<PAGE>
PAGE 1
IDS
Diversified Equity Income Fund
1995 annual report
(prospectus enclosed)
(icon of) 4 puzzle pieces
The primary goal of IDS Diversified Equity Income Fund, a part of
IDS Investment Series, Inc., is to provide a high level of income.
Its secondary goal is to provide capital growth. The Fund invests
mainly in dividend-paying stocks.
(This annual report includes a prospectus that describes in detail
the Fund's objective, investment policies, risks, sales charges,
fees and other matters of interest. Please read the prospectus
carefully before you invest or send money.)
Distributed by
American Express Financial Advisors Inc.<PAGE>
PAGE 2
(icon of) 4 puzzle pieces
Dual-purpose stocks
Some of the most successful investments over the years have been
stocks that reward investors in two ways - through growth in the
value of the share price as well as through payment of regular
dividend income. Diversified Equity Income sets its sights on
stocks that can provide this double-barreled benefit. the fund
takes advantage of opportunities across various industries, among
different types of securities and in markets throughout the world
to find investments that meet its combination growth-and-dividend
requirement.<PAGE>
PAGE 3
Contents
1995 annual report
(to the left of the table of contents in italics)
The purpose of this annual report is to tell investors how the Fund
performed.
From the president 4
From the portfolio managers 4
Ten largest holdings 6
Making the most of your Fund 7
Long-term performance 8
Independent auditors' report 9
Financial statements 10
Notes to financial statements 13
Investments in securities 23
IDS mutual funds 28
Federal income tax information 31
(icon of) 2 open folders in the left margin
1995 prospectus
(to the left of the table of contents in italics)
The prospectus, which is bound into the middle of this annual
report, describes the Fund in detail.
The Fund in brief
Goal 3p
Types of Fund investments and their risks 3p
Proposed conversion to master/feeder structure 3p
Manager and distributor 3p
Portfolio managers 3p
Alternative purchase arrangements 3p
Sales charge and Fund expenses 4p
Performance
Financial highlights 6p
Total returns 8p
Investment policies and risks
Facts about investments and their risks 11p
Valuing Fund shares 16p
How to purchase, exchange or redeem shares
Alternative purchase arrangements 17p
How to purchase shares 20p
How to exchange shares 22p
How to redeem shares 22p
Reductions and waivers of the sales charge 27p
Special shareholder services
Services 31p
Quick telephone reference 31p
Distributions and taxes
Dividend and capital gain distributions 32p
Reinvestments 32p
Taxes 33p
How to determine the correct TIN 35p
How the Fund is organized
Shares 36p
Voting rights 36p
Shareholder meetings 36p
Special considerations regarding
master/feeder structure 37p
Directors and officers 39p
Investment manager and transfer agent 41p
Distributor 42p
About American Express Financial Corporation
General information 43p
Appendices
Descriptions of corporate bond ratings 44p
Descriptions of derivative instruments 46p
(at bottom of page in italics)
(This annual report is not part of the prospectus.)<PAGE>
PAGE 4
To our shareholders
(on top left side, picture, William R. Pearce, President of the
Fund)
(in middle left side, picture, Keith Tufte, Portfolio manager)
From the President
As I indicated in the Fund's previous reports, new agreements
between the Fund and American Express Financial Corporation (AEFC)
were approved by shareholders in November 1994. The new agreements
became effective when the Fund began offering multiple classes of
shares on March 20, 1995.
The advantage of offering more than a single class of shares is
that investors may choose how they wish to pay sales charges. A
portion of these charges compensates your American Express
financial advisor (formerly called your IDS planner), who is
committed to providing you with outstanding services.
Adding new classes of mutual fund shares does make the presentation
of financial information in this report more complex. However, we
will continue our effort to make the reports easier to read and
understand. Meanwhile, your American Express financial advisor is
available to answer your questions.
(signed)
William R. Pearce
From the portfolio manager
The best sustained rally by the stock market in several years set
the stage for improving performance by IDS Diversified equity
Income fund during the past fiscal year. Most of the rebound
occurred last spring and summer, and it propelled the Fund well
into the plus column for the entire 12 months.
As was true throughout 1994, volatility continued to dominate the
stock market early in the fiscal period. this was a reflection of
an ongoing tug-of-war between the favorable forces of low inflation
and good corporate profits and the negative influence of higher
interest rates. In the fall of 1994, the interest-rate trend was
winning, resulting in a decline for the Fund.
Three segments of the portfolio were particularly affected during
that time -- REITs (real estate investment trusts), banks and
foreign stocks. The first two suffered at the hands of higher
interest rates, while our foreign stocks, particularly in latin
America, lost ground because of economic and political problems in
Mexico that ultimately drove down the value of the peso.
(at bottom of page is the following in italics)
(This annual report is not part of the prospectus.)<PAGE>
PAGE 5
Turnaround begins
The turning point for the U.S. market and the Fund came in
December, when long-term interest rates leveled off and, at time,
moved lower. That trend lent some much-needed support to the stock
market. About the same time, reports of excellent corporate
profits began emerging, while news on inflation remained
unthreatening. All in all, it was a very positive prescription for
rising stock prices, as the roaring rally that ensued over the next
several months proved.
Leading the market's advance most of the time were stocks of
rapidly growing companies, particularly those in the technology
sector. While this Fund's performance got steadily better as the
fiscal year progressed, it was no match for those funds heavily
invested in the technology issues. In fact, we hold no such stocks
in the portfolio because to do so would violate the guidelines of
the Fund, the first of which is to provide a high level of income
to shareholders.
Emphasis on income, value
That approach necessarily leads us to a very different kind of
investment -- usually a large, high-quality company whose stock is
selling at what we feel is a bargain price (commonly called a
"value" stock) and also pays a generous dividend. the result is a
conservative portfolio that aims to provide higher-than-average
income with lower-than-average risk of loss of principal should the
stock market decline. The trade-off is that the Fund is likely to
trail the market during the periods it is racing ahead.
What the market will do in the current fiscal year is, as always,
open to speculation. As for this Fund, we're sticking to our less-
aggressive style, focusing mainly on high-dividend stocks of solid
companies. Should stocks retreat from their lofty level of this
fall, we expect this Fund to hold up better than the market as a
whole, which would be consistent with our conservative investment
approach.
