1997 SEMIANNUAL REPORT
IDS
Mutual
(icon of) scale of justice
The goal of IDS Mutual is to provide a balance of growth of capital and current
income. The Portfolio divides its investments between common stocks and senior
securities (bonds and preferred stocks).
American Express Financial Advisors
Distributed by American Express Financial Advisors Inc., Member SIPC
(icon of) scale of justice
A beneficial balance
A balanced Portfolio isone of the building blocks of investment planning. And
balance is what IDS Mutual is all about. The Portfolio starts with a focus on
stocks, many of which are part of the who's who of corporate America. To help
balance the fluctuations inherent in stocks, as well as provide greater income
to investors, bonds are added to the Portfolio. The result: a Fund that strives
to provide income above that of a pure stock fund, while still providing
potential for capital appreciation.
Contents
From the president 3
From the portfolio managers 3
Ten largest holdings 5
Financial statements (Fund) 6
Notes to financial statements (Fund) 9
Financial statements (Portfolio) 16
Notes to financial statements (Portfolio) 19
Investments in securities 26
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 Pearce
William R. Pearce
President of the Fund
<PAGE>
From the portfolio managers
A favorable environment for both stocks and bonds during much of the past
six months set the stage for a positive performance by IDS Mutual. For the
first half of the Fund's fiscal year, October 1996 through March 1997,
investors in Class A shares realized a total return of 8.0%. (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.)
The factors that had propelled the stock market in recent years -- low
inflation, low interest rates, moderate economic growth and healthy
corporate profits -- remained in place as the period began last fall.
Stocks responded with a sharp rally that, aside from a dip in December,
lasted until mid-February. By then, though, long-term interest rates had
spiked up, sending stocks into a slide for the rest of the period.
Stocks, bonds part company
Like stocks, bonds enjoyed a substantial run-up last fall. But hints of a
strengthening economy soon began fueling inflation fears, and for the
final four months the bond market was forced to endure a gradual erosion.
While the Federal Reserve didn't raise short-term interest rates until
late March, the bond market had already made up its mind by driving up
long-term rates several weeks earlier.
Consistent with their history, value stocks were less volatile than the
broad stock market. This is a function of their above-average dividends
and below-average valuations, which tend to provide some price support
during market declines. Stocks of banks and insurance companies, a
substantial exposure for the Portfolio for some time, led the way during
the six months. They were complemented by consumer stocks, including the
pharmaceutical and food/beverage sectors, which also gave the Fund overall
positive results. As for changes to the Portfolio, we gradually moved more
money into "defensive" issues such as utility stocks and real estate
investment trusts to cushion the Fund's net asset value in the event of a
stock market downturn.
Getting defensive
We also employed a conservative strategy with the bond portion of the
Portfolio. This included shifting some money out of U.S. Treasury bonds,
which are penalized most by rising interest rates, and keeping a neutral
duration among the bond holdings, also to lessen the negative effect of an
increase in interest rates. For the six months, the Portfolio mix was
30%-35% bonds, 60%-65% stocks, with under 10% in cash.
As this report is being prepared in mid-April, we continue to be cautious
on the stock and bond markets. We expect the Federal Reserve to raise
interest rates at least a few more times this year, a trend that would
almost surely cause problems for the bond market and probably restrain
stocks as well. Therefore, we are maintaining a defensive structure in the
Portfolio, which should allow the Fund to fare relatively well if we
encounter difficult market conditions.
Thomas W. Medcalf
(picture of) Thomas Medcalf
Thomas W. Medcalf
Equity portfolio manager
Ed Labenski
(picture of) Ed Labenski
Ed Labenski
Fixed-income portfolio manager
<PAGE>
To our shareholders
Class A
6-month performance
(All figures per share)
Net asset value (NAV)
March 31, 1997 $ 13.50
Sept. 30, 1996 $ 13.51
Decrease $ 0.01
Distributions
Oct. 1, 1996 - March 31, 1997
From income $ 0.38
From capital gains $ 0.71
Total distributions$ 1.09
Total return* +8.0%**
Class B
6-month performance
(All figures per share)
Net asset value (NAV)
March 31, 1997 $ 13.45
Sept. 30, 1996 $ 13.47
Decrease $ 0.02
Distributions
Oct. 1, 1996 - March 31, 1997
From income $ 0.33
From capital gains $ 0.71
Total distributions$ 1.04
Total return* +7.6%**
Class Y
6-month performance
(All figures per share)
Net asset value (NAV)
March 31 ,1997 $ 13.50
Sept. 30, 1996 $ 13.51
Decrease $ 0.01
Distributions
Oct. 1, 1996 - March 31, 1997
From income $ 0.39
From capital gains $ 0.71
Total distributions$ 1.10
Total return* +8.2%**
*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)
Gannett 1.01% $42,937,500
BellSouth .94 40,137,500
Dow Chemical .94 40,000,000
GTE .93 39,631,250
SBC Communications .93 39,468,750
Royal Dutch Petroleum .92 39,375,000
Mobil .92 39,187,500
Amoco .92 38,981,250
Baxter Intl .91 38,812,500
SmithKline Beecham .90 38,500,000
Excludes U.S. Treasury and government agency holdings.
