1996 semiannual report
IDS
Utilities
Income
Fund
Icon of (light bulb)
The primary goal of IDS Utilities Income Fund, Inc. is a high level of current
income. Secondary goals are growth of income and capital. The Fund invests
primarily in securities of public utility companies.
AMERICAN
EXPRESS
Financial
Advisors
Distributed by American Express Financial Advisors Inc.
Icon of (light bulb)
Dependable
dividends
Making money in the stock market isn't limited to trying to find stocks with
rising prices. Many investors prefer to focus on the steady income stream
provided by securities that pay substantial dividends. And perhaps no segment of
the market has a more consistent record of paying dividends than the utilities
industry -- the companies that provide basics such as electricity, water and
telephone service.
Contents
From the president 3
From the portfolio manager 3
Ten largest holdings 5
Financial statements 6
Notes to financial statements 9
Investments in securities 24
Board members and officers 27
IDS mutual funds 28
<PAGE>
(Picture of) William R. Pearce
William R. Pearce
President of the Fund
To our shareholders
From the president
If you're an experienced investor, you know that the past two years have been
unusually strong ones in many worldwide financial markets. Perhaps just as
important, you also know that 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. That fact
reinforces the need for investors to periodically review their long-term goals
and examine whether their investment program remains on track to achieving them.
Your quarterly investment statements are one part of that monitoring process.
The other is a meeting with your American Express financial advisor. That
becomes even more important if there's a major change in your financial
situation or in the financial markets.
William R. Pearce
(Picture of) Bernhard Fleming
Bernhard Fleming
Portfolio manager
From the portfolio manager
A generally buoyant stock market and sharp securities selection combined for a
strong performance by IDS Utilities Income Fund during the first half of the
fiscal year. For the period (July through December 1996), the Fund's total
return, which includes net asset value change and distributions, was 8.8% for
Class A shares. Although the end result was gratifying, the period got off on
the wrong foot as the weight of higher long-term interest rates sent the stock
market and the Fund into a tumble during July. But thanks to some reassuring
economic news, especially regarding inflation, both of them soon got back on
their feet and mounted an earnest advance that continued through the end of
1996, allowing the Fund to easily overcome the initial setback.
Natural gas leads the way
While all major utilities sectors performed positively, natural gas companies
finished the six months with a clear margin over the electric and telephone
companies. The reason was nothing more complex than healthy demand accompanied
by moderate supply, which drove up gas prices. Complementing the favorable
supply/demand situation was the expansion of some natural gas companies into
related, but non-regulated, businesses. As the period progressed, I moderately
increased the Fund's exposure to such companies.
The Fund got its next-biggest performance boost from its telephone holdings,
some 40% of which were in foreign companies, including Canada, Spain, the United
Kingdom and Portugal. Several of these foreign issues generated exceptionally
good returns (as much as 25% for the October-December quarter alone). By
comparison, the Fund's U.S. phone utility holdings, while still positive
performers, generated lackluster results as deregulation in the telephone
industry kept a cloud of uncertainty over that group.
Although they comprised only a small portion of the portfolio, holdings among
real estate investment trusts also paid off very well. These non-utility issues
were added mainly to enhance the Fund's yield, but as it turned out, they
provided substantial price appreciation as well.
Outlook remains positive
While it seems unlikely that utilities would enjoy a repeat performance in 1997,
I believe the overall investment environment remains reasonably good at this
writing (mid-January). In addition, many utilities have done a good job of
getting their costs under control and, therefore, are in better position to
generate profits. As for specific sectors, I think the outlook for electric and
telephone companies, particularly the regional Bell operators, is improving, and
I've begun to shift more money into those areas. Taking a broader view, should
the stock market have a lackluster year, I would expect utilities to perform
relatively well, thanks to their above-average dividend yield.
Bernhard Fleming
<PAGE>
Class A
6-month performance
(All figures per share)
Net asset value (NAV)
Dec. 31, 1996 $ 7.54
June 30, 1996 $ 7.24
Increase $ 0.30
Distributions
July 1, 1996 - Dec. 31, 1996
From income $ 0.11
From capital gains $ 0.22
Total distributions $ 0.33
Total return* +8.8%**
Class B
6-month performance
(All figures per share)
Net asset value (NAV)
Dec. 31, 1996 $ 7.54
June 30, 1996 $ 7.23
Increase $ 0.31
Distributions
July 1, 1996 - Dec. 31, 1996
From income $ 0.09
From capital gains $ 0.22
Total distributions $ 0.31
Total return* +8.4%**
Class Y
6-month performance
(All figures per share)
Net asset value (NAV)
Dec. 31, 1996 $ 7.54
June 30, 1996 $ 7.24
Increase $ 0.30
Distributions
July 1, 1996 - Dec. 31, 1996
From income $ 0.12
From capital gains $ 0.22
Total distributions $ 0.34
Total return* +8.9%**
* The prospectus discusses the effect of sales charges, if any, on the various
classes.
** The total return is a hypothetical investment in the Fund with all
distributions reinvested.
