1998 annual report
IDS
Managed Allocation
Fund
(prospectus enclosed)
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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
Distributed by American Express Financial Advisors Inc.
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(icon of) spinning toy
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.
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Contents
The purpose of this annual report is to tell investors how the Fund
performed.
(icon of) one open book inside of another
The prospectus, which is bound into the middle of this annual report,
describes the Fund in detail.
1998 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 48
Federal income tax information 52
1998 prospectus
The Fund in brief 3p
Goal 3p
Investment policies and risks 3p
Structure of the Fund 4p
Manager and distributor 4p
Portfolio manager 4p
Alternative purchase arrangements 5p
Sales charge and Fund expenses 6p
Performance 8p
Financial highlights 8p
Total returns 10p
Investment policies and risks 12p
Facts about investments and their risks 12p
Valuing Fund shares 17p
How to purchase, exchange or redeem shares 18p
Alternative purchase arrangements 18p
How to purchase shares 20p
How to exchange shares 23p
How to redeem shares 23p
Reductions and waivers of the sales charge 28p
Special shareholder services 33p
Services 33p
Quick telephone reference 33p
Distributions and taxes 34p
Dividend and capital gain distributions 34p
Reinvestments 35p
Taxes 36p
How to determine the correct TIN 38p
How the Fund and Portfolio are organized 39p
Shares 39p
Voting rights 39p
Shareholder meetings 39p
Special considerations regarding
master/feeder structure 40p
Board members and officers 42p
Investment manager 44p
Administrator and transfer agent 44p
Distributor 45p
About American Express Financial Corporation 46p
General information 46p
Year 2000 47p
Appendices 48p
Description of corporate bond ratings 48p
Descriptions of derivative instruments 50p
(This annual report is not part of the prospectus.)
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To our shareholders
From the chairman
If you're an experienced investor, you know that the past 12 months was a
highly volatile period in many financial markets. But history tells us that
substantial market moves are nothing new. Though they're often
unpredictable, declines -- whether they're brief or long-lasting, moderate
or substantial -- are always a possibility.
That potential for such volatility reinforces the need for investors to
periodically review their long-term goals and examine whether their
investment program remains on track to achieving them. Your quarterly
investment statements are one part of that monitoring process. The other is
a meeting with your American Express financial advisor. That becomes even
more important if there's a major change in your financial situation or in
the financial markets.
William R. Pearce
(picture of) William R. Pearce
William R. Pearce
Chairman of the board
From the portfolio manager
A steep decline in several worldwide financial markets late in the fiscal
year turned a positive period into a negative one for IDS Managed
Allocation Fund. For the 12 months -- October 1997 through September 1998
-- the Fund's Class A shares lost 3.7%.
The period got off to a good start, but a financial crisis that began in
Southeast Asia in late October quickly drove prices down in major markets
around the world. Although European markets subsequently made some
progress, U.S. stocks were kept off balance for the next few months.
By February, investors evidently concluded that the "Asian flu" would be
less than fatal, a mood swing that resulted in a powerful two-month rally
for the U.S. market. European stocks followed suit, but to a somewhat
lesser degree. The roller-coaster ride resumed again in August, though,
when collapsing markets in Russia and Latin America resulted in another
nosedive for stocks in the U.S. and Europe.
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Bonds benefit
Through it all, the U.S. bond market, especially long-term Treasury issues,
fared extremely well, thanks to ongoing low inflation that drove long-term
interest rates down and, consequently, bond prices up. Bonds gained further
support from a global "flight to quality," as investors moved money out of
battered Asian, Russian and Latin American markets and into U.S. bonds.
