-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WyuQfHhLebt0c2UdmFgbatYvJ6VgbrGXB3YKJvkxAYWYHVISOG2QQQZQrNt+hYq1 keQUydTo4GZcu9UrtYfFvA== 0000820027-97-000831.txt : 19971126 0000820027-97-000831.hdr.sgml : 19971126 ACCESSION NUMBER: 0000820027-97-000831 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19971125 EFFECTIVENESS DATE: 19971125 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IDS STOCK FUND INC CENTRAL INDEX KEY: 0000052423 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 410839317 STATE OF INCORPORATION: MN FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 002-11358 FILM NUMBER: 97727996 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-00498 FILM NUMBER: 97727997 BUSINESS ADDRESS: STREET 1: 80 SOUTH 8TH ST STREET 2: T33/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55440 BUSINESS PHONE: 6126712727 FORMER COMPANY: FORMER CONFORMED NAME: INVESTORS STOCK FUND INC DATE OF NAME CHANGE: 19831221 485BPOS 1 IDS STOCK FUND, INC. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Post-Effective Amendment No. 96 (File Number 2-11358) X and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 40 (File Number 811-498) X STOCK FUND, INC. IDS Tower 10, Minneapolis, Minnesota 55440-0010 Leslie L. Ogg - 901 S. Marquette Avenue, 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 Nov. 28, 1997 pursuant to paragraph (b) ______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. IDS Stock Fund, Inc. has adopted a master/feeder operating structure. This Post-Effective Amendment includes a signature page for Growth and Income Trust, the master fund. Cross reference sheet showing the location in the prospectus and Statement of Additional Information of the information called for by items enumerated in Parts A and B of Form N-1A. Negative answers omitted are so indicated. PART A Item No. Section in Prospectus 1 Cover page of prospectus 2 (a) Sales charge and Fund expenses (b) The Fund in brief (c) The Fund in brief 3 (a) Financial highlights (b) NA (c) Performance (d) Financial highlights 4 (a) The Fund in brief; Investment policies and risks; How the Fund and Portfolio are organized (b) Investment policies and risks (c) Investment policies and risks 5 (a) Board members and officers (b)(i) Investment manager; About American Express Financial Corporation - General information (b)(ii) Investment manager (b)(iii) Investment manager (c) Portfolio manager (d) Administrator and transfer agent (e) Administrator and transfer agent (f) Distributor (g) Investment manager; About American Express Financial Corporation - General information 5A(a) * (b) * 6 (a) Shares; Voting rights (b) NA (c) NA (d) Voting rights (e) Cover page; Special shareholder services (f) Dividend and capital gain distributions; Reinvestments (g) Taxes (h) Alternative purchase arrangements; Special considerations regarding master/feeder structure 7 (a) Distributor (b) Valuing Fund shares (c) How to purchase, exchange or redeem shares (d) How to purchase shares (e) NA (f) Distributor (g) Alternative purchase arrangements; Reductions and waivers of the sales charge 8 (a) How to redeem shares (b) NA (c) How to purchase shares: Three ways to invest (d) How to purchase, exchange or redeem shares: Redemption policies - "Important..." 9 None PART B Item No. Section in Statement of Additional Information 10 Cover page of SAI 11 Table of Contents 12 NA 13 (a) Additional Investment Policies; all appendices except Dollar-Cost Averaging (b) Additional Investment Policies (c) Additional Investment Policies (d) Security Transactions 14 (a) Board members and officers**; Board Members and Officers (b) Board Members and Officers (c) Board Members and Officers 15 (a) NA (b) Principal Holders of Securities, if applicable (c) Board Members and Officers 16 (a)(i) How the Fund and Portfolio are organized; About American Express Financial Corporation** (a)(ii) Agreements: Investment Management Services Agreement, Plan and Agreement of Distribution (a)(iii) Agreements: Investment Management Services Agreement (b) Agreements: Investment Management Services Agreement (c) NA (d) Agreements: Administrative Services Agreement, Shareholder Service Agreement (e) NA (f) Agreements: Distribution Agreement (g) NA (h) Custodian Agreement; Independent Auditors (i) Agreements: Transfer Agency Agreement; Custodian Agreement 17 (a) Security Transactions (b) Brokerage Commissions Paid to Brokers Affiliated with American Express Financial Corporation (c) Security Transactions (d) Security Transactions (e) Security Transactions 18 (a) Shares; Voting rights** (b) NA 19(a) Investing in the Fund (b) Valuing Fund Shares; Investing in the Fund (c) Redeeming Shares 20 Taxes 21 (a) Agreements: Distribution Agreement (b) NA (c) NA 22 (a) Performance Information (for money market funds only) (b) Performance Information (for all funds except money market funds) 23 Financial Statements * Designates information is located in annual report. ** Designates location in prospectus. IDS Stock Fund Prospectus Nov. 28, 1997 The goals of IDS Stock Fund, Inc. are current income and growth of capital. The Fund seeks to achieve its goals by investing all of its assets in Equity Portfolio of Growth and Income Trust. The Portfolio is managed by American Express Financial Corporation and has the same goals as the Fund. This arrangement is commonly known as a master/feeder structure. This prospectus contains facts that can help you decide if the Fund is the right investment for you. Read it before you invest and keep it for future reference. Additional facts about the Fund are in a Statement of Additional Information (SAI), filed with the Securities and Exchange Commission (SEC) and available for reference, along with other related materials, on the SEC Internet web site (http://www.sec.gov). The SAI is incorporated by reference. For a free copy, contact American Express Shareholder Service. Like all mutual fund shares, these securities have not been approved or disapproved by the Securities and Exchange Commission or any state securities commission, nor has the Securities and Exchange Commission or any state securities commission passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. Please note that the Fund: o is not a bank deposit o is not federally insured o is not endorsed by any bank or government agency o is not guaranteed to achieve its goals 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 Table of contents The Fund in brief Goals Investment policies and risks Structure of the Fund Manager and distributor Portfolio manager Alternative purchase arrangements Sales charge and Fund expenses Performance Financial highlights Total returns Investment policies and risks Facts about investments and their risks Valuing Fund shares How to purchase, exchange or redeem shares Alternative purchase arrangements How to purchase shares How to exchange shares How to redeem shares Reductions and waivers of the sales charge Special shareholder services Services Quick telephone reference Distributions and taxes Dividend and capital gain distributions Reinvestments Taxes How to determine the correct TIN How the Fund and Portfolio are organized Shares Voting rights Shareholder meetings Special considerations regarding master/feeder structure Board members and officers Investment manager Administrator and transfer agent Distributor About American Express Financial Corporation General information Appendix Descriptions of derivative instruments The Fund in brief Goals IDS Stock Fund (the Fund) seeks to provide shareholders with current income and growth of capital. It does so by investing all of its assets in Equity Portfolio (the Portfolio) of Growth and Income Trust (the Trust) rather than by directly investing in and managing its own portfolio of securities. Both the Fund and the Portfolio are diversified investment companies that have the same goal. Because any investment involves risk, achieving this goal cannot be guaranteed. The goal can be changed only by holders of a majority of outstanding securities. The Fund may withdraw its assets from the Portfolio at any time if the board determines that it is in the best interests of the Fund to do so. In that event, the Fund would consider what action should be taken, including whether to retain an investment advisor to manage the Fund's assets directly or to reinvest all of the Fund's assets in another pooled investment entity. Investment policies and risks Both the Fund and the Portfolio have the same investment policies. Accordingly, the Portfolio invests primarily in common stocks and securities convertible into common stock of U.S. and foreign companies. It also may invest in preferred stocks, debt securities, derivative instruments and money market instruments. Some of the Portfolio'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." Structure of the Fund This Fund uses what is commonly known as a master/feeder structure. This means that the Fund (the feeder fund) invests all of its assets in the Portfolio (the master fund). The Portfolio invests in and manages the securities and has the same goal and investment policies as the Fund. This structure is described in more detail in the section captioned "Special considerations regarding master/feeder structure." Here is an illustration of the structure: Investors buy shares in the Fund The Fund invests in the Portfolio The Portfolio invests in securities, such as stocks or bonds Manager and distributor The Portfolio is managed by American Express Financial Corporation (AEFC), a provider of financial services since 1894. AEFC currently manages more than $70 billion in assets for the IDS MUTUAL FUND GROUP. Shares of the Fund are sold through American Express Financial Advisors Inc.(AEFA), a wholly-owned subsidiary of AEFC. Portfolio manager Dick Warden joined AEFC in 1962 and serves as portfolio manager. He has managed the assets of the Fund since January 1995 and serves as portfolio manager of the Portfolio. He also serves as portfolio manager of IDS Precious Metals Fund. Alternative purchase arrangements The Fund offers its shares in three classes. Class A shares are subject to a sales charge at the time of purchase. Class B shares are subject to a contingent deferred sales charge (CDSC) on redemptions made within six years of purchase and an annual distribution (12b-1) fee. Class Y shares are sold without a sales charge to qualifying institutional investors. Sales charge and Fund expenses Shareholder transaction expenses are incurred directly by an investor on the purchase or redemption of Fund shares. Fund operating expenses are paid out of Fund assets for each class of shares and include expenses charged by both the Fund and the Portfolio. Operating expenses are reflected in the Fund's daily share price and dividends, and are not charged directly to shareholder accounts. Shareholder transaction expenses Class A Class B Class Y Maximum sales charge on purchases* (as a percentage of offering price) 5% 0% 0% Maximum deferred sales charge imposed on redemptions (as a percentage of original purchase price) 0% 5% 0% Annual Fund and allocated Portfolio operating expenses (as a percentage of average daily net assets): Class A Class B Class Y Management fee** 0.46% 0.46% 0.46% 12b-1 fee 0.00% 0.75% 0.00% Other expenses*** 0.32% 0.34% 0.25% Total**** 0.78% 1.55% 0.71% *This charge may be reduced depending on your total investments in IDS funds. See "Reductions of the sales charge." **The management fee is paid by the Trust on behalf of the Portfolio. It includes the impact of a performance fee that decreased the management fee by 0.02% in fiscal year 1997. ***Other expenses include an administrative services fee, a shareholder services fee, a transfer agency fee and other nonadvisory expenses. Class Y expenses have been restated to reflect the 0.10% shareholder services fee effective May 9, 1997. ****The Fund changed to a master/feeder structure on May 13, 1996. The board considered whether the aggregate expenses of the Fund and the Portfolio would be more or less than if the Fund invested directly in the type of securities being held by the Portfolio. AEFC agreed to pay the small additional costs required to use a master/feeder structure to manage the investment portfolio during the first year of its operation and half of such costs in the second year. These additional costs may be more than offset in subsequent years if the assets being managed increase. 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 $58 $74 $ 91 $142 Class B $66 $89 $105 $164** Class B* $16 $49 $ 85 $164** Class Y $ 7 $23 $ 40 $ 89
*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.
Performance Financial highlights Fiscal period ended Sept. 30, Per share income and capital changesa Class A 1997 1996b 1995 1994 1993 1992 1991 1990 1989 1988 1987 Net asset value, $22.49 $19.96 $19.48 $21.24 $20.05 $20.02 $17.26 $20.76 $17.43 $17.04 $19.26 beginning of period Income from investment operations: Net investment income (loss) .39 .43 .52 .58 .55 .64 .68 .83 .77 .56 .57 Net gains (losses) (both 6.11 3.17 1.96 .21 2.93 1.11 4.02 (.87) 3.26 1.13 1.15 realized and unrealized) Total from investment 6.50 3.60 2.48 .79 3.48 1.75 4.70 (.04) 4.03 1.69 1.72 operations Less distributions: Dividends from net (.43) (.39) (.49) (.60) (.53) (.63) (.74) (.85) (.70) (.55) (.58) investment income Distributions from (1.12) (.68) (1.51) (1.95) (1.76) (1.09) (1.20) (2.61) -- (.75) (3.36) realized gains Total distributions (1.55) (1.07) (2.00) (2.55) (2.29) (1.72) (1.94) (3.46) (.70) (1.30) (3.94) Net asset value, $27.44 $22.49 $19.96 $19.48 $21.24 $20.05 $20.02 $17.26 $20.76 $17.43 $17.04 end of period Ratios/supplemental data Class A 1997 1996b 1995 1994 1993 1992 1991 1990 1989 1988 1987 Net assets, end of $2,877 $2,307 $1,984 $2,368 $2,059 $1,658 $1,513 $1,213 $1,347 $1,246 $1,309 period (in millions) Ratio of expenses to .78% .80%d .79% .76% .73% .72% .65% .63% .60% .58% .57% average daily net assetsc Ratio of net income (loss) 1.58% 2.19%d 2.61% 2.99% 2.75% 3.21% 3.59% 4.32% 3.94% 3.17% 2.53% to average daily net assets Portfolio turnover rate 82% 71% 69% 75% 76% 77% 58% 26% 54% 27% 42% (excluding short-term securities) Total returne 30.2% 18.6% 14.4% 3.9% 18.8% 9.4% 29.0% (0.9%) 23.4% 10.1% 8.7% Average brokerage $.0320 $.0388 -- -- -- -- -- -- -- -- -- commission ratef a For a share outstanding throughout the period. Rounded to the nearest cent. b The Fund's fiscal year-end was changed from Oct. 31 to Sept. 30, effective 1996. c Effective fiscal period 1996, expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. d Adjusted to an annual basis. e Total return does not reflect payment of a sales charge. f Effective fiscal period 1996, 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.
Fiscal period ended Sept. 30, Per share income and capital changesa Class B Class Y 1997 1996b 1995g 1997 1996b 1995g Net asset value, $22.42 $19.91 $18.03 $22.49 $19.96 $18.03 beginning of period Income from investment operations: Net investment income (loss) .22 .28 .27 .42 .47 .29 Net gains (losses) (both realized 6.05 3.17 1.92 6.11 3.17 2.01 and unrealized) Total from investment operations 6.27 3.45 2.19 6.53 3.64 2.30 Less distributions: Dividends from net (.25) (.26) (.31) (.46) (.43) (.37) investment income Distributions from (1.12) (.68) -- (1.12) (.68) -- realized gains Total distributions (1.37) (.94) (.31) (1.58) (1.11) (.37) Net asset value, $27.32 $22.42 $19.91 $27.44 $22.49 $19.96 end of period Ratios/supplemental data Class B Class Y 1997 1996b 1995g 1997 1996b 1995g Net assets, end of $203 $107 $29 $1,082 $870 $738 period (in millions) Ratio of expenses to 1.55% 1.57%d 1.61%d .66% .63%d .64%d average daily net assetsc Ratio of net income (loss) to .85% 1.61%d 1.37%d 1.71% 2.36%d 2.38%d average daily net assets Portfolio turnover rate 82% 71% 69% 82% 71% 69% (excluding short-term securities) Total returne 29.2% 17.8% 12.1% 30.4% 18.8% 12.8% Average brokerage $.0320 $.0388 -- $.0320 $.0388 -- commission ratef a For a share outstanding throughout the period. Rounded to the nearest cent. b The Fund's fiscal year-end was changed from Oct. 31 to Sept. 30, effective 1996. c Effective fiscal period 1996, expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. d Adjusted to an annual basis e Total return does not reflect payment of a sales charge. f Effective fiscal period 1996, 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. g Inception date was March 20, 1995.
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. 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 Sept. 30, 1997
Purchase 1 year Since 5 years 10 years made ago inception ago ago - ---------------------------- ----------------- --------------------- ------------------- ------------------- Stock: Class A +23.71% --% +15.83% +12.51% Class B +25.23% +22.38%* --% --% Class Y +30.38% +24.66%* --% --% S&P 500 +40.43% +31.28%** +20.73% +14.73% Lipper Growth and Income Fund Index +35.43% +27.73%** +19.08% +13.37% *Inception date was March 20, 1995. **Measurement period started April 1, 1995. Cumulative total returns as of Sept. 30, 1997 Purchase 1 year Since 5 years 10 years made ago inception ago ago - ---------------------------- ----------------- --------------------- ------------------- ------------------- Stock: Class A +23.71% --% +108.61% +225.33% Class B +25.23% +66.82%* --% --% Class Y +30.38% +74.81%* --% --% S&P 500 +40.43% +99.51%** +156.52% +295.09% Lipper Growth and Income Fund Index +35.43% +84.38%** +139.41% +250.75%
*Inception date was March 20, 1995. **Measurement period started April 1, 1995. 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 popular indexes for the same periods. The performance of Class B and Class Y will vary from the performance of Class A based on differences in sales charges and fees. Past performance for Class Y for the periods prior to March 20, 1995 may be calculated based on the performance of Class A, adjusted to reflect differences in sales charges although not for other differences in expenses. For purposes of calculation, information about the Fund assumes: o a sales charge of 5% for Class A shares o redemption at the end of the period and deduction of the applicable contingent deferred sales charge for Class B shares o no sales charge for Class Y shares o no adjustments for taxes an investor may have paid on the reinvested income and capital gains o a period of widely fluctuating securities prices. Returns shown should not be considered a representation of the Fund's future performance. 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. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. Lipper Growth and Income Fund Index, an unmanaged index published by Lipper Analytical Services, Inc., includes 30 funds that are generally similar to the Fund, although some funds in the index may have somewhat different investment policies or objectives. Investment policies and risks The policies described below apply both to the Fund and the Portfolio. The Portfolio invests primarily in common stocks and securities convertible into common stock of U.S. and foreign companies. Under normal market conditions, at least 65% of the Portfolio's total assets will be so invested. Other investments will include preferred stocks, debt securities, derivative instruments and money market instruments. The various types of investments the investment manager uses to achieve investment performance are described in more detail in the next section and in the SAI. Facts about investments and their risks Common stocks: Stock prices are subject to market fluctuations. Stocks of larger, established companies that pay dividends may be less volatile than the stock market as a whole. 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 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. The price of bonds below investment grade may react more to the ability of the issuing company to pay interest and principal when due than to changes in interest rates. These bonds have greater price fluctuations and are more likely to experience a default. The Portfolio may purchase securities rated C or better by Moody's Investors Service, Inc. (Moody's) or Standard & Poor's Corporation (S&P) or non-rated securities of equivalent investment quality in the judgment of the investment manager. The Portfolio will not invest more than 5% of its net assets in bonds below investment grade. Securities that are subsequently downgraded in quality may continue to be held by the Portfolio 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 Portfolio 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 Portfolio may invest up to 25% of its total assets in foreign investments. Derivative instruments: The investment manager may use derivative instruments in addition to securities to achieve investment performance. Derivative instruments include futures, options and forward contracts. Such instruments may be used to maintain cash reserves while remaining fully invested, to offset anticipated declines in values of investments, to facilitate trading, to reduce transaction costs or to pursue higher investment returns. Derivative instruments are characterized by requiring little or no initial payment and a daily change in price based on or derived from a security, a currency, a group of securities or currencies, or an index. A number of strategies or combination of instruments can be used to achieve the desired investment performance characteristics. A small change in the value of the underlying security, currency or index will cause a sizable gain or loss in the price of the derivative instrument. Derivative instruments allow the investment manager to change the investment performance characteristics very quickly and at lower costs. Risks include losses of premiums, rapid changes in prices, defaults by other parties and inability to close such instruments. The Portfolio will use derivative instruments only to achieve the same investment performance characteristics it could achieve by directly holding those securities and currencies permitted under the investment policies. The Portfolio will designate cash or appropriate liquid assets to cover its portfolio obligations. No more than 5% of the Portfolio's net assets can be used at any one time for good faith deposits on futures and premiums for options on futures that do not offset existing investment positions. This does not, however, limit the portion of the Portfolio's assets at risk to 5%. The Portfolio is not limited as to the percentage of its assets that may be invested in permissible investments, including derivatives, except as otherwise explicitly provided in this prospectus or the SAI. For descriptions of these and other types of derivative instruments, see the Appendix to this prospectus and the SAI. Securities and other instruments that are illiquid: A security or other instrument is illiquid if it cannot be sold quickly in the normal course of business. Some investments cannot be resold to the U.S. public because of their terms or government regulations. Securities and instruments, however, can be sold in private sales, and many may be sold to other institutions and qualified buyers or on foreign markets. The investment manager will follow guidelines established by the board and consider relevant factors such as the nature of the security and the number of likely buyers when determining whether a security is illiquid. No more than 10% of the Portfolio's net assets will be held in securities and other instruments that are illiquid. Money market instruments: Short-term debt securities rated in the top two grades or the equivalent are used to meet daily cash needs and at various times to hold assets until better investment opportunities arise. Generally, less than 25% of the Portfolio's total assets are in these money market instruments. However, for temporary defensive purposes these investments could exceed that amount for a limited period of time. The investment policies described above may be changed by the boards. Lending portfolio securities: The Portfolio may lend its securities to earn income so long as borrowers provide collateral equal to the market value of the loans. The risks are that borrowers will not provide collateral when required or return securities when due. Unless a majority of the outstanding voting securities approve otherwise, loans may not exceed 30% of the Portfolio's net assets. Valuing Fund shares The public offering price is the net asset value (NAV) adjusted for the sales charge for Class A. It is the NAV for Class B and Class Y. The NAV is the value of a single Fund share. The NAV usually changes daily, and is calculated at the close of business, normally 3 p.m. Central time, each business day (any day the New York Stock Exchange is open). To establish the net assets, all securities held by the Portfolio are valued as of the close of each business day. In valuing assets: o Securities and assets with available market values are valued on that basis o Securities maturing in 60 days or less are valued at amortized cost o Assets without readily available market values are valued according to methods selected in good faith by the board How to purchase, exchange or redeem shares Alternative purchase arrangements The Fund offers three different classes of shares - Class A, Class B and Class Y. The primary differences among the classes are in the sales charge structures and in their ongoing expenses. These differences are summarized in the table below. You may choose the class that best suits your circumstances and objectives.