(signed)
Keith Tufte
(the following table down the right side of page)
Class A
12-month performance
(All figures per share)
Net asset value (NAV)
Sept. 30, 1995 $ 7.89
Sept. 30, 1994 $ 7.66
Increase $ 0.23
Distributions
Oct. 1, 1994 - Sept. 30, 1995
From income $ 0.50
From capital gains $ 0.10
Total distributions $ 0.60
Total return** +11.8%***
Class B
March 20, 1995 - Sept. 30, 1995
(All figures per share)
Net asset value (NAV)
Sept. 30, 1995 $ 7.89
March 20, 1995* $ 7.13
Increase $ 0.76
Distribution
March 20, 1995* - Sept. 30, 1995
From income $ 0.17
From capital gains $ __
Total distributions $ 0.17
Total return** +13.1%***
Class Y
March 20, 1995 - Sept 30, 1995
(All figures per share)
Net asset value (NAV)
Sept. 30, 1995 $ 7.89
March 20, 1995* $ 7.13
Increase $ 0.76
Distribution
March 20, 1995* - Sept. 30, 1995
From income $ 0.20
From capital gains $ --
Total distributions $ 0.20
Total return** +13.6%***
*Inception date.
**The prospectus discusses the effects of sales charges, if any, on
the various classes.
***The total return is a hypothetical investment in the Fund with
all distributions reinvested.
(at bottom of page is following in italics)
(This annual report is not part of the prospectus.)
<PAGE>
PAGE 6
<TABLE>
<CAPTION>
IDS Diversified Equity Income Fund
Your Fund's ten largest holdings
(pie chart) The ten holdings listed here make up 14.69% of the Fund's net assets
________________________________________________________________________________________________
Percent Value
(of Fund's net assets)(as of Sept. 30, 1995)
________________________________________________________________________________________________
<S> <C> <C>
General Electric 1.66% $19,125,000
A diversified company with interest in manufacturing,
broadcasting (NBC), financial services and technology.
Royal Dutch Petroleum 1.50 17,185,000
A major oil company that includes Royal Dutch (the Dutch
version) and Shell Transport (the English version).
Tele Danmark 1.49 17,077,500
The principal provider of domestic and international
telephone services in Denmark, with over three million
subscriber lines to residences and businesses.
UST 1.48 17,031,875
Product of moist, smokeless tobacco and wines.
Hanson Industries 1.46 16,737,500
A large, diversified industrial conglomerate based
in the United Kingdom.
NationsBank 1.43 16,476,250
A bank holding company with a strong presence in North
Carolina, South Carolina, Texas, Virginia, Florida and Georgia.
BankAmerica 1.43 16,465,625
A holding company that owns Bank of America (one of the
world's largest banks) and Seattle-First National Bank.
Repsol S.A. 1.42 16,351,250
The major gasoline refiner and marketer in Spain, and is
now venturing abroad in a search for oil and gas. The
company also has interests in commodity chemicals.
U S WEST 1.42 16,258,125
Provider of telecommunication services to more than 40%
of the United States in 14 midwestern and western states.
First Chicago 1.40 16,126,875
A bank holding company whose main business is commercial
banking, but with retail banking and credit card operations
as well.
</TABLE>
<PAGE>
PAGE 7
Making the most of your fund
Average annual total return
(as of Sept. 30, 1995)
Class A
1 year Since inception*
+6.23% +15.57%
*Oct. 15, 1990
Total returns for Class A, Class B and Class Y for the period from
March 20, 1995 to Sept. 30, 1995 were +7.79%, +8.06% and +13.56%,
respectively. March 20, 1995 was the inception date for Class B
and Class Y. Total return for Class A is shown for comparative
purposes. The performance of Class B and Class Y will vary from
the performance of Class A based on differences in sales charges
and fees.
Your investment and return values fluctuate so that your shares,
when redeemed, may be worth more or less than the original cost.
Figures for Class A and Class B reflect the effect of the maximum
5% sales charge. This was a period of widely fluctuating security
prices. Past performance is no guarantee of future results.
Build your assets systematically
One of the best ways to invest in the Fund is by dollar-cost
averaging--a time-tested strategy that can make market fluctuations
work for you. To dollar-cost average, simply invest a fixed amount
of money regularly. You'll automatically buy more shares when the
Fund's share price is low, fewer shares when it is high.
This does not ensure a profit or avoid a loss if the market
declines. But, if you can continue to invest regularly through
changing market conditions, it can be a effective way to accumulate
shares to meet you long-term goals.
How dollar-cost averaging works
Month Amount Per-share Number of shares purchased
Jan $100 $20 5.00
Feb 100 18 5.56
Mar 100 17 5.88
Apr 100 15 6.67
May 100 16 6.25
June 100 18 5.56
July 100 17 5.88
Aug 100 19 5.26
Sept 100 21 4.76
Oct 100 20 5.00
(to the left of the above table are the following three statements
with an arrow from the second statement pointed at the month of Apr
and an arrow from the third statement pointed at the month of Sept)
- -By investing an equal number of dollars each month...
- -you automatically buy more shares when the per share market price
is low
- -and fewer shares when the per share market price is high.
(continued)
You have paid an average price of only $17.91 per share over the 10
months, while the average market price actually was $18.10.
(at bottom of page is following in italics)
(This annual report is not part of the prospectus.)
<PAGE>
PAGE 8
Your Fund's long-term performance
Three ways to benefit from a mutual fund:
.your shares increase in value when the Fund's investments do well
.you receive capital gains when the gains on investments sold by
the Fund exceed losses
.you receive income when the Fund's stock dividends, interest and
short-term gains exceed its expenses.
All three make up your total return. And you potentially can
increase your investment if, like most investors, you reinvest your
dividends and capital gain distributions to buy additional shares
of the fund or another fund.
(down the left side of the page is the following)
Assumes:-Holding period from 11/01/90 to 9/30/95. -Returns do not
reflect taxes payable on distributions. -Reinvestment of all
income and capital gain distributions for the Fund, with a value of
$5,548. Also see "Performance" in the Fund's current prospectus.
Standard & Poor's 500 Stock Index (S&P 500), an unmanaged list of
common stocks, is frequently used as a general measure of market
performance; however, the S&P 500 companies are generally larger
than those in which the Fund invests.
Lipper Equity Income 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.
(Continue)
Class A*
(in the middle of the page there is a graph plotting out the
following information)
How your $10,000 has grown in IDS Diversified Equity Income Fund
Average annual total return
(as of Sept. 30, 1995)
1 year Since 10/15/90
+6.23% +15.57%
*The graph above is for Class A only. Class B and Class Y are not
shown. Total returns for Class A, Class B and Class Y for the
period from March 20, 1995 to Sept. 30, 1995 were +7.79%, +8.06%
and +13.56%, respectively. March 20, 1995 was the inception date
for Class B and Class Y. Total return for Class A is shown for
comparative purposes. The performance of Class B and Class Y will
vary from the performance of Class A based on differences in sales
charges and fees.
On the graph above you can see how the Fund's total return compared
to two widely cited performance indexes, the S&P 500 and the Lipper
Balanced fund Index. in comparing IDS Mutual to the two indexes,
you should take into account the fact that the Fund's performance
reflects the maximum sales charge of 5%, while such charges are not
reflected in the performance of the indexes. If you were actually
to buy either individual securities or mutual funds, any sales
charges that you pay would reduce your total return as well.
