IDS Diversified
Equity Income
Fund
1999 SEMIANNUAL REPORT
(picture of) magnifying glass
The primary goal of IDS Diversified Equity Income Fund is to provide a high
level of income.
Distributed by American Express Financial Advisors Inc.
AMERICAN EXPRESS Financial Advisors
<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
Fund Facts 5
The 10 Largest Holdings 6
Financial Statements (Fund) 7
Notes to Financial Statements (Fund) 10
Financial Statements (Portfolio) 16
Notes to Financial Statements (Portfolio) 19
<PAGE>
(picture of) Arne H. Carlson
Arne H. Carlson
Chariman of the board
From the Chairman
It is an honor for me to join the IDS Mutual Fund Group as chairman of the board
and chief executive officer for each of the funds. I have served for the past
eight years as governor of Minnesota and also for the past 20 years as a
constitutional officer responsible for the pension investments made on behalf of
government employees. My responsibility in the upcoming years is to serve your
interests.
By law, half the members of a mutual fund board must be independent of their
investment manager and distributor. I am one of those persons. I am not an
employee of American Express Financial Corporation (AEFC), nor do I own stock in
American Express Company. Both are fine companies, but the law clearly states
that to fully represent your interests I must be independent.
Having said that, I have a great deal of respect for the capabilities of AEFC
and for the services it provides to investors. Your financial advisor assists
you in financial planning, conducts regular investment reviews and responds to
your questions and needs. This is a very personal service that makes AEFC a
partner in your financial future. I know that AEFC has an investment focus on
the long-term performance of our economy and that it wants you to participate in
that growth. Consistent with that, our board is here to serve you and represent
your interests in a professional manner.
Arne H. Carlson
(picture of) Kurt Winters
Kurt Winters
Portfolio manager
From the Portfolio Manager
IDS Diversified Equity Income Fund made a strong comeback during the past six
months, generating a substantial gain during the period. For the first half of
the fiscal year -- October 1998 through March 1999 -- the Fund's Class A shares
produced a total return of 17.13%. (This figure includes a substantial capital
gain that was paid to shareholders in December 1998 and reduced the Fund's net
asset value by the same amount at that time.)
At the outset of the period, the U.S. stock market was trying to shake off the
effects of late-summer decline that drove the market down by nearly 20%. But
with the remarkable resilience they've shown in recent years, stocks not only
righted themselves during the autumn 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 sent the market to an all-time high by late March.
LESS-VOLATILE PERFORMANCE
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.
The largest area of investment during the period was in financial services
stocks, including those of banks and insurance and brokerage companies. They
comprised nearly 30% of assets. Most of 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 second half of the fiscal year begins, the stock market continues to
experience very narrow leadership; the largest growth stocks, helped in recent
months by the soaring Internet sector, remain responsible for the lion's share
of the market's returns.
Still, the Fund's performance over the past six months could be an indication
that a broader range of stocks will now participate more fully in potential
market advances. The Fund is positioned to respond to such an environment. On
the other hand, if the market's tone deteriorates, the comparatively
conservative, higher-yielding structure of the Fund's portfolio should allow it
to hold up relatively well.