<PAGE>
The Fund's ten largest holdings
IDS Utilities Income Fund, Inc.
(pie chart) The ten holdings listed here make up 20.12% of the Fund's net assets
- --------------------------------------------------------------------------------
Percent Value
(of Fund's net assets) (as of Dec. 31,1996)
- --------------------------------------------------------------------------------
Telefonica de Espana 2.65% $20,082,500
Spain's monopoly operator of basic telephone and telex services.
BCE 2.52 19,100,000
A diversified Canadian holding company with interest in
telecommunications services and communications equipment
manufacturing. Through its Bell Canada unit, the company
is the largest supplier of telecommunication services in
Canada. Northern Telecom, which is 52% owned by BCE, Inc.,
in the second largest maker of telecommunications equipment
in North America.
GTE 2.10 15,925,000
The corporation's two major business segments are telephone
operations and telecommunications products and services.
Columbia Gas Systems 2.09 15,906,250
One of the nation's largest natural gas systems. The company's
subsidiaries are engaged in the explorations, production, purchase,
marketing, storage, transmission and distribution of natural gas, as
well as other energy operations such as cogeneration.
CMS Energy 1.99 15,131,250
A holding company for a number of energy related subsidiaries:
Consumers Power Company is a combination electric and gas utility,
CMS Generation is a multinational independent power producer,
NOMECO is an oil and gas exploration and production company, and
CMS Gas Transmission and Storage is self-explanatory with
considerable gas storage in Michigan.
NIPSCO Inds 1.83 13,868,750
A holding company for Northern Indiana Public Service Company that
supplies electricity and gas to residential, steel and industrial
customers in the northern third of Indiana.
FPL Group 1.82 13,800,000
A diversified electric utility. the company's fuel mix is 25%
purchased power, 50% oil and gas and 25% nuclear.
DPL 1.77 13,475,000
A holding company that owns Dayton Power & Light Co., an
electric and natural gas utility that serves 470,000 retail customers in west
central Ohio.
British Telecommunications 1.72 13,038,750
A holding company that's principal activity is the supply
of telecommunication services and equipment in the United Kingdom.
In addition, the company offers BT Chargecards which allow customers to
call from almost any telephone in the U.K. and from 230 countries abroad.
Northern Telecom 1.63 12,375,000
Company is a global manufacturer of telecommunications equipment
consisting of the research and the design, development, manufacture,
marketing, sale, financing, installation and service of central office
switching equipment, multimedia communications systems equipment
transmission equipment, cable and outside plant products and other
products and services.
<PAGE>
Financial statements
Statement of assets and liabilities
IDS Utilities Income Fund, Inc.
Dec. 31, 1996
- --------------------------------------------------------------------------------
Assets
- --------------------------------------------------------------------------------
(Unaudited)
Investments in securities, at value (Note 1)
(identified cost $675,428,558) $788,284,452
Cash in bank on demand deposit 8,042,375
Dividends and accrued interest receivable 2,725,841
U.S. government securities held as collateral (Note 4) 20,746,887
- --------------------------------------------------------------------------------
Total assets 819,799,555
- --------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------
Dividends payable to shareholders 982,354
Payable for investment securities purchased 941,308
Payable upon return of securities loaned (Note 4) 58,802,607
Accrued investment management services fee 10,870
Accrued distribution fee 1,318
Accrued service fee 3,647
Accrued transfer agency fee 2,291
Accrued administrative services fee 798
Other accrued expenses 97,990
- --------------------------------------------------------------------------------
Total liabilities 60,843,183
- --------------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $758,956,372
- --------------------------------------------------------------------------------
Represented by
- --------------------------------------------------------------------------------
Capital stock -- authorized 10,000,000,000 shares of $.01
par value $ 1,006,894
Additional paid-in-capital 625,781,844
Undistributed net investment income 304,338
Accumulated net realized gain (Note 1) 18,994,091
Unrealized appreciation of investments and on translation
of assets and liabilities in foreign currencies (Note 1) 112,869,205
- --------------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding
capital stock $758,956,372
- --------------------------------------------------------------------------------
Net assets applicable to outstanding shares: Class A $694,289,601
Class B $ 64,435,385
Class Y $ 231,386
Net asset value per share of outstanding capital stock:
Class A shares 92,108,658 $ 7.54
Class B shares 8,550,055 $ 7.54
Class Y shares 30,696 $ 7.54
See accompanying notes to financial statements.
<PAGE>
Financial statements
Statement of operations
IDS Utilities Income Fund, Inc.