(icon of) pie chart
The ten holdings listed here make up 9.32% of the Portfolio's net assets
<PAGE>
Financial statements
Statement of assets and liabilities
IDS Mutual
March 31, 1997
Assets
(Unaudited)
Investment in Balanced Portfolio (Note 1) $4,259,880,136
- --------------
Total assets 4,259,880,136
-------------
Liabilities
Accrued distribution fee 15,659
Accrued service fee 60,117
Accrued transfer agency fee 36,685
Accrued administrative services fee 15,226
Other accrued expenses 433,670
-------
Total liabilities 561,357
Net assets applicable to outstanding capital stock $4,259,318,779
==============
Represented by
Capital stock-- $.01 par value (Note 1) $ 3,154,896
Additional paid-in capital 3,669,187,679
Undistributed net investment income 11,177,890
Accumulated net realized gain (Note 1) 170,998,079
Unrealized appreciation of investments and on translation
of assets and liabilities in foreign currencies 404,800,235
-----------
Total-- representing net assets applicable to outstanding
capital stock $4,259,318,779
==============
Net assets applicable to outstanding shares: Class A $2,883,398,407
Class B $ 187,399,447
Class Y $1,188,520,925
Net asset value per share of outstanding capital stock:
Class A shares 213,541,197 $ 13.50
Class B shares 13,935,104 $ 13.45
Class Y shares 88,013,302 $ 13.50
See accompanying notes to financial statements.
<PAGE>
Statement of operations
IDS Mutual
Six months ended March 31, 1997
Investment income
(Unaudited)
Income:
Dividends $ 46,025,287
Interest 54,687,931
----------
Total income 100,713,218
-----------
Expenses (Note 2):
Expenses, including investment management services fee,
allocated from Balanced Portfolio 10,474,366
Distribution fee -- Class B 608,889
Transfer agency fee 2,565,528
Incremental transfer agency fee-- Class B 8,720
Service fee
Class A 2,447,109
Class B 141,457
Administrative services fees and expenses 695,925
Compensation of board members 4,572
Compensation of officers 11,104
Postage 120,836
Registration fees 153,317
Reports to shareholders 67,964
Audit fees 5,891
Other 13,899
------
Total expenses 17,319,577
Earnings credits on cash balances (Note 2) (103,887)
Total net expenses 17,215,690
----------
Investment income -- net 83,497,528
----------
Realized and unrealized gain -- net
Net realized gain on security and foreign currency
transactions (Note 4) 195,620,037
Net change in unrealized appreciation or depreciation
of investments and on translation of assets and
liabilities in foreign currencies 41,425,323
Net gain on investments and foreign currencies 237,045,360
-----------
Net increase in net assets resulting from operations $320,542,888
============
See accompanying notes to financial statements.
<PAGE>
Financial statements
Statements of changes in net assets
IDS Mutual
<TABLE>
<CAPTION>
<S> <C> <C>
Operations and distributions March 31, 1997 Sept. 30, 1996
Six months ended Year ended
(Unaudited)
Investment income-- net $ 83,497,528 $ 156,379,206
Net realized gain on investments and foreign currencies 195,620,037 220,369,417
Net change in unrealized appreciation or depreciation
of investments and on translation of assets and
liabilities in foreign currencies 41,425,323 52,687,677
---------- ----------
Net increase in net assets resulting from operations 320,542,888 429,436,300
----------- -----------
Distributions to shareholders from:
Net investment income
Class A (52,813,701) (105,659,488)
Class B (2,617,955) (3,138,330)
Class Y (22,580,730) (43,985,217)
Net realized gain
Class A (168,695,557) (27,149,800)
Class B (9,374,819) (554,840)
Class Y (68,558,106) (10,528,422)
----------- -----------
Total distributions (324,640,868) (191,016,097)
------------ ------------
Capital share transactions (Note 3)
Proceeds from sales
Class A (Note 2) 110,524,803 223,241,565
Class B 54,480,574 102,302,034
Class Y 181,348,037 486,820,247
Reinvestment of distributions at net asset value
Class A shares 194,934,296 114,008,369
Class B shares 11,731,713 3,581,024
Class Y shares 91,138,836 54,513,639
Payments for redemptions
Class A shares (191,082,442) (331,999,353)
Class B shares (Note 2) (10,422,538) (10,136,983)
Class Y shares (196,131,022) (368,740,312)
------------ ------------
Increase in net assets from capital share transactions 246,522,257 273,590,230
----------- -----------
Total increase in net assets 242,424,277 512,010,433
Net assets at beginning of period 4,016,894,502 3,504,884,069
------------- -------------
Net assets at end of period
(including undistributed net investment income of
$11,177,890 and $5,692,748) $4,259,318,779 $4,016,894,502
============== ==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
IDS Mutual
(Unaudited as to March 31, 1997)
1. Summary of significant accounting policies
IDS Mutual (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 Balanced Portfolio
Effective May 13, 1996, the Fund began investing all of its assets in Balanced
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. The Portfolio divides its
investments between common stocks and senior securities (bonds and preferred
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 99.98%.
Valuation of securities held by the Portfolio is discussed in Note 1 of the
Portfolio's "Notes to financial statements," which are included elsewhere in
this report.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increase and decrease in net assets from operations
during the period. Actual results could differ from those estimates.
Federal taxes
Since the Fund's policy is to comply with all sections of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to the shareholders, no provision for income or excise taxes is
required.
Net investment income (loss) and net realized gains (losses) allocated from the
Portfolio may differ for financial statement and tax purposes primarily because
of the deferral of losses on certain futures contracts, the recognition of
certain foreign currency gains (losses) as ordinary income (loss) for tax
purposes, and losses deferred due to "wash sale" transactions. The character of
distributions made during the year from net investment income or net realized
gains may differ from their ultimate characterization for federal income tax
purposes. Also, due to the timing of dividend distributions, the fiscal year in
which amounts are distributed may differ from the year that the income or
realized gains (losses) were recorded by the Fund.
Dividends to shareholders
Dividends from net investment income, declared and paid each calendar quarter,
are reinvested in additional shares of the Fund at net asset value or payable in
cash. Capital gains, when available, are distributed along with the last income
dividend of the calendar year.
2. Expenses and sales charges
In addition to the expenses allocated from the Portfolio, the Fund accrues its
own expenses as follows:
Effective March 20, 1995, the Fund entered into agreements with American Express
Financial Corporation (AEFC) for providing administrative services and serving
as transfer agent.
