1998 SEMIANNUAL REPORT
IDS
Diversified
Equity
Income
Fund
(icon of) two puzzle pieces
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.
American Express Financial Advisors
Distributed by American Express Financial Advisors Inc.
<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 chairman 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 chairman
If you're an experienced investor, you know that the past few years have
been unusually strong in many financial markets. Perhaps just as
important, 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. We saw
evidence of that last October, when declines in Asian markets spawned a
sharp drop in several financial markets worldwide, including the U.S. The
potential for such volatility reinforces the need for investors to review
periodically their long-term goals and examine whether their investment
program remains on track to achieving them.
Before closing, I want to introduce a new portfolio manager for this fund
-- Kurt Winters, who assumed that role this past December. For a review of
the past six months, please consult his letter, which begins on this page.
William R. Pearce
(picture of) William R. Pearce
William R. Pearce
Chairman of the board
<PAGE>
From the portfolio manager
In a volatile environment for stocks, IDS Diversified Equity Income Fund
produced a double-digit gain during the first half of the fiscal year. For
the six months -- October 1997 through March 1998 -- the total return for
the Fund's Class A shares was 12.2%. (This figure includes a substantial
capital gain that was paid to shareholders last December and reduced the
Fund's net asset value by the same amount at that time.)
Although the favorable fundamentals of low inflation, healthy corporate
profits and solid economic growth remained in place, a financial crisis in
Asia sent the U.S. stock market into a tailspin in the opening month of
the period. While the market soon got back on its feet, ongoing concerns
about the ultimate effect of the `Asian flu' kept stocks off balance
through most of the winter.
By February, thanks to still-positive data regarding the U.S. economy,
especially on the inflation front, stocks began moving forward. Soon, the
advance turned into a robust rally that continued through March and put
the market well into positive territory for the six months.
The Fund's performance roughly followed that of the broad market, although
it held up better during last fall's slump and lagged somewhat behind
during the subsequent upturn. This is consistent with the Fund's
investment style, which centers on securities that offer good relative
value and provide an above-average yield.
A repositioned portfolio
There were some substantial changes to the portfolio mix, however, which I
began instituting after becoming manager last December. Most notable was a
reduction in the level of cash reserves -- from about 26% of assets to
about 5%, a strategy designed to allow the Fund to better participate in
potential market upturns. Also, I pared back holdings among financial
services stocks, which had made up nearly a third of assets, and put more
money to work in consumer stocks in the health care, food/ beverage,
household products and technology sectors.
While these shifts have certainly made the Fund more responsive in terms
of the ups and downs of the stock market, they haven't altered its basic
investment approach. The Fund will continue to emphasize stocks in a wide
range of industries whose current price doesn't, in the opinion of our
securities analysts, fully reflect the intrinsic worth of their respective
companies. These issues are complemented by comparatively high-yield
securities, such as utility stocks, that can contribute to an
above-average dividend for the Fund.
Kurt Winters
(picture of) Kurt Winters
Kurt Winters
Portfolio manager
<PAGE>
To our shareholders
Class A
6-month performance
(All figures per share)
Net asset value (NAV)
March 31, 1998 $ 10.38
Sept. 30, 1997 $ 10.39
Decrease $ 0.01
Distributions
Oct. 1, 1997 - March 31, 1998
From income $ 0.42
From capital gains $ 0.71
Total distributions$ 1.13
Total return* +12.2%**
Class B
6-month performance
(All figures per share)
Net asset value (NAV)
March 31, 1998 $ 10.38
Sept. 30, 1997 $ 10.39
Decrease $ 0.01
Distributions
Oct. 1, 1997 - March 31, 1998
From income $ 0.39
From capital gains $ 0.71
Total distributions$ 1.10
Total return* +11.8%**
Class Y
6-month performance
(All figures per share)
Net asset value (NAV)
March 31, 1998 $ 10.38
Sept. 30, 1997 $ 10.40
Decrease $ 0.02
Distributions
Oct. 1, 1997 - March 31, 1998
From income $ 0.43
From capital gains $ 0.71
Total distributions$ 1.14
Total return* +12.2%**
*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, 1998)
Royal Dutch Petroleum 4.13% $110,784,374
Elf Aquitaine ADR 2.17 58,275,000
Amoco 2.04 54,848,125
American Home Products 1.76 47,210,624
Penney (JC) 1.71 45,790,938
Merck & Co 1.65 44,289,375
Unocal 1.59 42,556,250
Philip Morris 1.58 42,396,188
Amgen 1.56 42,003,750
Mid Ocean 1.56 41,850,000
(icon of) pie chart
The ten holdings listed here make up 19.75% of the Portfolio's net assets
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
IDS Diversified Equity Income Fund
March 31, 1998
Assets
(Unaudited)
<S> <C>
Investment in Equity Income Portfolio (Note 1) $2,682,331,318
--------------
Liabilities
