1997 SEMIANNUAL REPORT
IDS
Selective
Fund
(icon of) skyline
The goals of IDS Selective Fund, Inc. are current income and the
preservation of capital by investing in investment grade bonds.
American Express Financial Advisors
Distributed by American Express Financial Advisors Inc.
<PAGE>
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A quest for quality
Not all bonds are created equal. A bond's quality depends on the ability of its
issuers to make the interest and principal payments owed to the bondholders. The
quality is determined by independent rating agencies, which assign a credit
rating (in the form of a letter grade) to each bond.
Since its establishment in 1945, Selective Fund has concentrated its investments
in the four highest investment grades. Along the way, investors have enjoyed a
steady stream of interest income with minimum risk to their principal.
Contents
From the chairman 3
From the portfolio manager 3
The Portfolio's ten largest holdings 5
Financial statements (Fund) 6
Notes to financial statements (Fund) 9
Financial statements (Portfolio) 16
Notes to financial statements (Portfolio) 19
Investments in securities 28
Board members and officers 35
IDS mutual funds 36
<PAGE>
To our shareholders
From the chairman
If you're an experienced investor, you know that the past few years have
been unusually strong in many financial markets. Perhaps just as
important, history shows that bull markets don't last forever. Though
they're often unpredictable, declines -- whether they're brief or long
lasting, moderate or substantial -- are always a possibility. We saw
evidence of that in late October, when declines in certain Asian markets
spawned a sharp drop in several financial markets worldwide, including the
U.S.
That fact reinforces the need for investors to periodically review their
long term goals and examine whether their investment program remains on
track to achieving them. Your quarterly investment statements are one part
of that monitoring process. The other is a meeting with your American
Express financial advisor. That becomes even more important if there's a
major change in your financial situation or in the financial markets.
William R. Pearce
(picture of) William R. Pearce
William R. Pearce
Chairman of the board
<PAGE>
From the portfolio manager
The first half of the fiscal year was a rewarding period for IDS Selective
Fund, as a favorable investment environment resulted in a strong rally by
the U.S. bond market. For the six months -- June through November 1997 --
the Fund's Class A shares generated a total return, which includes net
asset value change and dividends, of 6.3%.
Despite a continuation of solid economic growth and declining
unemployment, two factors that often put upward pressure on consumer
prices, inflation remained quite tame throughout the period. That fact,
combined with appreciation in the dollar's value versus major foreign
currencies and an ongoing decline in the federal deficit, persuaded the
Federal Reserve to hold off on raising short term interest rates.
Rates down, bonds up
Against that positive backdrop, long term interest rates declined, driving
up U.S. bond values through July. Fear of potentially higher inflation
temporarily resurfaced in August, causing rates to rise and bonds to
retreat. But additional low inflation reports soon calmed investors'
nerves and led to lower rates and a healthy rebound by the market during
the fall months.
The Fund's two largest areas of investment -- U.S. government and
corporate bonds -- performed well during the six months. This was
especially true of its long term Treasury bonds, whose values are highly
sensitive to interest rate fluctuations. Holdings among mortgage backed
bonds also performed positively, but contributed more to the Fund's
dividend than its net asset value gain.
Longer duration
As for changes to the portfolio, to take advantage of the interest rate
decline, I lengthened its duration. (A function of the average maturity of
the bonds in the portfolio, duration determines how sensitive the Fund's
net asset value is to interest rate changes. The longer the duration, the
greater the sensitivity.) Therefore, when rates came down, the Fund
responded quite positively. I also reduced the portfolio's cash reserves,
putting the proceeds into bonds, which provided a far better return.
At this writing (mid December), I think the investment outlook is still
quite favorable, based on these expectations: Last fall's financial crisis
in Asia will detract slightly from U.S. economic growth; the U.S. dollar
will remain strong; and the federal deficit will continue to decline.
Assuming they play out as I anticipate, those factors should help keep a
lid on inflation and, thus, long term interest rates. Ultimately, that
would bode well for bonds.
Ray Goodner
(picture of) Ray Goodner
Ray Goodner
Portfolio Manager
<PAGE>
To our shareholders
Class A
6 month performance
(All figures per share)
Net asset value (NAV)
Nov. 30, 1997 $ 9.27
May 31, 1997 $ 9.00
Increase $ 0.27
Distributions
June 1, 1997 Nov. 30, 1997
From income $ 0.28
From capital gains $ --
Total distributions $ 0.28
Total return* +6.3%**
Class B
6 month performance
(All figures per share)
Net asset value (NAV)
Nov. 30, 1997 $ 9.27
May 31, 1997 $ 9.00
Increase $ 0.27
Distributions
June 1, 1997 Nov. 30, 1997
From income $ 0.25
From capital gains $ --
Total distributions $ 0.25
Total return* +5.9%**
Class Y
6 month performance
(All figures per share)
Net asset value (NAV)
Nov. 30, 1997 $ 9.27
May 31, 1997 $ 9.00
Increase $ 0.27
Distributions
June 1, 1997 Nov. 30, 1997
From income $ 0.29
From capital gains $ --
Total distributions $ 0.29
Total return* +6.3%**
*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 Nov 30, 1997)
Japan Finance 1.64% $26,646,239
9.25% 1998
Republic of Italy 1.47 23,807,840
6.875% 2023
Dayton Hudson 1.22 19,758,193
7.875% 2023
PDV America 1.05 17,061,165
7.875% 2003
Pacific Bell 1.01 16,320,750
8.50% 2031
New York Telephone .99 16,013,200
9.375% 2031
SAFECO Capital Trust I .96 15,590,400
8.07% 2037
Texas Utilities Electric .92 14,886,170
9.75% 2021
Daimler Benz North America .92 14,884,940
7.375% 2006
General Motors Acceptance .90 14,540,240
7.00% 2000
Excludes U.S. Treasury and government agencies holdings.
