1997 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.
<PAGE>
Dependable
dividends
Making money in the stock market isn't limited to trying to find stockswith
rising prices. Many investorsprefer 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 chairman 3
From the portfolio manager 3
The Fund's 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>
To our shareholders
From the chairman
If you're an experienced investor, you know that the past few years have
been unusually strong for the financial markets. Perhaps just as
important, history shows that bull markets don't last forever. Though
they're often unpredictable, market declines - whether they're brief or
long-lasting, moderate or substantial - are always a possibility. We saw
evidence of that last October, when declines in certain Asian markets
spawned a sharp drop in several financial markets worldwide, including the
U.S.
That fact reinforces the need for investors to review periodically their
long-term goals and examine whether their investment program remains on
track to achieving them. Your quarterly investment statements are one part
of that monitoring process. The other is a meeting with your American
Express financial advisor. That becomes even more important if there's a
major change in your financial situation or in the financial markets.
William R. Pearce
(picture of) William R. Pearce
William R. Pearce
Chairman of the board
<PAGE>
From the portfolio manager
Utility stocks performed very well during the past six months, leading to
an exceptionally strong gain by IDS Utilities Income Fund. For the first
half of the Fund's fiscal year - July through December 1997 - the Fund's
Class A shares provided a total return of 18.9%. That figure easily
exceeded the return generated by the Standard & Poor's 500, an index of
stocks commonly used as a proxy for the performance of the stock market as
a whole. (A portion of the Fund's return came in the form of a capital
gain, which was paid to shareholders last December and reduced the Fund's
net asset value by a like amount at that time.)
The period began with the stock market continuing to enjoy the positive
effects of steady economic growth, low inflation, falling long-term
interest rates and healthy corporate profits. Despite a slump in August,
caused by a temporary run-up in interest rates, and a brief but sharp drop
in late October, spawned by the financial crisis in Southeast Asia, the
market followed a generally positive course.
For utility stocks, the overall decline in interest rates was an
especially powerful factor. (As with bonds, the prices of utility stocks
usually rise when rates fall because the stocks attract more buying from
income-seeking investors.) In addition, utilities appeared to garner more
interest from nervous investors who were looking for a "safe haven"
investment in the wake of last fall's upheaval in many financial markets.
As it turned out, in October the Fund lost less than 1%, compared with a
decline of more than 3% for the Standard & Poor's 500, and continued to
outperform the index through the end of the year.
Telephone stocks set performance pace
Leading the way for the Fund were its holdings among telephone utilities,
which comprised about a third of the portfolio and racked up the most
impressive gains. Working in phones' favor were predictable earnings
growth and strong cash flow, as well as a less-worrisome regulatory
environment. Although they couldn't keep up with the phones' powerful
performance, stocks of electric and natural gas utilities also made
sizable contributions.
I kept cash reserves low during the six months, a beneficial strategy
given the modest return cash generated compared with utility stocks. As
for changes to the portfolio, I reduced holdings among stocks of foreign
utilities and put more money to work in domestic stocks. Also, last summer
I added a bit to telephone investments while eliminating the Fund's
holdings of real estate investment trusts. Lastly, to counter the ongoing
regulatory uncertainty that surrounds electric and telephone companies, I
continued to concentrate investments in those companies that appear best
able to withstand possible regulatory changes.
As the second half of the fiscal year begins, I think the outlook for
utilities remains good, especially for telephone and natural gas
companies. Beyond that, should long-term interest rates come down further,
I would expect the Fund to benefit accordingly.
Bernhard Fleming
(picture of) Bernhard Fleming
Bernhard Fleming
Portfolio manager
<PAGE>
To our shareholders
Class A
6-month performance
(All figures per share)
Net asset value (NAV)
Dec. 31, 1997 $ 8.42
June 30, 1997 $ 8.04
Increase $ 0.38
Distributions
July 1, 1997 - Dec. 31, 1997
From income $ 0.39
From capital gains $ 0.73
Total distributions $ 1.12
Total return* +18.9%**
Class B
6-month performance
(All figures per share)
Net asset value (NAV)
Dec. 31, 1997 $ 8.42
June 30, 1997 $ 8.04
Increase $ 0.38
Distributions
July 1, 1997 - Dec. 31, 1997
From income $ 0.36
From capital gains $ 0.73
Total distributions $ 1.09
Total return* +18.5%**
Class Y
6-month performance
(All figures per share)
Net asset value (NAV)
Dec. 31, 1997 $ 8.42
June 30, 1997 $ 8.04
Increase $ 0.38
Distributions
July 1, 1997 - Dec. 31, 1997
From income $ 0.39
From capital gains $ 0.73
Total distributions $ 1.12
Total return* +18.9%**
*The prospectus discusses the effects of the 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
Percent Value
(of Fund's net assets) (as of Dec. 31, 1997)
BellAtlantic 4.76% $47,320,000
BellSouth 4.44 44,205,312
SBC Communications 4.05 40,287,500
BCE 4.02 39,975,000
Ameritech 3.84 38,237,500
U S WEST Communications Group 3.18 31,587,500
FPL Group 2.38 23,675,000
Duke Energy 2.23 22,150,000
DPL 2.02 20,125,000
CMS Energy 1.99 19,828,125
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The ten holdings listed here make up 32.91% of the Fund's net assets
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<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
IDS Utilities Income Fund, Inc.