Kurt Winters
<PAGE>
Fund Facts
Class A -- 6-month performance
(All figures per share)
Net asset value (NAV)
March 31, 1999 $9.44
Sept. 30, 1998 $8.96
Increase $0.48
Distributions -- Oct. 1, 1998 - March 31, 1999
From income $0.26
From capital gains $0.76
Total distributions $1.02
Total return* +17.13%**
Class B -- 6-month performance
(All figures per share)
Net asset value (NAV)
March 31, 1999 $9.44
Sept. 30, 1998 $8.96
Increase $0.48
Distributions -- Oct. 1, 1998 - March 31, 1999
From income $0.23
From capital gains $0.76
Total distributions $0.99
Total return* +16.74%**
Class Y -- 6-month performance
(All figures per share)
Net asset value (NAV)
March 31, 1999 $9.44
Sept. 30, 1998 $8.96
Increase $0.48
Distributions -- Oct. 1, 1998 - March 31, 1999
From income $0.27
From capital gains $0.76
Total distributions $1.03
Total return* +17.19%**
*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 10 Largest Holdings
Percent Value
(of net assets) (as of March 31, 1999)
BankAmerica 2.81% $74,509,374
Dayton Hudson 2.67 70,622,500
Citigroup 2.44 64,513,750
American Intl Group 2.41 63,931,249
Intl Business Machines 2.21 58,492,499
Circuit City Stores 2.16 57,085,625
Mobil 2.09 55,439,999
Lincoln Natl 1.98 52,403,750
General Motors 1.89 49,953,125
Chevron 1.87 49,524,999
For further detail about these holdings, please refer to the section entitled
"Investments in Securities" herein.
(picture of) pie chart
The 10 holdings listed here
make up 22.53% of net assets
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Statement of assets and liabilities
IDS Diversified Equity Income Fund
March 31, 1999 (Unaudited)
Assets
<S> <C>
Investment in Equity Income Portfolio (Note 1) $2,647,656,530
--------------
Liabilities
Dividends payable to shareholders 307,705
Accrued distribution fee 12,483
Accrued service fee 12,895
Accrued transfer agency fee 10,855
Accrued administrative services fee 2,336
Other accrued expenses 184,243
-------
Total liabilities 530,517
-------
Net assets applicable to outstanding capital stock $2,647,126,013
==============
Represented by
Capital stock -- $.01 par value (Note 1) $ 2,803,228
Additional paid-in capital 2,316,281,906
Excess of distributions over net investment income (838,876)
Accumulated net realized gain (loss) 133,533,458
Unrealized appreciation (depreciation) on investments and on translation
of assets and liabilities in foreign currencies 195,346,297
-----------
Total -- representing net assets applicable to outstanding capital stock $2,647,126,013
==============
Net assets applicable to outstanding shares: Class A $2,027,331,578
Class B $ 598,901,734
Class Y $ 20,892,701
Net asset value per share of outstanding capital stock: Class A shares 214,701,200 $ 9.44
Class B shares 63,409,544 $ 9.44
Class Y shares 2,212,062 $ 9.44
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
IDS Diversified Equity Income Fund
Six months ended March 31, 1999 (Unaudited)
Investment income
Income:
<S> <C>
Dividends $ 29,963,379
Interest 2,324,061
Less foreign taxes withheld (199,363)
--------
Total income 32,088,077
----------
Expenses (Note 2):
Expenses allocated from Equity Income Portfolio 6,537,525
Distribution fee-- Class B 2,135,234
Transfer agency fee 1,578,644
Incremental transfer agency fee
Class A 91,973
Class B 64,141
Service fee
Class A 1,725,603
Class B 496,014
Class Y 34,459
Administrative services fees and expenses 421,683
Compensation of board members 6,119
Postage 303,680
Registration fees 109,275
Reports to shareholders 59,699
Audit fees 3,875
Other 13,619
------
Total expenses 13,581,543
Earnings credits on cash balances (Note 2) (57,954)
-------
Total net expenses 13,523,589
----------
Investment income (loss) -- net 18,564,488
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions 115,910,110
Financial futures contracts 17,559,434
Foreign currency transactions (387)
----
Net realized gain (loss) on investments 133,469,157
Net change in unrealized appreciation (depreciation) on investments and
on translation of assets and liabilities in foreign currencies 255,368,891
-----------
Net gain (loss) on investments and foreign currencies 388,838,048
-----------
Net increase (decrease) in net assets resulting from operations $407,402,536
============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of changes in net assets
IDS Diversified Equity Income Fund
March 31, 1999 Sept. 30, 1998
Six months ended Year ended
(Unaudited)