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The ten holdings listed here make up 11.08% of the Portfolio's net assets
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
IDS Selective Fund, Inc.
Nov. 30, 1997
Assets
(Unaudited)
<S> <C>
Investments in Quality Income Portfolio (Note 1) $ 1,619,633,138
--------------
Total assets 1,619,633,138
-------------
Liabilities
Dividends payable to shareholders 797,795
Accrued distribution fee 5,620
Accrued service fee 14,658
Accrued transfer agency fee 2,217
Accrued administrative services fee 4,266
Other accrued expenses 223,078
-------
Total liabilities 1,047,634
---------
Net assets applicable to outstanding capital stock $ 1,618,585,504
==============
Represented by
Capital stock-- $.01 par value (Note 1) $ 1,746,018
Additional paid in capital 1,529,357,625
Undistributed net investment income 1,694,177
Accumulated net realized gain (loss) 286,993
Unrealized appreciation (depreciation) on investments and on translation
of assets and liabilities in foreign currencies 85,500,691
----------
Total-- representing net assets applicable to outstanding capital stock $ 1,618,585,504
==============
Net assets applicable to outstanding shares: Class A $ 1,271,925,745
Class B $ 136,855,030
Class Y $ 209,804,729
Net asset value per share of outstanding capital stock: Class A shares 137,207,039 $ 9.27
Class B shares 14,763,388 $ 9.27
Class Y shares 22,631,419 $ 9.27
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
IDS Selective Fund, Inc.
Six months ended Nov. 30, 1997
Investment income
(Unaudited)
Income:
<S> <C>
Dividends $ 403,599
Interest 56,540,250
----------
Total income 56,943,849
----------
Expenses (Note 2):
Expenses allocated from Quality Income Portfolio 4,232,472
Distribution fee -- Class B 492,611
Transfer agency fee 881,481
Incremental transfer agency fee-- Class B 4,970
Service fee
Class A 1,095,898
Class B 113,874
Class Y 102,992
Administrative services fees and expenses 392,762
Compensation of board members 5,102
Postage43,173
Registration fees 18,124
Audit fees 5,000
-----
Total expenses 7,388,459
Earnings credits on cash balances (Note 2) (167,767)
--------
Total net expenses 7,220,692
---------
Investment income (loss)-- net 49,723,157
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions 2,060,505
Financial futures contracts (10,396,601)
-----------
Net realized gain (loss) on investments (8,336,096)
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 57,044,387
----------
Net gain (loss) on investments and foreign currencies 48,708,291
----------
Net increase (decrease) in net assets resulting from operations $98,431,448
===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statements of changes in net assets IDS Selective Fund, Inc.
Operations and distributions
Nov. 30, 1997 May 31, 1997
Six months ended Year ended
(Unaudited)
<S> <C> <C>
Investment income (loss)-- net $ 49,723,157 $108,022,381
Net realized gain (loss) on investments (8,336,096) 8,252,506
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 57,044,387 14,747,409
---------- ----------
Net increase (decrease) in net assets resulting from operations 98,431,448 131,022,296
---------- -----------
Distributions to shareholders from:
Net investment income
Class A (40,018,374) (86,883,047)
Class B (3,607,084) (6,790,893)
Class Y (6,519,090) (13,088,145)
Net realized gain
Class A -- (18,740,975)
Class B -- (1,704,126)
Class Y -- (2,683,689)
----------
Total distributions (50,144,548) (129,890,875)
----------- ------------
Capital share transactions (Note 3)
Proceeds from sales
Class A shares (Note 2) 47,218,017 109,563,336
Class B shares 22,755,374 56,179,031
Class Y shares 33,589,811 62,930,942
Reinvestment of distributions at net asset value
Class A shares 29,372,760 80,162,783
Class B shares 3,240,958 7,801,079
Class Y shares 6,489,685 15,771,834
Payments for redemptions
Class A shares (128,918,452) (313,351,499)
Class B shares (Note 2) (19,495,722) (45,413,567)
Class Y shares (38,156,384) (89,223,917)
----------- -----------
Increase (decrease) in net assets from capital share transactions (43,903,953) (115,579,978)
----------- ------------
Total increase (decrease) in net assets 4,382,947 (114,448,557)
Net assets at beginning of period 1,614,202,557 1,728,651,114
------------- -------------
Net assets at end of period $1,618,585,504 $1,614,202,557
============== ==============
Undistributed net investment income $ 1,694,177 $ 2,115,568
----------------- -----------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
IDS Selective Fund, Inc.
(Unaudited as to Nov. 30, 1997)
1
Summary of
significant
accounting policies
The Fund is registered under the Investment Company Act of 1940 (as
amended) as a diversified, open end management investment company. 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 Quality Income Portfolio
Effective June 10, 1996, the Fund began investing all of its assets in the
Quality Income Portfolio (the Portfolio), a series of 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. Quality
Income Portfolio invests primarily in investment grade bonds.
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 Nov.
30, 1997 was 99.96%. Valuation of securities held by the Portfolio is
discussed in Note 1 of the Portfolio's "Notes to financial statements,"
which are included elsewhere in this report.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increase and decrease in
net assets from operations during the period. Actual results could differ
from those estimates.
Federal taxes
Since the Fund's policy is to comply with all sections of the Internal
Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders, no provision for
income or excise taxes is required.
Net investment income (loss) and net realized gains (losses) allocated
from the Portfolio may differ for financial statement and tax purposes
primarily because of the deferral of losses on certain futures contracts,
the recognition of certain foreign currency gains (losses) as ordinary
income (loss) for tax purposes, and losses deferred due to "wash sale"
transactions. The character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing
of dividend distributions, the fiscal year in which amounts are
distributed may differ from the year that the income or realized gains
(losses) were recorded by the Fund.
Dividends to shareholders
Dividends from net investment income, declared daily and payable monthly,
are reinvested in additional shares of the Fund at net asset value or
payable in cash. Capital gains, when available, are distributed along with
the last income dividend of the calendar year.