Sales charge and distribution (12b-1) fee Service fee Other information Class A Maximum initial sales 0.175% of average daily net Initial sales charge waived charge of 5%; no 12b-1 fee assets or reduced for certain purchases Class B No initial sales charge; 0.175% of average daily net Shares convert to Class A maximum CDSC of 5% assets in the ninth year of declines to 0% after six ownership; CDSC waived in years; 12b-1 fee of 0.75% certain circumstances of average daily net assets
Class Y None 0.10% of average daily net Available only to certain assets qualifying institutional investors
Conversion of Class B shares to Class A shares - During the ninth calendar year of owning your Class B shares, Class B shares will convert to Class A shares and will no longer be subject to a distribution fee. Class B shares that convert to Class A shares are not subject to a sales charge. Class B shares purchased through reinvested dividends and distributions also will convert to Class A shares in the same proportion as the other Class B shares. This means more of your money will be put to work for you. Considerations in determining whether to purchase Class A or Class B shares - You should consider the information below in determining whether to purchase Class A or Class B shares. The distribution fee (included in "Ongoing expenses") and sales charges are structured so that you will have approximately the same total return at the end of eight years regardless of which class you chose. Sales charges on purchase or redemption
If you purchase Class A shares If you purchase Class B shares o You will not have all of your purchase price o All of your money is invested in shares of stock. invested. Part of your purchase price will go to pay However, you will pay a sales charge if you redeem the sales charge. You will not pay a sales charge your shares within six years of purchase. when you redeem your shares. o You will be able to take advantage of reductions o No reductions of the sales charge are available in the sales charge. for large purchases.
If your investments in IDS funds that are subject to a sales charge total $250,000 or more, you are better off paying the reduced sales charge in Class A than paying the higher fees in Class B. If you qualify for a waiver of the sales charge, you should purchase Class A shares. Ongoing expenses
If you purchase Class A shares If you purchase Class B shares o Your shares will have a lower expense ratio than o The distribution and transfer agency fees for Class B Class B shares because Class A does not pay a will cause your shares to have a higher expense ratio distribution fee and the transfer agency fee and to pay lower dividens than Class A shares. In the for Class A is lower than the fee for Class B. ninth year of ownership, Class B shares will convert As a result, Class A shares will pay higher to Class A shares and you will no longer be subject dividends than Class B shares. 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 AEFA. To do so, contact your financial advisor. How to purchase shares If you are investing in this Fund for the first time, you will need to set up an account. Your financial advisor will help you fill out and submit an application. Once your account is set up, you can choose among several convenient ways to invest. Important: When opening an account, you must provide your correct Taxpayer Identification Number (Social Security or Employer Identification number). See "Distributions and taxes." When you purchase shares for a new or existing account, the price you pay per share is determined at the close of business on the day your investment is received and accepted at the Minneapolis headquarters. Purchase policies: o Investments must be received and accepted in the Minneapolis headquarters on a business day before 3 p.m. Central time to be included in your account that day and to receive that day's share price. Otherwise, your purchase will be processed the next business day and you will pay the next day's share price. o The minimums allowed for investment may change from time to time. o Wire orders can be accepted only on days when your bank, 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
1 By regular account Send your check and application (or your name Minimum amounts and account number if you have an established Initial investment: $2,000 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 investment Contact your financial advisor to set up one Minimum amounts plan of the following scheduled plans: Initial investment: $ 100 Additional o automatic payroll deduction investments: $ 100/ each payment o bank authorization Account balances: none (on active plans of o direct deposit of Social Security check monthly payments) o other plan approved by the Fund If account balance is below $2,000, frequency of payments must be at least monthly. 3 By wire If you have an established account, you may If this information is not wire money to: included, the order may be rejected and all money Norwest Bank Minneapolis received by the Fund, less any Routing No. 091000019 costs the Fund or AEFC incurs, Minneapolis, MN will be returned promptly. Attn: Domestic Wire Dept. Minimum amounts Give these instructions: Each wire investment: $1,000 Credit IDS Account #00-30-015 for personal account # (your account number) for (your name).
*If your account balance falls below $300, you will be asked in writing to bring it up to $300 or establish a scheduled investment plan. If you do not do so within 30 days, your shares can be redeemed and the proceeds mailed to you. 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 the proceeds from your redemption are more or less than the cost of your shares, you will have a gain or loss, which can affect your tax liability. Redeeming shares held in an IRA or qualified retirement account may subject you to certain federal taxes, penalties and reporting requirements. Consult your tax advisor. Two ways to request an exchange or redemption of shares 1 By letter Include in your letter: o the name of the fund (s) o the class of shares to be exchanged or redeemed o your account number(s) (for exchanges, both funds must be registered in the same ownership) o your Taxpayer Identification Number (TIN) o the dollar amount or number of shares you want to exchange or redeem o signature of all registered account owners o for redemptions, indicate how you want your money delivered to you o any paper certificates of shares you hold Regular mail: American Express Shareholder Service Attn: Redemptions P.O. Box 534 Minneapolis, MN 55440-0534 Express mail: American Express Shareholder Service Attn: Redemptions 733 Marquette Ave. Minneapolis, MN 55402 2 By phone American Express Financial o The Fund and AEFC will honor any telephone Advisors Telephone Transaction exchange or redemption request believed to Service: be authentic and will use reasonable 800-437-3133 or procedures to confirm that they are. This 612-671-3800 includes asking identifying questions and tape recording calls. If reasonable 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 Exchange policies: o You may make up to three exchanges within any 30-day period, with each limited to $300,000. These limits do not apply to scheduled exchange programs and certain employee benefit plans or other arrangements through which one shareholder represents the interests of several. Exceptions may be allowed with pre-approval of the Fund. o Exchanges must be made into the same class of shares of the new fund. o If your exchange creates a new account, it must satisfy the minimum investment amount for new purchases. o Once we receive your exchange request, you cannot cancel it. o Shares of the new fund may not be used on the same day for another exchange. o If your shares are pledged as collateral, the exchange will be delayed until written approval is obtained from the secured party. o 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
1 o Mailed to the address on record By regular or o Payable to names listed on the account express mail NOTE: You will be charged a fee if you request express mail delivery. 2 o Minimum wire redemption: $1,000 By wire 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 o Minimum payment: $50 By scheduled o Contact your financial advisor or American Express Shareholder Service to payout plan set up regular payments to you on a monthly, bimonthly, quarterly, semiannual or annual basis o Purchasing new shares while under a payout plan may be disadvantageous because of the sales charges
Reductions and waivers of the sales charge Class A - initial sales charge alternative On purchases of Class A shares, you pay a 5% sales charge on the first $50,000 of your total investment and less on investments after the first $50,000: Total investment Sales charge as a percentage of:* Public Net offering amount price invested Up to $50,000 5.0% 5.26% Next $50,000 4.5 4.71 Next $400,000 3.8 3.95 Next $500,000 2.0 2.04 $1,000,000 or more 0.0 0.00 * To calculate the actual sales charge on an investment greater than $50,000 and less than $1,000,000, amounts for each applicable increment must be totaled. See the SAI. Reductions of the sales charge on Class A shares Your sales charge may be reduced, depending on the totals of: o the amount you are investing in this Fund now, o the amount of your existing investment in this Fund, if any, and o the amount you and your primary household group are investing or have in other funds in the IDS MUTUAL FUND GROUP that carry a sales charge. (The primary household group consists of accounts in any ownership for spouses or domestic partners and their unmarried children under 21. Domestic partners are individuals who maintain a shared primary residence and have joint property or other insurable interests.) Other policies that affect your sales charge: o IDS Tax-Free Money Fund and Class A shares of IDS Cash Management Fund do not carry sales charges. However, you may count investments in these funds if you acquired shares in them by exchanging shares from IDS funds that carry sales charges. o IRA purchases or other employee benefit plan purchases made through a payroll deduction plan or through a plan sponsored by an employer, association of employers, employee organization or other similar entity, may be added together to reduce sales charges for all shares purchased through that plan. o If you intend to invest $1 million over a period of 13 months, you can reduce the sales charges in Class A by filing a letter of intent. For more details, see the SAI. Waivers of the sales charge for Class A shares Sales charges do not apply to: o Current or retired board members, officers or employees of the Fund or AEFC or its subsidiaries, their spouses and unmarried children under 21. o Current or retired American Express financial advisors, their spouses and unmarried children under 21. o Investors who have a business relationship with a newly associated financial advisor who joined AEFA from another investment firm provided that (1) the purchase is made within six months of the advisor's appointment date with AEFA, (2) the purchase is made with proceeds of a redemption of shares that were sponsored by the financial advisor's previous broker-dealer, and (3) the proceeds must be the result of a redemption of an equal or greater value where a sales load was previously assessed. o Qualified employee benefit plans* using a daily transfer recordkeeping system offering participants daily access to IDS funds. (Participants in certain qualified plans for which the initial sales charge is waived may be subject to a deferred sales charge of up to 4% on certain redemptions. For more information, see the SAI.) o Shareholders who have at least $1 million invested in funds of the IDS MUTUAL FUND GROUP. If the investment is redeemed in the first year after purchase, a CDSC of 1% will be charged on the redemption. The CDSC will be waived only in the circumstances described for waivers for Class B shares. o Purchases made within 30 days after a redemption of shares (up to the amount redeemed): - of a product distributed by AEFA in a qualified plan subject to a deferred sales charge or - in a qualified plan where American Express Trust Company has a recordkeeping, trustee, investment management or investment servicing relationship. Send the Fund a written request along with your payment, indicating the amount of the redemption and the date on which it occurred. o Purchases made with dividend or capital gain distributions from the same class of another fund in the IDS MUTUAL FUND GROUP that has a sales charge. o Purchases made through or under a "wrap fee" product sponsored by AEFA (total amount of all investments must be $50,000); the University of 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 AEFA. To do so, contact your financial advisor. Class B - contingent deferred sales charge alternative Where a CDSC is imposed on a redemption, it is based on the amount of the redemption and the number of calendar years, including the year of purchase, between purchase and redemption. The following table shows the declining scale of percentages that apply to redemptions during each year after a purchase: If a redemption is The percentage rate made during the for the CDSC is: First year 5% Second year 4% Third year 4% Fourth year 3% Fifth year 2% Sixth year 1% Seventh year 0% If the amount you are redeeming reduces the current net asset value of your investment in Class B shares below the total dollar amount of all your purchase payments during the last six years (including the year in which your redemption is made), the CDSC is based on the lower of the redeemed purchase payments or market value. The following example illustrates how the CDSC is applied. Assume you had invested $10,000 in Class B shares and that your investment had appreciated in value to $12,000 after 15 months, including reinvested dividend and capital gain distributions. You could redeem any amount up to $2,000 without paying a CDSC ($12,000 current value less $10,000 purchase amount). If you redeemed $2,500, the CDSC would apply only to the $500 that represented part of your original purchase price. The CDSC rate would be 4% because a redemption after 15 months would take place during the second year after purchase. Because the CDSC is imposed only on redemptions that reduce the total of your purchase payments, you never have to pay a CDSC on any amount you redeem that represents appreciation in the value of your shares, income earned by your shares or capital gains. In addition, when determining the rate of any CDSC, your redemption will be made from the oldest purchase payment you made. Of course, once a purchase payment is considered to have been redeemed, the next amount redeemed is the next oldest purchase payment. By redeeming the oldest purchase payments first, lower CDSCs are imposed than would otherwise be the case. Waivers of the contingent deferred sales charge The CDSC on Class B shares will be waived on redemptions of shares: o In the event of the shareholder's death, o Purchased by any board member, officer or employee of a fund or AEFC or its subsidiaries, o Held in a trusteed employee benefit plan, o Held in IRAs or certain qualified plans for which American Express Trust Company acts as custodian, such as Keogh plans, tax-sheltered custodial accounts or corporate pension plans, provided that the shareholder is: - at least 59-1/2 years old, and - taking a retirement distribution (if the redemption is part of a transfer to an IRA or qualified plan in a product distributed by AEFA, or a custodian-to-custodian transfer to a product not distributed by AEFA, the CDSC will not be waived), or - redeeming under an approved substantially equal periodic payment arrangement. 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 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 Portfolio allocates investment income from dividends and interest and net realized capital gains or losses, if any, to the Fund. The Fund deducts direct and allocated expenses from the investment income. The Fund's net investment income is distributed to you at the end of each calendar quarter as dividends. Capital gains are realized when a security is sold for a higher price than was paid for it. Short-term capital gains are distributed at the end of the calendar year and are included in net investment income. Long-term capital gains are realized when a security is held for more than one year. The Fund will offset any net realized capital gains by any available capital loss carryovers. Net realized long-term capital gains, if any, are distributed at the end of the calendar year as capital gain distributions. These long-term capital gains will be subject to differing tax rates depending on the holding period of the underlying investments. Before they are distributed, 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 have previously opened an account. The reinvestment price is the net asset value at close of business on the day the distribution is paid. (Your quarterly statement will confirm the amount invested and the number of shares purchased.) If you choose cash distributions, you will receive only those declared after your request has been processed. If the U.S. Postal Service cannot deliver the checks for the cash distributions, we will reinvest the checks into your account at the then-current net asset value and make future distributions in the form of additional shares. Prior to reinvestment, no interest will accrue on amounts represented by uncashed distribution or redemption checks. Taxes The Fund has received a Private Letter Ruling from the Internal Revenue Service stating that, for purposes of the Internal Revenue Code, the Fund will be regarded as directly holding its allocable share of the income and gain realized by the Portfolio. Distributions are subject to federal income tax and also may be subject to state and local taxes. Distributions are taxable in the year the Fund declares them regardless of whether you take them in cash or reinvest them. Each January, you will receive a tax statement showing the kinds and total amount of all distributions you received during the previous year. You must report distributions on your tax returns, even if they are reinvested in additional shares. Buying a dividend creates a tax liability. This means buying shares shortly before a 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 short term (for shares held for one year or less) or long term (for shares held for more than one year). Long-term capital gains will be taxed at rates that vary depending upon the holding period. Long-term capital gains are divided into two holding periods: 1) shares held more than one year but not more than 18 months and 2) shares held more than 18 months. Your Taxpayer Identification Number (TIN) is important. As with any financial account you open, you must list your current and correct Taxpayer Identification Number (TIN) -- either your Social Security or Employer Identification number. The TIN must be certified under penalties of perjury on your application when you open an account. If you do not provide the TIN, or the TIN you report is incorrect, you could be subject to backup withholding of 31% of taxable distributions and proceeds from certain sales and exchanges. You also could be subject to further penalties, such as: o a $50 penalty for each failure to supply your correct TIN o a civil penalty of $500 if you make a false statement that results in no backup withholding o criminal penalties for falsifying information You also could be subject to backup withholding because you failed to report interest or dividends on your tax return as required. How to determine the correct TIN
Use the Social Security or For this type of account: Employer Identification number of: Individual or joint account The individual or individuals listed on the account Custodian account of a minor (Uniform The minor Gifts/Transfers to Minors Act) A living trust The grantor-trustee (the person who puts the money into the trust) An irrevocable trust, The legal entity pension trust or estate (not the personal representative or trustee, unless no legal entity is designated in the account title) Sole proprietorship The owner Partnership The partnership
Corporate The corporation Association, club or tax-exempt organization The organization For details on TIN requirements, ask your financial advisor or local American Express Financial Advisors office for federal Form W-9, "Request for Taxpayer Identification Number and Certification." Important: This information is a brief and selective summary of certain federal tax rules that apply to this Fund. Tax matters are highly individual and complex, and you should consult a qualified tax advisor about your personal situation. How the Fund and Portfolio are organized Shares The Fund is owned by its shareholders. The Fund issues shares in three classes - Class A, Class B and Class Y. Each class has different sales arrangements and bears different expenses. Each class represents interests in the assets of the Fund. Par value is one cent per share. Both full and fractional shares can be issued. The Fund no longer issues stock certificates. Voting rights As a shareholder, you have voting rights over the Fund's management and fundamental policies. You are entitled to one vote for each share you own. Shares of the Fund have cumulative voting rights. Each class has exclusive voting rights with respect to the provisions of the Fund's distribution plan that pertain to a particular class and other matters for which separate class voting is appropriate under applicable law. Shareholder meetings The Fund does not hold annual shareholder meetings. However, the board members may call meetings at their discretion, or on demand by holders of 10% or more of the outstanding shares, to elect or remove board members. Special considerations regarding master/feeder structure The Fund pursues its goal by investing its assets in a master fund called the Portfolio. This means that the Fund does not invest directly in securities; rather the Portfolio invests in and manages its portfolio of securities. The Portfolio is a separate investment company, but it has the same goal and investment policies as the Fund. The goal and investment policies of the Portfolio are described under the captions "Investment policies and risks" and "Facts about investments and their risks." Additional information on investment policies may be found in the SAI. Board considerations: The board considered the advantages and disadvantages of investing the Fund's assets in the Portfolio. The board believes that the master/feeder structure can be in the best interest of the Fund and its shareholders since it offers the opportunity for economies of scale. The Fund may redeem all of its assets from the Portfolio at any time. Should the board determine that it is in the best interest of the Fund and its shareholders to terminate its investment in the Portfolio, it would consider hiring an investment advisor to manage the Fund's assets, or other appropriate options. The Fund would terminate its investment if the Portfolio changed its goal, investment policies or restrictions without the same change being approved by the Fund. Other feeders: The Portfolio sells securities to other affiliated mutual funds and may sell securities to non-affiliated investment companies and institutional accounts (known as feeders). These feeders buy the Portfolio's securities on the same terms and conditions as the Fund and pay their proportionate share of the Portfolio's expenses. However, their operating costs and sales charges are different from those of the Fund. Therefore, the investment returns for other feeders are different from the returns of the Fund. Information about other feeders may be obtained by calling American Express Financial Advisors at 1-800-AXP-SERV. Each feeder that invests in the Portfolio is different and activities of its investors may adversely affect all other feeders, including the Fund. For example, if one feeder decides to terminate its investment in the Portfolio, the Portfolio may elect to redeem in cash or in kind. If cash is used, the Portfolio will incur brokerage, taxes and other costs in selling securities to raise the cash. This may result in less investment diversification if entire investment positions are sold, and it also may result in less liquidity among the remaining assets. If in-kind distribution is made, a smaller pool of assets remains that may affect brokerage rates and investment options. In both cases, expenses may rise since there are fewer assets to cover the costs of managing those assets. Shareholder meetings: Whenever the Portfolio proposes to change a fundamental investment policy or to take any other action requiring approval of its security holders, the Fund will hold a shareholder meeting. The Fund will vote for or against the Portfolio's proposals in proportion to the vote it receives for or against the same proposals from its shareholders. Board members and officers Shareholders elect a board that oversees the operations of the Fund and chooses its officers. Its officers are responsible for day-to-day business decisions based on policies set by the board. The board has named an executive committee that has authority to act on its behalf between meetings. Board members and officers serve 47 IDS and IDS Life funds and 15 Master Trust portfolios, except for William H. Dudley, who does not serve the nine IDS Life funds. The board members also serve as members of the board of the Trust which manages the investments of the Portfolio and other accounts. Should any conflict of interest arise between the interests of the shareholders of the Fund and those of the other accounts, the board will follow written procedures to address the conflict. Independent board members and officers Chairman of the board William R. Pearce* Chairman of the board, Board Services Corporation (provides administrative services to boards including the boards of the IDS and IDS Life funds and Master Trust portfolios). H. Brewster Atwater, Jr. Former chairman and chief executive officer, General Mills, Inc. Lynne V. Cheney Distinguished fellow, American Enterprise Institute for Public Policy Research. Heinz F. Hutter Former president and chief operating officer, Cargill, Inc. Anne P. Jones Attorney and telecommunications consultant. 