Operations and distributions
<S> <C> <C>
Investment income (loss)-- net $ 18,564,488 $ 52,730,609
Net realized gain (loss) on investments 133,469,157 263,264,592
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 255,368,891 (386,339,002)
----------- ------------
Net increase (decrease) in net assets resulting from operations 407,402,536 (70,343,801)
----------- -----------
Distributions to shareholders from:
Net investment income
Class A (16,794,453) (43,431,406)
Class B (2,632,018) (6,788,098)
Class Y (593,509) (1,965,470)
Net realized gain
Class A (188,382,739) (175,753,235)
Class B (53,833,250) (38,518,493)
Class Y (8,013,205) (7,752,694)
---------- ----------
Total distributions (270,249,174) (274,209,396)
------------ ------------
Capital share transactions (Note 3)
Proceeds from sales
Class A shares (Note 2) 110,343,067 393,326,066
Class B shares 70,242,517 237,030,056
Class Y shares 12,334,534 28,801,278
Reinvestment of distributions at net asset value
Class A shares 196,482,367 211,289,210
Class B shares 55,762,952 44,910,979
Class Y shares 8,613,384 9,754,110
Payments for redemptions
Class A shares (212,151,901) (300,623,162)
Class B shares (Note 2) (60,567,943) (59,297,707)
Class Y shares (80,175,233) (29,628,489)
----------- -----------
Increase (decrease) in net assets from capital share transactions 100,883,744 535,562,341
----------- -----------
Total increase (decrease) in net assets 238,037,106 191,009,144
Net assets at beginning of period 2,409,088,907 2,218,079,763
------------- -------------
Net assets at end of period $2,647,126,013 $2,409,088,907
-------------- --------------
Undistributed (excess of distributions over) net investment income $ (838,876) $ 616,616
-------------- --------------
See accompanying notes to financial statements
</TABLE>
<PAGE>
Notes to Financial Statements
IDS Diversified Equity Income Fund
(Unaudited as to March 31, 1999)
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. The Fund 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.
o Class A shares are sold with a front-end sales charge.
o Class B shares may be subject to a contingent deferred sales charge and
automatically convert to Class A shares during the ninth calendar year of
ownership.
o Class Y shares have no sales charge and are offered only to qualifying
institutional investors.
All classes of shares have identical voting, dividend and liquidation rights.
The 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
The Fund invests all of its assets in Equity Income Portfolio (the Portfolio), a
series of Growth and Income Trust (the 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 Portfolio's net assets. The
percentage of the Portfolio owned by the Fund as of March 31, 1999 was 99.96%.
Valuation of securities held by the Portfolio is discussed in Note 1 of the
Portfolio's "Notes to financial statements" (included elsewhere in this report).
Use of estimates
Preparing financial statements that conform to generally accepted accounting
principles requires management to make estimates (e.g., on assets and
liabilities) that could differ from actual results.
Federal taxes
The Fund's policy is to comply with all sections of the Internal Revenue Code
that apply to regulated investment companies and to distribute all of its
taxable income to the shareholders. No provision for income or excise taxes is
thus required.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of deferred 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:
The Fund entered into an agreement with American Express Financial Corporation
(AEFC) to provide administrative services. Under an 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 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:
o Class A $19
o Class B $20
o Class Y $15
Under terms of a prior agreement that ended Jan. 31, 1999, the Fund paid a
transfer agency fee at an annual rate per shareholder account of $15 for Class A
and $16 for Class B. Effective April 1, 1999, the annual rate per shareholder
account will change to $17 for Class Y.
The Fund entered into agreements with American Express Financial Advisors Inc.
for distribution and shareholder 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
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 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 $1,984,806 for Class A and $272,491 for Class B
for the six months ended March 31, 1999.