Most of the Fund's investments (about 60%-65%) were in the U.S. throughout
the fiscal year, the great majority in large-capitalization stocks,
followed by bonds and a small amount of small-cap stocks. The rest of the
portfolio was largely invested in foreign markets, chiefly in Europe. We
also had varying exposure to the smaller, or "emerging," markets of Asia,
Latin America and Russia. Although those holdings were relatively modest,
(12% at peak last spring) the severity of the downturns in those markets
had a substantial impact on the Fund's performance during the 12 months. To
cushion the effect, we reduced the emerging market exposure to 5% by the
fall and increased the cash reserves in the portfolio to 18% of assets by
year-end.
As the new fiscal year begins, it appears that while the worst may be over
in the emerging markets, the aftereffects could linger in the U.S. and
Europe. Therefore, at least for the near term, we expect to stay with a
conservative investment approach that includes keeping a minimal exposure
to riskier foreign markets and, overall, committing more money to stocks
only on a highly selective basis.
Steven Merrell
(picture of) Steven Merrell
Steven Merrell
Portfolio Manager
Class A
12-month performance
(All figures per share)
Net asset value (NAV)
Sept. 30, 1998 $10.34
Sept. 30, 1997 $12.68
Decrease $ 2.34
Distributions
Oct. 1, 1997 - Sept. 30, 1998
From income $ 0.89
From capital gains $ 1.03
Total distributions $ 1.92
Total return* -3.7%**
Class B
12-month performance
(All figures per share)
Net asset value (NAV)
Sept. 30, 1998 $10.29
Sept. 30, 1997 $12.63
Decrease $ 2.34
Distributions
Oct. 1, 1997 - Sept. 30, 1998
From income $ 0.81
From capital gains $ 1.03
Total distributions $ 1.84
Total return* -4.5%**
Class Y
12-month performance
(All figures per share)
Net asset value (NAV)
Sept. 30, 1998 $10.34
Sept. 30, 1997 $12.68
Decrease $ 2.34
Distributions
Oct. 1, 1997 - Sept. 30, 1998
From income $ 0.90
From capital gains $ 1.03
Total distributions $ 1.93
Total return* -3.7%**
* 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.)
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The Portfolio's ten largest holdings
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The ten holdings listed here make up 7.91% of the Portfolio's net assets
Percent Value
(of Portfolio's net assets) (as of Sept. 30, 1998)
Microsoft 1.11% $28,649,268
General Electric 1.04 26,923,950
Royal Dutch Petroleum 0.82 21,197,888
United Mexican States 0.79 20,387,499
6.25% 2019
Coca-Cola 0.75 19,448,437
Bristol-Myers Squibb 0.75 19,237,649
Republic of Argentina 0.68 17,612,000
8.75% 2002
Schering-Plough 0.66 17,129,237
Intl Business Machines 0.66 17,049,599
Intel 0.65 16,781,274
Excludes U.S. Treasury and government agency holdings.
For further detail about these holdings, please refer to the section
entitled "Investments in securities" herein.
(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
Month Amount Per-share Number of shares purchased
invested market price
Jan $100 $20 5.00 XXXXX
Feb 100 18 5.56 XXXXXx
March 100 17 5.88 XXXXXx
April 100 15 6.67 XXXXXXx
May 100 16 6.25 XXXXXXx
June 100 18 5.56 XXXXXx
July 100 17 5.88 XXXXXx
Aug 100 19 5.26 XXXXXx
Sept 100 21 4.76 XXXXx
Oct 100 20 5.00 XXXXX
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.
Three ways to benefit from a mutual fund:
o your shares increase in value when the Fund's
investments do well
o you receive capital gains when the gains on
investments sold by the Fund exceed losses
o you receive income when the Fund's stock dividends, interest and
short-term gains exceed its expenses.
All three make up your total return. 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.
(This annual report is not part of the prospectus.)
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The Fund's long-term performance
Assumes: oHolding
period from 10/1/88 to 9/30/98. oReturns do not reflect taxes
payable on distributions. oReinvestment of all income and capital gain
distributions for the Fund, with a value of $20,784. 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.
