<PAGE>
1997 ANNUAL REPORT
IDS
Managed Allocation
Fund
(prospectus enclosed)
[logo] The goal of IDS Managed Allocation Fund, a part of IDS Managed
Retirement Fund, Inc., is to maximize total return through a
combination of growth of capital and current income.
(THIS ANNUAL REPORT INCLUDES A PROSPECTUS THAT DESCRIBES IN DETAIL THE FUND'S
OBJECTIVE, INVESTMENT POLICIES, RISKS, SALES CHARGES, FEES AND OTHER MATTERS
OF INTEREST. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST OR SEND
MONEY.)
[AMERICAN EXPRESS FINANCIAL ADVISORS LOGO]
Distributed by American Express Financial Advisors Inc.
<PAGE>
- --------------------------------------------------------------------------------
[MANAGED ALLOC. FUND ICON]
GOING WHERE THE ACTION IS
TODAY'S INVESTMENT MARKETPLACE
IS CHANGING FASTER THAN EVER.
THE KEY IS TO BE IN THE RIGHT
PLACE AT THE RIGHT TIME.
MANAGED ALLOCATION FUND HAS
THAT POTENTIAL BECAUSE IT HAS
THE FLEXIBILITY TO MAKE
SWEEPING SHIFTS IN ITS ASSET
MIX TO TAKE ADVANTAGE OF
EXPECTED TRENDS IN FINANCIAL
MARKETS. WHILE THE FOCUS
HISTORICALLY HAS BEEN ON U.S.
STOCKS, THE FUND CAN ALSO HOLD
FOREIGN STOCKS, AS WELL AS
DOMESTIC AND FOREIGN BONDS,
PLUS CASH-EQUIVALENT
INVESTMENTS. FOR INVESTORS,
SUCH FLEXIBILITY CAN MEAN
OPPORTUNITY.
<PAGE>
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Contents
THE PURPOSE OF THIS ANNUAL REPORT IS TO TELL
INVESTORS HOW THE FUND PERFORMED.
1997 ANNUAL REPORT
From the chairman 4
From the portfolio manager 4
The Portfolio's ten largest holdings 6
Making the most of the Fund 7
The Fund's long-term performance 8
Independent auditors' report (Fund) 9
Financial statements (Fund) 10
Notes to financial statements (Fund) 13
Independent auditors' report (Portfolio) 17
Financial statements (Portfolio) 18
Notes to financial statements (Portfolio) 21
Investments in securities 28
IDS mutual funds 40
Federal income tax information 44
THE PROSPECTUS, WHICH IS BOUND INTO THE MIDDLE OF
THIS ANNUAL REPORT, DESCRIBES THE FUND IN DETAIL.
1997 PROSPECTUS
THE FUND IN BRIEF 3P
Goal 3P
Investment policies and risks 3P
Structure of the Fund 3P
Manager and distributor 4P
Portfolio management team 4P
Alternative purchase arrangements 5P
SALES CHARGE AND FUND EXPENSES 6P
PERFORMANCE 8P
Financial highlights 8P
Total return 10P
INVESTMENT POLICIES AND RISKS 12P
Facts about investments and their risks 12P
Valuing Fund shares 16P
HOW TO PURCHASE, EXCHANGE OR REDEEM SHARES 17P
Alternative purchase arrangements 17P
How to purchase shares 19P
How to exchange shares 22P
How to redeem shares 22P
Reductions and waivers of the sales charge 27P
SPECIAL SHAREHOLDER SERVICES 32P
Services 32P
Quick telephone reference 32P
DISTRIBUTIONS AND TAXES 33P
Dividend and capital gain distributions 33P
Reinvestments 34P
Taxes 35P
How to determine the correct TIN 37P
HOW THE FUND AND PORTFOLIO ARE ORGANIZED 38P
Shares 38P
Voting rights 38P
Shareholder meetings 38P
Special considerations regarding
master/feeder structure 39P
Board members and officers 41P
Investment manager 43P
Administrator and transfer agent 43P
Distributor 44P
ABOUT AMERICAN EXPRESS FINANCIAL CORPORATION 45P
General information 45P
APPENDICES
Descriptions of corporate bond ratings 47P
Descriptions of derivative instruments 49P
(THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.) 3
<PAGE>
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To our shareholders
[PHOTO]
WILLIAM R. PEARCE
CHAIRMAN OF THE BOARD
[PHOTO]
STEVEN MERRELL
PORTFOLIO MANAGER
FROM THE CHAIRMAN
If you're an experienced investor, you know that the past few years have been
unusually strong ones 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 the U.S. stock
market.
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 SIGNATURE]
William R. Pearce
FROM THE PORTFOLIO MANAGER
A largely positive period for the U.S. stock and bond markets, as well as
selected foreign stock markets, led to a productive fiscal year for IDS Managed
Allocation Fund. For the 12 months - October 1996 through September 1997 - the
Fund's gain was 20.8% for Class A shares. (This figure includes a substantial
capital gain that was paid to shareholders in December 1996 and reduced the
Fund's net asset value by the same amount at that time.)
For most of the year, the U.S. stock market enjoyed an environment characterized
by a low inflation rate, generally low long-term interest rates, solid economic
growth and robust corporate profits. With those fundamentals providing support,
the market staged an impressive rally that was interrupted by just two moderate
downturns - one last spring and another last August, both spawned by a run-up in
long-term interest rates.
The U.S. bond market, on the other hand, was considerably more volatile,
4 (THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.)
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as periodic concerns about greater economic growth causing a spike in inflation
kept it off balance much of the time. Still, on the whole, bonds did manage to
gain some ground over the 12 months.
A MORE CONSERVATIVE TACK
We continued to keep the portfolio well-diversified during the period, but we
did make some shifts during the winter based on our belief that financial
assets, especially U.S. stocks, had become more vulnerable to a downturn. Those
moves included reducing the U.S. stock exposure and putting the extra money
created by the reductions into cash reserves. That resulted in a mix of
approximately 40% U.S. stocks, 20% foreign stocks, 25% cash equivalents, and 12%
U.S. bonds and 3% foreign bonds, which we maintained through the end of the
fiscal year.
In addition, to avoid the negative effect of a potential interest-rate rise in
the U.S., we shortened the duration of our U.S. bond holdings and focused
our investments on securities that are unaffected by rate changes in the U.S.
Finally, last spring we increased our stock holdings in emerging markets such as
Russia, Mexico and Argentina, a shift that paid off well for the Fund as those
markets rallied sharply.
Little has changed in the investment environment as we begin a new fiscal year;
at this point (mid-October), the fundamentals remain largely favorable. While
that's encouraging, we continue to think a relatively conservative approach is
the prudent one. Should the financial markets, especially the U.S. stock market,
manage another strong advance in the months ahead, the Fund remains structured
to participate, but to a lesser degree than the broad market. If, however,
stocks and bonds should encounter trouble, we expect the Fund to fare
comparatively well.
[STEVEN MERRELL SIGNATURE]
Steven Merrell
Portfolio manager
<TABLE>
<CAPTION>
CLASS A
12-MONTH PERFORMANCE
(ALL FIGURES PER SHARE)
NET ASSET VALUE (NAV)
- ------------------------------------------
<S> <C>
Sept. 30, 1997 $12.68
- ------------------------------------------
Sept. 30, 1996 $12.20
- ------------------------------------------
Increase $ 0.48
- ------------------------------------------
<CAPTION>
DISTRIBUTIONS
OCT. 1, 1996 - SEPT. 30, 1997
- ------------------------------------------
<S> <C>
From income $ 0.60
- ------------------------------------------
From capital gains $ 1.21
- ------------------------------------------
Total distributions $ 1.81
- ------------------------------------------
Total return* +20.8%**
- ------------------------------------------
<CAPTION>
CLASS B
12-MONTH PERFORMANCE
(ALL FIGURES PER SHARE)
NET ASSET VALUE (NAV)
- ------------------------------------------
<S> <C>
Sept. 30, 1997 $12.63
- ------------------------------------------
Sept. 30, 1996 $12.15
- ------------------------------------------
Increase $ 0.48
- ------------------------------------------
<CAPTION>
DISTRIBUTIONS
OCT. 1, 1996 - SEPT. 30, 1997
- ------------------------------------------
<S> <C>
From income $ 0.51
- ------------------------------------------
From capital gains $ 1.21
- ------------------------------------------
Total distributions $ 1.72
- ------------------------------------------
Total return* +19.9%**
- ------------------------------------------
<CAPTION>
CLASS Y
12-MONTH PERFORMANCE
(ALL FIGURES PER SHARE)
NET ASSET VALUE (NAV)
- ------------------------------------------
<S> <C>
Sept. 30, 1997 $12.68
- ------------------------------------------
Sept. 30, 1996 $12.20
- ------------------------------------------
Increase $ 0.48
- ------------------------------------------
<CAPTION>
DISTRIBUTIONS
OCT. 1, 1996 - SEPT. 30, 1997
- ------------------------------------------
<S> <C>
From income $ 0.61
- ------------------------------------------
From capital gains $ 1.21
- ------------------------------------------
Total distributions $ 1.82
- ------------------------------------------
Total return* +20.9%**
- ------------------------------------------
</TABLE>
*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.
(THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.) 5
<PAGE>
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The Portfolio's ten largest holdings
<TABLE>
<CAPTION>
PERCENT VALUE
(OF PORTFOLIO'S NET ASSETS) (AS OF SEPT. 30, 1997)
<S> <C> <C>
UNUM 1.55% $46,612,500
$2.34 Cv Pfd
General Electric 1.20 36,045,900
Coca-Cola 1.09 32,863,594
US. Treasury Bond 1.09 32,670,720
6.75% 2000
Philips Electronics 1.07 32,067,849
First Union 0.92 27,580,833
BankAmerica 0.87 26,106,581
Federal Natl Mtge Assn 0.87 26,004,159
7.50% 2024-2025
Merck & Co 0.85 25,344,150
Intel 0.81 24,370,500
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AS OF SEPT. 30,
1997
<S> <C>
Top Ten Holdings 10.32
Remainder of Portfolio 89.68
</TABLE>
THE TEN HOLDINGS LISTED
HERE MAKE UP 10.32%
OF THE PORTFOLIO'S NET
ASSETS
6 (THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.)
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Making the most of the Fund
BUILD YOUR ASSETS SYSTEMATICALLY
One of the best ways to invest in the Fund is by dollar-cost
averaging -- a time-tested strategy that can make market
fluctuations work for you. To dollar-cost average, simply
invest a fixed amount of money regularly. You'll
automatically buy more shares when the Fund's share price is
low, fewer shares when it is high.
Using this strategy does not ensure a profit or avoid a loss
if the market declines, and requires that you be able to keep
on investing on a regular basis, even when the price of your
shares falls or the market declines. Investing in this manner
can be an effective way to accumulate shares to meet your
long-term goals.
HOW DOLLAR-COST AVERAGING WORKS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AMOUNT PER-SHARE
MONTH INVESTED MARKET PRICE NUMBER OF SHARES PURCHASED
<S> <C> <C> <C> <C>
By investing an Jan $100 $20 5.00
equal number of Feb 100 18 5.56
dollars each March 100 17 5.88
month...
you automatically April 100 15 6.67
buy more shares May 100 16 6.25
when the per share June 100 18 5.56
market price is
low... July 100 17 5.88
and fewer shares Aug 100 19 5.26
when the per share Sept 100 21 4.76
market price is
high. Oct 100 20 5.00
</TABLE>
You have paid an average price of only $17.91 per share over
the 10 months, while the average market price actually was
$18.10.
(THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.) 7
<PAGE>
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The Fund's long-term performance
THREE WAYS TO BENEFIT FROM A MUTUAL FUND:
- your shares increase in value when the Fund's
investments do well
- you receive capital gains when the gains on
investments sold by the Fund exceed losses
- you receive income when the Fund's stock dividends,
interest and short-term gains exceed its expenses.
All three make up your total return. And you potentially can
increase your investment if, like most investors, you
reinvest your dividends and capital gain distributions to buy
additional shares of the Fund or another fund.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HOW YOUR $10,000 HAS GROWN IN IDS MANAGED ALLOCATION
FUND
MANAGED ALLOCATION LIPPER FLEXIBLE S&P 500
PORTFOLIO FUND
CLASS A INDEX STOCK INDEX
<S> <C> <C> <C>
9/30/87 $9,500 $10,000 $10,000
9/30/88 $7,930 $10,749 $8,762
9/30/89 $10,822 $12,561 $11,640
9/30/90 $10,414 $12,055 $10,571
9/30/91 $13,796 $15,125 $13,870
9/30/92 $16,061 $16,644 $15,402
9/30/93 $18,961 $19,033 $17,406
9/30/94 $20,036 $19,139 $18,050
9/30/95 $22,310 $22,659 $22,131
9/30/96 $24,190 $25,337 $28,135
9/30/97 $29,219 $31,304 $39,509
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(AS OF SEPT. 30, 1997)
1 year Since 5 years 10 years
inception
<S> <C> <C> <C> <C>
Class A +14.75% --% +11.56% +11.31%
Class B +15.87% +16.19%* --% --%
Class Y +20.94% +18.52%* --% --%
</TABLE>
*INCEPTION DATE WAS MARCH 20, 1995.
On the graph above you can see how the Fund's total return
compared to two widely cited performance indexes, the S&P 500
and the Lipper Flexible Portfolio Fund Index. In comparing
Managed Allocation Fund (Class A) to the two indexes, you
should take into account the fact that the Fund's performance
reflects the maximum sales charge of 5%, while such charges
are not reflected in the performance of the indexes.
Your investment and return values fluctuate so that your
shares, when redeemed, may be worth more or less than the
original cost. Average annual total returns reflect the
impact of the applicable sales charge up to a maximum of 5%.
This was a period of widely fluctuating security prices. Past
performance is no guarantee of future results.
Assumes: -Holding period from 10/1/87 to 9/30/97. -Returns do not reflect taxes
payable on distributions. -Reinvestment of all income and capital gain
distributions for the Fund, with a value of $16,242. Also see "Performance" in
the Fund's current prospectus.
Standard & Poor's 500 Stock Index (S&P 500), an unmanaged list of common stocks,
is frequently used as a general measure of market performance. However, the S&P
500 companies are generally larger than those in which the Fund invests.
Lipper Flexible Portfolio Fund Index, an unmanaged index published by Lipper
Analytical Services, Inc., includes 30 funds that are generally similar to the
Fund, although some funds in the index may have somewhat different investment
policies or objectives.
8 (THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.)
<PAGE>
- ------------------------------------
Independent auditors' report
THE BOARD AND SHAREHOLDERS
IDS MANAGED RETIREMENT FUND, INC.:
We have audited the accompanying statement of assets and
liabilities of IDS Managed Allocation Fund (a series of IDS
Managed Retirement Fund, Inc.) as of September 30, 1997, and
the related statement of operations for the year then ended
and the statements of changes in net assets for the year
ended September 30, 1997 and the ten-month period ended
September 30, 1996, and the financial highlights for the year
ended September 30, 1997 and the ten-month period ended
September 30, 1996 and for each of the years in the nine-year
period ended November 30, 1995. These financial statements
and the financial highlights are the responsibility of fund
management. Our responsibility is to express an opinion on
these financial statements and the financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements and the financial highlights
are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of IDS Managed Allocation Fund at September 30,
1997, and the results of its operations, changes in its net
assets and the financial highlights for the periods stated in
the first paragraph above, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 7, 1997
(THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.) 9
<PAGE>
- ------------------------------------
Financial statements
STATEMENT OF ASSETS AND LIABILITIES
IDS MANAGED ALLOCATION FUND
SEPT. 30, 1997
<TABLE>
<CAPTION>
ASSETS
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Investment in Total Return Portfolio (Note 1) $2,998,493,480
---------------
Total assets 2,998,493,480
---------------
---------------
LIABILITIES
- --------------------------------------------------------------------------
Accrued distribution fee 4,937
Accrued service fee 14,101
Accrued transfer agency fee 9,400
Accrued administrative services fee 2,529
Other accrued expenses 168,600
---------------
Total liabilities 199,567
---------------
Net assets applicable to outstanding capital stock $2,998,293,913
---------------
---------------
REPRESENTED BY
- --------------------------------------------------------------------------
Capital stock -- $.01 par value (Note 1) $ 2,364,932
Additional paid-in capital 2,315,617,412
Undistributed net investment income 71,009
Accumulated net realized gain (loss) 337,881,864
Unrealized appreciation (depreciation) on investments and on translation
of assets and liabilities in foreign currencies 342,358,696
---------------
Total -- representing net assets applicable to outstanding capital stock $2,998,293,913
---------------
---------------
Net assets applicable to outstanding shares: Class A $2,638,890,578
Class B $ 241,201,931
Class Y $ 118,201,404
Net asset value per share of outstanding capital
stock: Class A shares 208,068,041 $ 12.68
Class B shares 19,104,946 $ 12.63
Class Y shares 9,320,191 $ 12.68
</TABLE>
See accompanying notes to financial statements.
10 (THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.)
<PAGE>
STATEMENT OF OPERATIONS
IDS MANAGED ALLOCATION FUND
YEAR ENDED SEPT. 30, 1997
<TABLE>
<CAPTION>
INVESTMENT INCOME
- --------------------------------------------------------------------------
<S> <C>
Income:
Dividends $ 35,477,450
Interest 62,824,744
Less: Foreign taxes withheld (1,467,695)
-------------
Total income 96,834,499
-------------
Expenses (Note 2):
Expenses allocated from Total Return Portfolio 14,119,283
Distribution fee -- Class B 1,493,192
Transfer agency fee 3,514,153
Incremental transfer agency fee -- Class B 23,551
Service fee
Class A 4,389,530
Class B 346,382
Class Y 46,928
Administrative services fees and expenses 897,986
Compensation of board members 11,845
Compensation of officers 7,045
Postage 211,222
Registration fees 134,350
Reports to shareholders 132,166
Audit fees 9,625
Other 7,192
-------------
Total expenses 25,344,450
Earnings credits on cash balances (Note 2) (226,105)
-------------
Total net expenses 25,118,345
-------------
Investment income (loss) -- net 71,716,154
-------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
- --------------------------------------------------------------------------
Net realized gain (loss) on:
Security transactions 347,472,704
Financial futures contracts (2,231,292)
Foreign currency transactions 402,840
Option contracts written (85,119)
-------------
Net realized gain (loss) on investments 345,559,133
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 122,452,877
-------------
Net gain (loss) on investments and foreign currencies 468,012,010
-------------
Net increase (decrease) in net assets resulting from operations $539,728,164
-------------
-------------
</TABLE>
See accompanying notes to financial statements.
(THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.) 11
<PAGE>
Financial statements
STATEMENTS OF CHANGES IN NET ASSETS
IDS MANAGED ALLOCATION FUND
<TABLE>
<CAPTION>
OPERATIONS AND DISTRIBUTIONS SEPT. 30, 1997 SEPT. 30, 1996
- ------------------------------------------------------------------------------------
Ten-month
Year ended period ended
<S> <C> <C>
Investment income (loss) -- net $ 71,716,154 $ 53,050,579
Net realized gain (loss) on investments 345,559,133 319,044,841
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 122,452,877 (180,937,833)
-------------- ---------------
Net increase (decrease) in net assets resulting from operations 539,728,164 191,157,587
-------------- ---------------
Distributions to shareholders from:
Net investment income
Class A (65,540,801) (47,854,778)
Class B (3,907,527) (1,808,151)
Class Y (3,162,775) (2,284,060)
Net realized gain
Class A (292,030,274) (123,949,698)
Class B (20,916,577) (3,984,417)
Class Y (13,571,619) (5,524,806)
-------------- ---------------
Total distributions (399,129,573) (185,405,910)
-------------- ---------------
CAPITAL SHARE TRANSACTIONS (NOTE 3)
- --------------------------------------------------------------------------
Proceeds from sales
Class A shares (Note 2) 196,359,438 255,329,365
Class B shares 78,101,366 99,960,524
Class Y shares 32,047,202 31,094,078
Reinvestment of distributions at net asset value
Class A shares 354,268,365 170,362,163
Class B shares 24,680,194 5,759,750
Class Y shares 16,734,394 7,808,866
Payments for redemptions
Class A shares (558,247,028) (507,852,195)
Class B shares (Note 2) (35,890,509) (20,560,821)
Class Y shares (48,656,445) (40,841,448)
-------------- ---------------
Increase (decrease) in net assets from capital share transactions 59,396,977 1,060,282
-------------- ---------------
Total increase (decrease) in net assets 199,995,568 6,811,959
Net assets at beginning of period 2,798,298,345 2,791,486,386
-------------- ---------------
Net assets at end of period 2,998,293,913 2,798,298,345
-------------- ---------------
Undistributed net investment income $ 71,009 $ 338,844
-------------- ---------------
-------------- ---------------
</TABLE>
See accompanying notes to financial statements.
12 (THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.)
<PAGE>
- ----------------------------------------
Notes to financial statements
IDS MANAGED ALLOCATION FUND
- --------------------------------------------------------------------------
1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
IDS Managed Allocation Fund is a series of IDS Managed
Retirement Fund, Inc. and is registered under the Investment
Company Act of 1940 (as amended) as a diversified, open-end
management investment company. IDS Managed Retirement Fund,
Inc. has 10 billion authorized shares of capital stock that
can be allocated among the separate series as designated by
the board. The Fund offers Class A, Class B and Class Y
shares. Class A shares are sold with a front-end sales
charge. Class B shares may be subject to a contingent
deferred sales charge and such shares automatically convert
to Class A shares during the ninth calendar year of
ownership. Class Y shares have no sales charge and are
offered only to qualifying institutional investors.
All classes of shares have identical voting, dividend,
liquidation and other rights, and the same terms and
conditions, except that the level of distribution fee,
transfer agency fee and service fee (class specific expenses)
differs among classes. Income, expenses (other than class
specific expenses) and realized and unrealized gains or
losses on investments are allocated to each class of shares
based upon its relative net assets.
INVESTMENT IN TOTAL RETURN PORTFOLIO
Effective May 13, 1996, the Fund began investing all of its
assets in Total Return Portfolio (the Portfolio), a series of
Growth and Income Trust, an open-end investment company that
has the same objectives as the Fund. This was accomplished by
transferring the Fund's assets to the Portfolio in return for
a proportionate ownership interest in the Portfolio. Total
Return Portfolio seeks to provide shareholders maximum total
return through a combination of growth of capital and current
income.
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.
(THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.) 13
<PAGE>
Notes to financial statements
IDS MANAGED ALLOCATION FUND
The percentage of the Portfolio owned by the Fund at Sept.
30, 1997 was 99.98%. Valuation of securities held by the
Portfolio is discussed in Note 1 of the Portfolio's "Notes to
financial statements," which are included elsewhere in this
report.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of increase and
decrease in net assets from operations during the period.
Actual results could differ from those estimates.
FEDERAL TAXES
Since the Fund's policy is to comply with all sections of the
Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to the
shareholders, no provision for income or excise taxes is
required.