Under its Administrative Services Agreement, the Fund pays AEFC a fee for
administration and accounting services at a percentage of the Fund's average
daily net assets in reducing percentages from 0.04% to 0.02% annually.
Additional administrative service expenses paid by the Fund are office expenses,
consultants' fees and compensation of officers and employees. Under this
agreement, the Fund also pays taxes, audit and certain legal fees, registration
fees for shares, compensation of board members, corporate filing fees,
organizational expenses, and any other expenses properly payable by the Fund
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 $2,257,781 for Class A and $55,442 for Class B for
the six months ended March 31, 1997. The Fund also pays custodian fees to
American Express Trust Company, an affiliate of AEFC.
During the six months ended March 31, 1997, the Fund's transfer agency fees were
reduced by $103,887 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 7,939,091 3,929,270 13,039,674
Issued for reinvested 14,319,681 865,123 6,694,870
distributions
Redeemed (13,710,307) (751,666) (14,161,733)
----------- -------- -----------
Net increase 8,548,465 4,042,727 5,572,811
========= ========= =========
Year ended Sept. 30, 1996
Class A Class B Class Y
Sold 16,903,358 7,776,927 37,176,071
Issued for reinvested 8,620,489 270,455 4,120,124
distributions
Redeemed (25,127,441) (766,410) (27,902,875)
----------- -------- -----------
Net increase 396,406 7,280,972 13,393,320
======= ========= ==========
<PAGE>
<TABLE>
Mutual Fund
4. Financial highlights The tables below show certain important financial
information for evaluating the Fund's results.
Fiscal period ended Sept. 30,
<CAPTION>
Per share income and capital changes* Class A
1997** 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $13.51 $12.69 $11.89 $13.13 $12.62 $12.00 $10.39 $13.15 $11.57 $12.71
beginning of period
Income from investment operations:
Net investment income .27 .54 .58 .56 .55 .61 .66 .72 .73 .76
Net gains (losses) .81 .93 1.27 (.56) 1.39 .91 2.01 (2.01) 1.58 (.70)
(both realized and
unrealized)
Total from investment 1.08 1.47 1.85 -- 1.94 1.52 2.67 (1.29) 2.31 .06
operations
Less distributions:
Dividends from net (.25) (.52) (.54) (.56) (.55) (.60) (.67) (.73) (.73) (.76)
investment income
Distributions from (.84) (.13) (.51) (.68) (.88) (.30) (.39) (.74) -- (.44)
realized gains
Total distributions (1.09) (.65) (1.05) (1.24) (1.43) (.90) (1.06) (1.47) (.73) (1.20)
Net asset value, $13.50 $13.51 $12.69 $11.89 $13.13 $12.62 $12.00 $10.39 $13.15 $11.57
end of period
Ratios/supplemental data Class A
1997** 1996 1995 1994 1993 1992 1991 1990 1989 1988
Net assets, end of $2,883 $2,770 $2,596 $2,999 $2,788 $2,222 $1,889 $1,496 $1,687 $1,441
period (in millions)
Ratio of expenses to .84%+ .87% .83% .79% .79% .78% .71% .69% .67% .63%
average daily net assets#
Ratio of net income to 3.93%+ 4.01% 4.58% 4.57% 4.41% 4.99% 5.81% 6.04% 5.94% 6.49%
average daily net assets
Portfolio turnover rate 26% 45% 38% 69% 48% 50% 47% 37% 46% 60%
(excluding short-term securities) for the
underlying Portfolio
Total return++ 8.0% 11.8% 16.8% (0.1%) 16.7% 13.3% 26.9% (10.8%) 20.5% 0.8%
Average brokerage $.0491 $.0522 -- -- -- -- -- -- -- --
commission rate for the
underlying Portfolio##
*For a share outstanding throughout the period. Rounded to the nearest cent.
**Six months ended March 31, 1997 (Unaudited).
#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.
+Adjusted to an annual basis.
++ Total return does not reflect payment of a sales charge.
<PAGE>
Mutual Fund
Financial highlights
Fiscal period ended Sept. 30,
Per share income and capital changes* Class B Class Y
1997** 1996 1995*** 1997** 1996 1995***
Net asset value,
beginning of period $13.47 $12.66 $11.67 $13.51 $12.69 $11.67
Income from investment operations:
Net investment income .21 .45 .25 .28 .56 .32
Net gains (both realized .81 .93 1.11 .81 .93 1.11
and unrealized)
Total from investment 1.02 1.38 1.36 1.09 1.49 1.43
operations
Less distributions:
Dividends from net (.20) (.44) (.37) (.26) (.54) (.41)
investment income
Distributions from (.84) (.13) -- (.84) (.13) --
realized gains
Total distributions (1.04) (.57) (.37) (1.10) (.67) (.41)
Net asset value, $13.45 $13.47 $12.66 $13.50 $13.51 $12.69
end of period
Ratios/supplemental data
Class B Class Y
1997** 1996 1995*** 1997** 1996 1995***
Net assets, end of $187 $133 $33 $1,189 $1,114 $876
period (in millions)
Ratio of expenses to 1.60%+ 1.64% 1.65%+ .67%+ .70% .70%+
average daily net assets#
Ratio of net income to 3.21%+ 3.32% 3.94%+ 4.10%+ 4.18% 4.58%+
average daily net assets
Portfolio turnover rate 26% 45% 38% 26% 45% 38%
(excluding short-term securities) for the
underlying Portfolio
Total return++ 7.6% 11.0% 11.7% 8.2% 12.0% 12.2%
Average brokerage $.0491 $.0522 -- $.0491 $.0522 --
commission rate for the
underlying Portfolio##
*For a share outstanding throughout the period. Rounded to
the nearest cent.
**Six months ended March 31, 1997 (Unaudited).
*** Inception date was March 20, 1995.
#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.