Dividends payable to shareholders 725,796
Accrued distribution fee 10,316
Accrued service fee 12,596
Accrued transfer agency fee 8,388
Accrued administrative services fee 2,306
Other accrued expenses 138,266
-------
Total liabilities 897,668
-------
Net assets applicable to outstanding capital stock $2,681,433,650
==============
Represented by
Capital stock-- $.01 par value (Note 1) $ 2,582,956
Additional paid-in capital 2,108,454,866
Undistributed net investment income 1,801,632
Accumulated net realized gain (loss) (Note 1) 131,302,205
Unrealized appreciation (depreciation) of investments and on translation
of assets and liabilities in foreign currencies 437,291,991
-----------
Total-- representing net assets applicable to outstanding capital stock $2,681,433,650
==============
Net assets applicable to outstanding shares: Class A $2,083,717,874
Class B $ 505,363,079
Class Y $ 92,352,697
Net asset value per share of outstanding capital stock: Class A shares 200,720,252 $ 10.38
Class B shares 48,681,651 $ 10.38
Class Y shares 8,893,672 $ 10.38
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
IDS Diversified Equity Income Fund
Six months ended March 31, 1998
Investment income
(Unaudited)
Income:
<S> <C>
Dividends $ 27,695,116
Interest 12,412,550
Less foreign taxes withheld (67,774)
-------
Total income 40,039,892
----------
Expenses (Note 2):
Expenses allocated from Equity Income Portfolio 5,893,971
Distribution fee -- Class B 1,530,794
Transfer agency fee 1,420,033
Incremental transfer agency fee-- Class B 21,288
Service fee
Class A 1,605,785
Class B 355,606
Class Y 40,728
Administrative services fees and expenses 383,628
Compensation of board members 5,713
Postage 52,800
Registration fees 195,338
Audit fees 3,625
Other 514
---
Total expenses 11,509,823
Earnings credits on cash balances (Note 2) (121,629)
--------
Total net expenses 11,388,194
----------
Investment income (loss) -- net 28,651,698
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions 133,103,882
Financial futures contracts 12,973,429
Foreign currency transactions 24,144
------
Net realized gain (loss) on investments 146,101,455
Net change in unrealized appreciation (depreciation) on investments and on
translation of assets and liabilities in foreign currencies 110,975,583
-----------
Net gain (loss) on investments and foreign currencies 257,077,038
-----------
Net increase (decrease) in net assets resulting from operations $285,728,736
============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of changes in net assets
IDS Diversified Equity Income Fund
Operations and distributions March 31, 1998 Sept. 30, 1997
Six months ended Year ended
(Unaudited)
<S> <C> <C>
Investment income (loss)-- net $ 28,651,698 $ 63,479,506
Net realized gain (loss) on investments 146,101,455 210,806,095
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 110,975,583 167,609,218
----------- -----------
Net increase (decrease) in net assets resulting from operations 285,728,736 441,894,819
Distributions to shareholders from:
Net investment income
Class A (23,964,393) (52,847,821)
Class B (3,704,565) (6,401,017)
Class Y (1,080,242) (1,926,320)
Net realized gain
Class A (175,753,236) (89,873,767)
Class B (38,518,493) (10,467,031)
Class Y (7,752,693) (2,712,936)
Total distributions (250,773,622) (164,228,892)
------------ ------------
Capital share transactions (Note 3)
Proceeds from sales
Class A shares (Note 2) 219,001,102 370,773,023
Class B shares 125,125,080 197,003,406
Class Y shares 15,610,651 45,868,611
Reinvestment of distributions at net asset value
Class A shares 192,736,075 137,604,537
Class B shares 41,834,832 16,532,448
Class Y shares 8,832,935 4,615,632
Payments for redemptions
Class A shares (142,176,421) (243,648,909)
Class B shares (Note 2) (20,612,189) (25,827,767)
Class Y shares (11,953,292) (16,887,734)
----------- -----------
Increase (decrease) in net assets from capital share transactions 428,398,773 486,033,247
----------- -----------
Total increase (decrease) in net assets 463,353,887 763,699,174
Net assets at beginning of period 2,218,079,763 1,454,380,589
------------- -------------
Net assets at end of period $2,681,433,650 $2,218,079,763
============== ==============
Undistributed net investment income $ 1,801,632 $ 1,899,134
============== ==============
See accompanying notes to financial statements
</TABLE>
<PAGE>
Notes to financial statements
IDS Diversified Equity Income Fund
(Unaudited as to March 31, 1998)
1
Summary of
significant
accounting policies
The Fund is a series of IDS Investment Series, Inc. and 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 shares during the
ninth calendar year of ownership. Class Y shares have no sales charge and
are offered only to qualifying institutional investors.
All classes of shares have identical voting, dividend, liquidation and
other rights, and the same terms and conditions, except that the level of
distribution fee, transfer agency fee and service fee (class specific
expenses) differs among classes. Income, expenses (other than class
specific expenses) and realized and unrealized gains or losses on
investments are allocated to each class of shares based upon its relative
net assets.
Investment in Equity 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, 1998 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.