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. Officer Vice president, general counsel and secretary Leslie L. Ogg* President, treasurer and corporate secretary of Board Services Corporation. Board members and officers associated with AEFC President John R. Thomas* Senior vice president, AEFC. William H. Dudley* Senior advisor to the chief executive officer, AEFC. David R. Hubers* President and chief executive officer, AEFC. Officers associated with AEFC Vice president Peter J. Anderson* Senior vice president, AEFC. Treasurer Melinda S. Urion* Senior vice president and chief financial officer, AEFC. Refer to the SAI for the board members' and officers' biographies. *Interested persons as defined by the Investment Company Act of 1940. Investment manager The Portfolio pays AEFC for managing its assets. The Fund pays its proportionate share of the fee. Under the Investment Management Services Agreement, AEFC is paid a fee for these services based on the average daily net assets of the Portfolio, as follows: Assets Annual rate (billions) at each asset level First $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 This fee may be increased or decreased by a performance adjustment based on a comparison of performance of Class A shares of the Fund to the Lipper Growth and Income Fund Index. The maximum adjustment is 0.08% of the Portfolio's average daily net assets on an annual basis. For the fiscal year ended Sept. 30, 1997, the Portfolio paid AEFC a total investment management fee of 0.46% of its average daily net assets. Under the Agreement, the Portfolio 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 AEFA provide information to investors about individual investment programs, the Fund and its operations, new account applications, and exchange and redemption requests. The cost of these services is paid partially by the Fund's sales charges. Persons who buy Class A shares pay a sales charge at the time of purchase. Persons who buy Class B shares are subject to a contingent deferred sales charge on a redemption in the first six years and pay an asset-based sales charge (also known as a 12b-1 fee) of 0.75% of the Fund's average daily net assets. Class Y shares are sold without a sales charge and without an asset-based sales charge. Financial advisors may receive different compensation for selling Class A, Class B and Class Y shares. Portions of the sales charge also may be paid to securities dealers who have sold the Fund's shares or to banks and other financial institutions. The amounts of those payments range from 0.8% to 4% of the Fund's offering price depending on the monthly sales volume. Under a Shareholder Service Agreement, the Fund also pays a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.175% of average daily net assets for Class A and Class B shares and 0.10% for Class Y shares. Total expenses paid by the Fund's Class A shares for the fiscal year ended Sept. 30, 1997, were 0.78% of its average daily net assets. Expenses for Class B and Class Y were 1.55% and 0.66%, respectively. About American Express Financial Corporation General information The AEFC family of companies offers not only mutual funds but also insurance, annuities, investment certificates and a broad range of financial management services. 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 Sept. 30, 1997 were more than $171 billion. AEFA 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 Portfolio may pay brokerage commissions to broker-dealer affiliates of AEFC. Appendix Descriptions of derivative instruments What follows are brief descriptions of derivative instruments the Portfolio may use. At various times the Portfolio may use some or all of these instruments and is not limited to these instruments. It may use other similar types of instruments if they are consistent with the Portfolio's investment goal and policies. For more information on these instruments, see the SAI. Options and futures contracts - An option is an agreement to buy or sell an instrument at a set price during a certain period of time. A futures contract is an agreement to buy or sell an instrument for a set price on a future date. The Portfolio may buy and sell options and futures contracts to manage its exposure to changing interest rates, security prices and currency exchange rates. Options and futures may be used to hedge the Portfolio's investments against price fluctuations or to increase market exposure. 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. STATEMENT OF ADDITIONAL INFORMATION FOR IDS STOCK FUND Nov. 28, 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 Nov. 28, 1997, and it is to be used with the prospectus dated Nov. 28, 1997, and the Annual Report for the fiscal year ended Sept. 30, 1997. TABLE OF CONTENTS Goal and Investment Policies See Prospectus Additional Investment Policies p. 4 Security Transactions p. 7 Brokerage Commissions Paid to Brokers Affiliated with American Express Financial Corporation p. 10 Performance Information p. 11 Valuing Fund Shares p. 12 Investing in the Fund p. 14 Redeeming Shares p. 18 Pay-out Plans p. 19 Taxes p. 20 Agreements p. 21 Organizational Information p. 25 Board Members and Officers p. 26 Compensation for Fund and Portfolio Board Members p. 29 Independent Auditors p. 30 Financial Statements See Annual Report Prospectus p. 30 Appendix A: Description of Bond Ratings p. 31 Appendix B: Foreign Currency Transactions p. 34 Appendix C: Options and Stock Index Futures Contracts p. 39 Appendix D: Mortgage-Backed Securities p. 46 Appendix E: Dollar-Cost Averaging p. 47 ADDITIONAL INVESTMENT POLICIES IDS Stock Fund, Inc. (the Fund) pursues its goals by investing all of its assets in Equity Portfolio (the Portfolio) of Growth and Income Trust (the Trust), a separate investment company, rather than by directly investing in and managing its own portfolio of securities. The Portfolio has the same investment objectives, policies and restrictions as the Fund. Fundamental investment policies adopted by the Fund or Portfolio cannot be changed without the approval of a majority of the outstanding voting securities of the Fund or Portfolio, respectively, as defined in the Investment Company Act of 1940, as amended (the 1940 Act). Whenever the Fund is requested to vote on a change in the investment policies of the corresponding Portfolio, the Fund will hold a meeting of Fund shareholders and will cast the Fund's vote as instructed by the shareholders. Notwithstanding any of the Fund's other investment policies, the Fund may invest its assets in an open-end management investment company having substantially the same investment objectives, policies and restrictions as the Fund for the purpose of having those assets managed as part of a combined pool. These are investment policies in addition to those presented in the prospectus. The policies below are fundamental policies that apply to both the Fund and the Portfolio and may be changed only with shareholder/unitholder approval. Unless holders of a majority of the outstanding voting securities agree to make the change, the Fund and Portfolio will not: 'Act as an underwriter (sell securities for others). However, under the securities laws, the Portfolio may be deemed to be an underwriter when it purchases securities directly from the issuer and later resells them. 'Borrow money or property, except as a temporary measure for extraordinary or emergency purposes, in an amount not exceeding one-third of the market value of its total assets (including borrowings) less liabilities (other than borrowings) immediately after the borrowing. The Portfolio and Fund have not borrowed in the past and have no present intention to borrow. 'Make cash loans if the total commitment amount exceeds 5% of the Portfolio's total assets. 'Concentrate in any one industry. According to the present interpretation by the Securities and Exchange Commission (SEC), this means no more than 25% of the Portfolio's total assets, based on current market value at time of purchase, can be invested in any one industry. '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 Portfolio's total assets may be invested without regard to this 5% limitation. 'Buy or sell real estate, unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the Portfolio from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business or real estate investment trusts. For purposes of this policy, real estate includes real estate limited partnerships. 'Buy or sell physical commodities unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the Portfolio from buying or selling options and futures contracts or from investing in securities or other instruments backed by, or whose value is derived from, physical commodities. 'Invest in securities of investment companies except by purchase in the open market where the dealer's or sponsor's profit is the regular commission. The investment manager may wish to invest in another investment company if, for example, that is the only way to invest in a foreign market. If any such investment is ever made, not more than 10% of the Portfolio's net assets will be so invested. To the extent the Portfolio were to make such investments, the shareholder may be subject to duplicate advisory, administrative and distribution fees. 'Purchase securities of an issuer if the board members and officers of the Fund, the Portfolio and of American Express Financial Corporation (AEFC) hold more than a certain percentage of the issuer's outstanding securities. If the holdings of all board members and officers of the Fund, the Portfolio and of AEFC who own more than 0.5% of an issuer's securities are added together, and if in total they own more than 5%, the Portfolio will not purchase securities of that issuer. 'Lend Portfolio securities in excess of 30% of its net assets. The current policy of the Portfolio's board is to make these loans, either long- or short-term, to broker-dealers. In making loans, the Portfolio receives the market price in cash, U.S. government securities, letters of credit or such other collateral as may be permitted by regulatory agencies and approved by the board. If the market price of the loaned securities goes up, the Portfolio will get additional collateral on a daily basis. The risks are that the borrower may not provide additional collateral when required or return the securities when due. During the existence of the loan, the Portfolio receives cash payments equivalent to all interest or other distributions paid on the loaned securities. A loan will not be made unless the investment manager believes the opportunity for additional income outweighs the risks. Unless changed by the board, the Fund and Portfolio will not: 'Buy on margin or sell short, except the Portfolio may make margin payments in connection with transactions in stock index futures contracts. 'Pledge or mortgage its assets beyond 15% of total assets. If the Portfolio were ever to do so, valuation of the pledged or mortgaged assets would be based on market value. For purposes of this policy, collateral arrangements for margin deposits on a futures contract are not deemed to be a pledge of assets. 'Invest more than 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 more than 5% of its net assets in warrants. 'Invest in exploration or development programs, such as oil, gas or mineral leases. 'Invest more than 10% of the Portfolio's net assets in securities and derivative instruments that are illiquid. For purposes of this policy illiquid securities include some privately placed securities, public securities and Rule 144A securities that for one reason or another may no longer have a readily available market, repurchase agreements with maturities greater than seven days, non-negotiable fixed-time deposits and over-the-counter options. In determining the liquidity of Rule 144A securities, which are unregistered securities offered to qualified institutional buyers, and interest-only and principal-only fixed mortgage-backed securities (IOs and POs) issued by the U.S. government or its agencies and instrumentalities, the investment manager, under guidelines established by the board, will consider any relevant factors including the frequency of trades, the number of dealers willing to purchase or sell the security and the nature of marketplace trades. In determining the liquidity of commercial paper issued in transactions not involving a public offering under Section 4(2) of the Securities Act of 1933, the investment manager, under guidelines established by the board, will evaluate relevant factors such as the issuer and the size and nature of its commercial paper programs, the willingness and ability of the issuer or dealer to repurchase the paper, and the nature of the clearance and settlement procedures for the paper. The Portfolio may make contracts to purchase securities for a fixed price at a future date beyond normal settlement time (when-issued securities or forward commitments). Under normal market conditions, the Portfolio does not intend to commit more than 5% of its total assets to these practices. The Portfolio does not pay for the securities or receive dividends or interest on them until the contractual settlement date. The Portfolio will designate cash or liquid high-grade debt securities at least equal in value to its commitments to purchase the securities. When-issued securities or forward commitments are subject to market fluctuations and they may affect the Portfolio's total assets the same as owned securities. The Portfolio may maintain a portion of its assets in cash and cash-equivalent investments. The cash-equivalent investments the Portfolio may use are short-term U.S. and Canadian government securities and negotiable certificates of deposit, non-negotiable fixed-time deposits, bankers' acceptances and letters of credit of banks or savings and loan associations having capital, surplus and undivided profits (as of the date of its most recently published annual financial statements) in excess of $100 million (or the equivalent in the instance of a foreign branch of a U.S. bank) at the date of investment. Any cash-equivalent investments in foreign securities will be subject to the limitations on foreign investments described in the prospectus. The Portfolio also may purchase short-term corporate notes and obligations rated in the top two classifications by Moody's Investors Service, Inc. (Moody's) or Standard & Poor's Corporation (S&P) or the equivalent and may use repurchase agreements with broker-dealers registered under the Securities Exchange Act of 1934 and with commercial banks. A risk of a repurchase agreement is that if the seller seeks the protection of the bankruptcy laws, the Portfolio's ability to liquidate the security involved could be impaired. The Portfolio may invest in foreign securities that are traded in the form of American Depositary Receipts (ADRs). ADRs are receipts typically issued by a U.S. bank or trust company evidencing ownership of the underlying securities of foreign issuers. European Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs) are receipts typically issued by foreign banks or trust companies, evidencing ownership of underlying securities issued by either a foreign or U.S. issuer. Generally Depositary Receipts in registered form are designed for use in the U.S. securities market and Depositary Receipts in bearer form are designed for use in securities markets outside the U.S. Depositary Receipts may not necessarily be denominated in the same currency as the underlying securities into which they may be converted. Depositary Receipts also involve the risks of other investments in foreign securities. For a description of bond ratings, see Appendix A. For a discussion about foreign currency transactions, see Appendix B. For a discussion on options and stock index futures contracts, see Appendix C. For a discussion on mortgage-backed securities, see Appendix D. SECURITY TRANSACTIONS Subject to policies set by the board, AEFC is authorized to determine, consistent with the Fund's and Portfolio's investment goal and policies, which securities will be purchased, held or sold. In determining where the buy and sell orders are to be placed, AEFC has been directed to use its best efforts to obtain the best available price and the most favorable execution except where otherwise authorized by the board. In selecting broker-dealers to execute transactions, AEFC may consider the price of the security, including commission or mark-up, the size and difficulty of the order, the reliability, integrity, financial soundness and general operation and execution capabilities of the broker, the broker's expertise in particular markets, and research services provided by the broker. AEFC has a strict Code of Ethics that prohibits its affiliated personnel from engaging in personal investment activities that compete with or attempt to take advantage of planned portfolio transactions for any fund or trust for which it acts as investment manager. 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 the extent permitted under an interpretation by the SEC. When paying a commission that might not otherwise be charged or a commission in excess of the amount another broker might charge, AEFC must follow procedures authorized by the board. To date, three procedures have been authorized. One procedure permits AEFC to direct an order to buy or sell a security traded on a national securities exchange to a specific broker for research services it has provided. The second procedure permits AEFC, in order to obtain research, to direct an order on an agency basis to buy or sell a security traded in the over-the-counter market to a firm that does not make a market in that security. The commission paid generally includes compensation for research services. The third procedure permits AEFC, in order to obtain research and brokerage services, to cause the Portfolio to pay a commission in excess of the amount another broker might have charged. AEFC has advised the Portfolio it is necessary to do business with a number of brokerage firms on a continuing basis to obtain such services as the handling of large orders, the willingness of a broker to risk its own money by taking a position in a security, and the specialized handling of a particular group of securities that only certain brokers may be able to offer. As a result of this arrangement, some portfolio transactions may not be effected at the lowest commission, but AEFC believes it may obtain better overall execution. AEFC has 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 Portfolio is made independently from any decision made for another portfolio, fund or other account advised by AEFC or any of its subsidiaries. When the Portfolio buys or sells the same security as another portfolio, fund or account, AEFC carries out the purchase or sale in a way the Portfolio agrees in advance is fair. Although sharing in large transactions may adversely affect the price or volume purchased or sold by the Portfolio, the Portfolio hopes to gain an overall advantage in execution. AEFC has assured the Fund it will continue to seek ways to reduce brokerage costs. On a periodic basis, AEFC makes a comprehensive review of the broker-dealers and the overall reasonableness of their commissions. The review evaluates execution, operational efficiency and research services. The Portfolio paid total brokerage commissions of $6,147,059 for the fiscal year ended Sept. 30, 1997, $3,197,700 for the fiscal period ended Sept. 30, 1996, and $4,265,791 for the fiscal year ended Oct. 31, 1995. Substantially all firms through whom transactions were executed provide research services. In fiscal year 1997, transactions amounting to $495,098,000 on which $1,039,140 in commissions were imputed or paid, were specifically directed to firms in exchange for research services. As of the fiscal year ended Sept. 30, 1997, the Portfolio 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 Name of Issuer End of Fiscal Year Bank of America $36,656,250 Merrill Lynch 19,891,875 Morgan Stanley 5,987,167 Salomon Brothers 34,031,745 Travelers Group 27,300,000 The portfolio turnover rate was 82% in the fiscal year ended Sept. 30, 1997, and 71% in fiscal period ended 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 Portfolio according to procedures adopted by the board and to the extent consistent with applicable provisions of the federal securities laws. AEFC will use an American Express affiliate only if (i) AEFC determines that the Portfolio will receive prices and executions at least as favorable as those offered by qualified independent brokers performing similar brokerage and other services for the Portfolio and (ii) the affiliate charges the Portfolio commission rates consistent with those the affiliate charges comparable unaffiliated customers in similar transactions and if such use is consistent with terms of the Investment Management Services Agreement. AEFC may direct brokerage to compensate an affiliate. AEFC will receive research on South Africa from New Africa Advisors, a wholly-owned subsidiary of Sloan Financial Group. AEFC owns 100% of IDS Capital Holdings Inc. which in turn owns 40% of Sloan Financial Group. New Africa Advisors will send research to AEFC and in turn AEFC will direct trades to a particular broker. The broker will have an agreement to pay New Africa Advisors. All transactions will be on a best execution basis. Compensation received will be reasonable for the services rendered. Information about brokerage commissions paid by the Portfolio for the last three fiscal periods to brokers affiliated with AEFC is contained in the following table:
For the For the For the Fiscal Year Ended Fiscal Period Fiscal Year Sept. 30, 1997 Ended Sept. Ended Oct. ___________________________________________ 30, 1996 31, 1995 ------------ ------------ Percent of Aggregate Aggregate Dollar Aggregate Aggregate Dollar Percent of Amount of Dollar Amount Dollar Amount of Aggregate Transactions of Amount of Nature of Commissions Brokerage Involving Commissions Commissions Broker Affiliation Paid to Commissions Payment of Paid to Broker Paid to Broker Commissions Broker American (1) $404,603 6.58% 11.47% $154,450 $378,480 Enterprise Investment Services Inc.