Six months ended Dec. 31, 1996
- --------------------------------------------------------------------------------
Investment income
- --------------------------------------------------------------------------------
(Unaudited)
Income:
Dividends (net of foreign taxes withheld of $152,475) $13,687,228
Interest 1,880,123
- --------------------------------------------------------------------------------
Total income 15,567,351
- --------------------------------------------------------------------------------
Expenses (Note 2):
Investment management services fee 1,903,136
Distribution fee -- Class B 201,926
Transfer agency fee 453,002
Incremental transfer agency fee -- Class B 2,785
Service fee
Class A 582,864
Class B 47,038
Administrative services fee 140,203
Compensation of board members 7,118
Compensation of officers 3,352
Custodian fees 44,460
Postage 27,395
Registration fees 37,904
Reports to shareholders 11,088
Audit fees 12,000
Administrative 2,420
Other 13,311
- --------------------------------------------------------------------------------
Total expenses 3,490,002
Earnings credits on cash balances (Note 2) (17,761)
- --------------------------------------------------------------------------------
Total net expenses 3,472,241
- --------------------------------------------------------------------------------
Investment income -- net 12,095,110
- --------------------------------------------------------------------------------
Realized and unrealized gain -- net
- --------------------------------------------------------------------------------
Net realized gain on security and foreign currency
transactions (including loss of $887 from foreign
currency transactions) (Note 3) 29,462,184
Net change in unrealized appreciation or depreciation
of investments and on translation of assets and liabilities
in foreign currencies 20,807,765
- --------------------------------------------------------------------------------
Net gain on investments and foreign currencies 50,269,949
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations $62,365,059
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
<PAGE>
Financial statements
Statements of changes in net assets
IDS Utilities Income Fund, Inc.
- --------------------------------------------------------------------------------
Operations and distributions
Dec. 31,1996 June 30, 1996
Six months ended Year ended
(Unaudited)
- --------------------------------------------------------------------------------
Investment income -- net $12,095,110 $ 26,734,704
Net realized gain on investments and foreign currencies 29,462,184 24,203,182
Net change in unrealized appreciation or depreciation of
investments and on translations of assets and liabilities
in foreign currencies 20,807,765 70,831,629
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations 62,365,059 121,769,515
- --------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (11,208,165) (24,688,076)
Class B (701,907) (739,354)
Class Y (3,468) (6,149)
Net realized gain
Class A (19,457,819) (299,241)
Class B (1,790,823) (11,873)
Class Y (6,467) (78)
- --------------------------------------------------------------------------------
Total distributions (33,168,649) (25,744,771)
- --------------------------------------------------------------------------------
Capital share transactions (Note 5)
- --------------------------------------------------------------------------------
Proceeds from sales
Class A shares (Note 2) 33,169,355 78,592,388
Class B shares 17,644,456 40,903,798
Class Y shares 48,954 89,357
Reinvestment of distributions at net asset value
Class A shares 27,837,664 23,707,598
Class B share 2,342,704 723,097
Class Y shares 9,637 6,227
Payments for redemptions
Class A shares (71,038,356)(118,878,052)
Class B shares (Note 2) (4,758,776) (4,737,386)
Class Y shares (9,717) (75,904)
- --------------------------------------------------------------------------------
Increase in net assets from capital share transactions 5,245,921 20,331,123
- --------------------------------------------------------------------------------
Total increase in net assets 34,442,331 116,355,867
Net assets at beginning of period 724,514,041 608,158,174
- --------------------------------------------------------------------------------
Net assets at end of period
(including undistributed net investment income of
$304,338 and $122,768) $758,956,372 $724,514,041
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
Notes to financial statements
IDS Utilities Income Fund, Inc.
(Unaudited as to Dec. 31, 1996)
- -------------------------------------------------------------------
1. Summary of significant accounting policies
The Fund is registered under the Investment Company Act of 1940 (as amended) as
a diversified, open-end management investment company. The Fund invests
primarily in securities of public utilities companies. 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 maybe subject to a contingent deferred sales charge.
Class B shares automatically convert to Class A after eight years. 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.
Significant accounting policies followed by the Fund 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; securities for which market quotations
are not readily available, including illiquid securities, are valued at fair
value according to methods selected in good faith by the board. Determination of
fair value involves, among other things, reference to market indexes, matrixes
and data from independent brokers. Short-term securities maturing in more than
60 days from the valuation date are valued at the market price or approximate
market value based on current interest rates; those maturing in 60 days or less
are valued at amortized cost.
Option transactions
In order to produce incremental earnings, protect gains, and facilitate buying
and selling of securities for investment purposes, the Fund may buy or 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 Fund also may buy and sell put and call options and write
covered call options on the portfolio securities and may write cash-secured put
options. The risk in writing a call option is that the Fund gives up the
opportunity of profit if the market price of the security increases. The risk in
writing a put option is that the Fund 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 Fund pays a premium whether or not the option is exercised. The Fund
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 Fund 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 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
Fund may buy and sell stock index and interest rate futures contracts traded on
any U.S. or foreign exchange. The Fund also may buy or write put and call
options on these contracts. Risks of entering into futures contracts and related
options include the possibility that there may be an illiquid market and that a
change in the value of the contract or option may not correlate with changes in
the value of the underlying securities.
Upon entering into a futures contract, the Fund 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 Fund 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 Fund 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 for 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 dividend,
interest income and foreign withholding taxes.