2
Expenses and
sales charges
In addition to the expenses allocated from the Portfolio, the Fund accrues
its own expenses as follows:
Effective March 20, 1995, the Fund entered into agreements with American
Express Financial Corporation (AEFC) for providing administrative services
and serving as transfer agent. Under its Administrative Services
Agreement, the Fund pays AEFC a fee for administration and accounting
services at a percentage of the Fund's average daily net assets in
reducing percentages from 0.05% to 0.025% 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:
o Class A $15.50
o Class B $16.50
o Class Y $15.50
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 $953,356 for Class A and $77,193 for Class B
for the six months ended Nov. 30, 1997.
During the six months ended Nov. 30, 1997, the Fund's transfer agency fees
were reduced by $167,767 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 Nov. 30, 1997
Class A Class B Class Y
Sold 5,141,530 2,480,732 3,657,557
Issued for reinvested 3,200,706 353,125 707,066
distributions
Redeemed (14,042,158) (2,125,554) (4,159,544)
----------- ---------- ----------
Net increase (decrease) (5,699,922) 708,303 205,079
---------- ------- -------
Year ended May 31, 1997
Class A Class B Class Y
Sold 12,079,376 6,192,646 6,955,369
Issued for reinvested 8,846,036 861,304 1,745,311
distributions
Redeemed (34,561,749) (5,015,499) (9,855,527)
----------- ---------- ----------
Net increase (decrease) (13,636,337) 2,038,451 (1,154,847)
----------- --------- ----------
<PAGE>
<TABLE>
<CAPTION>
4. Financial highlights
The tables below show certain important financial information for
evaluatiing the Fund's results.
Fiscal period ended May 31,
Per share income and capital changes(a)
Class A
1997(c) 1997 1996(b) 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $9.00 $9.00 $9.53 $8.57 $9.77 $9.20 $8.93 $8.41 $8.69 $8.44 $8.27
beginning of period
Income from investment operations:
Net investment income (loss) .28 .59 .33 .59 .60 .63 .66 .69 .70 .72 .74
Net gains (losses) .27 .12 (.52) 1.08 (1.05) .69 .27 .52 (.30) .27 .17
(both realized
and unrealized)
Total from investment .55 .71 (.19) 1.67 (.45) 1.32 .93 1.21 .40 .99 .91
operations
Less distributions:
Dividends from net (.28) (.58) (.31) (.58) (.60) (.64) (.66) (.69) (.68) (.74) (.74)
investment income
Distributions from -- (.13) (.03) (.13) (.15) (.11) -- -- -- -- --
realized gains
Total distributions (.28) (.71) (.34) (.71) (.75) (.75) (.66) (.69) (.68) (.74) (.74)
Net asset value, $9.27 $9.00 $9.00 $9.53 $8.57 $9.77 $9.20 $8.93 $8.41 $8.69 $8.44
end of period
Ratios/supplemental data
Class A
1997(c) 1997 1996(b) 1995 1994 1993 1992 1991 1990 1989 1988
Net assets, end of period $1,272 $1,286 1,408 $1,490 $1,402 $1,737 $1,541 $1,403 $1,196 $1,167 $1,081
(in millions)
Ratio of expenses to .86%(e) .88% .89%(e) .85% .72% .72% .74% .77% .76% .77% .74%
average daily net assetsd
Ratio of net income (loss) 6.20%(e) 6.36% 6.27%(e) 6.59% 6.53% 6.57% 7.32% 7.94% 8.58% 8.42% 8.67%
to average daily net assets
Portfolio turnover rate 9% 31% 18% 26% 30% 30% 62% 59% 54% 79% 86%
(excluding short-term
securities)
Total return(f) 6.3% 8.1% (2.0%) 20.3% (4.7%) 14.8% 10.8% 15.0% 4.8% 12.3% 11.3%
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) The Fund's fiscal year-end was changed from Nov. 30 to May 31, effective 1996.
(c) Six months ended Nov. 30, 1997 (Unaudited).
(d) Effective fiscal year 1996, expense ratio is based on total expenses of the
Fund before reduction of earnings credits on cash balabces.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial highlights
Fiscal period ended May 31,
Per share income and capital changes(a)
Class B Class Y
1997(c) 1997 1996(b) 1995(e) 1997(c) 1997 1996(b) 1995(e)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $9.00 $9.00 $9.53 $8.78 $9.00 $9.00 $9.53 $8.78
beginning of period
Income from investment operations:
Net investment income .25 .52 .30 .40 .29 .60 .34 .46
(loss)
Net gains (losses) both .27 .12 (.52) .75 .27 .12 (.52) .75
realized and unrealized)
Total from investment .52 .64 (.22) 1.15 .56 .72 (.18) 1.21
operations
Less distributions:
Dividends from net (.25) (.51) (.28) (.40) (.29) (.59) (.32) (.46)
investment income
Distributions from -- (.13) (.03) -- -- (.13) (.03) --
realized gains
Total distributions (.25) (.64) (.31) (.40) (.29) (.72) (.35) (.46)
Net asset value, $9.27 $9.00 $9.00 $9.53 $9.27 $9.00 $9.00 $9.53
end of period
Ratios/supplemental data
1997(c) 1997 1996(b) 1995(e) 1997(c) 1997 1996(b) 1995(e)
Class B Class Y
Net assets, end of $137 $126 $108 $72 $210 $202 $212 $142
period (in millions)
Ratio of expenses to 1.62%(f) 1.64% 1.63%(f)1.67%(f) .79%(f) .72% .70%(f) .73%(f)
average daily net assets(d)
Ratio of net income 5.45%(f) 6.40% 5.56%(f)5.68%(f) 6.28%(f) 7.02% 6.51%(f) 6.64%(f)
(loss) to average daily net assets
Portfolio turnover rate 9% 31% 18% 26% 9% 31% 18% 26%
(excluding short-term
securities)
Total return(g) 5.9% 7.3% (2.4%) 13.1% 6.3% 8.3% (2.0%) 13.8%
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) The Fund's fiscal year-end was changed from Nov. 30 to May 31, effective
1996.