(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) 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, 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 Oct. 1, 1997, the first business day following the end of the fiscal year, the computation looked like this:
- ------------------- ----------------------------- ---------------------------- --------------------- Net assets before Shares outstanding Net asset value shareholder transactions at end of previous day of one share - ------------------- ----------------------------- ---------------------------- --------------------- - ------------------- ----------------------------- ---------------------------- --------------------- Class A $2,892,899,540 divided by 104,853,191 equals $27.59 - ------------------- ----------------------------- ---------------------------- --------------------- - ------------------- ----------------------------- ---------------------------- --------------------- Class B 204,341,034 7,438,698 27.47 - ------------------- ----------------------------- ---------------------------- --------------------- - ------------------- ----------------------------- ---------------------------- --------------------- Class Y 1,088,061,009 39,436,789 27.59 - ------------------- ----------------------------- ---------------------------- ---------------------
In determining net assets before shareholder transactions, the Portfolio's securities are valued as follows as of the close of business of the New York Stock Exchange (the Exchange): 'Securities, 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 value of such securities occur during such period, these securities will be valued at their fair value according to procedures decided upon in good faith by the board. 'Short-term securities maturing more than 60 days from the valuation date are valued at the readily available market price or approximate market value based on current interest rates. Short-term securities maturing in 60 days or less that originally had maturities of more than 60 days at acquisition date are valued at amortized cost using the market value on the 61st day before maturity. Short-term securities maturing in 60 days or less at acquisition date are valued at amortized cost. Amortized cost is an approximation of market value determined by systematically increasing the carrying value of a security if acquired at a discount, or reducing the carrying value if acquired at a premium, so that the carrying value is equal to maturity value on the maturity date. 'Securities without a readily available market price and other assets are valued at fair value as determined in good faith by the board. The board is responsible for selecting methods it believes provide fair value. When possible, bonds are valued by a pricing service independent from the Portfolio. If a valuation of a bond is not available from a pricing service, the bond will be valued by a dealer knowledgeable about the bond if such a dealer is available. The Exchange, AEFC and the Fund will be closed on the following holidays: New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. INVESTING IN THE FUND Sales Charge Shares of the Fund are sold at the public offering price determined at the close of business on the day an application is accepted. The public offering price is the net asset value of one share adjusted for the sales charge for Class A. For Class B and Class Y, there is no initial sales charge so the public offering price is the same as the net asset value. For Class A, the public offering price for an investment of less than $50,000, made Oct. 1, 1997, was determined by dividing the net asset value of one share, $27.59, by 0.95 (1.00-0.05 for a maximum 5% sales charge) for a public offering price of $29.04. The sales charge is paid to American Express Financial Advisors Inc. (AEFA) by the person buying the shares. Class A - Calculation of the Sales Charge Sales charges are determined as follows:
Within each increment, sales charge as a percentage of: Public Net Offering Price Amount invested Amount of Investment - -------------------------------------------- ------------------------------ ------------------------------ 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% - -------------------------------------------- ------------------------------ ------------------------------ - -------------------------------------------- ------------------------------ ------------------------------ Next 50,000 to 100,000 5.00-4.50 5.26-4.71 - -------------------------------------------- ------------------------------ ------------------------------ - -------------------------------------------- ------------------------------ ------------------------------ Next 100,000 to 500,000 4.50-3.80 4.71-3.95 - -------------------------------------------- ------------------------------ ------------------------------ - -------------------------------------------- ------------------------------ ------------------------------ Next 500,000 to 999,999 3.80-2.00 3.95-2.04 - -------------------------------------------- ------------------------------ ------------------------------ - -------------------------------------------- ------------------------------ ------------------------------ $1,000,000 or more 0.00 0.00 - -------------------------------------------- ------------------------------ ------------------------------
The initial sales charge is waived for certain qualified plans that meet the requirements described in the prospectus. Participants in these qualified plans may be subject to a deferred sales charge on certain redemptions. The deferred sales charge on certain redemptions will be waived if the redemption is a result of a participant's death, disability, retirement, attaining age 59 1/2, loans or hardship withdrawals. The deferred sales charge varies depending on the number of participants in the qualified plan and total plan assets as follows: Deferred Sales Charge Number of Participants Total Plan Assets 1-99 100 or more - ------------------------------------ ----------------- ---------------- Less than $1 million 4% 0% - ------------------------------------ ----------------- ---------------- - ------------------------------------ ----------------- ---------------- $1 million or more 0% 0% - ------------------------------------ ----------------- ---------------- - --------------------------------------------------------- Class A - Reducing the Sales Charge Sales charges are based on the total amount of your investments in the Fund. The amount of all prior investments plus any new purchase is referred to as your "total amount invested." For example, suppose you have made an investment of $20,000 and later decide to invest $40,000 more. Your total amount invested would be $60,000. As a result, $10,000 of your $40,000 investment qualifies for the lower 4.5% sales charge that applies to investments of more than $50,000 and up to $100,000. The total amount invested includes any shares held in the Fund in the name of a member of your primary household group. (The primary household group consists of accounts in any ownership for spouses or domestic partners and their unmarried children under 21. Domestic partners are individuals who maintain a shared primary residence and have joint property or other insurable interests.) For instance, if your spouse already has invested $20,000 and you want to invest $40,000, your total amount invested will be $60,000 and therefore you will pay the lower charge of 4.5% on $10,000 of the $40,000. Until a spouse remarries, the sales charge is waived for spouses and unmarried children under 21 of deceased board members, officers or employees of the Fund or AEFC or its subsidiaries and deceased advisors. The total amount invested also includes any investment you or your immediate family already have in the other publicly offered funds in the IDS MUTUAL FUND GROUP where the investment is subject to a sales charge. For example, suppose you already have an investment of $30,000 in another IDS fund. If you invest $40,000 more in this Fund, your total amount invested in the funds will be $70,000 and therefore $20,000 of your $40,000 investment will incur a 4.5% sales charge. Finally, Individual Retirement Account (IRA) purchases, or other employee benefit plan purchases made through a payroll deduction plan or through a plan sponsored by an employer, association of employers, employee organization or other similar entity, may be added together to reduce sales charges for shares purchased through that plan. Class A - Letter of Intent (LOI) If you intend to invest $1 million over a period of 13 months, you can reduce the sales charges in Class A by filing a LOI. The agreement can start at any time and will remain in effect for 13 months. Your investment will be charged normal sales charges until you have invested $1 million. At that time, your account will be credited with the sales charges previously paid. Class A investments made prior to signing 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. 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: 'The Exchange closes for reasons other than the usual weekend and holiday closings or trading on the Exchange is restricted, or 'Disposal of the Portfolio's securities is not reasonably practicable or it is not reasonably practicable for the Portfolio to determine the fair value of its net assets, or 'The SEC, under the provisions of the 1940 Act, declares a period of emergency to exist. Should the Fund stop selling shares, the board may make a deduction from the value of the assets held by the Fund to cover the cost of future liquidations of the assets so as to distribute fairly these costs among all shareholders. The Fund has elected to be governed by Rule 18f-1 under the 1940 Act, which obligates the Fund to redeem shares in cash, with respect to any one shareholder during any 90-day period, up to the lesser of $250,000 or 1% of the net assets of the Fund at the beginning of the period. Although redemptions in excess of this limitation would normally be paid in cash, the Fund reserves the right to make these payments in whole or in part in securities or other assets in case of an emergency, or if the payment of a redemption in cash would be detrimental to the existing shareholders of the Fund as determined by the board. In these circumstances, the securities distributed would be valued as set forth in the prospectus. Should the Fund distribute securities, a shareholder may incur brokerage fees or other transaction costs in converting the securities to cash. PAY-OUT PLANS You can use any of several pay-out plans to redeem your investment in regular installments. If you redeem Class B shares you may be subject to a contingent deferred sales charge as discussed in the prospectus. While the plans differ on how the pay-out is figured, they all are based on the redemption of your investment. Net investment income dividends and any capital gain distributions will automatically be reinvested, unless you elect to receive them in cash. If you are redeeming a tax-qualified plan account for which American Express Trust Company acts as custodian, you can elect to receive your dividends and other distributions in cash when permitted by law. If you redeem an IRA or a qualified retirement account, certain restrictions, federal tax penalties and special federal income tax reporting requirements may apply. You should consult your tax advisor about this complex area of the tax law. Applications for a systematic investment in a class of the Fund subject to a sales charge normally will not be accepted while a pay-out plan for any of those funds is in effect. Occasional investments, however, may be accepted. To start any of these plans, please write American Express Shareholder Service, P.O. Box 534, Minneapolis, MN 55440-0534, or call American Express Financial Advisors Telephone Transaction Service at 800-437-3133 (National/Minnesota) or 612-671-3800 (Mpls./St. Paul). Your authorization must be received in the Minneapolis headquarters at least five days before the date you want your payments to begin. The initial payment must be at least $50. Payments will be made on a monthly, bimonthly, quarterly, semiannual or annual basis. Your choice is effective until you change or cancel it. The following pay-out plans are designed to take care of the needs of most shareholders in a way AEFC can handle efficiently and at a reasonable cost. If you need a more irregular schedule of payments, it may be necessary for you to make a series of individual redemptions, in which case you'll have to send in a separate redemption request for each pay-out. The Fund reserves the right to change or stop any pay-out plan and to stop making such plans available. Plan #1: Pay-out for a fixed period of time If you choose this plan, a varying number of shares will be redeemed at regular intervals during the time period you choose. This plan is designed to end in complete redemption of all shares in your account by the end of the fixed period. Plan #2: Redemption of a fixed number of shares If you choose this plan, a fixed number of shares will be redeemed for each payment and that amount will be sent to you. The length of time these payments continue is based on the number of shares in your account. Plan #3: Redemption of a fixed dollar amount If you decide on a fixed dollar amount, whatever number of shares is necessary to make the payment will be redeemed in regular installments until the account is closed. Plan #4: Redemption of a percentage of net asset value Payments are made based on a fixed percentage of the net asset value of the shares in the account computed on the day of each payment. Percentages range from 0.25% to 0.75%. For example, if you are on this plan and arrange to take 0.5% each month, you will get $50 if the value of your account is $10,000 on the payment date. TAXES If you buy shares in the Fund and then exchange into another fund, it is considered a redemption and subsequent purchase of shares. Under the tax laws, if this exchange is done within 91 days, any sales charge waived on Class A shares on a subsequent purchase of shares applies to the new shares acquired in the exchange. Therefore, you cannot create a tax loss or reduce a tax gain attributable to the sales charge when exchanging shares within 91 days. Retirement Accounts If you have a nonqualified investment in the Fund and you wish to move part or all of those shares to an IRA or qualified retirement account in the Fund, you can do so without paying a sales charge. However, this type of exchange is considered a redemption of shares and may result in a gain or loss for tax purposes. In addition, this type of exchange may result in an excess contribution under IRA or qualified plan regulations if the amount exchanged plus the amount of the initial sales charge applied to the amount exchanged exceeds annual contribution limitations. For example: If you were to exchange $2,000 in Class A shares from a nonqualified account to an IRA without considering the 5% ($100) initial sales charge applicable to that $2,000, you may be deemed to have exceeded current IRA annual contribution limitations. You should consult your tax advisor for further details about this complex subject. Net investment income dividends received should be treated as dividend income for federal income tax purposes. Corporate shareholders are generally entitled to a deduction equal to 70% of that portion of the Fund's dividend that is attributable to dividends the Fund received from domestic (U.S.) securities. For the fiscal year ended Sept. 30, 1997, 60.34% of the Fund's net investment income dividends qualified for the corporate deduction. Capital gain distributions, if any, received by corporate shareholders should be treated as long-term capital gains regardless of how long they owned their shares. Capital gain distributions, if any, received by individuals should be treated as long-term if held for more than one year; however, recent tax laws have divided long-term capital gains into two holding periods: (1) shares held more than one year but not more than 18 months and (2) shares held more than 18 months. Short-term capital gains earned by the Fund are paid to shareholders as part of their ordinary income dividend and are taxable. Under federal tax law, by the end of a calendar year the Fund must declare and pay dividends representing 98% of ordinary income for that calendar year and 98% of net capital gains (both long-term and short-term) for the 12-month period ending Oct. 31 of that calendar year. The Fund is subject to an excise tax equal to 4% of the excess, if any, of the amount required to be distributed over the amount actually distributed. The Fund intends to comply with federal tax law and avoid any excise tax. The Fund may be subject to U.S. taxes resulting from holdings in a passive foreign investment company (PFIC). A foreign corporation is a PFIC when 75% or more of its gross income for the taxable year is passive income or if 50% or more of the average value of its assets consists of assets that produce or could produce passive income. This is a brief summary that relates to federal income taxation only. Shareholders should consult their tax advisor as to the application of federal, state and local income tax laws to Fund distributions. AGREEMENTS Investment Management Services Agreement The Trust, on behalf of the Portfolio, has an Investment Management Services Agreement with AEFC. For its services, AEFC is paid a fee based on the following schedule. The Fund pays its proportionate share of the fee. - --------------------------- ------------------------- 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 Sept. 30, 1997, the daily rate applied to the Portfolio's net assets was equal to 0.469% on an annual basis. The fee is calculated for each calendar day on the basis of net assets as of the close of business two business days prior to the day for which the calculation is made. Before the fee based on the asset charge is paid, it is adjusted for investment performance. The adjustment, determined monthly, will be calculated using the percentage point difference between the change in the net asset value of one Class A share of the Fund and the change in the Lipper Growth and Income Fund Index (Index). The performance of one Class A share of the Fund is measured by computing the percentage difference between the opening and closing net asset value of one Class A share of the Fund, as of the last business day of the period selected for comparison, adjusted for dividend or capital gain distributions which are treated as reinvested at the end of the month during which the distribution was made. The performance of the Index for the same period is established by measuring the percentage difference between the beginning and ending Index for the comparison period. The performance is adjusted for dividend or capital gain distributions (on the securities which comprise the Index), which are treated as reinvested at the end of the month during which the distribution was made. One percentage point will be subtracted from the calculation to help assure that incentive adjustments are attributable to AEFC's management abilities rather than random fluctuations and the result multiplied by 0.01%. That number will be multiplied times the Fund's average net assets for the comparison period and then divided by the number of months in the comparison period to determine the monthly adjustment. Where the Fund's Class A share performance exceeds that of the Index, the base fee will be increased. Where the performance of the Index exceeds the performance of Class A shares, the base fee will be decreased. The maximum monthly increase or decrease will be 0.08% of the Fund's average net assets on an annual basis. The 12 month comparison period rolls over with each succeeding month, so that it always equals 12 months, ending with the month for which the performance adjustment is being computed. The adjustment decreased the fee by $607,329 for the fiscal year ended Sept. 30, 1997. The management fee is paid monthly. Under the agreement, the total amount paid was $16,849,365 for the fiscal year ended Sept. 30, 1997, $12,835,896 for fiscal period 1996, and $11,924,057 for fiscal year 1995. Under the agreement, the Portfolio also pays taxes, brokerage commissions and nonadvisory expenses, which include custodian fees; audit and certain legal fees; fidelity bond premiums; registration fees for shares; office expenses; consultants' fees; compensation of board members, Portfolio officers and employees; corporate filing fees; organizational expenses; expenses incurred in connection with lending securities of the Portfolio; and expenses properly payable by the Portfolio, approved by the board. Under the agreement, the nonadvisory expenses paid by the Fund and Portfolio were $925,431 for the fiscal year ended Sept. 30, 1997, $962,795 for fiscal period 1996, and $1,180,596 for fiscal year 1995. In this section, prior to May 13, 1996, the fees and expenses described were paid directly by the Fund. After that date, the management fees were paid by the Portfolio. Administrative Services Agreement The Fund has an Administrative Services Agreement with AEFC. Under this agreement, the Fund pays AEFC for providing administration and accounting services. The fee is calculated as follows: - --------------------------- ------------------------- Assets Annual rate (billions) each asset level - --------------------------- ------------------------- - --------------------------- ------------------------- - --------------------------- ------------------------- First $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 Sept. 30, 1997, the daily rate applied to the Fund's net assets was equal to 0.028% on an annual basis. The fee is calculated for each calendar day on the basis of net assets as of the close of business two business days prior to the day for which the calculation is made. Under the agreement, the Fund paid fees of $1,073,735 for the fiscal year ended Sept. 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 $3,523,266 for the fiscal year ended Sept. 30, 1997. Distribution Agreement Under a Distribution Agreement, sales charges deducted for distributing Fund shares are paid to AEFA daily. These charges amounted to $2,758,791 for the fiscal year ended Sept. 30, 1997. After paying commissions to personal financial advisors, and other expenses, the amount retained was $199,043. The amounts were $2,807,662 and $114,245 for fiscal period 1996, and $2,812,649 and $520,122 for fiscal year 1995. Shareholder Service Agreement The Fund pays a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.175% of average daily net assets for Class A and Class B and 0.10% for Class Y. Plan and Agreement of Distribution For Class B shares, to help AEFA defray the cost of distribution and servicing, not covered by the sales charges received under the Distribution Agreement, the Fund and AEFA entered into a Plan and Agreement of Distribution (Plan). These costs cover almost all aspects of distributing the Fund's shares except compensation to the sales force. A substantial portion of the costs are not specifically identified to any one fund in the IDS MUTUAL FUND GROUP. Under the Plan, AEFA is paid a fee at an annual rate of 0.75% of the Fund's average daily net assets attributable to Class B shares. The Plan must be approved annually by the board, including a majority of the disinterested board members, if it is to continue for more than a year. At least quarterly, the board must review written reports concerning the amounts expended under the Plan and the purposes for which such expenditures were made. The Plan and any agreement related to it may be terminated at any time by vote of a majority of board members who are not interested persons of the Fund and have no direct or indirect financial interest in the operation of the Plan or in any agreement related to the Plan, or by vote of a majority of the outstanding voting securities of the Fund's Class B shares or by AEFA. The Plan (or any agreement related to it) will terminate in the event of its assignment, as that term is defined in the 1940 Act. The Plan may not be amended to increase the amount to be spent for distribution without shareholder approval, and all material amendments to the Plan must be approved by a majority of the board members, including a majority of the board members who are not interested persons of the Fund and who do not have a 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 Sept. 30, 1997, under the agreement, the Fund paid fees of $1,152,946. Custodian Agreement The Trust'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 Fund also retains the custodian pursuant to a custodian agreement. The custodian is permitted to deposit some or all of its securities in central depository systems as allowed by federal law. For its services, the Portfolio pays the custodian a maintenance charge and a charge per transaction in addition to reimbursing the custodian's out-of-pocket expenses. 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, net of earnings credits of $28,549,498 for the fiscal year ended Sept. 30, 1997. ORGANIZATIONAL INFORMATION The Fund is a diversified, open-end management investment company, as defined in the Investment Company Act of 1940. Originally incorporated on Feb. 10, 1945 in Nevada, the Fund changed its state of incorporation on June 13, 1986 by merging into a Minnesota corporation incorporated on April 7, 1986. 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). William H. Dudley** Born in 1932 2900 IDS Tower Minneapolis, MN Senior advisor to the chief executive officer of AEFC. David R. Hubers+** Born in 1943 2900 IDS Tower Minneapolis, MN President 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. 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 of AEFC. Wheelock Whitney+ Born in 1926 1900 Foshay Tower 821 Marquette Ave. Minneapolis, MN Chairman, Whitney Management Company (manages family assets). C. Angus Wurtele' Born in 1934 Valspar Corporation Suite 1700 Foshay Tower Minneapolis, MN Chairman of the board and retired chief executive officer, The Valspar Corporation (paints). Director, Bemis Corporation (packaging), Donaldson Company (air cleaners & mufflers) and General Mills, Inc. (consumer foods). + Member of executive committee. ' Member of joint audit committee. * Interested person by reason of being an officer and employee of the Fund. **Interested person by reason of being an officer, board member, employee and/or shareholder of AEFC or American Express. The board also has appointed officers who are responsible for day-to-day business decisions based on policies it has established. In addition to Mr. Pearce, who is chairman of the board, and Mr. Thomas, who is president, the Fund's other officers are: Leslie L. Ogg Born in 1938 901 S. Marquette Ave. Minneapolis, MN President, 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. COMPENSATION FOR FUND AND PORTFOLIO BOARD MEMBERS Members of the Fund board who are not officers of the Fund or AEFC receive an annual fee of $600, 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 $6. Expenses for attending meetings are reimbursed. Members of the Portfolio board who are not officers of the Portfolio or of AEFC receive an annual fee of $1,800 and the chair of the Contracts Committee receives and 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 and Personnel Committee $25 and for traveling from out-of-state, $18. Expenses for attending meetings are reimbursed. During the fiscal year ended Sept. 30, 1997, the independent members of the Fund and Portfolio boards, for attending up to 32 meetings, received the following compensation:
Compensation Table Total cash compensation Pension or from the IDS Aggregate Retirement MUTUAL FUND Aggregate compensation benefits Estimated GROUP and compensation from the accrued as Fund annual benefit Preferred Board Member from the Fund Portfolio or Portfolio upon retirement Master Trust expenses Group - ---------------------- --------------- --------------- ----------------- ----------------- ----------------- H. Brewster Atwater, $1,306 $2,418 $0 $0 $90,300 Jr. (part of year) - ---------------------- --------------- --------------- ----------------- ----------------- ----------------- - ---------------------- --------------- --------------- ----------------- ----------------- ----------------- Lynne V. Cheney 1,373 2,632 0 0 95,800 - ---------------------- --------------- --------------- ----------------- ----------------- ----------------- - ---------------------- --------------- --------------- ----------------- ----------------- ----------------- Robert F. Froehlke 1,506 2,718 0 0 103,000 - ---------------------- --------------- --------------- ----------------- ----------------- ----------------- - ---------------------- --------------- --------------- ----------------- ----------------- ----------------- Heinz F. Hutter 1,581 2,793 0 0 107,200 - ---------------------- --------------- --------------- ----------------- ----------------- ----------------- - ---------------------- --------------- --------------- ----------------- ----------------- ----------------- Anne P. Jones 1,610 2,893 0 0 110,000 - ---------------------- --------------- --------------- ----------------- ----------------- ----------------- - ---------------------- --------------- --------------- ----------------- ----------------- ----------------- Melvin R. Laird 1,389 2,648 0 0 97,000 - ---------------------- --------------- --------------- ----------------- ----------------- ----------------- - ---------------------- --------------- --------------- ----------------- ----------------- ----------------- Alan K. Simpson 1,355 2,614 0 0 94,600 (part of year) - ---------------------- --------------- --------------- ----------------- ----------------- ----------------- - ---------------------- --------------- --------------- ----------------- ----------------- ----------------- Edson W. Spencer 1,517 2,429 0 0 100,700 - ---------------------- --------------- --------------- ----------------- ----------------- ----------------- - ---------------------- --------------- --------------- ----------------- ----------------- ----------------- Wheelock Whitney 1,631 2,843 0 0 110,400 - ---------------------- --------------- --------------- ----------------- ----------------- ----------------- - ---------------------- --------------- --------------- ----------------- ----------------- ----------------- C. Angus Wurtele 1,656 2,868 0 0 111,600 - ---------------------- --------------- --------------- ----------------- ----------------- -----------------
On Sept. 30, 1997, the Fund's board members and officers as a group owned less than 1% of the outstanding shares of any class. INDEPENDENT AUDITORS The Fund's and corresponding Portfolio's financial statements contained in the Annual Report to shareholders for the fiscal year ended Sept.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 Sept. 30, 1997, pursuant to Section 30(d) of the 1940 Act, are hereby incorporated in this SAI by reference. No other portion of the Annual Report, however, is incorporated by reference. PROSPECTUS The prospectus for IDS Stock Fund, dated Nov. 28, 1997, is hereby incorporated in this SAI by reference. APPENDIX A DESCRIPTION OF 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. Ratings by Moody's Investors Service, Inc. are Aaa, Aa, A, Baa, Ba, B, Caa, Ca, and C. 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 are 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. Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Ratings by Standard & Poor's Corporation are AAA, AA, A, BBB, BB, B, CCC, CC, C and D. 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. 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 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. BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating. B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating. CCC has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating. CC typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating. C typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC- rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. D is in payment default. The D rating category is used when interest payments or principal payments are not made on the due date, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. Non-rated securities will be considered for investment when they possess a risk comparable to that of rated securities consistent with the Portfolio's objectives and policies. When assessing the risk involved in each non-rated security, the Portfolio will consider the financial condition of the issuer or the protection afforded by the terms of the security. APPENDIX B FOREIGN CURRENCY TRANSACTIONS Since investments in foreign countries usually involve currencies of foreign countries, and since the Portfolio may hold cash and cash-equivalent investments in foreign currencies, the value of the Portfolio's assets as measured in U.S. dollars may be affected favorably or unfavorably by changes in currency exchange rates and exchange control regulations. Also, the Portfolio may incur costs in connection with conversions between various currencies. Spot Rates and Forward Contracts. The Portfolio conducts its foreign currency exchange transactions either at the spot (cash) rate prevailing in the foreign currency exchange market or by entering into forward currency exchange contracts (forward contracts) as a hedge against fluctuations in future foreign exchange rates. A forward contract involves an obligation to buy or sell a specific currency at a future date, which may be any fixed number of days from the contract date, at a price set at the time of the contract. These contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. A forward contract generally has no deposit requirements. No commissions are charged at any stage for trades. The Portfolio may enter into forward contracts to settle a security transaction or handle dividend and interest collection. When the Portfolio enters into a contract for the purchase or sale of a security denominated in a foreign currency or has been notified of a dividend or interest payment, it may desire to lock in the price of the security or the amount of the payment in dollars. By entering into a forward contract, the Portfolio will be able to protect itself against a possible loss resulting from an adverse change in the relationship between different currencies from the date the security is purchased or sold to the date on which payment is made or received or when the dividend or interest is actually received. The Portfolio also may enter into forward contracts when management of the Portfolio believes the currency of a particular foreign country may suffer a substantial decline against another currency. It may enter into a forward contract to sell, for a fixed amount of dollars, the amount of foreign currency approximating the value of some or all of the Portfolio's securities denominated in such foreign currency. The precise matching of forward contract amounts and the value of securities involved generally will not be possible since the future value of such securities in foreign currencies more than likely will change between the date the forward contract is entered into and the date it matures. The projection of short-term currency market movements is extremely difficult and successful execution of a short-term hedging strategy is highly uncertain. The Portfolio will not enter into such forward contracts or maintain a net exposure to such contracts when consummating the contracts would obligate the Portfolio to deliver an amount of foreign currency in excess of the value of the Portfolio's securities or other assets denominated in that currency. The Portfolio will designate cash or securities in an amount equal to the value of the Portfolio's total assets committed to consummating forward contracts entered into under the second circumstance set forth above. If the value of the securities declines, additional cash or securities will be designated on a daily basis so that the value of the cash or securities will equal the amount of the Portfolio's commitments on such contracts. At maturity of a forward contract, the Portfolio may either sell the security and make delivery of the foreign currency or retain the security and terminate its contractual obligation to deliver the foreign currency by purchasing an offsetting contract with the same currency trader obligating it to buy, on the same maturity date, the same amount of foreign currency. If the Portfolio retains the security and engages in an offsetting transaction, the Portfolio will incur a gain or a loss (as described below) to the extent there has been movement in forward contract prices. If the Portfolio engages in an offsetting transaction, it may subsequently enter into a new forward contract to sell the foreign currency. Should forward prices decline between the date the Portfolio enters into a forward contract for selling foreign currency and the date it enters into an offsetting contract for purchasing the foreign currency, the Portfolio will realize a gain to the extent that the price of the currency it has agreed to sell exceeds the price of the currency it has agreed to buy. Should forward prices increase, the Portfolio will suffer a loss to the extent the price of the currency it has agreed to buy exceeds the price of the currency it has agreed to sell. It is impossible to forecast what the market value of securities will be at the expiration of a contract. Accordingly, it may be necessary for the Portfolio to buy additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security is less than the amount of foreign currency the Portfolio is obligated to deliver and a decision is made to sell the security and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received on the sale of the portfolio security if its market value exceeds the amount of foreign currency the Portfolio is obligated to deliver. The Portfolio's dealing in forward contracts will be limited to the transactions described above. This method of protecting the value of the Portfolio's securities against a decline in the value of a currency does not eliminate fluctuations in the underlying prices of the securities. It simply establishes a rate of exchange that can be achieved at some point in time. Although such forward contracts tend to minimize the risk of loss due to a decline in value of hedged currency, they tend to limit any potential gain that might result should the value of such currency increase. Although the Portfolio values its assets each business day in terms of U.S. dollars, it does not intend to convert its foreign currencies into U.S. dollars on a daily basis. It will do so from time to time, and shareholders should be aware of currency conversion costs. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference (spread) between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Portfolio at one rate, while offering a lesser rate of exchange should the Portfolio desire to resell that currency to the dealer. Options on Foreign Currencies. The Portfolio may buy put and write covered call options on foreign currencies for hedging purposes. For example, a decline in the dollar value of a foreign currency in which securities are denominated will reduce the dollar value of such securities, even if their value in the foreign currency remains constant. In order to protect against such diminutions in the value of securities, the Portfolio may buy put options on the foreign currency. If the value of the currency does decline, the Portfolio will have the right to sell such currency for a fixed amount in dollars and will thereby offset, in whole or in part, the adverse effect on its portfolio which otherwise would have resulted. As in the case of other types of options, however, the benefit to the Portfolio derived from purchases of foreign currency options will be reduced by the amount of the premium and related transaction costs. In addition, where currency exchange rates do not move in the direction or to the extent anticipated, the Portfolio could sustain losses on transactions in foreign currency options which would require it to forego a portion or all of the benefits of advantageous changes in such rates. The Portfolio may write options on foreign currencies for the same types of hedging purposes. For example, when the Portfolio anticipates a decline in the dollar value of foreign-denominated securities due to adverse fluctuations in exchange rates it could, instead of purchasing a put option, write a call option on the relevant currency. If the expected decline occurs, the option will most likely not be exercised and the diminution in value of securities will be fully or partially offset by the amount of the premium received. As in the case of other types of options, however, the writing of a foreign currency option will constitute only a partial hedge up to the amount of the premium, and only if rates move in the expected direction. If this does not occur, the option may be exercised and the Portfolio would be required to buy or sell the underlying currency at a loss which may not be offset by the amount of the premium. Through the writing of options on foreign currencies, the Portfolio also may be required to forego all or a portion of the benefits which might otherwise have been obtained from favorable movements on exchange rates. All options written on foreign currencies will be covered. An option written on foreign currencies is covered if the Portfolio holds currency sufficient to cover the option or has an absolute and immediate right to acquire that currency without additional cash consideration upon conversion of assets denominated in that currency or exchange of other currency held in its portfolio. An option writer could lose amounts substantially in excess of its initial investments, due to the margin and collateral requirements associated with such positions. Options on foreign currencies are traded through financial institutions acting as market-makers, although foreign currency options also are traded on certain national securities exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to SEC regulation. In an over-the-counter trading environment, many of the protections afforded to exchange participants will not be available. For example, there are no daily price fluctuation limits, and adverse market movements could therefore continue to an unlimited extent over a period of time. Although the purchaser of an option cannot lose more than the amount of the premium plus related transaction costs, this entire amount could be lost. Foreign currency option positions entered into on a national securities exchange are cleared and guaranteed by the Options Clearing Corporation (OCC), thereby reducing the risk of counterparty default. Further, a liquid secondary market in options traded on a national securities exchange may be more readily available than in the over-the-counter market, potentially permitting the Portfolio to liquidate open positions at a profit prior to exercise or expiration, or to limit losses in the event of adverse market movements. The purchase and sale of exchange-traded foreign currency options, however, is subject to the risks of availability of a liquid secondary market described above, as well as the risks regarding adverse market movements, margining of options written, the nature of the foreign currency market, possible intervention by governmental authorities and the effects of other political and economic events. In addition, exchange-traded options on foreign currencies involve certain risks not presented by the over-the-counter market. For example, exercise and settlement of such options must be made exclusively through the OCC, which has established banking relationships in certain foreign countries for the purpose. As a result, the OCC may, if it determines that foreign governmental restrictions or taxes would prevent the orderly settlement of foreign currency option exercises, or would result in undue burdens on OCC or its clearing member, impose special procedures on exercise and settlement, such as technical changes in the mechanics of delivery of currency, the fixing of dollar settlement prices or prohibitions on exercise. Foreign Currency Futures and Related Options. The Portfolio may enter into currency futures contracts to sell currencies. It also may buy put options and write covered call options on currency futures. Currency futures contracts are similar to currency forward contracts, except that they are traded on exchanges (and have margin requirements) and are standardized as to contract size and delivery date. Most currency futures call for payment of delivery in U.S. dollars. The Portfolio may use currency futures for the same purposes as currency forward contracts, subject to Commodity Futures Trading Commission (CFTC) limitations. All futures contracts are aggregated for purposes of the percentage limitations. Currency futures and options on futures values can be expected to correlate with exchange rates, but will not reflect other factors that may affect the values of the Portfolio's investments. A currency hedge, for example, should protect a Yen-denominated bond against a decline in the Yen, but will not protect the Portfolio against price decline if the issuer's creditworthiness deteriorates. Because the value of the Portfolio's investments denominated in foreign currency will change in response to many factors other than exchange rates, it may not be possible to match the amount of a forward contract to the value of the Portfolio's investments denominated in that currency over time. The Portfolio will hold securities or other options or futures positions whose values are expected to offset its obligations. The Portfolio will not enter into an option or futures position that exposes the Portfolio to an obligation to another party unless it owns either (i) an offsetting position in securities or (ii) cash, receivables and short-term debt securities with a value sufficient to cover its potential obligations. APPENDIX C OPTIONS AND STOCK INDEX FUTURES CONTRACTS The Portfolio may buy or write options traded on any U.S. or foreign exchange or in the over-the-counter market. The Portfolio may enter into stock index futures contracts traded on any U.S. or foreign exchange. The Portfolio also may buy or write put and call options on these futures and on stock indexes. Options in the over-the-counter market will be purchased only when the investment manager believes a liquid secondary market exists for the options and only from dealers and institutions the investment manager believes present a minimal credit risk. Some options are exercisable only on a specific date. In that case, or if a liquid secondary market does not exist, the Portfolio could be required to buy or sell securities at disadvantageous prices, thereby incurring losses. OPTIONS. An option is a contract. A person who buys a call option for a security has the right to buy the security at a set price for the length of the contract. A person who sells a call option is called a writer. The writer of a call option agrees to sell the security at the set price when the buyer wants to exercise the option, no matter what the market price of the security is at that time. A person who buys a put option has the right to sell a security at a set price for the length of the contract. A person who writes a put option agrees to buy the security at the set price if the purchaser wants to exercise the option, no matter what the market price of the security is at that time. An option is covered if the writer owns the security (in the case of a call) or sets aside the cash 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 may benefit the Portfolio and its shareholders by improving the Portfolio's liquidity and by helping to stabilize the value of its net assets. Buying options. Put and call options may be used as a trading technique to facilitate buying and selling securities for investment reasons. Options are used as a trading technique to take advantage of any disparity between the price of the underlying security in the securities market and its price on the options market. It is anticipated the trading technique will be utilized only to effect a transaction when the price of the security plus the option price will be as good or better than the price at which the security could be bought or sold directly. When the option is purchased, the Portfolio pays a premium and a commission. It then pays a second commission on the purchase or sale of the underlying security when the option is exercised. For record keeping and tax purposes, the price obtained on the purchase of the underlying security will be the combination of the exercise price, the premium and both commissions. When using options as a trading technique, commissions on the option will be set as if only the underlying securities were traded. Put and call options also may be held by the Portfolio for investment purposes. Options permit the Portfolio to experience the change in the value of a security with a relatively small initial cash investment. The risk the Portfolio assumes when it buys an option is the loss of the premium. To be beneficial to the Portfolio, the price of the underlying security must change within the time set by the option contract. Furthermore, the change must be sufficient to cover the premium paid, the commissions paid both in the acquisition of the option and in a closing transaction or in the exercise of the option and sale (in the case of a call) or purchase (in the case of a put) of the underlying security. Even then the price change in the underlying security does not ensure a profit since prices in the option market may not reflect such a change. Writing covered options. The Portfolio will write covered options when it feels it is appropriate and will follow these guidelines: 'Underlying securities will continue to be bought or sold solely on the basis of investment considerations consistent with the Fund's goals. 'All options written by the Portfolio will be covered. For covered call options if a decision is made to sell the security, the Portfolio will attempt to terminate the option contract through a closing purchase transaction. 