+Adjusted to an annual basis.
++Total return does not reflect payment of a sales charge.
</TABLE>
<PAGE>
Financial statements
Statement of assets and liabilities
Balanced Portfolio
March 31, 1997
Assets
(Unaudited)
Investments in securities, at value (Note 1)
(identified cost $3,901,878,635) $4,302,929,492
Dividends and accrued interest receivable 34,423,102
U.S. government securities held as collateral (Note 5) 127,048,303
Receivable for investment securities sold 18,095,459
----------
Total assets 4,482,496,356
-------------
Liabilities
Disbursements in excess of cash on demand deposit 8,336,198
Payable for investment securities purchased 43,662,699
Payable upon return of securities loaned (Note 5) 168,573,353
Unrealized depreciation on foreign currency contracts held,
at value (Notes 1 and 4) 930,300
Accrued investment management services fee 214,903
Other accrued expenses 88,805
------
Total liabilities 221,806,258
-----------
Net assets $4,260,690,098
==============
See accompanying notes to financial statements.
<PAGE>
Statement of operations
Balanced Portfolio
Six months ended March 31, 1997
Investment income
(Unaudited)
Income:
Dividends (net of foreign taxes withheld of $170,851) $ 46,032,701
Interest 54,661,497
----------
Total income 100,694,198
-----------
Expenses (Note 2):
Investment management services fee 10,344,820
Compensation of board members 8,196
Custodian fees 97,286
Audit fees 14,250
Administrative services fees and expenses 12,809
------
Total expenses 10,477,361
Earnings credits on cash balances (Note 2) (1,318)
------
Total net expenses 10,476,043
----------
Investment income -- net 90,218,155
----------
Realized and unrealized gain -- net
Net realized gain on security and foreign currency transactions
(including loss of $4,281,394 from foreign currency
transactions) (Note 3) 195,637,932
Net change in unrealized appreciation or depreciation of
investments and on translation of assets and liabilities
in foreign currencies 41,436,955
----------
Net gain on investments and foreign currencies 237,074,887
-----------
Net increase in net assets resulting from operations $327,293,042
============
See accompanying notes to financial statements.
<PAGE>
<TABLE>
Financial statements
Statements of changes in net assets
Balanced Portfolio
<CAPTION>
Operations
<S> <C> <C>
Six months ended For the period from
March 31, 1997 May 13, 1996* to
(Unaudited) Sept. 30, 1996
Investment income-- net $ 90,218,155 $ 69,251,201
Net realized gain on investments and
foreign currencies 195,637,932 58,304,995
Net change in unrealized appreciation or depreciation of investments
and on translation of assets and liabilities in foreign currencies 41,436,955 26,384,443
---------- ----------
Net increase in net assets resulting from operations 327,293,042 153,940,639
Net contributions (withdrawals) (84,695,716) 3,864,127,133
----------- -------------
Total increase in net assets 242,597,326 4,018,067,772
Net assets at beginning of period (Note 1) 4,018,092,772 25,000
------------- ------
Net assets at end of period $4,260,690,098 $4,018,092,772
============== ==============
*Commencement of operations.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
Balanced Portfolio
(Unaudited as to March 31, 1997)
1. Summary of significant accounting policies
Balanced 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.
Balanced Portfolio seeks to provide a balance of growth of capital and
current income by investing in common stocks and senior securities
(preferred stocks and debt securities) issued by U.S. and foreign
companies. The Portfolio also may invest in derivative instruments and
money market instruments. The Declaration of Trust permits the Trustees to
issue non-transferable interests in the Portfolio. On April 15, 1996,
American Express Financial Corporation (AEFC) contributed $25,000 to the
Portfolio. Operations did not formally commence until May 13, 1996, at
which time an existing fund transferred its assets to the Portfolio in
return for an ownership percentage of the Portfolio.
Significant accounting policies followed by the Portfolio are summarized
below:
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increase and decrease in
net assets from operations during the period. Actual results could differ
from those estimates.
Valuation of securities
All securities are valued at the close of each business day. Securities
traded on national securities exchanges or included in national market
systems are valued at the last quoted sales price; securities for which
market quotations are not readily available, including illiquid
securities, are valued at fair value according to methods selected in good
faith by the board. Determination of fair value involves, among other
things, reference to market indexes, matrixes and data from independent
brokers. Short-term securities maturing in more than 60 days from the
valuation date are valued at the market price or approximate market value
based on current interest rates; those maturing in 60 days or less are
valued at amortized cost.
Option transactions
In order to produce incremental earnings, protect gains and facilitate
buying and selling of securities for investment purposes, the 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.
The Portfolio may enter into forward foreign currency exchange contracts
for operational purposes and to protect against adverse exchange rate
fluctuation. The net U.S. dollar value of foreign currency underlying all
contractual commitments held by the Portfolio and the resulting unrealized
appreciation or depreciation are determined using foreign currency
exchange rates from an independent pricing service. The Portfolio is
subject to the credit risk that the other party will not complete the
obligations of the contract.
Illiquid securities
Investments in securities include issues that are illiquid. The Portfolio
currently limits investments in illiquid securities to 10% of the net
assets, at market value, at the time of purchase. The aggregate value of
such securities at March 31, 1997 was $4,442,054 representing 0.10% of the
net assets. Pursuant to guidelines adopted by the board, certain
unregistered securities are determined to be liquid and are not included
within the 10% limitation specified above.
Federal taxes
For federal income tax purposes the Portfolio qualifies as a partnership
and each investor in the Portfolio is treated as the owner of its
proportionate share of the net assets, income, expenses and realized and
unrealized gains and losses of the Portfolio. Accordingly, as a
"pass-through" entity, the Portfolio does not pay any income dividends or
capital gain distributions.