Dec. 31, 1997
Assets
(Unaudited)
Investments in securities, at value (Note 1)
<S> <C>
(identified cost $780,622,501) $992,148,887
Cash in bank on demand deposit 437,383
Dividends and accrued interest receivable 3,196,364
U.S. government securities held as collateral (Note 4) 562,785
-------
Total assets 996,345,419
-----------
Liabilities
Dividends payable to shareholders 739,415
Payable upon return of securities loaned (Note 4) 562,785
Accrued investment management services fee 14,037
Accrued distribution fee 2,695
Accrued service fee 4,746
Accrued transfer agency fee 2,661
Accrued administrative services fee 1,018
Other accrued expenses 86,799
------
Total liabilities 1,414,156
---------
Net assets applicable to outstanding capital stock $994,931,263
============
Represented by
Capital stock-- $.01 par value (Note 1) $ 1,181,770
Additional paid-in capital 769,264,825
Undistributed net investment income 23,764
Accumulated net realized gain (loss) 12,938,934
Unrealized appreciation (depreciation) on investments and on translation
of assets and liabilities in foreign currencies 211,521,970
-----------
Total-- representing net assets applicable to outstanding capital stock $994,931,263
============
Net assets applicable to outstanding shares: Class A $862,662,979
Class B $132,234,527
Class Y $ 33,757
Net asset value per share of outstanding capital stock: Class A shares 102,463,922 $ 8.42
Class B shares 15,709,040 $ 8.42
Class Y shares 4,011 $ 8.42
See accompanying notes to financial statements.
</TABLE>
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<TABLE>
<CAPTION>
Statement of operations
IDS Utilities Income Fund, Inc.
Six months ended Dec. 31, 1997
Investment income
(Unaudited)
Income:
<S> <C>
Dividends $ 15,421,516
Interest 2,110,379
Less foreign taxes withheld (85,854)
-------
Total income 17,446,041
----------
Expenses (Note 2):
Investment management services fee 2,298,734
Distribution fee -- Class B 404,606
Transfer agency fee 474,173
Incremental transfer agency fee-- Class B 4,773
Service fee
Class A 673,736
Class B 94,002
Class Y 51
Administrative services fees and expenses 173,074
Compensation of board members 6,019
Custodian fees 55,200
Postage 26,310
Registration fees 41,659
Reports to shareholders 12,810
Audit fees 12,250
Other 668
---
Total expenses 4,278,065
Earnings credits on cash balances (Note 2) (83,385)
-------
Total net expenses 4,194,680
---------
Investment income (loss) -- net 13,251,361
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions 59,836,118
Foreign currency transactions (7,765)
Options contracts written 281,926
-------
Net realized gain (loss) on investments 60,110,279
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 85,044,322
----------
Net gain (loss) on investments and foreign currencies 145,154,601
-----------
Net increase (decrease) in net assets resulting from operations $158,405,962
============
See accompanying notes to financial statements.
</TABLE>
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<TABLE>
<CAPTION>
Financial statements
Statements of changes in net assets
IDS Utilities Income Fund, Inc.