Net investment income (loss) and net realized gains (losses)
allocated from the Portfolio may differ for financial
statement and tax purposes primarily because of the deferral
of losses on certain futures contracts, the recognition of
certain foreign currency gains (losses) as ordinary income
(loss) for tax purposes, and losses deferred due to "wash
sale" transactions. The character of distributions made
during the year from net investment income or net realized
gains may differ from their ultimate characterization for
federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are
distributed may differ from the year that the income or
realized gains (losses) were recorded by the Fund.
On the statement of assets and liabilities, as a result of
permanent book-to-tax differences, undistributed net
investment income has been increased by $627,114 and
accumulated net realized gain has been decreased by $627,114.
14 (THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.)
<PAGE>
DIVIDENDS TO SHAREHOLDERS
Dividends declared and paid each calendar quarter from net
investment income 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 0.04% to 0.02% annually. Additional
administrative service expenses paid by the Fund are office
expenses, consultants' fees and compensation of officers and
employees. Under this agreement, the Fund also pays taxes,
audit and certain legal fees, registration fees for shares,
compensation of board members, corporate filing fees,
organizational expenses and any other expenses properly
payable by the Fund and approved by the board.
Under a separate Transfer Agency Agreement, AEFC maintains
shareholder accounts and records. The Fund pays AEFC an
annual fee per shareholder account for this service as
follows:
- Class A $15
- Class B $16
- Class Y $15
Also effective March 20, 1995, the Fund entered into
agreements with American Express Financial Advisors Inc. for
distribution and shareholder servicing-related services.
Under a Plan and Agreement of Distribution, the Fund pays a
distribution fee at an annual rate of 0.75% of the Fund's
average daily net assets attributable to Class B shares for
distribution-related services.
(THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.) 15
<PAGE>
Notes to financial statements
IDS MANAGED ALLOCATION FUND
Under a Shareholder Service Agreement, the Fund pays a fee
for service provided to shareholders by financial advisors
and other servicing agents. The fee is calculated at a rate
of 0.175% of the Fund's average daily net assets attributable
to Class A and Class B shares and commencing on May 9, 1997,
the fee is calculated at a rate of 0.10% of the Fund's
average daily net assets attributable to Class Y shares.
Sales charges received by American Express Financial Advisors
Inc. for distributing Fund shares were $4,504,516 for Class A
and $170,213 for Class B for the year ended Sept. 30, 1997.
During the year ended Sept. 30, 1997, the Fund's transfer
agency fees were reduced by $226,105 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:
<TABLE>
<CAPTION>
Year ended Sept. 30, 1997
Class A Class B Class Y
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Sold 16,320,731 6,502,486 2,643,368
Issued for reinvested distributions 31,097,328 2,176,773 1,468,689
Redeemed (46,167,773) (2,976,311) (4,038,230)
- ------------------------------------------------------------------------------
Net increase (decrease) 1,250,286 5,702,948 73,827
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Ten months ended Sept. 30, 1996
Class A Class B Class Y
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Sold 21,638,843 8,496,240 2,625,252
Issued for reinvested distributions 14,606,625 494,566 669,065
Redeemed (42,955,266) (1,743,550) (3,458,284)
- ------------------------------------------------------------------------------
Net increase (decrease) (6,709,798) 7,247,256 (163,967)
- ------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
4
CHANGE OF FUND'S FISCAL YEAR
The By-Laws of the Fund were amended on Jan. 11, 1996,
changing it's fiscal year end from Nov. 30 to Sept. 30,
effective 1996.
- -------------------------------------------------------------------
5
FINANCIAL HIGHLIGHTS
"Financial highlights" showing per share data and selected
information is presented on pages 8 and 9 of the prospectus.
16 (THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.)
<PAGE>
- ------------------------------------
Independent auditors' report
THE BOARD OF TRUSTEES AND UNITHOLDERS
GROWTH AND INCOME TRUST:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments in
securities, of Total Return Portfolio (a series of Growth and
Income Trust) as of September 30, 1997, the related statement
of operations for the year then ended and the statements of
changes in net assets for the year ended September 30, 1997
and for the period from May 13, 1996 (commencement of
operations) to September 30, 1996. These financial statements
are the responsibility of portfolio management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. Investment securities held in custody
are confirmed to us by the custodian. As to securities
purchased and sold but not received or delivered, and
securities on loan we request confirmations from brokers, and
where replies are not received, we carry out other
appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Total Return Portfolio at September 30, 1997, and
the results of its operations and the changes in its net
assets for the periods stated in the first paragraph above,
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 7, 1997
(THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.) 17
<PAGE>
- ------------------------------------
Financial statements
STATEMENT OF ASSETS AND LIABILITIES
TOTAL RETURN PORTFOLIO
SEPT. 30, 1997
<TABLE>
<CAPTION>
ASSETS
- -------------------------------------------------------------------
<S> <C>
Investments in securities, at value (Note 1)
Investments in securities of unaffiliated issuers
(identified cost $2,719,395,032) $3,069,531,804
Investments in securities of affiliated issuer
(identified cost $13,079,176) 5,857,500
Dividends and accrued interest receivable 11,942,366
Receivable for investment securities sold 52,365,358
Unrealized appreciation on foreign currency
contracts held, at value (Notes 1 and 4) 26,245
U.S. government securities held as collateral
(Note 5) 6,121,325
---------------
Total assets 3,145,844,598
---------------
LIABILITIES
- -------------------------------------------------------------------
Disbursements in excess of cash on demand deposit
(includes bank overdraft of $48,564,468) 49,525,597
Payable for investment securities purchased 44,986,177
Unrealized depreciation on foreign currency
contracts held, at value (Notes 1 and 4) 112,220
Payable upon return of securities loaned (Note 5) 51,943,360
Accrued investment management services fee 39,715
Other accrued expenses 30,883
---------------
Total liabilities 146,637,952
---------------
Net assets $2,999,206,646
---------------
---------------
</TABLE>
See accompanying notes to financial statements.
18 (THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.)
<PAGE>
STATEMENT OF OPERATIONS
TOTAL RETURN PORTFOLIO
YEAR ENDED SEPT. 30, 1997
<TABLE>
<CAPTION>
INVESTMENT INCOME
- --------------------------------------------------------------------------
<S> <C>
Income:
Dividends $ 35,485,471
Interest 62,794,083
Less: Foreign taxes withheld (1,468,029)
-------------
Total income 96,811,525
-------------
Expenses (Note 2):
Investment management services fee 13,358,064
Compensation of board members 27,806
Custodian fees 670,730
Audit fees 28,875
Other 50,741
-------------
Total expenses 14,136,216
Earnings credits on cash balances (Note 2) (13,747)
-------------
Total net expenses 14,122,469
-------------
Investment income (loss) -- net 82,689,056
-------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
- --------------------------------------------------------------------------
Net realized gain (loss) on:
Security transactions (including loss of $1,184,513
on sale of affiliated issuers) (Note 3) 347,541,692
Financial futures contracts (2,231,806)
Foreign currency transactions 402,716
Option contracts written (Note 7) (85,138)
-------------
Net realized gain (loss) on investments 345,627,464
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 122,489,698
-------------
Net gain (loss) on investments and foreign currencies 468,117,162
-------------
Net increase (decrease) in net assets resulting from operations $550,806,218
-------------
-------------
</TABLE>
See accompanying notes to financial statements.
(THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.) 19
<PAGE>
Financial statements
STATEMENT OF CHANGES IN NET ASSETS
TOTAL RETURN PORTFOLIO
<TABLE>
<CAPTION>
OPERATIONS
- --------------------------------------------------------------------------
For the period from
Year ended May 13, 1996* to
Sept. 30, 1997 Sept. 30, 1996
<S> <C> <C>
Investment income (loss) -- net $ 82,689,056 $ 31,175,277
Net realized gain (loss) on investments 345,627,464 26,015,535
Net change in unrealized appreciation
(depreciation) of investments and on translation
of assets and liabilities in foreign currencies 122,489,698 75,342,945
--------------- -------------------
Net increase (decrease) in net assets resulting from
operations 550,806,218 132,533,757
Net contributions (withdrawals) from partners (350,789,437) 2,666,631,108
--------------- -------------------
Total increase (decrease) in net assets 200,016,781 2,799,164,865
Net assets at beginning of period (Note 1) 2,799,189,865 25,000
--------------- -------------------
Net assets at end of period $ 2,999,206,646 $ 2,799,189,865
--------------- -------------------
--------------- -------------------
</TABLE>
* Commencement of operations
See accompanying notes to financial statements.
20 (THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.)
<PAGE>
- ----------------------------------------
Notes to financial statements
TOTAL RETURN PORTFOLIO
- --------------------------------------------------------------------------
1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Total Return 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. Total Return
Portfolio seeks to provide maximum total return through a
combination of growth of capital and current income by
investing in U.S. equity securities, U.S. and foreign debt
securities, foreign equity securities and money market
instruments. The Declaration of Trust permits the Trustees to
issue non-transferable interests in the Portfolio. On April
15, 1996, American Express Financial Corporation (AEFC)
contributed $25,000 to the Portfolio. Operations did not
formally commence until May 13, 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
(THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.) 21
<PAGE>
Notes to financial statements
TOTAL RETURN PORTFOLIO
approximate market value based on current interest rates;
those maturing in 60 days or less are valued at amortized
cost.
OPTION TRANSACTIONS
In order to produce incremental earnings, protect gains and
facilitate buying and selling of securities for investment
purposes, the Portfolio may buy and write options traded on
any U.S. or foreign exchange or in the over-the-counter
market where the completion of the obligation is dependent
upon the credit standing of the other party. The Portfolio
also may buy and sell put and call options and write covered
call options on portfolio securities and may write
cash-secured put options. The risk in writing a call option
is that the Portfolio gives up the opportunity of profit if
the market price of the security increases. The risk in
writing a put option is that the Portfolio may incur a loss
if the market price of the security decreases and the option
is exercised. The risk in buying an option is that the
Portfolio pays a premium whether or not the option is
exercised. The Portfolio also has the additional risk of not
being able to enter into a closing transaction if a liquid
secondary market does not exist.
Option contracts are valued daily at the closing prices on
their primary exchanges and unrealized appreciation or
depreciation is recorded. The Portfolio will realize a gain
or loss upon expiration or closing of the option transaction.
When an option is exercised, the proceeds on sales for a
written call option, the purchase cost for a written put
option or the cost of a security for a purchased put or call
option is adjusted by the amount of premium received or paid.
FUTURES TRANSACTIONS
In order to gain exposure to or protect itself from changes
in the market, the Portfolio may buy and sell financial
futures contracts traded on any U.S. or foreign exchange. The
Portfolio also may buy and write put and call options on
these futures contracts. Risks of entering into futures
contracts and related options include the possibility that
there may be an illiquid market and that a change in the
value of the contract or option may not correlate with
changes in the value of the underlying securities.
22 (THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.)
<PAGE>
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
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
Sept. 30, 1997 was $9,395,750 representing 0.31% of the net
assets. Pursuant to
(THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.) 23
<PAGE>
Notes to financial statements
TOTAL RETURN PORTFOLIO
guidelines adopted by the board, certain unregistered
securities are determined to be liquid and are not included
within the 10% limitation specified above.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities that have been purchased
by the Portfolio on a forward-commitment or when-issued basis
can take place one month or more after the transaction date.
During this period, such securities are subject to market
fluctuations, and they may affect the Portfolio's net assets
the same as owned securities. The Portfolio designates cash
or liquid high-grade debt securities at least equal to the
amount of its commitment. As of Sept. 30, 1997, the Portfolio
had entered into outstanding when-issued or
forward-commitments of $1,996,219.
