1998 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.
<PAGE>
(icon of) scale of justice
A beneficial balance
A balanced Portfolio is one 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 chairman 3
From the portfolio managers 3
The Portfolio's ten largest holdings 5
Financial statements (Fund) 6
Notes to financial statements (Fund) 9
Financial statements (Portfolio) 18
Notes to financial statements (Portfolio) 21
Investments in securities 30
Board members and officers 43
IDS mutual funds 44
<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 responsibility for equity investments last
December. For a review of the past six months, please consult the letter
from him and bond manager Ed Labenski that begins on this page.
William R. Pearce
(picture of) William R. Pearce
William R. Pearce
Chairman of the board
<PAGE>
From the portfolio managers
A reduced cash position enabled IDS Mutual to take advantage of a strong
period for stocks and bonds during the first half of the fiscal year. For
the six months -- October 1997 through March 1998 -- investors in the
Fund's Class A shares realized a total return of 9.4%. (This figure
includes a capital gain that was paid to shareholders in December 1997 and
reduced the Fund's net asset value by the same amount at that time.)
The period began poorly for stocks, however, as fallout from the financial
crisis in Asia resulted in a sharp downturn for the U.S. market last
October. But, with the resilience that has characterized the market for
the past three years, stocks snapped back in a matter of weeks, then took
a rest until early February. That respite evidently did some good, as the
market staged a powerful rally that lasted through the end of the period.
The bond market enjoyed a quieter six months. Thanks to ongoing low
inflation and a "flight to quality" stemming from the Asian problem, U.S.
bonds rallied strongly during the final months of 1997, taking long-term
interest rates down in the process. From that point, bonds stayed in a
rather narrow trading range, apparently content to see what the new year's
economic data would bring.
The Fund's Portfolio of investments underwent a more dramatic change
during the six months. Concurrent with a change in equity managers last
December, the Portfolio took on a less cautious approach, which centered
on lowering cash reserves from about 16% to about 5% and putting the money
to work in stocks.
The other notable change was a reduction in the exposure to foreign stocks
-- from about 10% to 2% -- in order to take better advantage of the solid
fundamentals here at home.
On the bond side, Fund performance benefited from a somewhat long duration
(a strategy that increases the Portfolio's sensitivity to interest rate
changes), as well as an emphasis on high-quality securities, largely U.S.
Treasury bonds. They performed especially well late in 1997.
As for the rest of the fiscal year, the investment environment still looks
reasonably good. Still, given the stock market's lofty level, the Fund's
value orientation, not to mention its bond component, may prove to be an
advantage should stocks encounter trouble at some point.
Kurt Winters
(picture of) Kurt Winters
Kurt Winters
Portfolio Manager
Edward Labenski
(picture of) Edward Labenski
Edward Labenski
Portfolio Manager
<PAGE>
To our shareholders
Class A
6-month performance
(All figures per share)
Net asset value (NAV)
March 31, 1998 $ 14.67
Sept. 30, 1997 $ 15.32
Decrease $ 0.65
Distributions
Oct. 1, 1997 - March 31, 1998
From income $ 0.64
From capital gains $ 1.29
Total distributions$ 1.93
Total return* +9.4%**
Class B
6-month performance
(All figures per share)
Net asset value (NAV)
March 31, 1998 $ 14.59
Sept. 30, 1997 $ 15.25
Decrease $ 0.66
Distributions
Oct. 1, 1997 - March 31, 1998
From income $ 0.59
From capital gains $ 1.29
Total distributions$ 1.88
Total return* +9.0%**
Class Y
6-month performance
(All figures per share)
Net asset value (NAV)
March 31 ,1998 $ 14.67
Sept. 30, 1997 $ 15.32
Decrease $ 0.65
Distributions
Oct. 1, 1997 - March 31, 1998
From income $ 0.65
From capital gains $ 1.29
Total distributions$ 1.94
Total return* +9.5%**
*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 2.34% $124,987,499
Elf Aquitaine ADR 1.69 90,650,000
Amoco 1.68 89,830,000
U S WEST Communications Group 1.37 73,091,249
Penney (JC) 1.29 69,254,063
Gannett 1.28 68,669,375
Mobil 1.25 67,161,813
American Home Products 1.23 65,713,374
American Stores 1.17 62,400,000
Merck & Co 1.14 60,978,125
Excludes U.S. Treasury and government agency holdings.