Your investment and return values fluctuate so that your shares,
when redeemed, may be worth more or less than the original cost.
This was a period of widely fluctuating security prices. past
performance is no guarantee of future results.
(at bottom of page the following in italics)
(This annual report if not part of the prospectus.)
<PAGE>
PAGE 9
Independent auditors' report
___________________________________________________________________
The board of directors and shareholders
IDS Investment Series, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments in securities,
of IDS Diversified Equity Income Fund (a series of IDS Investment
Series, Inc.) as of September 30, 1995, and the related statement
of operations for the year then ended and the statements of changes
in net assets for each of the years in the two-year period ended
September 30, 1995, and the financial highlights for each of the
years in the four-year period ended September 30, 1995, and for the
period from October 15, 1990 (commencement of operations), to
September 30, 1991. These financial statements and the financial
highlights are the responsibility of fund management. Our
responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements and the financial highlights are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Investment securities held in custody are
confirmed to us by the custodian. As to securities purchased and
sold but not received or delivered, and securities on loan, we
request confirmations from brokers, and where replies are not
received, we carry out other appropriate auditing procedures. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of IDS
Diversified Equity Income Fund at September 30, 1995, and the
results of its operations for the year then ended and the changes
in its net assets for each of the years in the two-year period
ended September 30, 1995, 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 3, 1995
<PAGE>
PAGE 10
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
IDS Diversified Equity Income Fund
Sept. 30, 1995
_____________________________________________________________________________________________________________
Assets
______________________________________________________________________________________________________________
<S> <C>
Investments in securities, at value (Note 1)
(identified cost $1,036,962,304) $1,154,288,088
Dividends and accrued interest receivable 4,342,037
Receivable for investment securities sold 32,987,244
U.S. government securities held as collateral (Note 5) 15,395,413
_____________________________________________________________________________________________________________
Total assets 1,207,012,782
_____________________________________________________________________________________________________________
Liabilities
_____________________________________________________________________________________________________________
Disbursements in excess of cash on demand deposit 24,640,118
Dividends payable to shareholders 70,930
Unrealized depreciation on foreign currency contracts held, at value (Notes 1 and 7) 229,729
Payable for investment securities purchased 7,822,089
Payable upon return of securities loaned (Note 5) 24,872,213
Accrued investment management services fee 32,011
Accrued distribution fee 1,268
Accrued service fee 10,661
Accrued transfer agency fee 8,907
Accrued administrative services fee 2,283
Other accrued expenses 122,304
_____________________________________________________________________________________________________________
Total liabilities 57,812,513
_____________________________________________________________________________________________________________
Net assets applicable to outstanding capital stock $1,149,200,269
_____________________________________________________________________________________________________________
Represented by
_____________________________________________________________________________________________________________
Capital stock -- $.01 par value; (Note 1) $ 1,456,700
Additional paid-in capital 1,054,606,497
Undistributed net investment income 367,388
Accumulated net realized loss (Notes 1 and 8) (24,327,501)
Unrealized appreciation of investments and on translation
of assets and liabilities in foreign currencies (Note 7) 117,097,185
_____________________________________________________________________________________________________________
Total -- representing net assets applicable to outstanding capital stock $1,149,200,269
_____________________________________________________________________________________________________________
Net assets applicable to outstanding shares: Class A $1,091,430,345
Class B $ 31,612,698
Class Y $ 26,157,226
Net asset value per share of outstanding capital stock: Class A shares 138,347,238 $ 7.89
Class B shares 4,007,132 $ 7.89
Class Y shares 3,315,622 $ 7.89
See accompanying notes to financial statements.
<PAGE>
PAGE 11
Financial statements
Statement of operations
IDS Diversified Equity Income Fund
Year ended Sept. 30, 1995
_____________________________________________________________________________________________________________
Investment income
_____________________________________________________________________________________________________________
Income:
Dividends (net of foreign taxes withheld of $266,469) $ 38,081,058
Dividends earned from affiliate 182,750
Interest 11,107,793
_____________________________________________________________________________________________________________
Total income 49,371,601
_____________________________________________________________________________________________________________
Expenses (Note 2):
Investment management services fee 5,291,578
Distribution fee
Class A 318,377
Class B 60,472
Transfer agency fee 1,753,745
Incremental transfer agency fee - Class B 1,652
Service fee
Class A 958,646
Class B 14,111
Administrative services fee 210,581
Compensation of directors 30,645
Compensation of officers 10,640
Custodian fees 230,867
Postage 142,513
Registration fees 403,195
Reports to shareholders 117,155
Audit fees 22,500
Administrative 9,197
Other 21,689
_____________________________________________________________________________________________________________
Total expenses 9,597,563
Earnings credits on cash balances (Note 2) (20,006)
______________________________________________________________________________________________________________
Total net expenses 9,577,557
______________________________________________________________________________________________________________
Investment income -- net 39,794,044
_____________________________________________________________________________________________________________
Realized and unrealized gain (loss) -- net
_____________________________________________________________________________________________________________
Net realized loss on security and foreign currency transactions
(including gain of $446,076 from foreign currency transactions) (Note 3) (25,934,945)
Net realized loss on sale of affiliated securities (75,149)
Net realized gain on closed or expired option contracts written (Note 6) 1,179,473
_____________________________________________________________________________________________________________
Net realized loss on investments and foreign currency (24,830,621)
Net change in unrealized appreciation or depreciation of investments
and on translation of assets and liabilities in foreign currencies 106,070,195
_____________________________________________________________________________________________________________
Net gain on investments and foreign currency 81,239,574
_____________________________________________________________________________________________________________
Net increase in net assets resulting from operations $ 121,033,618
_____________________________________________________________________________________________________________
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 12
<TABLE>
<CAPTION>
Financial statements
Statements of changes in net assets
IDS Diversified Equity Income Fund
Year ended Sept. 30,
_____________________________________________________________________________________________________________
Operations and distributions 1995 1994
_____________________________________________________________________________________________________________
<S> <C> <C>
Investment income -- net $ 39,794,044 $ 27,087,887
Net realized gain (loss) on investments and foreign currency (24,830,621) 39,681,404
Net change in unrealized appreciation or depreciation of investments
and on translation of assets and liabilities in foreign currencies 106,070,195 (26,167,681)
_____________________________________________________________________________________________________________
Net increase in net assets resulting from operations 121,033,618 40,601,610
_____________________________________________________________________________________________________________
Distributions to shareholders from:
Net investment income
Class A (37,225,409) (26,871,792)
Class B (181,960) --
Class Y (434,055) --
Net realized gain
Class A (39,678,584) (20,616,878)
Excess distributions of realized gain
Class A (523,553) --
Class B (9,768) --
Class Y (11,614) --
_____________________________________________________________________________________________________________
Total distributions (78,064,943) (47,488,670)
_____________________________________________________________________________________________________________
Capital share transactions (Note 4)
_____________________________________________________________________________________________________________
Proceeds from sales
Class A shares (Note 2) 242,586,941 502,336,890
Class B shares 30,516,349 --
Class Y shares 29,279,592 --
Reinvestment of distributions at net asset value
Class A shares 76,213,964 44,540,693
Class B shares 187,686 --
Class Y shares 443,647 --
Payments for redemptions
Class A shares (202,458,780) (91,147,458)
Class B shares (Note 2) (716,415) --
Class Y shares (5,962,282) --
_____________________________________________________________________________________________________________
Increase in net assets from capital share transactions 170,090,702 455,730,125
_____________________________________________________________________________________________________________
Total increase in net assets 213,059,377 448,843,065
Net assets at beginning of year 936,140,892 487,297,827
_____________________________________________________________________________________________________________
Net assets at end of year
(including undistributed net investment income of
$367,388 and $378,929) $1,149,200,269 $936,140,892
_____________________________________________________________________________________________________________
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 13
Notes to financial statements
IDS Diversified Equity Income Fund
___________________________________________________________________
1. Summary of significant accounting policies
The Fund is a series of IDS Investment Series, Inc. and registered
under the Investment Company Act of 1940 (as amended) as a
diversified, open-end management investment company. IDS
Investment Series, Inc. has 10 billion authorized shares of capital
stock that can be allocated among the separate series as designated
by the board of directors. 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, which the Fund began offering on March 20,
1995, may be subject to a contingent deferred sales charge. Class
B shares automatically convert to Class A after eight years. Class
Y shares, which the Fund also began offering on March 20, 1995,
have no sales charge and are offered only to qualifying
institutional investors.
