a qualified tax advisor about your personal
situation.
How the Fund is organized
Shares
The Fund is owned by its shareholders. The Fund issues shares in three classes -
Class A, Class B and Class Y. Each class has different sales arrangements and
bears different expenses. Each class represents interests in the assets of the
Fund. Par value is one cent per share. Both full and fractional shares can be
issued.
The Fund no longer issues stock certificates.
<PAGE>
PAGE 27
Voting rights
As a shareholder, you have voting rights over the Fund's management and
fundamental policies. You are entitled to one vote for each share you own.
Shares of the Fund have cumulative voting rights. Each class has exclusive
voting rights with respect to the provisions of the Fund's distribution plan
that pertain to a particular class and other matters for which separate class
voting is appropriate under applicable law.
Shareholder meetings
The Fund does not hold annual shareholder meetings. However, the board members
may call meetings at their discretion, or on demand by holders of 10% or more of
the outstanding shares, to elect or remove board members.
Board members and officers
Shareholders elect a board that oversees the operations of the Fund and chooses
its officers. Its officers are responsible for day-to-day business decisions
based on policies set by the board. The board has named an executive committee
that has authority to act on its behalf between meetings. Board members and
officers serve 47 IDS and IDS Life funds and 15 Master Trust portfolios, except
for William H. Dudley, who does not serve the nine IDS Life funds.
Board members and officers of the Fund
President and interested board member
William R. Pearce
Chairman of the board, Board Services Corporation (provides administrative
services to boards including the boards of the IDS and IDS Life funds and Master
Trust portfolios).
Independent board members
H. Brewster Atwater, Jr.
Former chairman and chief executive officer, General Mills, Inc.
Lynne V. Cheney
Distinguished fellow, American Enterprise Institute for Public
Policy Research.
Robert F. Froehlke
Former president of all funds in the IDS MUTUAL FUND GROUP.
Heinz F. Hutter
Former president and chief operating officer, Cargill, Inc.
Anne P. Jones
Attorney and telecommunications consultant.
Melvin R. Laird
Senior counsellor for national and international affairs, The Reader's Digest
Association, Inc.
<PAGE>
PAGE 28
Alan K. Simpson
Former United States senator for Wyoming.
Edson W. Spencer
Former chairman and chief executive officer, Honeywell, Inc.
Wheelock Whitney
Chairman, Whitney Management Company.
C. Angus Wurtele
Chairman of the board, The Valspar Corporation.
Interested board members who are officers and/or employees of AEFC
William H. Dudley
Senior advisor to the chief executive officer, AEFC.
David R. Hubers
President and chief executive officer, AEFC.
John R. Thomas
Senior vice president, AEFC.
Officers who also are officers and/or employees of AEFC
Peter J. Anderson
Senior vice president, AEFC. Vice president - Investments for the Fund.
Melinda S. Urion
Senior vice president and chief financial officer, AEFC. Treasurer for the Fund.
Other officer
Leslie L. Ogg
President, treasurer and corporate secretary of Board Services Corporation. Vice
president, general counsel and secretary for the Fund.
Refer to the SAI for the board members' and officers' biographies.
Investment manager
The Fund pays AEFC for managing its assets. Under its Investment Management
Services Agreement, AEFC is paid a fee for these services based on the average
daily net assets of the Fund, as follows:
Assets Annual rate
(billions) at each asset level
First $0.50 0.530%
Next 0.50 0.505
Next 1.0 0.480
Next 1.0 0.455
Next 3.0 0.430
Over 6.0 0.400
<PAGE>
PAGE 29
For the fiscal year ended June 30, 1997, the Fund paid AEFC a total investment
management fee of 0.52% of its average daily net assets. Under the Agreement,
the Fund also pays taxes, brokerage commissions and nonadvisory expenses.
Administrator and transfer agent
The Fund pays AEFC for shareholder accounting and transfer agent services under
two agreements. The first agreement, the Administrative Services Agreement, has
a declining annual rate beginning at 0.04% and decreasing to 0.02% as assets
increase. The second agreement, the Transfer Agency Agreement, has an annual fee
per shareholder account as follows:
o Class A $15
o Class B $16
o Class Y $15
Distributor
The Fund has an exclusive distribution agreement with American Express Financial
Advisors, a wholly-owned subsidiary of AEFC. Financial advisors representing
American Express Financial Advisors provide information to investors about
individual investment programs, the Fund and its operations, new account
applications, and exchange and redemption requests. The cost of these services
is paid partially by the Fund's sales charges.
Persons who buy Class A shares pay a sales charge at the time of purchase.
Persons who buy Class B shares are subject to a contingent deferred sales charge
on a redemption in the first six years and pay an asset-based sales charge (also
known as a 12b-1 fee) of 0.75% of the Fund's average daily net assets. Class Y
shares are sold without a sales charge and without an asset-based sales charge.
Financial advisors may receive different compensation for selling Class A, Class
B and Class Y shares. Portions of the sales charge also may be paid to
securities dealers who have sold the Fund's shares or to banks and other
financial institutions. The amounts of those payments range from 0.8% to 4% of
the Fund's offering price depending on the monthly sales volume.
Under a Shareholder Service Agreement, the Fund also pays a fee for service
provided to shareholders by financial advisors and other servicing agents. The
fee is calculated at a rate of 0.175% of average daily net assets for Class A
and Class B shares and 0.10% for Class Y shares.
Total expenses paid by the Fund's Class A shares for the fiscal year ended June
30, 1997, were 0.89% of its average daily net assets. Expenses for Class B and
Class Y were 1.65% and 0.74%, respectively.
<PAGE>
PAGE 30
About American Express Financial Corporation
General information
The AEFC family of companies offers not only mutual funds but also insurance,
annuities, investment certificates and a broad range of financial management
services.
Besides managing investments for all funds in the IDS MUTUAL FUND GROUP, AEFC
also manages investments for itself and its subsidiaries, IDS Certificate
Company and IDS Life Insurance Company. Total assets under management on June
30, 1997 were more than $162 billion.
American Express Financial Advisors serves individuals and businesses through
its nationwide network of more than 175 offices and more than 8,500 advisors.
Other AEFC subsidiaries provide investment management and related services for
pension, profit sharing, employee savings and endowment funds of businesses and
institutions.
AEFC is located at IDS Tower 10, Minneapolis, MN 55440-0010. It is a
wholly-owned subsidiary of American Express Company (American Express), a
financial services company with headquarters at American Express Tower, World
Financial Center, New York, NY 10285.
The Fund may pay brokerage commissions to broker-dealer affiliates of AEFC.
<PAGE>
PAGE 31
Appendix
Descriptions of derivative instruments
What follows are brief descriptions of derivative instruments the Fund may use.
At various times the Fund may use some or all of these instruments and is not
limited to these instruments. It may use other similar types of instruments if
they are consistent with the Fund's investment goal and policies. For more
information on these instruments, see the SAI.
Options and futures contracts. An option is an agreement to buy or sell an
instrument at a set price during a certain period of time. A futures contract is
an agreement to buy or sell an instrument for a set price on a future date. The
Fund may buy and sell options and futures contracts to manage its exposure to
changing interest rates, security prices and currency exchange rates. Options
and futures may be used to hedge the Fund's investments against price
fluctuations or to increase market exposure.
Indexed securities. The value of indexed securities is linked to currencies,
interest rates, commodities, indexes or other financial indicators. Most indexed
securities are short- to intermediate- term fixed income securities whose values
at maturity or interest rates rise or fall according to the change in one or
more specified underlying instruments. Indexed securities may be more volatile
than the underlying instrument itself.
Structured products. Structured products are over-the-counter financial
instruments created specifically to meet the needs of one or a small number of
investors. The instrument may consist of a warrant, an option or a forward
contract embedded in a note or any of a wide variety of debt, equity and/or
currency combinations. Risks of structured products include the inability to
close such instruments, rapid changes in the market and defaults by other
parties.
<PAGE>
PAGE 32
STATEMENT OF ADDITIONAL INFORMATION
FOR
IDS UTILITIES INCOME FUND
Aug. 29, 1997
This Statement of Additional Information (SAI) is not a prospectus. It should be
read together with the prospectus and the financial statements contained in the
Annual Report which may be obtained from your American Express financial advisor
or by writing to American Express Shareholder Service, P.O. Box 534,
Minneapolis, MN 55440-0534.
This SAI is dated Aug. 29, 1997, and it is to be used with the
prospectus dated Aug. 29, 1997, and the Annual Report for the
fiscal year ended June 30, 1997.
<PAGE>
PAGE 33
TABLE OF CONTENTS
Goals and Investment Policies....................See Prospectus
Additional Investment Policies...............................p.3
Security Transactions........................................p.6
Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation.......................p.8
Performance Information......................................p.9
Valuing Fund Shares..........................................p.11
Investing in the Fund........................................p.12
Redeeming Shares.............................................p.16
Pay-out Plans................................................p.17
Taxes........................................................p.18
Agreements...................................................p.19
Organizational Information...................................p.23
Board Members and Officers...................................p.23
Compensation for Board Members...............................p.27
Independent Auditors.........................................p.27
Financial Statements..........................See Annual Report
Prospectus...................................................p.28
Appendix A: Description of the Four Highest Bond Ratings....p.29
Appendix B: Foreign Currency Transactions...................p.31
Appendix C: Options and Futures Contracts...................p.36
Appendix D: Mortgage-Backed Securities......................p.43
Appendix E: Dollar-Cost Averaging...........................p.44
<PAGE>
PAGE 34
ADDITIONAL INVESTMENT POLICIES
These are investment policies in addition to those presented in the prospectus.
The policies below are fundamental policies of the Fund and may be changed only
with shareholder approval. Unless holders of a majority of the outstanding
voting securities agree to make the change the Fund will not:
'Act as an underwriter (sell securities for others). However, under the
securities laws, the Fund may be deemed to be an underwriter when it purchases
securities directly from the issuer and later resells them.
'Borrow money or property, except as a temporary measure for extraordinary or
emergency purposes, in an amount not exceeding one-third of the market value of
its total assets (including borrowings) less liabilities (other than borrowings)
immediately after the borrowing. The Fund has not borrowed in the past and has
no present intention to borrow.
'Make cash loans if the total commitment amount exceeds 5% of the Fund's total
assets.
'Purchase more than 10% of the outstanding voting securities of an
issuer.
'Invest more than 5% of its total assets in securities of any one company,
government or political subdivision thereof, except the limitation will not
apply to investments in securities issued by the U.S. government, its agencies
or instrumentalities, and except that up to 25% of the Fund's total assets may
be invested without regard to this 5% limitation.
'Buy or sell real estate, unless acquired as a result of ownership of securities
or other instruments, except this shall not prevent the Fund from investing in
securities or other instruments backed by real estate or securities of companies
engaged in the real estate business or real estate investment trusts. For
purposes of this policy, real estate includes real estate limited partnerships.
'Buy or sell physical commodities unless acquired as a result of ownership of
securities or other instruments, except this shall not prevent the Fund from
buying or selling financial instruments (such as options and futures contracts)
or from investing in securities or other instruments backed by, or whose value
is derived from, physical commodities.
'Lend Fund securities in excess of 30% of its net assets. The current policy of
the Fund's board is to make these loans, either long- or short-term, to
broker-dealers. In making loans, the Fund receives the market price in cash,
U.S. government securities, letters of credit or such other collateral as may be
permitted by regulatory agencies and approved by the board. If the market price
of the loaned securities goes up, the Fund will get additional
<PAGE>
PAGE 35
collateral on a daily basis. The risks are that the borrower may not provide
additional collateral when required or return the securities when due. During
the existence of the loan, the Fund receives cash payments equivalent to all
interest or other distributions paid on the loaned securities. A loan will not
be made unless the investment manager believes the opportunity for additional
income outweighs the risks.
Unless changed by the board, the Fund will not:
'Buy on margin or sell short, except the Fund may make margin payments in
connection with transactions in futures contracts.
'Pledge or mortgage its assets beyond 15% of total assets. If the Fund were ever
to do so, valuation of the pledged or mortgaged assets would be based on market
values. For purposes of this policy, collateral arrangements for margin deposits
on futures contracts are not deemed to be a pledge of assets.
'Invest more than 5% of its total assets in securities of companies, including
any predecessors, that have a record of less than three years continuous
operations.
'Invest in a company to control or manage it.
'Invest in exploration or development programs, such as oil, gas or
mineral leases.
'Invest more than 10% of its total assets in securities of investment companies.
The Fund has no current intention to invest in securities of other investment
companies.
'Purchase securities of an issuer if the directors and officers of the Fund and
of American Express Financial Corporation (AEFC) hold more than a certain
percentage of the issuer's outstanding securities. The holdings of all directors
and officers of the Fund and of AEFC who own more than 0.5% of an issuers
securities are added together, and if in total they own more than 5%, the Fund
will not purchase securities of that issuer.
'Invest no more than 5% of its net assets in warrants.
'Invest more than 10% of its net assets in securities and other instruments that
are illiquid. For purposes of this policy, illiquid securities include some
privately placed securities, public securities and Rule 144A securities that for
one reason or another may no longer have a readily available market, repurchase
agreements with maturities greater than seven days, non-negotiable fixed-time
deposits and over-the-counter options.
'In determining the liquidity of Rule 144A securities, which are
unregistered securities offered to qualified institutional buyers,
and interest-only and principal-only fixed mortgage-backed
securities (IOs and POs) issued by the U.S. government or its
<PAGE>
PAGE 36
agencies and instrumentalities, the investment manager, under guidelines
established by the board, will consider any relevant factors including the
frequency of trades, the number of dealers willing to purchase or sell the
security and the nature of marketplace trades.
'In determining the liquidity of commercial paper issued in transactions not
involving a public offering under Section 4(2) of the Securities Act of 1933,
the investment manager, under guidelines established by the board, will evaluate
relevant factors such as the issuer and the size and nature of its commercial
paper programs, the willingness and ability of the issuer or dealer to
repurchase the paper, and the nature of the clearance and settlement procedures
for the paper.
The Fund may make contracts to purchase securities for a fixed price at a future
date beyond normal settlement time (when-issued securities or forward
commitments). Under normal market conditions, the Fund does not intend to commit
more than 5% of its total assets to these practices. The Fund does not pay for
the securities or receive dividends or interest on them until the contractual
settlement date. The Fund will designate cash or liquid high-grade debt
securities at least equal in value to its commitments to purchase the
securities. When-issued securities or forward commitments are subject to market
fluctuations and they may affect the Fund's total assets the same as owned
securities.
The Fund may maintain a portion of its assets in cash and cash-equivalent
investments. The cash-equivalent investments the Fund 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 Fund also may purchase short-term
corporate notes and obligations rated in the top two classifications by Moody's
Investors Service, Inc. (Moody's) or Standard & Poor's Corporation (S&P) or the
equivalent and may use repurchase agreements with broker-dealers registered
under the Securities Exchange Act of 1934 and with commercial banks. A risk of a
repurchase agreement is that if the seller seeks the protection of the
bankruptcy laws, the Fund's ability to liquidate the security involved could be
impaired.
Notwithstanding any of the Fund's other investment policies, the Fund may invest
its assets in an open-end management investment company having substantially the
same investment objectives, policies and restrictions as the Fund for the
purpose of having those assets managed as part of a combined pool.
<PAGE>
PAGE 37
For a description of the four highest bond ratings, see Appendix A. For a
discussion about foreign currency transactions, see Appendix B. For a discussion
on options and futures contracts, see Appendix C. For a discussion on
mortgage-backed securities, see Appendix D.
SECURITY TRANSACTIONS
Subject to policies set by the board, AEFC is authorized to determine,
consistent with the Fund's investment goal and policies, which securities will
be purchased, held or sold. In determining where the buy and sell orders are to
be placed, AEFC has been directed to use its best efforts to obtain the best
available price and the most favorable execution except where otherwise
authorized by the board. In selecting broker-dealers to execute transactions,
AEFC may consider the price of the security, including commission or mark-up,
the size and difficulty of the order, the reliability, integrity, financial
soundness and general operation and execution capabilities of the broker, the
broker's expertise in particular markets, and research services provided by the
broker.
AEFC has a strict Code of Ethics that prohibits its affiliated personnel from
engaging in personal investment activities that compete with or attempt to take
advantage of planned portfolio transactions for any fund in the IDS MUTUAL FUND
GROUP. AEFC carefully monitors compliance with its Code of Ethics.
On occasion, it may be desirable to compensate a broker for research services or
for brokerage services by paying a commission that might not otherwise be
charged or a commission in excess of the amount another broker might charge. The
board has adopted a policy authorizing AEFC to do so to the extent authorized by
law, if AEFC determines, in good faith, that such commission is reasonable in
relation to the value of the brokerage or research services provided by a broker
or dealer, viewed either in the light of that transaction or AEFC's overall
responsibilities to the funds in the IDS MUTUAL FUND GROUP and other accounts
for which it acts as investment advisor.
Research provided by brokers supplements AEFC's own research activities. Such
services include economic data on, and analysis of, U.S. and foreign economies;
information on specific industries; information about specific companies,
including earnings estimates; purchase recommendations for stocks and bonds;
portfolio strategy services; political, economic, business and industry trend
assessments; historical statistical information; market data services providing
information on specific issues and prices; and technical analysis of various
aspects of the securities markets, including technical charts. Research services
may take the form of written reports, computer software or personal contact by
telephone or at seminars or other meetings. AEFC has obtained, and in the future
may obtain, computer hardware from brokers, including but not limited to
personal computers that will be used exclusively for investment decision-making
purposes, which include the research, portfolio management and trading functions
and other services to
<PAGE>
PAGE 38
the extent permitted under an interpretation by the Securities and
Exchange Commission (SEC).
When paying a commission that might not otherwise be charged or a commission in
excess of the amount another broker might charge, AEFC must follow procedures
authorized by the board. To date, three procedures have been authorized. One
procedure permits AEFC to direct an order to buy or sell a security traded on a
national securities exchange to a specific broker for research services it has
provided. The second procedure permits AEFC, in order to obtain research, to
direct an order on an agency basis to buy or sell a security traded in the
over-the-counter market to a firm that does not make a market in that security.
The commission paid generally includes compensation for research services. The
third procedure permits AEFC, in order to obtain research and brokerage
services, to cause the Fund to pay a commission in excess of the amount another
broker might have charged. AEFC has advised the Fund it is necessary to do
business with a number of brokerage firms on a continuing basis to obtain such
services as the handling of large orders, the willingness of a broker to risk
its own money by taking a position in a security, and the specialized handling
of a particular group of securities that only certain brokers may be able to
offer. As a result of this arrangement, some portfolio transactions may not be
effected at the lowest commission, but AEFC believes it may obtain better
overall execution. AEFC has assured the Fund that under all three procedures the
amount of commission paid will be reasonable and competitive in relation to the
value of the brokerage services performed or research provided.
All other transactions shall be placed on the basis of obtaining the best
available price and the most favorable execution. In so doing, if in the
professional opinion of the person responsible for selecting the broker or
dealer, several firms can execute the transaction on the same basis,
consideration will be given by such person to those firms offering research
services. Such services may be used by AEFC in providing advice to all the funds
in the IDS MUTUAL FUND GROUP even though it is not possible to relate the
benefits to any particular fund or account.
Each investment decision made for the Fund is made independently from any
decision made for another fund in the IDS MUTUAL FUND GROUP or other account
advised by AEFC or any AEFC subsidiary. When the Fund buys or sells the same
security as another Fund or account, AEFC carries out the purchase or sale in a
way the Fund agrees in advance is fair. Although sharing in large transactions
may adversely affect the price or volume purchased or sold by the Fund, the Fund
hopes to gain an overall advantage in execution. AEFC has assured the fund it
will continue to seek ways to reduce brokerage costs.
On a periodic basis, AEFC makes a comprehensive review of the broker-dealers and
the overall reasonableness of their commissions. The review evaluates execution,
operational efficiency and research services.
<PAGE>
PAGE 39
The Fund paid total brokerage commissions of $1,896,857 for the fiscal year
ended June 30, 1997, $1,721,950 for the fiscal year 1996, and $1,660,443 for the
fiscal year 1995. Substantially all firms through whom transactions were
executed provide research services.
In fiscal year 1997, transactions amounting to $33,370,000, on which $64,226 in
commissions were imputed or paid, were specifically directed to firms in
exchange for research services.
As of the fiscal year ended June 30, 1997, the Fund held securities of its
regular brokers or dealers or of the parent of those brokers or dealers that
derived more than 15% of gross revenue from securities-related activities as
presented below:
Value of Securities
Owned at End of
Name of Issuer Fiscal Year
Bank of America $1,598,515
The portfolio turnover rate was 90% in the fiscal year ended June 30, 1997, and
84% in fiscal year 1996.
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH AMERICAN
EXPRESS FINANCIAL CORPORATION
Affiliates of American Express Company (American Express) (of which AEFC is a
wholly-owned subsidiary) may engage in brokerage and other securities
transactions on behalf of the Fund according to procedures adopted by the Fund's
board and to the extent consistent with applicable provisions of the federal
securities laws. AEFC will use an American Express affiliate only if (i) AEFC
determines that the Fund will receive prices and executions at least as
favorable as those offered by qualified independent brokers performing similar
brokerage and other services for the Fund and (ii) the affiliate charges the
Fund commission rates consistent with those the affiliate charges comparable
unaffiliated customers in similar transactions and if such use is consistent
with terms of the Investment Management Services Agreement.
AEFC may direct brokerage to compensate an affiliate. AEFC will receive research
on South Africa from New Africa Advisors, a wholly-owned subsidiary of Sloan
Financial Group. AEFC owns 100% of IDS Capital Holdings Inc. which in turn owns
40% of Sloan Financial Group. New Africa Advisors will send research to AEFC and
in turn AEFC will direct trades to a particular broker. The broker will have an
agreement to pay New Africa Advisors. All transactions will be on a best
execution basis. Compensation received will be reasonable for the services
rendered.
Information about brokerage commissions paid by the Fund for the last three
fiscal years to brokers affiliated with AEFC is contained in the following
table:
<PAGE>
PAGE 40
<TABLE>
<CAPTION>
For the Fiscal Year Ended June 30,
1997 1996 1995
--------------------------------------------------- ----------- -------
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
- ------ ----------- ----------- ----------- ----------------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
American (1) $56,075 2.96% 5.43% $34,136 $27,087
Enterprise
Investment
Services Inc.
</TABLE>
(1) Wholly-owned subsidiary of AEFC.
PERFORMANCE INFORMATION
The Fund may quote various performance figures to illustrate past performance.
Average annual total return and current yield quotations used by the Fund are
based on standardized methods of computing performance as required by the SEC.
An explanation of the methods used by the Fund to compute performance follows
below.
Average annual total return
The Fund may calculate average annual total return for a class for certain
periods by finding the average annual compounded rates of return over the period
that would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T) n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment, made
at the beginning of a period, at the end of the period (or
fractional portion thereof)
Aggregate total return
The Fund may calculate aggregate total return for a class for certain periods
representing the cumulative change in the value of an investment in the Fund
over a specified period of time according to the following formula:
ERV - P
P
where: P = a hypothetical initial payment of $1,000
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of a period, at the
end of the period (or fractional portion thereof)
<PAGE>
PAGE 41
Annualized yield
The Fund may calculate an annualized yield for a class by dividing the net
investment income per share deemed earned during a period by the net asset value
per share on the last day of the period and annualizing the results.
Yield is calculated according to the following formula:
Yield = 2[(a-b + 1) 6 - 1]
cd
where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of
reimbursements)
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = the maximum offering price per share on the last
day of the period
The Fund's annualized yield was 4.08% for Class A, 3.54% for Class B and 4.37%
for Class Y for the 30-day period ended June 30, 1997.
The Fund's yield, calculated as described above according to the formula
prescribed by the SEC, is a hypothetical return based on market value yield to
maturity for the Fund's securities. It is not necessarily indicative of the
amount which was or may be paid to the Fund's shareholders. Actual amounts paid
to Fund shareholders are reflected in the distribution yield.
Distribution yield
Distribution yield is calculated according to the following formula:
D divided by POP F equals DY
30 30
where: D = sum of dividends for 30-day period
POP = sum of public offering price for 30-day period
F = annualizing factor
DY = distribution yield
The Fund's distribution yield was 2.72% for Class A, 2.14% for Class B and 2.96%
for Class Y for the 30-day period ended June 30, 1997.