(icon of) pie chart
The ten holdings listed here make up 14.44% of the Portfolio's net assets
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
IDS Mutual
Six months ended March 31, 1998
Assets
(Unaudited)
<S> <C>
Investment in Balanced Portfolio (Note 1) $5,348,411,424
--------------
Liabilities
Accrued distribution fees 7,004
Accrued service fee 22,326
Accrued transfer agency fee 15,017
Accrued administrative services fee 4,476
Other accrued expenses 107,304
-------
Total liabilities 156,127
-------
Net assets applicable to outstanding capital stock $5,348,255,297
--------------
Represented by
Capital stock-- $.01 par value (Note 1) $ 3,647,384
Additional paid-in capital 4,347,754,436
Undistributed net investment income 9,063,143
Accumulated net realized gain (loss) (Note 1) 303,241,421
Unrealized appreciation (depreciation) on investments and on translation
of assets and liabilities in foreign currencies 684,548,913
-----------
Total-- representing net assets applicable to outstanding capital stock $5,348,255,297
==============
Net assets applicable to outstanding shares: Class A $3,432,032,679
Class B $ 342,386,852
Class Y $1,573,835,766
Net asset value per share of outstanding capital stock: Class A shares 233,980,633 $ 14.67
Class B shares 23,470,192 $ 14.59
Class Y shares 107,287,623 $ 14.67
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
IDS Mutual
Six months ended March 31, 1998
Investment income
(Unaudited)
<S> <C>
Income:
Dividends $ 35,596,185
Interest 72,082,202
Less foreign taxes withheld (48,351)
-------
Total income 107,630,036
-----------
Expenses (Note 2):
Expenses allocated from Balanced Portfolio 12,145,416
Distribution fee -- Class B 1,099,449
Transfer agency fee 2,641,158
Incremental transfer agency fee-- Class B 13,325
Service fee
Class A 2,775,294
Class B 254,915
Class Y 711,955
Administrative services fees and expenses 778,358
Compensation of board members 8,128
Postage35,213
Registration fees 142,769
Audit fees 4,937
-----
Total expenses 20,610,917
Earnings credits on cash balances (Note 2) (261,216)
--------
Total net expenses 20,349,701
----------
Investment income (loss)-- net 87,280,335
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions 297,984,624
Foreign currency transactions (4,872,347)
Financial futures contracts 28,554,879
----------
Net realized gain (loss) on investments 321,667,156
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 50,496,456
----------
Net gain (loss) on investments and foreign currencies 372,163,612
-----------
Net increase (decrease) in net assets resulting from operations $459,443,947
============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statements of changes in net assets
IDS Mutual
Operations and distributions March 31, 1998 Sept. 30, 1997
Six months ended Year ended
(Unaudited)
<S> <C> <C>
Investment income (loss)-- net $ 87,280,335 $ 177,081,818
Net realized gain (loss) on investments 321,667,156 535,098,902
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 50,496,456 270,677,545
---------- -----------
Net increase (decrease) in net assets resulting from operations 459,443,947 982,858,265
----------- -----------
Distributions to shareholders from:
Net investment income
Class A (57,769,631) (112,647,933)
Class B (4,379,606) (6,407,726)
Class Y (26,202,955) (48,077,728)
Net realized gain
Class A (351,321,509) (168,695,556)
Class B (31,416,863) (9,374,819)
Class Y (151,670,487) (68,558,106)
------------ -----------
Total distributions (622,761,051) (413,761,868)
------------ ------------
Capital share transactions (Note 3)
Proceeds from sales
Class A shares (Note 2) 133,053,612 230,401,790
Class B shares 69,361,267 115,020,723
Class Y shares 284,259,895 376,665,066
Reinvestment of distributions at net asset value
Class A shares 362,793,556 246,260,292
Class B shares 35,110,447 15,422,380
Class Y shares 177,873,441 116,635,834
Payments for redemptions
Class A shares (203,704,386) (380,264,514)
Class B shares (Note 2) (16,970,837) (26,018,445)
Class Y shares (182,152,683) (428,165,936)
------------ ------------
Increase (decrease) in net assets from capital share transactions 659,624,312 265,957,190
----------- -----------
Total increase (decrease) in net assets 496,307,208 835,053,587
Net assets at beginning of period 4,851,948,089 4,016,894,502
------------- -------------
Net assets at end of period $5,348,255,297 $4,851,948,089
============== ==============
Undistributed net investment income $ 9,063,143 $ 10,135,000
-------------- --------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
IDS Mutual
(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 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, 1998 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 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 $2,893,127 for Class A and $109,040 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 $261,216 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 9,105,008 4,772,840 19,593,252
Issued for reinvested 26,528,440 2,581,440 12,999,325
distributions
Redeemed (13,896,661) (1,166,750) (12,578,861)
Net increase (decrease) 21,736,787 6,187,530 20,013,716
Year ended Sept. 30, 1997
Class A Class B Class Y
Sold 16,177,572 8,102,822 26,414,352
Issued for reinvested 17,752,256 1,112,719 8,400,857
distributions
Redeemed (26,678,714) (1,825,256) (29,981,793)
Net increase (decrease) 7,251,114 7,390,285 4,833,416
<PAGE>
<TABLE>
<CAPTION>
Notes to financial statements
IDS Mutual
4
Financial
highlights
The tables below show certain important financial information for
evaluating the Fund's results.
Fiscal period ended Sept. 30,
Per share income and capital changes(a)
Class A
1998(b) 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $15.32 $13.51 $12.69 $11.89 $13.13 $12.62 $12.00 $10.39 $13.15 $11.57
beginning of period
Income from investment operations:
Net investment income (loss) .26 .57 .54 .58 .56 .55 .61 .66 .72 .73
Net gains (losses) 1.02 2.61 .93 1.27 (.56) 1.39 .91 2.01 (2.01) 1.58
(both realized and
unrealized)
Total from investment 1.28 3.18 1.47 1.85 -- 1.94 1.52 2.67 (1.29) 2.31
operations
Less distributions:
Dividends from net (.26) (.53) (.52) (.54) (.56) (.55) (.60) (.67) (.73) (.73)
investment income
Distributions from (1.67) (.84) (.13) (.51) (.68) (.88) (.30) (.39) (.74) --
realized gains
Total distributions (1.93) (1.37) (.65) (1.05) (1.24) (1.43) (.90) (1.06) (1.47) (.73)
Net asset value, $14.67 $15.32 $13.51 $12.69 $11.89 $13.13 $12.62 $12.00 $10.39 $13.15
end of period
Ratios/supplemental data Class A
1998b 1997 1996 1995 1994 1993 1992 1991 1990 1989
Net assets, end of $3,432 $3,251 $2,770 $2,596 $2,999 $2,788 $2,222 $1,889 $1,496 $1,687
period (in millions)
Ratio of expenses to .80%f .83% .87% .83% .79% .79% .78% .71% .69% .67%
average daily net assets(c)
Ratio of net income (loss) to 3.54%f 4.00% 4.01% 4.58% 4.57% 4.41% 4.99% 5.81% 6.04% 5.94%
average daily net assets
Portfolio turnover rate 44% 49% 45% 38% 69% 48% 50% 47% 37% 46%
(excluding short-term securities)
Total return(d) 9.4% 24.9% 11.8% 16.8% (0.1%) 16.7% 13.3% 26.9% (10.8%) 20.5%
Average brokerage $.0456 $.0465 $.0522 -- -- -- -- -- -- --
commission rate for the
underlying Portfolio(e)
a For a share outstanding throughout the period. Rounded to
the nearest cent.