All classes of shares have identical voting, dividend, liquidation
and other rights, and the same terms and conditions, except that
the level of distribution fee, transfer agency fee and service fee
(class specific expenses) differs among classes. Income, expenses
(other than class specific expenses) and realized and unrealized
gains or losses on investments are allocated to each class of
shares based upon its relative net assets.
Significant accounting policies followed by the Fund are summarized
below:
Valuation of securities
All securities are valued at the close of each business day.
Securities traded on national securities exchanges or included in
national market systems are valued at the last quoted sales price;
securities for which market quotations are not readily available,
including illiquid securities, are valued at fair value according
to methods selected in good faith by the board of directors.
Determination of fair value involves, among other things, reference
to market indexes, matrixes and data from independent brokers.
Short-term securities maturing in more than 60 days from the
valuation date are valued at the market price or approximate market
value based on current interest rates; those maturing in 60 days or
less are valued at amortized cost.
Option transactions
In order to produce incremental earnings, protect gains, and
facilitate buying and selling of securities for investment
purposes, the Fund may buy or write options traded on any U.S. or
foreign exchange or in the over-the-counter market where the
completion of the obligation is dependent upon the credit standing
of the other party. The Fund also may buy and sell put and call
options and write covered call options on portfolio securities and
may write cash-secured put options. The risk in writing a call
<PAGE>
PAGE 14
option is that the Fund gives up the opportunity of profit if the
market price of the security increases. The risk in writing a put
option is that the Fund may incur a loss if the market price of the
security decreases and the option is exercised. The risk in buying
an option is that the Fund pays a premium whether or not the option
is exercised. The Fund also has the additional risk of not being
able to enter into a closing transaction if a liquid secondary
market does not exist.
Option contracts are valued daily at the closing prices on their
primary exchanges and unrealized appreciation or depreciation is
recorded. The Fund will realize a gain or loss upon expiration or
closing of the option transaction. When an option is exercised,
the proceeds on sales for a written call option, the purchase cost
for a written put option or the cost of a security for a purchased
put or call option is adjusted by the amount of premium received or
paid.
Futures transactions
In order to gain exposure to or protect itself from changes in the
market, the Fund may buy and sell futures contracts traded on any
U.S. or foreign exchange. The Fund also may buy or 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 Fund is required to
deposit either cash or securities in an amount (initial margin)
equal to a certain percentage of the contract value. Subsequent
payments (variation margin) are made or received by the Fund each
day. The variation margin payments are equal to the daily changes
in the contract value and are recorded as unrealized gains and
losses. The Fund recognizes a realized gain or loss when the
contract is closed or expires.
Foreign currency translations and
foreign currency contracts
Securities and other assets and liabilities denominated in foreign
currencies are translated daily into U.S. dollars at the closing
rate of exchange. Foreign currency amounts related to the purchase
or sale of securities and income and expenses are translated at the
exchange rate on the transaction date. The effect of changes in
foreign exchange rates on realized and unrealized security gains or
losses is reflected as a component of such gains or losses. In the
statement of operations, net realized gains or losses from foreign
currency transactions may arise from sales 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.
<PAGE>
PAGE 15
The Fund may enter into forward foreign currency exchange contracts
for operational purposes and to protect against adverse exchange
rate fluctuation. The net U.S. dollar value of foreign currency
underlying all contractual commitments held by the Fund and the
resulting unrealized appreciation or depreciation are determined
using foreign currency exchange rates from an independent pricing
service. The Fund is subject to the credit risk that the other
party will not complete the obligations of the contract.
Federal taxes
Since the Fund's policy is to comply with all sections of the
Internal Revenue Code applicable to regulated investment companies
and to distribute all of its taxable income to shareholders, no
provision for income or excise taxes is required.
Net investment income (loss) and net realized gains (losses) may
differ for financial statement and tax purposes primarily because
of the deferral of losses on certain futures contracts, the
recognition of certain foreign currency gains (losses) as ordinary
income (loss) for tax purposes, and losses deferred due to "wash
sale" transactions. The character of distributions made during the
year from net investment income or net realized gains may differ
from their ultimate characterization for federal income tax
purposes. The effect on dividend distributions of certain
book-to-tax differences is presented as "excess distributions" in
the statement of changes in net assets. 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 $1,964,161, and accumulated net
realized loss has been decreased by $993,566 resulting in a net
reclassification adjustment to increase additional paid-in-capital
by $970,595.
Dividends to shareholders
Dividends from net investment income, declared daily and paid each
calendar quarter, are reinvested in additional shares of the Fund
at net asset value or payable in cash. Capital gains, when
available, are distributed along with the last income dividend of
the calendar year.
Other
Security transactions are accounted for on the date securities are
purchased or sold. Dividend income is recognized on the
ex-dividend date and interest income, including level-yield
amortization of premium and discount, is accrued daily.
<PAGE>
PAGE 16
___________________________________________________________________
2. Expenses and sales charges
Under terms of a prior agreement, which ended March 19, 1995, the
Fund paid AEFC a fee for managing its investments, recordkeeping
and other specified services. The fee was a percentage of the
Fund's average daily net assets consisting of a group asset charge
in reducing percentages from 0.46% to 0.32% annually on the
combined net assets of all non-money market funds in the IDS MUTUAL
FUND GROUP and an individual annual asset charge of 0.14% of
average daily net assets.