Other
Security transactions are accounted for on the date securities are
purchased or sold. Dividend income is recognized on the ex-dividend date
and interest income, including level-yield amortization of premium and
discount, is accrued daily.
2. Fees and expenses
The Trust, on behalf of the Portfolio, has entered into an Investment
Management Services Agreement with AEFC for managing its portfolio. Under
this agreement, AEFC determines which securities will be purchased, held
or sold. The management fee is a percentage of the Portfolio's average
daily net assets in reducing percentages from 0.53% to 0.43% annually. The
fees may be increased or decreased by a performance adjustment based on a
comparison of the performance of Class A shares of IDS Mutual to the
Lipper Balanced Fund Index. The maximum adjustment is 0.08% of the
Portfolio's average daily net assets on an annual basis. The adjustment
decreased the fee by $18,925 for the six months ended March 31, 1997.
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 $1,318 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 $1,011,785,609 and $1,068,804,639,
respectively, for the six months ended March 31, 1997. For the same
period, the portfolio turnover rate was 26%. Realized gains and losses are
determined on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $13,239
during this period.
4. 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
May 27, 1997 30,000,000 48,390,000 $ -- $930,300
British Pound U.S. Dollar
5. Lending of portfolio securities
At March 31, 1997, securities valued at $162,773,006 were on loan to
brokers. For collateral, the Portfolio received $41,525,050 in cash and
U.S. government securities valued at $127,048,303. Income from securities
lending amounted to $192,836 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.
<PAGE>
Investments in securities
Balanced Portfolio
March 31, 1997 (Unaudited)
(Percentages represent
value of investments
compared to net assets)
Common stocks (60.0%)
Issuer Shares Value(a)
Aerospace & defense (0.7%)
Rockwell Intl 450,000 $ 29,193,750
Automotive & related (1.6%)
Ford Motor 1,100,000 34,512,500
Genuine Parts 700,000 32,637,500
Total 67,150,000
Banks and savings & loans (5.6%)
Banc One 725,000(c) 28,818,750
Barnett Banks 527,850(c) 24,545,025
First Union 450,000 36,506,250
Mellon Bank 325,000 23,643,750
Morgan (JP) 350,000 34,387,500
Natl City 700,000 32,637,500
NationsBank 540,000 29,902,500
Norwest 650,000 30,062,500
Total 240,503,775
Beverages & tobacco (2.3%)
Anheuser-Busch 875,000 36,859,375
Philip Morris 300,000 34,237,500
UST1,000,000 27,875,000
Total 98,971,875
Building materials (0.7%)
Weyerhaueser 650,000 29,006,250
Chemicals (3.4%)
ARCO Chemical 575,000 25,012,500
Dow Chemical 500,000 40,000,000
Lubrizol 850,000 27,625,000
Lyondell Petrochemical 800,000(c) 18,300,000
Nalco Chemical 875,000 32,703,125
Total 143,640,625
Computers & office equipment (0.9%)
Xerox 675,000 38,390,625
Electronics (0.7%)
AMP 900,000 30,937,500
Energy (4.9%)
Amoco 450,000 38,981,250
Atlantic Richfield 250,000 33,750,000
Chevron 550,000 38,293,750
Exxon 275,000 29,631,250
Mobil 300,000 39,187,500
Ultramar 925,000 29,368,750
Total 209,212,500
Food (1.1%)
General Mills 250,000 15,531,250
Heinz (HJ) 825,000 32,587,500
Total 48,118,750
Health care (3.1%)
American Home Products 625,000 37,500,000
Baxter Intl 900,000 38,812,500
Bristol-Myers Squibb 480,000 28,320,000
Schering-Plough 375,000 27,281,250
Total 131,913,750
Insurance (3.9%)
Lincoln Natl 625,000 33,437,500
Marsh & McLennan 300,000 33,975,000
SAFECO 925,000 37,000,000
St. Paul Companies 575,000 37,303,125
Transamerica 250,000 22,375,000
Total 164,090,625
Media (3.1%)
Dun & Bradstreet 1,150,000 29,181,250
Gannett 500,000 42,937,500
Knight-Ridder 700,000 27,912,500
McGraw-Hill 650,000 33,231,250
Total 133,262,500
Metals (0.4%)
Reynolds Metals 246,000 15,252,000
Multi-industry conglomerates (1.3%)
Emerson Electric 850,000 38,250,000
General Electric 175,000 17,368,750
Total 55,618,750
Paper & packaging (1.5%)
Kimberly-Clark 225,000 22,359,375
Union Camp 600,000 28,275,000
Unisource Worldwide 750,000 11,531,250
Total 62,165,625
Real estate investment trust (3.6%)
AMLI 425,000 9,775,000
CBL & Associates 500,000 12,250,000
Developers Diversified
Realty 303,100 11,442,025
Gables Residential 475,000 12,112,500
Liberty Property Trust 500,000 12,250,000
LTC Properties 532,700 8,856,138
Meditrust 500,000 18,625,000
Merry Land & Investment 550,000 11,275,000
Nationwide Health
Properties 550,000 11,756,250
