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AXP(SM) Diversified
Equity Income
Fund
1999 ANNUAL REPORT
(PROSPECTUS ENCLOSED)
(icon of) magnifying glass
AXP Diversified Equity Income Fund seeks to provide shareholders with a high
level of current income and, as a secondary goal, steady growth of capital.
(This annual report includes a prospectus that describes in detail the Fund's
objective, investment strategy, risks, sales charges, fees and other matters of
interest. Please read the prospectus carefully before you invest or send money.)
Distributed by American Express Financial Advisors Inc.
AMERICAN EXPRESS Financial Advisors (logo)
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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. AXP Diversified Equity
Income sets its sights on stocks that can provide this benefit. The Fund takes
advantage of opportunities across various industries, among different types of
securities and in markets throughout the world to find investments that meet its
combination growth-and-dividend requirement.
AXP DIVERSIFIED EQUITY INCOME FUND
(This annual report is not part of the prospectus.)
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Table of Contents
1999 ANNUAL REPORT
The purpose of this annual report is to tell investors how the Fund performed.
From the Chairman 4
From the Portfolio Manager 4
Fund Facts 6
The 10 Largest Holdings 7
Making the Most of the Fund 8
The Fund's Long-term Performance 9
Independent Auditors' Report (Fund) 10
Financial Statements (Fund) 11
Notes to Financial Statements (Fund) 14
Independent Auditors' Report (Portfolio) 19
Financial Statements (Portfolio) 20
Notes to Financial Statements (Portfolio)23
Investments in Securities 28
Federal Income Tax Information 35
1999 PROSPECTUS
The prospectus, which is bound into the middle of this annual report, describes
the Fund in detail.
The Fund 3p
Goal 3p
Investment Strategy 3p
Risks 5p
Past Performance 6p
Fees and Expenses 8p
Management 9p
Buying and Selling Shares 10p
Valuing Fund Shares 10p
Investment Options 10p
Purchasing Shares 12p
Sales Charges 15p
Exchanging/Selling Shares 19p
Distributions and Taxes 24p
Personalized Shareholder Information 25p
Master/Feeder Structure 26p
About the Company 27p
Quick Telephone Reference 29p
Financial Highlights 30p
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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(picture of) Arne H. Carlson
Arne H. Carlson
Chairman of the board
From the Chairman
American Express(R) Funds held shareholder meetings in June 1999. Shareholders
approved all of the proposals advanced by management. Among the proposals were:
o The election of Board members and the selection of KPMG LLP as independent
auditors.
o Change in the Fund name from "IDS" to "AXP."
o A new shareholder service and distribution plan.
o A change in the investment management services agreement.
No other business was presented at the meeting, which was concluded by a report
to shareholders from the Investment Department of American Express Financial
Corporation.
Thanks to all of you for your effort in reviewing the proxy material and voting
your proxies.
Arne H. Carlson
(picture of) Kurt Winters
Kurt Winters
Portfolio manager
From the Portfolio Manager
AXP Diversified Equity Income Fund enjoyed a productive 12 months, though a
stock market slump late in the period tempered its performance. For the fiscal
year -- October 1998 through September 1999 -- the Fund's total return for Class
A shares was 17.18%. (This figure includes a substantial capital gain that was
paid to shareholders in December 1998 and lowered the Fund's net asset value by
the same amount at that time.)
At the outset of the period, the stock market was trying to shake off the
effects of a decline that had driven it down by nearly 20%. But with the
remarkable resilience they've shown in recent years, stocks not only righted
themselves during the autumn
AXP DIVERSIFIED EQUITY INCOME FUND
(This annual report is not part of the prospectus.)
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of 1998 but also began to regain some lost ground. Supported by three reductions
in short-term interest rates by the Federal Reserve and ongoing strength of the
economy, the advance turned into a spectacular rally that lasted through
January.
After a setback in February, stocks got back on the positive track during the
spring. But by mid-summer, a rise in long-term interest rates had made investors
increasingly nervous. As a result, the market steadily retreated during the
final three months of the period, eroding a good part of the Fund's gain.
`VALUE' COMES BACK
The Fund's performance pattern generally followed that of the broad market, but
its ups and downs were less dramatic -- a reflection of the higher-than-average
yields of the Fund's holdings, which helped mute fluctuations in the net asset
value. While large-capitalization growth stocks continued their reign as the
market's overall leader, it was both interesting and encouraging to note that,
during the spring, the value stocks that this Fund focuses on did enjoy
something of a resurgence. Whether we'll see more of that in the months ahead
will largely determine the Fund's performance.
The largest area of investment during the 12 months was in financial services
stocks, including those of banks, insurance and brokerage companies. They got
off to a good start before tailing off late in the period under the pressure of
higher interest rates. The rest of the portfolio was divided in roughly equal
amounts among utility, technology and energy-related stocks. The latter two
groups were especially strong and made a substantial contribution to the Fund's
gain.