Also under the terms of a prior agreement, the Fund paid AEFC a
distribution fee at an annual rate of $6 per shareholder account
and a transfer agency fee at an annual rate of $15 per shareholder
account.
During the year ended Sept. 30, 1995, the Fund's custodian and
transfer agency fees were reduced by $20,006 as a result of
earnings credits from overnight cash balances.
Effective March 20, 1995, when the Fund began offering multiple
classes of shares, the Fund entered into agreements with AEFC for
managing its portfolio, providing administrative services and
serving as transfer agent as follows: Under its Investment
Management Services Agreement, AEFC determines which securities
will be purchased, held or sold. The management fee is a
percentage of the Fund's average daily net assets in reducing
percentages from 0.53% to 0.4% annually.
Under an Administrative Services Agreement, the Fund pays AEFC 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.
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 as follows: 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.
<PAGE>
PAGE 17
AEFC will assume and pay any expenses (except taxes and brokerage
commissions) that exceed the most restrictive applicable state
expense limitation.
Sales charges received by American Express Financial Advisors Inc.
for distributing fund shares were $5,392,426 for Class A and $3,588
for Class B for the year ended Sept. 30, 1995. The Fund also pays
custodian fees to American Express Trust Company, an affiliate of
AEFC.
The Fund has a retirement plan for its independent directors. Upon
retirement, directors receive monthly payments equal to one-half of
the retainer fee for as many months as they served as directors up
to 120 months. There are no death benefits. The plan is not
funded but the Fund recognizes the cost of payments during the time
the directors serve on the board. The retirement plan expense
amounted to $1,431 for the year ended Sept. 30, 1995.
___________________________________________________________________
3. Securities transactions
Cost of purchases and proceeds from sales of securities (other than
short-term obligations) aggregated $1,070,112,240 and $871,608,878,
respectively, for the year ended Sept. 30, 1995. Realized gains
and losses are determined on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were
$86,872 for the year ended Sept. 30, 1995.
___________________________________________________________________
4. Capital share transactions
<TABLE>
<CAPTION>
Transactions in shares of capital stock for the periods indicated are as follows:
________________________________________________________________________________________
Year ended Sept. 30, 1995 Year ended
9/30/94
Class A Class B* Class Y* Class A
________________________________________________________________________________________
<S> <C> <C> <C> <C>
Sold 33,110,396 4,077,608 4,061,650 65,143,446
Issued for reinvested 10,713,866 24,242 57,935 5,808,815
distributions
Redeemed (27,645,516) (94,718) (803,963) (11,825,092)
_________________________________________________________________________________________
Net increase 16,178,746 4,007,132 3,315,622 59,127,169
_________________________________________________________________________________________
*Inception date was March 20, 1995.
</TABLE>
___________________________________________________________________
5. Lending of portfolio securities
At Sept. 30, 1995, securities valued at $23,995,400 were on loan to
brokers. For collateral, the Fund received $9,476,800 in cash and
U.S. government securities valued at $15,395,413. Income from
securities lending amounted to $139,729 for the year ended Sept.
30, 1995. The risks to the Fund of securities lending are that the
borrower may not provide additional collateral when required or
return the securities when due.
<PAGE>
PAGE 18
___________________________________________________________________
6. Option contracts written
The number of contracts and premium amounts associated with option
contracts written is as follows:
Year ended Sept. 30, 1995
_________________________________________
Puts Calls
Contracts Premium Contracts Premium
___________________________________________________________________
Balance Sept. 30, 1994 -- $ -- 2,000 $ 219,993
Opened 22,716 1,245,933 5,000 591,479
Closed (8,216) (520,775) (3,000) (464,109)
Exercised (3,850) (257,491) (1,650) (151,482)
Expired (10,650) (467,667) (2,350) (195,881)
___________________________________________________________________
Balance Sept. 30, 1995 -- $ -- -- $ --
___________________________________________________________________
___________________________________________________________________
7. Foreign currency contracts
At Sept. 30, 1995, the Fund had entered into a foreign currency
exchange contract that obligates the Fund to deliver currency at a
specified future date. The gross unrealized depreciation on this
contract is included in the accompanying financial statements. The
terms of the open contract is as follows:
Exchange date Currency to be Currency to be Unrealized
delivered received depreciation
___________________________________________________________________
Dec. 14, 1995 9,450,000 14,680,575 $229,729
British Pound U.S. Dollar
___________________________________________________________________
___________________________________________________________________
8. Capital loss carryover
For federal income tax purposes, the Fund has a capital loss
carryover of $24,304,930 at Sept. 30, 1995, that will expire in
2003 and 2004 if not offset by subsequent capital gains. It is
unlikely the board of directors will authorize a distribution of
any net realized capital gains until the available capital loss
carryover has been offset or expires.
___________________________________________________________________
9. Illiquid securities
As Sept. 30, 1995, investments in securities included issues that
are illiquid. The Fund currently limits investments in illiquid
securitities to 10% of the net assets, at market value, at the time
of purchase. The aggregate value of such securities at Sept. 30,
1995, was $200,904 which represents 0.02% of net assets. Pursuant
to guidelines adopted by the Fund's board of directors, certain
unregistered securities are determined to be liquid and are not
included within the 10% limitation specified above.
<PAGE>
PAGE 19
___________________________________________________________________
10. Financial highlights
"Financial highlights" showing per share data and selected
information is presented on pages 6 and 7 of the prospectus.
<PAGE>
PAGE 20
<TABLE>
<CAPTION>
Investments in securities
IDS Diversified Equity Income Fund (Percentages represent value of
Sept. 30, 1995 investments compared to net assets)
Investments in securities
_____________________________________________________________________________________________________________________________
Common stocks (84.4%)
_____________________________________________________________________________________________________________________________
Issuer Shares Value(a)
_____________________________________________________________________________________________________________________________
<S> <C> <C>
Aerospace & defense (2.0%)
Rockwell Intl 235,000 $ 11,103,750
United Technologies 135,000 11,930,625
______________
Total 23,034,375
_____________________________________________________________________________________________________________________________
Automotive & related (2.1%)
Ford Motor 425,000 (c) 13,228,125
Genuine Parts 260,000 10,432,500
______________
Total 23,660,625
_____________________________________________________________________________________________________________________________
Banks and savings & loans (5.6%)
BankAmerica 275,000 16,465,625
First Chicago 235,000 16,126,875
First Union 300,000 15,300,000
NationsBank 245,000 16,476,250
______________
Total 64,368,750
_____________________________________________________________________________________________________________________________
Beverages & tobacco (4.1%)
Anheuser-Busch 230,000 14,346,250
Philip Morris 190,000 15,865,000
UST 595,000 17,031,875
______________
Total 47,243,125
_____________________________________________________________________________________________________________________________
Building materials (1.2%)
Weyerhaeuser 295,000 13,459,375
_____________________________________________________________________________________________________________________________
Chemicals (3.8%)
Dow Chemical 155,000 11,547,500
Monsanto 105,000 10,578,750
Nalco Chemical 300,000 10,237,500
PPG Inds 250,000 11,625,000
______________
Total 43,988,750
_____________________________________________________________________________________________________________________________
Computers & office equipment (1.2%)
Pitney Bowes 335,000 14,070,000
_____________________________________________________________________________________________________________________________
See accompanying notes to investments in securities.