b Six months ended March 31, 1998 (Unaudited).
c Effective fiscal year 1996, expense ratio is based on total expenses of the
Fund before reduction of earnings credits on cash balances.
d Total return does not reflect payment of a sales charge.
e 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 vary significantly among foreign countries.
f Adjusted to an annual basis.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fiscal period ended Sept. 30,
Per share income and capital changes(a)
Class B Class Y
1998(b) 1997 1996 1995(c) 1998(b) 1997 1996 1995(c)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $15.25 $13.47 $12.66 $11.67 $15.32 $13.51 $12.69 $11.67
beginning of period
Income from investment operations:
Net investment income (loss) .20 .46 .45 .25 .26 .59 .56 .32
Net gains (losses) 1.02 2.59 .93 1.11 1.03 2.61 .93 1.11
(both realized and unrealized)
Total from investment 1.22 3.05 1.38 1.36 1.29 3.20 1.49 1.43
operations
Less distributions:
Dividends from net (.21) (.43) (.44) (.37) (.27) (.55) (.54) (.41)
investment income
Distributions from realized gains (1.67) (.84) (.13) -- (1.67) (.84) (.13) --
Total distributions (1.88) (1.27) (.57) (.37) (1.94) (1.39) (.67) (.41)
Net asset value, end of period $14.59 $15.25 $13.47 $12.66 $14.67 $15.32 $13.51 $12.69
Ratios/supplemental data Class B Class Y
1998(b) 1997 1996 1995(c) 1998(b) 1997 1996 1995(c)
Net assets, end of $342 $264 $133 $33 $1,574 $1,337 $1,114 $876
period (in millions)
Ratio of expenses to 1.57%f 1.59% 1.64% 1.65%(f) .73%(f) .70% .70% .70%(f)
average daily net assets(d)
Ratio of net income (loss) to 2.76% f 3.28% 3.32% 3.94%(f) 3.60%(f) 4.13% 4.18% 4.58%(f)
average daily net assets
Portfolio turnover rate 44% 49% 45% 38% 44% 49% 45% 38%
(excluding short-term securities)
Total return(e) 9.0% 23.9% 11.0% 11.7% 9.5% 25.0% 12.0% 12.2%
Average brokerage $.0456 $.0465 $.0522 -- $.0456 $.0456 $.0522 --
commission rate for the
underlying Portfolio(g)
a For a share outstanding throughout the period. Rounded to
the nearest cent.
b Six months ended March 31, 1998 (Unaudited).
c Inception date was March 20, 1995.
d Effective fiscal year 1996, expense ratio is based on total expenses of Fund
before reduction of earnings credits on cash balances.
e Total return does not reflect payment of a sales charge.
f Adjusted to an annual basis.
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 vary significantly among
foreign countries.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
Balanced Portfolio
March 31, 1998
Assets
(Unaudited)
<S> <C>
Investments in securities, at value (Note 1)
(identified cost $4,638,329,753) $5,318,291,809
Dividends and accrued interest receivable 31,344,689
Receivable for investment securities sold 39,556,553
U.S. government securities held as collateral (Note 6) 101,889,084
-----------
Total assets 5,491,082,135
-------------
Liabilities
Disbursements in excess of cash on demand deposit 2,476,181
Payable for investment securities purchased 33,171,591
Payable upon return of securities loaned (Note 6) 105,365,284
Accrued investment management services fee 4,647
Option contracts written, at value (premium received $809,749) (Note 4) 408,431
Other accrued expenses 82,182
------
Total liabilities 141,508,316
-----------
Net assets $5,349,573,819
==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
Balanced Portfolio
Six months ended March 31, 1998
Investment income
(Unaudited)
<S> <C>
Income:
Dividends $ 35,603,287
Interest 72,064,059
Less foreign taxes withheld (48,363)
-------
Total income 107,618,983
-----------
Expenses (Note 2):
Investment management services fee 11,934,850
Compensation of board members 13,417
Custodian fees 192,524
Audit fees 14,813
------
Total expenses 12,155,604
Earnings credits on cash balances (Note 2) (7,755)
------
Total net expenses 12,147,849
----------
Investment income (loss)-- net 95,471,134
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 298,030,947
Financial futures contracts (Note 5) 28,559,979
Foreign currency transactions (4,873,363)
----------
Net realized gain (loss) on investments 321,717,563
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 50,523,616
----------
Net gain (loss) on investments and foreign currencies 372,241,179
-----------
Net increase (decrease) in net assets resulting from operations $467,712,313
------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statements of changes in net assets
Balanced Portfolio
Operations March 31, 1998 Sept. 30, 1997
Six months ended Year ended
(Unaudited)
<S> <C> <C>
Investment income (loss)-- net $ 95,471,134 $ 191,274,275
Net realized gain (loss) on investments 321,717,563 535,161,611
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 50,523,616 270,752,151
---------- -----------
Net increase (decrease) in net assets resulting from operations 467,712,313 997,188,037
Net contributions (withdrawals) from partners 28,541,608 (161,960,911)
---------- ------------
Total increase (decrease) in net assets 496,253,921 835,227,126
Net assets at beginning of period 4,853,319,898 4,018,092,772
------------- -------------
Net assets at end of period $5,349,573,819 $4,853,319,898
============== ==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
Balanced Portfolio
(Unaudited as to March 31, 1998)
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.