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 an agreement with American
Express Financial Corporation (AEFC) for providing administrative
services. Under its Administrative Services Agreement, the Fund pays AEFC
a fee for administration and accounting services at a percentage of the
Fund's average daily net assets in reducing percentages from 0.04% to
0.02% annually. Additional administrative service expenses paid by the
Fund are office expenses, consultants' fees and compensation of officers
and employees. Under this agreement, the Fund also pays taxes, audit and
certain legal fees, registration fees for shares, compensation of board
members, corporate filing fees, organizational expenses and any other
expenses properly payable by the Fund and approved by the board.
Under a separate Transfer Agency Agreement, American Express Client
Service Corporation (AECSC) maintains shareholder accounts and records.
The Fund pays AECSC 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 and commencing on May 9,
1997, the fee is calculated at a rate of 0.10% of the Fund's average daily
net assets attributable to Class Y shares.
Sales charges received by American Express Financial Advisors Inc. for
distributing Fund shares were $4,104,445 for Class A and $134,567 for
Class B for the six months ended March 31, 1998.
During the six months ended March 31, 1998, the Fund's transfer agency
fees were reduced by $121,629 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, 1998
Class A Class B Class Y
Sold 21,950,956 12,571,245 1,561,375
Issued for reinvested 21,803,486 4,423,234 955,297
distributions
Redeemed (14,203,756) (2,075,418) (1,198,548)
Net increase (decrease) 28,550,686 15,019,061 1,318,124
Year ended Sept. 30, 1997
Class A Class B Class Y
Sold 38,856,816 20,583,228 4,648,685
Issued for reinvested 14,804,550 1,770,123 493,943
distributions
Redeemed (25,579,148) (2,676,635) (1,724,974)
Net increase (decrease) 28,028,218 19,676,716 3,417,654
<PAGE>
<TABLE>
<CAPTION>
4
Financial
highlights
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(a)
Class A
1998(c) 1997 1996 1995 1994 1993 1992 1991(b)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $10.39 $8.96 $7.89 $7.66 $7.73 $6.48 $5.98 $5.00
beginning of period
Income from investment operations:
Net investment income (loss) .13 .34 .27 .30 .27 .28 .31 .30
Net gains (losses) .99 2.04 1.06 .53 .20 1.31 .58 .98
(both realized
and unrealized)
Total from investment 1.12 2.38 1.33 .83 .47 1.59 .89 1.28
operations
Less distributions:
Dividends from net (.13) (.33) (.26) (.29) (.27) (.28) (.30) (.30)
investment income
Distributions from (1.00) (.62) -- (.31) (.27) (.06) (.09) --
realized gains
Total distributions (1.13) (.95) (.26) (.60) (.54) (.34) (.39) (.30)
Net asset value, $10.38 $10.39 $8.96 $7.89 $7.66 $7.73 $6.48 $5.98
end of period
Ratios/supplemental data
Class A
1998(c) 1997 1996 1995 1994 1993 1992 1991(b)
Net assets, end of $2,084 $1,789 $1,292 $1,091 $936 $487 $162 $23
period (in millions)
Ratio of expenses to .85g .88% .93% .94% .88% .96% 1.08%e .90%f
average daily net assets(d)
Ratio of net income (loss) 2.58g 3.62% 3.18% 3.95% 3.75% 3.94% 4.79%e 5.97%f
to average daily net assets
Portfolio turnover rate 43% 81% 84% 98% 95% 73% 34% 74%
(excluding short-term
securities)
Total return(h) 12.2% 28.1% 17.0% 11.8% 6.3% 25.0% 15.4% 25.9%
Average brokerage $.0480 $.0482 $.0345 -- -- -- -- --
commission rate(i)
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Inception date. Period from Oct. 15, 1990 to Sept. 30, 1991.
c Six months ended March 31, 1998 (Unaudited).
d Effective fiscal year 1996, expense ratio is based on total expenses of the
Fund before reduction of earnings credits on cash balances.
e 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.
f 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.
g Adjusted to an annual basis.
h Total return does not reflect payment of a sales charge.
i Effective fiscal year 1996, the Fund is required to disclose an average
brokerage commission rate per share for security trades on which commissions
are charged. The comparability of this information may be affected by the
fact that commission rates per share vary significantly among foreign
countries.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Diversified Equity Income, Inc.