How $10,000 has grown in IDS Managed Allocation Fund
$50,000
S&P 500
$40,000 Stock Index
Lipper Flexible
$30,000 Portfolio Fund Index
$20,000
$33,699
Managed
$10,000 Allocation Fund
Class A
$9,500
'88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98
Average annual total return
(as of Sept. 30, 1998):
1 year Since 5 years 10 years
inception
Class A -8.55% --% +7.10% +12.92%
Class B -7.72% +10.12%* --% --%
Class Y -3.65% +11.77%* --% --%
*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.
(This annual report is not part of the prospectus.)
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The financial statements contained in Post-Effective Amendment No. 28 to
Registration Statement No. 2-93801 filed on or about November 24, 1998, are
incorporated herein by reference.
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IDS mutual funds
Global/International funds
Funds in this group seek capital growth and/or income by investing primarily in
foreign securities. Foreign investments may be subject to currency fluctuations
and political and economic risks of the countries in which the investments are
made. They are high risk mutual funds with a potential for high reward.
IDS Emerging Markets Fund
Invests in a Portfolio comprised primarily of stocks of companies in developing
countries throughout the world that are believed to offer growth potential.
Seeks to provide long-term growth of capital.
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IDS Global Growth Fund
Invests in a Portfolio comprised primarily of stocks of companies throughout the
world that are positioned to meet market needs in a changing world economy.
These companies offer above-average potential for long-term growth.
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IDS International Fund
Invests primarily in common stocks of foreign companies that offer potential for
superior growth. The Fund may invest up to 20% of its assets in the U.S. market.
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IDS Global Balanced Fund
Invests in stocks and bonds in, for the most part, major markets throughout the
world, including the U.S. Seeks to provide a balance of growth of capital and
current income.
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IDS Global Bond Fund
Invests in a Portfolio comprised primarily of debt securities of U.S. and
foreign issuers to seek high total return through income and growth of capital.
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Growth funds
Funds in this group seek capital growth, primarily from common stocks. They are
high risk mutual funds with a potential for high reward.
IDS Precious Metals Fund
Invests primarily in the securities of foreign or domestic companies that
explore for, mine and process or distribute gold and other precious metals. A
highly aggressive and speculative fund that seeks long-term growth of capital.
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IDS Discovery Fund
Invests in small- and medium-size, growth-oriented companies emphasizing
technological innovation and productivity enhancement. Buys and holds larger
growth-oriented stocks.
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IDS Small Company Index Fund
Invests in all or a representative group of the equity securities comprising the
S&P SmallCap 600 Index, as it strives to provide long-term capital appreciation.
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IDS Strategy Aggressive Fund
Invests primarily in common stocks of companies that are selected for their
potential for above-average growth. Above-average means that their growth
potential is better, in the opinion of the portfolio's investment manager, than
the S&P 500 Stock Index.
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IDS Research Opportunities Fund
Invests in a Portfolio comprised primarily of equity securities of companies
included in the S&P 500 Stock 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.
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IDS Growth Fund
Invests in a Portfolio comprised primarily of companies that have above-average
potential for long-term growth as a result of new management, marketing
opportunities or technological superiority.
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IDS New Dimensions Fund
Invests in a Portfolio comprised primarily of companies with
significant growth potential due to superiority in
technology, marketing or management. The Fund frequently
changes its industry mix.
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IDS Progressive Fund
Invests primarily in undervalued common stocks. The Fund holds stocks for the
long term with the goal of capital growth.
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Growth & income funds
These funds focus on securities of medium to large, well-established companies
that offer long-term growth of capital and reasonable income from dividends and
interest. Foreign investments may be subject to currency fluctuations and
political and economic risks of the countries in which the investments are made.
IDS Equity Select Fund
Invests primarily in a combination of moderate growth stocks that generaly pay
dividends and bonds. Seeks growth of capital and income.
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IDS Blue Chip Advantage Fund
Invests in selected stocks from a major market index. Securities purchased are
those recommended by our research analysts as the best from each industry
represented on the index. Offers potential for long-term growth as well as
dividend income.