In its sales material and other communications, the Fund may quote, compare or
refer to rankings, yields or returns as published by independent statistical
services or publishers and publications such as The Bank Rate Monitor National
Index, Barron's, Business Week, Donoghue's Money Market Fund Report, Financial
Services Week, Financial Times, Financial World, Forbes, Fortune, Global
Investor,
<PAGE>
PAGE 42
Institutional Investor, Investor's Daily, Kiplinger's Personal Finance, Lipper
Analytical Services, Money, Morningstar, Mutual Fund Forecaster, Newsweek, The
New York Times, Personal Investor, Stanger Report, Sylvia Porter's Personal
Finance, USA Today, U.S. News and World Report, The Wall Street Journal and
Wiesenberger Investment Companies Service.
VALUING FUND SHARES
The value of an individual share for each class is determined by using the net
asset value before shareholder transactions for the day. On July 1, 1997, the
first business day following the end of the fiscal year, the computation looked
like this:
<TABLE>
<CAPTION>
Net assets before Shares outstanding Net asset value
shareholder transactions at end of previous day of one share
<S> <C> <C> <C> <C> <C>
Class A $743,673,173 divided by 92,038,759 equals $8.08
Class B 93,877,601 11,618,515 8.08
Class Y 276,780 34,255 8.08
</TABLE>
In determining net assets before shareholder transactions, the Fund's securities
are valued as follows as of the close of business of the New York Stock Exchange
(the Exchange):
'Securities, except bonds other than convertibles, traded on a securities
exchange for which a last-quoted sales price is readily available are valued at
the last-quoted sales price on the exchange where such security is primarily
traded.
'Securities traded on a securities exchange for which a last-quoted sales price
is not readily available are valued at the mean of the closing bid and asked
prices, looking first to the bid and asked prices on the exchange where the
security is primarily traded and, if none exist, to the over-the-counter market.
'Securities included in the NASDAQ National Market System are valued at the
last-quoted sales price in this market.
'Securities included in the NASDAQ National Market System for which a
last-quoted sales price is not readily available, and other securities traded
over-the-counter but not included in the NASDAQ National Market System are
valued at the mean of the closing bid and asked prices.
'Futures and options traded on major exchanges are valued at the last-quoted
sales price on their primary exchange.
'Foreign securities traded outside the United States are generally valued as of
the time their trading is complete, which is usually different from the close of
the Exchange. Foreign securities quoted in foreign currencies are translated
into U.S. dollars at the current rate of exchange. Occasionally, events
affecting the value of such securities may occur between such times and the
close of the Exchange that will not be reflected in the computation of the
Fund's net asset value. If events materially affecting the
<PAGE>
PAGE 43
value of such securities occur during such period, these securities will be
valued at their fair value according to procedures decided upon in good faith by
the board.
'Short-term securities maturing more than 60 days from the valuation date are
valued at the readily available market price or approximate market value based
on current interest rates. Short- term securities maturing in 60 days or less
that originally had maturities of more than 60 days at acquisition date are
valued at amortized cost using the market value on the 61st day before maturity.
Short-term securities maturing in 60 days or less at acquisition date are valued
at amortized cost. Amortized cost is an approximation of market value determined
by systematically increasing the carrying value of a security if acquired at a
discount, or reducing the carrying value if acquired at a premium, so that the
carrying value is equal to maturity value on the maturity date.
'Securities without a readily available market price, bonds other than
convertibles and other assets are valued at fair value as determined in good
faith by the board. The board is responsible for selecting methods it believes
provide fair value. When possible, bonds are valued by a pricing service
independent from the Fund. If a valuation of a bond is not available from a
pricing service, the bond will be valued by a dealer knowledgeable about the
bond if such a dealer is available.
The Exchange, AEFC and the Fund will be closed on the following
holidays: New Year's Day, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
INVESTING IN THE FUND
Sales Charge
Shares of the Fund are sold at the public offering price determined at the close
of business on the day an application is accepted. The public offering price is
the net asset value of one share plus a sales charge, if applicable. For Class B
and Class Y, there is no initial sales charge so the public offering price is
the same as the net asset value. For Class A, the public offering price for an
investment of less than $50,000, made July 1, 1997, was determined by dividing
the net asset value of one share, $8.08, by 0.95 (1.00- 0.05 for a maximum 5%
sales charge) for a public offering price of $8.51. The sales charge is paid to
American Express Financial Advisors by the person buying the shares.
Class A - Calculation of the Sales Charge
Sales charges are determined as follows:
<PAGE>
PAGE 44
Within each increment,
sales charge as a
percentage of:
Public Net
Amount of Investment Offering Price Amount Invested
First $ 50,000 5.0% 5.26%
Next 50,000 4.5 4.71
Next 400,000 3.8 3.95
Next 500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
Sales charges on an investment greater than $50,000 and less than $1,000,000 are
calculated for each increment separately and then totaled. The resulting total
sales charge, expressed as a percentage of the public offering price and of the
net amount invested, will vary depending on the proportion of the investment at
different sales charge levels.
For example, compare an investment of $60,000 with an investment of $85,000. The
$60,000 investment is composed of $50,000 that incurs a sales charge of $2,500
(5.0% x $50,000) and $10,000 that incurs a sales charge of $450 (4.5% x
$10,000). The total sales charge of $2,950 is 4.92% of the public offering price
and 5.17% of the net amount invested.
In the case of the $85,000 investment, the first $50,000 also incurs a sales
charge of $2,500 (5.0% x $50,000) and $35,000 incurs a sales charge of $1,575
(4.5% x $35,000). The total sales charge of $4,075 is 4.79% of the public
offering price and 5.04% of the net amount invested.
The following table shows the range of sales charges as a percentage of the
public offering price and of the net amount invested on total investments at
each applicable level.
On total investment, sales
charge as a percentage of
Public Net
Offering Price Amount Invested
Amount of Investment ranges from:
First $ 50,000 5.00% 5.26%
More than 50,000 to 100,000 5.00-4.50 5.26-4.71
More than 100,000 to 500,000 4.50-3.80 4.71-3.95
More than 500,000 to 999,999 3.80-2.00 3.95-2.04
$1,000,000 or more 0.00 0.00
The initial sales charge is waived for certain qualified plans that meet the
requirements described in the prospectus. Participants in these qualified plans
may be subject to a deferred sales charge on certain redemptions. The deferred
sales charge on certain redemptions will be waived if the redemption is a result
of a participant's death, disability, retirement, attaining age 59 1/2,
<PAGE>
PAGE 45
loans or hardship withdrawals. The deferred sales charge varies depending on the
number of participants in the qualified plan and total plan assets as follows:
Deferred Sales Charge
Number of Participants
Total Plan Assets 1-99 100 or more
Less than $1 million 4% 0%
$1 million or more 0% 0%
- ---------------------------------------------------------
Class A - Reducing the Sales Charge
Sales charges are based on the total amount of your investments in the Fund. The
amount of all prior investments plus any new purchase is referred to as your
"total amount invested." For example, suppose you have made an investment of
$20,000 and later decide to invest $40,000 more. Your total amount invested
would be $60,000. As a result, $10,000 of your $40,000 investment qualifies for
the lower 4.5% sales charge that applies to investments of more than $50,000 and
up to $100,000.
The total amount invested includes any shares held in the Fund in the name of a
member of your primary household group. (The primary household group consists of
accounts in any ownership for spouses or domestic partners and their unmarried
children under 21. Domestic partners are individuals who maintain a shared
primary residence and have joint property or other insurable interests.) For
instance, if your spouse already has invested $20,000 and you want to invest
$40,000, your total amount invested will be $60,000 and therefore you will pay
the lower charge of 4.5% on $10,000 of the $40,000. Until a spouse remarries,
the sales charge is waived for spouses and unmarried children under 21 of
deceased board members, officers or employees of the Fund or AEFC or its
subsidiaries and deceased advisors.
The total amount invested also includes any investment you or your immediate
family already have in the other publicly offered funds in the IDS MUTUAL FUND
GROUP where the investment is subject to a sales charge. For example, suppose
you already have an investment of $30,000 in another IDS fund. If you invest
$40,000 more in this Fund, your total amount invested in the funds will be
$70,000 and therefore $20,000 of your $40,000 investment will incur a 4.5% sales
charge.
Finally, Individual Retirement Account (IRA) purchases, or other employee
benefit plan purchases made through a payroll deduction plan or through a plan
sponsored by an employer, association of
<PAGE>
PAGE 46
employers, employee organization or other similar entity, may be added together
to reduce sales charges for shares purchased through that plan.
Class A - Letter of Intent (LOI)
If you intend to invest $1 million over a period of 13 months, you can reduce
the sales charges in Class A by filing a LOI. The agreement can start at any
time and will remain in effect for 13 months. Your investment will be charged
normal sales charges until you have invested $1 million. At that time, your
account will be credited with the sales charges previously paid. Class A
investments made prior to signing an LOI may be used to reach the $1 million
total, excluding Cash Management Fund and Tax-Free Money Fund. However, we will
not adjust for sales charges on investments made prior to the signing of the
LOI. If you do not invest $1 million by the end of 13 months, there is no
penalty, you'll just miss out on the sales charge adjustment. A LOI is not an
option (absolute right) to buy shares.
Here's an example. You file a LOI to invest $1 million and make an investment of
$100,000 at that time. You pay the normal 5% sales charge on the first $50,000
and 4.5% sales charge on the next $50,000 of this investment. Let's say you make
a second investment of $900,000 (bringing the total up to $1 million) one month
before the 13-month period is up. On the date that you bring your total to $1
million, AEFC makes an adjustment to your account. The adjustment is made by
crediting your account with additional shares, in an amount equivalent to the
sales charge previously paid.
Systematic Investment Programs
After you make your initial investment of $2,000 or more, you can arrange to
make additional payments of $100 or more on a regular basis. These minimums do
not apply to all systematic investment programs. You decide how often to make
payments - monthly, quarterly, or semiannually. You are not obligated to make
any payments. You can omit payments or discontinue the investment program
altogether. The Fund also can change the program or end it at any time. If there
is no obligation, why do it? Putting money aside is an important part of
financial planning. With a systematic investment program, you have a goal to
work for.
How does this work? Your regular investment amount will purchase more shares
when the net asset value per share decreases, and fewer shares when the net
asset value per share increases. Each purchase is a separate transaction. After
each purchase your new shares will be added to your account. Shares bought
through these programs are exactly the same as any other fund shares. They can
be bought and sold at any time. A systematic investment program is not an option
or an absolute right to buy shares.
<PAGE>
PAGE 47
The systematic investment program itself cannot ensure a profit, nor can it
protect against a loss in a declining market. If you decide to discontinue the
program and redeem your shares when their net asset value is less than what you
paid for them, you will incur a loss.
For a discussion on dollar-cost averaging, see Appendix E.
Automatic Directed Dividends
Dividends, including capital gain distributions, paid by another fund in the IDS
MUTUAL FUND GROUP subject to a sales charge, may be used to automatically
purchase shares in the same class of this Fund without paying a sales charge.
Dividends may be directed to existing accounts only. Dividends declared by a
fund are exchanged to this Fund the following day. Dividends can be exchanged
into the same class of another fund in the IDS MUTUAL FUND GROUP but cannot be
split to make purchases in two or more funds. Automatic directed dividends are
available between accounts of any ownership except:
Between a non-custodial account and an IRA, or 401(k) plan account or other
qualified retirement account of which American Express Trust Company acts as
custodian;
Between two American Express Trust Company custodial accounts with different
owners (for example, you may not exchange dividends from your IRA to the IRA of
your spouse);
Between different kinds of custodial accounts with the same ownership (for
example, you may not exchange dividends from your IRA to your 401(k) plan
account, although you may exchange dividends from one IRA to another IRA).
Dividends may be directed from accounts established under the Uniform Gifts to
Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) only into other UGMA
or UTMA accounts with identical ownership.
The Fund's investment goals are described in its prospectus along with other
information, including fees and expense ratios. Before exchanging dividends into
another fund, you should read that fund's prospectus. You will receive a
confirmation that the automatic directed dividend service has been set up for
your account.
REDEEMING SHARES
You have a right to redeem your shares at any time. For an explanation of
redemption procedures, please see the prospectus.
During an emergency, the board can suspend the computation of net asset value,
stop accepting payments for purchase of shares or suspend the duty of the Fund
to redeem shares for more than seven days. Such emergency situations would occur
if:
<PAGE>
PAGE 48
'The Exchange closes for reasons other than the usual weekend and
holiday closings or trading on the Exchange is restricted, or
'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 SEC, under the provisions of the Investment Company Act of 1940 (the 1940
Act), as amended, declares a period of emergency to exist.
Should the Fund stop selling shares, the board may make a deduction from the
value of the assets held by the Fund to cover the cost of future liquidations of
the assets so as to distribute fairly these costs among all shareholders.
The Fund has elected to be governed by Rule 18f-1 under the 1940 Act, which
obligates the Fund to redeem shares in cash, with respect to any one shareholder
during any 90-day period, up to the lesser of $250,000 or 1% of the net assets
of the Fund at the beginning of the period. Although redemptions in excess of
this limitation would normally be paid in cash, the Fund reserves the right to
make these payments in whole or in part in securities or other assets in case of
an emergency, or if the payment of a redemption in cash would be detrimental to
the existing shareholders of the Fund as determined by the board. In these
circumstances, the securities distributed would be valued as set forth in the
prospectus. Should the Fund distribute securities, a shareholder may incur
brokerage fees or other transaction costs in converting the securities to cash.
PAY-OUT PLANS
You can use any of several pay-out plans to redeem your investment in regular
installments. If you redeem Class B shares you may be subject to a contingent
deferred sales charge as discussed in the prospectus. While the plans differ on
how the pay-out is figured, they all are based on the redemption of your
investment. Net investment income dividends and any capital gain distributions
will automatically be reinvested, unless you elect to receive them in cash. If
you are redeeming a tax-qualified plan account for which American Express Trust
Company acts as custodian, you can elect to receive your dividends and other
distributions in cash when permitted by law. If you redeem an IRA or a qualified
retirement account, certain restrictions, federal tax penalties and special
federal income tax reporting requirements may apply. You should consult your tax
advisor about this complex area of the tax law. Applications for a systematic
investment in a class of the Fund subject to a sales charge normally will not be
accepted while a pay-out plan for any of those funds is in effect. Occasional
investments, however, may be accepted.
To start any of these plans, please write American Express
Shareholder Service, P.O. Box 534, Minneapolis, MN 55440-0534, or
call American Express Financial Advisors Telephone Transaction
<PAGE>
PAGE 49
Service at 800-437-3133 (National/Minnesota) or 612-671-3800 (Mpls./St. Paul).
Your authorization must be received in the Minneapolis headquarters at least
five days before the date you want your payments to begin. The initial payment
must be at least $50. Payments will be made on a monthly, bimonthly, quarterly,
semiannual or annual basis. Your choice is effective until you change or cancel
it.
The following pay-out plans are designed to take care of the needs of most
shareholders in a way AEFC can handle efficiently and at a reasonable cost. If
you need a more irregular schedule of payments, it may be necessary for you to
make a series of individual redemptions, in which case you'll have to send in a
separate redemption request for each pay-out. The Fund reserves the right to
change or stop any pay-out plan and to stop making such plans available.
Plan #1: Pay-out for a fixed period of time
If you choose this plan, a varying number of shares will be redeemed at regular
intervals during the time period you choose. This plan is designed to end in
complete redemption of all shares in your account by the end of the fixed
period.
Plan #2: Redemption of a fixed number of shares
If you choose this plan, a fixed number of shares will be redeemed for each
payment and that amount will be sent to you. The length of time these payments
continue is based on the number of shares in your account.
Plan #3: Redemption of a fixed dollar amount
If you decide on a fixed dollar amount, whatever number of shares is necessary
to make the payment will be redeemed in regular installments until the account
is closed.
Plan #4: Redemption of a percentage of net asset value
Payments are made based on a fixed percentage of the net asset value of the
shares in the account computed on the day of each payment. Percentages range
from 0.25% to 0.75%. For example, if you are on this plan and arrange to take
0.5% each month, you will get $50 if the value of your account is $10,000 on the
payment date.
TAXES
If you buy shares in the Fund and then exchange into another fund, it is
considered a sale and subsequent purchase of shares. Under the tax laws, if this
exchange is done within 91 days, any sales charge waived on Class A shares on a
subsequent purchase of shares applies to the new shares acquired in the
exchange. Therefore, you cannot create a tax loss or reduce a tax gain
attributable to the sales charge when exchanging shares within 91 days.
<PAGE>
PAGE 50
Retirement Accounts
If you have a nonqualified investment in the Fund and you wish to move part or
all of those shares to an IRA or qualified retirement account in the Fund, you
can do so without paying a sales charge. However, this type of exchange is
considered a sale of shares and may result in a gain or loss for tax purposes.
In addition, this type of exchange may result in an excess contribution under
IRA or qualified plan regulations if the amount exchanged plus the amount of the
initial sales charge applied to the amount exchanged exceeds annual contribution
limitations. For example: If you were to exchange $2,000 in Class A shares from
a nonqualified account to an IRA without considering the 5% ($100) initial sales
charge applicable to that $2,000, you may be deemed to have exceeded current IRA
annual contribution limitations. You should consult your tax advisor for further
details about this complex subject.
Net investment income dividends received should be treated as dividend income
for federal income tax purposes. Corporate shareholders are generally entitled
to a deduction equal to 70% of that portion of the Fund's dividend that is
attributable to dividends the Fund received from domestic (U.S.) securities. For
the fiscal year ended June 30, 1997, 65.51% of the Fund's net investment income
dividends qualified for the corporate deduction.
Capital gain distributions received by individual and corporate shareholders, if
any, should be treated as long-term capital gains regardless of how long they
owned their shares. Short-term capital gains earned by the Fund are paid to
shareholders as part of their ordinary income dividend and are taxable.
Under federal tax law, by the end of a calendar year the Fund must declare and
pay dividends representing 98% of ordinary income for that calendar year and 98%
of net capital gains (both long-term and short-term) for the 12-month period
ending Oct. 31 of that calendar year. The Fund is subject to an excise tax equal
to 4% of the excess, if any, of the amount required to be distributed over the
amount actually distributed. The Fund intends to comply with federal tax law and
avoid any excise tax.
The Fund may be subject to U.S. taxes resulting from holdings in a passive
foreign investment company (PFIC). A foreign corporation is a PFIC when 75% or
more of its gross income for the taxable year is passive income or if 50% or
more of the average value of its assets consists of assets that produce or could
produce passive income.
This is a brief summary that relates to federal income taxation only.
Shareholders should consult their tax advisor as to the application of federal,
state and local income tax laws to Fund distributions.
AGREEMENTS
Investment Management Services Agreement
<PAGE>
PAGE 51
The Fund has an Investment Management Services Agreement with AEFC. For its
services, AEFC is paid a fee based on the following schedule:
Assets Annual rate at
(billions) each asset level
First $0.50 0.530%
Next 0.50 0.505
Next 1.0 0.480
Next 1.0 0.455
Next 3.0 0.430
Over 6.0 0.400
On June 30, 1997, the daily rate applied to the Fund's net assets was equal to
0.520% on an annual basis. The fee is calculated for each calendar day on the
basis of net assets as of the close of business two business days prior to the
day for which the calculation is made.
The management fee is paid monthly. Under the agreement, the total amount paid
was $3,919,693 for the fiscal year ended June 30, 1997, $3,508,256 for fiscal
year 1996, and $3,233,765 for fiscal year 1995.
Under the agreement, the Fund also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees; audit and certain legal
fees; fidelity bond premiums; registration fees for shares; office expenses;
consultants' fees; compensation of board members, officers and employees;
corporate filing fees; organizational expenses; expenses incurred in connection
with lending securities of the Fund; and expenses properly payable by the Fund,
approved by the board. Under the agreement, the Fund paid nonadvisory expenses
of $302,118 for the fiscal year ended June 30, 1997, $251,849 for fiscal year
1996, and $601,567 for fiscal year 1995.
Administrative Services Agreement
The Fund has an Administrative Services Agreement with AEFC. Under this
agreement, the Fund pays AEFC for providing administration and accounting
services. The fee is calculated as follows:
Assets Annual rate
(billions) each asset level
First $0.50 0.040%
Next 0.50 0.035
Next 1.0 0.030
Next 1.0 0.025
Next 3.0 0.020
Over 6.0 0.020
On June 30, 1997, the daily rate applied to the Fund's net assets
was equal to 0.038% on an annual basis. The fee is calculated for
<PAGE>
PAGE 52
each calendar day on the basis of net assets as of the close of business two
business days prior to the day for which the calculation is made. Under the
agreement, the Fund paid fees of $294,140 for the fiscal year ended June 30,
1997.
Transfer Agency Agreement
The Fund has a Transfer Agency Agreement with AEFC. This agreement governs
AEFC's responsibility for administering and/or performing transfer agent
functions, for acting as service agent in connection with dividend and
distribution functions and for performing shareholder account administration
agent functions in connection with the issuance, exchange and redemption or
repurchase of the Fund's shares. Under the agreement, AEFC will earn a fee from
the Fund determined by multiplying the number of shareholder accounts at the end
of the day by a rate determined for each class per year and dividing by the
number of days in the year. The rate for Class A and Class Y is $15 per year and
for Class B is $16 per year. The fees paid to AEFC may be changed from time to
time upon agreement of the parties without shareholder approval. Under the
agreement, the Fund paid fees of $908,444 for the fiscal year ended June 30,
1997.
Distribution Agreement
Under a Distribution Agreement, sales charges deducted for distributing Fund
shares are paid to American Express Financial Advisors daily. These charges
amounted to $1,681,057 for the fiscal year ended June 30, 1997. After paying
commissions to personal financial advisors, and other expenses, the amount
retained was $(124,140). The amounts were $1,792,014 and $(100,719) for fiscal
year 1996, and $1,382,896 and $534,743 for fiscal year 1995.
Additional information about commissions and compensation for the
fiscal year ended June 30, 1997, is contained in the following
table:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Compensation
Name of Underwriting on Redemption
Principal Discounts and and Brokerage Other
Underwriter Commissions Repurchases Commissions Compensation
<S> <C> <C> <C> <C>
AEFC None None $56,075* $489,379**
American
Express
Financial
Advisors $1,681,057 None None None
</TABLE>
*For further information see "Brokerage Commissions Paid to Brokers Affiliated
with AEFC." **Distribution fees paid pursuant to the Plan and Agreement of
Distribution.
<PAGE>
PAGE 53
Shareholder Service Agreement
The Fund pays a fee for service provided to shareholders by financial advisors
and other servicing agents. The fee is calculated at a rate of 0.175% of average
daily net assets for Class A and Class B and 0.10% for Class Y.
Plan and Agreement of Distribution
For Class B shares, to help American Express Financial Advisors defray the cost
of distribution and servicing, not covered by the sales charges received under
the Distribution Agreement, the Fund and American Express Financial Advisors
entered into a Plan and Agreement of Distribution (Plan). These costs cover
almost all aspects of distributing the Fund's shares except compensation to the
sales force. A substantial portion of the costs are not specifically identified
to any one fund in the IDS MUTUAL FUND GROUP. Under the Plan, American Express
Financial Advisors is paid a fee at an annual rate of 0.75% of the Fund's
average daily net assets attributable to Class B shares.
The Plan must be approved annually by the board, including a majority of the
disinterested board members, if it is to continue for more than a year. At least
quarterly, the board must review written reports concerning the amounts expended
under the Plan and the purposes for which such expenditures were made. The Plan
and any agreement related to it may be terminated at any time by vote of a
majority of board members who are not interested persons of the Fund and have no
direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan, or by vote of a majority of the outstanding
voting securities of the Fund's Class B shares or by American Express Financial
Advisors. The Plan (or any agreement related to it) will terminate in the event
of its assignment, as that term is defined in the 1940 Act, as amended. The Plan
may not be amended to increase the amount to be spent for distribution without
shareholder approval, and all material amendments to the Plan must be approved
by a majority of the board members, including a majority of the board members
who are not interested persons of the Fund and who do not have a financial
interest in the operation of the Plan or any agreement related to it. The
selection and nomination of disinterested board members is the responsibility of
the other disinterested board members. No board member who is not an interested
person, has any direct or indirect financial interest in the operation of the
Plan or any related agreement. For the fiscal year ended June 30, 1997, under
the agreement, the Fund paid fees of $489,379.
Custodian Agreement
The Fund's securities and cash are held by American Express Trust Company, 1200
Northstar Center West, 625 Marquette Ave., Minneapolis, MN 55402-2307, through a
custodian agreement. The custodian is permitted to deposit some or all of its
securities in central depository systems as allowed by federal law. For its
services the Fund pays the custodian a maintenance charge and a
<PAGE>
PAGE 54
charge per transaction in addition to reimbursing the custodian's out-of-pocket
expenses. The custodian has entered into a sub-custodian arrangement with the
Morgan Stanley Trust Company (Morgan Stanley), One Pierrepont Plaza, Eighth
Floor, Brooklyn, NY 11201- 2775. As part of this arrangement, securities
purchased outside the United States are maintained in the custody of various
foreign branches of Morgan Stanley or in such other financial institutions as
may be permitted by law and by the Fund's sub-custodian agreement.