(c) Six months ended Nov. 30, 1997 (Unaudited).
(d) Effective fiscal year 1996, expense ratio is based on total expenses of the
Fund before reduction of earnings credits on cash balances.
(e) Inception date was March 20, 1995. f Adjusted to an annual basis.
(g) Total return does not reflect payment of a sales charge.
</TABLE>
<PAGE>
Financial statements
Statement of assets and liabilities
Quality Income Portfolio
Nov. 30, 1997
Assets
(Unaudited)
Investments in securities, at value (Note 1)
(identified cost $ 1,530,823,220) $1,616,509,179
Cash in bank on demand deposit 82,529
Accrued interest receivable 22,470,641
U.S. government securities held as collateral (Note 4) 69,880,900
----------
Total assets 1,708,943,249
-------------
Liabilities
Payable for investment securities purchased 47,500
Payable upon return of securities loaned (Note 4) 88,558,400
Accrued investment management services fee 45,323
Other accrued expenses 28,416
------
Total liabilities 88,679,639
----------
Net assets applicable to outstanding capital stock $1,620,263,610
==============
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
Quality Income Portfolio
Six months ended Nov. 30, 1997
Investment income
(Unaudited)
Income:
<S> <C>
Dividends $ 403,750
Interest 56,571,543
----------
Total income 56,975,293
----------
Expenses (Note 2):
Investment management services fee 4,138,691
Compensation of board members 8,105
Custodian fees 63,161
Audit fees 14,750
Other 11,868
------
Total expenses 4,236,575
Earnings credits on cash balances (Note 2) (2,504)
------
Total net expenses 4,234,071
---------
Investment income (loss) -- net 52,741,222
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 2,061,188
Financial futures contracts (10,400,542)
-----------
Net realized gain (loss) on investments (8,339,354)
Net change in unrealized appreciation (depreciation) on investments 57,065,978
----------
Net gain (loss) on investments 48,726,624
----------
Net increase (decrease) in net assets resulting from operations $101,467,846
============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statements of changes in net assets
Quality Income Portfolio
Operations
Six months ended For the period from
Nov. 30, 1997 June 10, 1996* to
(Unaudited) May 31, 1997
<S> <C> <C>
Investment income (loss)-- net $ 52,741,222 $ 112,252,618
Net realized gain (loss) on investments (8,339,354) 9,395,624
Net change in unrealized appreciation (depreciation) on investments 57,065,978 20,434,131
---------- ----------
Net increase (decrease) in net assets resulting from operations 101,467,846 142,082,373
Net contributions (withdrawals) from partners (96,858,305) 1,473,541,696
----------- -------------
Total increase (decrease) in net assets 4,609,541 1,615,624,069
Net assets at beginning of period (Note 1) 1,615,654,069 30,000
Net assets end of period $1,620,263,610 $1,615,654,069
============== ==============
*Commencement of operations
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
Quality Income Portfolio
(Unaudited as to Nov. 30, 1997)
1
Summary of
significant
accounting policies
Quality Income Portfolio (the Portfolio) is a series of Income Trust (the
Trust) and is registered under the Investment Company Act of 1940 (as
amended) as a diversified, open end management investment company. Quality
Income Portfolio invests primarily in investment grade bonds. The
Declaration of Trust permits the Trustees to issue non transferable
interests in the Portfolio. On April 15, 1996, AEFC contributed $30,000 to
the Portfolio. Operations did not formally commence until June 10, 1996,
at which time an existing fund transferred its assets to the Portfolio in
return for an ownership percentage of 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 options on debt securities or futures are
exercised, the Portfolio will realize a gain or loss. When other options
are 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 Nov. 30, 1997, investments in securities included issues that are
illiquid. The Portfolio currently limits investments in illiquid
securities to 10% of the net assets, at market value, at the time of
purchase. The aggregate value of such securities at Nov. 30, 1997 was
$4,882,464 representing 0.3% of the net assets. Pursuant to guidelines
adopted by the board, certain unregistered securities are determined to be
liquid and are not included within the 10% limitation specified above.
Federal taxes
For federal income tax purposes the Portfolio qualifies as a partnership
and each investor in the Portfolio is treated as the owner of its
proportionate share of the net assets, income, expenses and realized and
unrealized gains and losses of the Portfolio. Accordingly, as a "pass
through" entity, the Portfolio does not pay any income dividends or
capital gain distributions.
Other
Security transactions are accounted for on the date securities are
purchased or sold. Dividend income is recognized on the ex dividend date.
For U.S. dollar denominated bonds, interest income includes level yield
amortization of premium and discount. For foreign bonds, except for
original issue discount, the Portfolio does not amortize premium and
discount. 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 0.52% to 0.395% annually.
Under the agreement, the Trust also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees, audit and certain
legal fees, fidelity bond premiums, registration fees for units, office
expenses, consultants' fees, compensation of trustees, corporate filing
fees, expenses incurred in connection with lending securities of the
Portfolio, and any other expenses properly payable by the Trust or
Portfolio and approved by the board.
During the six months ended Nov. 30, 1997, the Portfolio's custodian fees
were reduced by $2,504 as a result of earnings credit 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 $155,509,631 and $137,805,238, respectively,
for the six months ended Nov. 30, 1997. For the same period, the portfolio
turnover rate was 9%. Realized gains and losses are determined on an
identified cost basis.
4
Lending of portfolio
securities
At Nov. 30, 1997, securities valued at $86,496,200 were on loan to
brokers. For collateral, the Portfolio received $18,677,500 in cash and
U.S. government securities valued at $69,880,900. Income from securities
lending amounted to $52,529 for the six months ended Nov. 30, 1997. The
risks to the Portfolio of securities lending are that the borrower may not
provide additional collateral when required or return the securities when
due.