During the six months ended March 31, 1999, the Fund's transfer agency fees were
reduced by $57,954 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, 1999
Class A Class B Class Y
Sold 11,658,141 7,408,400 1,310,967
Issued for reinvested distributions 21,434,790 6,083,982 939,792
Redeemed (22,406,890) (6,410,660) (8,507,108)
----------- ---------- ----------
Net increase (decrease) 10,686,041 7,081,722 (6,256,349)
Year ended Sept. 30, 1998
Class A Class B Class Y
Sold 39,550,200 23,873,696 2,888,847
Issued for reinvested distributions 22,731,782 4,842,867 1,048,649
Redeemed (30,436,389) (6,051,331) (3,044,633)
----------- ---------- ----------
Net increase (decrease) 31,845,593 22,665,232 892,863
4. BANK BORROWINGS
The Fund entered into a revolving credit agreement with U.S. Bank, N.A., whereby
the Fund is permitted to have bank borrowings for temporary or emergency
purposes to fund shareholder redemptions. The Fund must have asset coverage for
borrowings not to exceed the aggregate of 333% of advances equal to or less than
five business days plus 367% of advances over five business days. The agreement,
which enables the Fund to participate with other IDS Funds, permits borrowings
up to $200 million, collectively. Interest is charged to each Fund based on its
borrowings at a rate equal to the Federal Funds Rate plus 0.30% or the
Eurodollar Rate (Reserve Adjusted) plus 0.20%. Borrowings are payable up to 90
days after such loan is executed. The Fund also pays a commitment fee equal to
its pro rata share of the amount of the credit facility at a rate of 0.05% per
annum. The Fund had no borrowings outstanding during the six months ended March
31, 1999.
<PAGE>
<TABLE>
<CAPTION>
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 changesa
Class A
1999b 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $8.96 $10.39 $8.96 $7.89 $7.66
Income from investment operations:
Net investment income (loss) .07 .23 .34 .27 .30
Net gains (losses) (both realized and unrealized) 1.43 (.43) 2.04 1.06 .53
Total from investment operations 1.50 (.20) 2.38 1.33 .83
Less distributions:
Dividends from net investment income (.08) (.23) (.33) (.26) (.29)
Distributions from realized gains (.94) (1.00) (.62) -- (.31)
Total distributions (1.02) (1.23) (.95) (.26) (.60)
Net asset value, end of period $9.44 $8.96 $10.39 $8.96 $7.89
Ratios/supplemental data
Class A
1999b 1998 1997 1996 1995
Net assets, end of period (in millions) $2,027 $1,828 $1,789 $1,292 $1,091
Ratio of expenses to average daily net assetsc .87%e .86% .88% .93% .94%
Ratio of net investment income (loss)
to average daily net assets 1.58%e 2.27% 3.62% 3.18% 3.95%
Portfolio turnover rate
(excluding short-term securities) 51% 97% 81% 84% 98%
Total returnd 17.13% (2.17%) 28.11% 17.00% 11.83%
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Six months ended March 31, 1999 (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 Adjusted to an annual basis.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fiscal period ended Sept. 30,
Per share income and capital changesa
Class B Class Y
1999b 1998 1997 1996 1995c 1999b 1998 1997 1996 1995c
Net asset value,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
beginning of period $8.96 $10.39 $8.96 $7.89 $7.13 $8.96 $10.40 $8.96 $7.89 $7.13
Income from investment
operations:
Net investment
income (loss) .04 .15 .27 .20 .19 .08 .24 .35 .28 .22
Net gains (losses) (both
realized and unrealized) 1.43 (.42) 2.04 1.06 .74 1.43 (.44) 2.05 1.06 .74
Total from investment
operations 1.47 (.27) 2.31 1.26 .93 1.51 (.20) 2.40 1.34 .96
Less distributions:
Dividends from net
investment income (.05) (.16) (.26) (.19) (.17) (.09) (.24) (.34) (.27) (.20)
Distributions from
realized gains (.94) (1.00) (.62) -- -- (.94) (1.00) (.62) -- --
Total distributions (.99) (1.16) (.88) (.19) (.17) (1.03) (1.24) (.96) (.27) (.20)