Total fees and expenses
The Fund paid total fees and nonadvisory expenses of $7,214,382 for the fiscal
year ended June 30, 1997.
ORGANIZATIONAL INFORMATION
The Fund is a diversified, open-end management investment company,
as defined in the Investment Company Act of 1940. It was
incorporated March 25, 1988 in Minnesota. The Fund headquarters
are at 901 S. Marquette Ave., Suite 2810, Minneapolis, MN 55402-
3268.
BOARD MEMBERS AND OFFICERS
The following is a list of the Fund's board members. They serve 15 Master Trust
portfolios and 47 IDS and IDS Life funds (except for William H. Dudley, who does
not serve on the nine IDS Life fund boards.)
All shares have cumulative voting rights with respect to the election of board
members.
H. Brewster Atwater, Jr.
Born in 1931
4900 IDS Tower
Minneapolis, MN
Former chairman and chief executive officer, General Mills, Inc.
Director, Merck & Co., Inc. and Darden Restaurants, Inc.
Lynne V. Cheney'
Born in 1941
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W.
Washington, D.C.
Distinguished Fellow AEI. Former Chair of National Endowment of
the Humanities. Director, The Reader's Digest Association Inc.,
Lockheed-Martin, Union Pacific Resources, and FPL Group, Inc.
(holding company for Florida Power and Light).
<PAGE>
PAGE 55
William H. Dudley**
Born in 1932
2900 IDS Tower
Minneapolis, MN
Senior advisor to the chief executive officer, AEFC.
Robert F. Froehlke+
Born in 1922
1201 Yale Place
Minneapolis, MN
Former president of all funds in the IDS MUTUAL FUND GROUP.
Director, the ICI Mutual Insurance Co., Institute for Defense
Analyses, Marshall Erdman and Associates, Inc. (architectural
engineering) and Public Oversight Board of the American Institute
of Certified Public Accountants.
David R. Hubers+**
Born in 1943
2900 IDS Tower
Minneapolis, MN
President and chief executive officer of AEFC since August 1993, and director of
AEFC. Previously, senior vice president, finance and chief financial officer of
AEFC.
Heinz F. Hutter+'
Born in 1929
P.O. Box 2187
Minneapolis, MN
Former president and chief operating officer, Cargill, Incorporated (commodity
merchants and processors).
Anne P. Jones
Born in 1935
5716 Bent Branch Rd.
Bethesda, MD
Attorney and telecommunications consultant. Former partner, law
firm of Sutherland, Asbill & Brennan. Director, Motorola, Inc. and
C-Cor Electronics, Inc.
Melvin R. Laird
Born in 1922
Reader's Digest Association, Inc.
1730 Rhode Island Ave., N.W.
Washington, D.C.
Senior counsellor for national and international affairs, The
Reader's Digest Association, Inc. Former nine-term U.S.
Congressman, U.S. Secretary of Defense and Presidential Counsellor.
Director, Metropolitan Life Insurance Co., The Reader's Digest
Association, Inc., Science Applications International Corp.,
<PAGE>
PAGE 56
Wallace Reader's Digest Funds and Public Oversight Board (SEC
Practice Section, American Institute of Certified Public
Accountants).
William R. Pearce+*
Born in 1927
901 S. Marquette Ave.
Minneapolis, MN
Chairman of the board, Board Services Corporation (provides administrative
services to boards). Director, trustee and officer of registered investment
companies whose boards are served by the company. Former vice chairman of the
board, Cargill, Incorporated (commodity merchants and processors).
Alan K. Simpson
Born in 1931
1201 Sunshine Ave.
Cody, WY
Former three-term United States Senator for Wyoming. Former
Assistant Republican Leader, U.S. Senate. Director, PacifiCorp
(electric power).
Edson W. Spencer+
Born in 1926
4900 IDS Center
80 S. 8th St.
Minneapolis, MN
President, Spencer Associates Inc. (consulting). Former chairman
of the board and chief executive officer, Honeywell Inc. Director,
Boise Cascade Corporation (forest products). Member of
International Advisory Council of NEC (Japan).
John R. Thomas**
Born in 1937
2900 IDS Tower
Minneapolis, MN
Senior vice president and director of AEFC.
Wheelock Whitney+
Born in 1926
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN
Chairman, Whitney Management Company (manages family assets).
<PAGE>
PAGE 57
C. Angus Wurtele'
Born in 1934
Valspar Corporation
Suite 1700
Foshay Tower
Minneapolis, MN
Chairman of the board and retired chief executive officer, The Valspar
Corporation (paints). Director, Bemis Corporation (packaging), Donaldson Company
(air cleaners & mufflers) and
General Mills, Inc. (consumer foods).
+ Member of executive committee.
' Member of joint audit committee.
* Interested person by reason of being an officer and employee of the Fund.
**Interested person by reason of being an officer, board member, employee and/or
shareholder of AEFC or American Express.
The board also has appointed officers who are responsible for day-to-day
business decisions based on policies it has established.
In addition to Mr. Pearce, who is president, the Fund's other officers are:
Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN
President, treasurer and corporate secretary of Board Services Corporation. Vice
president, general counsel and secretary for the Fund.
Officers who also are officers and/or employees of AEFC
Peter J. Anderson
Born in 1942
IDS Tower 10
Minneapolis, MN
Director and senior vice president-investments of AEFC. Vice
president-investments for the Fund.
Melinda S. Urion
Born in 1953
IDS Tower 10
Minneapolis, MN
Director, senior vice president and chief financial officer of AEFC. Director,
executive vice president and controller of IDS Life Insurance Company. Treasurer
for the Fund.
<PAGE>
PAGE 58
COMPENSATION FOR BOARD MEMBERS
Members of the board who are not officers of the Fund or AEFC receive an annual
fee of $500, and the chair of the Contracts Committee receives an additional
$86. Board members receive a $50 per day attendance fee for board meetings. The
attendance fee for meetings of the Contracts and Investment Review Committees is
$50; for meetings of the Audit Committee and Personnel Committee $25 and for
traveling from out-of-state $5. Expenses for attending meetings are reimbursed.
During the fiscal year ended June 30, 1997, the members of the
board, for attending up to 31 meetings, received the following
compensation:
<TABLE>
<CAPTION>
Compensation Table
Pension or Estimated Total cash compensation
Aggregate Retirement annual from the IDS MUTUAL FUND
compensation benefits accrued benefit upon GROUP and the Preferred
Board member from the Fund as Fund expenses retirement Master Trust Group
<S> <C> <C> <C> <C>
H. Brewster Atwater, $325 $0 $0 $ 68,900
Jr. (part of Year)
Lynne V. Cheney 614 0 0 92,000
Robert F. Froehlke 674 0 0 99,800
Heinz F. Hutter 727 0 0 99,900
Anne P. Jones 639 0 0 107,600
Melvin R. Laird 568 0 0 93,700
Alan K. Simpson 42 0 0 46,300
(part of year)
Edson W. Spencer 709 0 0 122,900
Wheelock Whitney 684 0 0 104,600
C. Angus Wurtele 727 0 0 104,200
</TABLE>
On June 30, 1997, the Fund's board members and officers as a group owned less
than 1% of the outstanding shares of a class.
INDEPENDENT AUDITORS
The financial statements contained in the Annual Report to shareholders for the
fiscal year ended June 30, 1997, were audited by independent auditors, KPMG Peat
Marwick LLP, 4200 Norwest Center, 90 S. Seventh St., Minneapolis, MN 55402-3900.
The independent auditors also provide other accounting and tax-related services
as requested by the Fund.
FINANCIAL STATEMENTS
The Independent Auditors' Report and the Financial Statements, including Notes
to the Financial Statements and the Schedule of Investments in Securities,
contained in the Annual Report to shareholders for the fiscal year ended 1997,
pursuant to Section 30(d) of the Investment Company Act of 1940, as amended, are
hereby incorporated in this SAI by reference. No other portion of the Annual
Report, however, is incorporated by reference.
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PROSPECTUS
The prospectus for IDS Utilities Income Fund, dated Aug. 29, 1997,
is hereby incorporated in this SAI by reference.
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APPENDIX A
DESCRIPTION OF THE FOUR HIGHEST BOND RATINGS
These ratings concern the quality of the issuing corporation. They are not an
opinion of the market value of the security. Such ratings are opinions on
whether the principal and interest will be repaid when due. A security's rating
may change which could affect its price.
The four highest ratings by Moody's Investors Service, Inc. are
Aaa, Aa, A, and Baa.
Bonds rated:
Aaa are judged to be of the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt edged." Interest payments
are protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa are judged to be of high quality by all standards. Together with the Aaa
group they comprise what are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may not be as large as
in Aaa securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term risk
appear somewhat larger than the Aaa securities.
A possess many favorable investment attributes and is to be considered as
upper-medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment some time in the future.
Baa are considered as medium-grade obligations (i.e., they are neither highly
protected nor poorly secured). Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
The four highest ratings by Standard & Poor's Corporation are AAA, AA, A, and
BBB.
AAA has the highest rating assigned by S&P. Capacity to pay interest and repay
principal is extremely strong.
AA has a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree.
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A has a strong capacity to pay interest and repay principal, although it is
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher-rated categories.
BBB is regarded as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than in higher-rated categories.
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APPENDIX B
FOREIGN CURRENCY TRANSACTIONS
Since investments in foreign countries usually involve currencies of foreign
countries, and since the Fund may hold cash and cash-equivalent investments in
foreign currencies, the value of the Fund's assets as measured in U.S. dollars
may be affected favorably or unfavorably by changes in currency exchange rates
and exchange control regulations. Also, the Fund may incur costs in connection
with conversions between various currencies.
Spot Rates and Forward Contracts. The Fund conducts its foreign currency
exchange transactions either at the spot (cash) rate prevailing in the foreign
currency exchange market or by entering into forward currency exchange contracts
(forward contracts) as a hedge against fluctuations in future foreign exchange
rates. 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 Fund may enter into forward contracts to settle a security transaction or
handle dividend and interest collection. When the Fund enters into a contract
for the purchase or sale of a security denominated in a foreign currency or has
been notified of a dividend or interest payment, it may desire to lock in the
price of the security or the amount of the payment in dollars. By entering into
a forward contract, the Fund will be able to protect itself against a possible
loss resulting from an adverse change in the relationship between different
currencies from the date the security is purchased or sold to the date on which
payment is made or received or when the dividend or interest is actually
received.
The Fund also may enter into forward contracts when management of the Fund
believes the currency of a particular foreign country may 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 Fund's securities denominated in such foreign
currency. The precise matching of forward contract amounts and the value of
securities involved generally will not be possible since the future value of
such securities in foreign currencies more than likely will change between the
date the forward contract is entered into and the date it matures. The
projection of short-term currency market movements is extremely difficult and
successful execution of a short-term hedging strategy is highly uncertain. The
Fund will not enter into such forward contracts or maintain a net exposure to
such contracts when consummating the contracts would obligate the Fund to
deliver an amount of foreign currency in
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excess of the value of the Fund's securities or other assets
denominated in that currency.
The Fund will designate cash or securities in an amount equal to the value of
the Fund's total assets committed to consummating forward contracts entered into
under the second circumstance set forth above. If the value of the securities
declines, additional cash or securities will be designated on a daily basis so
that the value of the cash or securities will equal the amount of the Fund's
commitments on such contracts.
At maturity of a forward contract, the Fund may either sell the security and
make delivery of the foreign currency or retain the security and terminate its
contractual obligation to deliver the foreign currency by purchasing an
offsetting contract with the same currency trader obligating it to buy, on the
same maturity date, the same amount of foreign currency.
If the Fund retains the security and engages in an offsetting transaction, the
Fund will incur a gain or a loss (as described below) to the extent there has
been movement in forward contract prices. If the Fund 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 Fund enters
into a forward contract for selling foreign currency and the date it enters into
an offsetting contract for purchasing the foreign currency, the Fund will
realize a gain to the extent that the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to buy. Should forward
prices increase, the Fund will suffer a loss to the extent the price of the
currency it has agreed to buy exceeds the price of the currency it has agreed to
sell.
It is impossible to forecast what the market value of securities will be at the
expiration of a contract. Accordingly, it may be necessary for the Fund to buy
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of foreign
currency the Fund is obligated to deliver and a decision is made to sell the
security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received on
the sale of the portfolio security if its market value exceeds the amount of
foreign currency the Fund is obligated to deliver.
The Fund's dealing in forward contracts will be limited to the transactions
described above. This method of protecting the value of the Fund's securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange that can be achieved at some point in time. Although 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.
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Although the Fund values its assets each business day in terms of U.S. dollars,
it does not intend to convert its foreign currencies into U.S. dollars on a
daily basis. It will do so from time to time, and shareholders should be aware
of currency conversion costs. Although foreign exchange dealers do not charge a
fee for conversion, they do realize a profit based on the difference (spread)
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.
Options on Foreign Currencies. The Fund may buy put and write covered call
options on foreign currencies for hedging purposes. For example, a decline in
the dollar value of a foreign currency in which securities are denominated will
reduce the dollar value of such securities, even if their value in the foreign
currency remains constant. In order to protect against such diminutions in the
value of securities, the Fund may buy put options on the foreign currency. If
the value of the currency does decline, the Fund 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 Fund
derived from purchases of foreign currency options will be reduced by the amount
of the premium and related transaction costs. In addition, where currency
exchange rates do not move in the direction or to the extent anticipated, the
Fund could sustain losses on transactions in foreign currency options which
would require it to forego a portion or all of the benefits of advantageous
changes in such rates.
The Fund may write options on foreign currencies for the same types of hedging
purposes. For example, when the Fund anticipates a decline in the dollar value
of foreign-denominated securities due to adverse fluctuations in exchange rates
it could, instead of purchasing a put option, write a call option on the
relevant currency. If the expected decline occurs, the option will most likely
not be exercised and the diminution in value of securities will be fully or
partially offset by the amount of the premium received.
As in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of the
premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Fund would be required to buy or sell
the underlying currency at a loss which may not be offset by the amount of the
premium. Through the writing of options on foreign currencies, the Fund also may
be required to forego all or a portion of the benefits which
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might otherwise have been obtained from favorable movements on exchange rates.
All options written on foreign currencies will be covered. An option written on
foreign currencies is covered if the Fund holds currency sufficient to cover the
option or has an absolute and immediate right to acquire that currency without
additional cash consideration upon conversion of assets denominated in that
currency or exchange of other currency held in its portfolio. An option writer
could lose amounts substantially in excess of its initial investments, due to
the margin and collateral requirements associated with such positions.
Options on foreign currencies are traded through financial institutions acting
as market-makers, although foreign currency options also are traded on certain
national securities exchanges, such as the Philadelphia Stock Exchange and the
Chicago Board Options Exchange, subject to SEC regulation. In an
over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchaser of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost.
Foreign currency option positions entered into on a national securities exchange
are cleared and guaranteed by the Options Clearing Corporation (OCC), thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting the Fund to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in certain foreign countries
for 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 Fund may enter into currency
futures contracts to sell currencies. It also may buy put options and write
covered call options on currency futures. Currency futures contracts are similar
to currency forward contracts, except that they are traded on exchanges (and
have margin requirements) and are standardized as to contract size and delivery
date. Most currency futures call for payment of delivery in U.S. dollars. The
Fund may use currency futures for the same purposes as currency forward
contracts, subject to Commodity Futures Trading Commission (CFTC) limitations.
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 Fund's investments. A currency hedge, for example, should protect a
Yen-denominated bond against a decline in the Yen, but will not protect the Fund
against price decline if the issuer's creditworthiness deteriorates. Because the
value of the Fund's investments denominated in foreign currency will change in
response to many factors other than exchange rates, it may not be possible to
match the amount of a forward contract to the value of the Fund's investments
denominated in that currency over time.
The Fund will hold securities or other options or futures positions whose values
are expected to offset its obligations. The Fund will not enter into an option
or futures position that exposes the Fund to an obligation to another party
unless it owns either (i) an offsetting position in securities or (ii) cash,
receivables and short-term debt securities with a value sufficient to cover its
potential obligations.
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APPENDIX C
OPTIONS AND FUTURES CONTRACTS
The Fund may buy or write options traded on any U.S. or foreign exchange or in
the over-the-counter market. The Fund may enter into interest rate futures
contracts and stock index futures contracts traded on any U.S. or foreign
exchange. The Fund also may buy or write put and call options on these futures
and on stock indexes. Options in the over-the-counter market will be purchased
only when the investment manager believes a liquid secondary market exists for
the options and only from dealers and institutions the investment manager
believes present a minimal credit risk. Some options are exercisable only on a
specific date. In that case, or if a liquid secondary market does not exist, the
Fund could be required to buy or sell securities at disadvantageous prices,
thereby incurring losses.
OPTIONS. An option is a contract. A person who buys a call option for a security
has the right to buy the security at a set price for the length of the contract.
A person who sells a call option is called a writer. The writer of a call option
agrees to sell the security at the set price when the buyer wants to exercise
the option, no matter what the market price of the security is at that time. A
person who buys a put option has the right to sell a security at a set price for
the length of the contract. A person who writes a put option agrees to buy the
security at the set price if the purchaser wants to exercise the option, no
matter what the market price of the security is at that time. An option is
covered if the writer owns the security (in the case of a call) or sets aside
the cash or securities of equivalent value (in the case of a put) that would be
required upon exercise.
The price paid by the buyer for an option is called a premium. In addition the
buyer generally pays a broker a commission. The writer receives a premium, less
another commission, at the time the option is written. The cash received is
retained by the writer whether or not the option is exercised. A writer of a
call option may have to sell the security for a below-market price if the market
price rises above the exercise price. A writer of a put option may have to pay
an above-market price for the security if its market price decreases below the
exercise price. The risk of the writer is potentially unlimited, unless the
option is covered.
Options can be used to produce incremental earnings, protect gains and
facilitate buying and selling securities for investment purposes. The use of
options and futures contracts may benefit the Fund and its shareholders by
improving the Fund's liquidity and by helping to stabilize the value of its net
assets.
Buying options. Put and call options may be used as a trading
technique to facilitate buying and selling securities for
investment reasons. Options are used as a trading technique to
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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 Fund pays a premium and a commission. It then pays a second
commission on the purchase or sale of the underlying security when the option is
exercised. For record keeping and tax purposes, the price obtained on the
purchase of the underlying security will be the combination of the exercise
price, the premium and both commissions. When using options as a trading
technique, commissions on the option will be set as if only the underlying
securities were traded.
Put and call options also may be held by the Fund for investment purposes.
Options permit the Fund to experience the change in the value of a security with
a relatively small initial cash investment.
The risk the Fund assumes when it buys an option is the loss of the premium. To
be beneficial to the Fund, the price of the underlying security must change
within the time set by the option contract. Furthermore, the change must be
sufficient to cover the premium paid, the commissions paid both in the
acquisition of the option and in a closing transaction or in the exercise of the
option and sale (in the case of a call) or purchase (in the case of a put) of
the underlying security. Even then, the price change in the underlying security
does not ensure a profit since prices in the option market may not reflect such
a change.
Writing covered options. The Fund will write covered options when it feels it is
appropriate and will follow these guidelines:
'Underlying securities will continue to be bought or sold solely on the basis of
investment considerations consistent with the Fund's goal.
'All options written by the Fund will be covered. For covered call options if a
decision is made to sell the security, or for put options if a decision is made
to buy the security, the Fund will attempt to terminate the option contract
through a closing purchase transaction.
Net premiums on call options closed or premiums on expired call options are
treated as short-term capital gains. Since the fund is taxed as a regulated
investment company under the Internal Revenue Code, any gains on options and
other securities held less than three months must be limited to less than 30% of
its annual gross income.
If a covered call option is exercised, the security is sold by the
Fund. The premium received upon writing the option is added to the
proceeds received from the sale of the security. The Fund will
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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 on many securities are listed on options exchanges. If the Fund writes
listed options, it will follow the rules of the options exchange. Options are
valued at the close of the New York Stock Exchange. An option listed on a
national exchange, CBOE or NASDAQ will be valued at the last quoted sales price
or, if such a price is not readily available, at the mean of the last bid and
ask prices.
Options on certain securities are not actively traded on any exchange, but may
be entered into directly with a dealer. When the Fund writes such an option, the
Custodian will segregate assets as appropriate to cover the option. These
options may be more difficult to close. If the Fund is unable to effect a
closing purchase transaction, it will not be able to sell the underlying
security until the call written by the Fund expires or is exercised.
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. Futures contracts trade in
a manner similar to the way a stock trades on a stock exchange and the commodity
exchanges, through their clearing corporations, guarantee performance of the
contracts. Futures contracts are commodity contracts listed on commodity
exchanges. They include contracts based on U.S. Treasury bonds and on Standard &
Poor's 500 Index (S&P 500 Index). In the case of S&P 500 index futures
contracts, the specified multiple is $500. Thus, if the value of the S&P 500
Index were 150, the value of one contract would be $75,000 (150 x $500).
Unlike other futures contracts, a stock index futures contract specifies that no
delivery of the actual stocks making up the index will take place. Instead,
settlement in cash must occur upon the termination of the contract. For example,
excluding any transaction costs, if the Fund 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 Fund will gain $500 x
(154-150) or $2,000. If the Fund 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 Fund will lose $500 x (152-150) or
$1,000.
Generally, a futures contract is terminated by entering into an
offsetting transaction. An offsetting transaction is effected by
the Fund taking an opposite position. At the time a futures
contract is made, a good faith deposit called initial margin is set
up within a segregated account at the Fund's custodian bank. Daily
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thereafter, the futures contract is valued and the payment of variation margin
is required so that each day the Fund 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 is to allow the Fund to gain rapid exposure to
or protect itself from changes in the market without actually buying or selling
securities. For example, if the Fund 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. If interest rates did increase, the value of the debt
securities in the portfolio would decline, but the value of the Fund's futures
contracts would increase at approximately the same rate, thereby keeping the net
asset value of the Fund from declining as much as it otherwise would have. If,
on the other hand, the Fund held cash reserves and interest rates were expected
to decline, the Fund 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 Fund's earnings. Even if short-term rates were not higher, the
Fund 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 Fund 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
Fund's cash reserves could then be used to buy long-term bonds on the cash
market. The Fund 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.
Risks of Transactions in Futures Contracts
The Fund may elect to close some or all of its contracts prior to expiration.
Although the Fund intends to enter into futures contracts only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a liquid secondary market will exist for any particular
contract at any particular time. In such event, it may not be possible to close
a futures contract position, and in the event of adverse price movements, the
Fund 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 owned by the Fund. Of course, there is no guarantee the price of the
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securities will correlate with the price movements in the futures contract and
thus provide an offset to losses on a futures contract.
Another 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 Fund'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.
In addition, the Fund's investment manager could be incorrect in its
expectations as to the direction or extent of various interest rate or market
movements or the time span within which the movements take place. For example,
if the Fund sold futures contracts for the sale of securities in anticipation of
an increase in interest rates, and interest rates declined instead, the Fund
would lose money on the sale.
OPTIONS ON FUTURES CONTRACTS. Options on futures contracts give the holder a
right to buy or sell futures contracts in the future. Unlike a futures contract,
which requires the parties to the contract to buy and sell a security on a set
date, an option on a futures contract merely entitles its holder to decide on or
before a future date (within nine months of the date of issue) whether to enter
into such a contract. If the holder decides not to enter into the contract, all
that is lost is the amount (premium) paid for the option. Further, because the
value of the option is fixed at the point of sale, there are no daily payments
of cash to reflect the change in the value of the underlying contract. However,
since an option gives the buyer the right to enter into a contract at a set
price for a fixed period of time, its value does change daily and that change is
reflected in the net asset value of the Fund.
The risk the Fund assumes when it buys an option is the loss of the premium paid
for the option. The risk involved in writing options on futures contracts the
Fund 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 Fund 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 Fund's
obligation, however, might be more or less than the premium received when it
originally wrote the option. Further, the Fund might not be able to close the
option because of insufficient activity in the options market.
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Purchasing options also limits the use of monies that might otherwise be
available for long-term investments.
OPTIONS ON STOCK INDEXES. Options on stock indexes are securities traded on
national securities exchanges. An option on a stock index is similar to an
option on a futures contract except all settlements are in cash. A fund
exercising a put, for example, would receive the difference between the exercise
price and the current index level. Such options would be used in the same manner
as options on futures contracts.