The Fund 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 Fund and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates from an
independent pricing service. The Fund is subject to the credit risk that the
other party will not complete the obligations of the contract.
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 shareholders, no provision for income or excise taxes is
required.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of the deferral of losses
on certain futures contracts, the recognition of certain foreign currency gains
(losses) as ordinary income (loss) for tax purposes, and losses deferred due to
"wash sale" transactions. The character of distributions made during the year
from net investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the year that the income or realized gains (losses) were recorded by
the Fund.
Dividends to shareholders
Dividends from net investment income, declared and paid each calendar quarter,
are reinvested in additional shares of the Fund at net asset value or payable in
cash. Capital gains, when available, are distributed along with the last income
dividend of the calendar year.
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. Expenses and sales charges
Effective March 20, 1995, the Fund entered into agreements with American Express
Financial Corporation (AEFC) for managing its portfolio, providing
administrative services and serving as transfer agent. Under its Investment
Management Services Agreement, AEFC determines which securities will be
purchased, held or sold. The management fee is a percentage of the Fund's
average daily net assets in reducing percentages from 0.53% to 0.40% annually.
Under an Administrative Services Agreement, the Fund pays AEFC 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.
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:
o Class A $15
o Class B $16
o 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.
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.
Sales charges received by American Express Financial Advisors Inc. for
distributing Fund shares were $624,563 for Class A and $22,221 for Class B for
the six months ended Dec. 31, 1996. The Fund also pays custodian fees to
American Express Trust Company, an affiliate of AEFC.
During the six months ended Dec. 31, 1996 the Fund's custodian and transfer
agency fees were reduced by $17,761 as a result of earning credits from
overnight cash balances.
- -------------------------------------------------------------------
3. Securities transactions
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $259,829,026 and $277,084,481, respectively, for the six
months ended Dec. 31, 1996. Realized gains and losses are determined on an
identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $31,088 for the
six months ended Dec. 31, 1996.
- -------------------------------------------------------------------
4. Lending of portfolio securities
At Dec. 31, 1996, securities valued at $57,458,145 were on loan to brokers. For
collateral, the Fund received $38,055,720 in cash and U.S. government securities
valued at $20,746,887. Income from securities lending amounted to $98,342 for
the six months ended Dec. 31, 1996. The risks to the Fund of securities lending
are that the borrower may not provide additional collateral when required or
return the securities when due.
- -------------------------------------------------------------------
5. Capital share transactions
Transactions in shares of capital stock for the periods indicated are as
follows:
Six months ended Dec. 31, 1996
Class A Class B Class Y
- --------------------------------------------------------------------
Sold 4,549,700 2,409,988 6,694
Issued for reinvested 3,703,899 310,904 1,281
distributions
Redeemed (9,770,103) (652,826) (1,324)
- --------------------------------------------------------------------
Net increase (decrease) (1,516,504) 2,068,066 6,651
- --------------------------------------------------------------------
Year ended June 30, 1996
Class A Class B Class Y
- --------------------------------------------------------------------
Sold 11,579,424 6,000,487 13,089
Issued for reinvested 3,446,251 103,780 940
distributions
Redeemed (17,487,689) (682,226) (11,172)
- --------------------------------------------------------------------
Net increase (decrease) (2,462,014) 5,422,041 2,857
- --------------------------------------------------------------------
<PAGE>
6. Financial highlights
The tables below shows certain important financial information for evaluating
the Fund's results.
IDS Utilities Income Fund, Inc.
Performance
Financial highlights
Fiscal period ended June 30,
Per share income and capital changes*
Class A
1996*** 1996 1995 1994 1993 1992 1991 1990 1989**
Net asset value, $7.24 $6.26 $6.23 $7.05 $6.35 $5.67 $5.67 $5.54 $5.00
beginning of period
Income from investment operations:
Net investment income .12 .30 .29 .31 .32 .33 .35 .37 .34
Net gains (losses) .51 .96 .21 (.38) .89 .73 .05 .19 .54
(both realized
and unrealized)
Total from investment .63 1.26 .50 (.07) 1.21 1.06 .40 .56 .88
operations
Less distributions:
Dividends from net (.11) (.28) (.31) (.31) (.33) (.32) (.35) (.37) (.34)
investment income
Distributions from (.22) -- (.16) (.44) (.18) (.06) (.05) (.06) --
realized gains
Total distributions (.33) (.28) (.47) (.75) (.51) (.38) (.40) (.43) (.34)
Net asset value, $7.54 $7.24 $6.26 $6.23 $7.05 $6.35 $5.67 $5.67 $5.54
end of period
Ratios/supplemental data
Class A
1996*** 1996 1995 1994 1993 1992 1991 1990 1989**
Net assets, end of $694 $677 $601 $651 $655 $406 $252 $197 $72
period (in millions)
Ratio of expenses to .90%+ .90% .89% .82% .86% .92% .90% .96% .87%+
average daily net assets#
Ratio of net income 3.43%+ 4.03% 4.84% 4.55% 4.78% 5.37% 6.37% 6.65% 7.09%+
to average
daily net assets
Portfolio turnover rate 36% 84% 68% 102% 64% 49% 57% 53% 41%
(excluding short-term
securities)
Total return+++ 8.8% 20.2% 8.4% (1.7%)19.9% 19.2% 7.3% 10.3% 18.2%++
* For a share outstanding throughout the period.Rounded to the nearest cent.