As the new fiscal year begins, the stock market is wrestling with a variety of
often-conflicting factors: an economy that appears to remain strong, the
possibility of higher inflation and higher interest rates, concerns about the
strength of corporate profits, a depreciating U.S. dollar, and the ultimate
effect of the Y2K computer situation. In light of the uncertainty, I plan to
maintain a somewhat defensive investment approach that centers on stock sectors
that have the potential to fare relatively well should the market find it
difficult to make progress.
Kurt Winters
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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Fund Facts
Class A -- 12-month performance
(All figures per share)
Net asset value (NAV)
Sept. 30, 1999 $9.40
Sept. 30, 1998 $8.96
Increase $0.44
Distributions -- Oct. 1, 1998 - Sept. 30, 1999
From income $0.31
From capital gains $0.76
Total distributions $1.07
Total return* +17.18%**
Class B -- 12-month performance
(All figures per share)
Net asset value (NAV)
Sept. 30, 1999 $9.40
Sept. 30, 1998 $8.96
Increase $0.44
Distributions -- Oct. 1, 1998 - Sept. 30, 1999
From income $0.24
From capital gains $0.76
Total distributions $1.00
Total return* +16.30%**
Class Y -- 12-month performance
(All figures per share)
Net asset value (NAV)
Sept. 30, 1999 $9.40
Sept. 30, 1998 $8.96
Increase $0.44
Distributions -- Oct. 1, 1998 - Sept. 30, 1999
From income $0.32
From capital gains $0.76
Total distributions $1.08
Total return* +17.30%**
*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.
AXP DIVERSIFIED EQUITY INCOME FUND
(This annual report is not part of the prospectus.)
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The 10 Largest Holdings
Percent Value
(of net assets) (as of Sept. 30, 1999)
Citigroup 3.30% $87,120,000
American Intl Group 2.57 67,919,921
Mobil 2.40 63,472,499
Intl Business Machines 2.37 62,508,124
Chevron 2.32 61,237,500
AT&T 2.25 59,377,499
Bank of America 2.14 56,522,812
Intl Paper 2.11 55,752,500
Circuit City Stores 2.05 54,004,218
American General 2.02 53,393,438
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
(icon of) pie chart
The 10 holdings listed here
make up 23.53% of net assets
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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Making the Most of the Fund
BUILD YOUR ASSETS SYSTEMATICALLY
One of the best ways to invest in the Fund is by dollar-cost averaging -- a
time-tested strategy that can make market fluctuations work for you. To
dollar-cost average, simply invest a fixed amount of money regularly. You'll
automatically buy more shares when the Fund's share price is low, fewer shares
when it is high. The chart below shows how dollar-cost averaging works. In these
three hypothetical scenarios, you will see six months of share price
fluctuations.
This strategy does not ensure a profit or avoid a loss if the market declines.
But, if you can continue to invest regularly through changing market conditions
even when the price of your shares fall or the market declines, it can be an
effective way to accumulate shares to meet your long-term goals.
How dollar-cost averaging works
Jan Feb Mar Apr May Jun
$15 $16 $18 $20
$10 $10 $12 $14
$ 5
Accumulated shares* Average market Your average
price per share cost per share
42.25 $15 $14.20
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Jan Feb Mar Apr May Jun
$15
$10 $10 $10
$ 5 $8 $5 $5 $8
Accumulated shares* Average market Your average
price per share cost per share
85.0 $7.66 $7.05
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Jan Feb Mar Apr May Jun
$15
$10 $10 $8 $6 $7
$ 5 $4 $4
Accumulated shares* Average market Your average
price per share cost per share
103.5 $6.50 $5.80
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$100 invested per month. Total invested: $600.
*Shares purchased is determined by dividing the amount invested per month by the
current share price.
THREE WAYS TO BENEFIT FROM A MUTUAL FUND:
o your shares increase in value when the Fund's investments do well
o you receive capital gains when the gains on investments sold by the Fund
exceed losses
o you receive income when the Fund's stock dividends, interest and short-term
gains exceed its expenses.
All three make up your total return. You potentially can increase your
investment if, like most investors, you reinvest your dividends and capital gain
distributions to buy additional shares of the Fund or another fund.
AXP DIVERSIFIED EQUITY INCOME FUND
(This annual report is not part of the prospectus.)
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The Fund's Long-term Performance
How $10,000 has grown in AXP Diversified Equity Income Fund
$50,000
S&P 500 Index
$40,000 Lipper Equity Income X
Fund Index X
X
$30,000 $35,474
AXP Diversified
Equity Income Fund
$20,000
$10,000
$9,500
11/1/90 9/91 9/92 9/93 9/94 9/95 9/96 9/97 9/98 9/99
Average annual total return (as of Sept. 30, 1999)
1 year 5 years 10 years Since inception
Class A +11.31% +12.80% --% +15.10%**
Class B +12.30% --% --% +14.80%*
Class Y +17.30% --% --% +16.07%*
*Inception date was March 20, 1995.