TAX TREATMENT. As permitted under federal income tax laws, the Fund intends to
identify futures contracts as mixed straddles and not mark them to market, that
is, not treat them as having been sold at the end of the year at market value.
Such an election may result in the Fund being required to defer recognizing
losses incurred by entering into futures contracts and losses on underlying
securities identified as being hedged against.
Federal income tax treatment of gains or losses from transactions in options on
futures contracts and indexes will depend on whether such option is a section
1256 contract. If the option is a non-equity option, the Fund will either make a
1256(d) election and treat the option as a mixed straddle or mark to market the
option at fiscal year end and treat the gain/loss as 40% short-term and 60%
long-term. Certain provisions of the Internal Revenue Code may also limit the
Fund's ability to engage in futures contracts and related options transactions.
For example, at the close of each quarter of the Fund's taxable year, at least
50% of the value of its assets must consist of cash, government securities and
other securities, subject to certain diversification requirements. Less than 30%
of its gross income must be derived from sales of securities held less than
three months.
The IRS has ruled publicly that an exchange-traded call option is a security for
purposes of the 50%-of-assets test and that its issuer is the issuer of the
underlying security, not the writer of the option, for purposes of the
diversification requirements. In order to avoid realizing a gain within the
three-month period, the Fund may be required to defer closing out a contract
beyond the time when it might otherwise be advantageous to do so. The Fund 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 Fund'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
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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
MORTGAGE-BACKED SECURITIES
A mortgage pass-through certificate is one that represents an interest in a
pool, or group, of mortgage loans assembled by the Government National Mortgage
Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), Federal
National Mortgage Association (FNMA) or non-governmental entities. In
pass-through certificates, both principal and interest payments, including
prepayments, are passed through to the holder of the certificate. Prepayments on
underlying mortgages result in a loss of anticipated interest, and the actual
yield (or total return) to the Fund, which is influenced by both stated interest
rates and market conditions, may be different than the quoted yield on
certificates. Some U.S. government securities may be purchased on a when-issued
basis, which means that it may take as long as 45 days after the purchase before
the securities are delivered to the Fund.
Stripped Mortgage-Backed Securities. The Fund may invest in stripped
mortgage-backed securities. Generally, there are two classes of stripped
mortgage-backed securities: Interest Only (IO) and Principal Only (PO). IOs
entitle the holder to receive distributions consisting of all or a portion of
the interest on the underlying pool of mortgage loans or mortgage-backed
securities. POs entitle the holder to receive distributions consisting of all or
a portion of the principal of the underlying pool of mortgage loans or
mortgage-backed securities. The cash flows and yields on IOs and POs are
extremely sensitive to the rate of principal payments (including prepayments) on
the underlying mortgage loans or mortgage-backed securities. A rapid rate of
principal payments may adversely affect the yield to maturity of IOs. A slow
rate of principal payments may adversely affect the yield to maturity of POs. On
an IO, if prepayments of principal are greater than anticipated, an investor may
incur substantial losses. If prepayments of principal are slower than
anticipated, the yield on a PO will be affected more severely than would be the
case with a traditional mortgage-backed security.
Mortgage-Backed Security Spread Options. The Fund 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 Fund would buy or sell covered MBS call spread options in
situations where mortgage-backed securities are expected to underperform
like-duration Treasury securities.
<PAGE>
PAGE 75
APPENDIX E
DOLLAR-COST AVERAGING
A technique that works well for many investors is one that eliminates random buy
and sell decisions. One such system is dollar-cost averaging. Dollar-cost
averaging involves building a portfolio through the investment of fixed amounts
of money on a regular basis regardless of the price or market condition. This
may enable an investor to smooth out the effects of the volatility of the
financial markets. By using this strategy, more shares will be purchased when
the price is low and less when the price is high. As the accompanying chart
illustrates, dollar-cost averaging tends to keep the average price paid for the
shares lower than the average market price of shares purchased, although there
is no guarantee.
While this technique does not ensure a profit and does not protect against a
loss if the market declines, it is an effective way for many shareholders who
can continue investing on a regular basis through changing market conditions,
including times when the price of their shares falls or the market declines, to
accumulate shares in a fund to meet long-term goals.
Dollar-cost averaging
- -------------------------------------------------------------------
Regular Market Price Shares
Investment of a Share Acquired
$100 $6.00 16.7
100 4.00 25.0
100 4.00 25.0
100 6.00 16.7
100 5.00 20.0
---- ----- -----
$500 $25.00 103.4
Average market price of a share over 5 periods:
$5.00 ($25.00 divided by 5).
The average price you paid for each share:
$4.84 ($500 divided by 103.4).
<PAGE>
Independent auditors' report
The board and shareholders
IDS Utilities Income Fund, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments in securities, of IDS Utilities
Income Fund, Inc. as of June 30, 1997, and the related statement of
operations for the year then ended and the statements of changes in net
assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the eight-year period ended
June 30, 1997, and for the period from August 1, 1988 (commencement of
operations) to June 30, 1989. These financial statements and the financial
highlights are the responsibility of fund management. Our responsibility
is to express an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and the
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Investment securities held in
custody are confirmed to us by the custodian. As to securities purchased
and sold but not received or delivered, and securities on loan, we request
confirmations from brokers, and where replies are not received, we carry
out other appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of IDS Utilities Income
Fund, Inc. at June 30, 1997, and the results of its operations, changes in
its net assets, and the financial highlights for the periods stated in the
first paragraph above, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
August 1, 1997
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
IDS Utilities Income Fund, Inc.
June 30, 1997
Assets
<S> <C>
Investments in securities, at value (Note 1)
(identified cost $731,890,478) $858,370,615
Cash in bank on demand deposit 813,953
Dividends and accrued interest receivable 2,908,144
Receivable for investment securities sold 11,169,726
U.S. government securities held as collateral (Note 4) 7,460,467
---------
Total assets 880,722,905
-----------
Liabilities
Dividends payable to shareholders 373,453
Payable for investment securities purchased 4,693,019
Payable upon return of securities loaned (Note 4) 41,512,667
Accrued investment management services fee 35,221
Accrued distribution fee 5,686
Accrued service fee 11,848
Accrued transfer agency fee 967
Accrued administrative services fee 2,575
Other accrued expenses 87,427
------
Total liabilities 46,722,863
----------
Net assets applicable to outstanding capital stock $834,000,042
============
Represented by
Capital stock-- authorized 10,000,000,000 shares of $.01 par value $ 1,036,915
Additional paid-in capital 648,822,515
Undistributed (excess of distributions over) net investment income (280,210)
Accumulated net realized gain (loss) (Note 1) 57,943,174
Unrealized appreciation (depreciation) of investments and on translation
of assets and liabilities in foreign currencies (Note 1) 126,477,648
-----------
Total-- representing net assets applicable to outstanding capital stock $834,000,042
============
Net assets applicable to outstanding shares: Class A $740,289,372
Class B $ 93,435,143
Class Y $ 275,527
Net asset value per share of outstanding capital stock: Class A shares 92,038,759 $ 8.04
Class B shares 11,618,515 $ 8.04
Class Y shares 34,255 $ 8.04
See accompanying notes to financial statements.
<PAGE>
<CAPTION>
Statement of operations
IDS Utilities Income Fund, Inc.
Year ended June 30, 1997
Investment income
Income:
Dividends $ 28,103,234
Interest 4,377,132
Less:
Foreign taxes withheld (272,401)
--------
Total income 32,207,965
----------
Expenses (Note 2):
Investment management services fee 3,919,693
Distribution fee -- Class B 489,379
Transfer agency fee 902,015
Incremental transfer agency fee-- Class B 6,429
Service fee
Class A 1,186,626
Class B 113,944
Class Y 38
Administrative services fees and expenses 294,140
Compensation of board members 14,873
Compensation of officers 3,352
Custodian fees 83,152
Postage 65,306
Registration fees 71,163
Reports to shareholders 36,228
Audit fees 24,500
Other 40,981
------
Total expenses 7,251,819
Earnings credits on cash balances (Note 2) (37,437)
-------
Total net expenses 7,214,382
---------
Investment income -- net 24,993,583
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 67,247,605
Foreign currency transactions (5,898)
------
Net realized gain (loss) on investments and foreign currencies 67,241,707
Net change in unrealized appreciation (depreciation) of investments and on
translation of assets and liabilities in foreign currencies 34,416,208
----------
Net gain (loss) on investments and foreign currencies 101,657,915
-----------
Net increase (decrease) in net assets resulting from operations $126,651,498
============
See accompanying notes to financial statements.
<PAGE>
<CAPTION>
Statements of changes in net assets
IDS Utilities Income Fund, Inc.
Year ended June 30,
Operations and distributions 1997 1996
<S> <C> <C>
Investment income-- net $ 24,993,583 $ 26,734,704
Net realized gain (loss) on investments and foreign currencies 67,241,707 24,203,182
Net change in unrealized appreciation (depreciation) of investments
and on translations of assets and liabilities in foreign currencies 34,416,208 70,831,629
---------- ----------
Net increase (decrease) in net assets resulting from operations 126,651,498 121,769,515
----------- -----------
Distributions to shareholders from:
Net investment income
Class A (22,560,571) (24,688,076)
Class B (1,658,850) (739,354)
Class Y (7,580) (6,149)
Net realized gain
Class A (19,457,819) (299,241)
Class B (1,790,823) (11,873)
Class Y (6,467) (78)
------ ---
Total distributions (45,482,110) (25,744,771)
----------- -----------
Capital share transactions (Note 5)
Proceeds from sales
Class A shares (Note 2) 84,967,342 78,592,388
Class B shares 47,369,444 40,903,798
Class Y shares 109,954 89,357
Reinvestment of distributions at net asset value
Class A shares 38,730,859 23,707,598
Class B share 3,314,586 723,097
Class Y shares 14,047 6,227
Payments for redemptions
Class A shares (134,149,309) (118,878,052)
Class B shares (Note 2) (11,992,573) (4,737,386)
Class Y shares (47,737) (75,904)
------- -------
Increase (decrease) in net assets from capital share transactions 28,316,613 20,331,123
---------- ----------
Total increase (decrease) in net assets 109,486,001 116,355,867
Net asset at beginning of year 724,514,041 608,158,174
----------- -----------
Net assets at end of year $834,000,042 $724,514,041
============ ============
Undistributed (excess of distributions over) net investment income $ (280,210) $ 122,768
------------ ------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
IDS Utilities Income Fund, Inc.
1
Summary of
significant
accounting policies
The Fund is registered under the Investment Company Act of 1940 (as
amended) as a diversified, open-end management investment company. The
Fund invests primarily in securities of public utilities companies. The
Fund offers Class A, Class B and Class Y shares. Class A shares are sold
with a front-end sales charge. Class B shares may be subject to a
contingent deferred sales charge. Class B shares automatically convert to
Class A after eight years. Class Y shares, have no sales charge and are
offered only to qualifying institutional investors.
All classes of shares have identical voting, dividend, liquidation and
other rights, and the same terms and conditions, except that the level of
distribution fee, transfer agency fee and service fee (class specific
expenses) differs among classes. Income, expenses (other than class
specific expenses) and realized and unrealized gains or losses on
investments are allocated to each class of shares based upon its relative
net assets.
Significant accounting policies followed by the Fund are summarized below:
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increase and decrease in
net assets from operations during the period. Actual results could differ
from those estimates.
Valuation of securities
All securities are valued at the close of each business day. Securities
traded on national securities exchanges or included in national market
systems are valued at the last quoted sales price; securities for which
market quotations are not readily available, including illiquid
securities, are valued at fair value according to methods selected in good
faith by the board. Determination of fair value involves, among other
things, reference to market indexes, matrixes and data from independent
brokers. Short-term securities maturing in more than 60 days from the
valuation date are valued at the market price or approximate market value
based on current interest rates; those maturing in 60 days or less are
valued at amortized cost.
Option transactions
In order to produce incremental earnings, protect gains, and facilitate
buying and selling of securities for investment purposes, the Fund may buy
and write options traded on any U.S. or foreign exchange or in the
over-the-counter market where the completion of the obligation is
dependent upon the credit standing of the other party. The Fund also may
buy and sell put and call options and write covered call options on the
portfolio securities and may write cash-secured put options. The risk in
writing a call option is that the Fund gives up the opportunity of profit
if the market price of the security increases. The risk in writing a put
option is that the Fund may incur a loss if the market price of the
security decreases and the option is exercised. The risk in buying an
option is that the Fund pays a premium whether or not the option is
exercised. The Fund also has the additional risk of not being able to
enter into a closing transaction if a liquid secondary market does not
exist.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The
Fund will realize a gain or loss upon expiration or closing of the option
transaction. When an option is exercised, the proceeds on sales for a
written call option, the purchase cost for a written put option or the
cost of a security for a purchased put or call option is adjusted by the
amount of premium received or paid.
Futures transactions
In order to gain exposure to or protect itself from changes in the market,
the Fund may buy and sell financial futures contracts traded on any U.S.
or foreign exchange. The Fund also may buy or write put and call options
on these contracts. Risks of entering into futures contracts and related
options include the possibility that there may be an illiquid market and
that a change in the value of the contract or option may not correlate
with changes in the value of the underlying securities.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin)
are made or received by the Fund each day. The variation margin payments
are equal to the daily changes in the contract value and are recorded as
unrealized gains and losses. The Fund recognizes a realized gain or loss
when the contract is closed or expires.
Foreign currency translations and
foreign currency contracts
Securities and other assets and liabilities denominated in foreign
currencies are translated daily into U.S. dollars at the closing rate of
exchange. Foreign currency amounts related to the purchase or sale of
securities and income and expenses are translated at the exchange rate on
the transaction date. The effect of changes in foreign exchange rates on
realized and unrealized security gains or losses is reflected as a
component of such gains or losses. In the statement of operations, net
realized gains or losses from foreign currency transactions may arise from
sales for foreign currency, closed forward contracts, exchange gains or
losses realized between the trade date and settlement dates on securities
transactions, and other translation gains or losses on dividend, interest
income and foreign withholding taxes.
The Fund may enter into forward foreign currency exchange contracts for
operational purposes and to protect against adverse exchange rate
fluctuation. The net U.S. dollar value of foreign currency underlying all
contractual commitments held by the Fund and the resulting unrealized
appreciation or depreciation are determined using foreign currency
exchange rates from an independent pricing service. The Fund is subject to
the credit risk that the other party will not complete the obligations of
the contract.
Federal taxes
Since the Fund's policy is to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to shareholders, no provision for
income or excise taxes is required.
Net investment income (loss) and net realized gains (losses) may differ
for financial statement and tax purposes primarily because of the deferral
of losses on certain futures contracts, the recognition of certain foreign
currency gains (losses) as ordinary income (loss) for tax purposes, and
losses deferred due to "wash sale" transactions. The character of
distributions made during the year from net investment income or net
realized gains may differ from their ultimate characterization for federal
income tax purposes. Also, due to the timing of dividend distributions,
the fiscal year in which amounts are distributed may differ from the year
that the income or realized gains (losses) were recorded by the Fund.
On the statement of assets and liabilities, as a result of permanent
book-to-tax differences, undistributed net investment income has been
decreased by $1,169,560 and accumulated net realized gain has been
increased by $1,169,560.
Dividends to shareholders
Dividends from net investment income, declared and paid each calendar
quarter, are reinvested in additional shares of the Fund at net asset
value or payable in cash. Capital gains, when available, are distributed
along with the last income dividend of the calendar year.
Other
Security transactions are accounted for on the date securities are
purchased or sold. Dividend income is recognized on the ex-dividend date
and interest income, including level-yield amortization of premium and
discount, is accrued daily.
2
Expenses and
sales charges
Effective March 20, 1995, the Fund entered into agreements with American
Express Financial Corporation (AEFC) for managing its portfolio, providing
administrative services and serving as transfer agent.
Under its Investment Management Services Agreement, AEFC determines which
securities will be purchased, held or sold. The management fee is a
percentage of the Fund's average daily net assets in reducing percentages
from 0.53% to 0.40% annually.
Under its Administrative Services Agreement, the Fund pays AEFC a fee for
administration and accounting services at a percentage of the Fund's
average daily net assets in reducing percentages from 0.04% to 0.02%
annually. Additional administrative service expenses paid by the Fund are
office expenses, consultants' fees and compensation of officers and
employees. Under this agreement, the Fund also pays taxes, audit and
certain legal fees, registration fees for shares, compensation of board
members, corporate filing fees, and any other expenses properly payable by
the Fund and approved by the board.
Under a separate Transfer Agency Agreement, AEFC maintains shareholder
accounts and records. The Fund pays AEFC an annual fee per shareholder
account for this service as follows:
o Class A $15
o Class B $16
o Class Y $15
Also effective March 20, 1995, the Fund entered into agreements with
American Express Financial Advisors Inc. for distribution and shareholder
servicing related services. Under a Plan and Agreement of Distribution,
the Fund pays a distribution fee at an annual rate of 0.75% of the Fund's
average daily net assets attributable to Class B shares for
distribution-related services.
Under a Shareholder Service Agreement, the Fund pays a fee for service
provided to shareholders by financial advisors and other servicing agents.
The fee is calculated at a rate of 0.175% of the Fund's average daily net
assets attributable to Class A and Class B shares and 0.10% of the Fund's
average daily net assets attributable to Class Y shares.
Sales charges received by American Express Financial Advisors Inc. for
distributing Fund shares were $1,626,790 for Class A and $54,267 for Class
B for the year ended June 30, 1997. The Fund also pays custodian fees to
American Express Trust Company, an affiliate of AEFC.
During the year ended June 30, 1997, the Fund's custodian and transfer
agency fees were reduced by $37,437 as a result of earnings credits from
overnight cash balances.
3
Securities
transactions
Cost of purchases and proceeds from sales of securities (other than
short-term obligations) aggregated $654,944,619 and $648,997,586,
respectively, for the year ended June 30, 1997. Realized gains and losses
are determined on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $56,075
for the year ended June 30, 1997.
4
Lending of
portfolio securities
At June 30, 1997, securities valued at $49,493,675 were on loan to
brokers. For collateral, the Fund received $34,052,200 in cash and U.S.
government securities valued at $7,460,467. Income from securities lending
amounted to $630,559 for the year ended June 30, 1997. The risks to the
Fund of securities lending are that the borrower may not provide
additional collateral when required or return the securities when due.
5
Capital share
transactions
Transactions in shares of capital stock for the periods indicated are as
follows:
Year ended June 30, 1997
Class A Class B Class Y
Sold 11,329,257 6,300,553 14,614
Issued for reinvested 5,114,765 436,475 1,844
distributions
Redeemed (18,030,425) (1,600,502) (6,248)
- --------------------------------------------------------------------------------
Net increase (decrease) (1,586,403) 5,136,526 10,210
- --------------------------------------------------------------------------------
Year ended June 30, 1996
Class A Class B Class Y
Sold 11,579,424 6,000,487 13,089
Issued for reinvested 3,446,251 103,780 940
distributions
Redeemed (17,487,689) (682,226) (11,172)
- --------------------------------------------------------------------------------
Net increase (decrease) (2,462,014) 5,422,041 2,857
- --------------------------------------------------------------------------------
6
Financial highlights
"Financial highlights" showing per share data and selected information is
presented on pages 6 and 7 of the prospectus.
<PAGE>
Investments in securities
IDS Utilities Income Fund, Inc.
June 30, 1997 Percentages represent
value of investments
compared to net assets)
Common stocks (86.9%)
Issuer Shares Value(a)
Banks and savings & loans (1.3%)
Barnett 200,000(d) $ 10,500,000
Energy (1.7%)
ENI 150,000(d) 8,531,250
Unocal 150,000 5,821,875
Total 14,353,125
Utilities -- electric (30.3%)
American Electric Power 100,000 4,200,000
Baltimore Gas & Electric 300,000 8,006,250
Black Hills 100,000 2,850,000
CINergy 250,000 8,703,125
CMS Energy 450,000 15,862,500
DPL 700,000 17,237,500
DQE 300,000 8,475,000
Duke Energy 400,000 19,175,000
Edison Intl 550,000 13,681,250
FPL Group 350,000 16,121,875
General Public Utilities 325,000 11,659,375
KU Energy 200,000 6,825,000
LG&E Energy 430,000 9,486,875
Long Island Lighting 300,000 6,900,000
MDU Resources Group 300,000 7,200,000
NIPSCO Industries 250,000 10,328,125
Northern States Power 250,000 12,937,500
Ohio Edison 400,000 8,725,000
Pinnacle West Capital 300,000 9,018,750
Public Service Co of Colorado 300,000 12,450,000
Sierra Pacific Resources 400,000 12,800,000
SIGCORP 150,000 3,806,250
Southern 400,000 8,750,000
TECO Energy 700,000 17,893,750
Total 253,093,125
Utilities -- gas (11.7%)
Brooklyn Union Gas
Coastal 250,000 13,296,875
El Paso Natural Gas 150,000 8,250,000
KN Energy 150,000 6,318,750
MC 190,000 5,818,750
New Jersey Resources 300,000 9,412,500
NICOR 77,500 2,780,313
Northwest Natural Gas 262,500 6,874,219
ONEOK 225,000 7,242,187
Pacific Enterprises 250,000 8,406,250
Questar 200,000 8,075,000
Sonat 150,000 7,687,500
WICOR 200,000 7,787,500
Washington Gas Light 215,000 5,401,875
Total 97,351,719
Utilities -- telephone (20.0%)
Ameritech 525,000 35,667,187
BellSouth 750,000 34,781,250
Brooks Fiber Properties 200,000(b) 6,750,000
Century Telephone Enterprises 150,000 5,053,125
GTE 325,000 14,259,375
MCI Communications 200,000 7,656,250
NYNEX 450,000 25,931,250
SBC Communications 350,000 21,656,250
U S WEST 400,000 15,075,000
Total 166,829,687
Miscellaneous (1.1%)
American Waterworks 410,000 8,763,750
Foreign (20.8%)(c)
BCE 1,200,000(d) 33,600,000
British
Telecommunications ADR 250,000(d) 18,562,500
Chilectra ADR 50,000(b,e) 1,438,000
Compagnie Generale des Eaux 60,000 7,687,988
Energie-Versorgung
Niederoesterreich 13,754 1,772,033
Ericsson LM 300,000 11,812,500
Grupo Iusacell ADR 300,000(b) 5,512,500
Natl Power 1,000,000 8,691,887
Northern Telecom 200,000 18,200,000
OTE 370,042(b) 4,079,713
Portugal Telecom ADR 200,000 8,025,000
Shell Transport & Trading 40,000 5,030,000
Telecomunicacoes Brasileiras -
Telebras ADR 125,000 18,968,750
Telecom Argentina ADR 150,000(b,d) 7,875,000
Telefonica de Espana ADR 100,000 8,625,000
TELUS 300,000 (b) 5,506,281
Veba 150,000 8,429,382
Total 173,816,534
Total common stocks
(Cost: $605,174,862) $724,707,940
Preferred stocks & other (5.8%)
Issuer Shares Value(a)
AES Trust
5.375% Cv 170,000 $10,008,750
Airtouch Communications
6% Cv 200,000(d) 5,700,000
Compagnie Generale des Eaux
Warrants 50,000 29,949
MCN Energy Group
8.75% Cv 218,000(g) 6,076,750
MCN Financing
8% Cv 80,000(g) 4,350,000
Telefonos de Mexico
7.75% Cv 210,000 9,922,500
WorldCom
8% Cv 106,200 11,974,050
Total preferred stocks & other
(Cost: $42,153,979) $48,061,999
Bonds (3.5%)
Issuer and Principal Value(a)
coupon rate amount
Mortgage-backed security (0.7%)
Federal Natl Ntge Assn
7% 2026 $5,934,761 $ 5,826,095
Domestic (1.9%)
Bell Telephone Pennsylvania
7.375% 2033 5,000,000 4,790,650
Tele-Communications
9.875% 2022 4,500,000 4,999,950
TU Electric Capital
8.175% 2037 6,000,000 5,988,720
Total 15,779,320
Foreign (0.9%)(c)
Hydro-Quebec
(Canadian Dollar)
8.50% 2029 5,000,000 5,442,100
TransCanada Pipeline
(U.S. Dollar)
9.875% 2021 2,000,000 2,510,500
Total 7,952,600
Total bonds
(Cost: $28,518,976) $29,558,015
Short-term securities (6.7%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agencies (0.4%)
Federal Home Loan Mtge Corp Disc Note
07-02-97 5.45% $ 400,000 $ 399,940
Federal Natl Mtge Assn Disc Note
07-14-97 5.44 2,910,000 2,904,304
Total 3,304,244
Commercial paper (6.1%)
Barclays U.S. Funding
07-11-97 5.55 5,100,000 5,092,180
Bell Atlantic
07-21-97 5.54 5,000,000 4,984,667
BHP Finance (USA)
07-09-97 5.55 4,500,000 4,494,470
CAFCO
08-14-97 5.54 11,200,000(f) 11,123,753
CIT Group Holdings
07-17-97 5.55 800,000 798,037
Natl Australia Funding (Delaware)
07-09-97 5.54 1,100,000 1,098,651
NBD Bank Canada
07-02-97 5.56 3,300,000 3,299,492
Paccar Financial
07-01-97 5.54 4,500,000 4,500,000
07-02-97 5.54 2,200,000 2,199,662
St . Paul Companies
07-15-97 5.53 6,500,000(f) 6,486,072
Siemens Capital
08-04-97 5.56 7,100,000 7,062,918
Total 51,139,902
Letter of credit (0.2%)
Bank of America-
Hyundai Motor Finance
07-07-97 5.59 1,600,000 1,598,515
Total short-term securities
(Cost: $56,042,661) $ 56,042,661
Total investments in securities
(Cost: $731,890,478)(h) $858,370,615
<PAGE>
IDS Utilities Income Fund, Inc.