** Inception date. Period from Aug. 1, 1988 to June 30, 1989.
*** Six months ended Dec.31,1996 (Unaudited).
+ Adjusted to an annual basis.
++ For the period ended June 30, 1989, the annualized total return is 20.1%.
+++ Total return does not reflect payment of a sales charge.
# Effective fiscal year 1996, expense ratio isbased on total expanses of the
Fund before reduction of earnings credits on cash balances.
<PAGE>
IDS Utilites Income Fund, Inc.
Performance
Financial highlights
Fiscal period ended June 30,
Per share income and capital changes*
Class B Class Y
1996*** 1996 1995** 1996*** 1996 1995**
Net asset value, $7.23 $6.26 $5.98 $7.24 $6.26 $5.98
beginning of period
Income from investment operations:
Net investment income .11 .23 .15 .13 .31 .16
Net gains (both realized .51 .96 .26 .51 .96 .27
and unrealized)
Total from investment .62 1.19 .41 .64 1.27 .43
operations
Less distributions:
Dividends from net (.09) (.22) (.13) (.12) (.29) (.15)
investment income
Distributions from (.22) -- -- (.22) -- --
realized gains
Total distributions (.31) (.22) (.13) (.34) (.29) (.15)
Net asset value, $7.54 $7.23 $6.26 $7.54 $7.24 $6.26
end of period
Ratios/supplemental data
Class B Class Y
1996*** 1996 1995** 1996*** 1996 1995**
Net assets, end of $64 $47 $7 $-- $-- $--
period (in millions)
Ratio of expenses to 1.66%+ 1.68% 1.83%+ .73%+ .73% .84%+
average daily net assets#
Ratio of net income 2.66%+ 3.05% 4.83%+ 3.60%+ 4.13% 5.84%+
to average
daily net assets
Portfolio turnover rate 36% 84% 68% 36% 84% 68%
(excluding short-term
securities)
Total return++ 8.4% 19.3% 6.9% 8.9% 20.4% 7.2%
* For a share outstanding throughout the period. Rounded to the nearest cent.
** Inception date was March 20, 1995 for Class B and Class Y.
*** Six months ended Dec. 31, 1996 (Unaudited).
+ Adjusted to an annual basis.
++ Total return does not reflect payment of a sales charge.
# Effective fiscal year 1996, expense ratio is based on total expenses of the
Fund before the reduction of earning credits on cash balances.
<PAGE>
Investments in securities
IDS Utilities Income Fund, Inc.
Dec. 31, 1996 (Unaudited)
(Percentages represent value of
nvestments compared to net assets)
- --------------------------------------------------------------------------------
Common stocks (89.9%)
- --------------------------------------------------------------------------------
Issuer Shares Value(a)
- --------------------------------------------------------------------------------
Banks and savings & loans (1.1%)
Barnett Banks 200,000 $ 8,225,000
- --------------------------------------------------------------------------------
Communications equipment & services (1.2%)
Andrew 170,000 (b) 9,020,625
- --------------------------------------------------------------------------------
Energy (1.6%)
Chesapeake Energy 75,000 (b,d) 4,171,875
HarCor 600,000 (b) 2,925,000
Mobil 40,000 4,890,000
-----------
Total 11,986,875
- --------------------------------------------------------------------------------
Energy equipment & services (0.6%)
Marine Drilling 200,000 (b) 3,937,500
- --------------------------------------------------------------------------------
Real estate investment trusts (6.1%)
Avalon Property 250,000 7,187,500
Beacon Properties 156,000 5,713,500
Duke Realty Investments 150,000 5,775,000
Equity Residential 100,000 4,125,000
Home Properties 260,000 5,850,000
LTC Properties 300,000 5,550,000
Security Capital 216,666 4,631,236
Simon DeBartolo Group 250,000 7,750,000
------------
Total 46,582,236
- --------------------------------------------------------------------------------
See accompanying notes to investments in securities.