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IDS Managed Allocation Fund
Invests in a Portfolio comprised primarily of U.S. equity securities, U.S. and
foreign debt securities, foreign equity securities and money market instruments.
The Fund provides diversification among these major investment categories and
has a target mix that represents the way the Fund's investments will be
allocated over the long term. Seeks maximum total return.
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IDS Stock Fund
Invests in a Portfolio comprised primarily of common stock of companies
representing many sectors of the economy. Seeks current income and growth of
capital.
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IDS Equity Value Fund
Invests primarily in undervalued common stocks that offer potential for growth
of capital and income.
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IDS Utilities Income Fund
Invests primarily in the stocks of public utility companies to seek high current
income and growth of income and capital with reduced volatility.
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IDS Diversified Equity Income Fund
Invests in a Portfolio comprised primarily in high-yielding common stocks to
seek high current income and, secondarily, to benefit from the growth potential
offered by stock investments.
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IDS Mutual
Invests in a Portfolio that seeks to balance between common stocks and senior
securities (preferred stocks and bonds). Seeks a balance of growth of capital
and current income.
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Income funds
The funds in this group invest their assets primarily in corporate bonds or
government securities to seek interest income. Secondary objective is capital
growth. Risk varies by bond quality.
IDS Extra Income Fund
Invests in a Portfolio comprised mainly of long-term, high-yielding corporate
fixed-income securities in the lower rated, higher risk bond categories to seek
high current income. Secondary objective is capital growth.
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IDS Bond Fund
Invests mainly in corporate bonds, at least 50% in the higher rated, lower risk
bond categories, or the equivalent, and in government bonds.
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IDS Selective Fund
Invests in a Portfolio comprised primarily of high-quality corporate bonds and
other highly rated debt instruments including government securities and
short-term investments. Seeks current income and preservation of capital.
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IDS Federal Income Fund
Invests in a Portfolio comprised primarily of securities issued or guaranteed as
to the timely payment of principal and interest by the U.S. government, its
agencies and instrumentalities. Seeks a high level of current income and safety
of principal consistent with its type of investments.
(icon of) shield with eagle head
Tax-exempt income funds
These funds provide tax-free income by investing in municipal bonds. The income
is generally free from federal income tax, but a portion of the income may be
subject to state and local taxes. Risk varies by bond quality.
IDS Tax-Exempt Bond Fund
Invests mainly in bonds and notes of state or local government units, with at
least 75% in the four highest rated, lowest risk bond categories.
(icon of) shield with Greek column
IDS Insured Tax-Exempt Fund
Invests primarily in municipal securities that are insured as to the timely
payment of principal and interest. The insurance feature minimizes credit risk
of the Fund but does not guarantee the market value of the Fund's shares.
(icon of) shield with star
IDS State Tax-Exempt Funds
(CA, MA, MI, MN, NY, OH)
Invests primarily in high- and medium-grade municipal securities to provide
income to residents of each respective state that is exempt from federal, state
and local income taxes. (New York is the only state that is exempt at the local
level.)
(icon of) shield with U.S. enclosed
IDS High Yield Tax-Exempt Fund
Invests in a Portfolio comprised primarily of medium- and lower-quality
municipal bonds and notes. Lower-quality securities generally involve greater
risk of principal and income.
(icon of) shield with basket of apples enclosed
IDS Intermediate Tax-Exempt Fund
Invests in mainly investment-grade bonds and other debt securities with
intermediate-term maturities issued by state and local government units. Goal is
to seek a high level of current income exempt from federal taxes.
(icon of) shield with tree enclosed
Money market funds
These money market funds have three main goals: conservation of capital,
constant liquidity and the highest possible current income consistent with these
objectives. An investment in these funds is neither insured nor guaranteed by
the U.S. government, and there can be no assurance that these funds will be able
to maintain a stable net asset value of $1.00 per share. Very limited risk.