Significant accounting polices followed by the Portfolio are summarized
below:
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increase and decrease in
net assets from operations during the period. Actual results could differ
from those estimates.
Valuation of securities
All securities are valued at the close of each business day. Securities
traded on national securities exchanges or included in national market
systems are valued at the last quoted sales price. 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 contract.
Illiquid securities
At March 31, 1998, investments in securities included issues that are
illiquid. The Portfolio currently limits investments in illiquid
securities to 10% of net assets, at market value, at the time of purchase.
The aggregate value of such securities at March 31, 1998 was $4,116,280
representing 0.08% of 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 $136,964 for the six months ended March 31, 1998.
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 $7,755 as a result of earnings credits from overnight cash
balances.
Pursuant to a Placement Agency Agreement, American Express Financial
Advisors Inc. acts as placement agent of the units of the Trust.
3
Securities
transactions
Cost of purchases and proceeds from sales of securities (other than
short-term obligations) aggregated $2,287,386,523 and $1,968,617,188,
respectively, for the six months ended March 31, 1998. For the same
period, the portfolio turnover rate was 44%. Realized gains and losses are
determined on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $10,422
during this period.
4
Option contracts
written
The number of contracts and premium amounts associated with call option
contracts written is as follows:
Six months ended March 31, 1998
Contracts Premium
Balance Sept. 30, 1997 -- $ --
Opened 1,233 809,749
Balance March 31, 1998 1,233 $809,749
See "Summary of significant accounting policies."
5
Stock index
futures contracts
At March 31, 1998, cash was pledged as collateral to cover initial margin
deposits on 1,150 open purchase contracts. The market value of the open
purchase contracts at March 31, 1998 was $319,268,750 with a net
unrealized gain of $4,307,546. See "Summary of significant accounting
policies."
6
Lending of
portfolio securities
At March 31, 1998, securities valued at $105,362,825 were on loan to
brokers. For collateral, the Portfolio received $3,476,200 in cash and
U.S. government securities valued at $101,889,084. Income from securities
lending amounted to $150,665 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.
<PAGE>
Investments in securities
Balanced Portfolio
March 31, 1998 (Unaudited)
(Percentages represent
value of investments
compared to net assets)
Common stocks - 58.7%
Issuer Shares Value(a)
Aerospace & defense - 1.7%
AlliedSignal 800,000 $33,600,000
Litton Inds 205,200(b) 11,837,475
Rockwell Intl 815,000 46,760,625
Total 92,198,100
Airlines - 0.7%
AMR 251,100(b) 35,954,381
Automotive & related - 2.4%
Ford Motor 725,000 46,989,063
Genuine Parts 1,218,000 46,436,250
Meritor Automotive 208,333 5,533,845
TRW577,000 31,807,125
Total 130,766,283
Banks and savings & loans - 5.0%
BankAmerica 525,000 43,378,125
First Chicago NBD 500,000 44,062,500
First Union 875,000 49,656,250
Morgan (JP) 350,000 47,009,375
NationsBank 600,000 43,762,500
Washington Mutual 575,000 41,238,281
Total 269,107,031
Beverages & tobacco - 1.8%
Fortune Brands 860,000 34,292,500
Philip Morris 1,439,000 59,988,313
Total 94,280,813
Building materials & construction - 1.4%
American Standard 800,000(b) 36,700,000
Weyerhaeuser 700,000 39,550,000
Total 76,250,000
Chemicals - 1.4%
Air Products & Chemicals 420,000 34,807,500
Du Pont (EI) de Nemours 560,000 38,080,000
Total 72,887,500
Communications equipment & services - 0.9%
Motorola 815,000 49,409,375
Computers & office equipment - 0.9%
Xerox 445,000 47,364,688
Electronics - 1.5%
AMP 390,000 17,086,875
Applied Materials 620,000(b) 21,893,750
Texas Instruments 450,000 24,356,250
Thomas & Betts 289,400 18,521,600
Total 81,858,475
Energy - 2.9%
Amoco 1,040,000 $89,830,000
Mobil 876,500 67,161,813
Total 156,991,813
Energy equipment & services - 0.3%
Santa Fe Intl 478,500 18,153,094
Financial services - 0.9%
Boston Properties 314,250(b) 11,057,672