Omega Healthcare Investors 300,000 9,375,000
Simon Properties 675,000 20,418,750
United Dominion Realty
Trust 1,050,000 15,356,250
Total 153,491,913
Retail (2.9%)
Jostens 750,000 16,968,750
Limited 1,900,000 34,912,500
May Department Stores 800,000 36,400,000
Penney (JC) 775,000 36,909,375
Total 125,190,625
Transporation (1.2%)
GATX 400,000 19,550,000
Union Pacific 525,000 29,793,750
Total 49,343,750
Utilities -- electric (4.0%)
Dominion Resources 500,000 18,187,500
DTE Energy 675,000 18,140,625
Entergy 1,000,000 24,500,000
General Public 825,000 26,503,125
Northern States Power 550,000 26,056,250
PECO Energy 950,000 19,356,250
Southern 1,050,000 22,181,250
Unicom 87,700 1,710,150
Union Electric 375,000 13,828,125
Total 170,463,275
Utilities -- telephone (4.5%)
AT&T 1,050,000 36,487,500
Bell Atlantic 600,000 36,525,000
BellSouth 950,000(c) 40,137,500
GTE850,000 39,631,250
SBC Communications 750,000 39,468,750
Total 192,250,000
Foreign (8.6%) (h)
Anglian Water 1,550,000 16,294,851
B.A.T. Inds 4,250,000(b) 36,253,966
BTR 7,000,000 30,691,143
Grand Metropolitan ADR 1,500,000 12,116,874
Imperial Chemical Inds 2,500,000 28,646,990
KPN ADR 850,000 30,812,500
National Westminster
Bank ADR 2,150,000 24,282,693
Repsol ADR 400,000 16,300,000
Royal Dutch Petroleum 225,000 39,375,000
Severn Trent Water 1,238,015 14,053,770
SmithKline Beecham ADR 550,000 38,500,000
Tele Danmark ADR 1,050,000(c) 27,431,250
Thames Water 1,823,893 19,909,399
Tomkins 7,194,444 32,253,851
Total 366,922,287
Total common stocks
(Cost: $2,159,078,710) $2,555,090,750
Preferred stocks (--%)
Issuer Shares Value(a)
Virginia-American Water
5.05% Cm 2,200(i) $197,124
Western Resources
4.25% Cm 10,000(i) 586,250
Total preferred stocks
(Cost: $1,220,000) $783,374
<TABLE>
Bonds (31.4%)
<CAPTION>
Issuer Coupon Maturity Principal Value(a)
rate year amount
U.S. government obligations (10.0%)
<S> <C> <C> <C> <C>
U.S. Treasury 5.875% 2004 $25,000,000(c) $ 23,666,000
6.00 1997 20,000,000 20,016,200
6.25 2000 30,000,000 29,645,400
6.375 1997 40,000,000(c) 40,094,400
6.625 2001 25,000,000 24,899,500
6.75 2000 15,000,000 15,052,350
6.875 2000 20,000,000 20,147,400
7.125 1999 62,650,000(c) 63,510,185
7.50 2001 50,000,000(c) 51,462,000
10.375 2012 40,000,000 49,650,400
Govt Trust Certs Israel 9.25 2001 9,298,587 9,772,536
Overseas Private Investment 6.99 2009 17,500,000 17,193,750
Resolution Funding Corp 8.125 2019 55,000,000 59,656,300
Total 424,766,421
Mortgage-backed securities (8.6%)
Collateralized Mtge Obligation Trust 9.95 2014 4,663,169 4,974,367
Federal Home Loan Mtge Corp 5.50 2009 5,110,080 4,731,627
6.50 2007-11 43,844,153 42,317,376
6.75 2008 2,335,977 2,289,631
7.00 2003 6,386,651 6,334,792
8.00 2024 8,237,420 8,306,449
8.50 2026 12,503,200 12,823,532
Collateralized Mtge Obligation 7.50 2003 7,800,000 7,840,170
8.50 2022 7,000,000 7,271,810
Inverse Floater 4.00 1997 4,580,093(e) 4,514,048
Trust Series Z 6.50 2023 21,354,283(f) 17,500,939
8.25 2024 6,354,985(f) 6,131,226
Federal Natl Mtge Assn 5.50 2009 7,489,607 6,921,745
6.50 2023-24 30,859,329 28,915,974
7.00 2011 24,280,178 23,878,099
7.40 2004 33,750,000(c) 34,444,238
7.50 2002-25 26,496,444 26,085,616
8.50 2025-26 13,575,476 13,910,271
9.00 2024 7,694,090 8,114,879
Collateralized Mtge Obligation 4.50 2007 11,900,000 10,107,384
5.00 2024 6,696,552 5,897,318
Trust Series Z 6.00 2024 7,215,984(f) 5,091,526
6.50 2023 17,733,524(f) 14,281,578
7.00 2016-22 38,750,146(f) 34,689,352
7.50 2014 8,665,606(f) 8,214,423
8.00 2006-20 20,932,796(f) 20,818,453
Total 366,406,823
Aerospace & defense (0.2%)
United Technologies 8.875 2019 9,500,000 10,575,780
Automotive & related (0.3%)
Ford Motor Credit
Medium-term Nts 6.55 2001 13,000,000 12,763,920
Banks and savings & loans (1.2%)
Bank of America 7.70 2026 10,000,000(g) 9,318,800
First Bank System 6.875 2007 5,750,000 5,496,482
Morgan (JP) 4.00 2012 14,325,000(k) 13,976,186
Mellon Capital I 7.72 2026 3,850,000 3,604,408
Union Planters 8.20 2026 10,000,000(g) 9,570,900
US Capital Trust A 8.41 2027 10,000,000(g) 9,883,900
Total 51,850,676
Beverages & tobacco (0.1%)
Coca-Cola 7.375 2093 3,000,000 2,869,260
Building materials (0.1%)
Owens-Corning Fiberglas 9.375 2012 3,500,000 3,757,530
Commercial finance (0.4%)
Premium Auto
Asset-Backed Obligation 6.45 1998 4,089,724 4,099,908
Salomon Brothers 6.75 2006 7,000,000 6,575,730
Standard Credit Card Trust 5.95 2004 8,550,000 8,014,941
Total 18,690,579
Computers & office equipment (0.1%)
IBM 6.375 2000 5,100,000 5,033,598
Electronics (0.1%)
Harris 10.375 2018 4,000,000 4,381,520
