1997 SEMIANNUAL REPORT
IDS
Diversified
Equity
Income
Fund
The primary goal of IDS Diversified Equity Income Fund is to provide a high
level of income. Its secondary goal is to provide capital growth. The Fund
invests mainly in dividend paying stocks.
Distributed by American Express Financial Advisors Inc., Member SIPC
<PAGE>
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 requirements.
Contents
From the president 3
From the portfolio manager 3
The Portfolio's ten largest holdings 5
Financial statements (Fund) 6
Notes to financial statements (Fund) 9
Financial statements (Portfolio) 17
Notes to financial statements (Portfolio) 20
Investments in securities 30
Board members and officers 35
IDS mutual funds 36
<PAGE>
To our shareholders
From the president
If you're an experienced investor, you know that the past two years have
been unusually strong ones in many financial markets. Perhaps just as
important, you also know that history shows that bull markets don't last
forever. Though they're often unpredictable, declines -- whether they're
brief or long-lasting, moderate or substantial -- are always a
possibility.
That fact reinforces the need for investors to periodically review their
long-term goals and examine whether their investment program remains on
track to achieving them. Your quarterly investment statements are one part
of that monitoring process. The other is a meeting with your American
Express financial advisor. That becomes even more important if there's a
major change in your financial situation or in the financial markets.
William R. Pearce
(picture of) William R. Pearce
President of the Fund
<PAGE>
From the portfolio manager
IDS Diversified Equity Income's conservative investment style paid off
nicely during the first half of its fiscal year, as the Fund participated
in the stock market's advances while holding up well during its declines.
For the six months -- October 1996 through March 1997-- the Fund generated
a total return of 9.4% for investors in Class A shares. (This figure
includes a capital gain that was paid to shareholders last December and
reduced the Fund's net asset value by the same amount at that time.)
After languishing last summer, stocks began to gather steam last fall, as
low inflation, decent economic growth, strong corporate earnings and low
interest rates provided plenty of support. By the time the period started
in October, the market was in the middle of a robust rally that, apart
from a relatively brief downturn in December, lasted until mid-February.
A psychological shift
It was then that the market psychology underwent a change, sparked first
by cautionary comments from Federal Reserve (Fed) Chairman Alan Greenspan.
Instead of feeling good about the economy, investors decided that it might
be growing too fast, which in turn would lead to higher inflation and,
ultimately, higher interest rates. By the time the Fed actually did raise
rates in late March, the market had already sold off substantially.
Most of the Fund's gain came well before then, as it recorded a
double-digit advance by the end of January. While the Fund enjoyed
positive performance from a number of stock sectors, banks and real estate
investment trusts proved best overall, complemented by pharmaceuticals,
energy, insurance and food/beverage stocks.
Defense pays off
As I noted in my previous report, I had grown cautious on the stock market
last fall, and I took some measures to cushion the Fund against a possible
downturn. These included beefing up the bond portion of the portfolio,
cutting out some stocks that had reached unacceptably high valuation
levels, adding to the utility exposure and letting the cash reserves build
up. This defensive strategy worked to the Fund's advantage during the
market's stumbles in December and March, when the Fund fared much better
than stocks as a whole.
Now that the second half of the fiscal year is underway, my views are
essentially unchanged from six months ago. While investment fundamentals
such as economic growth and low inflation remain intact, I think any
advance by the stock market will be limited by the potential for further
interest-rate increases by the Fed. Therefore, I am staying with a
conservative investment approach, emphasizing low-volatility stocks and
maintaining an above-average yield for the Fund.
Keith Tufte
(picture of) Keith Tufte
Portfolio manager
<PAGE>
Class A
6-month performance
(All figures per share)
Net asset value (NAV)
March 31, 1997 $ 9.03
Sept. 30, 1996 $ 8.96
Increase $ 0.07
Distributions
Oct. 1, 1996 - March 31, 1997
From income $ 0.34
From capital gains $ 0.43
Total distributions $ 0.77
Total return* + 9.4%**
Class B
6-month performance
(All figures per share)
Net asset value (NAV)
March 31, 1997 $ 9.03
Sept. 30, 1996 $ 8.96
Increase $ 0.07
Distributions
Oct. 1, 1996 - March 31, 1997
From income $ 0.30
From capital gains $ 0.43
Total distributions $ 0.73
Total return* + 9.0%**
Class Y
6-month performance
(All figures per share)
Net asset value (NAV)
March 31, 1997 $ 9.03
Sept. 30, 1996 $ 8.96
Increase $ 0.07
Distributions
Oct. 1, 1996 - March 31, 1997
From income $ 0.35
From capital gains $ 0.43
Total distributions $ 0.78
Total return* + 9.4%**
*The prospectus discusses the effect of sales charges, if any, on the
various classes.
** The total return is a hypothetical investment in the Fund with all
distributions reinvested.