Travelers Group 650,000 39,000,000
Total 50,057,672
Food - 1.2%
General Mills 400,000 30,400,000
Sara Lee 580,000 35,742,500
Total 66,142,500
Foreign - 5.8%(c)
B.A.T. Inds 3,750,000 37,649,276
BCE 1,040,000 43,420,000
Elf Aquitaine ADR 1,400,000(g) 90,650,000
KLM Royal Dutch Air Lines 214,600 8,718,125
Royal Dutch Petroleum 2,200,000 124,987,499
Total 305,424,900
Health care - 5.6%
American Home Products 689,000 65,713,374
Amgen 930,000(b) 56,613,750
Baxter Intl 1,006,000 55,455,750
Johnson & Johnson 765,000 56,084,063
Merck & Co 475,000 60,978,125
Total 294,845,062
Health care services - 1.1%
Columbia/HCA Healthcare 1,771,000 57,114,750
Household products - 1.1%
Kimberly-Clark 1,123,700 56,325,463
Industrial equipment & services - 1.2%
Browning-Ferris Inds 835,000 27,241,875
Case 554,000 37,741,250
Total 64,983,125
Insurance - 2.4%
Allstate 490,000 45,049,375
Marsh & McLennan 320,000 27,940,000
Provident Cos 307,800 10,561,388
St. Paul Cos 525,000(g) 46,790,625
Total 130,341,388
Media - 1.6%
Gannett 955,400 $68,669,375
Tribune 255,000 17,977,500
Total 86,646,875
Metals - 1.3%
Aluminum Co of America 482,500 33,202,031
Reynolds Metals 555,000 34,097,813
Total 67,299,844
Multi-industry conglomerates - 1.0%
Emerson Electric 850,000 55,409,375
Paper & packaging - 1.6%
Tenneco 1,272,000 54,298,500
Union Camp 546,000 32,623,500
Total 86,922,000
Real estate investment trust - 1.5%
Equity Office Properties
Trust 405,000 12,403,125
Meditrust 300,000 9,262,500
Nationwide Health
Properties 354,000 8,850,000
Security Capital Industrial
Trust 700,000 17,937,500
Simon DeBartolo Group 700,000 23,975,000
Spieker Properties 129,300 5,333,625
Total 77,761,750
Retail - 2.8%
American Stores 2,400,000 62,400,000
Circuit City Stores 480,000(m) 20,520,000
Penney (JC) 915,000 69,254,063
Total 152,174,063
Transportation - 0.3%
Burlington Northern
Santa Fe 170,000 $17,680,000
Utilities -- electric - 3.2%
CMS Energy 1,100,000 51,631,250
Duke Energy 416,800 24,825,650
GPU 353,400 15,637,950
New Century Energies 900,000 45,337,500
Northern States Power 550,000 32,450,000
Total 169,882,350
Utilities -- gas - 0.1%
Consolidated Natural Gas 100,000 5,768,750
Utilities -- telephone - 5.1%
Ameritech 1,200,000 59,325,000
BellSouth 850,000 57,428,125
GTE 630,000 37,721,250
SBC Communications 960,000 41,880,000
U S WEST
Communications 1,335,000 73,091,249
Total 269,445,624
Total common stocks
(Cost: $2,544,777,193) $3,139,447,044
See accompanying notes to investments in securities.
<PAGE>
<TABLE>
<CAPTION>
Investments in securities
Balanced Portfolio
(Percentages represent
value of investments
compared to net assets)
Bonds - 32.3%
Issuer Coupon Principal Value(a)
rate amount
<S> <C> <C> <C>
U.S. government obligations - 10.5%
Govt Trust Certs Israel
11-15-01 9.25% $7,458,030 $7,715,556
Overseas Private Investment
U.S. Govt Guaranty Series 1996A
01-15-09 6.99 17,500,000 18,149,948
Resolution Funding
10-15-19 8.125 50,000,000 61,492,000
Zero Coupon
01-15-19 6.50 53,000,000(k) 14,783,285
10-15-19 6.32 50,000,000(k) 13,314,500
U.S. Treasury
09-30-99 7.125 62,650,000(g) 64,012,637
11-15-99 5.875 25,000,000 25,107,000
01-31-00 7.75 25,000,000 25,921,250
03-31-00 6.875 20,000,000 20,479,800
04-30-00 6.75 15,000,000 15,330,450
08-31-00 6.25 30,000,000 30,385,800
07-31-01 6.625 25,000,000 25,721,000
11-15-01 7.50 50,000,000 52,953,500
05-31-02 6.50 25,000,000 25,739,250
09-30-02 5.875 25,000,000(g) 25,181,000
08-15-19 8.125 90,000,000 112,600,799
08-15-23 6.25 25,000,000 25,773,750
Total 564,661,525
Mortgage-backed securities - 8.0%
Collateralized Mtge Obligation Trust
12-20-14 9.95 3,582,274 3,864,629
Federal Home Loan Mtge Corp
10-01-03 7.00 5,365,541 5,443,341
07-01-07 6.50 490,980 494,383
07-01-08 6.75 1,855,116 1,869,994
06-01-09 5.50 4,387,248 4,296,213
01-01-11 6.50 16,786,807 16,871,412
10-01-11 6.50 21,360,364 21,461,398
03-01-13 5.50 14,850,015 14,320,983
08-01-24 8.00 6,975,948 7,249,405
10-01-26 8.50 9,792,977 10,246,392
Collateralized Mtge Obligation
01-15-03 7.50 7,527,343 7,750,905
04-15-22 8.50 7,000,000 7,719,810
Trust Series Z
05-15-23 6.50 12,311,618(i) 11,800,686
10-15-23 6.50 10,472,800(i) 10,069,283
04-25-24 8.25 6,902,804(i) 7,511,769
Federal Natl Mtge Assn
10-01-02 7.50 661,459 678,339
02-15-08 5.75 40,000,000(g) 39,406,249