Net asset value,
end of period $9.44 $8.96 $10.39 $8.96 $7.89 $9.44 $8.96 $10.40 $8.96 $7.89
Ratios/supplemental data
Class B Class Y
1999b 1998 1997 1996 1995c 1999b 1998 1997 1996 1995c
Net assets, end of
period (in millions) $599 $505 $350 $125 $32 $21 $76 $79 $37 $26
Ratio of expenses to
average daily net assetsd 1.64%e 1.62% 1.65% 1.69% 1.77%e .78%e .78% .76% .76% .80%e
Ratio of net investment
income (loss) to average
daily net assets .81%e 1.48% 2.97% 2.56% 3.00%e 1.65%e 2.34% 3.85% 3.38% 3.95%e
Portfolio turnover rate
(excluding short-term
securities) 51% 97% 81% 84% 98% 51% 97% 81% 84% 98%
Total returnf 16.74% (2.91%) 27.16% 16.21% 13.10% 17.19% (2.11%) 28.29% 17.27% 13.60%
a For a share outstanding throughout the period. Rounded to the nearest cent.
b Six months ended March 31, 1999 (Unaudited).
c Inception date was March 20, 1995.
d Effective fiscal year 1996, expense ratio is based on total expenses of the
Fund before reduction of earnings credits on cash balances.
e Adjusted to an annual basis.
f Total return does not reflect payment of a sales charge.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Statements Statement of
assets and liabilities
Equity Income Portfolio
March 31, 1999 (Unaudited)
Assets
Investments in securities, at value (Note 1)
<S> <C>
(identified cost $2,479,496,295) $2,676,911,451
Dividends and accrued interest receivable 3,321,663
Receivable for investment securities sold 16,772,378
----------
Total assets 2,697,005,492
-------------
Liabilities
Disbursements in excess of cash on demand deposit 24,828,295
Payable for investment securities purchased 23,440,589
Accrued investment management services fee 36,222
Other accrued expenses 13,457
------
Total liabilities 48,318,563
----------
Net assets $2,648,686,929
==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
Equity Income Portfolio
Six months ended March 31, 1999 (Unaudited)
Investment income
Income:
<S> <C>
Dividends $ 29,974,632
Interest 2,287,348
Less foreign taxes withheld (199,438)
--------
Total income 32,062,542
----------
Expenses (Note 2):
Investment management services fee 6,427,169
Compensation of board members 8,184
Custodian fees 61,657
Audit fees 11,625
Other 34,897
------
Total expenses 6,543,532
Earnings credits on cash balances (Note 2) (3,547)
------
Total net expenses 6,539,985
---------
Investment income (loss) -- net 25,522,557
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 115,953,337
Financial futures contracts (Note 4) 17,566,011
Foreign currency transactions (387)
----
Net realized gain (loss) on investments 133,518,961
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 255,465,370
-----------
Net gain (loss) on investments and foreign currencies 388,984,331
-----------
Net increase (decrease) in net assets resulting from operations $414,506,888
============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Equity Income Portfolio
March 31, 1999 Sept. 30, 1998
Six months ended Year ended
(Unaudited)
Operations
<S> <C> <C>
Investment income (loss)-- net $ 25,522,557 $ 64,833,066
Net realized gain (loss) on investments 133,518,961 263,358,256
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 255,465,370 (386,481,334)
----------- ------------
Net increase (decrease) in net assets resulting from operations 414,506,888 (58,290,012)
Net contributions (withdrawals) from partners (176,498,398) 248,383,687
------------ -----------
Total increase (decrease) in net assets 238,008,490 190,093,675
Net assets at beginning of period 2,410,678,439 2,220,584,764
------------- -------------
Net assets at end of period $2,648,686,929 $2,410,678,439
============== ==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to Financial Statements
Equity Income Portfolio
(Unaudited as to March 31, 1999)
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.