<PAGE>
The Portfolio's ten largest holdings
Percent Value
(of Portfolio's net assets) (as of March 31, 1997)
Crown Cork & Seal 1.92% $32,997,500
Ikon Office Solutions 1.89 32,350,000
Thomas & Betts 1.42 24,367,500
GTE 1.40 24,011,875
Royal Dutch Petroleum 1.38 23,625,000
Mid Ocean 1.29 22,203,750
Dun & Bradstreet 1.26 21,568,750
Penney (JC) 1.24 21,193,125
Philip Morris 1.23 21,113,125
Heinz (HJ) 1.20 20,540,000
The ten holdings listed here make up 14.23% of
the Portfolio's net assets
<PAGE>
Financial statements
<TABLE>
<CAPTION>
Statement of assets and liabilities
IDS Diversified Equity Income Fund
March 31, 1997
Assets
(Unaudited)
<S> <C> <C>
Investment in Equity Income Portfolio (Note 1) $1,714,166,628
- --------------
Total assets 1,714,166,628
-------------
Liabilities
Dividends payable to shareholders 224,566
Accrued distribution fee 17,541
Accrued service fee 32,579
Accrued transfer agency fee 18,689
Accrued administrative services fee 6,570
Other accrued expenses 93,074
------
Total liabilities 393,019
-------
Net assets applicable to outstanding capital stock $1,713,773,609
==============
Represented by
Capital stock-- $.01 par value (Note 1) $ 1,896,979
Additional paid-in capital 1,447,259,611
Undistributed net investment income 2,983,863
Accumulated net realized gain (Note 1) 119,195,153
Unrealized appreciation of investments and on translation
of assets and liabilities in foreign currencies 142,438,003
-----------
Total-- representing net assets applicable to outstanding capital stock $1,713,773,609
==============
Net assets applicable to outstanding shares: Class A $1,454,711,599
Class B $ 210,826,931
Class Y $ 48,235,079
Net asset value per share of outstanding capital stock: Class A shares 161,022,029 $ 9.03
Class B shares 23,336,715 $ 9.03
Class Y shares 5,339,140 $ 9.03
See accompanying notes to financial statements.
<PAGE>
Statement of operations
IDS Diversified Equity Income Fund
Six months ended March 31, 1997
Investment income
(Unaudited)
Income:
Dividends $ 24,529,803
Interest 8,597,468
---------
Total income 33,127,271
----------
Expenses (Note 2):
Expenses, including investment management services fee,
allocated from Equity Income Portfolio 4,099,941
Distribution fee -- Class B 622,821
Transfer agency fee 947,345
Incremental transfer agency fee-- Class B 119,249
Service fee
Class A 1,210,130
Class B 144,894
Administrative services fees and expenses 278,042
Compensation of board members 4,398
Compensation of officers 2,116
Postage 68,078
Registration fees 140,081
Reports to shareholders 54,872
Audit fees 3,250
Other 7,661
-----
Total expenses 7,702,878
Earnings credits on cash balances (Note 2) (34,314)
- -------
Total net expenses 7,668,564
---------
Investment income -- net 25,458,707
----------
Realized and unrealized gain (loss) -- net
Net realized gain on security and foreign currency
transactions 124,633,247
Net change in unrealized appreciation or depreciation
of investments and on translation of assets and
liabilities in foreign currencies (16,269,187)
-----------
Net gain on investments and foreign currencies 108,364,060
-----------
Net increase in net assets resulting from operations $133,822,767
============
See accompanying notes to financial statements.
<PAGE>
Statement of changes in net assets
IDS Diversified Equity Income Fund
Operations and distributions March 31, 1997 Sept. 30, 1996
Six months ended Year ended
(Unaudited)
Investment income-- net $ 25,458,707 $ 40,899,762
Net realized gain on investments and foreign currencies 124,633,247 121,028,665
Net change in unrealized appreciation or depreciation
of investments and on translation of assets and
liabilities in foreign currencies (16,269,187) 41,610,005
----------- ----------
Net increase in net assets resulting from operations 133,822,767 203,538,432
----------- -----------
Distributions to shareholders from:
Net investment income
Class A (21,255,017) (37,093,606)
Class B (1,967,580) (1,766,252)
Class Y (704,204) (1,023,280)
Net realized gain
Class A (89,873,767) --
Class B (10,467,031) --
Class Y (2,712,936) --
----------
Total distributions (126,980,535) (39,883,138)
------------ -----------
Capital share transactions (Note 3)
Proceeds from sales
Class A shares (Note 2) 173,778,008 257,566,986
Class B shares 83,665,899 90,334,601
Class Y shares 12,217,550 14,137,057
Reinvestment of distributions at net asset value
Class A shares 108,567,637 34,511,320
Class B shares 12,366,141 1,659,754
Class Y shares 3,414,140 998,821
Payments for redemptions
Class A shares (127,280,123) (242,692,273)
Class B shares (Note 2) (9,376,256) (7,145,048)
Class Y shares (4,802,208) (7,846,192)
---------- ----------
Increase in net assets from capital share transactions 252,550,788 141,525,026
----------- -----------
Total increase in net assets 259,393,020 305,180,320
Net assets at beginning of period 1,454,380,589 1,149,200,269
------------- -------------
Net assets at end of period
(including undistributed net investment income
of $2,983,863 and $1,451,957) $1,713,773,609 $1,454,380,589
============== ==============
</TABLE>
See accompanying notes to financial statements
<PAGE>
Notes to financial statements
IDS Diversified Equity Income Fund
1. Summary of significant accounting policies
IDS Diversified Equity Income Fund (a series of IDS Investment Series,
Inc.) is 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. 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
after eight years. Class Y shares have no sales charge and are offered
only to qualifying institutional investors.