01-01-09 5.50 6,597,453 6,437,860
12-01-11 7.00 21,137,981 21,514,448
02-01-14 7.50 1,638,168 1,672,258
10-25-16 7.00 11,444,548 11,524,660
05-01-23 6.50 5,260,153 5,250,580
09-01-23 6.50 8,039,252 8,014,572
01-01-24 6.50 14,992,196 14,946,170
06-01-24 9.00 6,133,253 6,582,084
08-01-25 7.50 20,034,215 20,614,006
10-01-25 8.50 376,987 395,501
05-01-26 8.50 4,845,298 5,074,190
06-01-26 8.50 74,895 78,433
06-01-26 8.50 3,340,260 3,498,054
07-01-26 8.50 1,319,348 1,381,674
Collateralized Mtge Obligation
11-25-07 4.50 11,900,000 11,065,929
01-25-24 5.00 5,880,738 5,738,953
05-18-26 5.00 15,000,000 13,570,313
Trust Series Z
12-25-06 8.00 10,698,921(i) 11,275,914
12-15-14 7.50 9,338,340(i) 9,807,895
01-01-20 8.00 11,971,290(i) 12,876,580
07-25-22 7.00 15,518,128(i) 15,924,296
10-25-22 7.00 14,594,586(i) 14,920,083
10-25-23 6.50 7,323,268(i) 7,018,767
12-25-23 6.50 11,597,902(i) 10,735,797
02-25-24 6.00 7,661,050(i) 6,802,016
Govt Natl Mtge Assn
07-20-27 6.50 23,464,595(j) 23,911,595
Standard Credit Card Trust
10-07-04 5.95 8,550,000 8,487,671
Total 430,175,490
Aerospace & defense - 0.2%
United Techonologies
11-15-19 8.875 9,500,000 11,714,545
Automotive & related - 0.2%
Ford Motor Credit
Medium-term Nts Series 1
03-29-01 6.55 13,000,000 13,175,110
Banks and savings & loans - 1.5%
ABN-Amro Bank
Sub Nts Series B
10-15-93 7.125 7,000,000 7,238,070
BankAmerica
Series B
12-31-26 7.70 10,000,000(h) 10,244,700
First Bank System
Sub Nts
09-15-07 6.875 5,750,000 5,937,048
Fleet Financial Group
Sub Deb
01-15-28 6.875 1,500,000 1,496,940
Mellon Capital
Company Guaranty Series A
12-01-26 7.72 8,000,000 8,330,960
Swiss Bank
Sub Deb
07-15-25 7.50 4,700,000 5,068,104
09-01-26 7.75 11,000,000 12,245,860
Union Planters Capital
Company Guaranty
12-15-26 8.20 10,000,000 10,633,700
US Capital
02-01-27 8.41 10,000,000(h) 10,882,200
Washington Mutual Capital
Company Guaranty
06-01-27 8.375 5,800,000(h) 6,308,718
Total 78,386,300
Building materials & construction - 0.1%
Owens-Corning Fiberglass
06-01-12 9.375 3,500,000 4,113,235
Chemicals - 0.2%
USA Waste Services
Sr Nts
10-01-07 7.125 11,000,000 11,457,600
Communications equipment & services - 0.4%
BellSouth Telecommunications
06-15-05 6.50 9,000,000 9,216,720
12-01-95 7.00 10,000,000 10,383,800
Total 19,600,520
Computers & office equipment - 0.1%
Intl Business Machines
06-15-00 6.375 5,100,000 5,154,978
Electronics - 0.1%
Harris
12-01-18 10.375 4,000,000 4,304,960
Energy - 0.1%
Occidental Petroleum
Medium-term Nts Series B
04-10-00 6.25 6,500,000 6,525,545
Energy equipment & services - 0.7%
Baker Hughes
Zero Coupon Cv Nts
05-05-08 2.23 26,250,000(k) 21,787,500
Diamond Offshore Drilling
Cv Sr Sub Nts
09-15-07 3.125 3,780,000 3,723,300
Global Marine
09-01-07 7.125 10,000,000(h) 10,320,400
Total 35,831,200
Financial services - 0.9%
Associates Corp of North America
Sr Nts
03-15-00 6.00 6,000,000 6,005,160
Avco Financial Services
Sr Nts
07-15-99 7.25 6,500,000 6,614,075
Bat-Crave-800
08-12-00 6.68 7,000,000(h) 7,056,700
Intl Lease Finance
Medium-term Nts Series F
04-01-98 5.99 5,000,000 5,000,000
KFW Intl Finance
02-15-10 8.00 6,750,000 7,684,133
Liberty Mutual Insurance
10-15-97 7.70 10,000,000 10,571,900
Salomon
Sr Nts
01-15-06 6.75 7,000,000 7,134,540
Total 50,066,508
Foreign - 3.2%(c)
Canadian Natl Railroad
(U.S. Dollar)
05-15-23 7.625 6,000,000 6,373,320
Dao Heng Bank
(U.S. Dollar) Sub Nts
01-24-07 7.75 10,000,000(h) 9,111,400
EES Coke Battery
(U.S. Dollar) Sr Nts
04-15-02 7.125 8,529,625(h) 8,602,383
Hyundai Semiconductor
(U.S. Dollar) Sr Nts
05-15-04 8.25 10,000,000(h) 8,370,700
Inter-American Development Bank
(U.S. Dollar) Sr Deb
04-11-00 9.50 5,000,000 5,328,655
Israel Electric
(U.S. Dollar) Sr Nts
12-15-06 7.25 10,000,000 10,180,200
MGM Grand
(U.S. Dollar)
02-01-05 6.95 10,000,000 9,823,400
Morgan (JP)
(U.S. Dollar) Sr Sub Nts Series A
02-15-12 4.00 15,000,000 13,925,249
Nationwide CSN Trust
(U.S. Dollar)
02-15-25 9.875 15,500,000(h) 18,549,934
New York Life Insurance
(U.S. Dollar)
12-15-23 7.50 11,500,000(h) 11,642,715
Petronas
(U.S. Dollar)
08-15-15 7.75 10,000,000 9,199,500
Railcar Leasing
(U.S. Dollar)
01-15-13 7.125 15,000,000(h) 15,737,850
Ras Laffan
(U.S. Dollar)
03-15-14 8.29 10,000,000(h) 10,232,500
Republic of Slovenia
(U.S. Dollar)
08-06-01 7.00 7,200,000(h) 7,345,656