Energy (6.0%)
Amoco 240,000 15,390,000
Exxon 180,000 13,005,000
Mobil 140,000 13,947,500
Total 495,000 14,911,875
Ultramar 475,000 11,281,250
______________
Total 68,535,625
_____________________________________________________________________________________________________________________________
Financial services (1.5%)
Federal Natl Mtge 90,000 9,315,000
United Asset Management 200,000 8,025,000
______________
17,340,000
_____________________________________________________________________________________________________________________________
Food (1.0%)
ConAgra 295,000 11,689,375
_____________________________________________________________________________________________________________________________
<PAGE>
PAGE 21
Health care (5.3%)
Amer Home Products 150,000 12,731,250
Bristol-Myers Squibb 160,000 11,660,000
Lilly (Eli) 145,000 13,031,875
Merck 205,000 11,480,000
Warner Lambert 120,000 11,430,000
______________
Total 60,333,125
_____________________________________________________________________________________________________________________________
Health care services (2.0%)
LTC Properties 365,000 5,292,500
Nationwide Health 125,000 5,125,000
Omega Healthcare Investors 210,000 5,617,500
US Healthcare 200,000 7,075,000
______________
Total 23,110,000
_____________________________________________________________________________________________________________________________
Household products (1.3%)
Clorox 210,000 14,988,750
_____________________________________________________________________________________________________________________________
Industrial machines & services (0.9%)
General Signal 370,000 10,822,500
_____________________________________________________________________________________________________________________________
Industrial transportation (1.7%)
Norfolk Southern 130,000 9,717,500
Union Pacific 145,000 9,606,250
______________
Total 19,323,750
_____________________________________________________________________________________________________________________________
Insurance (3.9%)
Amer General 410,000 15,323,750
Lincoln Natl 340,000 16,022,500
Marsh & McLennan 155,000 13,620,625
______________
Total 44,966,875
_____________________________________________________________________________________________________________________________
Media (3.0%)
Gannett 220,000 12,017,500
Knight-Ridder 180,000 10,552,500
McGraw-Hill 140,000 11,445,000
______________
Total 34,015,000
_____________________________________________________________________________________________________________________________
Multi-industry conglomerates (1.7%)
General Electric 300,000 19,125,000
_____________________________________________________________________________________________________________________________
Paper & packaging (1.9%)
Kimberly-Clark 170,000 11,411,250
Union Camp 185,000 10,660,625
______________
Total 22,071,875
_____________________________________________________________________________________________________________________________
Real estate (8.4%)
Bay Apartment 73,000 1,569,500
Beacon Office Property 200,000 4,275,000
Cali Realty 265,000 5,366,250
Equity Residential 190,000 5,723,750
Felcor Hotel 145,000 4,350,000
Gable Residential Trust 180,000 4,050,000
Highwood Property 185,000 4,879,375
Home Properties 160,000 2,720,000
Manufactured Home Communities 280,000 4,830,000
Merry Land & Investment 200,000 4,225,000
Mid-Amer Apart Communities 215,000 5,321,250
Oasis 225,000 5,062,500
RFS Hotel Investors 530,000 8,082,500
ROC Communities 235,000 5,434,375
South West Property Trust 365,000 4,653,750
Storage Trust Realty 220,000 4,482,500
Storage USA 235,000 7,255,625
Summit Properties 200,000 3,775,000
Sun Communities 200,000 5,200,000
Wellsford 250,000 5,343,750
______________
Total 96,600,125
<PAGE>
PAGE 22
_____________________________________________________________________________________________________________________________
Retail (3.4%)
Dayton Hudson 121,600 9,226,400
Melville 300,000 10,350,000
Rite Aid 380,000 10,640,000
Sears Roebuck 230,000 8,481,250
______________
Total 38,697,650
_____________________________________________________________________________________________________________________________
Utilities-electric (4.7%)
Duke Power 241,200 10,462,050
FPL Group 230,000 9,401,250
Northern States Power of Minnesota 260,000 11,797,500
Public Service of Colorado 295,000 10,103,750
Southern Co 530,000 12,521,250
______________
Total 54,285,800
_____________________________________________________________________________________________________________________________
Utilities-gas (3.1%)
Enron 330,000 11,055,000
Enron Global Power 430,000 9,836,250
Tenneco 325,000 15,031,250
______________
Total 35,922,500
_____________________________________________________________________________________________________________________________
Utilities-telephone (4.2%)
BellSouth 215,000 15,721,875
SBC Communications 290,000 15,950,000
U S WEST 345,000 16,258,125
______________
Total 47,930,000
_____________________________________________________________________________________________________________________________
Foreign (10.4%)(d)
Amcor 1,040,000 (c) 7,796,880
Grand Met 2,100,000 14,765,100
Grand Met 28,574 (i) 200,904
Hanson Inds ADR 1,030,000 16,737,500
Repsol (SA) ADR 515,000 16,351,250
Royal Dutch Petroleum 140,000 17,185,000
SmithKline Beecham 270,000 13,668,750
Tele Danmark ADR 660,000 17,077,500
Tomkins 4,025,000 16,023,525
______________
Total 119,806,409
_____________________________________________________________________________________________________________________________
Total common stocks
(Cost: $855,579,050) $ 969,389,359
_____________________________________________________________________________________________________________________________
Preferred stocks & other (6.0%)
_____________________________________________________________________________________________________________________________
Issuer Shares Value(a)
_____________________________________________________________________________________________________________________________
AK Steel Holdings
7% Cv 185,000 5,596,250
Alco Standard
6.50% Cv 125,650 10,586,012
ATL Richfield
$9 Cv 220,000 (f) 5,610,000
Best Buy
6.50% Cv 190,000 (c) 8,288,750
Browning Ferris
7.25% Cv 260,000 8,645,000
COINTEL
7.00% 120,000 (g) 5,790,000
MFS Communication
2.68% Cv 92,000 3,829,500
Service Corp
3.125% Cv 190,000 13,276,250
Sonoco Products
$2.25 Cv 120,000 7,230,000
_____________________________________________________________________________________________________________________________
Total preferred stocks & other
(Cost: $65,077,995) $ 68,851,762
_____________________________________________________________________________________________________________________________
</TABLE>
<PAGE>
PAGE 23
<TABLE>
<CAPTION>
Bonds (1.3%)
_____________________________________________________________________________________________________________________________
Issuer Coupon Maturity Principal Value(a)
rate year amount
_____________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Mortgage-backed security (--%)
Federal Natl Mtge Assn
Collateralized Mtge Obligation 9.25% 2016 $ 24,320 $ 24,670
_____________________________________________________________________________________________________________________________
Industrial (1.3%)
Chemicals (0.4%)
US Filter
Cv 6.00 2005 4,000,000 (e) 4,425,000
_____________________________________________________________________________________________________________________________
Health care services (0.4%)