All classes of shares have identical voting, dividend, liquidation and
other rights, and the same terms and conditions, except that the level of
distribution fee, transfer agency fee and service fee (class specific
expenses) differs among classes. Income, expenses (other than class
specific expenses) and realized and unrealized gains or losses on
investments are allocated to each class of shares based upon its relative
net assets.
Investment in Equity Income Portfolio
Effective May 13, 1996, the Fund began investing all of its assets in
Equity Income 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 Income Portfolio seeks to provide shareholders with a
high level of current income and, as a secondary goal, steady growth of
capital by investing primarily in dividend-paying 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 March
31, 1997 was 99.96%. 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.
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.
<PAGE>
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 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:
oClass A $15
oClass B $16
oClass 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.
Sales charges received by American Express Financial Advisors Inc. for
distributing Fund shares were $2,777,422 for Class A and $53,035 for Class
B for the six months ended March 31, 1997.
During the six months ended March 31, 1997, the Fund's transfer agency
fees were reduced by $34,314 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:
Six months ended March 31, 1997
Class A Class B Class Y
Sold 18,681,308 8,997,327 1,319,249
Issued for reinvested 11,935,792 1,359,873 377,697
distributions
Redeemed (13,682,419) (1,006,359) (515,700)
Net increase 16,934,681 9,350,841 1,181,246
Year ended Sept. 30, 1996
Class A Class B Class Y
Sold 30,304,664 10,622,976 1,658,239
Issued for reinvested 3,994,897 190,413 115,483
distributions
Redeemed (28,559,451) (834,647) (931,450)
Net increase 5,740,110 9,978,742 842,272
<PAGE>
4. Financial highlights
<TABLE>
<CAPTION>
The tables below show certain important financial information for evaluating the
Fund's results.
IDS Diversified Equity Income, Inc.
Fiscal period ended Sept. 30,
Per share income and capital changes*
Class A
1997*** 1996 1995 1994 1993 1992 1991**
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $8.96 $7.89 $7.66 $7.73 $6.48 $5.98 $5.00
beginning of period
Income from investment operations:
Net investment income .15 .27 .30 .27 .28 .31 .30
Net gains .69 1.06 .53 .20 1.31 .58 .98
(both realized
and unrealized)
Total from investment .84 1.33 .83 .47 1.59 .89 1.28
operations
Less distributions:
Dividends from net (.15) (.26) (.29) (.27) (.28) (.30) (.30)
investment income
Distributions from (.62) -- (.31) (.27) (.06) (.09) --
realized gains
Total distributions (.77) (.26) (.60) (.54) (.34) (.39) (.30)
Net asset value, $9.03 $8.96 $7.89 $7.66 $7.73 $6.48 $5.98
end of period
Ratios/supplemental data
Class A
1997*** 1996 1995 1994 1993 1992 1991**
Net assets, end of $1,455 $1,292 $1,091 $936 $487 $162 $23
period (in millions)
Ratio of expenses to .88%+ .93% .94% .88% .96% 1.08%### .90%+++
average daily net assets #
Ratio of net income 3.24%+ 3.18% 3.95% 3.75% 3.94% 4.79%### 5.97%+++
to average daily net assets
Portfolio turnover rate 50% 84% 98% 95% 73% 34% 74%
(excluding short-term
securities) for the
underlying Portfolio
Total return ++ 9.4% 17.0% 11.8% 6.3% 25.0% 15.4% 25.9%
Average brokerage $.0547 $.0345 -- -- -- -- --
commission rate for the
underlying Portfolio##
*For a share outstanding throughout the period. Rounded to the nearest cent.
**Inception date. Period from Oct. 15, 1990 to Sept. 30, 1991.
***Six months ended March 31, 1997 (Unaudited).
+Adjusted to an annual basis.
++Total return does not reflect payment of a sales charge.