**Inception date was October 15, 1990.
Assumes: Holding period from 11/1/90 to 9/30/99. Returns do not reflect taxes
payable on distributions. Reinvestment of all income and capital gain
distributions for the Fund, with a value of $5,987. Also see "Past Performance"
in the Fund's current prospectus.
On the graph above you can see how the Fund's total return compared to two
widely cited unmanaged performance indexes, the Standard & Poor's 500 Index (S&P
500 Index) and the Lipper Equity Income Fund Index. In comparing AXP Diversified
Equity Income Fund (Class A) to the two indexes, you should take into account
the fact that the Fund's performance reflects the maximum sales charge of 5%,
while such charges are not reflected in the performance of the indexes.
Your investment and return values fluctuate so that your shares, when redeemed,
may be worth more or less than the original cost. Average annual total return
figures reflect the impact of the applicable sales charge up to a maximum of 5%.
This was a period of widely fluctuating security prices. Past performance is no
guarantee of future results.
S&P 500 Index, an unmanaged list of common stocks, is frequently used as a
general measure of market performance. The index reflects reinvestment of all
distributions and changes in market prices, but excludes brokerage commissions
or other fees. However, the S&P 500 companies may be generally larger than those
in which the Fund invests.
Lipper Equity Income Fund Index, an unmanaged index published by Lipper
Analytical Services, Inc., includes 30 funds that are generally similar to the
Fund, although some funds in the index may have somewhat different investment
policies or objectives.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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The financial statements contained in Post-Effective Amendment #101 to
Registration Statement No. 2-11328 filed on or about November 24, 1999, are
incorporated herein by reference.
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Federal Income Tax Information
(Unaudited)
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its fiscal
year. The dividends listed below are reported to you on Form 1099-DIV, Dividends
and Distributions. Shareholders should consult a tax advisor on how to report
distributions for state and local tax purposes.
AXP Diversified Equity Income Fund
Fiscal year ended Sept. 30, 1999
Class A
Income distributions taxable as dividend income, 100% qualifying for deduction
by corporations.
Payable date Per share
Dec. 22, 1998 $0.22099
March 24, 1999 0.03938
June 23, 1999 0.02915
Sept. 22, 1999 0.01927
Total $0.30879
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 22, 1998 $0.76168
Total distributions $1.07047
The distribution of $0.98267 per share, payable Dec. 22, 1998, consisted of
$0.04041 derived from net investment income, $0.18058 from net short-term
capital gains (a total of $0.22099 taxable as dividend income) and $0.76168 from
net long-term capital gains.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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Class B
Income distributions taxable as dividend income, 100% qualifying for deduction
by corporations.
Payable date Per share
Dec. 22, 1998 $0.20329
March 24, 1999 0.02134
June 23, 1999 0.01010
Sept. 22, 1999 0.00001
Total $0.23474
Capital gain distributions taxable as long-term capital gain.
Payable date Per share
Dec. 22, 1998 $0.76168
Total distributions $0.99642
The distribution of $0.96497 per share, payable Dec. 22, 1998, consisted of
$0.02271 derived from net investment income $0.18058 from net short-term capital
gains (a total of $0.20329 taxable as dividend income) and $0.76168 from net
long-term capital gains.
Class Y
Income distributions taxable as dividend income, 100% qualifying for deduction
by corporations.
Payable date Per share
Dec. 22, 1998 $0.22270
March 24, 1999 0.04146
June 23, 1999 0.03133
Sept. 22, 1999 0.02324
Total $0.31873
Capital gain distributions taxable as long-term capital gain.
Payable date Per share
Dec. 22, 1998 $0.76168
Total distributions $1.08041
The distribution of $0.98438 per share, payable Dec. 22, 1998, consisted of
$0.04212 derived from net investment income, $0.18058 from net short-term
capital gains (a total of $0.22270 taxable as dividend income) and $0.76168 from
net long-term capital gains.
AXP DIVERSIFIED EQUITY INCOME FUND
(This annual report is not part of the prospectus.)
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S-6475 N (11/99)
AXP Diversified Equity Income Fund
IDS Tower 10
Minneapolis, MN 55440-0010
AMERICAN EXPRESS Financial Advisors (logo)
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STATEMENT OF DIFFERENCES
Difference Description
1) The layout is different 1) Some of the layout in the
throughout the annual report. annual report to
shareholders is in two
columns.
2) There are pictures, icons 3) Each picture, icon and
and graphs throughout the graph is described in
annual report. parentheses.