Energy (0.2%)
Occidental Petroleum
Medium-term Nts 6.25 2000 6,500,000 6,360,575
Financial services (0.8%)
Associates 6.00 2000 6,000,000 5,863,980
Avco Financial 7.25 1999 6,500,000 6,579,040
Corporate Property Investors 7.18 2013 1,500,000(g) 1,387,500
Intl Lease Finance
Medium-term Nts 5.99 1998 5,000,000 4,989,000
Nationwide Trust
Credit Sensitive Nts 9.875 2025 10,500,000(g) 11,205,180
Property Trust America REIT 7.50 2014 5,000,000 4,665,250
Total 34,689,950
Health care (0.3%)
Kaiser Foundation 9.55 2005 6,000,000 6,747,900
Lilly (Eli) 6.77 2036 5,000,000 4,389,250
Total 11,137,150
Household products (0.1%)
Proctor & Gamble 8.00 2024 3,000,000 3,176,730
Insurance (0.7%)
American United Life 7.75 2026 4,000,000(i) 3,658,680
Equitable IBM 7.33 2009 5,500,000(g) 5,439,844
New York Life 7.50 2023 11,500,000(g) 10,619,330
Principal Mutual 8.00 2044 7,150,000(g) 6,839,762
SunAmerica 8.125 2023 5,150,000 5,157,776
Total 31,715,392
Paper & packaging (0.7%)
Crown Cork & Seal 8.00 2023 6,000,000 5,705,160
Federal Paper Board 10.00 2011 7,000,000 8,339,380
Intl Paper 5.125 2012 13,400,000 10,274,584
Pope & Talbot 8.375 2013 4,500,000 3,880,395
Total 28,199,519
Retail (0.3%)
Wal-Mart 7.00 2006 14,566,985(g) 14,394,512
Transportation (0.2%)
Burlington Northern 7.00 2025 10,200,000 8,954,886
Utilities -- electric (1.3%)
Arizona Public Service
Sale Lease-Backed Obligation 8.00 2015 5,400,000 5,394,384
Commonwealth Edison 6.50 1997 10,000,000 10,002,200
Pacific Gas & Electric 8.25 2022 4,600,000 4,599,448
Public Service Electric & Gas 6.75 2016 13,000,000 11,915,280
Texas Utilities Electric 8.175 2037 10,000,000(k) 9,694,200
Wisconsin Electric Power
1st Mtge 6.875 2095 8,000,000 7,077,840
7.75 2023 5,500,000 5,343,965
Total 54,027,317
Utilities -- telephone (1.9%)
Bell Telephone Pennsylvania 7.375 2033 5,000,000 4,621,350
BellSouth Telecommunications 6.50 2005 9,000,000 8,570,880
7.00 2095 10,000,000 9,125,500
GTE 8.75 2021 5,000,000 5,451,500
9.375 2000 4,600,000 4,926,830
Illinois Bell Telephone
1st Mtge 4.375 2003 4,600,000 3,982,312
New York Telephone 4.875 2006 13,000,000 10,934,690
Pacific Bell Telephone 6.625 2034 6,100,000 5,162,674
7.375 2043 7,500,000 6,911,325
360 Communications 7.60 2009 4,500,000 4,403,340
U S WEST 6.625 2005 7,000,000 6,701,240
Worldcom 7.75 2007 10,000,000 9,904,300
Total 80,695,941
Miscellaneous (0.2%)
Marshall & Ilsley 7.65 2026 10,000,000(g) 9,264,700
Municipal bonds (0.4%)
Los Angeles County Pension Obligation
Taxable Revenue Bonds Series 1994C
Zero Coupon (MBIA Insured) 7.05 2008 9,440,000(d, l) 4,152,184
Los Angeles County Pension Obligation
Taxable Revenue Bonds Series 1995D
(MBIA Insured) 6.97 2008 10,500,000(l) 10,095,645
Yale University 7.375 2096 4,000,000 3,806,360
Total 18,054,189
Foreign (3.2%)(h)
ABN Amro Bank
(U.S. Dollar) 7.125% 2093 7,000,000 6,273,610
Asian Development Bank
(U.S. Dollar) 9.125 2000 17,700,000 18,875,811
Canadian Natl Railway
(U.S. Dollar) 7.625 2023 6,000,000 5,691,540
China Light & Power
(U.S. Dollar) 7.50 2006 7,000,000 6,923,140
Dao Heng Bank
(U.S. Dollar) 7.75 2007 7,750,000(g) 7,565,938
Govt of Poland PDI Euro
(U.S. Dollar) 4.00 2014 10,000,000(k) 7,950,000
Grand Metropolitan
(U.S. Dollar) 6.50 2000 20,000,000(g) 23,750,000
Interamer Development Bank Euro
(U.S. Dollar) 9.50 2000 5,000,000 5,368,750
Israel Electric
(Israel Dollar) 7.25 2006 10,000,000(g) 9,625,000
KFW Intl Finance
(U.S. Dollar) 8.00 2010 6,750,000 7,109,572
Petronas
(U.S. Dollar) 7.75 2015 10,000,000(g) 9,979,100
Ras Laffan Liquefied Natural Gas
(U.S. Dollar) 8.29 2014 10,000,000(g) 10,048,100
Republic of Poland
(U.S. Dollar) 7.75 2000 5,000,000(g) 5,063,799
Republic of Slovenia
(U.S. Dollar) 7.00 2001 7,200,000(g) 7,206,984
State of Israel
(U.S. Dollar) 6.375 2005 7,300,000 6,737,170
Total 138,168,514
Total bonds
(Cost: $1,334,333,251) $1,339,935,482
Short-term securities (9.6%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agency (0.1%)
Federal Natl Mtge Assn Disc Nts
04-09-97 5.24% $ 1,460,000 $ 1,458,306
04-11-97 5.22 2,900,000 2,895,811
Total 4,354,117
Commercial paper (9.2%)
Alabama Power
04-07-97 5.31 4,620,000 4,615,927
American General Capital
04-29-97 5.54 8,500,000 8,463,507
ANZ (Delaware)
05-01-97 5.41 6,700,000 6,668,418
Avco Financial Services
04-17-97 5.31 3,000,000 2,992,596
Barclays U.S. Funding
05-08-97 5.36 15,000,000 14,910,440
05-14-97 5.37 7,500,000 7,449,023
BBV Finance (Delaware)
04-17-97 5.41 12,400,000 12,367,483
08-04-97 5.52 8,000,000 7,835,080
Beneficial
04-15-97 5.30 12,200,000 12,174,854
BHP Finance