'The Portfolio will deal only in standard option contracts traded on national securities exchanges or those that may be quoted on NASDAQ (a system of price quotations developed by the National Association of Securities Dealers, Inc.) Net premiums on call options closed or premiums on expired call options are treated as short-term capital gains. Since the Portfolio is taxed as a regulated investment company under the Internal Revenue Code, any gains on options and other securities held less than three months must be limited to less than 30% of its annual gross income. If a covered call option is exercised, the security is sold by the Portfolio. The premium received upon writing the option is added to the proceeds received from the sale of the security. The Portfolio will recognize a capital gain or loss based upon the difference between the proceeds and the security's basis. Premiums received from writing outstanding call options are included as a deferred credit in the Statement of Assets and Liabilities and adjusted daily to the current market value. Options are valued at the close of the New York Stock Exchange. An option listed on a national exchange, CBOE or NASDAQ will be valued at the last-quoted sales price or, if such a price is not readily available, at the mean of the last bid and asked prices. STOCK INDEX FUTURES CONTRACTS. Stock index futures contracts are commodity contracts listed on commodity exchanges. They currently include contracts on the Standard & Poor's 500 Stock Index (S&P 500 Index) and other broad stock market indexes such as the New York Stock Exchange Composite Stock Index and the Value Line Composite Stock Index, as well as narrower sub-indexes such as the S&P 100 Energy Stock Index and the New York Stock Exchange Utilities Stock Index. A stock index assigns relative values to common stocks included in the index and the index fluctuates with the value of the common stocks so included. A futures contract is a legal agreement between a buyer or seller and the clearinghouse of a futures exchange in which the parties agree to make a cash settlement on a specified future date in an amount determined by the stock index on the last trading day of the contract. The amount is a specified dollar amount (usually $100 or $500) multiplied by the difference between the index value on the last trading day and the value on the day the contract was struck. For example, the S&P 500 Index consists of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The S&P 500 Index assigns relative weightings to the common stocks included in the Index, and the Index fluctuates with changes in the market values of those stocks. In the case of S&P 500 Index futures contracts, the specified multiple is $500. Thus, if the value of the S&P 500 Index were 150, the value of one contract would be $75,000 (150 x $500). Unlike other futures contracts, a stock index futures contract specifies that no delivery of the actual stocks making up the index will take place. Instead, settlement in cash must occur upon the termination of the contract. For example, excluding any transaction costs, if the Portfolio enters into one futures contract to buy the S&P 500 Index at a specified future date at a contract value of 150 and the S&P 500 Index is at 154 on that future date, the Portfolio will gain $500 x (154-150) or $2,000. If the Portfolio enters into one futures contract to sell the S&P 500 Index at a specified future date at a contract value of 150 and the S&P 500 Index is at 152 on that future date, the Portfolio will lose $500 x (152-150) or $1,000. Unlike the purchase or sale of an equity security, no price would be paid or received by the Portfolio upon entering into futures contracts. However, the Portfolio would be required to deposit with its custodian, in a segregated account in the name of the futures broker, an amount of cash or U.S. Treasury bills equal to approximately 5% of the contract value. This amount is known as initial margin. The nature of initial margin in futures transactions is different from that of margin in security transactions in that futures contract margin does not involve borrowing funds by the Portfolio to finance the transactions. Rather, the initial margin is in the nature of a performance bond or good-faith deposit on the contract that is returned to the Portfolio upon termination of the contract, assuming all contractual obligations have been satisfied. Subsequent payments, called variation margin, to and from the broker would be made on a daily basis as the price of the underlying stock index fluctuates, making the long and short positions in the contract more or less valuable, a process known as marking to market. For example, when the Portfolio enters into a contract in which it benefits from a rise in the value of an index and the price of an underlying stock index has risen, the Portfolio will receive from the broker a variation margin payment equal to that increase in value. Conversely, if the price of the underlying stock index declines, the Portfolio would be required to make a variation margin payment to the broker equal to the decline in value. How the Portfolio Would Use Stock Index Futures Contracts. The Portfolio intends to use stock index futures contracts and related options for hedging and not for speculation. Hedging permits the Portfolio to gain rapid exposure to or protect itself from changes in the market. For example, the Portfolio may find itself with a high cash position at the beginning of a market rally. Conventional procedures of purchasing a number of individual issues entail the lapse of time and the possibility of missing a significant market movement. By using futures contracts, the Portfolio can obtain immediate exposure to the market and benefit from the beginning stages of a rally. The buying program can then proceed and once it is completed (or as it proceeds), the contracts can be closed. Conversely, in the early stages of a market decline, market exposure can be promptly offset by entering into stock index futures contracts to sell units of an index and individual stocks can be sold over a longer period under cover of the resulting short contract position. The Portfolio may enter into contracts with respect to any stock index or sub-index. To hedge the Portfolio successfully, however, the Portfolio must enter into contracts with respect to indexes or sub-indexes whose movements will have a significant correlation with movements in the prices of the Portfolio's securities. Special Risks of Transactions in Stock Index Futures Contracts 1. Liquidity. The Portfolio may elect to close some or all of its contracts prior to expiration. The purpose of making such a move would be to reduce or eliminate the hedge position held by the Portfolio. The Portfolio may close its positions by taking opposite positions. Final determinations of variation margin are then made, additional cash as required is paid by or to the Portfolio, and the Portfolio realizes a gain or a loss. Positions in stock index futures contracts may be closed only on an exchange or board of trade providing a secondary market for such futures contracts. For example, futures contracts transactions can currently be entered into with respect to the S&P 500 Stock Index on the Chicago Mercantile Exchange, the New York Stock Exchange Composite Stock Index on the New York Futures Exchange and the Value Line Composite Stock Index on the Kansas City Board of Trade. Although the Portfolio 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 Portfolio would have to make daily cash payments of variation margin. Such price movements, however, will be offset all or in part by the price movements of the securities subject to the hedge. Of course, there is no guarantee the price of the securities will correlate with the price movements in the futures contract and thus provide an offset to losses on a futures contract. 2. Hedging Risks. There are several risks in using stock index futures contracts as a hedging device. One risk arises because the prices of futures contracts may not correlate perfectly with movements in the underlying stock index due to certain market distortions. First, all participants in the futures market are subject to initial margin and variation margin requirements. Rather than making additional variation margin payments, investors may close the contracts through offsetting transactions which could distort the normal relationship between the index and futures markets. Second, the margin requirements in the futures market are lower than margin requirements in the securities market, and as a result the futures market may attract more speculators than does the securities market. Increased participation by speculators in the futures market also may cause temporary price distortions. Because of price distortion in the futures market and because of imperfect correlation between movements in stock indexes and movements in prices of futures contracts, even a correct forecast of general market trends may not result in a successful hedging transaction over a short period. Another risk arises because of imperfect correlation between movements in the value of the futures contracts and movements in the value of securities subject to the hedge. If this occurred, the Portfolio could lose money on the contracts and also experience a decline in the value of its portfolio securities. While this could occur, the investment manager believes that over time the value of the Portfolio will tend to move in the same direction as the market indexes and will attempt to reduce this risk, to the extent possible, by entering into futures contracts on indexes whose movements it believes will have a significant correlation with movements in the value of the Portfolio's securities sought to be hedged. It also is possible that if the Portfolio has hedged against a decline in the value of the stocks held in its portfolio and stock prices increase instead, the Portfolio will lose part or all of the benefit of the increased value of its stock which it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if the Portfolio has insufficient cash, it may have to sell securities to meet daily variation margin requirements. Such sales of securities may be, but will not necessarily be, at increased prices which reflect the rising market. The Portfolio may have to sell securities at a time when it may be disadvantageous to do so. OPTIONS ON STOCK INDEX FUTURES CONTRACTS. Options on stock index futures contracts are similar to options on stock except that options on futures contracts give the purchaser the right, in return for the premium paid, to assume a position in a stock index futures contract (a long position if the option is a call and a short position if the option is a put) at a specified exercise price at any time during the period of the option. If the option is closed instead of exercised, the holder of the option receives an amount that represents the amount by which the market price of the contract exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the futures contract. If the option does not appreciate in value prior to the exercise date, the Portfolio will suffer a loss of the premium paid. OPTIONS ON STOCK INDEXES. Options on stock indexes are securities traded on national securities exchanges. An option on a stock index is similar to an option on a futures contract except all settlements are in cash. A 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. SPECIAL RISKS OF TRANSACTIONS IN OPTIONS ON STOCK INDEX FUTURES CONTRACTS AND OPTIONS ON STOCK INDEXES. As with options on stocks, the holder of an option on a futures contract or on a stock index may terminate a position by selling an option covering the same contract or index and having the same exercise price and expiration date. The ability to establish and close out positions on such options will be subject to the development and maintenance of a liquid secondary market. The Portfolio will not purchase options unless the market for such options has developed sufficiently, so that the risks in connection with options are not greater than the risks in connection with stock index futures contracts transactions themselves. Compared to using futures contracts, purchasing options involves less risk to the Portfolio because the maximum amount at risk is the premium paid for the options (plus transaction costs). There may be circumstances, however, when using an option would result in a greater loss to the Portfolio than using a futures contract, such as when there is no movement in the level of the stock index. TAX TREATMENT. As permitted under federal income tax laws, the Portfolio intends to identify futures contracts as mixed straddles and not mark them to market, that is, not treat them as having been sold at the end of the year at market value. Such an election may result in the Portfolio being required to defer recognizing losses incurred by entering into futures contracts and losses on underlying securities identified as being hedged against. Federal income tax treatment of gains or losses from transactions in options on futures contracts and indexes will depend on whether such option is a section 1256 contract. If the option is a non-equity option, the Portfolio will either make a 1256(d) election and treat the option as a mixed straddle or mark to market the option at fiscal year end and treat the gain/loss as 40% short term and 60% long term. Certain provisions of the Internal Revenue Code may also limit the Portfolio's ability to engage in futures contracts and related options transactions. For example, at the close of each quarter of the Fund's taxable year, at least 50% of the value of its assets must consist of cash, government securities and other securities, subject to certain diversification requirements. 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 Portfolio may be required to defer closing out a contract beyond the time when it might otherwise be advantageous to do so. The Portfolio also may be restricted in purchasing put options for the purpose of hedging underlying securities because of applying the short sale holding period rules with respect to such underlying securities. Accounting for futures contracts will be according to generally accepted accounting principles. Initial margin deposits will be recognized as assets due from a broker (the Portfolio's agent in acquiring the futures position). During the period the futures contract is open, changes in value of the contract will be recognized as unrealized gains or losses by marking to market on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments will be made or received depending upon whether gains or losses are incurred. All contracts and options will be valued at the last-quoted sales price on their primary exchange. APPENDIX D MORTGAGE-BACKED SECURITIES A mortgage pass-through certificate is one that represents an interest in a pool, or group, of mortgage loans assembled by the Government National Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA) or non-governmental entities. In pass-through certificates, both principal and interest payments, including prepayments, are passed through to the holder of the certificate. Prepayments on underlying mortgages result in a loss of anticipated interest, and the actual yield (or total return) to the Portfolio, which is influenced by both stated interest rates and market conditions, may be different than the quoted yield on certificates. Some U.S. government securities may be purchased on a when-issued basis, which means that it may take as long as 45 days after the purchase before the securities are delivered to the Portfolio. Stripped Mortgage-Backed Securities. The Portfolio may invest in stripped mortgage-backed securities. Generally, there are two classes of stripped mortgage-backed securities: Interest Only (IO) and Principal Only (PO). IOs entitle the holder to receive distributions consisting of all or a portion of the interest on the underlying pool of mortgage loans or mortgage-backed securities. POs entitle the holder to receive distributions consisting of all or a portion of the principal of the underlying pool of mortgage loans or mortgage-backed securities. The cash flows and yields on IOs and POs are extremely sensitive to the rate of principal payments (including prepayments) on the underlying mortgage loans or mortgage-backed securities. A rapid rate of principal payments may adversely affect the yield to maturity of IOs. A slow rate of principal payments may adversely affect the yield to maturity of POs. On an IO, if prepayments of principal are greater than anticipated, an investor may incur substantial losses. If prepayments of principal are slower than anticipated, the yield on a PO will be affected more severely than would be the case with a traditional mortgage-backed security. Mortgage-Backed Security Spread Options. The Portfolio may purchase mortgage-backed security (MBS) put spread options and write covered MBS call spread options. MBS spread options are based upon the changes in the price spread between a specified mortgage-backed security and a like-duration Treasury security. MBS spread options are traded in the OTC market and are of short duration, typically one to two months. The Portfolio would buy or sell covered MBS call spread options in situations where mortgage-backed securities are expected to underperform like-duration Treasury securities. 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). Independent auditors' report The board and shareholders IDS Stock Fund, Inc.: We have audited the accompanying statement of assets and liabilities of IDS Stock Fund, Inc. as of September 30, 1997, and the related statement of operations for the year then ended, the statements of changes in net assets for the year then ended and the eleven month period ended September 30, 1996, and the financial highlights for the one year ended September 30, 1997, the eleven month period ended September 30, 1996 and for each of the years in the nine-year period ended October 31, 1995. These financial statements and the financial highlights are the responsibility of fund management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of IDS Stock Fund, Inc. at September 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 November 7, 1997
Financial statements Statement of assets and liabilities IDS Stock Fund, Inc. Sept. 30, 1997 Assets Investment in Equity Portfolio (Note 1) $4,163,002,859 -------------- Total assets 4,163,002,859 ------------- Liabilities Accrued distribution fee 4,143 Accrued service fee 17,584 Accrued transfer agency fee 10,010 Accrued administrative services fees 3,158 Other accrued expenses 155,208 ------- Total liabilities 190,103 ------- Net assets applicable to outstanding capital stock $4,162,812,756 ============== Represented by Capital stock-- $.01 par value (Note 1) $ 1,517,287 Additional paid-in capital 2,616,232,141 Undistributed net investment income 791,472 Accumulated net realized gain (loss) 469,623,967 Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 1,074,647,889 ------------- Total-- representing net assets applicable to outstanding capital stock $4,162,812,756 ============== Net assets applicable to outstanding shares: Class A $2,877,266,387 Class B $ 203,257,884 Class Y $1,082,288,485 Net asset value per share of outstanding capital stock: Class A shares 104,853,191 $ 27.44 Class B shares 7,438,698 $ 27.32 Class Y shares 39,436,789 $ 27.44 See accompanying notes to financial statements.
Statement of operations IDS Stock Fund, Inc. Year ended Sept. 30, 1997 Investment income Income: Dividends $ 72,702,266 Interest 14,749,102 Less: Foreign taxes withheld (526,504) -------- Total Income 86,924,864 ---------- Expenses (Note 2): Expenses allocated from Equity Portfolio 17,488,030 Distribution fee -- Class B 1,152,946 Transfer agency fee 3,507,442 Incremental transfer agency fee-- Class B 15,824 Service fee Class A 4,348,683 Class B 267,485 Class Y 411,815 Administrative services fees and expenses 1,073,735 Compensation of board members 14,110 Compensation of officers 4,103 Postage 148,894 Registration fees 302,944 Reports to shareholders 3,271 Audit fees 9,625 Other 9,436 ----- Total expenses 28,758,343 Earnings credits on cash balances (Note 2) (208,845) -------- Total net expenses 28,549,498 ---------- Investment income (loss) -- net 58,375,366 ---------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) 491,037,820 Foreign currency transactions (506,048) -------- Net realized gain (loss) on investments 490,531,772 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 427,269,463 ----------- Net gain (loss) on investments and foreign currencies 917,801,235 ----------- Net increase (decrease) in net assets resulting from operations $976,176,601 ============ See accompanying notes to financial statements.
Financial statements Statement of changes in net assets IDS Stock Fund, Inc. Operations and distributions Sept. 30, 1997 Sept. 30, 1996 Year ended Eleven-month period ended Investment income (loss)-- net $ 58,375,366 $ 62,152,554 Net realized gain (loss) on investments 490,531,772 144,560,754 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 427,269,463 307,696,966 ----------- ----------- Net increase (decrease) in net assets resulting from operations 976,176,601 514,410,274 ----------- ----------- Distributions to shareholders from: Net investment income Class A (44,462,913) (40,068,143) Class B (1,646,156) (917,346) Class Y (17,928,151) (16,474,443) Net realized gain Class A (113,973,806) (66,949,954) Class B (6,116,806) (1,317,953) Class Y (43,104,797) (25,308,530) ----------- ----------- Total distributions (227,232,629) (151,036,369) ------------ ------------ Capital share transactions (Note 3) Proceeds from sales Class A shares (Note 2) 242,084,917 310,273,867 Class B shares 72,920,015 73,175,827 Class Y shares 252,272,494 206,212,641 Reinvestment of distributions at net asset value Class A shares 145,741,344 98,054,599 Class B shares 7,699,303 2,216,336 Class Y shares 53,455,672 36,464,463 Payments for redemptions Class A shares (340,439,519) (344,574,702) Class B shares (Note 2) (16,926,750) (5,132,861) Class Y shares (287,081,216) (207,758,852) ------------ ------------ Increase (decrease) in net assets from capital share transactions 129,726,260 168,931,318 ----------- ----------- Total increase (decrease) in net assets 878,670,232 532,305,223 Net assets at beginning of period 3,284,142,524 2,751,837,301 ------------- ------------- Net assets at end of period $4,162,812,756 $3,284,142,524 ============== ============== Undistributed net investment income $ 791,472 $ 7,896,550 -------------- -------------- See accompanying notes to financial statements.
Notes to financial statements IDS Stock Fund, Inc. 1 Summary of significant accounting policies The Fund is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. The Fund has 10 billion authorized shares of capital stock. The Fund offers Class A, Class B and Class Y shares. Class A shares are sold with a front-end sales charge. Class B shares may be subject to a contingent deferred sales charge and such shares automatically convert to Class A shares during the ninth calendar year of ownership. Class Y shares have no sales charge and are offered only to qualifying institutional investors. All classes of shares have identical voting, dividend, liquidation and other rights, and the same terms and conditions, except that the level of distribution fee, transfer agency fee and service fee (class specific expenses) differs among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. Investment in Equity Portfolio Effective May 13, 1996, the Fund began investing all of its assets in Equity Portfolio (the Portfolio), a series of Growth and Income Trust, an open-end investment company that has the same objectives as the Fund. This was accomplished by transferring the Fund's assets to the Portfolio in return for a proportionate ownership interest in the Portfolio. Equity Portfolio invests primarily in common stocks and securities convertible into common stocks. The Fund records daily its share of the Portfolio's income, expenses and realized and unrealized gains and losses. The financial statements of the Portfolio are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. The Fund records its investment in the Portfolio at the value that is equal to the Fund's proportionate ownership interest in the net assets of the Portfolio. The percentage of the Portfolio owned by the Fund at Sept. 30, 1997 was 99.98%. Valuation of securities held by the Portfolio is discussed in Note 1 of the Portfolio's "Notes to financial statements," which are included elsewhere in this report. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increase and decrease in net assets from operations during the period. Actual results could differ from those estimates. Federal taxes Since the Fund's policy is to comply with all sections of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to the shareholders, no provision for income or excise taxes is required. Net investment income (loss) and net realized gains (losses) allocated from the Portfolio may differ for financial statement and tax purposes primarily because of the deferral of losses on certain futures contracts, the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes, and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. On the statement of assets and liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been decreased by $1,443,224 and accumulated net realized gain has been increased by $1,623,596 resulting in a net reclassification adjustment to decrease additional paid-in capital by $180,372. 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. 2 Expenses and sales charges In addition to the expenses allocated from the Portfolio, the Fund accrues its own expenses as follows: Effective March 20, 1995, the Fund entered into agreements with American Express Financial Corporation (AEFC) for providing administrative services and serving as transfer agent. 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, organizational expenses 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 commencing on May 9, 1997, the fee is calculated at a rate of 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 $2,666,707 for Class A and $92,084 for Class B for the year ended Sept. 30, 1997. During the year ended Sept. 30, 1997, the Fund's transfer agency fees were reduced by $208,845 as a result of earnings credits from overnight cash balances. 3 Capital share transactions Transactions in shares of capital stock for the periods indicated are as follows: Year ended Sept. 30, 1997 Class A Class B Class Y Sold 9,885,572 3,000,534 10,328,998 Issued for reinvested distributions 6,259,225 333,244 2,293,106 Redeemed (13,870,549) (687,579)(11,846,789) ----------- -------- ----------- Net increase (decrease) 2,274,248 2,646,199 775,315 Period ended Sept. 30, 1996 Class A Class B Class Y Sold 14,630,112 3,448,528 9,749,258 Issued for reinvested distributions 4,745,900 106,774 1,762,224 Redeemed (16,225,558) (241,151) (9,825,574) ----------- -------- ---------- Net increase (decrease) 3,150,454 3,314,151 1,685,908 4 Change of Fund's fiscal year The By-Laws of the Fund were amended on Jan. 11, 1996, changing it's fiscal year end from Oct. 31 to Sept. 30, effective 1996. 5 Financial highlights "Financial highlights" showing per share data and selected information is presented on pages 7 and 8 of the prospectus. Independent auditors' report The board of trustees and unitholders Growth and Income Trust: We have audited the accompanying statement of assets and liabilities, including the schedule of investments in securities, of Equity Portfolio (a series of Growth and Income Trust) as of September 30, 1997, the related statement of operations for the year then ended and the statements of changes in net assets for the year ended September 30, 1997 and for the period from May 13, 1996 (commencement of operations) to September 30, 1996. These financial statements are the responsibility of portfolio management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Investment securities held in custody are confirmed to us by the custodian. As to securities purchased and sold but not received or delivered, 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 Equity Portfolio at September 30, 1997, and the results of its operations and the changes in its net assets for the periods stated in the first paragraph above, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Minneapolis, Minnesota November 7, 1997
Financial statements Statement of assets and liabilities Equity Portfolio Sept. 30, 1997 Assets Investments in securities, at value (Note 1) Investments in securities of unaffiliated issuers (identified cost $3,094,630,726) $4,140,592,546 Investments in securities of affiliated issuers (identified cost $40,790,575) 69,650,928 Dividends and accrued interest receivable 7,431,287 Receivable for investment securities sold 55,112,037 U.S. government securities held as collateral (Note 4) 157,000 ------- Total assets 4,272,943,798 ------------- Liabilities Disbursements in excess of cash on demand deposit 3,507,565 Payable for investment securities purchased 46,156,429 Unrealized depreciation on foreign currency contracts held, at value (Notes 1 and 5) 3,351 Payable upon return of securities loaned (Note 4) 59,437,000 Accrued investment management services fee 38,688 ------ Total liabilities 109,143,033 ----------- Net assets $4,163,800,765 ============== See accompanying notes to financial statements.