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated.
(d) Security is partially or fully on loan. See Note 4 to the financial
statements.
(e) Represents a security sold under 144A, which is exempt from registration
under Securities Act of 1933, as amended. This security has been determined to
be liquid under guidelines established by the board.
(f) Commercial paper sold within terms of a private placement memorandum, exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
and may be sold only to dealers in that program or other "accredited investors."
This security has been determined to be liquid under guidelines established by
the board.
(g) PRIDES -- Preferred Redeemed Increased Dividend Equity Securities are
structured as convertible preferred securities issued by a company. Investors
receive an enhanced yield but based upon a specific formula, potential
appreciation is limited. PRIDES pay dividends, have voting rights, are
non-callable for three years and upon maturity, convert into shares of common
stock.
(h) At June 30, 1997, the cost of securities for federal income tax purposes was
$731,886,989 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation........................................$130,659,706
Unrealized depreciation..........................................(4,176,080)
----------
Net unrealized appreciation....................................$126,483,626
============
<PAGE>
PAGE 76
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) List of financial statements filed as part of this Post- Effective
Amendment to the Registration Statement:
- Independent Auditors' Report dated August 1, 1997
- Statement of Assets and Liabilities, June 30, 1997
- Statement of Operations, Year ended June 30, 1997
- Statements of Changes in Net Assets, for the two-year period ended
June 30, 1997 and June 30, 1996
- Notes to Financial Statements
- Investments in Securities, June 30, 1997
- Notes to Investments in Securities
(b) EXHIBITS:
1. Articles of Incorporation, dated March 25, 1988, filed as
Exhibit 1 to Registration Statement No. 33-20872, is
incorporated herein by reference.
2. By-laws filed as Exhibit 2 to Registrant's Pre-Effective
Amendment No. 1 to Registration Statement No. 33-20872,
is incorporated herein by reference.
3. Not Applicable.
4. Copy of Stock Certificate for common stock, filed as
Exhibit 4 on Form SE on June 28, 1988, to Registrant's
Pre-Effective Amendment No. 1 to Registration Statement
No. 33-20872, is incorporated herein by reference.
5. Copy of Investment Management and Services Agreement
between Registrant and American Express Financial
Corporation, dated March 20, 1995, is filed
electronically herewith.
6. Copy of Distribution Agreement between Registrant and American
Express Financial Advisors Inc., dated March 20, 1995, is filed
electronically herewith.
7. All employees are eligible to participate in a profit sharing plan.
Entry into the plan is Jan. 1 or July 1. The Registrant contributes
each year an amount up to 15 percent of their annual salaries, the
maximum deductible amount permitted under Section 404(a) of the
Internal Revenue Code.
8(a). Copy of Custodian Agreement between Registrant and American
Express Trust Company, dated March 20, 1995, is filed
electronically herewith.
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PAGE 77
8(b). Copy of Custody Agreement between Morgan Stanley Company and
IDS Bank and Trust dated May, 1993, is filed electronically
herewith.
9(a). Copy of Transfer Agency Agreement between Registrant and
American Express Financial Corporation, dated March 20, 1995,
is filed electronically herewith.
9(b). Copy of License Agreement between Registrant and IDS
Financial Corporation, dated June 15, 1992, filed as
Exhibit 9(b) to Registrant's Post-Effective
Amendment No. 6 to Registration Statement No. 33-
20872, is incorporated herein by reference.
9(c). Copy of Shareholder Service Agreement between
Registrant and American Express Financial Advisors
Inc., dated March 20, 1995, is filed electronically
herewith.
9(d). Copy of Administrative Services Agreement between
Registrant and American Express Financial
Corporation, dated March 20, 1995, is filed
electronically herewith.
9(e) Copy of the Class Y Shareholder Service Agreement between
IDS Precious Metals Fund, Inc. and American Express
Financial Advisors Inc., dated May 9, 1997 filed
electronically on or about May 27, as Exhibit 9(e) to IDS
Precious Metals Fund, Inc.'s Amendment No. 30 to
Registration Statement No. 2-93745, is incorporated
herein by reference.
Registrant's Class Y Shareholder Service Agreement differs from the
one incorporated by reference only by the fact that Registrant is
one executing party.
10. Opinion and consent of counsel as to the legality of the
securities being registered is filed with Registrant's
most recent 24f-2 Notice.
11. Independent Auditors' Consent, is filed electronically
herewith.
12. None.
13. Copy of Agreement made in consideration for providing
initial capital, between Registrant and IDS Financial
Corporation filed as Exhibit 13 to Registration Statement
No. 33-20872, is incorporated herein by reference.
14. Forms of Keogh, IRA and other retirement plans, filed as
Exhibits 14(a) through 14(n) to IDS Growth Fund, Inc.,
Post-Effective Amendment No. 34 to Registration Statement
No. 2-38355 on Sept. 8, 1986, are incorporated herein by
reference.
15. Copy of Plan and Agreement of Distribution between Registrant and
American Express Financial Advisors Inc., dated March 20, 1995, is
filed electronically herewith.
<PAGE>
PAGE 78
16. Copy of schedule for computation of each performance
quotation provided in the Registration Statement in
response to Item 22(b), filed as Exhibit 16 to
Registrant's Post-Effective Amendment No. 7 to
Registration Statement No. 33-20872, is incorporated
herein by reference.
17. Financial Data Schedules, are filed electronically
herewith.
18. Copy of Plan pursuant to Rule 18f-3 under the 1940 Act
filed electronically as exhibit 18 to Registrant's Post-
Effective Amendment No. 13 to Registration Statement No.
33-20872, is incorporated herein by reference.
19(a). Directors' Power of Attorney to sign Amendments to this
Registration Statement dated January 8, 1997, is filed
electronically herewith.
19(b). Officers' Power of Attorney to sign Amendments to this
Registration Statement dated Nov. 1, 1995, filed
electronically as Exhibit 19(b) to Registrant's Post-
Effective Amendment No. 17, is incorporated herein by
reference.
Item 25. Persons Controlled by or Under Common Control with
Registrant.
None.
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Holders as of
Title of Class August 19, 1997
Class A 53,166
Class B 9,022
Class Y 82
Item 27. Indemnification
The Articles of Incorporation of the registrant provide that the Fund shall
indemnify any person who was or is a party or is threatened to be made a party,
by reason of the fact that she or he is or was a director, officer, employee or
agent of the Fund, or is or was serving at the request of the Fund as a
director, officer, employee or agent of another company, partnership, joint
venture, trust or other enterprise, to any threatened, pending or completed
action, suit or proceeding, wherever brought, and the Fund may purchase
liability insurance and advance legal expenses, all to the fullest extent
permitted by the laws of the State of Minnesota, as now existing or hereafter
amended. The By-laws of the registrant provide that present or former directors
or officers of the Fund made or threatened to be made a party to or involved
(including as a witness) in an actual or threatened action, suit or proceeding
<PAGE>
PAGE 79
shall be indemnified by the Fund to the full extent authorized by the Minnesota
Business Corporation Act, all as more fully set forth in the By-laws filed as an
exhibit to this registration statement.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Any indemnification hereunder shall not be exclusive of any other rights of
indemnification to which the directors, officers, employees or agents might
otherwise be entitled. No indemnification shall be made in violation of the
Investment Company Act of 1940.
<PAGE>
PAGE 80
<PAGE>
PAGE 1
<PAGE>
Item 29(c). Not applicable.
Item 30. Location of Accounts and Records
American Express Financial Corporation
IDS Tower 10
Minneapolis, MN 55440
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) Not Applicable.
(b) Not Applicable.
(c) The Registrant undertakes to furnish each person
to whom a prospectus is delivered with a copy of
the Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE>
PAGE 81
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, IDS Utilities Income Fund, Inc., certifies
that it meets the requirements for the effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1993,
and has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis and State of Minnesota on the 28th day of August, 1997.
IDS UTILITIES INCOME FUND, INC.
by /s/ William R. Pearce**
William R. Pearce, President
by
Melinda S. Urion, Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
its Registration Statement has been signed below by the following persons in the
capacities indicated on the 28th day of August, 1997.
Signatures Capacity
/s/ William R. Pearce** President, Principal
William R. Pearce Executive Officer and
Director
/s/ H. Brewster Atwater, Jr.* Director
H. Brewster Atwater, Jr.
/s/ Lynne V. Cheney* Director
Lynne V. Cheney
/s/ William H. Dudley* Director
William H. Dudley
/s/ Robert F. Froehlke* Director
Robert F. Froehlke
/s/ David R. Hubers* Director
David R. Hubers
/s/ Heinz F. Hutter* Director
Heinz F. Hutter
/s/ Anne P. Jones* Director
Anne P. Jones
/s/ Melvin R. Laird* Director
Melvin R. Laird
<PAGE>
PAGE 82
Signatures Capacity
/s/ Alan K. Simpson* Director
Alan K. Simpson
/s/ Edson W. Spencer* Director
Edson W. Spencer
/s/ John R. Thomas* Director
John R. Thomas
/s/ Wheelock Whitney* Director
Wheelock Whitney
/s/ C. Angus Wurtele* Director
C. Angus Wurtele
*Signed pursuant to Directors' Power of Attorney, dated January 8, 1997 filed
electronically herewith by:
Leslie L. Ogg
**Signed pursuant to Officers' Power of Attorney dated Nov. 1,
1995, filed electronically as Exhibit 19(b) to Registrant's Post-
Effective Amendment No. 17 to Registration Statement No. 33-20872
by:
Leslie L. Ogg
<PAGE>
PAGE 83
CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 18 TO REGISTRATION
STATEMENT NO. 33-20872
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.
Financial Statements.
Part C.
Other information.
Exhibits.
The signatures.
<PAGE>
PAGE 1
IDS Utilities Income Fund, Inc.
File No. 33-20872\811-5522
Exhibit Index
Exhibit 5: Copy of Investment Management and Services Agreement
between Registrant and American Express Financial
Corporation, dated March 20, 1995
Exhibit 6: Copy of Distribution Agreement between Registrant
and American Express Financial Advisors Inc., dated
March 20, 1995
Exhibit 8(a): Copy of Custodian Agreement between Registrant and
American Express Trust Company, dated March 20, 1995
Exhibit 8(b): Copy of Custody Agreement between Morgan Stanley
Company and IDS Bank and Trust dated May, 1993
Exhibit 9(a): Copy of Transfer Agency Agreement between Registrant
and American Express Financial Corporation, dated
March 20, 1995
Exhibit 9(c): Copy of Shareholder Service Agreement between
Registrant and American Express Financial Advisors
Inc., dated March 20, 1995
Exhibit 9(d): Copy of Administrative Services Agreement between
Registrant and American Express Financial
Corporation, dated March 20, 1995
Exhibit 11: Independent Auditors' Consent
Exhibit 15: Copy of Plan and Agreement of Distribution between
Registrant and American Express Financial Advisors
Inc., dated March 20, 1995
Exhibit 17: Financial Data Schedules
Exhibit 19(a): Directors' Power of Attorney to sign Amendments to
this Registration Statement dated January 8, 1997
<PAGE>
PAGE 1
INVESTMENT MANAGEMENT SERVICES AGREEMENT
AGREEMENT made the 20th day of March, 1995, by and between IDS Utilities
Income Fund, Inc. (the "Fund"), a Minnesota corporation, and American Express
Financial Corporation, a Delaware corporation.
Part One: INVESTMENT MANAGEMENT AND OTHER SERVICES
(1) The Fund hereby retains American Express Financial Corporation, and
American Express Financial Corporation hereby agrees, for the period of this
Agreement and under the terms and conditions hereinafter set forth, to furnish
the Fund continuously with suggested investment planning; to determine,
consistent with the Fund's investment objectives and policies, which securities
in American Express Financial Corporation's discretion shall be purchased, held
or sold and to execute or cause the execution of purchase or sell orders; to
prepare and make available to the Fund all necessary research and statistical
data in connection therewith; to furnish all services of whatever nature
required in connection with the management of the Fund as provided under this
Agreement; and to pay such expenses as may be provided for in Part Three;
subject always to the direction and control of the Board of Directors (the
"Board"), the Executive Committee and the authorized officers of the Fund.
American Express Financial Corporation agrees to maintain an adequate
organization of competent persons to provide the services and to perform the
functions herein mentioned. American Express Financial Corporation agrees to
meet with any persons at such times as the Board deems appropriate for the
purpose of reviewing American Express Financial Corporation's performance under
this Agreement.
(2) American Express Financial Corporation agrees that the investment
planning and investment decisions will be in accordance with general investment
policies of the Fund as disclosed to American Express Financial Corporation from
time to time by the Fund and as set forth in its prospectuses and registration
statements filed with the United States Securities and Exchange Commission (the
"SEC").
(3) American Express Financial Corporation agrees that it will maintain
all required records, memoranda, instructions or authorizations relating to the
acquisition or disposition of securities for the Fund.
(4) The Fund agrees that it will furnish to American Express Financial
Corporation any information that the latter may reasonably request with respect
to the services performed or to be performed by American Express Financial
Corporation under this Agreement.
(5) American Express Financial Corporation is authorized to select the
brokers or dealers that will execute the purchases and sales of portfolio
securities for the Fund and is directed to use its best efforts to obtain the
best available price and most favorable execution, except as prescribed herein.
Subject to prior authorization by the Fund's Board of appropriate policies and
procedures, and subject to termination at any time by the Board,
<PAGE>
PAGE 2
American Express Financial Corporation may also be authorized to effect
individual securities transactions at commission rates in excess of the minimum
commission rates available, to the extent authorized by law, if American Express
Financial Corporation determines in good faith that such amount of commission
was reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer, viewed in terms of either that particular
transaction or American Express Financial Corporation's overall responsibilities
with respect to the Fund and other funds for which it acts as investment
adviser.
(6) It is understood and agreed that in furnishing the Fund with the
services as herein provided, neither American Express Financial Corporation, nor
any officer, director or agent thereof shall be held liable to the Fund or its
creditors or shareholders for errors of judgment or for anything except willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
reckless disregard of its obligations and duties under the terms of this
Agreement. It is further understood and agreed that American Express Financial
Corporation may rely upon information furnished to it reasonably believed to be
accurate and reliable.
Part Two: COMPENSATION TO INVESTMENT MANAGER
(1) The Fund agrees to pay to American Express Financial Corporation, and
American Express Financial Corporation covenants and agrees to accept from the
Fund in full payment for the services furnished, a fee for each calendar day of
each year equal to the total of 1/365th (1/366th in each leap year) of the
amount computed as shown below. The computation shall be made for each day on
the basis of net assets as of the close of business of the full business day two
(2) business days prior to the day for which the computation is being made. In
the case of the suspension of the computation of net asset value, the asset
charge for each day during such suspension shall be computed as of the close of
business on the last full business day on which the net assets were computed.
Net assets as of the close of a full business day shall include all transactions
in shares of the Fund recorded on the books of the Fund for that day.
The asset charge shall be based on the net assets of the Fund as set forth
in the following table.
Asset Charge
Assets Annual Rate at
(Billions) Each Asset Level
- ---------- ----------------
First $0.5 0.530%
Next $0.5 0.505
Next $1 0.480
Next $1 0.455
Next $3 0.430
Over $6 0.400
(2) The fee shall be paid on a monthly basis and, in the event of the
termination of this Agreement, the fee accrued shall be prorated on the basis of
the number of days that this Agreement is in effect during the month with
respect to which such payment is made.
<PAGE>
PAGE 3
(3) The fee provided for hereunder shall be paid in cash by the Fund to
American Express Financial Corporation within five business days after the last
day of each month.
Part Three: ALLOCATION OF EXPENSES
(1) The Fund agrees to pay:
(a) Fees payable to American Express Financial Corporation for its
services under the terms of this Agreement.
(b) Taxes.
(c) Brokerage commissions and charges in connection with the
purchase and sale of assets.
(d) Custodian fees and charges.
(e) Fees and charges of its independent certified public
accountants for services the Fund requests.
(f) Premium on the bond required by Rule 17g-1 under the
Investment Company Act of 1940.
(g) Fees and expenses of attorneys (i) it employs in matters not involving
the assertion of a claim by a third party against the Fund, its directors and
officers, (ii) it employs in conjunction with a claim asserted by the Board
against American Express Financial Corporation, except that American Express
Financial Corporation shall reimburse the Fund for such fees and expenses if it
is ultimately determined by a court of competent jurisdiction, or American
Express Financial Corporation agrees, that it is liable in whole or in part to
the Fund, and (iii) it employs to assert a claim against a third party.
(h) Fees paid for the qualification and registration for public sale of
the securities of the Fund under the laws of the United States and of the
several states in which such securities shall be offered for sale.
(i) Fees of consultants employed by the Fund.
(j) Directors, officers and employees expenses which shall include fees,
salaries, memberships, dues, travel, seminars, pension, profit sharing, and all
other benefits paid to or provided for directors, officers and employees,
directors and officers liability insurance, errors and omissions liability
insurance, worker's compensation insurance and other expenses applicable to the
directors, officers and employees, except the Fund will not pay any fees or
expenses of any person who is an officer or employee of American Express
Financial Corporation or its affiliates.
(k) Filing fees and charges incurred by the Fund in connection with filing
any amendment to its articles of incorporation, or incurred in filing any other
document with the State of Minnesota or its political subdivisions.
<PAGE>
PAGE 4
(l) Organizational expenses of the Fund.
(m) Expenses incurred in connection with lending portfolio
securities of the Fund.
(n) Expenses properly payable by the Fund, approved by the
Board.
(2) American Express Financial Corporation agrees to pay all expenses
associated with the services it provides under the terms of this Agreement.
Further, American Express Financial Corporation agrees that if, at the end of
any month, the expenses of the Fund under this Agreement and any other agreement
between the Fund and American Express Financial Corporation, but excluding those
expenses set forth in (1)(b) and (1)(c) of this Part Three, exceed the most
restrictive applicable state expenses limitation, the Fund shall not pay those
expenses set forth in (1)(a) and (d) through (n) of this Part Three to the
extent necessary to keep the Fund's expenses from exceeding the limitation, it
being understood that American Express Financial Corporation will assume all
unpaid expenses and bill the Fund for them in subsequent months but in no event
can the accumulation of unpaid expenses or billing be carried past the end of
the Fund's fiscal year.
Part Four: MISCELLANEOUS
(1) American Express Financial Corporation shall be deemed to be an
independent contractor and, except as expressly provided or authorized in this
Agreement, shall have no authority to act for or represent the Fund.
(2) A "full business day" shall be as defined in the By-laws.
(3) The Fund recognizes that American Express Financial Corporation now
renders and may continue to render investment advice and other services to other
investment companies and persons which may or may not have investment policies
and investments similar to those of the Fund and that American Express Financial
Corporation manages its own investments and/or those of its subsidiaries.
American Express Financial Corporation shall be free to render such investment
advice and other services and the Fund hereby consents thereto.
(4) Neither this Agreement nor any transaction had pursuant hereto shall
be invalidated or in any way affected by the fact that directors, officers,
agents and/or shareholders of the Fund are or may be interested in American
Express Financial Corporation or any successor or assignee thereof, as
directors, officers, stockholders or otherwise; that directors, officers,
stockholders or agents of American Express Financial Corporation are or may be
interested in the Fund as directors, officers, shareholders, or otherwise; or
that American Express Financial Corporation or any successor or assignee, is or
may be interested in the Fund as shareholder or otherwise, provided, however,
that neither American Express Financial Corporation, nor any officer, director
or employee
<PAGE>
PAGE 5
thereof or of the Fund, shall sell to or buy from the Fund any property or
security other than shares issued by the Fund, except in accordance with
applicable regulations or orders of the SEC.
(5) Any notice under this Agreement shall be given in writing, addressed,
and delivered, or mailed postpaid, to the party to this Agreement entitled to
receive such, at such party's principal place of business in Minneapolis,
Minnesota, or to such other address as either party may designate in writing
mailed to the other.
(6) American Express Financial Corporation agrees that no officer,
director or employee of American Express Financial Corporation will deal for or
on behalf of the Fund with himself as principal or agent, or with any
corporation or partnership in which he may have a financial interest, except
that this shall not prohibit:
(a) Officers, directors or employees of American Express Financial
Corporation from having a financial interest in the Fund or in American Express
Financial Corporation.
(b) The purchase of securities for the Fund, or the sale of securities
owned by the Fund, through a security broker or dealer, one or more of whose
partners, officers, directors or employees is an officer, director or employee
of American Express Financial Corporation, provided such transactions are
handled in the capacity of broker only and provided commissions charged do not
exceed customary brokerage charges for such services.
(c) Transactions with the Fund by a broker-dealer affiliate of American
Express Financial Corporation as may be allowed by rule or order of the SEC, and
if made pursuant to procedures adopted by the Fund's Board.
(7) American Express Financial Corporation agrees that, except as herein
otherwise expressly provided or as may be permitted consistent with the use of a
broker-dealer affiliate of American Express Financial Corporation under
applicable provisions of the federal securities laws, neither it nor any of its
officers, directors or employees shall at any time during the period of this
Agreement, make, accept or receive, directly or indirectly, any fees, profits or
emoluments of any character in connection with the purchase or sale of
securities (except shares issued by the Fund) or other assets by or for the
Fund.
Part Five: RENEWAL AND TERMINATION
(1) This Agreement shall continue in effect until March 19, 1997, or until
a new agreement is approved by a vote of the majority of the outstanding shares
of the Fund and by vote of the Fund's Board, including the vote required by (b)
of this paragraph, and if no new agreement is so approved, this Agreement shall
continue from year to year thereafter unless and until terminated by either
party as hereinafter provided, except that such continuance shall be
specifically approved at least annually (a) by the Board of the Fund or by a
vote of the majority of the
<PAGE>
PAGE 6
outstanding shares of the Fund and (b) by the vote of a majority of the
directors who are not parties to this Agreement or interested persons of any
such party, cast in person at a meeting called for the purpose of voting on such
approval. As used in this paragraph, the term "interested person" shall have the
same meaning as set forth in the Investment Company Act of 1940, as amended (the
"1940 Act").
(2) This Agreement may be terminated by either the Fund or American
Express Financial Corporation at any time by giving the other party 60 days'
written notice of such intention to terminate, provided that any termination
shall be made without the payment of any penalty, and provided further that
termination may be effected either by the Board of the Fund or by a vote of the
majority of the outstanding voting shares of the Fund. The vote of the majority
of the outstanding voting shares of the Fund for the purpose of this Part Five
shall be the vote at a shareholders' regular meeting, or a special meeting duly
called for the purpose, of 67% or more of the Fund's shares present at such
meeting if the holders of more than 50% of the outstanding voting shares are
present or represented by proxy, or more than 50% of the outstanding voting
shares of the Fund, whichever is less.
(3) This Agreement shall terminate in the event of its assignment, the
term "assignment" for this purpose having the same meaning as set forth in the
1940 Act.
IN WITNESS THEREOF, the parties hereto have executed the foregoing
Agreement as of the day and year first above written.
IDS UTILITIES INCOME FUND, INC.
By /s/ Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL CORPORATION
By /s/ Janis E. Miller
Vice President
<PAGE>
PAGE 1
DISTRIBUTION AGREEMENT
Agreement made as of the 20th day of March, 1995, by and between IDS Utilities
Income Fund, Inc. (the "Fund"), a Minnesota corporation, for and on behalf of
each class of the Fund and American Express Financial Advisors Inc., a Delaware
corporation.