The Portfolio's significant accounting policies are summarized below:
Use of estimates
Preparing financial statements that conform to generally accepted accounting
principles requires management to make estimates (e.g., on assets and
liabilities) that could differ from actual results.
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 that reflects fair value
as quoted by dealers 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
To produce incremental earnings, protect gains and facilitate buying and selling
of securities for investments, the Portfolio may buy and write options traded on
any U.S. or foreign exchange or in the over-the-counter market where completing
the obligation depends 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 as well as write cash-secured put options. The
risk in writing a call option is that the Portfolio gives up the opportunity for
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 being unable 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 when the option transaction expires or closes. 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
To gain exposure to or protect itself from market changes, 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 of 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,
if any, may arise from sales of foreign currency, closed forward contracts,
exchange gains or losses realized between the trade date and settlement date 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 its contract obligations.
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. As a "pass-through" entity, the Portfolio therefore
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.
The Portfolio also pays custodian fees to American Express Trust Company, an
affiliate of AEFC.
During the six months ended March 31, 1999, the Portfolio's custodian fees were
reduced by $3,547 as a result of earnings credits from overnight cash balances.
According to a Placement Agency Agreement, American Express Financial Advisors
Inc. acts as placement agent of the Trust's units.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $1,285,942,229 and $1,339,812,816, respectively, for the
six months ended March 31, 1999. For the same period, the portfolio turnover
rate was 51%. Realized gains and losses are determined on an identified cost
basis.
Brokerage commissions paid to brokers affiliated with AEFC were $40,425 for the
six months ended March 31, 1999.
Income from securities lending amounted to $26,255 for the six months ended
March 31, 1999. 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.
4. STOCK INDEX FUTURES CONTRACTS
Investments in securities as of March 31, 1999, included securities valued at
$3,588,750 that were pledged as collateral to cover initial margin deposits on
290 open purchase contracts. The market value of the open purchase contracts as
of March 31, 1999 was $93,764,250 with a net unrealized loss of $1,995,490. See
"Summary of significant accounting policies."
<PAGE>
<TABLE>
<CAPTION>
Investments in Securities
Equity Income Portfolio
March 31, 1999 (Unaudited)
(Percentages represent value of investments compared to net assets)
Common stocks (91.2%)
Issuer Shares Value(a)
Aerospace & defense (1.8%)
<S> <C> <C>
Goodrich (BF) 640,000 $21,960,000
Rockwell Intl 602,000 25,547,375
Total 47,507,375
Automotive & related (5.5%)
Dana 780,000 29,640,000
Ford Motor 730,000 41,427,500
General Motors 575,000 49,953,125
TRW 530,000 24,115,000