<PAGE>
Utilities -- electric (30.4%)
Baltimore Gas & Electric 200,000 5,350,000
Black Hills 21,300 599,063
Carolina Power & Light 150,000 5,475,000
CINergy 250,000 8,343,750
CMS Energy 450,000 15,131,250
DPL 550,000 13,475,000
DQE 300,000 8,700,000
DTE Energy 200,000 6,475,000
Duke Power 225,000 10,406,250
Edison Intl 550,000 10,931,250
FPL Group 300,000 13,800,000
GPU 325,000 10,928,125
Houston Inds 350,000 7,918,750
KU Energy 200,000 6,000,000
LG&E Energy 430,000 10,535,000
Long Island Lighting 300,000 6,637,500
MDU Resources Group 262,500 6,037,500
NIPSCO Inds 350,000 13,868,750
Northern States Power 200,000 9,175,000
Ohio Edison 250,000 5,687,500
Pinnacle West Capital 300,000 9,525,000
Public Service Co of Colorado 200,000 7,775,000
Sierra Pacific Resources 400,000 11,500,000
SIGCORP 100,000 3,462,500
TECO Energy 425,000 10,253,125
Texas Utilities 150,000 (d) 6,112,500
UtiliCorp United 250,000 6,750,000
------------
Total 230,852,813
- --------------------------------------------------------------------------------
Utilities -- gas (16.7%)
Brooklyn Union Gas 125,000 (d) 3,765,625
Coastal 250,000 12,218,750
Columbia Gas System 250,000 15,906,250
El Paso Natural Gas 100,000 5,050,000
Enron 250,000 (d) 10,781,250
KN Energy 300,000 11,775,000
MCN 190,000 5,486,250
Natl Fuel Gas 150,000 6,187,500
New Jersey Resources 300,000 8,775,000
NICOR 225,000 8,043,750
Northwest Natural Gas 262,500 6,300,000
ONEOK 200,400 6,012,000
Pacific Enterprises 200,000 6,075,000
Questar 150,000 5,512,500
Sonat 150,000 7,725,000
WICOR 200,000 7,175,000
------------
Total 126,788,875
- --------------------------------------------------------------------------------
Utilities -- telephone (11.0%)
AirTouch Communications 300,000 (b) 7,575,000
Ameritech 200,000 12,125,000
BellSouth 300,000 12,112,500
Century Telephone Enterprises 300,000 9,262,500
GTE 350,000 15,925,000
MCI Communications 200,000 6,537,500
NYNEX 100,000 4,812,500
Paging Network 250,000 (b) 3,812,500
Southern New England Telecom 300,000 11,662,500
------------
Total 83,825,000
- --------------------------------------------------------------------------------
Miscellaneous (0.8%)
American Water Works 300,000 6,187,500
- --------------------------------------------------------------------------------
Foreign (20.4%)(c)
Alberta Energy 200,000 4,776,336
BCE 400,000 19,100,000
British Telecommunications ADR 190,000 (d) 13,038,750
Commonwealth Bank of Australia 1,048,872 (b,d) 6,691,853
Compania Anonima Nacional
Telefonos de Venezuela ADR 100,000 (b) 2,812,500
EVN Energie-Versorgung
Niederoesterreich 30,000 4,516,278
Ericsson ADR 300,000 9,056,250
Iberdrola 475,000 (d) 6,732,139
Natl Power 800,000 6,701,269
Northern Telecom 200,000 12,375,000
Portugal Telecom S.A. ADR 150,000 4,237,500
Renaissance Energy 200,000 (b) 6,813,948
Shell Transport & Trading 40,000 4,095,000
Telecomunicacoes Brasileiras ADR 150,000 11,475,000
Telefonica de Espana ADR 290,000 20,082,500
TransCanada Pipeline 200,000 (d) 3,500,000
Transport adora de Gas del Sur 400,000 (d) 4,900,000
United Utilities 500,000 (b) 5,318,875
Veba 150,000 (d) 8,675,591
------------
Total 154,898,789
- --------------------------------------------------------------------------------
Total common stocks
(Cost: $573,007,458) $682,305,213
- --------------------------------------------------------------------------------
Preferred stocks (2.2%)
- --------------------------------------------------------------------------------
Issuer Shares Value(a)
- --------------------------------------------------------------------------------
Kaiser Aluminum 275,000 (e) 3,093,750
MCN Finance
8.75% Cv 218,000 6,022,250
Morgan Stanley-AESC
5% Cv 247,500 (b) 7,765,313
- --------------------------------------------------------------------------------
Total preferred stocks
(Cost: $14,099,468) $ 16,881,313
- --------------------------------------------------------------------------------
Bonds (3.8%)
- --------------------------------------------------------------------------------
Issuer and Principal Value(a)
coupon rate amount
- --------------------------------------------------------------------------------
Mortgage-backed security (0.8%)
Federal Natl Mtge Assn
7% 2026 $6,087,893 $ 5,963,091
- --------------------------------------------------------------------------------
Domestic (1.9%)
Bell Telephone Pennsylvania
7.375% 2033 5,000,000 $ 4,897,250
Cincinnati Bell
6.25% 2001 Cv 125,000 75,000
Tele-Communications
9.875% 2022 4,500,000 4,828,770
Texas Utilities
7.375% 2025 5,000,000 4,756,900
------------
Total 14,557,920
- --------------------------------------------------------------------------------
Foreign (1.1%)(c)
Hydro-Quebec
(Canadian Dollar)
8.50% 2029 5,000,000 5,547,150
TransCanada Pipeline
(U.S. Dollar)
9.875% 2021 2,000,000 2,462,360
------------
Total 8,009,510
- --------------------------------------------------------------------------------
Total bonds
(Cost: $27,752,802) $ 28,530,522
- --------------------------------------------------------------------------------
Short-term securities (8.0%)
- --------------------------------------------------------------------------------
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