+++For the period ended Sept. 30, 1991, AEFC reimbursed the Fund for expenses in
excess of 0.9% of its average daily net assets, on an annual basis. Had AEFC
not done so, the ratios of expenses and net investment income would have
been 1.34% and 5.53%, respectively.
#Effective fiscal year 1996, expense ratio is based on total expenses of the
Fund before reduction of earnings credits on cash balances.
##Effective fiscal year 1996, the Fund is required to disclose an average
brokerage commission rate. The rate is calculated by dividing the total
brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period by the total number of related shares
purchased and sold.
###During the period from Oct 1, 1991, to Feb. 19, 1992, AEFC reimbursed the
Fund for expenses in excess of 0.9% of its average daily net assets, on an
annual basis. Had AEFC not done so, the ratios of expenses and net
investment income would have been 1.13% and 4.74%, respectively.
<PAGE>
IDS Diversified Equity Income, Inc.
Fiscal period ended Sept. 30,
Per share income and capital changes*
Class B Class Y
1997*** 1996 1995** 1997*** 1996 1995**
Net asset value, $8.96 $7.89 $7.13 $8.96 $7.89 $7.13
beginning of period
Income from investment operations:
Net investment income .11 .20 .19 .16 .28 .22
Net gains(losses) .69 1.06 .74 .69 1.06 .74
(both realized
and unrealized)
Total from investment .80 1.26 .93 .85 1.34 .96
operations
Less distributions:
Dividends from net (.11) (.19) (.17) (.16) (.27) (.20)
investment income
Distributions from (.62) -- -- (.62) -- --
realized gains
Total distributions (.73) (.19) (.17) (.78) (.27) (.20)
Net asset value, $9.03 $8.96 $7.89 $9.03 $8.96 $7.89
end of period
Ratios/supplemental data
Class B Class Y
1997*** 1996 1995** 1997*** 1996 1995**
Net assets, end of $211 $125 $32 $48 $37 $26
period (in millions)
Ratio of expenses to 1.65%+ 1.69% 1.77%+ .71%+ .76% .80%+
average daily net assets #
Ratio of net income 2.53%+ 2.56% 3.00%+ 3.43%+ 3.38% 3.95%+
to average daily net assets
Portfolio turnover rate 50% 84% 98% 50% 84% 98%
(excluding short-term
securities) for the
underlying Portfolio
Total return++ 9.0% 16.2% 13.1% 9.4% 17.3% 13.6%
Average brokerage $.0547 $.0345 -- $.0547 $.0345 --
commission rate for the
underlying Portfolio##
*For a share outstanding throughout the period. Rounded to the nearest cent.
**Inception date was March 20, 1995 for Class B and Class Y.
***Six months ended March 31, 1997 (Unaudited).
+Adjusted to an annual basis.
++Total return does not reflect payment of a sales charge.
#Effective fiscal year 1996, expense ratio is based on total expenses of the
Fund before reduction of earnings credits on cash balances.
##Effective fiscal year 1996, the Fund is required to disclose an average
brokerage commission rate. The rate is calculated by dividing the total
brokerage commissions paid on applicable purchases and sales of portfolio
securities for the period by the total number of related shares purchased and
sold.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
Equity Income Portfolio
March 31, 1997
Assets
<S> <C>
(Unaudited)
Investments in securities, at value (Note 1)
(identified cost $1,584,385,573) $1,727,136,276
Cash in bank on demand deposit 1,994,297
Dividends and accrued interest receivable 8,353,442
Receivable for investment securities sold 12,900,783
U.S. government securities held as collateral (Note 4) 28,931,132
- ----------
Total assets 1,779,315,930
-------------
Liabilities
Payable for investment securities purchased 9,562,600
Unrealized depreciation on foreign currency contracts
held, at value (Notes 1 and 5) 274,686
Payable upon return of securities loaned (Note 4) 54,491,332
Accrued investment management services fee 96,947
Other accrued expenses 6,766
-----
Total liabilities 64,432,331
----------
Net assets $1,714,883,599
==============
See accompanying notes to financial statements.
<PAGE>
Statement of operations
Equity Income Portfolio
Six months ended March 31, 1997
Investment income
(Unaudited)
Income:
Dividends (net of foreign taxes withheld of $41,375) $ 24,539,834
Interest 8,589,464
---------
Total income 33,129,298
----------
Expenses (Note 2):
Investment management services fee 4,055,225
Compensation of board members 5,894
Custodian fees 11,676
Audit fees 9,500
Administrative services fees and expenses 11,768
Other 12,863
------
Total expenses 4,106,926
Earnings credits on cash balances (Note 2) (5,310)
- ------
Total net expenses 4,101,616
---------
Investment income -- net 29,027,682
----------
Realized and unrealized gain (loss) -- net
Net realized gain on security transactions and foreign currency transactions
(including loss of $1,240,284 from foreign currency transactions) (Note 3) 124,669,106
Net change in unrealized appreciation or depreciation of investments
and on translation of assets and liabilities in foreign currencies (16,262,599)
-----------
Net gain on investments and foreign currencies 108,406,507
-----------
Net increase in net assets resulting from operations $137,434,189
============
See accompanying notes to financial statements.