FEDERAL TAXES
For federal income tax purposes the Portfolio qualifies as a
partnership and each investor in the Portfolio is treated as
the owner of its proportionate share of the net assets,
income, expenses and realized and unrealized gains and losses
of the Portfolio. Accordingly, as a "pass-through" entity,
the Portfolio does not pay any income dividends or capital
gain distributions.
OTHER
Security transactions are accounted for on the date
securities are purchased or sold. Dividend income is
recognized on the ex-dividend date and interest income,
including level-yield amortization of premium and discount,
is accrued daily.
- -------------------------------------------------------------------
2
FEES AND EXPENSES
The Trust, on behalf of the Portfolio, has entered into an
Investment Management Services Agreement with AEFC for
managing its portfolio. Under this agreement, AEFC determines
which securities will be purchased, held or sold. The
management fee is a percentage of the Portfolio's average
daily net assets in reducing percentages from 0.53% to 0.40%
annually. The fees may be increased or decreased by a
performance adjustment based on a comparison of the
performance of Class A shares of IDS Managed Allocation Fund
to the Lipper Flexible Portfolio Fund Index. The maximum
adjustment is 0.08% of the
24 (THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.)
<PAGE>
Portfolio's average daily net assets on an annual basis. The
adjustment decreased the fee by $532,639 for the year ended
Sept. 30, 1997.
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 year ended Sept. 30, 1997, the Portfolio's
custodian fees were reduced by $13,747 as a result of
earnings credits from overnight cash balances.
Pursuant to a Placement Agency Agreement, American Express
Financial Advisors Inc. acts as placement agent of the units
of the Trust.
- -------------------------------------------------------------------
3
SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities
(other than short-term obligations) aggregated $2,436,278,174
and $3,296,916,611, respectively, for the year ended Sept.
30, 1997. For the same period, the portfolio turnover rate
was 99%. Realized gains and losses are determined on an
identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC
were $314,054 for the year ended Sept. 30, 1997.
- -------------------------------------------------------------------
4
FOREIGN CURRENCY CONTRACTS
At Sept. 30, 1997, the Portfolio had entered into foreign
currency exchange contracts that obligate the Portfolio to
deliver currencies at specified future dates. The unrealized
appreciation and/or depreciation on these contracts is
included in the accompanying
(THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.) 25
<PAGE>
Notes to financial statements
TOTAL RETURN PORTFOLIO
financial statements. See Summary of significant accounting
policies. The terms of the open contracts are as follows:
<TABLE>
<CAPTION>
Currency to be Currency to be Unrealized Unrealized
Exchange date delivered received appreciation depreciation
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Oct. 1, 1997 3,203,097 4,431,421 $ 4,010 $ --
U.S. Dollar Canadian Dollar
Oct. 1, 1997 79,117,881 654,527 -- 965
Japanese Yen U.S. Dollar
Oct. 1, 1997 10,512,617 310,565 5,851 --
Philippine Peso U.S. Dollar
Oct. 1, 1997 71,785,743 593,026 -- 1,720
Japanese Yen U.S. Dollar
Oct. 2, 1997 1,438,498 1,986,810 -- 604
U.S. Dollar Canadian Dollar
Oct. 2, 1997 6,806,050 196,877 -- 399
Philippine Peso U.S. Dollar
Oct. 2, 1997 17,340,065 2,282,188 -- 3,942
Swedish Krona U.S. Dollar
Oct. 3, 1997 2,593,840 4,196,471 15,200 --
British Pound U.S. Dollar
Oct. 3, 1997 10,293,311 297,637 -- 1,720
Philippine Peso U.S. Dollar
Oct. 31, 1997 1,755,783 10,423,469 1,184 --
U.S. Dollar French Franc
Oct. 31, 1997 1,294,930 7,638,661 -- 7,367
U.S. Dollar French Franc
Nov. 28, 1997 3,987,828,460 33,220,000 -- 95,503
Japanese Yen U.S. Dollar
----- ------
Total $ 26,245 $ 112,220
</TABLE>
- --------------------------------------------------------------------------------
5
LENDING OF PORTFOLIO SECURITIES
At Sept. 30, 1997, securities valued at $50,899,294 were on
loan to brokers. For collateral, the Portfolio received
$45,822,035 in cash and government securities valued at
$6,121,325. Income from securities lending amounted to
$506,611 for the year Sept. 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.
- -------------------------------------------------------------------
6
INTEREST RATE FUTURES CONTRACTS
At Sept. 30, 1997, investments in securities included
securities valued at $12,250,800 that were pledged as
collateral to cover initial margin deposits on 150 open sale
contracts. The market value of the open sale contracts at
Sept. 30, 1997 was $16,518,750 with a net unrealized loss of
$228,094. See Summary of significant accounting policies.
26 (THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.)
<PAGE>
- -------------------------------------------------------------------
7
OPTION CONTRACTS WRITTEN
The number of contracts and premium amounts associated with
option contracts written is as follows:
<TABLE>
<CAPTION>
Year ended Sept 30, 1997
Calls
---------------------------
Contracts Premium
- --------------------------------------------------------------------
<S> <C> <C>
Balance Sept. 30, 1996 -- $ --
Opened 49,000 107,800
Closed or expired (49,000) (107,800)
Exercised -- --
- --------------------------------------------------------------------
Balance Sept. 30, 1997 -- $ --
- --------------------------------------------------------------------
</TABLE>
See Summary of significant accounting policies.
(THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.) 27
<PAGE>
- ------------------------------------
Investments in securities
TOTAL RETURN PORTFOLIO (Percentages represent
SEPT. 30, 1997 value of investments
compared to net assets)
Investments in securities of unaffiliated issuers
COMMON STOCKS (59.8%)
- ---------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE(a)
<S> <C> <C>
AEROSPACE & DEFENSE (2.0%)
Boeing 234,132 $ 12,745,561
Lockheed Martin 140,000 14,927,500
Northrop Grumman 65,000 7,889,375
Raytheon 181,200 10,713,450
Rockwell Intl 180,000 11,328,750
United Technologies 50,000 4,050,000
TOTAL 61,654,636
AUTOMOTIVE & RELATED (1.3%)
Chrysler 458,800 16,889,575
Dana 75,000 3,703,125
Ford Motor 188,100 8,511,525
General Motors 100,700 6,740,606
Goodyear Tire & Rubber 50,000 3,437,500
TOTAL 39,282,331
BANKS AND SAVINGS & LOANS (4.3%)
BankAmerica 356,100 26,106,581
BankBoston 225,000 19,898,437
Citicorp 85,000 11,384,687
Credicorp 65,000(h) 1,235,000
First Union 550,928 27,580,833
KeyCorp 345,800 22,001,525
Mellon Bank 61,400 3,361,650
Norwest 49,800 3,050,250
Washington Mutual 229,700 16,021,575
TOTAL 130,640,538
BEVERAGES & TOBACCO (1.9%)
Coca-Cola 539,300 32,863,594
Panamerican Beverages Cl A 50,000 1,953,125
Philip Morris 550,000 22,859,375
TOTAL 57,676,094
BUILDING MATERIALS & CONSTRUCTION (0.6%)
Georgia Pacific 25,000 2,609,375
Masco 75,000 3,435,937
Sherwin-Williams 74,700 2,198,981
Tyco Intl 69,100 5,670,519
Weyerhaeuser 50,000 2,968,750
TOTAL 16,883,562
CHEMICALS (0.5%)
Du Pont (EI) de Nemours 200,000 12,312,500
Praxair 40,000 2,047,500
TOTAL 14,360,000
COMMUNICATIONS EQUIPMENT & SERVICES (0.5%)
Motorola 175,000 12,578,125
Tellabs 50,000(b) 2,575,000
TOTAL 15,153,125
COMPUTERS & OFFICE EQUIPMENT (3.9%)
Cisco Systems 101,900(b) 7,445,069
Compaq Computer 194,000(b) 14,501,500
Computer Associates Intl 165,500 11,884,969
First Data 350,000 13,146,875
Hewlett-Packard 150,000 10,434,375
Intl Business Machines 175,000 18,539,062
</TABLE>
- ---------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE(a)
<S> <C> <C>
Microsoft 173,400(b) $ 22,942,987
Oracle 348,675(b) 12,704,845
Parametric Technology 50,000(b) 2,206,250
Seagate Technology 65,000(b) 2,348,125
TOTAL 116,154,057
ELECTRONICS (1.2%)
AMP 175,000 9,373,438
Intel 264,000 24,370,500
LSI Logic 52,500(b) 1,686,563
TOTAL 35,430,501
ENERGY (1.8%)
Anadarko Petroleum 100,000 7,181,250
Mobil 250,000 18,500,000
Phillips Petroleum 100,000 5,162,500
Unocal 535,000 23,138,750
TOTAL 53,982,500
ENERGY EQUIPMENT & SERVICES (0.2%)
Baker Hughes 150,000 6,562,500
FINANCIAL SERVICES (0.5%)
Providian Financial 219,000 8,691,562
Travelers Group 114,000 7,780,500
TOTAL 16,472,062
FOOD (1.6%)
ConAgra 50,000 3,300,000
CPC Intl 185,000 17,135,625
Quaker Oats 175,000 8,815,625
Sara Lee 300,000 15,450,000
Ralston-Purina Group 30,000 2,655,000
TOTAL 47,356,250
FURNITURE & APPLIANCES (0.3%)
Maytag 225,000 7,678,125
HEALTH CARE (5.2%)
ALZA 128,100(b) 3,714,900
Amgen 116,000(b) 5,560,750
Baxter Intl 85,000 4,441,250
Boston Scientific 91,400(b) 5,044,137
Bristol-Myers Squibb 262,400 21,713,600
Guidant 109,600 6,137,600
Johnson & Johnson 369,000 21,263,625
Lilly (Eli) 154,100 18,559,419
Medtronic 202,600 9,522,200
Merck & Co 253,600 25,344,150
Perkin-Elmer 25,000 1,826,562
Pfizer 263,200 15,808,450
Schering-Plough 285,000 14,677,500
Warner-Lambert 25,000 3,373,438
TOTAL 156,987,581
HEALTH CARE SERVICES (0.8%)
Service Corp Intl 368,400 11,857,875
Tenet Healthcare 200,000(b) 5,825,000
United Healthcare 100,000 5,000,000
TOTAL 22,682,875
</TABLE>
See accompanying notes to investments in securities.
28 (THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.)