Fiscal period ended Sept. 30,
Per share income and capital changes(a)
Class B Class Y
1998(c) 1997 1996 1995(b) 1998(c) 1997 1996 1995(b)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $10.39 $8.96 $7.89 $7.13 $10.40 $8.96 $7.89 $7.13
beginning of period
Income from investment operations:
Net investment income (loss) .09 .27 .20 .19 .14 .35 .28 .22
Net gains (losses) 1.00 2.04 1.06 .74 .98 2.05 1.06 .74
(both realized
and unrealized)
Total from investment 1.09 2.31 1.26 .93 1.12 2.40 1.34 .96
operations
Less distributions:
Dividends from net (.10) (.26) (.19) (.17) (.14) (.34) (.27) (.20)
investment income
Distributions from (1.00) (.62) -- -- (1.00) (.62) -- --
realized gains
Total distributions (1.10) (.88) (.19) (.17) (1.14) (.96) (.27) (.20)
Net asset value, $10.38 $10.39 $8.96 $7.89 $10.38 $10.40 $8.96 $7.89
end of period
Ratios/supplemental data
Class B Class Y
1998(c) 1997 1996 1995(b) 1998(c) 1997 1996 1995(b)
Net assets, end of $505 $350 $125 $32 $92 $79 $37 $26
period (in millions)
Ratio of expenses to 1.61%d 1.65% 1.69% 1.77%d .78%d .76% .76% .80%d
average daily net assets(e)
Ratio of net income (loss) 1.81%d 2.97% 2.56% 3.00%d 2.64%d 3.85% 3.38% 3.95%d
to average daily net assets
Portfolio turnover rate 43% 81% 84% 98% 43% 81% 84% 98%
(excluding short-term
securities)
Total return(f) 11.8% 27.2% 16.2% 13.1% 12.2% 28.3% 17.3% 13.6%
Average brokerage $.0480 $.0482 $.0345 -- $.0480 $.0482 $.0345 --
commission rate(g)
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Inception date was March 20, 1995.
c Six months ended March 31, 1998 (Unaudited).
d Adjusted to an annual basis.
e Effective fiscal year 1996, expense ratio is based on total expenses of the
Fund before reduction of earnings credits on cash balances.
f Total return does not reflect payment of a sales charge.
g Effective fiscal year 1996, the Fund is required to disclose an average
brokerage commission rate per share for security trades on which commissions
are charged. The comparability of this information may be affected by the fact
that commission rates per share vary significantly among foreign countries.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
Equity Income Portfolio
March 31, 1998
Assets
(Unaudited)
<S> <C>
Investments in securities, at value (Note 1)
(identified cost $2,270,094,758) $2,703,847,669
Cash in bank on demand deposit 87,855
Dividends and accrued interest receivable 5,782,491
Receivable for investment securities sold 848,400
U.S. government securities held as collateral (Note 4) 27,764,650
----------
Total assets 2,738,331,065
-------------
Liabilities
Payable for investment securities purchased 27,110,138
Payable upon return of securities loaned (Note 4) 27,764,650
Accrued investment management services fee 35,682
Other accrued expenses 106
Option contracts written, at value
(premium received $204,781) (Note 5) 103,019
-------
Total liabilities 55,013,595
----------
Net assets $2,683,317,470
==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of operations
Equity Income Portfolio
Six months ended March 31, 1998
Investment income
(Unaudited)
<S> <C>
Income:
Dividends (including $2,067,903 earned from affiliates) $ 27,705,401
Interest 12,409,364
Less foreign taxes withheld (67,787)
-------
Total income 40,046,978
----------
Expenses (Note 2):
Investment management services fee 5,788,714
Compensation of board members 7,668
Custodian fees 93,640
Audit fees 10,875
Other 1,834
-----
Total expenses 5,902,731
Earnings credits on cash balances (Note 2) (6,565)
------
Total net expenses 5,896,166
---------
Investment income (loss) -- net 34,150,812
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on :
Security transactions (Note 3) 133,152,208
Financial futures contracts (Note 6) 12,978,169
Foreign currency transactions 24,153
------
Net realized gain (loss) on investments 146,154,530
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 111,016,377
-----------
Net gain (loss) on investments and foreign currencies 257,170,907
-----------
Net increase (decrease) in net assets resulting from operations $291,321,719
============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Equity Income Portfolio
Operations March 31, 1998 Sept. 30, 1997
Six months ended Year ended
(Unaudited)
<S> <C> <C>
Investment income (loss)-- net $ 34,150,812 $ 71,670,175
Net realized gain (loss) on investments 146,154,530 210,870,724
Net change in unrealized appreciation (depreciation ) on investments
and on translation of assets and liabilities in foreign currencies 111,016,377 167,694,853
----------- -----------
Net increase (decrease) in net assets resulting from operations 291,321,719 450,235,752
Net contributions (withdrawals) from partners 171,410,987 314,194,640
----------- -----------
Total increase (decrease) in net assets 462,732,706 764,430,392
Net assets at beginning of period 2,220,584,764 1,456,154,372
------------- -------------
Net assets at end of period $2,683,317,470 $2,220,584,764
============== ==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
Equity Income Portfolio
(Unaudited as to March 31, 1998)
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.
Significant accounting policies followed by the Portfolio are summarized
below:
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increase and decrease in
net assets from operations during the period. Actual results could differ
from those estimates.
Valuation of securities
All securities are valued at the close of each business day. Securities
traded on national securities exchanges or included in national market
systems are valued at the last quoted sales price. Debt securities are
generally traded in the over-the counter market and are valued at a price
deemed best to reflect fair value as quoted by dealers who make markets in
these securities or by an independent pricing service. Securities for
which market quotations are not readily available are valued at fair value
according to methods selected in good faith by the board. Short-term
securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current
interest rates; those maturing in 60 days or less are valued at amortized
cost.