<PAGE>
Statements of changes in net assets
Equity Income Portfolio
Operations
Six months ended For the period from
March 31, 1997 May 13, 1996* to
(Unaudited) Sept. 30, 1996
Investment income-- net $ 29,027,682 $ 22,182,820
Net realized gain on investments and foreign currencies 124,669,106 16,088,401
Net change in unrealized appreciation or depreciation
of investments and on translation of assets and
liabilities in foreign currencies (16,262,599) 40,690,701
----------- ----------
Net increase in net assets resulting from operations 137,434,189 78,961,922
Net contributions 121,295,038 1,377,167,450
----------- -------------
Total increase in net assets 258,729,227 1,456,129,372
Net assets at beginning of period (Note 1) 1,456,154,372 25,000
- ------------- ------
Net assets at end of period $1,714,883,599 $1,456,154,372
============== ==============
*Commencement of operations.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
Equity Income Portfolio
(Unaudited to March 31, 1997)
1. Summary of significant accounting policies
Equity Income 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 Income Portfolio seeks to provide a high level of current
income and, as a secondary goal, steady growth of capital by investing
primarily in dividend-paying 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 polices 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; securities for which
market quotations are not readily available are valued at fair value
according to methods selected in good faith by the board. Determination of
fair value involves, among other things, reference to market indexes,
matrixes and data from independent brokers. Short-term securities maturing
in more than 60 days from the valuation date are valued at the market
price or approximate market value based on current interest rates; those
maturing in 60 days or less are valued at amortized cost.
Option transactions
In order to produce incremental earnings, protect gains and facilitate
buying and selling of securities for investment purposes, the Portfolio
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 Portfolio also
may buy or 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 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 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.
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.
<PAGE>
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.
Under the agreement, the Trust also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees to be paid to an
affiliate of AEFC, 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, approved by the board.
During the six months ended March 31, 1997, the Portfolio's custodian fees
were reduced by $5,310 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 $780,844,222 and $742,915,048,
respectively, for the six months ended March 31, 1997. For the same
period, the portfolio turnover rate was 50%. Realized gains and losses are
determined on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $79,392
for this period.
4. Lending of portfolio securities
At March 31, 1997 , securities valued at $53,112,288 were on loan to
brokers. For collateral, the Portfolio received $25,560,200 in cash and
U.S. government securities valued at $28,931,132. Income from securities
lending amounted to $197,567 for the six months ended March 31, 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 March 31, 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
(see Summary of significant accounting policies) on this contract is
included in the accompanying financial statements. The terms of the open
contract are as follows:
Exchange date Currency to Currency to Unrealized Unrealized
be delivered be received appreciation depreciation
April 14, 1997 5,725,000 9,142,825 $-- $274,686
British Pound U.S. Dollar
<PAGE>
Investments in securities
Equity Income Portfolio
March 31, 1997 (Unaudited)
(Percentages represent
value of investments
compared to net assets)
Common stocks (64.4%)
Issuer Shares Value(a)
Automotive & related (2.4%)
Chrysler 345,000 $ 10,350,000
Ford Motor 420,000 13,177,500
Genuine Parts 365,000 17,018,125
Total 40,545,625
Banks and savings & loans (7.8%)
Bank of Boston 225,000 15,075,000