<PAGE>
Investments in securities of unaffiliated issuers
COMMON STOCKS (CONTINUED)
- ---------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE(a)
<S> <C> <C>
HOUSEHOLD PRODUCTS (1.7%)
Colgate-Palmolive 160,000 $ 11,150,000
Gillette 231,800 20,007,238
Procter & Gamble 287,600 19,862,375
TOTAL 51,019,613
INDUSTRIAL EQUIPMENT & SERVICES (0.3%)
Case 50,000 3,331,250
Deere & Co 62,300 3,348,625
Illinois Tool Works 55,000 2,750,000
TOTAL 9,429,875
INSURANCE (0.9%)
Aon 102,850 5,438,194
SunAmerica 150,000 5,878,125
UNUM 350,000 15,968,750
TOTAL 27,285,069
MEDIA (0.1%)
Clear Channel Communications 25,000(b) 1,621,875
CS Wireless Systems 2,255(b,l) --
TOTAL 1,621,875
METALS (0.7%)
Aluminum Co of America 255,800 20,975,600
Bar Technologies
with warrants 3,000(b) 150,000
TOTAL 21,125,600
MULTI-INDUSTRY CONGLOMERATES (2.6%)
Dover 50,000 3,393,750
Eastman Kodak 64,000 4,156,000
Emerson Electric 87,600 5,047,950
General Electric 529,600 36,045,900
General Signal 73,200 3,165,900
Minnesota Mining & Mfg 58,300 5,392,750
Textron 50,000 3,250,000
Westinghouse Electric 398,000 10,770,875
Xerox 62,500 5,261,719
TOTAL 76,484,844
PAPER & PACKAGING (0.8%)
Bemis 218,150 9,762,213
Intl Paper 50,000 2,753,125
Tenneco 225,000 10,771,875
TOTAL 23,287,213
RESTAURANTS & LODGING (0.3%)
Hilton Hotels 280,000 9,432,500
RETAIL (2.3%)
American Stores 430,000 10,481,250
AutoZone 190,000(b) 5,700,000
Dayton Hudson 170,000 10,189,375
Jostens 150,000 4,068,750
Kroger 270,000(b) 8,150,625
Rite Aid 188,500 10,449,969
Wal-Mart Stores 566,700 20,755,388
TOTAL 69,795,357
</TABLE>
- ---------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE(a)
<S> <C> <C>
TRANSPORTATION (0.1%)
CSX 50,000 $ 2,925,000
UTILITIES -- ELECTRIC (0.4%)
FPL Group 50,000 2,562,500
Southern Co 375,000 8,460,938
TOTAL 11,023,438
UTILITIES -- GAS (0.2%)
Sonat 132,400 6,735,850
UTILITIES -- TELEPHONE (2.0%)
AirTouch Communications 350,000(b) 12,403,125
Ameritech 130,000 8,645,000
BellSouth 210,000 9,712,500
GTE 270,000 12,251,250
U S WEST Communications Group 200,000 7,700,000
WorldCom 267,000(b) 9,445,125
TOTAL 60,157,000
FOREIGN (20.8%)(o)
ARGENTINA (0.1%)
Telefonica de Argentina ADR 44,000(h) 1,611,500
AUSTRALIA (0.9%)
Broken Hill Proprietary 63,895 745,861
M.I.M. Holdings 2,621,088(b) 3,215,684
Pasminco 3,807,000(b) 6,356,468
Westpac Banking 1,124,000(h) 7,098,895
WMC Limited 746,891 3,513,480
Woodside Petroleum 686,000 6,559,656
TOTAL 27,490,044
AUSTRIA (0.1%)
Boehler-Uddeholm 43,600 3,664,750
BRAZIL (0.2%)
Centrais Eletricas Brasileiras ADR 102,000(b,h) 2,672,003
Telecomunicacoes Brasileiras-Telebras ADR 33,000 4,248,750
TOTAL 6,920,753
CANADA (0.9%)
Air Canada 98,600(b) 963,344
Northern Telecom 118,800 12,347,775
Petro-Canada 262,500(b) 4,777,908
Toronto-Dominion Bank 237,557 8,089,299
TOTAL 26,178,326
CHILE (--%)
Cia de Telecomunicaciones de Chile ADR 40,000(h) 1,295,000
FINLAND (0.3%)
Nokia Cl A 104,000(b) 9,890,249
</TABLE>
See accompanying notes to investments in securities.
(THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.) 29
<PAGE>
Investments in securities
TOTAL RETURN PORTFOLIO (Percentages represent
SEPT. 30, 1997 value of investments
compared to net assets)
Investments in securities of unaffiliated issuers
COMMON STOCKS (CONTINUED)
- ---------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE(a)
<S> <C> <C>
FRANCE (2.2%)
Accor 61,732 $ 11,404,393
Banque Nationale de Paris 282,450 14,230,454
Lafarge 137,115(b) 10,049,068
Michelin Cl B 150,489(h) 8,548,421
SGS-Thomson Microelectronics 39,471(b) 3,719,129
Societe Elf Acquitaine 62,700(b) 8,370,357
Total Petroleum 81,000(b) 9,270,562
TOTAL 65,592,384
GERMANY (1.2%)
Henkel KGaA 235,966 13,303,265
Hoechst 238,050 10,564,130
SGL Carbon 62,200 9,136,445
Teva Pharmaceutical Inds ADR 27,500 1,533,125
TOTAL 34,536,965
HONG KONG (1.3%)
Cheung Kong Holdings 1,048,000(b) 11,782,889
China Merchants Holdings Intl 1,100,000(b) 2,544,585
HSBC Holdings 386,800 12,946,653
Hutchison Whampoa 569,000 5,606,907
New World Development 1,184,000 7,160,920
TOTAL 40,041,954
ITALY (2.0%)
Credito Italiano 4,590,000(b,h) 12,417,979
ENI 2,468,420 15,544,260
Istituto Bancario San Paolo di Torino 1,008,710(b,h) 7,994,179
Telecom Italia 4,513,766 23,982,606
TOTAL 59,939,024
JAPAN (2.5%)
Casio Computer 742,000(b,h) 6,639,271
DDI 800(b) 4,016,570
Eisai 215,000(b) 3,847,556
Fujikura 770,000(b,h) 5,505,468
Kurita Water Inds 210,000(b) 4,193,040
Mitsubishi Motor 702,000(b) 3,605,965
Mitsumi Electric 287,000(b,h) 6,063,380
NEC 900,000(b) 10,961,060
Sanwa Bank 180,000(b,h) 2,207,125
Sony 100,000(b) 9,444,905
Sumitomo Bank 137,000(b) 2,065,783
Sumitomo Realty & Development 1,325,000(b) 10,483,636
Tokyo Electron 120,000(b) 7,327,258
TOTAL 76,361,017
MALAYSIA (--%)
Tenaga Nasional Berhad 481,000(b) 1,297,295
</TABLE>
- ---------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE(a)
<S> <C> <C>
MEXICO (0.1%)
Fomento Economico Mexicano Cl B 242,000 $ 2,090,396
Telefonos de Mexico ADR Cl L 32,000 1,656,000
TOTAL 3,746,396
NETHERLANDS (3.2%)
Akzo Nobel 44,040(b) 7,527,013
Baan 43,656(b) 3,148,216
ING Groep 270,520 12,425,513
Philips Electronics 378,930(b) 32,067,849
Royal Dutch Petroleum 350,000 19,425,000
Royal Dutch Petroleum 158,816(b) 8,890,950
Vendex 193,000(b) 11,444,796
TOTAL 94,929,337
PERU (--%)
Telefonica del Peru ADR 24,000(b) 567,000
PHILIPPINES (0.1%)
Philippine Long Distance Telephone ADR 56,900 1,543,413
RUSSIA (0.2%)
Lukoil Holding ADR 35,000(b,h) 3,410,225
Mosenergo ADR 80,000(b,c) 3,888,800
TOTAL 7,299,025
SINGAPORE (0.5%)
City Developments 687,000(b) 4,446,747
Keppel Land 950,000(b) 2,397,515
Keppel Land with Warrants 303,000(b) 215,933
Oversea-Chinese Banking 451,440(b) 3,128,646
United Overseas Bank 398,000(b) 2,940,438
TOTAL 13,129,279
SPAIN (0.3%)
Telefonica de Espana 310,050 9,742,945
SWEDEN (0.6%)
ABB AB Cl B 95,192 1,342,871
Ericcson Cl B 336,274 16,159,985
TOTAL 17,502,856
SWITZERLAND (1.4%)
Credit Suisse Group 66,069(b) 8,927,015
Novartis 10,530(b) 16,146,531
Roche Holding 1,778 15,771,299
TOTAL 40,844,845
TAIWAN (0.1%)
Compal Electronics 366,000(b) 1,304,858
Nan Ya Plastics 549,450(b) 1,315,530
TOTAL 2,620,388
</TABLE>
See accompanying notes to investments in securities.
30 (THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.)
<PAGE>
Investments in securities of unaffiliated issuers
COMMON STOCKS (CONTINUED)
- ---------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE(a)
<S> <C> <C>
UNITED KINGDOM (2.6%)
BG 2,300,578(b) $ 9,994,449
British Airways 192,920 2,110,038
British Telecommunications 974,995 6,436,051
Glaxo Wellcome 360,700 8,108,264
Great Universal Stores 622,700(b) 6,931,157
Johnson Matthey 445,179(b) 4,854,737
Lloyds TSB Group 362,283(b) 4,873,461
NFC 2,065,378 4,910,829
Shell Transport & Trading 1,811,685(b) 13,244,122
SmithKline Beecham 728,320(b) 7,061,892
Unilever 335,140(b) 9,797,314
TOTAL 78,322,314
TOTAL COMMON STOCKS OF UNAFFILIATED ISSUERS
(COST: $1,472,274,975) $1,794,347,030
</TABLE>
PREFERRED STOCKS AND OTHER (1.7%)
- ---------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE(a)
<S> <C> <C>
BNP
Warrants 58,000 $ 996,440
Pasminco
Rights 1,087,714(o) 228,991
Paxson Communications
12.5% Pay-in-kind Exchangeable 19,700(i) 2,186,700
Unifi Communications
Warrants 3,000 60,000
UNUM
$2.34 Cv 550,000 46,612,500
TOTAL PREFERRED STOCKS AND OTHER
(COST: $34,528,494) $ 50,084,631
</TABLE>
BONDS (15.4%)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER COUPON MATURITY PRINCIPAL VALUE(a)
RATE YEAR AMOUNT
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (1.7%)
U.S. Treasury 6.75 % 2000 $ 32,000,000(m) $ 32,670,720
6.25 2023 9,700,000 9,420,834
TIPS 3.375 2007 8,103,920(k) 7,949,378
TOTAL 50,040,932
MORTGAGE-BACKED SECURITIES (1.8%)
Federal Home Loan Mtge 7.50 2025 25,511,531 26,004,159
8.50 2026 4,318,236 4,518,386
8.50 2027 2,228,880 2,332,188
Federal Natl Mtge Assn 7.50 2024 17,046,013 17,412,502
Structured Asset Securities Corp 6.76 2028 2,500,000 2,519,923
TOTAL 52,787,158
AEROSPACE & DEFENSE (0.3%)
Alliant Techsystems 11.75 2003 2,000,000 2,220,000
L-3 Communications 10.375 2007 1,035,000(c) 1,120,388
Newport News Shipbuilding 8.625 2006 800,000 836,000
Northrop-Grumman 7.75 2016 5,000,000 5,319,900
TOTAL 9,496,288
AIRLINES (0.2%)
Northwest Airlines Cl B 8.07 2015 3,965,851 4,203,960
Northwest Airlines Cl C 8.97 2015 1,964,615 2,106,500
TOTAL 6,310,460
BANKS AND SAVINGS & LOANS (0.2%)
First Nationwide Holdings 10.625 2003 1,960,000 2,165,800
GreenPoint Financial 9.10 2027 1,300,000(c) 1,374,906
U.S. Trust Capital 8.41 2027 1,500,000(c) 1,567,815
Washington Mutual 8.375 2027 1,500,000(c) 1,570,200
TOTAL 6,678,721
BUILDING MATERIALS & CONSTRUCTION (0.2%)
AAF McQuay 8.875 2003 2,535,000 2,528,663
Southdown 10.00 2006 2,350,000 2,573,250
TOTAL 5,101,913
</TABLE>
See accompanying notes to investments in securities.
(THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.) 31
<PAGE>
Investments in securities
TOTAL RETURN PORTFOLIO (Percentages represent
SEPT. 30, 1997 value of investments
compared to net assets)
Investments in securities of unaffiliated issuers
BONDS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER COUPON MATURITY PRINCIPAL VALUE(a)
RATE YEAR AMOUNT
<S> <C> <C> <C> <C>
COMMUNICATIONS EQUIPMENT & SERVICES (0.6%)
Intl Cable Telephone Cv 7.25 % 2005 $ 14,500,000 $ 15,913,750
Unifi Communications 14.00 2004 3,000,000 2,970,000
TOTAL 18,883,750
ELECTRONICS (0.1%)
Thomas & Betts 6.50 2006 4,500,000 4,398,300
ENERGY (--%)
Forcenergy 9.50 2006 1,000,000 1,050,000
ENERGY EQUIPMENT & SERVICES (0.2%)
Cliff Drilling 10.25 2003 3,000,000(c) 3,262,500
DI Industries 8.875 2007 1,500,000 1,541,250
TOTAL 4,803,750
FINANCIAL SERVICES (0.1%)
Airplanes Cl D 10.875 2019 2,750,000 3,141,875
FOOD (0.1%)
Ameriserve Food 10.125 2007 1,750,000(c) 1,828,750
FURNITURE & APPLIANCES (0.2%)
Interface 9.50 2005 2,500,000 2,653,125
Lifestyle Furniture 10.875 2006 3,250,000 3,648,125
TOTAL 6,301,250
HEALTH CARE (0.2%)
Lilly (Eli) 6.77 2036 5,000,000 4,898,900
HEALTH CARE SERVICES (0.4%)
Manor Care 7.50 2006 7,000,000 7,298,130
Owens & Minor 10.875 2006 1,200,000 1,323,000
Vencor 8.625 2007 4,000,000(c) 4,080,000
TOTAL 12,701,130
HOUSEHOLD PRODUCTS (0.1%)
Revlon Worldwide
Zero Coupon 6.43 1998 3,000,000(e) 2,955,000
INDUSTRIAL EQUIPMENT & SERVICES (0.1%)
AGCO 8.50 2006 2,800,000 2,912,000
INSURANCE (0.8%)
American United Life 7.75 2026 5,000,000(p) 4,921,000
Executive Risk Capital Trust 8.675 2027 1,500,000 1,590,540
Metropolitan Life Insurance 7.80 2025 4,800,000(c) 4,921,584
Minnesota Mutual Life 8.25 2025 4,500,000(c) 4,931,685
Nationwide Trust 9.875 2025 5,000,000(c) 5,701,300
Zurich Capital Trust 8.38 2037 1,875,000(c) 2,008,894
TOTAL 24,075,003
LEISURE TIME & ENTERTAINMENT (0.7%)
Icon Fitness
Zero Coupon 15.91 2001 2,700,000(f) 1,464,750
Plitt Theatres 10.875 2004 5,000,000 5,362,500
Speedway Motorsports 8.50 2007 2,000,000(c) 2,020,000
Time Warner 9.15 2023 10,000,000 11,653,400
TOTAL 20,500,650
</TABLE>
See accompanying notes to investments in securities.
32 (THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.)
<PAGE>
Investments in securities of unaffiliated issuers
BONDS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER COUPON MATURITY PRINCIPAL VALUE(a)
RATE YEAR AMOUNT
<S> <C> <C> <C> <C>
MEDIA (0.9%)
Cablevision Systems 10.50 % 2016 $ 3,000,000 $ 3,397,500
CS Wireless Systems
Zero Coupon 11.38 2001 3,855,000(f) 1,040,850
Heritage Media Services 8.75 2006 5,000,000 5,393,750
Lamar Advertising 9.625 2006 800,000 846,000
MDC Communications 10.50 2006 1,000,000 1,081,250
News America Holdings 10.125 2012 2,175,000 2,535,419
TCI Communications 8.75 2015 5,000,000 5,508,750
Univision Network Holdings 7.00 2002 7,500,000 7,696,875
TOTAL 27,500,394
METALS (0.2%)
Bar Technologies 13.50 2001 3,000,000(c) 3,225,000
EnviroSource 9.75 2003 530,000 535,300
EnviroSource Series B 9.75 2003 1,300,000 1,313,000
TOTAL 5,073,300
MULTI-INDUSTRY CONGLOMERATES (0.2%)
Pierce Leahy 11.125 2006 488,000(c) 552,660
Prime Succession 10.75 2004 1,275,000 1,418,438
USI American Holdings 7.25 2006 3,000,000 2,966,070
TOTAL 4,937,168
PAPER & PACKAGING (0.2%)
Gaylord Container 9.75 2007 1,300,000(c) 1,322,750
Owens-Illinois 7.85 2004 2,000,000 2,070,400
Silgan Holdings 9.00 2009 2,050,000 2,111,500
Stone Container 12.25 2002 1,000,000 1,041,250
TOTAL 6,545,900
RETAIL (0.6%)
Dayton Hudson 8.50 2022 2,500,000 2,684,375
Kroger 8.15 2006 5,000,000 5,443,750
Wal-Mart Stores 7.00 2006 9,342,863(c) 9,519,629
TOTAL 17,647,754
TEXTILES & APPAREL (0.1%)
Dominion Textiles 9.25 2006 3,500,000 3,657,500
TRANSPORTATION (0.1%)
Enterprise Rent-A-Car 6.95 2006 3,000,000(c) 3,001,122
UTILITIES -- ELECTRIC (0.6%)
Cleveland Electric Illuminating 7.19 2000 3,000,000(c) 3,031,350
CMS Energy 8.125 2002 2,900,000 2,963,597
El Paso Electric 7.75 2001 5,000,000 5,113,250
Public Service Electric & Gas 6.75 2016 7,365,000 7,235,302
TOTAL 18,343,499
UTILITIES -- GAS (0.2%)
Columbia Gas Systems 7.32 2010 5,043,000 5,119,401
</TABLE>
See accompanying notes to investments in securities.
(THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.) 33
<PAGE>
Investments in securities
TOTAL RETURN PORTFOLIO (Percentages represent
SEPT. 30, 1997 value of investments
compared to net assets)
Investments in securities of unaffiliated issuers
BONDS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER COUPON MATURITY PRINCIPAL VALUE(a)
RATE YEAR AMOUNT
<S> <C> <C> <C> <C>
UTILITIES -- TELEPHONE (0.3%)
Geotek Communications Cv 12.00 % 2001 $ 2,485,000(p) $ 2,112,250
Omnipoint 11.625 2006 5,000,000 5,225,000
Worldcom 7.75 2007 3,000,000 3,164,760
TOTAL 10,502,010
MISCELLANEOUS (0.5%)
Adams Outdoor Advertising 10.75 2006 3,900,000 4,280,250
BTI Telecom 10.50 2007 1,600,000 1,648,000
New Jersey Economic Development 7.425 2029 3,000,000 3,152,850
Outsourcing Solutions 11.00 2006 1,075,000 1,191,906
PLD Telekom
Zero Coupon 16.19 1998 3,000,000(f) 2,827,500
PTC Intl Finance 10.75 2007 2,000,000(c) 1,310,000
Transamerican Energy 11.50 2002 900,000(c) 900,000
Transamerican Energy
Zero Coupon 13.00 2002 1,300,000(c,f) 1,033,500
TOTAL 16,344,006
FOREIGN (3.5%)(o)
Alfa Bank
(U.S. Dollar) 11.22 1997 1,000,000(g) 1,000,000
Alfa-Russia Finance
(U.S. Dollar) 10.375 2000 4,000,000 3,978,400
Australis Media
(U.S. Dollar) Zero Coupon 5.30 2003 5,000,000(e) 4,100,000
Avto Bank
(U.S. Dollar) 10.98 1997 2,000,000(c,g) 2,000,000
Cia Latino Americana
(U.S. Dollar) 11.625 2004 1,150,000(c) 1,226,188
City of Moscow
(U.S. Dollar) 9.50 2000 3,000,000(c) 3,097,500
(U.S. Dollar) Zero Coupon 10.96 1997 2,000,000(e) 1,931,400
Copel
(U.S. Dollar) 9.75 2005 2,000,000(c) 2,062,500
Corporacion Andina De Fomento
(U.S. Dollar) 7.10 2003 6,500,000 6,604,715
Dao Heng Bank
(U.S. Dollar) 7.75 2007 2,500,000(c) 2,522,600
DGS Intl
(U.S. Dollar) 10.00 2007 2,400,000(c) 2,460,000
Espiritu Santo-Escelsa
(U.S. Dollar) 10.00 2007 3,000,000(c) 3,015,000
FSW Intl
(U.S. Dollar) 12.50 2006 2,250,000 2,221,875
Govt of Argentina
(U.S. Dollar) 9.75 2027 2,500,000 2,512,500
Govt of Ecuador
(U.S. Dollar) 6.69 2015 3,280,680 2,378,493
Govt of Poland PDI Euro
(U.S. Dollar) 4.00 2014 4,150,000 3,636,438
Govt of Russia- IAN Bonds
(U.S. Dollar) 6.60 2049 2,500,000 2,062,500
Govt of Russia
(U.S. Dollar) Zero Coupon 10.82 2020 2,675,000(e,j) 1,989,531
Greater Beijing First
(U.S. Dollar) 9.25 2004 1,200,000(c) 1,172,256
(U.S. Dollar) 9.50 2007 1,400,000(c) 1,354,668
</TABLE>
See accompanying notes to investments in securities.
34 (THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.)
<PAGE>
Investments in securities of unaffiliated issuers
BONDS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER COUPON MATURITY PRINCIPAL VALUE(a)
RATE YEAR AMOUNT
<S> <C> <C> <C> <C>
Grupo Iusacell
(U.S. Dollar) 10.00 % 2004 $ 1,000,000(c) $ 1,036,250
Grupo Televisa
(U.S. Dollar) 11.375 2003 2,750,000 3,059,375
Guangdong Enterprises
(U.S. Dollar) 8.875 2007 2,200,000(c) 2,241,118
Hutchinson Whampoa
(U.S. Dollar) 7.50 2027 1,650,000(c) 1,632,295
Hyundai Semiconductor
(U.S. Dollar) 8.625 2007 5,000,000(c) 5,164,850
Imexsa Export Trust
(U.S. Dollar) 10.125 2003 3,000,000(c) 3,202,500
Jasmine Submarine Telecom
(U.S. Dollar) 8.48 2011 3,700,000(c) 3,656,340
Mexican Cetes
(Mexican Peso) Zero Coupon 23.32 1998 12,775,000(e) 1,446,641
Ministry Finance Russia
(U.S. Dollar) 9.25 2001 850,000(c) 882,938
(U.S. Dollar) 10.00 2007 2,500,000(c) 2,650,000
Petrozuata Finance
(U.S. Dollar) 7.63 2009 2,000,000(c) 2,061,720
(U.S. Dollar) 8.22 2017 3,000,000(c) 3,171,750
Philippine Long Distance Telephone
(U.S. Dollar) 7.85 2007 1,250,000(c) 1,196,338
(U.S. Dollar) 8.35 2017 1,000,000(c) 937,250
Pindo Deli Finance
(U.S. Dollar) 10.75 2007 1,300,000(c) 1,316,250
Province of Mendoza
(U.S. Dollar) 10.00 2007 2,000,000(c) 2,045,000
Republic of Panama
(U.S. Dollar) 7.875 2002 1,000,000(c) 1,001,840
Rogers Cantel
(U.S. Dollar) 9.375 2008 2,800,000 3,003,000
Southern Peru
(U.S. Dollar) 7.90 2007 1,000,000(c) 1,035,310
Tjiwi Kimia Finance
(U.S. Dollar) 10.00 2004 2,900,000(c) 2,863,750
Veninfotel
(U.S. Dollar) Cv Pay-in-kind 10.00 2002 2,250,000(i,p) 2,362,500
Veritas Holdings
(U.S. Dollar) 9.625 2003 2,000,000(c) 2,145,000
Zhuhai Highway
(U.S. Dollar) 12.00 2008 5,000,000(c) 5,712,500
TOTAL 105,151,079
TOTAL BONDS
(COST: $450,114,681) 462,688,963
</TABLE>
See accompanying notes to investments in securities.
(THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.) 35
<PAGE>
Investments in securities
TOTAL RETURN PORTFOLIO (Percentages represent
SEPT. 30, 1997 value of investments
compared to net assets)
Investments in securities of unaffiliated issuers
SHORT-TERM SECURITIES (25.4%)
- ---------------------------------------
<TABLE>
<CAPTION>
ISSUER ANNUALIZED AMOUNT VALUE(a)
YIELD ON PAYABLE AT
DATE OF MATURITY
PURCHASE
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCIES (1.7%)
Federal Home Loan Mtge Corp Disc Nt
10-07-97 5.46% $11,200,000 $ 11,189,864
10-10-97 5.43 8,000,000 7,989,180
10-15-97 5.42 4,300,000 4,290,970
Federal Natl Mtge Assn
10-17-97 5.46 12,500,000 12,469,722
11-07-97 5.47 15,265,000 15,179,573
TOTAL 51,119,309
COMMERCIAL PAPER (23.0%)
ABB Treasury Center USA
11-21-97 5.58 6,000,000(d) 5,950,779
12-01-97 5.59 5,000,000(d) 4,951,347
A.I. Credit
10-09-97 5.66 10,000,000 9,987,250
10-21-97 5.55 8,000,000 7,974,470
Albertson's
10-23-97 5.54 10,800,000 10,763,568
American General Finance
10-23-97 5.55 6,700,000 6,677,440
10-30-97 5.54 10,000,000 9,955,614
11-04-97 5.55 19,800,000 19,696,963
Ameritech Capital Funding
10-20-97 5.65 10,000,000 9,969,737
Associates Corp North America
11-05-97 5.55 15,000,000 14,919,646
Avco Financial Services
10-14-97 5.65 10,000,000 9,976,744
11-25-97 5.58 11,500,000 11,399,435
12-03-97 5.59 7,100,000 7,028,685
Barclays U.S. Funding
10-28-97 5.53 15,000,000 14,938,125
BHP Finance
11-10-97 5.58 17,500,000 17,392,083
BellSouth Telecommunications
10-29-97 5.55 14,900,000 14,836,029
Beneficial
10-22-97 5.55 7,000,000 6,975,247
CAFCO
11-05-97 5.56 9,400,000(d) 9,349,462
Campbell Soup
10-23-97 5.53 19,800,000(d) 19,733,450
11-18-97 5.54 7,000,000(d) 6,946,862
Cargill Global
10-17-97 5.55 8,200,000(d) 8,179,956
11-07-97 5.59 2,600,000(d) 2,584,526
11-18-97 5.49 1,800,000(d) 1,786,336
CIT Group Holdings
10-16-97 5.55 15,000,000 14,965,500
11-04-97 5.54 4,400,000 4,377,103
Commercial Credit
11-06-97 5.58 7,100,000 7,058,198
11-07-97 5.54 16,000,000 15,909,391
Commerzbank U.S. Finance
10-29-97 5.55 14,300,000 14,238,494
</TABLE>
- ---------------------------------------
<TABLE>
<CAPTION>
ISSUER ANNUALIZED AMOUNT VALUE(a)
YIELD ON PAYABLE AT
DATE OF MATURITY
PURCHASE
<S> <C> <C> <C>
CPC Intl
10-20-97 5.56% $ 5,000,000(d) $ 4,983,546
Deutsche Bank Financial
10-20-97 5.53 16,600,000 16,551,814
10-29-97 5.53 13,000,000 12,944,389
Fleet Funding
10-10-97 5.54 9,538,000(d) 9,524,885
Ford Motor Credit
10-10-97 5.54 9,100,000 9,086,205
10-06-97 5.53 17,000,000 16,986,990
Gannett
10-15-97 5.53 9,300,000(d) 9,280,108
11-06-97 5.54 13,200,000 13,127,400
Gateway Fuel
10-30-97 5.53 12,000,000 11,946,833
General Electric Capital
11-12-97 5.58 11,400,000 11,326,318
Goldman Sachs Group
10-03-97 5.52 4,500,000 4,498,622
11-13-97 5.55 10,300,000 10,232,212
11-14-97 5.55 11,700,000 11,621,207
Household Finance
10-24-97 5.54 15,000,000 14,947,196
Kredietbank North America Finance
10-27-97 5.53 15,000,000 14,940,362
Metlife Funding
10-08-97 5.54 14,400,000 14,383,551
10-16-97 5.53 16,889,000 16,850,296
10-17-97 5.55 15,000,000 14,960,548
Morgan Stanley Group
10-08-97 5.55 3,700,000 3,695,564
10-22-97 5.55 9,300,000 9,270,108
NBD Bank Canada
10-31-97 5.56 4,300,000 4,280,148
Nestle Capital
10-06-97 5.53 16,900,000 16,887,067
New Center Asset Trust
10-17-97 5.54 2,000,000 1,995,102
Paccar Financial
10-28-97 5.54 6,200,000 6,174,332
10-17-97 5.56 500,000 498,767
Pitney Bowes Credit
10-20-97 5.75 4,200,000 4,186,394
Reed Elsevier
10-07-97 5.57 10,400,000(d) 10,389,026
10-29-97 5.55 5,500,000(d) 5,476,387
11-05-97 5.56 9,600,000(d) 9,545,703
SBC Communications Capital
10-23-97 5.55 10,000,000(d) 9,966,389
10-28-97 5.55 10,000,000(d) 9,953,032
11-05-97 5.56 9,600,000(d) 9,548,387
11-07-97 5.56 8,500,000(d) 8,451,689
12-12-97 5.60 8,000,000(d) 7,908,345
Southern California Gas
11-20-97 5.57 5,800,000(d) 5,754,107
Toyota Motor Credit
11-03-97 5.56 4,600,000 4,575,003
</TABLE>
See accompanying notes to investments in securities.
36 (THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.)
<PAGE>
Investments in securities of unaffiliated issuers
SHORT-TERM SECURITES (CONTINUED)
- ---------------------------------------
<TABLE>
<CAPTION>
ISSUER ANNUALIZED AMOUNT VALUE(a)
YIELD ON PAYABLE AT
DATE OF MATURITY
PURCHASE
<S> <C> <C> <C>
UBS Finance (Delaware)
10-06-97 5.53% $18,600,000 $ 18,585,766
USAA Capital
10-22-97 5.53 4,600,000 4,585,215
11-03-97 5.56 18,000,000 17,903,929
12-02-97 5.58 13,000,000 12,871,463
TOTAL 689,216,845
LETTERS OF CREDIT (0.7%)
Bank of America-
AES Barbers Point
10-17-97 5.53 4,700,000 4,688,532
Bank of America-
Formosa Plastics
11-21-97 5.58 9,500,000 9,422,067
Student Loan Marketing Assn-
Nebraska Higher Education
10-30-97 5.56 8,000,000 7,964,427
TOTAL 22,075,026
TOTAL SHORT-TERM SECURITIES
(COST: $762,476,882) 762,411,180
</TABLE>
- ---------------------------------------
<TABLE>
<S> <C> <C> <C>
TOTAL INVESTMENTS IN SECURITIES OF UNAFFILIATED ISSUERS
(COST: $2,719,395,032) $3,069,531,804
Investments in securities of affiliated issuer (n)
</TABLE>
COMMON STOCK (0.2%)
- ---------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE(a)
<S> <C> <C>
China North Inds 16,500,000(b,o) $ 5,857,500
TOTAL INVESTMENTS IN SECURITIES OF AFFILIATED ISSUER
(COST: $13,079,176) $ 5,857,500
TOTAL INVESTMENTS IN SECURITIES
(COST: $2,732,474,208)(q) $ 3,075,389,304
---------------
---------------
</TABLE>
See accompanying notes to investments in securities.
(THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.) 37
<PAGE>
Investment in securities
TOTAL RETURN PORTFOLIO
SEPT. 30, 1997
NOTES TO INVESTMENTS IN SECURITIES
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) 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.
(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) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(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 acquisition to interest reset date disclosed.
(g) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Sept. 30, 1997.
(h) Security is partially or fully on loan. See Note 5 to the financial
statements.
(i) Pay-in-kind securities are securities in which the issuer has the option to
make interest or dividend payments in cash or in additional securities. The
securities issued as interest or dividends usually have the same terms,
including maturity date, as the pay-in-kind securities.
(j) At Sept. 30, 1997, the cost of securities purchased, including interest
purchased, on a when-issued basis was $1,996,219.
(k) 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.
(l) Negligible market value.
(m) Partially pledged as initial deposit on the following open interest rate
futures contracts (see Note 6 to the financial statements):
<TABLE>
<CAPTION>
NOTIONAL
TYPE OF SECURITY AMOUNT
<S> <C>
SALE CONTRACTS
U.S. Treasury Note Dec. 97 10-year notes $15,000,000
</TABLE>
(n) Investments representing 5% or more of the outstanding voting securities of
the issuer. Transactions with companies that are or were affiliates during the
year ended Sept. 30, 1997 are as follows:
<TABLE>
<CAPTION>
Beginning Purchase Sales Ending Dividend
Issuer cost cost cost cost income
<S> <C> <C> <C> <C> <C>
China North
Inds. $18,789,176 $-- $5,710,000 $13,079,176 $--
</TABLE>
38 (THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.)
<PAGE>
(o) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated.
(p) Identifies issues considered to be illiquid as to their marketability (see
Note 1 to the financial statements). Information concerning such security
holdings at Sept. 30, 1997, is as follows:
<TABLE>
<CAPTION>
ACQUISITION
SECURITY DATES COST
<S> <C> <C>
American United Life*
7.75% 2026 2/13/96 $5,000,000
Geotek Communications
12.00% 2001 Cv 3/4/96 2,485,000
Veninfotel
10.00% 2002
(U.S. Dollar) Cv Pay-in-kind 03/05/97 thru 07/23/97 2,250,000
</TABLE>
*Represents a security sold under Rule 144A, which is exempt from registration
under the Securities Act of 1933, as amended.
(q) At Sept. 30, 1997, the cost of securities for federal income tax purpose was
$2,733,620,229 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
<TABLE>
<S> <C>
Unrealized appreciation................. $374,712,999
Unrealized depreciation................. (32,943,924)
- ---------------------------------------------------------
Net unrealized appreciation............. $341,769,075
- ---------------------------------------------------------
</TABLE>
(THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.) 39
<PAGE>
- ------------------------------------
IDS mutual funds
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------
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 Invests in a Portfolio comprised primarily of
MARKETS FUND stocks of companies in developing countries [(ICON OF) WORLD WITH COUNTRIES]
throughout the world that are believed to offer
growth potential. Seeks to provide long-term
growth of capital.
- -------------------------------------------------------------------
IDS GLOBAL Invests in a Portfolio comprised primarily of
GROWTH FUND stocks of companies throughout the world that are [(ICON OF) WORLD]
positioned to meet market needs in a changing
world economy. These companies offer above-average
potential for long-term growth.
- -------------------------------------------------------------------
IDS INTERNATIONAL Invests primarily in common stocks of foreign
FUND companies that offer potential for superior [(ICON OF) THREE FLAGS]
growth. The Fund may invest up to 20% of its
assets in the U.S. market.