5
Interest rate
futures contracts
At Nov. 30, 1997, investments in securities included securities valued at
$12,317,300 that were pledged as collateral to cover initial margin
deposits on 380 open sales contracts. The market value of the open
contracts at Nov. 30, 1997, was $45,231,875 with a net unrealized loss of
$154,375. See "Summary of significant accounting policies."
<PAGE>
<TABLE>
<CAPTION>
Investments in securities
Quality Income Portfolio
Nov. 30, 1997 (Unaudited)
(Percentages represent value of
investments compared to net assets)
Bonds (97.2%)
Issuer Coupon Maturity Principal Value(a)
rate year amount
U.S. government obligations (30.1%)
<S> <C> <C> <C> <C>
U.S. Treasury 5.875% 2000-04 $33,000,000(b) $ 33,063,430
6.00 2000 11,400,000(b) 11,457,912
6.875 1999 60,000,000 61,032,600
7.25 2004 51,800,000(b) 55,682,372
7.50 2001-16 179,000,000(b) 196,971,130
8.00 2021 15,000,000(k) 18,475,950
Tips 3.375 2007 8,050,000(m) 8,080,986
Resolution Funding Corp
Zero Coupon 7.98 2016 47,000,000(c) 14,798,420
8.19 2014 48,000,000(c) 17,629,920
8.27 2014 10,000,000(c) 3,560,500
8.94 2006 25,000,000(c) 15,503,500
8.95 2006 68,000,000(c) 40,314,480
Overseas Private Investment 6.99 2009 10,000,000 10,325,000
Total 486,896,200
Mortgage backed securities (16.2%)
Collateralized Mtge Obligation Trust 7.75 2012 340,130 341,963
Federal Home Loan Mtge Corp 7.50 2024 15,781,816 16,189,145
8.00 2016-25 9,775,755 10,134,533
8.50 2017-26 21,269,325 22,246,591
9.00 2020-21 4,915,825 5,259,480
Federal Housing Admin 7.43 2024 9,005,027 9,266,736
Federal Natl Mtge Assn 6.50 2023 11,359,139 11,221,239
7.50 2027 39,141,016 39,940,658
8.00 2026-27 27,705,829 28,682,889
10.00 2002 116 121
Collateralized Mtge Obligation 8.00 2021 9,595,822 9,697,884
8.50 2019 1,448,659 1,607,724
Principal Only 9.50 2018 1,007,211(e) 792,691
9.89 2020 1,835,820(e) 1,668,465
Trust Series Z 6.00 2024 21,277,554(d) 18,359,550
Govt Natl Mtge Assn 7.50 2026 19,815,015 20,247,378
8.00 2022-26 39,031,411 40,521,772
8.50 2026 16,878,989 17,702,684
9.00 2024-25 5,282,405 5,671,666
Prudential Bache
Collateralized Mtge Obligation 7.965 2019 3,349,400 3,466,389
Total 263,019,558
Automotive & related (1.4%)
Daimler Benz North America
Medium term Nts 7.375 2006 14,000,000 14,884,940
General Motors 8.875 2003 7,050,000 7,845,240
Total 22,730,180
Banks and savings & loans (5.4%)
BankAmerica
Series B 7.70 2026 5,000,000(g) 5,057,750
BankBoston Capital Trust
Company Guaranty Series B 8.25 2026 5,000,000 5,311,000
First Bank System 6.875 2007 8,550,000 8,691,673
First Chicago
Sr Nts 9.00 1999 7,900,000 8,216,158
Firstar Capital Trust 8.32 2026 10,000,000 10,838,200
Morgan (JP)
Medium term Nts 4.00 2012 9,350,000(i) 9,042,103
NationsBank 9.25 2001 8,950,000 9,816,181
NCNB
Sub Nts 9.125 2001 10,000,000 10,969,100
Swiss Bank
Sub Deb 7.75 2026 11,369,000 12,534,664
Washington Mutual Capital I
Company Guaranty 8.375 2027 5,800,000(g) 6,218,006
Total 86,694,835
Chemicals (1.5%)
Dow Chemical 8.85 2021 10,000,000 12,234,100
USA Waste Services
Sr Nts 7.125 2007 11,900,000 12,249,622
Total 24,483,722
Communications equipment & services (0.6%)
BellSouth Telecommunications 7.00 2095 10,000,000 10,248,400
Computers & office equipment (0.3%)
Hewlett Packard
Zero Coupon 3.125 2017 10,000,000(c,g) 5,187,500
Electronics (0.3%)
Harris 10.375 2018 3,900,000 4,241,718
Energy (2.5%)
PDV America 7.875 2003 16,500,000 17,061,165
Texaco Capital
Gtd Deb 7.50 2043 12,000,000 12,834,480
USX 9.375 2022 9,200,000 11,423,088
Total 41,318,733
Energy equipment & services (0.4%)
Foster Wheeler 6.75 2005 5,850,000 5,899,725
Financial services (4.4%)
Aristar
Sr Deb 8.875 1998 10,520,000 10,705,994
Beneficial 9.125 1998 10,000,000 10,063,800
General Motors Acceptance
Medium Term Nts 5.95 1998 8,000,000 8,011,360
General Motors Acceptance 7.00 2000 14,300,000 14,540,240
Greyhound Financial
Medium Term Nts 7.95 1999 9,600,000 9,861,504
Railcar Leasing
Sr Nts 7.125 2000 12,150,000(g) 12,643,776
Salomon 7.75 2000 5,000,000 5,165,400
Total 70,992,074
Health care (0.8%)
Lilly (Eli) 6.77 2036 13,300,000 13,463,457
Industrial equipment & services (1.3%)
Browning Ferris Inds 9.25 2021 7,000,000 8,761,620
Deere & Co 8.95 2019 10,000,000 11,875,300
Total 20,636,920
Insurance (4.5%)
American United Life 7.75 2026 4,800,000(l) 4,882,464
Arkwright Trust 9.625 2026 4,000,000(g) 4,767,520
Berkley (WR) 8.70 2022 10,000,000 11,728,600
Conseco Financing Trust II