Option transactions
In order to produce incremental earnings, protect gains and facilitate
buying and selling of securities for investment purposes, the Portfolio
may buy and write options traded on any U.S. or foreign exchange or in the
over-the-counter market where the completion of the obligation is
dependent upon the credit standing of the other party. The Portfolio also
may buy and sell put and call options and write covered call options on
portfolio securities and may write cash-secured put options. The risk in
writing a call option is that the Portfolio gives up the opportunity of
profit if the market price of the security increases. The risk in writing
a put option is that the Portfolio may incur a loss if the market price of
the security decreases and the option is exercised. The risk in buying an
option is that the Portfolio pays a premium whether or not the option is
exercised. The Portfolio also has the additional risk of not being able to
enter into a closing transaction if a liquid secondary market does not
exist.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The
Portfolio will realize a gain or loss upon expiration or closing of the
option transaction. When an option is exercised, the proceeds on sales for
a written call option, the purchase cost for a written put option or the
cost of a security for a purchased put or call option is adjusted by the
amount of premium received or paid.
Futures transactions
In order to gain exposure to or protect itself from changes in the market,
the Portfolio may buy and sell financial futures contracts traded on any
U.S. or foreign exchange. The Portfolio also may buy and write put and
call options on these futures contracts. Risks of entering into futures
contracts and related options include the possibility that there may be an
illiquid market and that a change in the value of the contract or option
may not correlate with changes in the value of the underlying securities.
Upon entering into a futures contract, the Portfolio is required to
deposit either cash or securities in an amount (initial margin) equal to a
certain percentage of the contract value. Subsequent payments (variation
margin) are made or received by the Portfolio each day. The variation
margin payments are equal to the daily changes in the contract value and
are recorded as unrealized gains and losses. The Portfolio recognizes a
realized gain or loss when the contract is closed or expires.
Foreign currency translations and
foreign currency contracts
Securities and other assets and liabilities denominated in foreign
currencies are translated daily into U.S. dollars at the closing rate of
exchange. Foreign currency amounts related to the purchase or sale of
securities and income and expenses are translated at the exchange rate on
the transaction date. The effect of changes in foreign exchange rates on
realized and unrealized security gains or losses is reflected as a
component of such gains or losses. In the statement of operations, net
realized gains or losses from foreign currency transactions may arise from
sales of foreign currency, closed forward contracts, exchange gains or
losses realized between the trade date and settlement dates on securities
transactions, and other translation gains or losses on dividends, interest
income and foreign withholding taxes.
The Portfolio may enter into forward foreign currency exchange contracts
for operational purposes and to protect against adverse exchange rate
fluctuation. The net U.S. dollar value of foreign currency underlying all
contractual commitments held by the Portfolio and the resulting unrealized
appreciation or depreciation are determined using foreign currency
exchange rates from an independent pricing service. The Portfolio is
subject to the credit risk that the other party will not complete the
obligations of the contracts.
Federal taxes
For federal income tax purposes the Portfolio qualifies as a partnership
and each investor in the Portfolio is treated as the owner of its
proportionate share of the net assets, income, expenses and realized and
unrealized gains and losses of the Portfolio. Accordingly, as a
"pass-through" entity, the Portfolio does not pay any income dividends or
capital gain distributions.
Other
Security transactions are accounted for on the date securities are
purchased or sold. Dividend income is recognized on the ex-dividend date
and interest income, including level-yield amortization of premium and
discount, is accrued daily.
2
Fees and
expenses
The Trust, on behalf of the Portfolio, has entered into an Investment
Management Services Agreement with AEFC for managing its portfolio. Under
this agreement, AEFC determines which securities will be purchased, held
or sold. The management fee is a percentage of the Portfolio's average
daily net assets in reducing percentages from 0.53% to 0.4% annually.
Under the agreement, the Trust also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees, audit and certain
legal fees, fidelity bond premiums, registration fees for units, office
expenses, consultants' fees, compensation of trustees, corporate filing
fees, expenses incurred in connection with lending securities of the
Portfolio and any other expenses properly payable by the Trust or
Portfolio and approved by the board.
During the six months ended March 31, 1998, the Portfolio's custodian fees
were reduced by $6,565 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 $1,437,714,543 and $861,244,683,
respectively, for the six months ended March 31, 1998. For the same
period, the portfolio turnover rate was 43%. Realized gains and losses are
determined on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $21,849
for the six months ended March 31, 1998.
4
Lending of
portfolio securities
At March 31, 1998, securities valued at $27,750,000 were on loan to
brokers. For collateral, the Portfolio received U.S. government securities
valued at $27,764,650. Income from securities lending amounted to $47,027
for the six months ended March 31, 1998. 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
Option contracts
written
The number of contracts and premium amounts associated with option
contracts written is as follows:
Six months ended March 31, 1998
Calls
Contracts Premium
Balance Sept. 30, 1997 -- $ --
Opened 311 204,781
Balance March 31, 1998 311 $204,781
See "Summary of significant accounting policies."