Part One: DISTRIBUTION OF SECURITIES
(1) The Fund covenants and agrees that, during the term of this agreement and
any renewal or extension, American Express Financial Advisors shall have the
exclusive right to act as principal underwriter for the Fund and to offer for
sale and to distribute either directly or through any affiliate any and all
shares of each class of capital stock issued or to be issued by the Fund.
(2) American Express Financial Advisors hereby covenants and agrees to act as
the principal underwriter of each class of capital shares issued and to be
issued by the Fund during the period of this agreement and agrees during such
period to offer for sale such shares as long as such shares remain available for
sale, unless American Express Financial Advisors is unable or unwilling to make
such offer for sale or sales or solicitations therefor legally because of any
federal, state, provincial or governmental law, rule or agency or for any
financial reason.
(3) With respect to the offering for sale and sale of shares of each class to be
issued by the Fund, it is mutually understood and agreed that such shares are to
be sold on the following terms:
(a) All sales shall be made by means of an application, and every
application shall be subject to acceptance or rejection by the Fund at its
principal place of business. Shares are to be sold for cash, payable at the time
the application and payment for such shares are received at the principal place
of business of the Fund.
(b) No shares shall be sold at less than the asset value (computed in the
manner provided by the currently effective prospectus or Statement of Additional
Information and the Investment Company Act of 1940, and rules thereunder). The
number of shares or fractional shares to be acquired by each applicant shall be
determined by dividing the amount of each accepted application by the public
offering price of one share of the capital stock of the appropriate class as of
the close of business on the day when the application, together with payment, is
received by the Fund at its principal place of business. The computation as to
the number of shares and fractional shares shall be carried to three decimal
points of one share with the computation being carried to the nearest 1/lOOOth
of a share. If the day of receipt of the application and payment is not a full
business day, then the asset value of the share for use in such computation
shall be determined as of the close of business on the next succeeding full
business day. In the event of a period of emergency, the computation of the
asset value for the purpose of determining the number of shares or fractional
shares to be acquired by the applicant may be deferred until the close of
business on the first full business day following the termination of the period
of
<PAGE>
PAGE 2
emergency. A period of emergency shall have the definition given thereto in the
Investment Company Act of 1940, and rules thereunder.
(4) The Fund agrees to make prompt and reasonable effort to do any and all
things necessary, in the opinion of American Express Financial Advisors, to have
and to keep the Fund and the shares properly registered or qualified in all
appropriate jurisdictions and, as to shares, in such amounts as American Express
Financial Advisors may from time to time designate in order that the Fund's
shares may be offered or sold in such jurisdictions.
(5) The Fund agrees that it will furnish American Express Financial Advisors
with information with respect to the affairs and accounts of the Fund, and in
such form, as American Express Financial Advisors may from time to time
reasonably require and further agrees that American Express Financial Advisors,
at all reasonable times, shall be permitted to inspect the books and records of
the Fund.
(6) American Express Financial Advisors or its agents may prepare or cause to be
prepared from time to time circulars, sales literature, broadcast material,
publicity data and other advertising material to be used in the sales of shares
issued by the Fund, including material which may be deemed to be a prospectus
under rules promulgated by the Securities and Exchange Commission (each separate
promotional piece is referred to as an "Item of Soliciting Material"). At its
option, American Express Financial Advisors may submit any Item of Soliciting
Material to the Fund for its prior approval. Unless a particular Item of
Soliciting Material is approved in writing by the Fund prior to its use,
American Express Financial Advisors agrees to indemnify the Fund and its
directors and officers against any and all claims, demands, liabilities and
expenses which the Fund or such persons may incur arising out of or based upon
the use of any Item of Soliciting Material. The term "expenses" includes amounts
paid in satisfaction of judgments or in settlements. The foregoing right of
indemnification shall be in addition to any other rights to which the Fund or
any director or officer may be entitled as a matter of law. Notwithstanding the
foregoing, such indemnification shall not be deemed to abrogate or diminish in
any way any right or claim American Express Financial Advisors may have against
the Fund or its officers or directors in connection with the Fund's registration
statement, prospectus, Statement of Additional Information or other information
furnished by or caused to be furnished by the Fund.
(7) American Express Financial Advisors agrees to submit to the Fund each
application for shares immediately after the receipt of such application and
payment therefor by American Express Financial Advisors at its principal place
or business.
(8) American Express Financial Advisors agrees to cause to be delivered to each
person submitting an application a prospectus or circular to be furnished by the
Fund in the form required by the applicable federal laws or by the acts or
statutes of any applicable state, province or country.
<PAGE>
PAGE 3
(9) The Fund shall have the right to extend to shareholders of each class the
right to use the proceeds of any cash dividend paid by the Fund to that
shareholder to purchase shares of the same class at the net asset value at the
close of business upon the day of purchase, to the extent set forth in the
currently effective prospectus or Statement of Additional Information.
(10) Shares of each class issued by the Fund may be offered and sold at their
asset value to the shareholders of the same class of other funds in the IDS
MUTUAL FUND GROUP who wish to exchange their investments in shares of the other
funds in the IDS MUTUAL FUND GROUP to investments in shares of the Fund, to the
extent set forth in the currently effective prospectus or Statement of
Additional Information, such asset value to be computed as of the close of
business on the day of sale of such shares of the Fund.
(11) American Express Financial Advisors and the Fund agree to use their best
efforts to conform with all applicable state and federal laws and regulations
relating to any rights or obligations under the term of this agreement.
Part Two: ALLOCATION OF EXPENSES
Except as provided by any other agreements between the parties, American Express
Financial Advisors covenants and agrees that during the period of this agreement
it will pay or cause or be paid all expenses incurred by American Express
Financial Advisors, or any of its affiliates, in the offering for sale or sale
of each class of the Fund's shares.
Part Three: COMPENSATION
(1) It is covenanted and agreed that American Express Financial Advisors shall
be paid:
(i) for a class of shares imposing a front-end sales charge, by the
purchasers of Fund shares in an amount equal to the difference between the total
amount received upon each sale of shares issued by the Fund and the asset value
of such shares at the time of such sale; and
(ii) for a class of shares imposing a deferred sales charge, by owners of
Fund shares at the time the sales charge is imposed in an amount equal to any
deferred sales charge, as described in the Fund's prospectus.
Such sums as are received by the Fund shall be received as Agent for American
Express Financial Advisors and shall be remitted to American Express Financial
Advisors daily as soon as practicable after receipt.
(2) The asset value of any share of each class of the Fund shall be determined
in the manner provided by the classes currently effective prospectus and
Statement of Additional Information and the Investment Company Act of 1940, and
rules thereunder.
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PAGE 4
Part Four: MISCELLANEOUS
(1) American Express Financial Advisors shall be deemed to be an independent
contractor and, except as expressly provided or authorized in this agreement,
shall have no authority to act for or represent the Fund.
(2) American Express Financial Advisors shall be free to render to others
services similar to those rendered under this agreement.
(3) Neither this agreement nor any transaction had pursuant hereto shall be
invalidated or in any way affected by the fact that directors, officers, agents
and/or shareholders of the Fund are or may be interested in American Express
Financial Advisors as directors, officers, shareholders or otherwise; that
directors, officers, shareholders or agents of American Express Financial
Advisors are or may be interested in the Fund as directors, officers,
shareholders or otherwise; or that American Express Financial Advisors is or may
be interested in the Fund as shareholder or otherwise, provided, however, that
neither American Express Financial Advisors nor any officer or director of
American Express Financial Advisors or any officers or directors of the Fund
shall sell to or buy from the Fund any property or security other than a
security issued by the Fund, except in accordance with a rule, regulation or
order of the federal Securities and Exchange Commission.
(4) For the purposes of this agreement, a "business day" shall have the same
meaning as is given to the term in the By-laws of the Fund.
(5) Any notice under this agreement shall be given in writing, addressed and
delivered, or mailed postpaid, to the parties to this agreement at each
company's principal place of business in Minneapolis, Minnesota, or to such
other address as either party may designate in writing mailed to the other.
(6) American Express Financial Advisors agrees that no officer, director or
employee of American Express Financial Advisors will deal for or on behalf of
the Fund with himself as principal or agent, or with any corporation or
partnership in which he may have a financial interest, except that this shall
not prohibit:
(a) Officers, directors and employees of American Express Financial
Advisors from having a financial interest in the Fund or in American Express
Financial Advisors.
(b) The purchase of securities for the Fund, or the sale of securities
owned by the Fund, through a security broker or dealer, one or more of whose
partners, officers, directors or employees is an officer, director or employee
of American Express Financial Advisors, provided such transactions are handled
in the capacity of broker only and provided commissions charged do not exceed
customary brokerage charges for such services.
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PAGE 5
(c) Transactions with the Fund by a broker-dealer affiliate of American
Express Financial Advisors if allowed by rule or order of the Securities and
Exchange Commission and if made pursuant to procedures adopted by the Fund's
Board of Directors.
(7) American Express Financial Advisors agrees that, except as otherwise
provided in this agreement, or as may be permitted consistent with the use of a
broker-dealer affiliate of American Express Financial Advisors under applicable
provisions of the federal securities laws, neither it nor any of its officers,
directors or employees shall at any time during the period of this agreement
make, accept or receive, directly or indirectly, any fees, profits or emoluments
of any character in connection with the purchase or sale of securities (except
securities issued by the Fund) or other assets by or for the Fund.
Part Five: TERMINATION
(1) This agreement shall continue from year to year unless and until terminated
by American Express Financial Advisors or the Fund, except that such continuance
shall be specifically approved at least annually by a vote of a majority of the
Board of Directors who are not parties to this agreement or interested persons
of any such party, cast in person at a meeting called for the purpose of voting
on such approval, and by a majority of the Board of Directors or by vote of a
majority of the outstanding voting securities of the Fund. As used in this
paragraph, the term "interested person" shall have the meaning as set forth in
the Investment Company Act of 1940, as amended.
(2) This agreement may be terminated by American Express Financial Advisors or
the Fund at any time by giving the other party sixty (60) days written notice of
such intention to terminate.
(3) This agreement shall terminate in the event of its assignment, the term
"assignment" for this purpose having the same meaning as set forth in the
Investment Company Act of 1940, as amended.
IN WITNESS WHEREOF, The parties hereto have executed the foregoing agreement on
the date and year first above written.
IDS UTILITIES INCOME FUND, INC.
By /s/ Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
By /s/ Janis E. Miller
Vice President
<PAGE>
PAGE 1
CUSTODIAN AGREEMENT
THIS CUSTODIAN AGREEMENT dated March 20, 1995, between IDS Utilities Income
Fund, Inc., a Minnesota Corporation (the "Corporation") and American Express
Trust Company, a corporation organized under the laws of the State of Minnesota
with its principal place of business at Minneapolis, Minnesota (the
"Custodian").
WHEREAS, the Corporation desires that its securities and cash be hereafter held
and administered by Custodian pursuant to the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Corporation and the Custodian agree as follows:
Section 1. Definitions
The word "securities" as used herein shall be construed to include, without
being limited to, shares, stocks, treasury stocks, including any stocks of this
Corporation, notes, bonds, debentures, evidences of indebtedness, options to buy
or sell stocks or stock indexes, certificates of interest or participation in
any profit-sharing agreements, collateral trust certificates, preorganization
certificates or subscriptions, transferable shares, investment contracts, voting
trust certificates, certificates of deposit for a security, fractional or
undivided interests in oil, gas or other mineral rights, or any certificates of
interest or participation in, temporary or interim certificates for, receipts
for, guarantees of, or warrants or rights to subscribe to or purchase any of the
foregoing, acceptances and other obligations and any evidence of any right or
interest in or to any cash, property or assets and any interest or instrument
commonly known as a security. In addition, for the purpose of this Custodian
Agreement, the word "securities" also shall include other instruments in which
the Corporation may invest including currency forward contracts and commodities
such as interest rate or index futures contracts, margin deposits on such
contracts or options on such contracts.
The words "custodian order" shall mean a request or direction, including a
computer printout, directed to the Custodian and signed in the name of the
Corporation by any two individuals designated in the current certified list
referred to in Section 2.
The word "facsimile" shall mean an exact copy or likeness which is
electronically transmitted for instant reproduction.
Section 2. Names, Titles and Signatures of Authorized Persons
The Corporation will certify to the Custodian the names and signatures of its
present officers and other designated persons authorized on behalf of the
Corporation to direct the Custodian by custodian order as herein before defined.
The Corporation agrees that whenever any change occurs in this list it will file
with the Custodian a copy of a resolution certified by the Secretary or an
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PAGE 2
Assistant Secretary of the Corporation as having been duly adopted by the Board
of Directors or the Executive Committee of the Board of Directors of the
Corporation designating those persons currently authorized on behalf of the
Corporation to direct the Custodian by custodian order, as herein before
defined, and upon such filing (to be accompanied by the filing of specimen
signatures of the designated persons) the persons so designated in said
resolution shall constitute the current certified list. The Custodian is
authorized to rely and act upon the names and signatures of the individuals as
they appear in the most recent certified list from the Corporation which has
been delivered to the Custodian as herein above provided.
Section 3. Use of Subcustodians
The Custodian may make arrangements, where appropriate, with other banks having
not less than two million dollars aggregate capital, surplus and undivided
profits for the custody of securities. Any such bank selected by the Custodian
to act as subcustodian shall be deemed to be the agent of the Custodian.
The Custodian also may enter into arrangements for the custody of securities
entrusted to its care through foreign branches of United States banks; through
foreign banks, banking institutions or trust companies; through foreign
subsidiaries of United States banks or bank holding companies, or through
foreign securities depositories or clearing agencies (hereinafter also called,
collectively, the "Foreign Subcustodian" or indirectly through an agent,
established under the first paragraph of this section, if and to the extent
permitted by Section 17(f) of the Investment Company Act of 1940 and the rules
promulgated by the Securities and Exchange Commission thereunder, any order
issued by the Securities and Exchange Commission, or any "no-action" letter
received from the staff of the Securities and Exchange Commission. To the extent
the existing provisions of the Custodian Agreement are consistent with the
requirements of such Section, rules, order or no-action letter, they shall apply
to all such foreign custodianships. To the extent such provisions are
inconsistent with or additional requirements are established by such Section,
rules, order or no-action letter, the requirements of such Section, rules, order
or no-action letter will prevail and the parties will adhere to such
requirements; provided, however, in the absence of notification from the
Corporation of any changes or additions to such requirements, the Custodian
shall have no duty or responsibility to inquire as to any such changes or
additions.
Section 4. Receipt and Disbursement of Money
(1) The Custodian shall open and maintain a separate account or accounts in the
name of the Corporation or cause its agent to open and maintain such account or
accounts subject only to checks, drafts or directives by the Custodian pursuant
to the terms of this Agreement. The Custodian or its agent shall hold in such
account or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Corporation. The Custodian or its agent shall
make payments of cash to or for the account of the Corporation from such cash
only:
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PAGE 3
(a) for the purchase of securities for the portfolio of the Corporation
upon the receipt of such securities by the Custodian or its agent
unless otherwise instructed on behalf of the Corporation;
(b) for the purchase or redemption of shares of capital stock
of the Corporation;
(c) for the payment of interest, dividends, taxes, management fees, or
operating expenses (including, without limitation thereto, fees for
legal, accounting and auditing services);
(d) for payment of distribution fees, commissions, or
redemption fees, if any;
(e) for payments in connection with the conversion, exchange
or surrender of securities owned or subscribed to by the
Corporation held by or to be delivered to the Custodian;
(f) for payments in connection with the return of securities loaned by
the Corporation upon receipt of such securities or the reduction of
collateral upon receipt of proper notice;
(g) for payments for other proper corporate purposes;
(h) or upon the termination of this Agreement.
Before making any such payment for the purposes permitted under the terms of
items (a), (b), (c), (d), (e), (f) or (g) of paragraph (1) of this section, the
Custodian shall receive and may rely upon a custodian order directing such
payment and stating that the payment is for such a purpose permitted under these
items (a), (b), (c), (d), (e), (f) or (g) and that in respect to item (g), a
copy of a resolution of the Board of Directors or of the Executive Committee of
the Board of Directors of the Corporation signed by an officer of the
Corporation and certified by its Secretary or an Assistant Secretary, specifying
the amount of such payment, setting forth the purpose to be a proper corporate
purpose, and naming the person or persons to whom such payment is made.
Notwithstanding the above, for the purposes permitted under items (a) or (f) of
paragraph (1) of this section, the Custodian may rely upon a facsimile order.
(2) The Custodian is hereby appointed the attorney-in-fact of the Corporation to
endorse and collect all checks, drafts or other orders for the payment of money
received by the Custodian for the account of the Corporation and drawn on or to
the order of the Corporation and to deposit same to the account of the
Corporation pursuant to this Agreement.
Section 5. Receipt of Securities
Except as permitted by the second paragraph of this section, the Custodian or
its agent shall hold in a separate account or accounts, and physically
segregated at all times from those of any
<PAGE>
PAGE 4
other persons, firms or corporations, pursuant to the provisions hereof, all
securities received by it for the account of the Corporation. The Custodian
shall record and maintain a record of all certificate numbers. Securities so
received shall be held in the name of the Corporation, in the name of an
exclusive nominee duly appointed by the Custodian or in bearer form, as
appropriate.
Subject to such rules, regulations or guidelines as the Securities and Exchange
Commission may adopt, the Custodian may deposit all or any part of the
securities owned by the Corporation in a securities depository which includes
any system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, or
such other person as may be permitted by the Commission, pursuant to which
system all securities of any particular class or series of any issuer deposited
within the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities.
All securities are to be held or disposed of by the Custodian for, and subject
at all times to the instructions of, the Corporation pursuant to the terms of
this Agreement. The Custodian shall have no power or authority to assign,
hypothecate, pledge or otherwise dispose of any such securities, except pursuant
to the directive of the Corporation and only for the account of the Corporation
as set forth in Section 6 of this Agreement.
Section 6. Transfer Exchange, Delivery, etc. of Securities
The Custodian shall have sole power to release or deliver any securities of the
Corporation held by it pursuant to this Agreement. The Custodian agrees to
transfer, exchange or deliver securities held by it or its agent hereunder only:
(a) for sales of such securities for the account of the
Corporation, upon receipt of payment therefor;
(b) when such securities are called, redeemed, retired or
otherwise become payable;
(c) for examination upon the sale of any such securities in accordance with
"street delivery" custom which would include delivery against interim
receipts or other proper delivery receipts;
(d) in exchange for or upon conversion into other securities alone
or other securities and cash whether pursuant to any plan of
(e) merger, consolidation, reorganization, recapitalization or
readjustment, or otherwise;
(f) for the purpose of exchanging interim receipts or temporary
certificates for permanent certificates;
(g) upon conversion of such securities pursuant to their terms
into other securities;
<PAGE>
PAGE 5
(h) upon exercise of subscription, purchase or other similar rights
represented by such securities; for loans of such securities by the
Corporation upon receipt of collateral; or
(i) for other proper corporate purposes.
As to any deliveries made by the Custodian pursuant to items (a), (b), (c), (d),
(e), (f), (g) and (h), securities or cash received in exchange therefore shall
be delivered to the Custodian, its agent, or to a securities depository. Before
making any such transfer, exchange or delivery, the Custodian shall receive a
custodian order or a facsimile from the Corporation requesting such transfer,
exchange or delivery and stating that it is for a purpose permitted under
Section 6 (whenever a facsimile is utilized, the Corporation will also deliver
an original signed custodian order) and, in respect to item (i), a copy of a
resolution of the Board of Directors or of the Executive Committee of the Board
of Directors of the Corporation signed by an officer of the Corporation and
certified by its Secretary or an Assistant Secretary, specifying the securities,
setting forth the purpose for which such payment, transfer, exchange or delivery
is to be made, declaring such purpose to be a proper corporate purpose, and
naming the person or persons to whom such transfer, exchange or delivery of such
securities shall be made.
Section 7. Custodian's Acts Without Instructions
Unless and until the Custodian receives a contrary custodian order from the
Corporation, the Custodian shall or shall cause its agent to:
(a) present for payment all coupons and other income items held by the
Custodian or its agent for the account of the Corporation which call for
payment upon presentation and hold all cash received by it upon such
payment for the account of the Corporation;
(b) present for payment all securities held by it or its agent which mature or
when called, redeemed, retired or otherwise become payable;
(c) ascertain all stock dividends, rights and similar securities to be issued
with respect to any securities held by the Custodian or its agent
hereunder, and to collect and hold for the account of the Corporation all
such securities; and
(d) ascertain all interest and cash dividends to be paid to security holders
with respect to any securities held by the Custodian or its agent, and to
collect and hold such interest and cash dividends for the account of the
Corporation.
Section 8. Voting and Other Action
Neither the Custodian nor any nominee of the Custodian shall vote any of the
securities held hereunder by or for the account of the Corporation. The
Custodian shall promptly deliver to the Corporation all notices, proxies and
proxy soliciting materials
<PAGE>
PAGE 6
with relation to such securities, such proxies to be executed by the registered
holder of such securities (if registered otherwise than in the name of the
Corporation), but without indicating the manner in which such proxies are to be
voted.
Custodian shall transmit promptly to the Corporation all written information
(including, without limitation, pendency of calls and maturities of securities
and expirations of rights in connection therewith) received by the Custodian
from issuers of the securities being held for the Corporation. With respect to
tender or exchange offers, the Custodian shall transmit promptly to the
Corporation all written information received by the Custodian from issuers of
the securities whose tender or exchange is sought and from the party (or his
agents) making the tender or exchange offer.
Section 9. Transfer Taxes
The Corporation shall pay or reimburse the Custodian for any transfer taxes
payable upon transfers of securities made hereunder, including transfers
resulting from the termination of this Agreement. The Custodian shall execute
such certificates in connection with securities delivered to it under this
Agreement as may be required, under any applicable law or regulation, to exempt
from taxation any transfers and/or deliveries of any such securities which may
be entitled to such exemption.
Section 10. Custodian's Reports
The Custodian shall furnish the Corporation as of the close of business each day
a statement showing all transactions and entries for the account of the
Corporation. The books and records of the Custodian pertaining to its actions as
Custodian under this Agreement and securities held hereunder by the Custodian
shall be open to inspection and audit by officers of the Corporation, internal
auditors employed by the Corporation's investment adviser, and independent
auditors employed by the Corporation. The Custodian shall furnish the
Corporation in such form as may reasonably be requested by the Corporation a
report, including a list of the securities held by it in custody for the account
of the Corporation, identification of any subcustodian, and identification of
such securities held by such subcustodian, as of the close of business of the
last business day of each month, which shall be certified by a duly authorized
officer of the Custodian. It is further understood that additional reports may
from time to time be requested by the Corporation. Should any report ever be
filed with any governmental authority pertaining to lost or stolen securities,
the Custodian will concurrently provide the Corporation with a copy of that
report.
The Custodian also shall furnish such reports on its systems of internal
accounting control as the Corporation may reasonably request from time to time.
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PAGE 7
Section 11. Concerning Custodian
For its services hereunder the Custodian shall be paid such compensation at such
times as may from time to time be agreed on in writing by the parties hereto in
a Custodian Fee Agreement.
The Custodian shall not be liable for any action taken in good faith upon any
custodian order or facsimile herein described or certified copy of any
resolution of the Board of Directors or of the Executive Committee of the Board
of Directors of the Corporation, and may rely on the genuineness of any such
document which it may in good faith believe to have been validly executed.
The Corporation agrees to indemnify and hold harmless Custodian and its nominee
from all taxes, charges, expenses, assessments, claims and liabilities
(including counsel fees) incurred or assessed against it or its nominee in
connection with the performance of this Agreement, except such as may arise from
the Custodian's or its nominee's own negligent action, negligent failure to act
or willful misconduct. Custodian is authorized to charge any account of the
Corporation for such items. In the event of any advance of cash for any purpose
made by Custodian resulting from orders or instructions of the Corporation, or
in the event that Custodian or its nominee shall incur or be assessed any taxes,
charges, expenses, assessments, claims or liabilities in connection with the
performance of this Agreement, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the Corporation shall be
security therefor.
The Custodian shall maintain a standard of care equivalent to that which would
be required of a bailee for hire and shall not be liable for any loss or damage
to the Corporation resulting from participation in a securities depository
unless such loss or damage arises by reason of any negligence, misfeasance, or
willful misconduct of officers or employees of the Custodian, or from its
failure to enforce effectively such rights as it may have against any securities
depository or from use of an agent, unless such loss or damage arises by reason
of any negligence, misfeasance, or willful misconduct of officers or employees
of the Custodian, or from its failure to enforce effectively such rights as it
may have against any agent.
Section 12. Termination and Amendment of Agreement
The Corporation and the Custodian mutually may agree from time to time in
writing to amend, to add to, or to delete from any provision of this Agreement.