Barnett Banks 350,000(c) 16,275,000
First Union 230,000 18,658,750
KeyCorp 390,000 19,012,500
Mellon Bank 245,000 17,823,750
Morgan (JP) 160,000 15,720,000
NationsBank 290,000 16,058,750
Norwest 345,000 15,956,250
Total 134,580,000
Beverages & tobacco (2.3%)
Anheuser-Busch 455,000 19,166,875
Philip Morris 185,000 21,113,125
Total 40,280,000
Building materials & construction(1.7%)
Martin Marietta Materials 425,000 10,943,750
Weyerhaeuser 400,000 17,850,000
Total 28,793,750
Chemicals (1.3%)
Dow Chemical 145,000 11,600,000
Nalco Chemical 265,000 9,904,375
Total 21,504,375
Electronics (2.2%)
Arrow Electronics 245,000 13,811,875
Thomas & Betts 570,000 24,367,500
Total 38,179,375
Energy (6.3%)
Amoco 200,000 17,325,000
Atlantic Richfield 140,000 18,900,000
Chevron 205,000 14,273,125
Exxon 180,000 19,395,000
Mobil 145,000 18,940,625
Texaco 180,800 19,797,600
Total 108,631,350
Food (1.7%)
Heinz (HJ) 520,000 20,540,000
Quaker Oats 250,000 9,125,000
Total 29,665,000
Health care (4.1%)
American Home Products 335,000 20,100,000
Baxter Intl 455,000 19,621,875
Bristol-Myers Squibb 320,000 18,880,000
Pharmacia & Upjohn 341,800 12,518,425
Total 71,120,300
Industrial equipment & services (0.7%)
General Signal 300,000 11,737,500
Insurance (2.3%)
Lincoln Natl 200,000 10,700,000
Marsh & McLennan 110,000 12,457,500
SAFECO 385,000 15,400,000
Total 38,557,500
Media (2.4%)
Dun & Bradstreet 850,000 21,568,750
McGraw-Hill 385,000(b) 19,683,125
Total 41,251,875
Multi-industry conglomerates (1.6%)
Minnesota Mining & Mfg 110,000 9,295,000
Natl Service Inds 445,000 17,410,625
Total 26,705,625
Paper & packaging (2.1%)
Union Camp 380,000 17,907,500
Unisource Worldwide 1,200,000 18,450,000
Total 36,357,500
Real estate investment trust (5.5%)
Duke Realty 130,000 5,281,250
Equity Residential 125,000 5,546,875
FelCor Suite Hotels 200,000 7,350,000
Gable Residential Trust 180,000 4,590,000
Kilroy Realty 130,000(b) 3,461,250
LTC Properties 210,000 3,491,250
Merry Land & Investment 220,000 4,510,000
Mid-America Apart
Communities 235,000 6,580,000
Oasis 162,500 3,656,250
Omega Healthcare Investors 125,000 3,906,250
Patriot American
Hospitality 260,000 6,305,000
Prentiss Properties Trust 200,000 5,075,000
Public Storage 150,000 4,350,000
Reckson Associates Realty 115,000 5,304,375
RFS Hotel Investors 255,000 4,430,625
Security Capital
Industrial Trust 180,000(b) 3,757,500
Simon DeBartolo Group 140,000 4,235,000
Storage Trust Realty 160,000 4,120,000
Storage USA 105,000 3,871,875
Sun Communities 140,000 4,480,000
Total 94,302,500
Retail (2.2%)
May Dept Stores 370,000 16,835,000
Penney (JC) 445,000 21,193,125
Total 38,028,125
Utilities -- electric (5.3%)
DPL 630,000 15,198,750
Duke Power 320,000(c) 14,120,000
FPL Group 340,000 15,002,500
Northern States Power 360,000 17,055,000
Public Service of Colorado 410,000 15,887,500
Southern Co 605,000 12,780,625
Total 90,044,375
Utilities -- telephone (4.9%)
Ameritech 260,000 15,990,000
Bell Atlantic 195,000 11,870,625
BellSouth 440,000 18,590,000
GTE 515,000 24,011,875
NYNEX 300,000 13,687,500
Total 84,150,000
Foreign (7.6%) (d)
British Petroleum ADR 135,000 18,528,750
British Telecommunications
ADR 250,000(c) 17,500,000
Imperial Chemical Inds 370,000(c) 16,835,000
Mid Ocean 465,000(b) 22,203,750
Royal Dutch Petroleum 135,000 23,625,000
SmithKline Beecham ADR 170,000 11,900,000
Tomkins 4,420,000 19,815,571
Total 130,408,071
Total common stocks
(Cost: $960,382,291) $1,104,842,846
Preferred stocks (11.1%)
Issuer Shares Value(a)
AirTouch Communications
4% 450,000 $ 10,406,250
AirTouch Communications
4% Cv 640,000 16,400,000
AutoZone
5.50% Cv 715,100(b) 16,232,770
Browning Ferris Inds
7.25% Cv 295,000 8,813,125
Circuit City Stores
5.50% 357,143(e) 11,482,147
ConAgra
4.50% Cv 325,000 16,493,750
Corning Delaware
6% 220,000 15,592,500
Crown Cork & Seal
4.50% Cv 670,000 32,997,500
Gannett
4.50% Cv 200,000 15,750,000
Ikon Office Solutions
$5.04 Cv 400,000 32,350,000
SunAmerica
$3.18 Cv 335,000(b) 13,232,500
Total preferred stocks
(Cost: $183,946,852) $189,750,542
<TABLE>
<CAPTION>
Bonds (13.8%)
<S> <C> <C> <C> <C>
Issuer Coupon Maturity Principal Value(a)
rate year amount
Mortgage-backed securities (11.7%)
Federal Natl Mtge Assn 7.00% 2026 $42,174,486 $ 40,363,514
Collateralized Mtge Obligation 9.25 2016 356 355