6
Stock index
futures contracts
At March 31, 1998, cash was pledged as collateral to cover initial margin
deposits on 707 open purchase contracts. The market value of the open
purchase contracts at March 31, 1998, was $196,280,875 with a net
unrealized gain of $3,599,732. See "Summary of significant accounting
policies."
<PAGE>
Investments in securities
Equity Income Portfolio
March 31, 1998 (Unaudited)
(Percentages represent
value of investments
compared to net assets)
Common stocks - 82.3%
Issuer Shares Value(a)
Aerospace & defense - 1.9%
Goodrich (BF) 550,000 $28,084,375
Rockwell Intl 400,000 22,950,000
Total 51,034,375
Automotive & related - 2.9%
Chrysler 493,000 20,490,313
Ford Motor 530,000 34,350,625
TRW 430,000 23,703,750
Total 78,544,688
Banks and savings & loans - 7.4%
BankBoston 250,000 27,562,500
First Chicago NBD 275,000 24,234,375
First Union 610,000 34,617,499
Morgan (JP) 200,000 26,862,500
NationsBank 450,000 32,821,875
Norwest 560,000 23,275,000
Washington Mutual 375,000 26,894,531
Total 196,268,280
Beverages & tobacco - 2.5%
Fortune Brands 640,000 25,520,000
Philip Morris 1,017,000 42,396,188
Total 67,916,188
Building materials & construction - 1.7%
Masco 520,000 30,940,000
Weyerhaeuser 270,000 15,255,000
Total 46,195,000
Chemicals - 2.3%
ARCO Chemical 716,500 33,944,188
Du Pont (EI) de Nemours 390,000 26,520,000
Total 60,464,188
Communications equipment & services - 0.5%
Motorola 215,000 13,034,375
Computers & office equipment - 1.3%
Xerox 330,000 35,124,375
Electronics - 2.3%
AMP 285,000 12,486,563
Applied Materials 475,000(b) 16,773,438
Harris 360,000 18,764,999
Thomas & Betts 223,900 14,329,600
Total 62,354,600
Energy - 3.6%
Amoco 635,000 54,848,125
Unocal 1,100,000 42,556,250
Total 97,404,375
Energy equipment & services - 1.0%
BJ Services 749,900 $27,324,481
Financial services - 1.2%
Fannie Mae 300,000 18,975,000
Household Intl 100,000 13,775,000
Total 32,750,000
Food - 2.8%
Bestfoods 232,000 27,115,000
General Mills 300,000 22,800,000
Sara Lee 430,000 26,498,750
Total 76,413,750
Foreign - 12.0%(d)
B.A.T. Inds 2,500,000 25,099,518
BCE 775,000 32,356,250
Elf Aquitaine ADR 900,000(c) 58,275,000
EXEL 320,000 24,800,000
Imperial Chemical Inds 360,000(c) 25,875,000
Mid Ocean 540,000 41,850,000
Royal Dutch Petroleum 1,950,000 110,784,374
Total 319,040,142
Health care - 8.1%
American Home Products 495,000 47,210,624
Amgen 690,000(b) 42,003,750
Baxter Intl 741,000 40,847,625
Johnson & Johnson 555,000 40,688,438
Merck & Co 345,000 44,289,375
Total 215,039,812
Health care services - 1.5%
Columbia/HCA Healthcare 1,264,000 40,764,000
Household products - 1.4%
Kimberly-Clark 756,000 37,894,500
Industrial equipment & services - 0.9%
Browning-Ferris Inds 700,000 22,837,500
Insurance - 1.3%
Lincoln Natl 425,000 36,071,875
Leisure time & entertainment - 1.0%
Brunswick 800,000 27,900,000
Media - 1.8%
Dun & Bradstreet 850,000 29,059,375
McGraw-Hill Cos 265,000 20,156,563
Total 49,215,938
Metals - 0.8%
Reynolds Metals 360,000 $22,117,500
Multi-industry conglomerates - 1.9%
General Signal 560,000 26,180,000
Minnesota Mining & Mfg 275,000 25,076,563
Total 51,256,563
Paper & packaging - 1.9%
Tenneco 580,000 24,758,750
Union Camp 429,000 25,632,750
Total 50,391,500
Real estate investment trust - 2.2%
FelCor Suite Hotels 500,000 18,531,250
Highwoods Properties 300,000 10,593,750
Patriot American Hospitality280,004 7,560,117
Prentiss Properties Trust 270,000 7,053,750
Security Capital
Industrial Trust 400,000 10,250,000
Simon DeBartolo Group 140,000 4,795,000
Total 58,783,867
Retail - 3.0%
American Stores 1,150,000 29,900,000
Circuit City Stores 119,143(g) 5,093,363
Penney (JC) 605,000 45,790,938
Total 80,784,301
Utilities -- electric - 4.9%
CMS Energy 700,000 32,856,250
DPL 1,050,000 20,475,000
Duke Energy 301,100 17,934,269
FPL Group 220,000 14,135,000
New Century Energies 500,000 25,187,500