Company Guaranty 8.70 2026 6,600,000 7,204,890
Equitable Life Assurance 7.70 2015 5,000,000(g) 5,333,700
Nationwide Trust 9.875 2025 11,500,000(g) 13,511,120
SAFECO Capital Trust I
Company Guaranty 8.07 2037 15,000,000(g) 15,590,400
SunAmerica 9.95 2012 8,000,000 10,224,080
Total 73,242,774
Media (0.8%)
Time Warner Entertainment 8.375 2033 12,000,000 13,460,520
Retail (2.6%)
Dayton Hudson 7.875 2023 18,850,000 19,758,193
Rite Aid 5.25 2002 9,000,000 10,125,000
Wal Mart CRAVE Trust 7.00 2006 11,211,435(g) 11,457,862
Total 41,341,055
Transportation (0.6%)
Burlington Northern Santa Fe 7.00 2025 10,000,000 10,024,000
Utilities -- electric (5.0%)
Arizona Public Service
Sale Lease Backed Obligation 8.00 2015 9,000,000 9,697,500
Cajun Electric Power
Mtge Trust 8.92 2019 4,960,000 5,390,974
Commonwealth Edison
1st Mtge Series 90 6.50 2000 9,000,000 9,051,750
Long Island Lighting 9.625 2024 7,000,000 7,227,500
Long Island Lighting 8.625 2004 3,000,000 3,197,520
RGS Funding
Sale Lease Backed Obligation 9.82 2022 4,969,237 6,371,357
RGS Funding I & M
Sale Lease Back Obligation 9.82 2022 4,969,232 6,371,351
Salton Sea Cl C 7.84 2010 10,000,000 10,648,800
Texas Utilities Electric
1st Mtge 9.75 2021 13,000,000 14,886,170
Wisconsin Electric Power 6.875 1995 8,000,000 7,994,080
Total 80,837,002
Utilities -- telephone (2.8%)
AT&T 8.35 2025 5,000,000 5,451,900
GTE 10.25 2020 6,050,000 6,817,080
New York Telephone 9.375 2031 14,000,000 16,013,200
Pacific Bell 8.50 2031 15,000,000 16,320,750
Total 44,602,930
Foreign (15.7%)(h)
ABN Amro Bank
(U.S. Dollar) 7.75 2023 12,000,000 12,867,240
Alcan Aluminum
(U.S. Dollar) 8.875 2022 9,600,000 10,471,392
BAA PLC
(British Pound) 9.36 2006 1,500,000 2,691,306
Banco General
(U.S. Dollar) 7.70 2002 6,400,000(g) 6,305,728
Bank of China
(U.S. Dollar) 8.25 2014 7,100,000 7,187,543
Bayerische Landesbank
(U.S. Dollar) Deposit Nts 5.625 2001 13,750,000 13,582,938
Dao Heng Bank
(U.S. Dollar) Sub Nts 7.75 2007 7,000,000(g) 6,518,820
Deutsche Bank
(U.S. Dollar) Zero Coupon 4.50 2017 6,510,000(c,g) 2,905,087
Gruma
(U.S. Dollar) 7.625 2007 2,000,000(g) 1,940,000
Guangdong Enterprises
(U.S. Dollar) Sr Nts 8.875 2007 5,800,000(g) 5,507,506
Hutchinson Whampoa
(U.S. Dollar) 7.50 2027 14,025,000(g) 13,261,900
Hyundai Semiconductor
(U.S. Dollar) Sr Nts 8.625 2007 10,800,000(g) 10,123,272
Israel Electric
(U.S. Dollar) 7.875 2026 9,000,000(g) 9,305,730
Japan Finance
(U.S. Dollar) 9.25 1998 25,950,000 26,646,239
Jasmine Submarine Telecom
(U.S. Dollar) 8.48 2011 5,000,000(g) 4,312,050
KFW Intl Finance
(U.S. Dollar)
Medium Term Nts 8.50 1999 10,000,000 10,457,300
Korea Development Bank
(U.S. Dollar) 7.25 2006 4,600,000 4,214,014
Korea Electric Power
(U.S. Dollar) 8.00 2002 9,000,000 8,628,120
Korea Electric Power
(U.S. Dollar) Zero Coupon 9.27 2016 35,000,000(f) 4,783,100
People's Republic of China
(U.S. Dollar) 9.00 2096 10,000,000 10,611,300
Perez
(U.S. Dollar) 8.125 2007 5,000,000(g) 4,800,000
Petronas
(U.S. Dollar) 7.75 2015 10,000,000 9,554,800
Ras Laffan Gas
(U.S. Dollar) 8.29 2014 10,000,000(g) 10,618,900
Republic of Austria Euro
(U.S. Dollar) 10.00 1998 3,150,000 3,218,906
Republic of Italy
(U.S. Dollar) 6.875 2023 23,200,000 23,807,840
Rodamco NV
(U.S. Dollar) 7.30 2005 10,000,000 10,544,300
State of Israel
(U.S. Dollar) 6.375 2005 10,800,000 10,687,572
Telekom Malaysia
(U.S. Dollar) 7.875 2025 10,000,000(g) 9,457,800
Total 255,010,703
Total bonds
(Cost: $1,489,411,047) $1,574,332,006
Preferred stock (0.6%)
Issuer Shares Value(a)
Salomon Income Financing Trust
9.50% 340,000 $9,265,000
Total preferred stock
(Cost: $8,500,000) $9,265,000
Short term securities (2.0%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agencies (0.8%)
Federal Home Loan Bank Disc Nt
12 17 97 5.47% $ 2,500,000 $ 2,493,200
Federal Home Loan Mtge Corp Disc Nt
12 22 97 5.52 9,800,000 9,765,564
Federal Natl Mtge Assn Disc Nt
12 11 97 5.45 1,400,000 1,397,466
Total 13,656,230
Commercial paper (1.2%)
A.I. Credit
12 03 97 5.53 2,500,000 2,498,469
CAFCO
12 17 97 5.60 2,600,000(j) 2,592,746
Consolidated Natural Gas
12 18 97 5.58 1,500,000 1,495,590
May Dept Stores
12 09 97 5.56 500,000 499,231
PACCAR Financial
12 04 97 5.55 1,900,000 1,898,541
USAA Capital
12 17 97 5.58 10,300,000 10,271,366
Total 19,255,943
Total short term securities
(Cost: $32,912,173) $ 32,912,173
Total investment in securities
(Cost: $1,530,823,220)(n) $1,616,509,179
==============
See accompanying notes to investments in securities.