Statement of operations Equity Portfolio Year ended Sept. 30, 1997 Investment income Income: Dividends (including $703,000 earned from affiliates) $ 72,715,743 Interest 14,726,478 Less: Foreign taxes withheld (526,601) -------- Total income 86,915,620 ---------- Expenses (Note 2): Investment management services fee 16,849,365 Compensation of board members 22,624 Custodian fees 511,951 Audit fees 28,875 Other 90,087 ------ Total expenses 17,502,902 Earnings credit on cash balances (Note 2) (11,644) ------- Total net expenses 17,491,258 ---------- Investment income (loss) -- net 69,424,362 ---------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (including $2,126,838 realized loss on sales of affiliated issuers) (Note 3) 491,092,967 Foreign currency transactions (506,142) -------- Net realized gain (loss) on investments 490,586,825 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 427,383,679 ----------- Net gain (loss) on investments and foreign currencies 917,970,504 ----------- Net increase (decrease) in net assets resulting from operations $987,394,866 ============ See accompanying notes to financial statements.
Financial statements Statements of changes in net assets Equity Portfolio Operations and distributions Year ended For the period from Sept. 30, 1997 May 13, 1996* to Sept. 30, 1996 Investment income (loss)-- net $ 69,424,362 $ 38,250,649 Net realized gain (loss) on investments 490,586,825 (4,205,188) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 427,383,679 140,669,806 ----------- ----------- Net increase (decrease) in net assets resulting from operations 987,394,866 174,715,267 Net contributions (withdrawals) from partners (108,642,196) 3,110,307,828 ------------ ------------- Total increase (decrease) in net assets 878,752,670 3,285,023,095 Net assets at beginning of period (Note 1) 3,285,048,095 25,000 ------------- ------ Net assets at end of period $4,163,800,765 $3,285,048,095 ============== ============== *Commencement of operations See accompanying notes to financial statements.
Notes to financial statements Equity Portfolio 1 Summary of significant accounting policies Equity Portfolio (the Portfolio) is a series of Growth and Income Trust (the Trust) and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. Equity Portfolio invests primarily in common stocks and securities convertible into common stocks. The Declaration of Trust permits the Trustees to issue non-transferable interests in the Portfolio. On April 15, 1996, American Express Financial Corporation (AEFC) contributed $25,000 to the Portfolio. Operations did not formally commence until May 13, 1996, at which time, an existing fund transferred its assets to the Portfolio in return for an ownership percentage of the Portfolio. Significant accounting policies followed by the Portfolio are summarized below: Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increase and decrease in net assets from operations during the period. Actual results could differ from those estimates. Valuation of securities All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price deemed best to reflect fair value as quoted by dealers who make markets in these securities or by an independant pricing service. Securities for which market quotations are not readily available are valued at fair value according to methods selected in good faith by the board. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost. Option transactions In order to produce incremental earnings, protect gains and facilitate buying and selling of securities for investment purposes, the Portfolio may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where the completion of the obligation is dependent upon the credit standing of the other party. The Portfolio also may buy and sell put and call options and write covered call options on portfolio securities and may write cash-secured put options. The risk in writing a call option is that the Portfolio gives up the opportunity of profit if the market price of the security increases. The risk in writing a put option is that the Portfolio may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Portfolio pays a premium whether or not the option is exercised. The Portfolio also has the additional risk of not being able to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Portfolio will realize a gain or loss upon expiration or closing of the option transaction. When 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 Portfolio may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Portfolio also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility that there may be an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Portfolio is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Portfolio each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Portfolio recognizes a realized gain or loss when the contract is closed or expires. Foreign currency translations and foreign currency contracts Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars at the closing rate of exchange. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement dates on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Portfolio may enter into forward foreign currency exchange contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Portfolio and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Portfolio is subject to the credit risk that the other party will not complete the obligations of the contract. Federal taxes For federal income tax purposes the Portfolio qualifies as a partnership and each investor in the Portfolio is treated as the owner of its proportionate share of the net assets, income, expenses and realized and unrealized gains and losses of the Portfolio. Accordingly, as a "pass-through" entity, the Portfolio does not pay any income dividends or capital gain distributions. Other Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date and interest income, including level-yield amortization of premium and discount, is accrued daily. 2 Fees and expenses The Trust, on behalf of the Portfolio, has entered into an Investment Management Services Agreement with AEFC for managing its portfolio. Under this agreement, AEFC determines which securities will be purchased, held or sold. The management fee is a percentage of the portfolio's average daily net assets in reducing percentages from 0.53% to 0.4% annually. The fees may be increased or decreased by a performance adjustment based on a comparison of the performance of Class A shares of IDS Stock Fund to the Lipper Growth and Income Fund Index. The maximum adjustment is 0.08% of the Portfolio's average daily net assets on an annual basis. The adjustment decreased the fee by $607,329 for the year ended Sept. 30, 1997. Under the agreement, the Trust also pays taxes, brokerage commissions and nonadvisory expenses, which include custodian fees, audit and certain legal fees, fidelity bond premiums, registration fees for units, office expenses, consultants' fees, compensation of trustees, corporate filing fees, expenses incurred in connection with lending securities of the Portfolio and any other expenses properly payable by the Trust or Portfolio and approved by the board. During the year ended Sept. 30, 1997, the Portfolio's custodian fees were reduced by $11,644 as a result of earnings credits from overnight cash balances. Pursuant to a Placement Agency Agreement, American Express Financial Advisors Inc. acts as placement agent of the units of the Trust. 3 Securities transactions Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $2,867,116,422 and $2,884,426,737, respectively, for the year ended Sept. 30, 1997. For the same year, the portfolio turnover rate was 82%. Realized gains and losses are determined on an identified cost basis. Brokerage commissions paid to brokers affiliated with AEFC were $404,603 for the year ended Sept. 30, 1997. 4 Lending of portfolio securities At Sept. 30, 1997, securities valued at $59,437,000 were on loan to brokers. For collateral, the Portfolio received $59,280,000 in cash and U.S. government securities valued at $157,000. Income from securities lending amounted to $876,421 for the year ended Sept. 30, 1997. The risks to the Portfolio of securities lending are that the borrower may not provide additional collateral when required or return the securities when due. 5 Foreign currency contracts At Sept. 30, 1997, the Portfolio had entered into a foreign currency exchange contract that obligates the Portfolio to deliver currency at a specified future date. The unrealized appreciation and/or depreciation on this contract is included in the accompanying financial statements. See Summary of significant accounting policies. The terms of the open contract are as follows: Currency to Currency to Unrealized Unrealized Exchange date be delivered be received appreciation depreciation Oct. 2, 1 997 3,463,151 2,503,000 $-- $3,351 Canadian Dollar U.S. Dollar Investments in securities Equity Portfolio (Percentages represent value of Sept. 30, 1997 investments compared to net assets) Investments in securities of unaffiliated issuers Common stocks (81.7%) Issuer Shares Value(a) Aerospace & defense (2.5%) Boeing 800,000 $ 43,550,000 General Motors Cl H 450,000 29,756,250 Lockheed Martin 306,084 32,636,206 Total 105,942,456 Airlines (0.8%) AMR 300,000(b) 33,206,250 Automotive & related (0.9%) Eaton 386,200 35,675,225 Banks and savings & loans (6.1%) BankAmerica 500,000 36,656,250 BankBoston 328,250 29,029,609 First Union 1,000,000 50,062,500 KeyCorp 575,000 36,584,375 Mellon Bank 700,000 38,325,000 Norwest 400,000 24,500,000 Wachovia 49,300 3,549,600 Washington Mutual 500,000 34,875,000 Total 253,582,334 Beverages & tobacco (1.4%) Coca-Cola 550,000 33,515,625 Philip Morris 600,000 24,937,500 Total 58,453,125 Chemicals (1.2%) Du Pont (EI) de Nemours 500,000 30,781,250 Praxair 391,300 20,029,669 Total 50,810,919 Computers & office equipment (4.8%) Compaq Computer 1,000,000(b,c) 74,750,000 Hewlett-Packard 650,000 45,215,625 Intl Business Machines 200,000 21,187,500 Microsoft 150,000(b) 19,846,875 Synopsys 970,000(b) 41,225,000 Total 202,225,000 Electronics (1.7%) Harris 600,000 27,450,000 Intel 450,000 41,540,625 Total 68,990,625 Energy (3.2%) Atlantic Richfield 350,000 29,903,125 Exxon 400,000 25,625,000 Gulf Indonesia Resources 126,000(b) 2,803,500 Phillips Petroleum 600,000 30,975,000 Unocal 1,000,000 43,250,000 Total 132,556,625 Energy equipment & services (0.2%) Cooper Cameron 137,500(b) 9,874,219 Financial services (0.7%) Travelers Group 400,000 27,300,000 Food (1.8%) ConAgra 400,000 26,400,000 CPC Intl 250,000 23,156,250 Sara Lee 500,000 25,750,000 Total 75,306,250 Furniture & appliances (0.8%) Maytag 1,000,000 34,125,000 Health care (9.1%) Baxter Intl 750,000 39,187,500 Bristol-Myers Squibb 500,000 41,375,000 Guidant 1,000,000 56,000,000 Johnson & Johnson 625,000 36,015,625 Medtronic 1,050,000 49,350,000 Merck & Co 200,000 19,987,500 Pfizer 1,000,000 60,062,500 Schering-Plough 700,000 36,050,000 Warner-Lambert 300,000 40,481,250 Total 378,509,375 Health care services (0.5%) Tenet Healthcare 700,000(b) 20,387,500 Household products (3.8%) Colgate-Palmolive 1,000,000 69,687,500 Gillette 550,000 47,471,875 Procter & Gamble 600,000 41,437,500 Total 158,596,875 Industrial equipment & services (3.5%) AGCO 500,000 15,843,750 Deere & Co 950,000 51,062,500 Illinois Tool Works 800,000 40,000,000 UCAR Intl 800,000(b) 38,200,000 Total 145,106,250 Insurance (3.3%) American Intl Group 375,000 38,695,313 Provident Cos 400,000 27,975,000 SunAmerica 750,000 29,390,625 Travelers Property Casualty Cl A 1,000,000 40,500,000 Total 136,560,938 Leisure time & entertainment (0.5%) Disney (Walt) 275,000 22,171,875 Media (0.8%) Clear Channel Communications 500,000(b) 32,437,500 Metals (2.7%) Freeport-McMoRan Copper & Gold Cl B 500,000 14,406,250 Getchell Gold 1,000,000(b) 41,000,000 Martin Marietta Materials1,000,000 36,000,000 Stillwater Mining 1,000,000(b) 21,312,500 Total 112,718,750 Multi-industry conglomerates (3.5%) Emerson Electric 400,000 23,050,000 General Electric 1,100,000 74,868,750 Siebe 1,500,000 30,188,602 Xerox 220,000 18,521,250 Total 146,628,602 Paper & packaging (0.8%) Longview Fibre 1,636,300 32,521,462 Restaurants & lodging (0.6%) Hilton Hotels 800,000 26,950,000 Retail (5.6%) American Stores 1,100,000 26,812,500 Dayton Hudson 500,000 29,968,750 Penney (JC) 550,000 32,037,500 Rite Aid 1,000,000 55,437,500 Safeway 1,000,000(b) 54,375,000 Wal-Mart Stores 1,000,000 36,625,000 Total 235,256,250 Utilities -- electric (1.6%) Carolina Power & Light 300,000 10,781,250 DTE Energy 325,000 9,892,187 FPL Group 600,000 30,750,000 Northern States Power 285,000 14,178,750 Total 65,602,187 Utilities -- telephone (3.2%) Bell Atlantic 460,800 37,065,600 BellSouth 700,000 32,375,000 SBC Communications 450,000 27,618,750 U S WEST Communications Group 900,000 34,650,000 Total 131,709,350 Foreign (16.1%) (d) Commerzbank 600,000(c) 21,634,166 Compagnie Generale des Eaux 156,500 18,412,851 Credito Italiano 20,000,000(c) 54,108,840 Deutsche Bank 600,000 42,249,455 Ericsson (LM) ADR 7,000,000 46,375,000 EXEL 1,250,000 74,453,125 General Electric 4,100,000 25,874,907 ING Groep ADR 600,000(c) 27,562,500 Lufthansa (Deutsche) 1,000,000(b) 19,669,996 Northern Telecom 450,000 46,771,875 Railtrack Group 4,000,000 57,838,316 Royal Dutch Petroleum 1,300,000 72,150,000 Schlumberger 500,000 42,093,750 SGL Carbon 200,000 29,377,636 SmithKline Beecham ADR 1,000,000 48,875,000 Unilever 200,000 42,525,000 Total 669,972,417 Total common stocks of unaffiliated issuers (Cost: $2,449,323,305) $3,403,177,359 Preferred stocks (10.6%) Issuer Shares Value(a) AirTouch Communications 4.00% 525,000 $16,275,000 Altera 8.00% 347,826(e) 16,563,474 Circuit City Stores 5.50% 535,715 19,955,384 Citicorp 5.50% 250,000 29,781,250 CNF Trust I 5.00% 100,000 6,437,500 ConAgra 4.50% Cv 350,000 21,218,750 Crown Cork & Seal 1.90% Cv 225,000 10,012,500 Finova Finance Trust 5.50% 200,000 13,175,000 Gillette 3.00% 195,000 13,065,000 Hilton Hotels 8.00% 600,000(i) 18,600,000 Host Marriott Financial Trust 6.75% Cv 300,000(e) 19,875,000 Houston Inds 7.00% Cv 325,000(i) 16,900,000 Intel 5.00% Cv 206,000(j) 33,685,120 McKesson $2.50 Cv 200,000(e) 14,650,000 Medtronic 5.00% 442,125 $37,447,987 Merck & Co. 4.50% Cv 225,000 20,193,750 Merrill Lynch 6.25% 515,000 19,891,875 Service Corp Intl 5.00% 1,100,000 35,475,000 Sunamerica $3.19 Cv 500,000(j) 22,937,500 UNUM $2.34 Cv 650,000 55,087,500 Total preferred stocks (Cost: $357,217,740) $441,227,590
Bonds (3.2%) Issuer Coupon Maturity Principal Value(a) rate year amount Domestic (2.9%) Adaptec Cv Sub Nts 4.75 % 2004 $15,000,000(e) $ 16,912,500 Costco Zero Coupon Cv 3.50 2017 21,000,000(e,k) 11,313,750 Salomon-Emerson Electric ELK Cv 5.00 1999 35,318,997(f) 34,031,745 Loews Cv 3.125 2007 15,800,000 16,451,750 Read-Rite Cv 6.50 2004 12,000,000 11,790,000 Softkey Intl Cv 5.50 2000 15,000,000 12,993,750 Tower Automotive Cv 5.00 2004 3,000,000(e) 3,225,000 WBK Strypes ELK Cv 10.00 2000 15,216,875(f) 15,204,750 Total 121,923,245 Foreign (0.3%) (d) BAA (British Pound) 9.36 2006 6,000,000 11,062,304 Total bonds (Cost: $124,872,180) $132,985,549 See accompanying notes to investments in securities.
Investments in securities Equity Portfolio (Percentages represent value of investments compared to net assets) Investments in securities of unaffiliated issuers Short-term securities (3.9%) Issuer Annualized Amount Value(a) yield on payable at date of maturity purchase U.S. government agencies (0.6%) Federal Home Loan Mtge Corp Disc Nt 10-14-97 5.40% $ 9,900,000 $ 9,880,695 Federal Natl Mtge Assn Disc Nt 10-17-97 5.45 14,000,000 13,966,089 Total 23,846,784 Commercial paper (3.2%) Abbott Laboratories 10-29-97 5.50 9,300,000 9,260,217 Ameritech Capital Funding 10-24-97 5.48 13,266,000(g)13,216,746 10-28-97 5.52 3,100,000(g) 3,087,166 BellSouth Capital Funding 11-03-97 5.52 10,000,000 9,949,400 BOC Group 10-20-97 5.52 4,000,000 3,988,347 Cargill 10-20-97 5.50 5,900,000 5,882,874 Ciesco LP 11-07-97 5.51 1,500,000 1,491,505 CIT Group Holdings 11-04-97 5.51 6,100,000 6,068,256 Gannett 11-06-97 5.50 6,100,000 6,066,450 Gateway Fuel 10-21-97 5.50 6,000,000 5,981,667 10-27-97 5.49 7,000,000 6,970,960 Kredietbank North America Finance 10-08-97 5.50 1,700,000 1,698,182 10-08-97 5.51 600,000 599,357 Morgan Stanley Group 10-15-97 5.50 6,000,000 5,987,167 Motorola 10-23-97 5.50 10,000,000 9,966,389 Natl Bank Canada 10-03-97 5.52 4,900,000 4,898,497 New Center Asset Trust 10-17-97 5.51 1,800,000 1,795,592 Paccar Financial 10-20-97 5.51 8,000,000 7,976,735 Reed Elsevier 11-21-97 5.51 8,600,000(g) 8,529,450 SBC Communications Capital 11-03-97 5.51 5,700,000(g) 5,668,270 11-05-97 5.53 9,300,000(g) 9,249,999 USAA Capital 10-22-97 5.51 6,500,000 6,479,108 Total 134,812,334 Letter of credit (0.1%) Student Loan Marketing Assn- Nebraska Higher Education 10-31-97 5.54 4,564,000 4,542,930 Total short-term securities (Cost: $163,212,501) $163,202,048 Total investments in securities of unaffiliated issuers (Cost: $3,094,630,726) $4,140,592,546 Investments in securities of affiliated issuers (h) Common stocks (1.7%) Issuer Shares Value(a) Meridian Gold 3,800,000(b) $18,838,428 Mutual Risk Management 1,000,000 50,812,500 Total investments in securities of affiliated issuers (Cost: $40,790,575) $69,650,928 Total investments in securities (Cost: $3,135,421,301) (l) $4,210,243,474 See accompanying notes to investments in securities.
Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Non-income producing. (c) Security is partially or fully on loan. See Note 4 to the financial statements. (d) Foreign security values are stated in U.S. dollars. For debt securities, principal amounts are denominated in the currency indicated. (e) Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security has been determined to be liquid under guidelines established ...by the board. (f) ELKS are equity-linked securities that are structured as an interest-bearing debt security of a brokerage firm and linked to the common stock of another company. The terms of ELKS differ from those of ordinary debt securities in that the principal amount received at maturity is not fixed but is based on the price of the common stock the ELK is linked to. The principal amount disclosed equals the current estimated future value of the amount to be received upon maturity. (g) 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. (h) Investments representing 5% or more of the outstanding voting securities of the issuer. Transactions with companies that are or were affiliates during the year ended Sept. 30, 1997 are as follows: Issuer Beginning Purchase Sales Ending Dividend cost cost cost cost income Meridian Gold $ 6,941,711 $14,386,276 $ 7,217,469 $14,110,518 $ -- Mutual Risk Management* 9,937,262 16,742,795 -- 26,680,057 318,000 Station Casino 5,500,000 -- 5,500,000 -- 385,000 --------- --------- ------- Total $22,378,973 $31,129,071 $12,717,469 $40,790,575 $703,000 *Issuer was not an affiliate for the entire fiscal period. (i) 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. (j) PERCS -- (Preferred-Equity Redeemable Cumulative Securities) -- are convertible preferred securities. PERCS are like buying an underlying common stock and selling a call option against the position. (k) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield from the date of acquisition. (l) At Sept. 30,1997, the cost of securities for federal income tax purposes was $3,135,919,805 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation.......................................$1,089,616,771 Unrealized depreciation..........................................(15,293,102) ----------- Net unrealized appreciation...................................$1,074,323,669
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: For IDS Stock Fund, Inc. Independent auditors' report dated November 7, 1997. Statement of assets and liabilities, Sept. 30, 1997. Statement of operations year ended Sept. 30, 1997. Statement of changes in net assets year ended Sept. 30, 1997 and eleven-month period ended Sept. 30, 1996. Notes to financial statements. For Equity Portfolio of Growth and Income Trust Independent auditors' report dated November 7, 1997. Statement of assets and liabilities, Sept. 30, 1997. Statement of operations year ended Sept. 30, 1997. Statements of changes in net assets year ended Sept. 30, 1997 and for the period from May 13, 1996 (commencement of operations) to Sept. 30, 1996. Notes to financial statements. Investments in securities, Sept. 30, 1997. Notes to investments in securities. (b) Exhibits 1. Copy of Articles of Incorporation, as amended October 17, 1988, filed electronically as Exhibit 1 to Registrant's Post-Effective Amendment No. 78 to Registration Statement No. 2-11358, is incorporated by reference. 2. Copy of By-laws, as amended January 10, 1996, filed electronically as Exhibit 2 to Registrant's Post-Effective Amendment No. 95 to Registration Statement No. 2-11358, is incorporated by reference. 3. Not applicable. 4. Copy of Stock certificate, filed as Exhibit 1 to Registrant's Form N-1Q for the calendar quarter ended December 31, 1976, is incorporated by reference. 5. Copy of Investment Management Services Agreement between Registrant and American Express Financial Corporation, dated March 20, 1995, filed electronically as Exhibit 5 to Registrant's Post-Effective Amendment No. 92 to Registration Statement No. 2-11358, is incorporated by reference. 6. Copy of Distribution Agreement between Registrant and American Express Financial Advisors Inc., dated March 20, 1995, filed electronically as Exhibit 6 to Registrant's Post-Effective Amendment No. 92 to Registration Statement No. 2-11358, is incorporated by reference. 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, filed electronically as Exhibit 8(a) to Registrant's Post-Effective Amendment No. 92 to Registration Statement No. 2-11358, is incorporated by reference. 8(b).Copy of Addendum to the Custodian Agreement among IDS Stock Fund, Inc., American Express Trust Company and American Express Financial Corporation dated May 13, 1996, filed electronically as Exhibit 8(b) to Registrant's Post-Effective Amendment No. 95 to Registration Statement No. 2 -11358, is incorporated by reference 8(c).Copy of Custody Agreement between Morgan Stanley Trust Company and IDS Bank and Trust dated May, 1993, filed electronically as Exhibit 8(b) to Registrant's Post-Effective Amendment No. 93 to Registration Statement No. 2-11358, is incorporated by reference. 9(a).Copy of Plan and Agreement of Merger, dated April 10, 1986, filed electronically as Exhibit 9(a) to Registrant's Post-Effective Amendment No. 70 to Registration Statement No. 2-11358, is incorporated by reference. 9(b).Copy of Transfer Agency Agreement between Registrant and American Express Financial Corporation, dated March 20, 1995, filed electronically as Exhibit 9(b) to Registrant's Post-Effective Amendment No. 92 to Registration Statement No. 2-11358, is incorporated by reference. 9(c).Copy of License Agreement, dated Jan. 25, 1988, between Registrant and IDS Financial Corporation, filed electronically as Exhibit 9(c) to Post-Effective Amendment No. 83 to Registration Statement No. 2-11358, is incorporated by reference. 9(d).Copy of Shareholder Service Agreement between Registrant and American Express Financial Advisors Inc., dated March 20, 1995, filed electronically as Exhibit 9(d) to Registrant's Post-Effective Amendment No. 92 to Registration Statement No. 2-11358, is incorporated by reference. 9(e).Copy of Administrative Services Agreement between Registrant and American Express Financial Corporation, dated March 20, 1995, filed electronically as Exhibit 9(e) to Registrant's Post-Effective Amendment No. 92 to Registration Statement No. 2-11358, is incorporated by reference. 9(f).Copy of Agreement and Declaration of Unitholders between IDS Stock Fund, Inc. and Strategist Growth and Income Fund, Inc. dated May 13, 1996, filed electronically as Exhibit 9(f) to Registrant's Post-Effective Amendment No. 95 to Registration Statement No. 2 -11358, is incorporated by reference 9(g). Copy of Class Y Shareholder Service Agreement between IDS Precious Metals Fund, Inc. and American Express Financial Advisors Inc., dated May 9, 1997, filed electronically on or about May 27, 1997 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 electronically herewith. 11. Independent Auditors' Consent, is filed electronically herewith. 12. None. 13. Not Applicable. 14. Forms of Keogh, IRA and other retirement plans, filed as Exhibits 14(a) through 14(n) to IDS Growth Fund, Inc., Post-Effective Amendment No. 19 to Registration Statement No. 2-54516, are incorporated by reference. 15. Copy of Plan and Agreement of Distribution between Registrant and American Express Financial Advisors Inc., dated March 20, 1995, filed electronically as Exhibit 15 to Registrant's Post-Effective Amendment No. 92 to Registration Statement No. 2-11358, is incorporated by reference. 16. Schedule for computation of each performance quotation provided in the Registration Statement in response to Item 22, filed electronically as Exhibit 16 to Registrant's Post-Effective Amendment No. 76 to Registration Statement No. 2-11358, is incorporated 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. 93 to Registration Statement No. 2-11358, is incorporated 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, dated November 1, 1995, filed electronically as Exhibit 19(b) to Registrant's Post-Effective Amendment No. 94 is incorporated by reference. 19(c). Trustee's Power of Attorney, dated January 8, 1997, is filed electronically herewith. 19(d). Officers' Power of Attorney dated April 11, 1996, filed electronically as Exhibit 19(d) to Registrant's Post-Effective Amendment No. 95 to Registration Statement No. 2 -11358, is incorporated 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 Class Nov. 6, 1997 Common Stock Class A 115,993 Class B 19,332 Class Y 110,915 Item 27. Indemnification The Articles of Incorporation of the registrant provide that the Fund shall indemnify any person who was or is a party or is threatened to be made a party, by reason of the fact that she or he is or was a director, officer, employee or agent of the Fund, or is or was serving at the request of the Fund as a director, officer, employee or agent of another company, partnership, joint venture, trust or other enterprise, to any threatened, pending or completed action, suit or proceeding, wherever brought, and the Fund may purchase liability insurance and advance legal expenses, all to the fullest extent permitted by the laws of the State of Minnesota, as now existing or hereafter amended. The By-laws of the registrant provide that present or former directors or officers of the Fund made or threatened to be made a party to or involved (including as a witness) in an actual or threatened action, suit or proceeding shall be indemnified by the Fund to the full extent authorized by the Minnesota Business Corporation Act, all as more fully set forth in the By-laws filed as an exhibit to this registration statement. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Any indemnification hereunder shall not be exclusive of any other rights of indemnification to which the directors, officers, employees or agents might otherwise be entitled. No indemnification shall be made in violation of the Investment Company Act of 1940. PAGE 1 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. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, IDS Stock Fund, Inc., certifies that it meets all of the requirements for effectiveness of this Amendment to its Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Minneapolis and State of Minnesota on the 24th day of November, 1997. IDS STOCK FUND, INC. By________________________________________ Matthew N. Karstetter, Treasurer By /s/ William R. Pearce** William R. Pearce, Chief Executive Officer 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 24th day of November, 1997. Signature Capacity /s/ William R. Pearce* Chairman of the Board William R. Pearce /s/ John R. Thomas* Director John R. Thomas /s/ H. Brewster Atwater, Jr.* Director H. Brewster Atwater, Jr. /s/ Lynne V. Cheney* Director Lynne V. Cheney /s/ William H. Dudley* Director William H. Dudley /s/ David R. Hubers* Director David R. Hubers /s/ Heinz F. Hutter* Director Heinz F. Hutter /s/ Anne P. Jones* Director Anne P. Jones Signature Capacity /s/ Alan K. Simpson* Director Alan K. Simpson /s/ Edson W. Spencer* Director Edson W. Spencer /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 as Exhibit 19(a) to Registrant's Post-Effective Amendment No. 96, by: _____________________________________ Leslie L. Ogg **Signed pursuant to Officers' Power of Attorney, dated November 1, 1995, filed electronically as Exhibit 19(b) to Post-Effective Amendment No. 94 by: _____________________________________ Leslie L. Ogg Signatures Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, GROWTH AND INCOME TRUST consents to the filing of this Amendment to the Registration Statement signed on its behalf by the undersigned, thereunto duly authorized, in the City of Minneapolis and State of Minnesota on the 24th day of November, 1997. GROWTH AND INCOME TRUST By_______________________________ Matthew N. Karstetter Treasurer By /s/ William R. Pearce** William R. Pearce Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed below by the following persons in the capacities indicated on the 24th day of November, 1997. Signatures Capacity /s/ William R. Pearce* Chairman of the Board William R. Pearce /s/ H. Brewster Atwater, Jr.* Trustee H. Brewster Atwater, Jr. /s/ Lynne V. Cheney* Trustee Lynne V. Cheney /s/ William H. Dudley* Trustee William H. Dudley /s/ David R. Hubers* Trustee David R. Hubers /s/ Heinz F. Hutter* Trustee Heinz F. Hutter /s/ Anne P. Jones* Trustee Anne P. Jones /s/ Alan K. Simpson* Trustee Alan K. Simpson /s/ Edson W Spencer* Trustee Edson W. Spencer /s/ John R. Thomas* Trustee John R. Thomas /s/ Wheelock Whitney* Trustee Wheelock Whitney /s/ C. Angus Wurtele* Trustee C. Angus Wurtele * Signed pursuant to Trustee's Power of Attorney dated January 8, 1997, filed electronically herewith as Exhibit 19(c) to Registrant's Post-Effective Amendment No. 96, by: _________________________________ Leslie L. Ogg ** Signed pursuant to Officers' Power of Attorney dated April 11, 1996, filed electronically as Exhibit 19(d) to Registrant's Post-Effective Amendment No. 95, by: _________________________________ Leslie L. Ogg CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 96 TO REGISTRATION STATEMENT NO. 2-11358 This post-effective amendment comprises the following papers and documents: The facing sheet. Cross reference sheet. Part A. The prospectus. Part B. Statement of Additional Information. Financial Statements. Part C. Other Information. The Signatures. EX-99 2 EXHIBIT INDEX IDS Stock Fund, Inc. File No. 2-11358/811-498 EXHIBIT INDEX Exhibit 10: Opinion and consent of counsel. Exhibit 11: Independent Auditors' Consent. Exhibit 17: Financial Data Schedules. Exhibit 19(a): Directors' Power of Attorney, dated January 8, 1997. Exhibit 19(c): Trustee's Power of Attorney, dated January 8, 1997. EX-99.10-OPIN 3 OPINION AND CONSENT OF COUNSEL November 24, 1997 IDS Stock Fund, Inc. IDS Tower 10 Minneapolis, Minnesota 55440-0010 Gentlemen: I have examined the Articles of Incorporation and the By-Laws of the Company and all necessary certificates, permits, minute books, documents and records of the Company, and the applicable statutes of the State of Minnesota, and it is my opinion: (a) That the Company is a corporation duly organized and existing under the laws of the State of Minnesota with an authorized capital stock of 10,000,000,000 shares, all of $.01 par value, that such shares may be issued as full or fractional shares; (b) That all such authorized shares are, under the laws of the State of Minnesota, redeemable as provided in the Articles of Incorporation of the Company and upon redemption shall have the status of authorized and unissued shares; (c) That the Company registered on December 23, 1992 an indefinite number of shares pursuant to Rule 24f-2; and (d) That shares which were sold at not less than their par value and in accordance with applicable federal and state securities laws were legally issued, fully paid and nonassessable. I hereby consent that the foregoing opinion may be used in connection with this Post-Effective Amendment. Very truly yours, Leslie L. Ogg Attorney at Law 901 S. Marquette Ave., Suite 2810 Minneapolis, Minnesota 55402-3268 LLO/NL/rdh EX-99.11-CONSENT 4 INDEPENDENT AUDITORS' CONSENT Independent auditors' consent The board and shareholders IDS Stock Fund, Inc.: The board of trustees and unitholders Growth and Income Trust: Equity Portfolio We consent to the use of our reports incorporated herein by reference and to the references to our Firm under the headings "Financial highlights" in Part A and "INDEPENDENT AUDITORS" in Part B of the Registration Statement. KPMG Peat Marwick LLP Minneapolis, Minnesota November 25, 1997 EX-27 5 FINANCIAL DATA SCHEDULES
6 1 IDS STOCK FUND CLASS A YEAR SEP-30-1997 SEP-30-1997 0 0 0 4163002859 0 4163002859 0 0 190103 190103 0 2617749428 104853191 102578943 791472 0 469623967 0 1074647889 2877266387 72175762 14749102 0 28549498 58375366 490531772 427269463 976176601 0 (44462913) (113973806) 0 9885572 13870549 6259225 878670232 7896550 140664008 0 0 17488030 0 28758343 2568984366 22.49 .39 6.11 (.43) (1.12) 0 27.44 .78 0 0
EX-27 6 FINANCIAL DATA SCHEDULES
6 2 IDS STOCK FUND CLASS B YEAR SEP-30-1997 SEP-30-1997 0 0 0 4163002859 0 4163002859 0 0 190103 190103 0 2617749428 7438698 4792499 791472 0 469623967 0 1074647889 203257884 72175762 14749102 0 28549498 58375366 490531772 427269463 976176601 0 (1646156) (6116806) 0 3000534 687579 333244 878670232 7896550 140664008 0 0 17488030 0 28758343 153809845 22.42 .22 6.05 (.25) (1.12) 0 27.32 1.55 0 0
EX-27 7 FINANCIAL DATA SCHEDULES
6 3 IDS STOCK FUND CLASS Y YEAR SEP-30-1997 SEP-30-1997 0 0 0 4163002859 0 4163002859 0 0 190103 190103 0 2617749428 39436789 38661474 791472 0 469623967 0 1074647889 1082288485 72175762 14749102 0 28549498 58375366 490531772 427269463 976176601 0 (17928151) (43104797) 0 10328998 11846789 2293106 878670232 7896550 140664008 0 0 17488030 0 28758343 960323009 22.49 .42 6.11 (.46) (1.12) 0 27.44 .66 0 0
EX-27 8 FINANCIAL DATA SCHEDULES
6 4 EQUITY INCOME PORTFOLIO YEAR SEP-30-1997 SEP-30-1997 1897012312 2223436124 13872247 5581115 0 2242889486 0 0 22304722 22304722 0 0 0 0 0 0 0 0 0 2220584764 56638090 24196241 0 9164156 71670175 210870724 167694853 450235752 0 0 0 0 0 0 0 764430392 0 0 0 0 9000327 0 9172261 1799556318 0 0 0 0 0 0 0 0 0 0
EX-99.19A-DIR-POA 9 DIRECTORS POWER OF ATTORNEY DIRECTORS/TRUSTEES POWER OF ATTORNEY City of Minneapolis State of Minnesota Each of the undersigned, as directors and trustees of the below listed open-end, diversified investment companies that previously have filed registration statements and amendments thereto pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940 with the Securities and Exchange Commission: 1933 Act 1940 Act Reg. Number Reg. Number IDS Bond Fund, Inc. 2-51586 811-2503 IDS California Tax-Exempt Trust 33-5103 811-4646 IDS Discovery Fund, Inc. 2-72174 811-3178 IDS Equity Select Fund, Inc. 2-13188 811-772 IDS Extra Income Fund, Inc. 2-86637 811-3848 IDS Federal Income Fund, Inc. 2-96512 811-4260 IDS Global Series, Inc. 33-25824 811-5696 IDS Growth Fund, Inc. 2-38355 811-2111 IDS High Yield Tax-Exempt Fund, Inc. 2-63552 811-2901 IDS International Fund, Inc. 2-92309 811-4075 IDS Investment Series, Inc. 2-11328 811-54 IDS Managed Retirement Fund, Inc. 2-93801 811-4133 IDS Market Advantage Series, Inc. 33-30770 811-5897 IDS Money Market Series, Inc. 2-54516 811-2591 IDS New Dimensions Fund, Inc. 2-28529 811-1629 IDS Precious Metals Fund, Inc. 2-93745 811-4132 IDS Progressive Fund, Inc. 2-30059 811-1714 IDS Selective Fund, Inc. 2-10700 811-499 IDS Special Tax-Exempt Series Trust 33-5102 811-4647 IDS Stock Fund, Inc. 2-11358 811-498 IDS Strategy Fund, Inc. 2-89288 811-3956 IDS Tax-Exempt Bond Fund, Inc. 2-57328 811-2686 IDS Tax-Free Money Fund, Inc. 2-66868 811-3003 IDS Utilities Income Fund, Inc. 33-20872 811-5522 hereby constitutes and appoints William R. Pearce and Leslie L. Ogg or either one of them, as her or his attorney-in-fact and agent, to sign for her or him in her or his name, place and stead any and all further amendments to said registration statements filed pursuant to said Acts and any rules and regulations thereunder, and to file such amendments with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting to either of them the full power and authority to do and perform each and every act required and necessary to be done in connection therewith. 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 EX-99.19C-TRUST-POA 10 TRUSTEE'S POWER OF ATTORNEY TRUSTEES POWER OF ATTORNEY City of Minneapolis State of Minnesota Each of the undersigned, as trustees of the below listed open-end, diversified investment companies that previously have filed registration statements and amendments thereto pursuant to the requirements of the Investment Company Act of 1940 with the Securities and Exchange Commission: 1940 Act Reg. Number Growth Trust 811-07395 Growth and Income Trust 811-07393 Income Trust 811-07307 Tax-Free Income Trust 811-07397 World Trust 811-07399 hereby constitutes and appoints William R. Pearce and Leslie L. Ogg or either one of them, as her or his attorney-in-fact and agent, to sign for her or him in her or his name, place and stead any and all further amendments to said registration statements filed pursuant to said Act and any rules and regulations thereunder, and to file such amendments with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting to either of them the full power and authority to do and perform each and every act required and necessary to be done in connection therewith. Dated the 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 -----END PRIVACY-ENHANCED MESSAGE-----