Total 145,135,625
Banks and savings & loans (11.5%)
Bank of New York 895,000 32,164,062
Bank One 885,000 48,730,312
BankAmerica 1,055,000 74,509,374
BankBoston 325,000 14,076,563
Chase Manhattan 375,400 30,524,713
Fleet Financial Group 780,000 29,347,500
Mellon Bank 285,000 20,056,875
Washington Mutual 740,000 30,247,500
Wells Fargo 755,000 26,472,188
Total 306,129,087
Chemicals (2.7%)
Dow Chemical 135,000 12,580,313
Du Pont (EI) de Nemours 570,000 33,095,625
Imperial Chemical Inds 360,000(c) 12,892,500
Lyondell Petrochemical 930,000 12,729,375
Total 71,297,813
Communications equipment & services (1.3%)
Northern Telecom 565,200(c) 35,113,050
Computers & office equipment (6.3%)
3Com 1,050,600(b) 24,492,113
BMC Software 385,000(b) 14,269,063
Electronic Data Systems 500,000 24,343,750
First Data 490,000 20,947,500
Hewlett-Packard 200,000 13,562,500
Intl Business Machines 330,000 58,492,499
Wang Laboratories 540,000(b) 10,597,500
Total 166,704,925
Electronics (0.9%)
Applied Materials 310,000(b) 19,123,125
Intel 37,250 4,437,406
Total 23,560,531
Energy (11.4%)
Chevron 560,000 49,524,999
Conoco Cl A 1,545,900 37,971,169
FirstEnergy 435,000 12,152,813
Mobil 630,000 55,439,999
Royal Dutch Petroleum 770,000(c) 40,040,000
Sunoco 535,000 19,293,438
Texaco 735,000 41,711,249
Ultramar Diamond Shamrock 750,000 16,218,750
Unocal 865,000 31,842,813
Total 304,195,230
Financial services (6.2%)
Associates First Capital Cl A 605,000 27,225,000
Citigroup 1,010,000 64,513,750
Fannie Mae 245,000 16,966,250
MBNA 1,040,000 24,830,000
Morgan Stanley, Dean Witter, Discover & Co 320,000 31,980,000
Total 165,515,000
Food (3.2%)
Bestfoods 625,000 29,375,000
General Mills 370,000 27,958,125
Sara Lee 1,130,000(e) 27,967,500
Total 85,300,625
Health care (3.7%)
American Home Products 555,000 36,213,750
Baxter Intl 475,000 31,350,000
Pharmacia & Upjohn 500,000 31,187,500
Total 98,751,250
Household products (2.6%)
Colgate-Palmolive 300,000 27,600,000
Procter & Gamble 415,000 40,644,063
Total 68,244,063
Industrial equipment & services (3.1%)
Browning-Ferris Inds 700,000 26,993,750
Illinois Tool Works 490,000 30,318,750
Parker-Hannifin 750,000 25,687,500
Total 83,000,000
Insurance (7.2%)
American General 625,450 44,094,225
American Intl Group 530,000 63,931,249
Lincoln Natl 530,000 52,403,750
Marsh & McLennan 408,500 30,305,594
Total 190,734,818
Multi-industry conglomerates (1.0%)
Emerson Electric 225,000 11,910,938
Xerox 250,000 13,343,750
Total 25,254,688
Paper & packaging (3.3%)
Intl Paper 595,000 25,101,563
Tenneco 1,185,000 33,105,937
Union Camp 429,000 28,796,625
Total 87,004,125
Real estate investment trust (1.0%)
FelCor Suite Hotels 400,000 9,275,000
Highwoods Properties 400,000 9,425,000
Kimco Realty 200,000 7,375,000
Total 26,075,000
Retail (6.3%)
American Stores 1,150,000 37,950,000
Circuit City Stores 745,000 57,085,625
Dayton Hudson 1,060,000 70,622,500
Total 165,658,125
Transportation (0.5%)
Teekay Shipping 750,000(c) 12,375,000
Utilities -- electric (5.3%)
CMS Energy 450,000 18,028,125
Duke Energy 346,100 18,905,713
Edison Intl 655,000 14,573,750
FPL Group 215,000 11,448,750
New Century Energies 425,000 14,476,563
NIPSCO Inds 500,000 13,500,000
PECO Energy 560,000 25,899,999
Pinnacle West Capital 250,000 9,093,750
Texas Utilities 350,000 14,590,625
Total 140,517,275
Utilities -- gas (0.5%)
El Paso Energy 380,000 12,421,250
Utilities -- telephone (5.8%)
Ameritech 640,000 37,040,000
AT&T 160,000 12,770,000