Northern States Power 315,000 18,585,000
Total 129,173,019
Utilities -- gas - 1.2%
Consolidated Natural Gas 500,000 28,843,750
Enron 100,000 4,637,500
Total 33,481,250
Utilities -- telephone - 7.0%
Ameritech 620,000 $30,651,250
Bell Atlantic 345,000 35,362,500
BellSouth 490,000 33,105,625
GTE 290,000 17,363,750
SBC Communications 650,000 28,356,250
U S WEST Communications
Group 740,000 40,514,999
Total 185,354,374
Total common stocks
(Cost: $1,796,668,824) $2,204,934,816
Preferred stocks & other - 6.9%
Issuer Shares Value(a)
AirTouch Communications 450,000(h) $18,675,000
4% Cv
AirTouch Communications 375,000 15,468,750
6% Cv Series B
AutoZone 715,100 20,530,521
5.50% Cv
Crown Cork & Seal 700,000 35,000,000
4.50% Cv
IKON Office Solutions 475,000(h,j) 36,871,875
$5.04 Cv Series BB ACES
Intel 128,000(k) 19,695,360
5% Cv PERCS
Service Corp Intl 475,000 10,616,250
5%
SunAmerica 300,000(k) 14,531,250
$3.19 Cv PERCS
Union Pacific Capital 271,000 13,550,000
6.25% Cv
Total preferred stocks & other
(Cost: $169,502,198) $184,939,006
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
Investments in securities
Equity Income Portfolio
(Percentages represent
value of investments
compared to net assets)
Bonds - 3.2%
<S> <C> <C> <C>
Issuer Coupon Principal Value(a)
rate amount
U.S. government obligations - 1.2%
U.S. Treasury
08-15-19 8.125% $25,000,000 $31,278,000
Chemicals - 0.5%
USA Waste Services
Cv Sub Nts
02-01-02 4.00 12,000,000 14,190,000
Electronics - 0.6%
Salomon Brothers UTX
Cv
12-04-98 5.00 18,600,000(f) 15,417,912
Energy equipment & services - 0.1%
Diamond Offshore Drilling
Cv Sr Sub Nts
09-15-07 3.125 3,780,000 3,723,300
Financial services - 0.8%
Salomon Brothers Emerson Electric
Cv
02-27-99 5.00 33,970,000(f) 20,389,134
Total bonds
(Cost: $74,944,595) $84,998,346
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
Short-term securities - 8.5% (i)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agencies - 0.9%
Federal Home Loan Mtge Corp Disc Nts
04-21-98 5.48%$10,100,000 $10,069,363
04-23-98 5.47 13,900,000 13,853,705
Total 23,923,068
Commercial paper - 7.2%
ABB Treasury Center USA
04-21-98 5.55 5,500,000(e) 5,483,103
BBV Finance (Delaware)
04-01-98 5.53 3,100,000 3,100,000
BellSouth Telecommunications
04-08-98 5.58 12,600,000 12,586,402
BOC Group
04-01-98 6.09 7,700,000(e) 7,700,000
04-03-98 5.58 12,000,000 11,996,300
CAFCO
04-29-98 5.57 10,000,000(e) 9,956,911
Ciesco LP
04-15-98 5.56 6,000,000 5,987,097
04-27-98 5.56 5,400,000 5,378,394
04-28-98 5.56 1,200,000(e) 1,195,032
Commerzbank U.S. Finance
04-22-98 5.55 10,000,000 9,967,742
Dresdner US Finance
04-02-98 5.58 15,000,000 14,997,682
Emerson Electric
04-13-98 5.56 5,700,000 5,689,493
Fleet Funding
04-16-98 5.56 2,300,000(e) 2,294,700
05-05-98 5.55 10,000,000(e) 9,947,867
Kredietbank North America Finance
05-04-98 5.55 12,500,000 12,433,341
Michigan Consolidated Gas
04-06-98 5.58 600,000 599,538
Natl Australia Funding (Delaware)
04-02-98 5.51%$10,000,000 $9,998,478
Novartis Finance
04-08-98 5.58 10,300,000 10,288,885
Pacific Life Insurance
04-23-98 5.55 9,900,000 9,866,543
SBC Communications Capital
04-14-98 5.54 7,200,000(e) 7,185,622
Toyota Motor Credit
05-01-98 5.56 3,800,000 3,782,488
USAA Capital
04-22-98 5.55 13,500,000 13,456,451
Westpac Capital
04-07-98 5.57 10,200,000 10,190,582
04-20-98 5.55 9,300,000 9,272,857
Total 193,355,508
Letters of credit - 0.4%
Bank of America-
AES Hawaii
04-03-98 5.51 10,100,000 10,096,925
Student Loan Marketing Assn-
Nebraska Higher Education
04-01-98 6.10 1,600,000 1,600,000
Total 11,696,925
Total short-term securities
(Cost: $228,979,141) $228,975,501
Total investments in securities
(Cost $2,270,094,758)(l) $2,703,847,669
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
Investments in securities
Equity Income Portfolio
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 financial statements.