Telecom NewZeal Finance
(U.S. Dollar)
02-10-08 6.50 10,000,000(h) 9,849,260
TU Electric Capital
(U.S. Dollar) Company Guaranty
01-30-37 8.175 10,000,000 10,306,000
Zurich Capital
(U.S. Dollar) Company Guaranty
06-01-37 8.38 7,500,000(h) 8,192,925
Total 172,771,647
Health care - 0.1%
Lilly (Eli)
01-01-36 6.77 5,000,000 5,131,150
Health care services - 0.1%
Kaiser Permanente
07-15-05 9.55 6,000,000 7,112,820
Household products - 0.1%
Procter & Gamble
09-01-24 8.00 3,000,000 3,568,500
Insurance - 0.6%
American United Life Insurance
03-30-26 7.75 4,000,000(e,h) 4,116,280
Equitable Life Assurance Society US Cl B1
Series 174
05-15-09 7.33 5,500,000 5,810,750
Principal Mutual
03-01-44 8.00 7,150,000(h) 7,619,398
SAFECO Capital
Company Guaranty
07-15-37 8.07 10,000,000 10,520,799
SunAmerica
04-28-23 8.125 5,150,000 5,789,991
Total 33,857,218
Media - 0.3%
Belo (AH)
Sr Nts
06-01-07 7.125 15,000,000 15,658,650
Miscellaneous - 0.5%
American General Institute Capital
Company Guaranty Series A
12-01-45 7.57 15,000,000(h) 15,493,350
M & I Capital
Company Guaranty
12-01-26 7.65 10,000,000 10,355,000
Total 25,848,350
Municipal bonds - 0.7%(l)
Denver Colorado City & County School
District 1 Taxable-Pension-School
Facilities Lease (AMBAC Insured)
12-15-12 6.94 10,000,000 10,192,800
Los Angeles County California Pension Obligation
Taxable Revenue Bonds Series 1994C
Zero Coupon (MBIA Insured)
06-30-08 7.05 9,440,000(k) 4,852,160
Los Angeles County California Pension Obligation
Taxable Revenue Bonds Series 1995D
(MBIA Insured)
06-30-08 6.97 10,500,000 11,040,120
Orange County California Pension Obligation
Taxable Revenue Bonds (MBIA Insured)
09-01-09 7.31 5,000,000 5,388,600
Yale University
04-15-96 7.375 4,000,000 4,305,960
Total 35,779,640
Paper & packaging - 0.3%
Crown Cork & Seal
04-15-23 8.00 6,000,000 6,357,540
Intl Paper
11-15-12 5.125 13,400,000 11,586,042
Total 17,943,582
Real estate investment trust - 0.1%
Property Trust of America
02-15-14 7.50 5,000,000 5,144,600
Retail - 0.3%
Wal-Mart CRAVE Trust
07-17-06 7.00 13,442,258(h) 13,789,337
Transportation - 0.7%
Atlas Air
01-02-10 8.01 15,000,000 14,956,350
Burlington Northern Santa Fe
12-15-25 7.00 10,200,000 10,387,272
CSX
05-01-27 7.25 10,000,000 10,664,100
Total 36,007,722
Utilities -- electric - 1.1%
Arizona Public Service
12-30-15 8.00 5,400,000 5,934,060
Cleveland Electric Illuminating
07-01-00 7.19 5,000,000 5,081,700
07-01-04 7.67 10,000,000 10,300,000
Entergy Louisiana
1st Mtge
03-01-08 6.50 5,535,000 5,486,846
Pacific Gas & Electric
1st Mtge Series 1992D
11-01-22 8.25 4,600,000 4,989,666
Public Services Electric & Gas
1st & Ref Mtge
01-01-16 6.75 13,000,000 13,145,990
Wisconsin Electric Power
01-15-23 7.75 5,500,000 5,819,990
12-01-95 6.875 8,000,000 8,098,960
Total 58,857,212
Utilities -- telephone - 1.2%
Bell Atlantic
Series P
01-01-06 4.875 13,000,000 11,899,420
Bell Telephone of Pennsylvania
03-15-33 7.375 5,000,000 5,117,450
GTE
12-01-00 9.375 4,600,000 4,950,336
11-01-21 8.75 5,000,000 5,963,250
Illinois Bell Telephone
1st Mtge Series H
07-01-03 4.375 4,600,000 4,259,692
Pacific Bell
10-15-34 6.625 6,100,000 5,861,368
07-15-43 7.375 7,500,000 7,840,125
U S WEST Communications
09-15-05 6.625 7,000,000 7,170,800
Worldcom
04-01-07 7.75 10,000,000 10,820,000
Total 63,882,441
Total bonds
(Cost: $1,645,210,285) $1,730,520,385
Short-term securities - 8.4%(d)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agencies - 0.3%
Federal Home Loan Bank Disc Nt
04-13-98 5.46 5,000,000 4,990,900
Federal Home Loan Mtge Corp Disc Nts
04-13-98 5.45 10,000,000 9,981,850
04-17-98 5.46 1,200,000 1,197,088
Total 16,169,838
Commercial paper - 7.9%
AIG Funding
04-03-98 5.56 10,200,000 10,196,848
Alabama Power
04-14-98 5.62 10,031,000 10,010,679
American General Finance
05-13-98 5.57 10,000,000 9,932,292
BBV Finance (Delaware)
04-08-98 5.54 3,800,000 3,795,921
Bell Atlantic
04-20-98 5.54 1,700,000 1,695,047
04-20-98 5.55 4,900,000 4,885,699
BellSouth Capital Funding
04-06-98 5.56 12,000,000 11,990,767
Beneficial
05-18-98 5.57 7,000,000 6,949,462
BHP Finance
04-16-98 5.57 1,700,000 1,696,076
CAFCO
04-22-98 5.56 14,000,000(f) 13,954,920
05-19-98 5.56 12,500,000(f) 12,408,000
Ciesco LP
04-27-98 5.56 15,900,000 15,836,383
05-14-98 5.54 5,900,000(f) 5,861,240