- -------------------------------------------------------------------
IDS GLOBAL Invests in stocks and bonds in, for the most part,
BALANCED FUND major markets throughout the world, including the [(ICON OF) SCALE HOLDING TWO WORLDS]
U.S. Seeks to provide a balance of growth of
capital and current income.
- -------------------------------------------------------------------
IDS GLOBAL Invests in a Portfolio comprised primarily of debt
BOND FUND securities of U.S. and foreign issuers to seek [(ICON OF) GLOBE]
high total return through income and growth of
capital.
- -------------------------------------------------------------------
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 Invests primarily in the securities of foreign or
METALS FUND domestic companies that explore for, mine and [(ICON OF) CART OF PRECIOUS GEMS]
process or distribute gold and other precious
metals. A highly aggressive and speculative fund
that seeks long-term growth of capital.
- -------------------------------------------------------------------
IDS DISCOVERY FUND Invests in small- and medium-size, growth-oriented
companies emphasizing technological innovation and [(ICON OF) SHIP]
productivity enhancement. Buys and holds larger
growth-oriented stocks.
- -------------------------------------------------------------------
IDS SMALL COMPANY Invests in all or a representative group of the
INDEX FUND equity securities comprising the S & P SmallCap [(ICON OF) OFFICE BUILDING]
600 Index, as it strives to provide long-term
capital appreciation.
</TABLE>
40 (THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.)
<PAGE>
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------
IDS STRATEGY Invests primarily in common stocks of companies
AGGRESSIVE FUND that are selected for their potential for above- [(ICON OF) CHESS PIECE]
average growth. Above-average means that their
growth potential is better, in the opinion of the
investment manager, than the Standard & Poor's
Corporation (S & P) 500 Stock Index.
- -------------------------------------------------------------------
IDS RESEARCH Invests in a Portfolio comprised primarily of
OPPORTUNITIES FUND equity securities of companies included in the S & [(ICON OF) MAGNIFYING GLASS]
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.
- -------------------------------------------------------------------
IDS GROWTH FUND Invests in a Portfolio comprised primarily of
companies that have above-average potential for [(ICON OF) TREES]
long-term growth as a result of new management,
marketing opportunities or technological
superiority.
- -------------------------------------------------------------------
IDS NEW Invests in a Portfolio comprised primarily of
DIMENSIONS FUND companies with significant growth potential due to [(ICON OF) DIMENSION]
superiority in technology, marketing or
management. The Fund frequently changes its
industry mix.
- -------------------------------------------------------------------
IDS PROGRESSIVE Invests primarily in undervalued common stocks.
FUND The Fund holds stocks for the long term with the [(ICON OF) SHOOTING STAR]
goal of capital growth.
- -------------------------------------------------------------------
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.
- -------------------------------------------------------------------
IDS EQUITY Invests primarily in a combination of moderate
SELECT FUND growth stocks, higher-yielding equities and bonds. [(ICON OF) THREE PINE TREES]
Seeks growth of capital and income.
- -------------------------------------------------------------------
IDS BLUE CHIP Invests in selected stocks from a major market
ADVANTAGE FUND index. Securities purchased are those recommended [(ICON OF) RIBBON]
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.
- -------------------------------------------------------------------
IDS MANAGED Invests in a Portfolio comprised primarily of U.S.
ALLOCATION FUND equity securities, U.S. and foreign debt [(ICON OF) GYROSCOPE]
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.
</TABLE>
(THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.) 41
<PAGE>
IDS mutual funds
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------
IDS STOCK FUND Invests in a Portfolio comprised primarily of
common stock of companies representing many [(ICON OF) BUILDING WITH COLUMNS]
sectors of the economy. Seeks current income and
growth of capital.
- -------------------------------------------------------------------
IDS EQUITY Invests primarily in undervalued common stocks
VALUE FUND that offer potential for growth of capital and [(ICON OF) THREE GROWING FLOWERS]
income.
- -------------------------------------------------------------------
IDS UTILITIES Invests primarily in the stocks of public utility
INCOME FUND companies to seek high current income and growth [(ICON OF) LIGHT BULB]
of income and capital with reduced volatility.
- -------------------------------------------------------------------
IDS DIVERSIFIED Invests in a Portfolio comprised primarily of
EQUITY INCOME FUND high- yielding common stocks to seek high current [(ICON OF) TWO PUZZLE PIECES]
income and, secondarily, to benefit from the
growth potential offered by stock investments.
- -------------------------------------------------------------------
IDS MUTUAL Invests in a Portfolio which seeks to balance
between common stocks and senior securities [(ICON OF) SCALE OF JUSTICE]
(preferred stocks and bonds). Seeks a balance of
growth of capital and current income.
- -------------------------------------------------------------------
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 Invests in a Portfolio comprised mainly of
INCOME FUND long-term, high-yielding corporate fixed-income [(ICON OF) COINS]
securities in the lower rated, higher risk bond
categories to seek high current income. Secondary
objective is capital growth.
- -------------------------------------------------------------------
IDS BOND FUND Invests mainly in corporate bonds, at least 50% in
the higher rated, lower risk bond categories, or [(ICON OF) GREEK COLUMN]
the equivalent, and in government bonds.
- -------------------------------------------------------------------
IDS SELECTIVE FUND Invests in a Portfolio comprised primarily of
high-quality corporate bonds and other highly [(ICON OF) SKYLINE]
rated debt instruments including government
securities and short-term investments. Seeks
current income and preservation of capital.
- -------------------------------------------------------------------
IDS FEDERAL Invests in a Portfolio comprised primarily of
INCOME FUND securities issued or guaranteed as to the timely [(ICON OF) SHIELD WITH EAGLE HEAD ENCLOSED]
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.
</TABLE>
42 (THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.)
<PAGE>
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------
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 Invests mainly in bonds and notes of state or
BOND FUND local government units, with at least 75% in the [(ICON OF) SHIELD WITH GREEK COLUMN ENCLOSED]
four highest rated, lowest risk bond categories.
- -------------------------------------------------------------------
IDS INSURED Invests primarily in municipal securities that are
TAX-EXEMPT FUND insured as to the timely payment of principal and [(ICON OF) SHIELD WITH STAR ENCLOSED]
interest. The insurance feature minimizes credit
risk of the Fund but does not guarantee the market
value of the Fund's shares.
- -------------------------------------------------------------------
IDS STATE Invests primarily in high- and medium-grade
TAX-EXEMPT FUNDS municipal securities to provide income to [(ICON OF) SHIELD WITH U.S. ENCLOSED]
(CA, MA, MI, MN, residents of each respective state that is exempt
NY, OH) from federal, state and local income taxes. (New
York is the only state that is exempt at the local
level.)
- -------------------------------------------------------------------
IDS HIGH YIELD Invests in a Portfolio comprised primarily of
TAX-EXEMPT FUND medium- and lower-quality municipal bonds and [(ICON OF) SHIELD WITH BASKET OF APPLES ENCLOSED]
notes. Lower-quality securities generally involve
greater risk of principal and income.
- -------------------------------------------------------------------
IDS INTERMEDIATE Invests in mainly investment-grade bonds and other
TAX-EXEMPT FUND debt securities with intermediate-term maturities [(ICON OF) SHIELD WITH A TREE ENCLOSED]
issued by state and local government units. Goal
is to seek a high level of current income exempt
from federal taxes.
- -------------------------------------------------------------------
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 Invests in such money market securities as high
MANAGEMENT FUND quality commercial paper, banker's acceptances, [(ICON OF) PIGGY BANK]
certificates of deposit (CDs) and other bank
securities.
- -------------------------------------------------------------------
IDS TAX-FREE Invests primarily in short-term bonds and notes
MONEY FUND issued by state and local governments to seek high [(ICON OF) SHIELD WITH PIGGY BANK ENCLOSED]
current income exempt from federal income taxes.
</TABLE>
(THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.) 43
<PAGE>
- -----------------------------------
Federal income tax information
IDS MANAGED ALLOCATION FUND
The Fund is required by the Internal Revenue Code of 1986 to
tell its shareholders about the tax treatment of the
dividends it pays during its fiscal year. Some of the
dividends listed below were reported to you on a Form
1099-DIV, Dividends and Distributions, last January.
Dividends paid to you since the end of last year will be
reported to you on a tax statement sent next January.
Shareholders should consult a tax advisor on how to report
distributions for state and local purposes.
CLASS A
<TABLE>
<CAPTION>
INCOME DISTRIBUTION
<S> <C>
TAXABLE AS DIVIDEND INCOME, 10.56% QUALIFYING FOR DEDUCTION BY CORPORATIONS.
Payable date Per share
Dec. 27, 1996 $0.36142
March 27, 1997 0.07624
June 27, 1997 0.08449
Sept. 26, 1997 0.08025
TOTAL $0.60240
CAPITAL GAIN DISTRIBUTION
TAXABLE AS LONG-TERM CAPITAL GAIN.
Payable date Per share
Dec. 27, 1996 $1.20436
TOTAL DISTRIBUTIONS $1.80676
</TABLE>
The distribution of $0.1.56578 per share, payable Dec. 27,
1996, consisted of $0.07537 derived from net investment
income, $0.28605 from net short-term capital gains (a total
of $0.36142 taxable as dividend income) and $1.20436 from net
long-term capital gains.
44 (THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.)
<PAGE>
CLASS B
<TABLE>
<S> <C>
INCOME DISTRIBUTION
TAXABLE AS DIVIDEND INCOME, 10.56% QUALIFYING FOR DEDUCTION BY CORPORATIONS.
Payable date Per share
Dec. 27, 1996 $0.33853
March 27, 1997 0.05560
June 27, 1997 0.06288
Sept. 26, 1997 0.05738
TOTAL $0.51439
CAPITAL GAIN DISTRIBUTION
TAXABLE AS LONG-TERM CAPITAL GAIN.
Payable date Per share
Dec. 27, 1996 $1.20436
TOTAL DISTRIBUTIONS $1.71875
</TABLE>
The distributions of $1.54289 per share, payable Dec. 27,
1996, consisted of $0.05248 derived from net investment
income, $0.28605 from net short-term capital gains (a total
of $0.33853 taxable as dividend income) and $1.20436 from net
long-term capital gains.
CLASS Y
<TABLE>
<S> <C>
INCOME DISTRIBUTION
TAXABLE AS DIVIDEND INCOME, 10.56% QUALIFYING FOR DEDUCTION BY CORPORATIONS.
Payable date Per share
Dec. 27, 1996 $0.36696
March 27, 1997 0.08122
June 27, 1997 0.08801
Sept. 26, 1997 0.08257
TOTAL $0.61876
CAPITAL GAIN DISTRIBUTION
TAXABLE AS LONG-TERM CAPITAL GAIN.
Payable date Per share
Dec. 27, 1996 $1.20436
TOTAL DISTRIBUTIONS $1.82312
</TABLE>
The distribution of $1.57132 per share, payable Dec. 27,
1996, consisted of $0.08091 derived from net investment
income, $0.28605 from net short-term capital gains (a total
of $0.36696 taxable as dividend income) and $1.20436 from net
long-term capital gains.
(THIS ANNUAL REPORT IS NOT PART OF THE PROSPECTUS.) 45
<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-Registered Trademark-
EASY ACCESS LINE phones only), including current
fund prices and performance,
account values and recent account
transactions
[AMERICAN EXPRESS FINANCIAL ADVISORS LOGO]
IDS MANAGED ALLOCATION FUND
IDS Tower 10
Minneapolis, MN 55440-0010
[PRINTED WITH SOY INK LOGO] S-6141 M (11/97)