U.S. Treasury 7.00 2006 53,700,000 53,873,451
8.125 2019-21 96,000,000 105,659,830
Total 199,897,150
Aerospace & defense (0.8%)
United Technologies
Cv 5.00 1998 13,943,025(f) 13,110,210
Healthcare (0.4 %)
Tenet Healthcare
Sr Nts 8.625 2003 7,000,000 7,122,500
Multi-industry conglomerates (0.9%)
Emerson Electric
Cv 5.00 1999 15,791,804(f) 15,737,622
Total bonds
(Cost: $243,379,042) $235,867,482
</TABLE>
Short-term securities (11.5%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agency (0.2%)
Federal Home Loan Mtge Corp
04-18-97 5.28% $ 2,800,000 $2,793,045
Commercial paper (11.3%)
American General Finance
04-16-97 5.28 6,500,000 6,485,781
Ameritech Capital Funding
04-17-97 5.33 6,500,000(g) 6,484,689
BHP Finance
04-14-97 5.33 5,900,000 5,888,708
CAFCO
04-02-97 5.29 2,400,000(g) 2,399,649
04-28-97 5.36 6,400,000(g) 6,374,464
Campbell Soup
04-04-97 5.35 4,000,000(g) 3,998,230
CIT Group Holdings
04-25-97 5.36 6,500,000 6,476,860
05-02-97 5.58 2,000,000 1,990,442
Commercial Credit
04-24-97 5.35 5,600,000 5,581,002
CPC Intl
04-30-97 5.55 8,000,000(g) 7,964,427
Dean Witter, Discover & Co
04-25-97 5.36 10,000,000 9,964,400
Deutsche Bank Financial
04-10-97 5.28 8,500,000 8,488,844
Fleet Funding
04-07-97 5.29 6,703,000(g) 6,697,124
04-09-97 5.34 4,000,000(g) 3,987,703
04-17-97 5.33 700,000(g) 698,348
04-22-97 5.31 3,700,000(g) 3,695,626
Ford Motor Credit
04-03-97 5.28 4,400,000 4,398,714
Gannett
04-16-97 5.33 6,000,000(g) 5,986,750
Kellogg
04-08-97 5.31 5,700,000 5,694,137
Kredietbank North America Finance
04-18-97 5.31% 6,600,000 6,583,575
Lilly (Eli)
04-23-97 5.37 3,400,000 3,388,884
Metlife Funding
04-22-97 5.33 2,500,000 2,492,271
04-23-97 5.35 3,800,000 3,783,185
05-01-97 5.35 7,400,000 7,375,897
Motorola
05-08-97 5.58 4,200,000 4,176,042
Natl Australia Funding (Delaware)
04-28-97 5.49 1,700,000 1,693,038
05-27-97 5.35 2,000,000 1,981,592
Novartis Finance
04-18-97 5.37 12,200,000 12,169,178
Paccar Financial
04-01-97 5.32 5,100,000 5,100,000
04-23-97 5.52 7,400,000 7,375,128
Reed Elsevier
05-05-97 5.55 7,100,000(g) 7,062,985
SBC Communications Capital
04-18-97 5.42 9,500,000(g) 9,475,775
Siemens
04-09-97 5.32 3,700,000 3,695,642
Southern California Gas
04-07-97 5.32 5,700,000(g) 5,694,965
Toyota Motor Credit
04-28-97 5.52 3,700,000 3,684,737
Transamerica Finance
04-10-97 5.28 4,900,000 4,893,569
Total 193,882,361
Total short-term securities
(Cost: $196,677,388) $ 196,675,406
Total investment in securities
(Cost: $1,584,385,573) (h) $1,727,136,276
See accompanying notes to investments in securities.
<PAGE>
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.
(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 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 the guidelines established
by the board.
(h) At March 31, 1997, the cost of securities for federal income tax purposes
was approximately $1,584,384,000 and the approximate aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation.........................................$173,623,000
Unrealized depreciation..........................................(30,871,000)
Net unrealized appreciation.....................................$142,752,000
<PAGE>
Board members and officers of the Fund
President and interested
board member
William R. Pearce
President and director, Board Services Corporation (provides
administrative services to boards including the boards of the IDS and
IDSLife funds and Master Trust portfolios).
Independent
board members
H. Brewster Atwater Jr.
Former chairman and chief executive officer, General Mills, Inc.
Lynne V. Cheney
Distinguished fellow, American Enterprise Institute for Public Policy
Research.
Robert F. Froehlke
Former president of all funds in the IDS MUTUAL FUND GROUP.
Heinz F. Hutter
Former president and chief operating officer, Cargill, Inc.
Anne P. Jones
Attorney and telecommunications consultant.
Melvin R. Laird
Senior counsellor for national and international affairs,
The Reader's Digest Association, Inc.
Alan K. Simpson
Former United States senator for Wyoming.
Edson W. Spencer
Former chairman and chief executive officer,
Honeywell, Inc.
Wheelock Whitney
Chairman, Whitney Management Company.
C. Angus Wurtele
Chairman of the board, The Valspar Corporation.