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the
financial statements.
(b) Security is partially or fully on loan. See Note 4 to the financial
statements.
(c) For zero coupon bonds, the interest rate disclosed represents the
annualized effective yield on the date of aquisition.
(d) This security is a collateralized mortgage obligation that pays no
interest or principal during its initial accrual period until payment of
previous series within the trust have been paid off. Interest is accrued
at an effective yeild; similar to a zero coupon bond.
(e) Principal only represents securities that entitle holders to receive
only principal payments on the underlying mortgages. The yield to maturity
of a principal only is sensitive to the rate of principal payments on the
underlying mortgage assets. A slow (rapid) rate of principal repayments
may have an adverse (positive) effect on yield to maturity. Interest rate
disclosed represents current yield based upon the current cost basis and
estimated timing of future cash flows.
(f) For those zero coupon bonds that become coupon paying at a future
date, the interest rate disclosed represents the annualized effective
yield from the date of aquisition to interest reset date disclosed.
(g) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
has been determined to be liquid under guidelines established by the
board.
(h) Foreign security values are stated in U.S. dollars. For debt
securities, principal amounts are denominated in the currency indicated.
(i) Interest rate varies either based on a predetermined schedule or to
reflect current market conditions; rate shown is the effective rate on
Nov. 30, 1997.
(j) Commercial paper sold within terms of a private placement memorandum,
exempt from registration under Section 4(2) of the Securities Act of 1933,
as amended, and may be sold only to dealers in that program or other
"accredited investors". This security has been determined to be liquid
under guidelines established by the board.
(k) Partially pledged as initial margin deposit on the following open
interest rate futures contracts (see Note 5 to the financial statements):
Type of security Notional amount
Sales contracts
U.S Treasury Bonds $380,000,000
(l) Identifies issues considered to be illiquid as to their marketability (see
Note 1 to the financial statements). Information concerning such security
holdings at Nov. 30, 1997, is as follows:
Security Acquisition Cost
date
American United Life* 02 13 96 $4,800,000
*Represents a security sold under Rule 144A, which is exempt from registration
under the securities Act of 1933, as amended.
(m) U.S. Treasury inflation protection securities (TIPS) are securities in which
the principal amount is adjusted for inflation and the
semi annual interest payments equal a fixed percentage of the inflation adjusted
principal amount.
(n) At Nov. 30, 1997, the cost of securities for federal income tax purposes was
approximately $1,530,769,000 and the approximate aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation.........................................$91,265,000
Unrealized depreciation..........................................(5,525,000)
Net unrealized appreciation.....................................$85,740,000
</TABLE>
<PAGE>
Board members and officers
Independent board members and officers
Chairman William R. Pearce*
of the board Chairman of the board, Board Services Corporation (provides
administrative services to boards including the boards of the
IDS and IDSLife funds and Master Trust portfolios).
H. Brewster Atwater, Jr.
Former chairman and chief executive officer, General Mills,
Inc.
Lynne V. Cheney
Distinguished fellow, American Enterprise Institute for Public
Policy Research.
Heinz F. Hutter
Former president and chief operating officer, Cargill, Inc.
Anne P. Jones
Attorney and telecommunications consultant.
Alan K. Simpson
Former United States senator for Wyoming.
Edson W. Spencer
Former chairman and chief executive officer, Honeywell, Inc.
Wheelock Whitney
Chairman, Whitney Management Company.
C. Angus Wurtele
Chairman of the board, The Valspar Corporation.
Officer
Vice president, Leslie L. Ogg*
general counsel President, treasurer and corporate secretary of Board Services
and secretary Corporation.
Board members and officers associated with AEFC
President John R. Thomas*
Senior vice president, AEFC.
William H. Dudley*
Senior advisor to the chief executive officer, AEFC.
David R. Hubers*
President and chief executive officer, AEFC.
Officers associated with AEFC
Vice president Peter J. Anderson*
Senior vice president, AEFC
Treasurer Matthew N. Karstetter*
Vice president, AEFC
* Interested person as defined by the Investment Company Act of 1940.
<PAGE>
IDS mutual funds
Global/International funds
Funds in this group seek capital growth and/or income by investing primarily in
foreign securities. Foreign investments may be subject to currency fluctuations
and political and economic risks of the countries in which the investments are
made. They are high risk mutual funds with a potential for high reward.
IDS Emerging Markets Fund
Invests in a Portfolio comprised primarily of stocks of companies in developing
countries throughout the world that are believed to offer growth potential.
Seeks to provide long-term growth of capital.
(icon of) world with countries
IDS Global Growth Fund
Invests in a Portfolio comprised primarily of stocks of companies throughout the
world that are positioned to meet market needs in a changing world economy.
These companies offer above-average potential for long-term growth.
(icon of) world
IDS International Fund
Invests primarily in common stocks of foreign companies that offer potential for
superior growth. The Fund may invest up to 20% of its assets in the U.S. market.