Sandoz
Cv 2.00 2002 6,000,000 (e) 5,040,000
_____________________________________________________________________________________________________________________________
Leisure time & entertainment (0.5%)
Sholodge
Cv 7.50 2004 6,000,000 5,580,000
_____________________________________________________________________________________________________________________________
Total bonds
(Cost: $14,930,962) $15,069,670
_____________________________________________________________________________________________________________________________
Options purchased (0.3%)
_____________________________________________________________________________________________________________________________
Issuer Number Exercise Expiration Value(a)
of contracts price date
_____________________________________________________________________________________________________________________________
Put
S&P 500 5,500 $575 Dec. 1995 $ 3,712,500
_____________________________________________________________________________________________________________________________
Total options purchased
(Cost: $4,109,500) $ 3,712,500
_____________________________________________________________________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
Short-term securities (8.4%)
_____________________________________________________________________________________________________________________________
Issuer Annualized Amount Value(a)
yield on payable
date of at
purchase maturity
_____________________________________________________________________________________________________________________________
<S> <C> <C> <C>
U.S. government agency (0.5%)
Federal Home Loan Mtge Corp
Disc Note
10-11-95 5.68% $ 6,000,000 $ 5,989,642
_____________________________________________________________________________________________________________________________
Commercial paper (7.9%)
A.I. Credit
10-10-95 5.75 5,000,000 4,992,056
Avco Financial Services
10-04-95 5.76 3,000,000 2,998,090
BellSouth Telecommunications
10-19-95 5.73 7,700,000 7,676,836
Campbell Soup
10-18-95 5.73 4,800,000 4,786,320
10-25-95 5.73 600,000 597,625
Ciesco LP
11-09-95 5.72 1,700,000 1,689,290
Harris Bank
11-03-95 5.75 2,900,000 2,900,000
Household Finance
10-02-95 5.75 10,600,000 10,596,614
Metlife Funding
10-26-95 5.71 7,600,000 7,568,823
Penney (JC) Funding
10-03-95 5.77 900,000 899,570
Reed Elsevier
10-20-95 5.73 5,000,000 (h) 4,984,167
<PAGE>
PAGE 24
Southwestern Bell Capital
10-25-95 5.75 1,200,000 (h) 1,195,250
Southwestern Bell Telephone
10-25-95 5.76 5,500,000 5,478,153
Transamerica Finance
10-27-95 5.73 7,500,000 7,467,937
UBS Finance
10-02-95 6.52 2,800,000 2,798,986
United Parcel Service of America
10-20-95 5.73 7,875,000 7,850,062
USL Capital
10-03-95 5.76 9,700,000 9,695,376
Wachovia Bank
10-26-95 5.73 7,100,000 7,100,000
______________
Total 91,275,155
_____________________________________________________________________________________________________________________________
Total short-term securities
(Cost: $97,264,797) $ 97,264,797
_____________________________________________________________________________________________________________________________
Total investments in securities
(Cost: $1,036,962,304)(j) $1,154,288,088
_____________________________________________________________________________________________________________________________
Notes to investments in securities
_____________________________________________________________________________________________________________________________
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b) Presently non-income producing.
(c) Security is partially or fully on loan. See Note 5 to the financial statements.
(d) Foreign security values are stated in U.S. dollars.
(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 of directors.
(f) ACES are automatically convertible equity securities.
(g) PRIDES -- Preferred Redeemed Increased Dividend Equity Securities are structured
as convertible preferred securities issued by a company. Investors receive an enhanced
yield but based upon a specific formula, potential appreciation is limited. PRIDES pay
dividends, have voting rights, are noncallable for three years and upon maturity, convert
into shares of common stock.
(h) 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 of directors.
(i) Identifiees issues considered to be illiquid (see Note 9 to the financial statements).
Information concerning such security holdings at Sept. 30, 1995, is as follows:
Acquisition
Security date Cost
__________________________________________________________________________________________
Grand Met 07-17-95 $184,211
(j) At Sept. 30, 1995, the cost of securities for federal income tax purposes was $1,036,007,632
and the aggregate gross unrealized appreciation and depreciation based on that cost was:
Unrealized appreciation $128,690,680
Unrealized depreciation (10,410,224)
___________________________________________________________________________________________
Net unrealized appreciation $118,280,456
___________________________________________________________________________________________
</TABLE>
<PAGE>
PAGE 25
IDS mutual funds
Cash equivalent investments
These money market funds have three main goals: conservation of
capital, constant liquidity and the highest possible current income
consistent with these objectives. Very limited risk.
IDS Cash Management Fund
Invests in such money market securities as high quality commercial
paper, bankers' acceptances, certificates of deposits (CDs) and
other bank securities.
(icon of) piggy bank
IDS Tax-Free Money Fund
Invests primarily in short-term bonds and notes issued by state and
local governments to seek high current income exempt from federal
income taxes.
(icon of) shield with piggy bank enclosed
Income investments
The funds in this group invest their assets primarily in corporate
bonds or government securities to seek interest income. Secondary
objective is capital growth. Risk varies by bond quality.
IDS Global Bond Fund
Invests primarily in debt securities of U.S. and foreign issuers to
seek high total return through income and growth of capital.
(icon of) globe
IDS Extra Income Fund
Invests mainly in long-term, high-yielding corporate fixed-income
securities in the lower rated, higher risk bond categories to seek
high current income. Secondary objective is capital growth.
(icon of) cornucopia
IDS Bond Fund
Invests mainly in corporate bonds, at least 50% in the higher
rated, lower risk bond categories, or the equivalent, and in
government bonds.
(icon of) greek column
<PAGE>
PAGE 26
IDS Selective Fund
Invests in high-quality corporate bonds and other highly rated debt
instruments including government securities and short-term
investments. Seeks current income and preservation of capital.
(icon of) skyline
IDS Federal Income Fund
Invests primarily in securities issued or guaranteed as to the
timely payment of principal and interest by the U.S. government,
its agencies and instrumentalities. Seeks a high level of current
income and safety of principal consistent with its type of
investments.
(icon of) federal building
Tax-exempt income investments
These funds provide tax-free income by investing in municipal
bonds. The income is generally free from federal income tax. Risk
varies by bond quality.
IDS High Yield Tax-Exempt Fund
Invests primarily in medium- and lower-quality municipal bonds and
notes. Lower-quality securities generally involve greater risk of
principal and income.