Interested board
members who are
officers and/or
employees of AEFC
William H. Dudley
Executive vice president, AEFC.
David R. Hubers
President and chief executive officer, AEFC.
John R. Thomas
Senior vice president, AEFC.
Officers who also
are officers and/or
employees of AEFC
Peter J. Anderson
Senior vice president, AEFC. Vice president - Investments for the Fund.
Melinda S. Urion
Senior vice president and chief financial officer, AEFC. Treasurer for the
Fund.
Other officer
Leslie L. Ogg
Vice president, treasurer and corporate secretary of Board Services
Corporation. Vice president, general counsel and secretary for the Fund.
Refer to the SAI for the board members' and officers' biographies.
<PAGE>
IDS mutual funds
Global/International funds
Funds in this group seek capital growth and/or income by investing primarily in
foreign securities. Foreign investments may be subject to currency fluctuations
and political and economic risks of the countries in which the investments are
made. They are high risk mutual funds with a potential for high reward.
IDS Emerging Markets Fund
Invests in a Portfolio comprised primarily of stocks of companies in developing
countries throughout the world that are believed to offer growth potential.
Seeks to provide long-term growth of capital.
(icon of) world globe
IDS Global Growth Fund
Invests in a Portfolio comprised primarily of 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 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 Global Balanced Fund
Invests in stocks-and bonds in, for the most part, major markets throughout the
world, including the U.S. Seeks to provide a balance of growth of capital and
current income.
(icon of) scale of globes
IDS Global Bond Fund
Invests in a Portfolio comprised primarily of debt securities of U.S. and
foreign issuers to seek high total return through income and growth of capital.
(icon of) globe
Growth funds
Funds in this group seek capital growth, primarily from common stocks. They are
high risk mutual funds with a potential for high reward.
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. A
highly aggressive and speculative fund that seeks long-term growth of capital.
(icon of) cart of precious gems
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 Small Company Index Fund
Invests in all or a representative group of the equity securities comprising the
S&P SmallCap 600 Index, as it strives to provide long-term capital appreciation.
(icon of) building
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 Research Opportunities Fund
Invests in a Portfolio comprised primarily of equity securities of companies
included in the S&P 500 Index that are believed to have strong growth potential.
The Portfolio is managed using a research methodology by the Research Department
of AEFC. Goal is long-term appreciation.
(icon of) magnifying glass
IDS Growth Fund
Invests in a Portfolio comprised primarily of companies that have above-average
potential for long-term growth as a result of new management, marketing
opportunities or technological superiority.
(icon of) flower
IDS New Dimensions Fund
Invests in a Portfolio comprised primarily of 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
Growth and income funds
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.
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 pine 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 Managed Allocation Fund
Invests in a Portfolio comprised primarily of U.S. equity securities, U.S. and
foreign debt securities, foreign equity securities and money market instruments.
The Fund provides diversification among these major investment categories and
has a target mix that represents the way the Fund's investments will be
allocated over the long term. Seeks maximum total return.
(icon of) spinning toy
IDS Stock Fund
Invests in a Portfolio comprised primarily of common stocks 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
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) light bulb
IDS Diversified Equity Income Fund
Invests in a Portfolio comprised 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) two puzzle pieces
IDS Mutual
Invests in a Portfolio which seeks to 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
Income funds
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 Extra Income Fund
Invests in a Portfolio comprised 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) two coins
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
IDS Selective Fund
Invests in a Portfolio comprised primarily of 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 in a Portfolio comprised primarily of 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) shield with eagle head
Tax-exempt income funds
These funds provide tax-free income by investing in municipal bonds. The income
is generally free from federal income tax, but a portion of the income may be
subject to state and local taxes. Risk varies by bond quality.
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 star
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 High Yield Tax-Exempt Fund
Invests in a Portfolio comprised primarily of 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 Intermediate Tax-Exempt Fund
Invests in mainly investment-grade bonds and other debt securities with
intermediate-term maturities issued by state and local government units. Goal is
to seek a high level of current income exempt from federal taxes.
(icon of) shield with tree enclosed
Money market funds
These money market funds have three main goals: conservation of
capital, constant liquidity and the highest possible current
income consistent with these objectives. An investment in
these funds is neither insured nor guaranteed by the U.S. government,
and there can be no assurance that these funds
will be able to maintain a stable net asset value of $1.00
per share. Very limited risk.
IDS Cash Management Fund
Invests in such money market securities as high quality commercial paper,
bankers' acceptances, certificates of deposit (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
<PAGE>
Quick telephone reference
American Express Telephone Transaction Service
Redemptions and exchanges, dividend payments or reinvestments and
automatic payment arrangements
<PAGE>
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 (TouchTone(R) 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
PAGE
AMERICAN EXPRESS FINANCIAL ADVISORS
IDS Diversified Equity Income Fund
IDS Tower 10
Minneapolis, MN 55440-0010