(icon of) three flags
IDS Global Balanced Fund
Invests in stocks and bonds in, for the most part, major markets throughout the
world, including the U.S. Seeks to provide a balance of growth of capital and
current income.
(icon of) scale of globes
IDS Global Bond Fund
Invests in a Portfolio comprised primarily of debt securities of U.S. and
foreign issuers to seek high total return through income and growth of capital.
(icon of) globe
Growth funds
Funds in this group seek capital growth, primarily from common stocks. They are
high risk mutual funds with a potential for high reward.
IDS Precious Metals Fund
Invests primarily in the securities of foreign or domestic companies that
explore for, mine and process or distribute gold and other precious metals. A
highly aggressive and speculative fund that seeks long-term growth of capital.
(icon of) cart of precious gems
IDS Discovery Fund
Invests in small- and medium-size, growth-oriented companies emphasizing
technological innovation and productivity enhancement. Buys and holds larger
growth-oriented stocks.
(icon of) ship
IDS Small Company Index Fund
Invests in all or a representative group of the equity securities comprising the
S&P SmallCap 600 Index, as it strives to provide long-term capital appreciation.
(icon of) building
IDS Strategy Aggressive Fund
Invests primarily in common stocks of companies that are selected for their
potential for above-average growth. Above-average means that their growth
potential is better, in the opinion of the portfolio's investment manager, than
the Standard & Poor's Corporation (S&P) 500 Stock Index.
(icon of) chess piece
IDS Research Opportunities Fund
Invests in a Portfolio comprised primarily of equity securities of companies
included in the S&P 500 Index that are believed to have strong growth potential.
The Portfolio is managed using a research methodology by the Research Department
of AEFC. Goal is long-term appreciation.
(icon of) magnifying glass
IDS Growth Fund
Invests in a Portfolio comprised primarily of companies that have above-average
potential for long-term growth as a result of new management, marketing
opportunities or technological superiority.
(icon of) trees
IDS New Dimensions Fund
Invests in a Portfolio comprised primarily of companies with
significant growth potential due to superiority in
technology, marketing or management. The Fund frequently
changes its industry mix.
(icon of) dimension
IDS Progressive Fund
Invests primarily in undervalued common stocks. The Fund holds stocks for the
long term with the goal of capital growth.
(icon of) shooting star
Growth & income funds
These funds focus on securities of medium to large, well-established companies
that offer long-term growth of capital and reasonable income from dividends and
interest. Foreign investments may be subject to currency fluctuations and
political and economic risks of the countries in which the investments are made.
IDS Equity Select Fund
Invests primarily in a combination of moderate growth stocks, higher-yielding
equities and bonds. Seeks growth of capital and income.
(icon of) three pine trees
IDS Blue Chip Advantage Fund
Invests in selected stocks from a major market index. Securities purchased are
those recommended by our research analysts as the best from each industry
represented on the index. Offers potential for long-term growth as well as
dividend income.
(icon of) ribbon
IDS Managed Allocation Fund
Invests in a Portfolio comprised primarily of U.S. equity securities, U.S. and
foreign debt securities, foreign equity securities and money market instruments.
The Fund provides diversification among these major investment categories and
has a target mix that represents the way the Fund's investments will be
allocated over the long term. Seeks maximum total return.
(icon of) gyroscope
IDS Stock Fund
Invests in a Portfolio comprised primarily of common stock of companies
representing many sectors of the economy. Seeks current income and growth of
capital.
(icon of) building with columns
IDS Equity Value Fund
Invests primarily in undervalued common stocks that offer potential for growth
of capital and income.
(icon of) three growing flowers
IDS Utilities Income Fund
Invests primarily in the stocks of public utility companies to seek high current
income and growth of income and capital with reduced volatility.
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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.
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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.
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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.
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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.
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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.
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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.
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Tax-exempt income funds
These funds provide tax-free income by investing in municipal bonds. The income
is generally free from federal income tax, but a portion of the income may be
subject to state and local taxes. Risk varies by bond quality.
IDS Tax-Exempt Bond Fund
Invests mainly in bonds and notes of state or local government units, with at
least 75% in the four highest rated, lowest risk bond categories.
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IDS Insured Tax-Exempt Fund
Invests primarily in municipal securities that are insured as to the timely
payment of principal and interest. The insurance feature minimizes credit risk
of the Fund but does not guarantee the market value of the Fund's shares.
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IDS State Tax-Exempt Funds
(CA, MA, MI, MN, NY, OH)
Invests primarily in high- and medium-grade municipal securities to provide
income to residents of each respective state that is exempt from federal, state
and local income taxes. (New York is the only state that is exempt at the local
level.)
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IDS High Yield Tax-Exempt Fund
Invests in a Portfolio comprised primarily of medium- and lower-quality
municipal bonds and notes. Lower-quality securities generally involve greater
risk of principal and income.
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IDS Intermediate Tax-Exempt Fund
Invests in mainly investment-grade bonds and other debt securities with
intermediate-term maturities issued by state and local government units. Goal is
to seek a high level of current income exempt from federal taxes.
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Money market funds
These money market funds have three main goals: conservation of capital,
constant liquidity and the highest possible current income consistent with these
objectives. An investment in these funds is neither insured nor guaranteed by
the U.S. government, and there can be no assurance that these funds will be able
to maintain a stable net asset value of $1.00 per share. Very limited risk.
IDS Cash Management Fund
Invests in such money market securities as high quality commercial paper,
bankers' acceptances, certificates of deposit (CDs) and other bank securities.
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IDS Tax-Free Money Fund
Invests primarily in short-term bonds and notes issued by state and local
governments to seek high current income exempt from federal income taxes.
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For more complete information about any of these funds, including charges and
expenses, you can obtain a prospectus by contacting your financial advisor or
writing to American Express Shareholder Service, P.O. Box 534, Minneapolis, MN
55440-0534. Read it carefully before you invest or send money.
<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 Selective Fund
IDS Tower 10
Minneapolis, MN 55440-0010