(d) Foreign security values are stated in U.S. dollars.
(e) 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.
(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) At March 31, 1998, securities valued at $1,329,525 were held to cover open
call options written as follows:
Issuer Shares Exercise Expiration Value(a)
price date
Circuit City Stores 31,100 $40 April 1998 $103,019
(h) Investments representing 5% or more of the outstanding voting securities of
the issuer. Transactions with companies that are or were affiliates during the
six months ended March 31, 1998 are as follows:
<S> <C> <C> <C> <C> <C> <C>
Beginning Purchase Sales Ending Dividend Value(a)
Affiliates cost cost cost cost income
ConAgra* $14,218,750 $-- $14,218,750 $ -- $ 314,589 $ --
IKON Office Solutions* 39,388,553 -- -- 39,388,553 1,197,000 36,871,875
Gannett* 13,225,000 -- 13,225,000 -- 297,564 --
Airtouch Communications* 12,937,500 -- -- 12,937,500 258,750 18,675,000
Total $79,769,803 $-- $27,443,750 $52,326,053 $2,067,903 $55,546,875
*Issuer was not an affiliate for the entire period ended March 31, 1998.
(i) At March 31, 1998, cash or short-term securities were pledged as initial
margin deposit on the following open stock index futures purchase contracts (see
Note 6 to the financial statements) :
Type of security Contracts
Standard & Poor's 500 Stock Index, June 1998 707
(j) ACES are automatically convertible to the underlying equity securities.
(k) PERCS (Preferred-Equity Redeemable Cumulative Securities) are convertible
preferred securities. PERCS are like buying an underlying common stock and
selling a call option against the position.
(l) At March 31, 1998, the cost of securities for federal income tax purposes
was approximately $2,270,095,000 and the approximate aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation......................................$445,438,000
Unrealized depreciation.......................................(11,685,000)
Net unrealized appreciation..................................$433,753,000
</TABLE>
<PAGE>
Board members and officers
Independent board members and officers
Chairman William R. Pearce*
of the board Chairman of the board, Board Services Corporation (provides
administrative services to boards including the boards of the
IDS and IDSLife funds and Master Trust portfolios).
H. Brewster Atwater, Jr.
Former chairman and chief executive officer, General Mills,
Inc.
Lynne V. Cheney
Distinguished fellow, American Enterprise Institute for Public
Policy Research.
Heinz F. Hutter
Former president and chief operating officer, Cargill, Inc.
Anne P. Jones
Attorney and telecommunications consultant.
Alan K. Simpson
Former United States senator for Wyoming.
Edson W. Spencer
Former chairman and chief executive officer, Honeywell, Inc.
Wheelock Whitney
Chairman, Whitney Management Company.
C. Angus Wurtele
Chairman of the board, The Valspar Corporation.
Officer
Vice president, Leslie L. Ogg*
general counsel President, treasurer and corporate secretary of Board Services
and secretary Corporation.
Board members and officers associated with AEFC
President John R. Thomas*
Senior vice president, AEFC.
William H. Dudley*
Senior advisor to the chief executive officer, AEFC.
David R. Hubers*
President and chief executive officer, AEFC.
Officers associated with AEFC
Vice president Peter J. Anderson*
Senior vice president, AEFC
Treasurer Matthew N. Karstetter*
Vice president, AEFC
* Interested person as defined by the Investment Company Act of 1940.
<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 with countries
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) trees
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 & 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. Foreign investments may be subject to currency fluctuations and
political and economic risks of the countries in which the investments are made.
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) gyroscope
IDS Stock Fund
Invests in a Portfolio comprised primarily of common stock of companies
representing many sectors of the economy. Seeks current income and growth of
capital.
(icon of) building with columns
IDS Equity Value Fund
Invests primarily in undervalued common stocks that offer potential for growth
of capital and income.
(icon of) three growing flowers
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 of 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.
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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.
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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.)
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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.
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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.
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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.
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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.
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For more complete information about any of these funds, including charges and
expenses, you can obtain a prospectus by contacting your financial advisor or
writing to American Express Shareholder Service, P.O. Box 534, Minneapolis, MN
55440-0534. Read it carefully before you invest or send money.
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Quick telephone reference
American Express Redemptions and exchanges, National/Minnesota
Financial Advisors dividend payments or 800-437-3133
Telephone Transaction reinvestments and automatic
Service payment arrangements Mpls./St. Paul area:
671-3800
TTY Service For the hearing impaired 800-846-4852
American Express Automated account information 800-862-7919
Financial Advisors (TouchTone(R) phones only),
Easy Access Line including current fund prices
and performance, account values
and recent account transactions
AMERICAN EXPRESS Financial Advisors
IDS Diversified Equity Income Fund
IDS Tower 10
Minneapolis, MN 55440-0010