IDS Cash Management Fund
Invests in such money market securities as high quality commercial paper,
bankers' acceptances, certificates of deposit (CDs) and other bank securities.
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IDS Tax-Free Money Fund
Invests primarily in short-term bonds and notes issued by state and local
governments to seek high current income exempt from federal income taxes.
(icon of) shield with piggy bank enclosed
For more complete information about any of these funds, including charges and
expenses, you can obtain a prospectus by contacting your financial advisor or
writing to American Express Shareholder Service, P.O. Box 534, Minneapolis, MN
55440-0534. Read it carefully before you invest or send money.
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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
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
Income distribution
taxable as dividend income, 15% qualifying for deduction by corporations.
Payable date Per share
Dec. 29, 1997 $0.60120
March 27, 1998 0.08174
June 26, 1998 0.10198
Sept. 25, 1998 0.10593
Total $0.89085
Capital gain distribution
taxable as long-term capital gain.
Payable date Per share
Dec. 29, 1997 $1.03180
Total distributions $1.92265
The distribution of $1.63300 per share, payable Dec. 29, 1997, consisted of
$0.08158 derived from net investment income, $0.51962 from net short-term
capital gains (a total of $0.60120 taxable as dividend income) and $1.03180
from net long-term capital gains.
The long-term gains distribution is divided into two rate categories: 28% -
$0.67665 and 20% - $0.35515.
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Class B
Income distribution
taxable as dividend income, 15% qualifying for deduction by corporations.
Payable date Per share
Dec. 29, 1997 $0.57747
March 27, 1998 0.06149
June 26, 1998 0.07997
Sept. 25, 1998 0.08485
Total $0.80378
Capital gain distribution
taxable as long-term capital gain.
Payable date Per share
Dec. 29, 1997 $1.03180
Total distributions $1.83558
The distributions of $1.60927 per share, payable Dec. 29, 1997, consisted
of $0.05785 derived from net investment income, $0.51962 from net
short-term capital gains (a total of $0.57747 taxable as dividend income)
and $1.03180 from net long-term capital gains.
The long-term gains distribution is divided into two rate categories: 28% -
$0.67665 and 20% - $0.35515.
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Class Y
Income distribution
taxable as dividend income, 15% qualifying for deduction by corporations.
Payable date Per share
Dec. 29, 1997 $0.60367
March 27, 1998 0.08375
June 26, 1998 0.10420
Sept. 25, 1998 0.10796
Total $0.89958
Capital gain distribution
taxable as long-term capital gain.
Payable date Per share
Dec. 29, 1997 $1.03180
Total distributions $1.93138
The distribution of $1.63547 per share, payable Dec. 29, 1997, consisted of
$0.08405 derived from net investment income, $0.51962 from net short-term
capital gains (a total of $0.60367 taxable as dividend income) and $1.03180
from net long-term capital gains.
The long-term gains distribution is divided into two rate categories: 28% -
$0.67665 and 20% - $0.35515.
(This annual report is not part of the prospectus.)
<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:
612-671-3800
TTY Service For the hearing impaired 800-846-4852
American Express Automated account information 800-862-7919
Financial Advisors (TouchTone(R) phones only),
Easy Access Line including current fund prices
and performance, account values
and recent account transactions
*You may experience delays when call volumes are high.
AMERICAN EXPRESS Financial Advisors
IDS Managed Allocation Fund
IDS Tower 10
Minneapolis, MN 55440-0010
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STATEMENT OF DIFFERENCES
Difference Description
1) The layout is different 1) Some of the layout in the
throughout the annual report. annual report to
shareholders is in two
columns.
2) Headings. 2) The headings in the
annual report are
placed in a blue strip
at the top of the page.
3) There are pictures, icons 3) Each picture, icon and
and graphs throughout the graph is described in
annual report. parentheses.
4) Footnotes for charts and 4) The footnotes for each
graphs are described at chart or graph are typed
the left margin. below the description of
the chart or graph.