- --------------------------------------------------------------------------------
U.S. government agency (1.1%)
Federal Natl Mtge Assn
Disc Nts
01-13-97 5.38% $1,300,000 $ 1,297,677
01-14-97 5.51 1,000,000 998,014
01-15-97 5.47 6,100,000 6,087,048
----------
Total 8,382,739
- --------------------------------------------------------------------------------
Commercial paper (6.7%)
BBV Finance (Delware)
01-15-97 5.42 5,900,000 5,887,610
01-21-97 5.35 5,100,000 5,083,529
Bell Atlantic
01-10-97 5.61 6,200,000 6,191,320
CAFCO
01-16-97 5.55 700,000 (f) 698,387
Cargill
01-10-97 5.69 4,200,000 4,194,036
Mobil Australia Finance (Delaware)
01-02-97 5.42 3,600,000 (f) 3,599,460
Natl Australia Funding (Delaware)
01-03-97 5.44 5,900,000 5,898,223
Pioneer Hi-Bred
01-14-97 5.66 5,000,000 4,989,799
01-16-97 5.40 5,500,000 5,487,671
01-16-97 5.67 2,300,000 2,294,585
Siemens
01-31-97 5.68 2,300,000 2,289,171
Toyota Motor Finance
02-04-97 5.36 4,000,000 3,979,902
-----------
Total 50,593,693
- --------------------------------------------------------------------------------
Letter of credit (0.2%)
Bank of America-
Barbers Point AES
02-07-97 5.53 1,600,000 1,590,972
- --------------------------------------------------------------------------------
Total short-term securities
(Cost: $60,568,830) $ 60,567,404
- --------------------------------------------------------------------------------
Total investments in securities
(Cost: $675,428,558)(g) $788,284,452
- --------------------------------------------------------------------------------
<PAGE>
Notes to investments in securities
- --------------------------------------------------------------------------------
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated.
(d) Security is partially or fully on loan. See Note 4 to the financial
statements.
(e) PRIDES - Preferred Redeemed Increased Dividend Equity Securities are
structured as convertible preferred securities issued by a company.
Investors receive an enhanced yield but based upon a specific
formula, potential appreciation is limited. PRIDES pay dividends,
have voting rights, are noncallable for three years and upon maturity,
convert into shares of common stocks.
(f) 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.
(g) At Dec. 31, 1996, the cost of securities for federal income tax purposes was
approximately $675,425,000 and the approximate aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation $116,976,000
Unrealized depreciation (4,117,000)
------------------------------------------------------
Net unrealized appreciation $112,859,000
------------------------------------------------------
<PAGE>
Board members and officers
Board members and officers of the Fund
- -----------------------------------------------------------------
President and interested board member
William R. Pearce
President of all funds in the IDS MUTUAL FUND GROUP.
- -----------------------------------------------------------------
Independent board members
H. Brewster Atwater Jr.
Former chairman and chief executive officer, General Mills, Inc.
Lynne V. Cheney
Distinguished fellow, American Enterprise Institute for
Public Policy Research.
Robert F. Froehlke
Former president of all funds in the IDS MUTUAL FUND GROUP.
Heinz F. Hutter
Former president and chief operating officer, Cargill, Inc.
Anne P. Jones
Attorney and telecommunications consultant.
Melvin R. Laird
Senior counsellor for national and international affairs, The Readers's Digest
Association, Inc.
Edson W. Spencer
Former chairman and chief executive officer, Honeywell, Inc.
Wheelock Whitney
Chairman, Whitney Management Company.
C. Angus Wurtele
Chairman of the board, The Valspar Corporation.
- -----------------------------------------------------------------
Interested board members who are officers and/or employees of AEFC
William H. Dudley
Executive vice president, AEFC.
David R. Hubers
President and chief executive officer, AEFC.
John R. Thomas
Senior vice president, AEFC.
- -----------------------------------------------------------------
Officers who also are officers and/or employees of AEFC
Peter J. Anderson
Vice President of all funds in the IDS MUTUAL FUND GROUP.
Melinda S. Urion
Treasurer of all funds in the IDS MUTUAL FUND GROUP.
- -------------------------------------------------------------------
Other officer
Leslie L. Ogg
Vice president, general counsel and secretary of all funds in the IDS MUTUAL
FUND GROUP.
IDS mutual funds
Global/International funds
Funds in this group seek capital growth and/or income by investing primarily in
foreign securities. Foreign investments may be subject to currency fluctuations
and political and economic risks of the countries in which the investments are
made. They are high risk mutual funds with a potential for high reward.
IDS Emerging Markets Fund
Invests in a Portfolio comprised primarily of stocks of companies in developing
countries throughout the world that are believed to offer growth potential.
Seeks to provide long-term growth of capital.
(icon of) world globe
IDS Global Growth Fund
Invests in a Portfolio comprised primarily of stocks of companies throughout the
world that are positioned to meet market needs in a changing world economy.