BellSouth 470,000 18,829,375
MCI WorldCom 536,000(b) 47,469,500
SBC Communications 365,000 17,200,625
U S WEST Communications Group 375,000 20,648,438
Total 153,957,938
Total common stocks
(Cost: $2,213,462,989) $2,414,452,793
Preferred stocks (3.9%)
Issuer Shares Value(a)
BS-Service Corp Intl
5.00% 475,000 $7,058,500
Federal-Mogul Finance Trust
7.00% Cv 500,000 26,812,500
MediaOne Group
6.25% Cv 344,100 28,474,275
Union Pacific Capital
6.25% Cv 811,500 40,473,563
Total preferred stocks
(Cost: $103,323,717) $102,818,838
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Bonds (2.0%)
Issuer Coupon Principal Value(a)
rate amount
Rite Aid
Cv Sub Nts
<S> <C> <C> <C> <C> <C>
09-15-02 5.25% $26,500,000 $27,162,500
Waste Management
Cv Sub Nts
02-01-02 4.00 21,000,000 24,648,750
Total bonds
(Cost: $54,881,019) $51,811,250
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Short-term securities (4.1%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (1.0%)
Federal Home Loan Mtge Corp Disc Nts
<S> <C> <C> <C>
05-07-99 4.80% $11,400,000 $11,345,622
05-14-99 4.80 6,600,000 6,562,397
05-17-99 4.77 4,100,000 4,075,168
Federal Natl Mtge Assn Disc Nt
04-09-99 4.78 4,300,000 4,295,461
Total 26,278,648
Commercial paper (2.9%)
Alabama Power
04-20-99 4.86 9,100,000 9,076,755
Albertson's
04-12-99 4.87 4,100,000(d) 4,093,924
Ameritech Capital Funding
05-11-99 4.84 2,300,000(d) 2,287,682
BBV Finance (Delaware)
04-19-99 4.87 1,000,000 997,575
BMW US Capital
05-05-99 4.86 11,800,000 11,746,172
Ciesco LP
04-09-99 4.85 3,500,000 3,496,243
05-04-99 4.87 12,500,000 12,444,542
Clorox
04-27-99 4.86 2,200,000 2,192,326
Delaware Funding
05-11-99 4.88 7,700,000(d) 7,658,505
Dresdner US Finance
04-01-99 4.87 7,700,000 7,700,000
Duke Energy
04-20-99 4.86 10,700,000 10,672,667
Fleet Funding
04-29-99 4.87 800,000(d) 796,982
Salomon Smith Barney
04-05-99 4.90 2,400,000 2,398,699
Total 75,562,072
Letter of credit (0.2%)
Bank of America-
AES Hawaii
04-16-99 4.88 6,000,000 5,987,850
Total short-term securities
(Cost: $107,828,570) $107,828,570
Total investments in securities
(Cost: $2,479,496,295)(f) $2,676,911,451
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. As of March 31, 1999,
the value of foreign securities represented 3.79% of net assets.
(d) 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.
(e) Partially pledged as initial margin deposit on the following open stock
index futures purchase contracts (see Note 4 to the financial statements):
Type of security Contracts
S&P 500 Index, June 1999 290
(f) At March 31, 1999, the cost of securities for federal income tax purposes
was approximately $2,479,496,000 and the approximate aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation $341,809,000
Unrealized depreciation (144,394,000)
------------
Net unrealized appreciation $197,415,000
<PAGE>
Quick telephone reference
AMERICAN EXPRESS FINANCIAL ADVISORS TELEPHONE TRANSACTION SERVICE
Sales and exchanges, dividend payments or reinvestments and automatic
payment arrangements: 800-437-3133
AMERICAN EXPRESS CLIENT SERVICE CORPORATION
Fund performance, fund prices, account values, recent account transactions and
account inquiries: 800-862-7919
TTY SERVICE
For the hearing impaired: 800-846-4852
TICKER SYMBOL
Class A: INDZX Class B: IDEBX Class Y: IDQYX
S-6476 K (5/99)
BULK RATE
U.S. POSTAGE
PAID
PERMIT NO. 85
SPENCER, IA
IDS Diversified Equity
Income Fund
IDS Tower 10
Minneapolis, MN 55440-0010
AMERICAN EXPRESS Financial Advisors