(icon of) shield with basket of apples enclosed
IDS State Tax-Exempt Funds
(CA, MA, MI, MN, NY, OH)
Invests primarily in high- and medium-grade municipal securities to
provide income to residents of each respective state that is exempt
from federal, state and local income taxes. (New York is the only
state that is exempt at the local level.)
(icon of) shield with U.S. enclosed
IDS Tax-Exempt Bond Fund
Invests mainly in bonds and notes of state or local government
units, with at least 75% in the four highest rated, lowest risk
bond categories.
(icon of) shield with Greek column
IDS Insured Tax-Exempt Fund
Invests primarily in municipal securities that are insured as to
the timely payment of principal and interest. The insurance
feature minimizes credit risk of the fund but does not guarantee
the market value of the fund's shares.
(icon of) shield with eagle head
<PAGE>
PAGE 27
Growth and income investments
These funds focus on securities of medium to large, well-
established companies that offer long-term growth of capital and
reasonable income from dividends and interest. Moderate risk.
IDS International Fund
Invests primarily in common stocks of foreign companies that offer
potential for superior growth. The fund may invest up to 20% of
its assets in the U.S. market.
(icon of) three flags
IDS Managed Retirement Fund
Invests in a combination of common stocks, fixed-income investments
and money market securities to seek a maximum total return through
a combination of growth of capital and current income.
(icon of) bird in a nest
IDS Equity Select Fund
Invests primarily in a combination of moderate growth stocks,
higher-yielding equities and bonds. Seeks growth of capital and
income.
(icon of) three apple trees
IDS Blue Chip Advantage Fund
Invests in selected stocks from a major market index. Securities
purchased are those recommended by our research analysts as the
best from each industry represented on the index. Offers potential
for long-term growth as well as dividend income.
(icon of) ribbon
IDS Stock Fund
Invests in common stock of companies representing many sectors of
the economy. Seeks current income and growth of capital.
(icon of) building with columns
IDS Equity Value Fund
Invests primarily in undervalued common stocks that offer potential
for growth of capital and income.
(icon of) three growing flowers
<PAGE>
PAGE 28
IDS Utilities Income Fund
Invests primarily in the stocks of public utility companies to seek
high current income and growth of income and capital with reduced
volatility.
(icon of) electrical cord
IDS Diversified Equity Income Fund
Invests primarily in high-yielding common stocks to seek high
current income and, secondarily, to benefit from the growth
potential offered by stock investments.
(icon of) four puzzle pieces
IDS Mutual
Invests in a balance between common stocks and senior securities
(preferred stocks and bonds). Seeks a balance of growth of capital
and current income.
(icon of) scale of justice
Growth investments
Funds in this group seek capital growth, primarily from common
stocks. They are high risk mutual funds with a potential for high
reward.
IDS Discovery Fund
Invests in small- and medium-size, growth-oriented companies
emphasizing technological innovation and productivity enhancement.
Buys and holds larger growth-oriented stocks.
(icon of) ship
IDS Strategy Aggressive Fund
Invests primarily in common stocks of companies that are selected
for their potential for above-average growth. Above-average means
that their growth potential is better, in the opinion of the
portfolio's investment manager, than the Standard & Poor's
Corporation (S&P) 500 Stock Index.
(icon of) chess piece
IDS Growth Fund
Invests primarily in companies that have above-average potential
for long-term growth as a result of new management, marketing
opportunities or technological superiority.
(icon of) flower
<PAGE>
PAGE 29
IDS Global Growth Fund
Invests in stocks of companies throughout the world that are
positioned to meet market needs in a changing world economy. These
companies offer above-average potential for long-term growth.
(icon of) world
IDS New Dimensions Fund
Invests primarily in companies with significant growth potential
due to superiority in technology, marketing or management. The
fund frequently changes its industry mix.
(icon of) dimension
IDS Progressive Fund
Invests primarily in undervalued common stocks. The fund holds
stocks for the long term with the goal of capital growth.
(icon of) shooting star
Specialty growth investment
This fund aggressively seeks capital growth as a hedge against
inflation.
IDS Precious Metals Fund
Invests primarily in the securities of foreign or domestic
companies that explore for, mine and process or distribute gold and
other precious metals. This is the most aggressive and most
speculative IDS mutual fund.
(icon of) cart of precious gems
For more complete information about any of these funds, including
charges and expenses, you can obtain a prospectus by contacting
your financial advisor or writing to American Express Shareholder
Service, P.O. Box 534, Minneapolis, MN 55440-0534. Read it
carefully before you invest or send money.
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PAGE 30
Federal income tax information
IDS Diversified Equity Income Fund
___________________________________________________________________
The Fund is required by the Internal Revenue Code of 1986 to tell
its shareholders about the tax treatment of the dividends it pays
during its fiscal year. Some of the dividends listed below were
reported to you on a Form 1099-DIV, Dividends and Distributions,
last January. Dividends paid to you since the end of last year
will be reported to you on a tax statement sent next January.
Shareholders should consult a tax advisor on how to report
distributions for state and local purposes.
IDS Diversified Equity Income Fund
Fiscal year ended Sept. 30, 1995
Class A
Income distributions taxable as dividend income, 83.43% qualifying
for deduction by corporations.
Payable date Per share
Dec. 29, 1994 $0.30194
March 29, 1995 0.06898
June 27, 1995 0.06049
Sept. 27, 1995 0.06612
Total $0.49753
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 29, 1994 $0.10272
Total distributions $0.60025
The distribution of $0.40466 per share, payable Dec. 29, 1994,
consisted of $0.09653 derived from net investment income, $0.20541
from net short-term capital gains (a total of $0.30194 taxable as
dividend income) and $0.10272 from net long-term capital gains.
Class B
Income distributions taxable as dividend income, 83.43% qualifying
for deduction by corporations.
Payable date Per share
March 29, 1995 $0.06825
June 27, 1995 0.04691
Sept. 27, 1995 0.05162
Total distributions $0.16678
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PAGE 31
Class Y
Income distributions taxable as dividend income, 83.43% qualifying
for deduction by corporations.
Payable date Per share
March 29, 1995 $0.06929
June 27, 1995 0.06348
Sept. 27, 1995 0.06967
Total distributions $0.20244
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PAGE 32
Quick telephone reference
American Express 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
American Express Shareholder Service
Fund performance, objectives and account inquiries
612-671-3733
TTY Service
For the hearing impaired
800-846-4852
American Express Infoline
Automated account information (TouchToneR phones only), including
current fund prices and performance, account values and recent
account transactions
National/Minnesota: 800-272-4445
Mpls./St. Paul area: 671-1630
AMERICAN
EXPRESS
FINANCIAL
ADVISORS
IDS Diversified Equity Income Fund
IDS Tower 10
Minneapolis, MN 55440-0010