The Custodian may terminate this Agreement by giving the Corporation ninety
days' written notice of such termination by registered mail addressed to the
Corporation at its principal place of business.
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PAGE 8
The Corporation may terminate this Agreement at any time by written notice
thereof delivered, together with a copy of the resolution of the Board of
Directors authorizing such termination and certified by the Secretary of the
Corporation, by registered mail to the Custodian.
Upon such termination of this Agreement, assets of the Corporation held by the
Custodian shall be delivered by the Custodian to a successor custodian, if one
has been appointed by the Corporation, upon receipt by the Custodian of a copy
of the resolution of the Board of Directors of the Corporation certified by the
Secretary, showing appointment of the successor custodian, and provided that
such successor custodian is a bank or trust company, organized under the laws of
the United States or of any State of the United States, having not less than two
million dollars aggregate capital, surplus and undivided profits. Upon the
termination of this Agreement as a part of the transfer of assets, either to a
successor custodian or otherwise, the Custodian will deliver securities held by
it hereunder, when so authorized and directed by resolution of the Board of
Directors of the Corporation, to a duly appointed agent of the successor
custodian or to the appropriate transfer agents for transfer of registration and
delivery as directed. Delivery of assets on termination of this Agreement shall
be effected in a reasonable, expeditious and orderly manner; and in order to
accomplish an orderly transition from the Custodian to the successor custodian,
the Custodian shall continue to act as such under this Agreement as to assets in
its possession or control. Termination as to each security shall become
effective upon delivery to the successor custodian, its agent, or to a transfer
agent for a specific security for the account of the successor custodian, and
such delivery shall constitute effective delivery by the Custodian to the
successor under this Agreement.
In addition to the means of termination herein before authorized, this Agreement
may be terminated at any time by the vote of a majority of the outstanding
shares of the Corporation and after written notice of such action to the
Custodian.
Section 13. General
Nothing expressed or mentioned in or to be implied from any provision of this
Agreement is intended to, or shall be construed to give any person or
corporation other than the parties hereto, any legal or equitable right, remedy
or claim under or in respect of this Agreement, or any covenant, condition or
provision herein contained, this Agreement and all of the covenants, conditions
and provisions hereof being intended to be and being for the sole and exclusive
benefit of the parties hereto and their respective successors and assigns.
This Agreement shall be governed by the laws of the State of Minnesota.
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PAGE 9
This Agreement supersedes all prior agreements between the parties.
IDS UTILITIES INCOME FUND, INC.
By: /s/ Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS TRUST COMPANY
By: /s/ Chan Patel
Vice President
<PAGE>
PAGE 1
CUSTODY AGREEMENT
This Custody Agreement is dated May, 1993 between MORGAN STANLEY TRUST COMPANY,
a New York State chartered trust company (the "Custodian"), and IDS Bank & Trust
(the "Customer").
1. The Customer hereby appoints the Custodian as a custodian of securities and
other property owned or under the control of the Customer which are delivered to
the Custodian, or any Subcustodian as appointed below, from time to time to be
held in custody for the benefit of the Customer. The Customer instructs the
Custodian to establish on the books and records of the Custodian an account (the
"Account") in the name of the Customer. The Custodian shall record in the
Account and shall have general responsibility for the safekeeping of all
securities ("Securities"), cash and other property (all such Securities, cash
and other Property being collectively the "Property") of the Customer so
delivered for custody. It is understood that the specific procedures the
Custodian will use in carrying out its responsibilities under this Agreement are
set forth in the procedures manual (the "Procedures Manual") prepared by the
Custodian and delivered to the Customer, as such Procedures Manual may be
amended from time to time by the Custodian by 90 days prior written notice to
the Customer (unless the Customer agrees to a shorter period). The Customer
acknowledges that the Procedures Manual constitutes an integral part of this
Agreement.
2. The Property may be held in custody and deposit accounts that have been
established by the Custodian with one or more domestic or foreign banks, or
through the facilities of one or more clearing agencies or central securities
depositories, as listed on Exhibit A hereto (the "Subcustodians"), as such
Exhibit may be amended from time to time by the Custodian by written notice to
the Customer. The Custodian shall deliver to the Customer such information as is
necessary or appropriate for the Customer to determine that the Customer is in
compliance with Rule 17f-5 promulgated under the Investment Company Act of 1940,
as amended. The Custodian may hold Property for all of its customers with a
Subcustodian in a single account that is identified-as belonging to the
Custodian for the benefit of its customers. Any Subcustodian may hold Property
in a securities depository and may utilize a clearing agency. The Customer
agrees that the Property may be physically held outside the United States. The
Custodian shall not be liable for any loss resulting directly from the physical
presence of any Property in a foreign country (and not by virtue of the actions
of the Custodian or any Subcustodian) including, but not limited to, losses
resulting from nationalization, expropriation, exchange controls or acts of war
or terrorism. Except as provided in the previous sentence, the liability of the
Custodian for losses incurred by the Customer in respect of Securities shall not
be affected by the Custodian's use of Subcustodians.
<PAGE>
PAGE 2
3. With respect to Property held by a Subcustodian pursuant to
Section 2:
(a) The Custodian will identify on its books as belonging to
the Customer any Property held by a Subcustodian for the
Custodian's account;
(b) The Custodian will hold Property through a Subcustodian only if (i)
such Subcustodian and any securities depository or clearing agency in
which such Subcustodian holds Property, or any of their creditors, may not
assert any right, charge security interest, lien, encumbrance or other
claim of any kind to such Property except a claim of payment for its safe
custody or administration and (ii) beneficial ownership of such Property
may be freely transferred without the payment of money or value other than
for safe custody or administration;
(c) The Custodian shall require that Property held by the Subcustodian for
the Custodian's account be identified on the Subcustodian's books as
separate from any property held by the Subcustodian other than property of
the Custodian's customers and as held solely for the benefit of customers
of the Custodian; and
(d) In the event that the Subcustodian holds Property in a securities
depository or clearing agency, such Subcustodian will be required by its
agreement with the Custodian to identify on its books such Property as
being held for the account of the Custodian as a custodian for its
customers.
4. The Custodian shall allow the Customer's accountants reasonable access to the
Custodian's records relating to the Property held by the Custodian as such
accountants may reasonably require in connection with their examination of the
Customer's affairs. The Custodian shall also obtain from any Subcustodian (and
will require each Subcustodian to use reasonable efforts to obtain from any
securities depository or clearing agency in which it deposits Property) an
undertaking, to the extent consistent with local practice and the laws of the
jurisdiction or jurisdictions to which such Subcustodian, securities depository
or clearing agency is subject, to permit independent public accountants such
reasonable access to the records of such Subcustodian, securities depository or
clearing agency as may be reasonably required in connection with the examination
of the Customer's affairs or to take such other action as the Custodian in its
judgment may deem sufficient to ensure such reasonable access.
5. The Custodian shall provide such reports and other information to the
Customer and to such persons as the Customer directs as the Custodian and the
Customer may agree from time to time, including such reports which are described
in the Procedures Manual.
<PAGE>
PAGE 3
6. The Custodian shall make or cause any Subcustodian to make payments from
monies being held in the Account only:
(a) upon the purchase of Securities and then, to the extent consistent
with practice in the jurisdiction in which settlement occurs, upon the
delivery of such Securities;
(b) for payments to be made in connection with the conversion,
exchange or surrender of Securities;
(c) upon a request of the Customer that the Custodian return
monies being held in the Account;
(d) upon a request of the Customer that monies be exchanged for or used to
purchase monies denominated in a different currency and then only upon
receipt of such exchanged or purchased monies;
(e) as provided in Section 8 and 12 hereof;
(f) upon termination of this Custody Agreement as hereinafter
set forth; and
(g) for any other purpose upon receipt of explicit instructions of the
Customer accompanied by evidence reasonably acceptable to the Custodian as
to the authorization of such payment.
Except as provided in the last two sentences of this Section 6 and as provided
in Section 8, all payments pursuant to this Section 6 will be made only upon
receipt by the Custodian of Authorized Instructions (as hereinafter defined)
from the Customer which shall specify the purpose for which the payment is to be
made. In the event that it is not possible to make a payment in accordance with
Authorized Instructions of the Customer, the Custodian shall proceed in
accordance with the procedures set forth in the Procedures Manual. Any payment
pursuant to subsection (f) of this Section 6 will be made in accordance with
Section 16.
7. The Custodian shall make or cause any Subcustodian to make
transfers, exchanges or deliveries of Securities only:
(a) upon sale of such Securities and then, to the extent consistent with
practice in the jurisdiction in which settlement occurs, upon receipt of
payment therefor;
(b) upon exercise of conversion, subscription, purchase, exchange or other
similar rights pertaining to such Securities and, if applicable to such
exercise and if consistent with practice in the applicable jurisdiction,
only on receipt of substitute or additional securities to be received upon
such exercise;
(c) as provided in Section 8 hereof;
(d) upon the termination of this Custody Agreement as
hereinafter set forth; and
<PAGE>
PAGE 4
(e) for any other purpose upon receipt of explicit instructions of the
Customer accompanied by evidence reasonably acceptable to the Custodian as
to the authorization of such transfer, exchange or delivery.
Except as provided in the last two sentences of this Section 7 and as provided
in Section 8, all transfers, exchanges or deliveries of Securities pursuant to
this Section 7 will be made only upon receipt by the Custodian of Authorized
Instructions of the Customer which shall specify the purpose for which the
transfer, exchange or delivery is to be made. In the event that it is not
possible to transfer Securities in accordance with Authorized Instructions of
the Customer, the Custodian shall proceed in accordance with the procedures set
forth in the Procedures Manual. Any transfer or delivery pursuant to subsection
(d) of this Section 7 will be made in accordance with Section 16.
8. In the absence of Authorized Instructions from the Customer to
the contrary, the Custodian may, and may authorize any Subcustodian
to:
(a) make payments to itself or others for expenses of handling Property or
other similar items relating to its duties under this Agreement, provided
that all such payments shall be accounted for to the Customer;
(b) receive and collect all income and principal with respect
to Securities and to credit cash receipts to the Account;
(c) exchange Securities when the exchange is purely ministerial
(including, without limitation, the exchange of interim receipts or
temporary securities for securities in definitive form and the exchange of
warrants, or other documents of entitlement to securities, for the
securities themselves);
(d) surrender Securities at maturity or when called for
redemption upon receiving payment therefor;
(e) execute in the Customer's name such ownership and other certificates
as may be required to obtain the payment of income from Securities:
(f) pay or cause to be paid, from the Account, any and all taxes and
levies in the nature of taxes imposed on Property by any governmental
authority in connection with custody of and transactions in such Property;
(g) endorse for collection, in the name of the Customer,
checks, drafts and other negotiable instruments; and
(h) in general, attend to all nondiscretionary details in connection with
the custody, sale, purchase, transfer and other dealings with the
Property.
<PAGE>
PAGE 5
9. "Authorized Instructions" of the Customer shall mean instructions received by
telecopy, tested telex, electronic link or other electronic means or by such
other means as may be agreed in writing in advance between the Customer and the
Custodian. The Custodian shall be entitled to act, and shall have no liability
for acting, in accordance with the terms of this Agreement or upon any
instructions, notice, request, consent, certificate or other instrument or paper
believed by it to be genuine and to have been properly executed by one or more
persons which the Customer has previously identified to the Custodian as
authorized to act on the Customer's behalf.
10. Securities which must be held in registered form may be registered in the
name of the Custodian's nominee or, in the case of Securities in the custody of
an entity other than the Custodian, in the name of such entity's nominee. The
Customer agrees to hold the Custodian and Subcustodians and any such nominee
harmless from any liability arising out of any such person acting as a holder of
record of such Securities. The Custodian may without notice to the Customer
cause any Securities to cease to be registered in the name of any such nominee
and to be registered in the name of the Customer.
11. All cash received by the Custodian for the Account shall be held by the
Custodian as a short-term credit balance in favor of the Customer and, if the
Custodian and the Customer have agreed in writing in advance that such credit
balances shall bear interest, the Customer shall earn interest at the rates and
times as agreed between the Custodian and the Customer. The Customer understands
that any such credit balances will not be accompanied by the benefit of any
governmental insurance.
12. From time to time, the Custodian may arrange or extend short-term credit for
the Customer which is (i) necessary in connection with payment and clearance of
securities and foreign exchange transactions or (ii) pursuant to an agreed
schedule, as and if set forth in the Procedures Manual, of credits for dividends
and interest payments on Securities. All such extensions of credit shall be
repayable by the Customer on demand. The Custodian shall be entitled to charge
the Customer interest for any such credit extension at rates to be agreed upon
from time to time. In addition to any other remedies available, the Custodian
shall be entitled to a right of set-off against the Property to satisfy the
repayment of such credit extensions and the payment of accrued interest thereon.
The Custodian may act as the Customer's agent or act as a principal in foreign
exchange transactions at such rates as are agreed from time to time between the
Customer and the Custodian.
13. The Customer represents that (i) the execution, delivery and performance of
this Agreement (including, without limitation, the ability to obtain the
short-term extensions of credit in accordance with Section 12) are within the
Customer's power and authority and have been duly authorized by all requisite
action (corporate or otherwise) and (ii) this Agreement and each extension of
short-term credit extended or arranged for the benefit of the Customer in
accordance with Section 12 will at all times constitute a legal, valid and
binding obligation of the Customer and be enforceable
<PAGE>
PAGE 6
against the Customer in accordance with their respective terms, except as may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights in general and subject to the effect of general
principles of equity (regardless of whether considered in a proceeding in equity
or at law).
The Custodian represents that the execution, delivery and performance of this
Agreement is within the Custodian's power and authority and has been duly
authorized by all requisite action of the Custodian. This Agreement constitutes
the legal, valid and binding obligation of the Custodian enforceable against the
Custodian in accordance with its terms, except as may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
in general and subject to the effect of general principles of equity (regardless
of whether considered in a proceeding in equity or at law).
14. The Custodian shall be responsible for the performance of only such duties
as are set forth in this Agreement or the Procedures Manual or contained in
Authorized Instructions given to the Custodian which are not contrary to the
provisions of any relevant law or regulation. The Custodian shall not be liable
to the Customer or to any other person for any action taken or omitted to be
taken by it in connection with this Agreement in the absence of negligence or
willful misconduct on the part of the Custodian. Upon Custodian, the Customer
agrees to deliver to the Custodian a duly executed power of attorney, in form
and substance satisfactory to the Custodian, authorizing the Custodian to take
any action or execute any instrument on behalf of the Customer as necessary or
advisable to accomplish the purposes of this Agreement.
15. The Customer agrees to pay to the Custodian from time to time such
compensation for its services pursuant to this Agreement as may be mutually
agreed upon from time to time and the Custodian's out-of-pocket or incidental
expenses. The Customer hereby agrees to hold the Custodian harmless from any
liability or loss resulting from any taxes or other governmental charges, and
any expenses related thereto, which may be imposed or assessed with respect to
the Account or any Property held therein. The Custodian is and any Subcustodians
are authorized to charge the Account for such items and the Custodian shall have
a lien, charge and security interest on any and all Property for any amount
owing to the Custodian from time to time under this Agreement. Except as set
forth in the previous sentence, or otherwise permitted pursuant to the terms of
this agreement, the Custodian shall not pledge, assign, hypothecate or otherwise
encumber Property without Authorized Instructions; it being understood that a
Subcustodian will generally retain a lien against securities which the
Subcustodian has purchased for the Account but for which the Customer has not
yet paid. If the Customer is a U.S. person as defined in Rule 902 promulgated by
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
as amended (the "Act"), the Customer recognizes that, in connection with the
Customer's election from time to time to participate in distributions of
securities (whether pursuant to rights offerings, warrant subscriptions,
mergers, reorganizations or otherwise) which have not been registered pursuant
to the Act, the Custodian may inform the issuer and its agents that the acquire
<PAGE>
PAGE 7
of the securities is a U.S. person. The Custodian shall not be responsible to
the Customer for the consequences of any issuer's or agent's refusal to permit
the Customer to acquire such securities, and the Customer shall hold the
Custodian harmless from liability to the issuer and its agents in connection
with any such election by the Customer.
16. This Agreement may be terminated by the Customer or the Custodian by 90 days
written notice to the other, sent by registered mail. If notice of termination
is given, the Customer shall, within 60 days following the giving of such
notice, deliver to the Custodian a statement in writing specifying the successor
custodian or other person to whom the Custodian shall transfer the Property. In
either event the Custodian, subject to the satisfaction of any lien it may have,
will transfer the Property to the person so specified. If the Custodian does not
receive such statement the Custodian, at its election, may transfer the Property
to a bank or trust company established under the laws of the United States or
any state thereof to be held and disposed of pursuant to the provisions of this
Agreement or may continue to hold the Property until such a statement is
delivered to the Custodian. In such event the Custodian shall be entitled to
fair compensation for its services during such period as the Custodian remains
in possession of any Property and the provisions of this Agreement relating to
the duties and obligations of the Custodian shall remain in full force and
effect; provided, however, that the Custodian shall no longer settle any
transactions in securities for the Account.
17. The Custodian, its agents and employees will maintain the confidentiality of
information concerning the Property held in the Account, including in dealings
with affiliates of the Custodian. In the event the Custodian or any Subcustodian
is requested or required to disclose any confidential information concerning the
Property, the Custodian shall to the extent practicable and legally permissible,
promptly notify the Customer of such request or requirement so that the Customer
may seek a protective order or waive the Custodian's or such Subcustodian's
compliance with this Section 17. In the absence of such a waiver, if the
Custodian or such Subcustodian is compelled, in the opinion of its counsel, to
disclose any confidential information, the Custodian or such Subcustodian may
disclose such information to such persons as, in the opinion of counsel, is so
required.
18. Any notice or other communication from the Customer to the Custodian, unless
otherwise provided by this Agreement, shall be sent by certified or registered
mail to Morgan Stanley Trust Company, One Pierrepont Plaza, Brooklyn, New York,
11201, Attention: President, and any notice from the Custodian to the Customer
is to be mailed postage prepaid, addressed to the Customer at the address
appearing below, or as it may hereafter be changed on the Custodian's records in
accordance with notice from the Customer.
<PAGE>
PAGE 8
19. The Custodian may assign all of its rights and obligations hereunder to any
other entity which is qualified to act as custodian under the terms of this
Agreement and majority-owned, directly or indirectly, by Morgan Stanley Group
Inc., and upon the assumption of the rights and obligations hereunder by such
entity, such entity shall succeed to all of the rights and obligations of, and
be substituted for, the Custodian hereunder as if such entity had been
originally named as custodian herein. The Custodian shall give prompt written
notice to the Customer upon the effectiveness of any such assignment.
This Agreement shall bind the successors and assigns of the Customer and the
Custodian and shall be governed by the laws of the State of New York applicable
to contracts executed in and to be performed in that state.
------------------------
By /s/ Mark Ellis
Name: Mark Ellis
Title: Vice President
Address for record: IDS Trust
1200 Northstar West
P.O. Box 534
Minneapolis, MN 55440-0534
------------------------
Accepted:
MORGAN STANLEY TRUST COMPANY
By /s/ David P. Roccato
Authorized Signature
Roccato
<PAGE>
PAGE 1
TRANSFER AGENCY AGREEMENT
AGREEMENT dated as of March 20, 1995, between IDS Utilities Income Fund, Inc.
(the "Fund"), a Minnesota corporation, and American Express Financial
Corporation (the "Transfer Agent"), a Delaware corporation.
In consideration of the mutual promises set forth below, the Fund and the
Transfer Agent agree as follows:
1. Appointment of the Transfer Agent. The Fund hereby appoints the Transfer
Agent, as transfer agent for its shares and as shareholder servicing agent for
the Fund, and the Transfer Agent accepts such appointment and agrees to perform
the duties set forth below.
2. Compensation. The Fund will compensate the Transfer Agent for
the performance of its obligations as set forth in Schedule A.
Schedule A does not include out-of-pocket disbursements of the
Transfer Agent for which the Transfer Agent shall be entitled to
bill the Fund separately.
The Transfer Agent will bill the Fund monthly. The fee provided for hereunder
shall be paid in cash by the Fund to American Express Financial Corporation
within five (5) business days after the last day of each month.
Out-of-pocket disbursements shall include, but shall not be limited to, the
items specified in Schedule B. Reimbursement by the Fund for expenses incurred
by the Transfer Agent in any month shall be made as soon as practicable after
the receipt of an itemized bill from the Transfer Agent.
Any compensation jointly agreed to hereunder may be adjusted from time to time
by attaching to this Agreement a revised Schedule A, dated and signed by an
officer of each party.
3. Documents. The Fund will furnish from time to time such
certificates, documents or opinions as the Transfer Agent deems to
be appropriate or necessary for the proper performance of its
duties.
4. Representations of the Fund and the Transfer Agent.
(a) The Fund represents to the Transfer Agent that all outstanding shares are
validly issued, fully paid and non-assessable by the Fund. When shares are
hereafter issued in accordance with the terms of the Fund's Articles of
Incorporation and its prospectus, such shares shall be validly issued, fully
paid and non-assessable by the Fund.
(b) The Transfer Agent represents that it is registered under Section 17A(c) of
the Securities Exchange Act of 1934. The Transfer Agent agrees to maintain the
necessary facilities, equipment and personnel to perform its duties and
obligations under this agreement and to comply with all applicable laws.
<PAGE>
PAGE 2
5. Duties of the Transfer Agent. The Transfer Agent shall be
responsible, separately and through its subsidiaries or affiliates,
for the following functions:
(a) Sale of Fund Shares.
(1) On receipt of an application and payment, wired instructions and payment, or
payment identified as being for the account of a shareholder, the Transfer Agent
will deposit the payment, prepare and present the necessary report to the
Custodian and record the purchase of shares in a timely fashion in accordance
with the terms of the prospectus. All shares shall be held in book entry form
and no certificate shall be issued unless the Fund is permitted to do so by the
prospectus and the purchaser so requests.
(2) On receipt of notice that payment was dishonored, the Transfer Agent shall
stop redemptions of all shares owned by the purchaser related to that payment,
place a stop payment on any checks that have been issued to redeem shares of the
purchaser and take such other action as it deems appropriate.
(b) Redemption of Fund Shares. On receipt of instructions to redeem shares in
accordance with the terms of the Fund's prospectus, the Transfer Agent will
record the redemption of shares of the Fund, prepare and present the necessary
report to the Custodian and pay the proceeds of the redemption to the
shareholder, an authorized agent or legal representative upon the receipt of the
monies from the Custodian.
(c) Transfer or Other Change Pertaining to Fund Shares. On receipt of
instructions or forms acceptable to the Transfer Agent to transfer the shares to
the name of a new owner, change the name or address of the present owner or take
other legal action, the Transfer Agent will take such action as is requested.
(d) Exchange of Fund Shares. On receipt of instructions to exchange the shares
of the Fund for the shares of another fund in the IDS MUTUAL FUND GROUP or other
American Express Financial Corporation product in accordance with the terms of
the prospectus, the Transfer Agent will process the exchange in the same manner
as a redemption and sale of shares.
(e) Right to Seek Assurance. The Transfer Agent may refuse to transfer, exchange
or redeem shares of the Fund or take any action requested by a shareholder until
it is satisfied that the requested transaction or action is legally authorized
or until it is satisfied there is no basis for any claims adverse to the
transaction or action. It may rely on the provisions of the Uniform Act for the
Simplification of Fiduciary Security Transfers or the Uniform Commercial Code.
The Fund shall indemnify the Transfer Agent for any act done or omitted to be
done in reliance on such laws or for refusing to transfer, exchange or redeem
shares or taking any requested action if it acts on a good faith belief that the
transaction or action is illegal or unauthorized.
(f) Shareholder Records, Reports and Services.
<PAGE>
PAGE 3
(1) The Transfer Agent shall maintain all shareholder accounts, which shall
contain all required tax, legally imposed and regulatory information; shall
provide shareholders, and file with federal and state agencies, all required tax
and other reports pertaining to shareholder accounts; shall prepare shareholder
mailing lists; shall cause to be printed and mailed all required prospectuses,
annual reports, semiannual reports, statements of additional information (upon
request), proxies and other mailings to shareholders; and shall cause proxies to
be tabulated.
(2) The Transfer Agent shall respond to all valid inquiries related to its
duties under this Agreement.
(3) The Transfer Agent shall create and maintain all records in accordance with
all applicable laws, rules and regulations, including, but not limited to, the
records required by Section 31(a) of the Investment Company Act of 1940.