CIT Group Holdings
05-26-98 5.58 12,500,000 12,391,079
Commerzbank U.S. Finance
04-22-98 5.55 5,000,000 4,983,871
04-27-98 5.57 9,600,000 9,561,520
Consolidated Natural Gas
04-21-98 5.54 10,700,000 10,667,187
Daimler-Benz
04-13-98 5.55 18,000,000 17,966,880
04-23-98 5.52 11,500,000 11,461,488
Delaware Funding
05-01-98 5.57 10,300,000(f) 10,252,449
Dresdner US Finance
04-02-98 5.59 10,500,000 10,498,375
Fleet Funding
04-14-98 5.59 13,600,000(f) 13,572,693
Glaxo Wellcome
04-06-98 5.55 3,600,000(f) 3,597,235
Heinz (HJ)
04-28-98 5.54 8,900,000 8,863,288
Intl Lease Finance
04-22-98 5.55 13,000,000 12,958,064
Kellogg
04-27-98 5.57 7,900,000 7,868,334
Kredietbank North America Finance
05-04-98 5.55 12,500,000 12,433,341
05-08-98 5.55 10,000,000 9,943,472
Natl Rural Utilities
04-23-98 5.55 11,000,000 10,962,826
New Center Asset Trust
05-08-98 5.56 10,000,000 9,937,992
Novartis Finance
04-08-98 5.55 8,500,000 8,490,861
04-09-98 5.52 7,700,000 7,688,882
05-08-98 5.56 8,200,000(f) 8,153,394
05-11-98 5.56 6,800,000(f) 6,758,218
Paccar Financial
04-02-98 5.57 3,200,000 3,199,507
04-22-98 5.56 6,300,000 6,279,640
04-23-98 5.55 11,700,000 11,660,460
Pacific Life Insurance
04-23-98 5.55 8,400,000 8,371,613
04-24-98 5.56 8,300,000 8,270,623
04-30-98 5.57 9,500,000 9,457,527
Pfizer
04-06-98 5.55 6,395,000(f) 6,390,088
SBC Communications Capital
04-14-98 5.54 7,800,000(f) 7,784,424
04-21-98 5.53 13,500,000(f) 13,458,825
Toyota Motor Credit
04-16-98 5.56 15,000,000 14,965,437
USAA Capital
04-22-98 5.55 7,600,000 7,575,572
Westpac Capital
04-07-98 5.57 7,300,000 7,293,260
Total 422,931,759
Letter of credit - 0.2%
Bank of America-
AES Hawaii
04-23-98 5.54 9,254,000 9,222,783
Total short-term securities
(Cost: $448,342,275) $448,324,380
Total investments in securities
(Cost: $4,638,329,753)(n) $5,318,291,809
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated.
(d) 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 5 to the financial statements):
Type of security Contracts
Standard & Poor's 500 Stock Index, June 1998 1,150
(e) Identifies issues considered to be illiquid as to their marketability (see
Note 1 to the financial statements). Information concerning such security
holdings at March 31, 1998, is as follows:
Security Acquisition Cost
date
American United Life Insurance*
7.75% 2026 02-13-96 $4,000,000
*Represents a security sold under Rule 144A, which is exempt from registration
under the Securities Act of 1933, as amended.
(f) Commercial paper sold within terms of a private placement memorandum, exempt
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.
(g) Security is partially or fully on loan. See Note 6 to the financial
statements.
(h) 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.
(i) This security is a collateralized mortgage obligation that pays no interest
or principal during its initial accrual period until payment of a previous
series within the trust have been paid off. Interest is accrued at an effective
yield.
(j) Adjustable rate mortgage; interest rate varies to reflect current market
conditions; rate shown is the effective rate on March 31, 1998.
(k) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(l) The following abbreviations are used in portfolio descriptions to identify
the insurer of the issue:
AMBAC -- American Municipal Bond Association Corporation
MBIA -- Municipal Bond Investors Assurance
(m) At March 31, 1998, securities valued at $5,271,075 were held to cover open
call options written as follows:
Issuer Number of Exercise Expiration Value(a)
shares price date
Circuit City Stores 123,300 $40 April 1998 $408,431
(n) At March 31, 1998, the cost of securities for federal income tax purposes
was approximately $4,638,345,000 and the approximate aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation.........................................$696,414,000
Unrealized depreciation..........................................(16,467,000)
Net unrealized appreciation.....................................$679,947,000
<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.
(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
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.
<PAGE>
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 Mutual Fund
IDS Tower 10
Minneapolis, MN 55440-0010