These companies offer above-average potential for long-term growth.
(icon of) world
IDS International Fund
Invests primarily in common stocks of foreign companies that offer potential for
superior growth. The Fund may invest up to 20% of its assets in the U.S. market.
(icon of) three flags
IDS Global Balanced Fund
Invests in stocks-and bonds in, for the most part, major markets throughout the
world, including the U.S. Seeks to provide a balance of growth of capital and
current income.
(icon of) scale of globes
IDS Global Bond Fund
Invests in a Portfolio comprised primarily of debt securities of U.S. and
foreign issuers to seek high total return through income and growth of capital.
(icon of) globe
Growth funds
Funds in this group seek capital growth, primarily from common stocks. They are
high risk mutual funds with a potential for high reward.
IDS Precious Metals Fund
Invests primarily in the securities of foreign or domestic companies that
explore for, mine and process or distribute gold and other precious metals. A
highly aggressive and speculative fund that seeks long-term growth of capital.
(icon of) cart of precious gems
IDS Discovery Fund
Invests in small- and medium-size, growth-oriented companies emphasizing
technological innovation and productivity enhancement.
Buys and holds larger growth-oriented stocks.
(icon of) ship
IDS Small Company Index Fund
Invests in all or a representative group of the equity securities comprising the
S&P SmallCap 600 Index, as it strives to provide long-term capital appreciation.
(icon of) building
IDS Strategy Aggressive Fund
Invests primarily in common stocks of companies that are selected for their
potential for above-average growth. Above-average means that their growth
potential is better, in the opinion of the portfolio's investment manager, than
the Standard & Poor's Corporation (S&P) 500 Stock Index.
(icon of) chess piece
IDS Research Opportunities Fund
Invests in a Portfolio comprised primarily of equity securities of companies
included in the S&P 500 Index that are believed to have strong growth potential.
The Portfolio is managed using a research methodology by the Research Department
of AEFC. Goal is long-term appreciation.
(icon of) magnifying glass
IDS Growth Fund
Invests in a Portfolio comprised primarily of companies that have above-average
potential for long-term growth as a result of new management, marketing
opportunities or technological superiority.
(icon of) flower
IDS New Dimensions Fund
Invests in a Portfolio comprised primarily of companies with significant growth
potential due to superiority in technology, marketing or management. The Fund
frequently changes its industry mix.
(icon of) dimension
IDS Progressive Fund
Invests primarily in undervalued common stocks. The Fund holds stocks for the
long term with the goal of capital growth.
(icon of) shooting star
Growth and 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 Select Fund
Invests primarily in a combination of moderate growth stocks, higher-yielding
equities and bonds. Seeks growth of capital and income.
(icon of) three pine trees
IDS Blue Chip Advantage Fund
Invests in selected stocks from a major market index. Securities purchased are
those recommended by our research analysts as the best from each industry
represented on the index. Offers potential for long-term growth as well as
dividend income.
(icon of) ribbon
IDS Managed Allocation Fund
Invests in a Portfolio comprised primarily of U.S. equity securities, U.S. and
foreign debt securities, foreign equity securities and money market instruments.
The Fund provides diversification among these major investment categories and
has a target mix that represents the way the Fund's investments will be
allocated over the long term. Seeks maximum total return.
(icon of) spinning toy
IDS Stock Fund
Invests in a Portfolio comprised primarily of common stocks of companies
representing many sectors of the economy. Seeks current income and growth of
capital.
(icon of) building with columns
IDS Equity Value Fund
Invests primarily in undervalued common stocks that offer potential for growth
of capital and income.
(icon of) three growing flowers
IDS Utilities Income Fund
Invests primarily in the stocks of public utility companies to seek high current
income and growth of income and capital with reduced volatility.
(icon of) light bulb
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.
(icon of) two puzzle pieces
IDS Mutual
Invests in a Portfolio which seeks to balance between common stocks and senior
securities (preferred stocks and bonds). Seeks a balance of growth of capital
and current income.
(icon of) scale of justice
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 in 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.
(icon of) two coins
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.
(icon of) Greek column
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.
(icon of) skyline
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.
(icon of) piggy bank
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
PAGE
Quick telephone reference
American Express Telephone Transaction Service
Redemptions and exchanges, dividend payments or reinvestments and
automatic payment arrangements
<PAGE>
National/Minnesota:
800-437-3133
Mpls./St. Paul area:
671-3800
American Express Shareholder Service
Fund performance, objectives and account inquiries
612-671-3733
TTY Service
For the hearing impaired
800-846-4852
American Express Infoline
Automated account information (TouchTone(R) phones only), including current fund
prices and performance, account values and recent account transactions
National/Minnesota:
800-272-4445
Mpls./St. Paul area:
671-1630
PAGE
AMERICAN EXPRESS FINANCIAL ADVISORS
IDS Utilities Income Fund
IDS Tower 10
Minneapolis, MN 55440-0010
<PAGE>