(g) Dividends and Distributions. The Transfer Agent shall prepare and present
the necessary report to the Custodian and shall cause to be prepared and
transmitted the payment of income dividends and capital gains distributions or
cause to be recorded the investment of such dividends and distributions in
additional shares of the Fund or as directed by instructions or forms acceptable
to the Transfer Agent.
(h) Confirmations and Statements. The Transfer Agent shall confirm each
transaction either at the time of the transaction or through periodic reports as
may be legally permitted.
(i) Lost or Stolen Checks. The Transfer Agent will replace lost or stolen checks
issued to shareholders upon receipt of proper notification and will maintain any
stop payment orders against the lost or stolen checks as it is economically
desirable to do.
(j) Reports to Fund. The Transfer Agent will provide reports pertaining to the
services provided under this Agreement as the Fund may request to ascertain the
quality and level of services being provided or as required by law.
(k) Other Duties. The Transfer Agent may perform other duties for
additional compensation if agreed to in writing by the parties to
this Agreement.
6. Ownership and Confidentiality of Records. The Transfer Agent agrees that all
records prepared or maintained by it relating to the services to be performed by
it under the terms of this Agreement are the property of the Fund and may be
inspected by the Fund or any person retained by the Fund at reasonable times.
The Fund and Transfer Agent agree to protect the confidentiality of those
records.
7. Action by Board and Opinion of Fund's Counsel. The Transfer
Agent may rely on resolutions of the Board of Directors or the
Executive Committee of the Board of Directors and on opinion of
counsel for the Fund.
<PAGE>
PAGE 4
8. Duty of Care. It is understood and agreed that, in furnishing the Fund with
the services as herein provided, neither the Transfer Agent, nor any officer,
director or agent thereof shall be held liable for any loss arising out of or in
connection with their actions under this Agreement so long as they act in good
faith and with due diligence, and are not negligent or guilty of any willful
misconduct. It is further understood and agreed that the Transfer Agent may rely
upon information furnished to it reasonably believed to be accurate and
reliable. In the event the Transfer Agent is unable to perform its obligations
under the terms of this Agreement because of an act of God, strike or equipment
or transmission failure reasonably beyond its control, the Transfer Agent shall
not be liable for any damages resulting from such failure.
9. Term and Termination. This Agreement shall become effective on the date first
set forth above (the "Effective Date") and shall continue in effect from year to
year thereafter as the parties may mutually agree; provided that either party
may terminate this Agreement by giving the other party notice in writing
specifying the date of such termination, which shall be not less than 60 days
after the date of receipt of such notice. In the event such notice is given by
the Fund, it shall be accompanied by a vote of the Board of Directors, certified
by the Secretary, electing to terminate this Agreement and designating a
successor transfer agent or transfer agents. Upon such termination and at the
expense of the Fund, the Transfer Agent will deliver to such successor a
certified list of shareholders of the Fund (with name, address and taxpayer
identification or Social Security number), a historical record of the account of
each shareholder and the status thereof, and all other relevant books, records,
correspondence, and other data established or maintained by the Transfer Agent
under this Agreement in the form reasonably acceptable to the Fund, and will
cooperate in the transfer of such duties and responsibilities, including
provisions for assistance from the Transfer Agent's personnel in the
establishment of books, records and other data by such successor or successors.
10. Amendment. This Agreement may not be amended or modified in any
manner except by a written agreement executed by both parties.
11. Subcontracting. The Fund agrees that the Transfer Agent may subcontract for
certain of the services described under this Agreement with the understanding
that there shall be no diminution in the quality or level of the services and
that the Transfer Agent remains fully responsible for the services. Except for
out-of-pocket expenses identified in Schedule B, the Transfer Agent shall bear
the cost of subcontracting such services, unless otherwise agreed by the
parties.
12. Miscellaneous.
(a) This Agreement shall extend to and shall be binding upon the parties hereto,
and their respective successors and assigns; provided, however, that this
Agreement shall not be assignable without the written consent of the other
party.
<PAGE>
PAGE 5
(b) This Agreement shall be governed by the laws of the State of
Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers as of the day and year written above.
IDS UTILITIES INCOME FUND, INC.
By: /s/ Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL CORPORATION
By: /s/ Janis E. Miller
Vice President
<PAGE>
PAGE 6
Schedule A
IDS UTILITIES INCOME FUND, INC.
TRANSFER AGENT FEE
Effective the 20th day of March, 1995, the Annual Per Account Fee accrued
daily and payable monthly is revised as follows:
CLASS FEE
A $ 15
B 16
Y 15
<PAGE>
PAGE 7
Schedule B
OUT-OF-POCKET EXPENSES
The Fund shall reimburse the Transfer Agent monthly for the following
out-of-pocket expenses:
o typesetting, printing, paper, envelopes, postage and return
postage for proxy soliciting material, and proxy tabulation costs
o printing, paper, envelopes and postage for dividend notices, dividend checks,
records of account, purchase confirmations, exchange confirmations and exchange
prospectuses, redemption confirmations, redemption checks, confirmations on
changes of address and any other communication required to be sent to
shareholders
o typesetting, printing, paper, envelopes and postage for prospectuses, annual
and semiannual reports, statements of additional information, supplements for
prospectuses and statements of additional information and other required
mailings to shareholders
o stop orders
o outgoing wire charges
o other expenses incurred at the request or with the consent of the
Fund
<PAGE>
PAGE 1
Shareholder Service Agreement
This agreement is between IDS Utilities Income Fund, Inc. (the "Fund") and
American Express Financial Advisors Inc., the principal underwriter of the Fund,
for services to be provided to shareholders by personal financial advisors and
other servicing agents. It is effective on the first day the Fund offers
multiple classes of shares.
American Express Financial Advisors represents that shareholders consider their
financial advisor or servicing agent a significant factor in their satisfaction
with their investment and, to help retain financial advisors or servicing
agents, it is necessary for the Fund to pay annual servicing fees to financial
advisors and other servicing agents.
American Express Financial Advisors represents that fees paid to financial
advisors will be used by financial advisors to help shareholders thoughtfully
consider their investment goals and objectively monitor how well the goals are
being achieved. As principal underwriter, American Express Financial Advisors
will use its best efforts to assure that other distributors provide comparable
services to shareholders for the servicing fees received.
American Express Financial Advisors agrees to monitor the services provided by
financial advisors and servicing agents, to measure the level and quality of
services provided, to provide training and support to financial advisors and
servicing agents and to devise methods for rewarding financial advisors and
servicing agents who achieve an exemplary level and quality of services.
The Fund agrees to pay American Express financial advisors and other servicing
agents 0.15 percent of the net asset value for each shareholder account assigned
to a financial advisor or servicing agent that holds either Class A or Class B
shares. In addition, the Fund agrees to pay American Express Financial Advisors'
costs to monitor, measure, train and support services provided by financial
advisors or servicing agents up to 0.025 percent of the net asset value for each
shareholder account assigned to a financial advisor or servicing agent that
holds either Class A or Class B shares. The Fund agrees to pay American Express
Financial Advisors in cash within five (5) business days after the last day of
each month.
American Express Financial Advisors agrees to provide the Fund, prior to the
beginning of the calendar year, a budget covering its expected costs to monitor,
measure, train and support services and a quarterly report of its actual
expenditures. American Express Financial Advisors agrees to meet with
representatives of the Fund at their request to provide information as may be
reasonably necessary to evaluate its performance under the terms of this
agreement.
American Express Financial Advisors agrees that if, at the end of any month, the
expenses of the Fund, including fees under this agreement and any other
agreement between the Fund and American
<PAGE>
PAGE 2
Express Financial Advisors or American Express Financial Corporation, but
excluding taxes, brokerage commissions and charges in connection with the
purchase and sale of assets exceed the most restrictive applicable state expense
limitation for the Fund's current fiscal year, the Fund shall not pay fees and
expenses under this agreement to the extent necessary to keep the Fund's
expenses from exceeding the limitation, it being understood that American
Express Financial Advisors will assume all unpaid expenses and bill the Fund for
them in subsequent months but in no event can the accumulation of unpaid
expenses or billing be carried past the end of the Fund's fiscal year.
This agreement shall continue in effect for a period of more than one year so
long as it is reapproved at least annually at a meeting called for the purpose
of voting on the agreement by a vote, in person, of the members of the Board who
are not interested persons of the Fund and have no financial interest in the
operation of the agreement, and of all the members of the Board.
This agreement may be terminated at any time without payment of any penalty by a
vote of a majority of the members of the Board who are not interested persons of
the Fund and have no financial interest in the operation of the agreement or by
American Express Financial Advisors. The agreement will terminate automatically
in the event of its assignment as that term is defined in the Investment Company
Act of 1940. This agreement may be amended at any time provided the amendment is
approved in the same manner the agreement was initially approved and the
amendment is agreed to by American Express Financial Advisors.
Approved this 20th day of March, 1995.
IDS UTILITIES INCOME FUND, INC.
/s/ Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
/s/ Janis E. Miller
Vice President
<PAGE>
PAGE 1
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT made the 20th day of March, 1995, by and between IDS Utilities Income
Fund, Inc. (the "Fund"), a Minnesota corporation, and American Express Financial
Corporation, a Delaware corporation.
Part One: SERVICES
(1) The Fund hereby retains American Express Financial Corporation, and American
Express Financial Corporation hereby agrees, for the period of this Agreement
and under the terms and conditions hereinafter set forth, to furnish the Fund
continuously with all administrative, accounting, clerical, statistical,
correspondence, corporate and all other services of whatever nature required in
connection with the administration of the Fund as provided under this Agreement;
and to pay such expenses as may be provided for in Part Three hereof; subject
always to the direction and control of the Board of Directors, the Executive
Committee and the authorized officers of the Fund. American Express Financial
Corporation agrees to maintain an adequate organization of competent persons to
provide the services and to perform the functions herein mentioned. American
Express Financial Corporation agrees to meet with any persons at such times as
the Board of Directors deems appropriate for the purpose of reviewing American
Express Financial Corporation's performance under this Agreement.
(2) The Fund agrees that it will furnish to American Express Financial
Corporation any information that the latter may reasonably request with respect
to the services performed or to be performed by American Express Financial
Corporation under this Agreement.
(3) It is understood and agreed that in furnishing the Fund with the services as
herein provided, neither American Express Financial Corporation, nor any
officer, director or agent thereof shall be held liable to the Fund or its
creditors or shareholders for errors of judgment or for anything except willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
reckless disregard of its obligations and duties under the terms of this
Agreement. It is further understood and agreed that American Express Financial
Corporation may rely upon information furnished to it reasonably believed to be
accurate and reliable.
Part Two: COMPENSATION FOR SERVICES
(1) The Fund agrees to pay to American Express Financial Corporation, and
American Express Financial Corporation covenants and agrees to accept from the
Fund in full payment for the services furnished, based on the net assets of the
Fund as set forth in the following table:
<PAGE>
PAGE 2
Assets Annual Rate At
(Billions) Each Asset Level
First $0.50 0.040%
Next 0.50 0.035
Next 1 0.030
Next 1 0.025
Next 3 0.020
Over 6 0.020
The administrative fee for each calendar day of each year shall be equal to
1/365th (1/366th in each leap year) of the total amount computed. The
computation shall be made for each such day on the basis of net assets as of the
close of business of the full business day two (2) business days prior to the
day for which the computation is being made. In the case of the suspension of
the computation of net asset value, the administrative fee for each day during
such suspension shall be computed as of the close of business on the last full
business day on which the net assets were computed. As used herein, "net assets"
as of the close of a full business day shall include all transactions in shares
of the Fund recorded on the books of the Fund for that day.
(2) The administrative fee shall be paid on a monthly basis and, in the event of
the termination of this Agreement, the administrative fee accrued shall be
prorated on the basis of the number of days that this Agreement is in effect
during the month with respect to which such payment is made.
(3) The administrative fee provided for hereunder shall be paid in cash by the
Fund to American Express Financial Corporation within five (5) business days
after the last day of each month.
Part Three: ALLOCATION OF EXPENSES
(1) The Fund agrees to pay:
(a) Administrative fees payable to American Express Financial Corporation for
its services under the terms of this Agreement.
(b) Taxes.
(c) Fees and charges of its independent certified public
accountants for services the Fund requests.
(d) Fees and expenses of attorneys (i) it employs in matters not involving the
assertion of a claim by a third party against the Fund, its directors and
officers, (ii) it employs in conjunction with a claim asserted by the Board of
Directors against American Express Financial Corporation, except that American
Express Financial Corporation shall reimburse the Fund for such fees and
expenses if it is ultimately determined by a court of competent jurisdiction, or
American Express Financial Corporation agrees, that it is liable in whole or in
part to the Fund, and (iii) it employs to assert a claim against a third party.
<PAGE>
PAGE 3
(e) Fees paid for the qualification and registration for public sale of the
securities of the Fund under the laws of the United States and of the several
states in which such securities shall be offered for sale.
(f) Office expenses which shall include a charge for occupancy, insurance on the
premises, furniture and equipment, telephone, telegraph, electronic information
services, books, periodicals, published services, and office supplies used by
the Fund, equal to the cost of such incurred by American Express Financial
Corporation.
(g) Fees of consultants employed by the Fund.
(h) Directors, officers and employees expenses which shall include fees,
salaries, memberships, dues, travel, seminars, pension, profit sharing, and all
other benefits paid to or provided for directors, officers and employees,
directors and officers liability insurance, errors and omissions liability
insurance, worker's compensation insurance and other expenses applicable to the
directors, officers and employees, except the Fund will not pay any fees or
expenses of any person who is an officer or employee of American Express
Financial Corporation or its affiliates.
(i) Filing fees and charges incurred by the Fund in connection with filing any
amendment to its articles of incorporation, or incurred in filing any other
document with the State of Minnesota or its political subdivisions.
(j) Organizational expenses of the Fund.
(k) One-half of the Investment Company Institute membership dues charged jointly
to the IDS MUTUAL FUND GROUP and American Express Financial Corporation.
(l) Expenses properly payable by the Fund, approved by the Board of
Directors.
(2) American Express Financial Corporation agrees to pay all expenses associated
with the services it provides under the terms of this Agreement. Further,
American Express Financial Corporation agrees that if, at the end of any month,
the expenses of the Fund under this Agreement and any other agreement between
the Fund and American Express Financial Corporation, but excluding those
expenses set forth in (1)(b) of this Part Three, exceed the most restrictive
applicable state expenses limitation, the Fund shall not pay those expenses set
forth in (1)(a) and (c) through (m) of this Part Three to the extent necessary
to keep the Fund's expenses from exceeding the limitation, it being understood
that American Express Financial Corporation will assume all unpaid expenses and
bill the Fund for them in subsequent months but in no event can the accumulation
of unpaid expenses or billing be carried past the end of the Fund's fiscal year.
<PAGE>
PAGE 4
Part Four: MISCELLANEOUS
(1) American Express Financial Corporation shall be deemed to be an independent
contractor and, except as expressly provided or authorized in this Agreement,
shall have no authority to act for or represent the Fund.
(2) A "full business day" shall be as defined in the By-laws.
(3) The Fund recognizes that American Express Financial Corporation now renders
and may continue to render investment advice and other services to other
investment companies and persons which may or may not have investment policies
and investments similar to those of the Fund and that American Express Financial
Corporation manages its own investments and/or those of its subsidiaries.
American Express Financial Corporation shall be free to render such investment
advice and other services and the Fund hereby consents thereto.
(4) Neither this Agreement nor any transaction had pursuant hereto shall be
invalidated or in anyway affected by the fact that directors, officers, agents
and/or shareholders of the Fund are or may be interested in American Express
Financial Corporation or any successor or assignee thereof, as directors,
officers, stockholders or otherwise; that directors, officers, stockholders or
agents of American Express Financial Corporation are or may be interested in the
Fund as directors, officers, shareholders, or otherwise; or that American
Express Financial Corporation or any successor or assignee, is or may be
interested in the Fund as shareholder or otherwise, provided, however, that
neither American Express Financial Corporation, nor any officer, director or
employee thereof or of the Fund, shall sell to or buy from the Fund any property
or security other than shares issued by the Fund, except in accordance with
applicable regulations or orders of the United States Securities and Exchange
Commission.
(5) Any notice under this Agreement shall be given in writing, addressed, and
delivered, or mailed postpaid, to the party to this Agreement entitled to
receive such, at such party's principal place of business in Minneapolis,
Minnesota, or to such other address as either party may designate in writing
mailed to the other.
(6) American Express Financial Corporation agrees that no officer, director or
employee of American Express Financial Corporation will deal for or on behalf of
the Fund with himself as principal or agent, or with any corporation or
partnership in which he may have a financial interest, except that this shall
not prohibit officers, directors or employees of American Express Financial
Corporation from having a financial interest in the Fund or in American Express
Financial Corporation.
(7) The Fund agrees that American Express Financial Corporation may subcontract
for certain of the services described under this Agreement with the
understanding that there shall be no diminution in the quality or level of the
services and that American Express Financial Corporation remains fully
responsible for the services.
<PAGE>
PAGE 5
(8) This Agreement shall extend to and shall be binding upon the parties hereto,
and their respective successors and assigns; provided, however, that this
Agreement shall not be assignable without the written consent of the other
party. This Agreement shall be governed by the laws of the State of Minnesota.
Part Five: RENEWAL AND TERMINATION
(1) This Agreement shall become effective on the date first set forth above (the
"Effective Date") and shall continue in effect from year to year thereafter as
the parties may mutually agree; provided that either party may terminate this
Agreement by giving the other party notice in writing specifying the date of
such termination, which shall be not less than 60 days after the date of receipt
of such notice.
(2) This Agreement may not be amended or modified in any manner except by a
written agreement executed by both parties.
IN WITNESS THEREOF, the parties hereto have executed the foregoing Agreement as
of the day and year first above written.
IDS UTILITIES INCOME FUND, INC.
By: /s/ Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL CORPORATION
By: /s/ Janis E. Miller
Vice President
<PAGE>
PAGE 1
Independent Auditors' Consent
The board and shareholders
IDS Utilities Income Fund, Inc.:
We consent to the use of our report incorporated herein by reference and to the
references to our Firm under the headings "Financial highlights" in Part A and
"INDEPENDENT AUDITORS" in Part B of the Registration Statement.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
August 28, 1997
<PAGE>
PAGE 1
Plan and Agreement of Distribution
This plan and agreement is between IDS Utilities Income Fund, Inc. (the "Fund")
and American Express Financial Advisors Inc., the principal underwriter of the
Fund, for distribution services to the Fund. It is effective on the first day
the Fund offers multiple classes of shares.
The plan and agreement has been approved by members of the Board of Directors
(the "Board") of the Fund who are not interested persons of the Fund and have no
direct or indirect financial interest in the operation of the plan or any
related agreement, and all of the members of the Board, in person, at a meeting
called for the purpose of voting on the plan and agreement.
The plan and agreement provides that:
1. The Fund will reimburse American Express Financial Advisors for all sales and
promotional expenses attributable to the sale of Class B shares, including sales
commissions, business and employee expenses charged to distribution of Class B
shares, and corporate overhead appropriately allocated to the sale of Class B
shares.
2. The amount of the reimbursement shall be equal on an annual basis to 0.75% of
the average daily net assets of the Fund attributable to Class B shares. The
amount so determined shall be paid to American Express Financial Advisors in
cash within five (5) business days after the last day of each month. American
Express Financial Advisors agrees that if, at the end of any month, the expenses
of the Fund, including fees under this agreement and any other agreement between
the Fund and American Express Financial Advisors or American Express Financial
Corporation, but excluding taxes, brokerage commissions and charges in
connection with the purchase and sale of assets exceed the most restrictive
applicable state expense limitation for the Fund's current fiscal year, the Fund
shall not pay fees and expenses under this agreement to the extent necessary to
keep the Fund's expenses from exceeding the limitation, it being understood that
American Express Financial Advisors will assume all unpaid expenses and bill the
Fund for them in subsequent months, but in no event can the accumulation of
unpaid expenses or billing be carried past the end of the Fund's fiscal year.
3. For each purchase of Class B shares, after eight years the Class B shares
will be converted to Class A shares and those assets will no longer be included
in determining the reimbursement amount.
4. The Fund understands that if a shareholder redeems Class B shares before they
are converted to Class A shares, American Express Financial Advisors will impose
a sales charge directly on the redemption proceeds to cover those expenses it
has previously incurred on the sale of those shares.
5. American Express Financial Advisors agrees to provide at least quarterly an
analysis of distribution expenses and to meet with representatives of the Fund
as reasonably requested to provide additional information.
<PAGE>
PAGE 2
6. The plan and agreement shall continue in effect for a period of more than one
year provided it is reapproved at least annually in the same manner in which it
was initially approved.
7. The plan and agreement may not be amended to increase materially the amount
that may be paid by the Fund without the approval of a least a majority of the
outstanding shares of Class B. Any other amendment must be approved in the
manner in which the plan and agreement was initially approved.
8. This agreement may be terminated at any time without payment of any penalty
by a vote of a majority of the members of the Board who are not interested
persons of the Fund and have no financial interest in the operation of the plan
and agreement, or by vote of a majority of the outstanding Class B shares, or by
American Express Financial Advisors. The plan and agreement will terminate
automatically in the event of its assignment as that term is defined in the
Investment Company Act of 1940.
Approved this 20th day of March, 1995.
IDS UTILITIES INCOME FUND, INC.
/s/ Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
/s/ Janis E. Miller
Vice President
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<SHARES-REINVESTED> 170206
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<ACCUMULATED-NII-PRIOR> 160320
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<PER-SHARE-NII> .25
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<PAGE>
PAGE 1
DIRECTORS/TRUSTEES POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as directors and trustees of the below listed
open-end, diversified investment companies that previously have filed
registration statements and amendments thereto pursuant to the requirements of
the Securities Act of 1933 and the Investment Company Act of 1940 with the
Securities and Exchange Commission:
1933 Act 1940 Act
Reg. Number Reg. Number
IDS Bond Fund, Inc. 2-51586 811-2503
IDS California Tax-Exempt Trust 33-5103 811-4646
IDS Discovery Fund, Inc. 2-72174 811-3178
IDS Equity Select Fund, Inc. 2-13188 811-772
IDS Extra Income Fund, Inc. 2-86637 811-3848
IDS Federal Income Fund, Inc. 2-96512 811-4260
IDS Global Series, Inc. 33-25824 811-5696
IDS Growth Fund, Inc. 2-38355 811-2111
IDS High Yield Tax-Exempt Fund, Inc. 2-63552 811-2901
IDS International Fund, Inc. 2-92309 811-4075
IDS Investment Series, Inc. 2-11328 811-54
IDS Managed Retirement Fund, Inc. 2-93801 811-4133
IDS Market Advantage Series, Inc. 33-30770 811-5897
IDS Money Market Series, Inc. 2-54516 811-2591
IDS New Dimensions Fund, Inc. 2-28529 811-1629
IDS Precious Metals Fund, Inc. 2-93745 811-4132
IDS Progressive Fund, Inc. 2-30059 811-1714
IDS Selective Fund, Inc. 2-10700 811-499
IDS Special Tax-Exempt Series Trust 33-5102 811-4647
IDS Stock Fund, Inc. 2-11358 811-498
IDS Strategy Fund, Inc. 2-89288 811-3956
IDS Tax-Exempt Bond Fund, Inc. 2-57328 811-2686
IDS Tax-Free Money Fund, Inc. 2-66868 811-3003
IDS Utilities Income Fund, Inc. 33-20872 811-5522
hereby constitutes and appoints William R. Pearce and Leslie L. Ogg or either
one of them, as her or his attorney-in-fact and agent, to sign for her or him in
her or his name, place and stead any and all further amendments to said
registration statements filed pursuant to said Acts and any rules and
regulations thereunder, and to file such amendments with all exhibits thereto
and other documents in
<PAGE>
PAGE 2
connection therewith with the Securities and Exchange Commission, granting to
either of them the full power and authority to do and perform each and every act
required and necessary to be done in connection therewith.
Dated the 8th day of January, 1997.
/s/ H. Brewster Atwater, Jr. /s/ Melvin R. Laird
H. Brewster Atwater, Jr. Melvin R. Laird
/s/ Lynne V. Cheney /s/ William R. Pearce
Lynne V. Cheney William R. Pearce
/s/ William H. Dudley /s/ Alan K. Simpson
William H. Dudley Alan K. Simpson
/s/ Robert F. Froehlke /s/ Edson W. Spencer
Robert F. Froehlke Edson W. Spencer
/s/ David R. Hubers /s/ John R. Thomas
David R. Hubers John R. Thomas
/s/ Heinz F. Hutter /s/ Wheelock Whitney
Heinz F. Hutter Wheelock Whitney
/s/ Anne P. Jones /s/ C. Angus Wurtele
Anne P. Jones C. Angus Wurtele