04-08-97 5.30 8,400,000 8,389,562
BOC Group
04-01-97 5.28 3,200,000 3,200,000
Chevron Transport
04-28-97 5.39 10,500,000(j) 9,959,800
Ciesco LP
04-03-97 5.36 5,000,000(j) 4,997,436
05-05-97 5.37 7,700,000(j) 7,661,239
05-12-97 5.32 11,000,000 10,926,670
Commercial Credit
04-24-97 5.35 3,400,000 3,388,466
Dean Witter, Discover & Co
04-25-97 5.38 10,000,000 9,958,537
05-12-97 5.39 10,700,000 10,634,804
Deutsche Bank Financial
05-27-97 5.33 8,700,000 8,618,493
First Chicago NBD
04-14-97 5.34 8,000,000 7,981,366
Fleet Funding
04-07-97 5.29 8,500,000(j) 8,492,548
Gannett
04-16-97 5.33 5,100,000(j) 5,088,737
04-22-97 5.32 12,500,000(j) 12,461,427
05-19-97 5.40 2,500,000 2,480,134
Household Finance
04-16-97 5.34 8,000,000 7,982,267
04-23-97 5.33 9,700,000 9,668,583
Kredietbank North America Finance
04-11-97 5.28 1,300,000 1,298,104
04-18-97 5.30 8,900,000 8,877,893
05-06-97 5.42 10,200,000 10,140,607
Merrill Lynch
05-13-97 5.54 2,200,000 2,185,883
Metlife Funding
05-20-97 5.32 7,800,000 7,738,476
Mobil Australia Finance (Delaware)
04-02-97 5.37 3,000,000(j) 2,999,397
04-30-97 5.35 8,500,000(j) 8,463,641
Morgan Stanley Group
04-18-97 5.39 8,800,000 8,773,617
05-14-97 5.33 8,600,000 8,540,710
05-15-97 5.40 12,000,000 11,918,601
05-19-97 5.38 9,200,000 9,128,384
NationsBank
04-14-97 5.32 8,500,000 8,500,000
New Center
05-07-97 5.58 15,000,000 14,916,750
Paccar Financial
04-28-97 5.58 8,500,000 8,464,555
Pitney Bowes
05-09-97 5.37 10,700,000 10,635,064
Reed Elsevier
04-28-97 5.57 9,200,000(j) 9,161,705
SAFECO Credit
05-01-97 5.38 3,700,000 3,682,217
05-15-97 5.39 2,300,000 2,284,385
Siemens
04-14-97 5.41 6,400,000 6,386,420
05-16-97 5.40 4,900,000 4,867,170
Toyota Motor Credit
05-13-97 5.58 1,600,000 1,589,640
Transamerica Finance
04-18-97 5.39 3,400,000 3,390,763
Unilever Capital
04-07-97 5.34 2,900,000(j) 2,896,993
USAA Capital
05-05-97 5.59 11,100,000 11,041,713
05-27-97 5.43 5,000,000 4,953,979
08-29-97 5.40 7,000,000 6,827,063
Total 389,031,127
Letter of credit (0.3%)
Student Loan Marketing Assn
05-02-97 5.53 13,800,000 13,734,642
Total short-term securities
(Cost: $407,246,674) $ 407,119,886
Total investments in securities
(Cost: $3,901,878,635)(m) $4,302,929,492
See accompanying notes to investments in securities.
</TABLE>
Investments in securities
Balanced Portfolio
March 31, 1997 (Unaudited)
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 5 to the financial
statements.
(d) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(e) Inverse floaters represent securities that pay interest at a rate that
increases (decreases) in the same magnitude as, or in a multiple of, a decline
(increase) in the LIBOR (London InterBank Offering Rate) Index. Interest rate
disclosed is the rate in effect on March 31, 1997. Inverse floaters in the
aggregate represent 0.1% of the Portfolio`s net assets as of March 31, 1997.
(f) This security is a collateralized mortgage obligation that pays no interest
or principal during its initial accrual period until payment of previous series
within the trust have been paid off. Interest is accrued at an effective yield;
similar to a zero coupon bond.
(g) 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.
(h) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated.
(i) Identifies issues considered to be illiquid (see Note 1 to the financial
statements). Information concerning such security holdings at March 31, 1997, is
as follows:
Acquisition
Security date Cost
American United Life* 02-13-96 $4,000,000
7.75% 2026
Virginia-American Water 07-13-56 220,000
5.05% Cm
Western Resources 09-08-50 1,000,000
4.25% Cm
*Represents a security sold under Rule 144A, which is exempt from registration
under the Securities Act of 1933, as amended.
(j) 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.
(k) Interest rate varies to reflect current market conditions, rate shown is the
effective rate on March 31, 1997. (l) The following abbreviation is used in
portfolio descriptions to identify the insurer of the issue:
MBIA -- Municipal Bond Investors Assurance
(m) At March 31, 1997, the cost of securities for federal income tax purposes
was approximately $3,897,192,000 and the approximate aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation.........................................$478,574,000
Unrealized depreciation..........................................(72,837,000)
Net unrealized appreciation.....................................$405,737,000
<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 Mutual
IDS Tower 10
Minneapolis, MN 55440-0010