Operations and distributions Dec. 31, 1997 June 30, 1997
Six months ended Year ended
(Unaudited)
<S> <C> <C>
Investment income (loss)-- net $ 13,251,361 $ 24,993,583
Net realized gain (loss) on investments 60,110,279 67,241,707
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 85,044,322 34,416,208
---------- ----------
Net increase (decrease) in net assets resulting from operations 158,405,962 126,651,498
----------- -----------
Distributions to shareholders from:
Net investment income
Class A (11,735,647) (22,560,571)
Class B (1,210,095) (1,658,850)
Class Y (1,645) (7,580)
Net realized gain
Class A (91,228,835) (19,457,819)
Class B (13,882,130) (1,790,823)
Class Y (3,554) (6,467)
------ ------
Total distributions (118,061,906) (45,482,110)
------------ -----------
Capital share transactions (Note 5)
Proceeds from sales
Class A shares (Note 2) 57,831,907 84,967,342
Class B shares 28,894,055 47,369,444
Class Y shares -- 109,954
Reinvestment of distributions at net asset value
Class A shares 96,200,664 38,730,859
Class B shares 14,636,479 3,314,586
Class Y shares 4,183 14,047
Payments for redemptions
Class A shares (67,470,562) (134,149,309)
Class B shares (Note 2) (9,262,460) (11,992,573)
Class Y shares (247,101) (47,737)
-------- -------
Increase (decrease) in net assets from capital share transactions 120,587,165 28,316,613
----------- ----------
Total increase (decrease) in net assets 160,931,221 109,486,001
Net assets at beginning of period 834,000,042 724,514,041
----------- -----------
Net assets at end of period $994,931,263 $834,000,042
============ ============
Undistributed (excess of distributions over) net investment income $ 23,764 $ (280,210)
------------ ------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
IDS Utilities Income Fund, Inc.
(Unaudited as to Dec. 31, 1997)
1
Summary of
significant
accounting policies
IDS Utilities Income Fund, Inc. is registered under the Investment Company
Act of 1940 (as amended) as a diversified, open-end management investment
company. The Fund has 10 billion authorized shares of capital stock. 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 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.
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. Debt securities are
generally traded in the over-the-counter market and are valued at a price
deemed best to reflect fair value as quoted by dealers who make markets in
these securities or by an independent pricing service. Securities for
which market quotations are not readily available are valued at fair value
according to methods selected in good faith by the board. Short-term
securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current
interest rates; those maturing in 60 days or less are valued at amortized
cost.
Option transactions
In order to produce incremental earnings, protect gains, and facilitate
buying and selling of securities for investment purposes, the Fund 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 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 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 Fund may buy and sell financial futures contracts traded on any U.S.
or foreign exchange. The Fund also may buy and 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 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 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 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, American Express Client
Service Corporation (AECSC) maintains shareholder accounts and records.
The Fund pays AECSC an annual fee per shareholder account for this service
as follows:
o Class A $15
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 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 $302,548 for Class A and $37,569 for Class B
for the six months ended Dec. 31, 1997. The Fund also pays custodian fees
to American Express Trust Company, an affiliate of AEFC.
During the six months ended Dec. 31, 1997, the Fund's custodian and
transfer agency fees were reduced by $83,385 as a result of earnings
credits from overnight cash balances.
3
Securities
transactions
Cost of purchases and proceeds from sales of securities (other than
short-term obligations) aggregated $407,669,643 and $381,181,085,
respectively, for the six months ended Dec. 31, 1997. Realized gains and
losses are determined on an identified cost basis.
Brokerage commissions paid to brokers affiliated with AEFC were $11,759
for the six months ended Dec. 31, 1997.
4
Lending of
portfolio
securities
At Dec. 31, 1997, securities valued at $319,795 were on loan to brokers.
For collateral, the Fund received U.S. government securities valued at
$562,785. Income from securities lending amounted to $179,946 for the six
months ended Dec. 31, 1997. 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, 1997
Class A Class B Class Y
Sold 6,872,276 3,432,135 --
Issued for reinvested 11,582,676 1,762,580 504
distributions
Redeemed (8,029,789) (1,104,190) (30,748)
---------- ---------- -------
Net increase (decrease) 10,425,163 4,090,525 (30,244)
Year ended June 30, 1997
Class A Class B Class Y
Sold 11,329,257 6,300,553 14,614
Issued for reinvested 5,114,765 436,475 1,844
distributions
Redeemed (18,030,425) (1,600,502) (6,248)
----------- ---------- ------
Net increase (decrease) (1,586,403) 5,136,526 10,210
<PAGE>
<TABLE>
<CAPTION>
Notes to financial statements
IDS Utilities Income Fund, Inc.
6. Financial highlights
The tables below show certain important financial information for
evaluating the Fund's results.
Fiscal period ended June 30,
Per share income and capital changesa
Class A
1997b 1997 1996 1995 1994 1993 1992 1991 1990 1989c
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $8.04 $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 .13 .25 .30 .29 .31 .32 .33 .35 .37 .34
(loss)
Net gains (losses) 1.37 1.01 .96 .21 (.38) .89 .73 .05 .19 .54
(both realized
and unrealized)
Total from investment 1.50 1.26 1.26 .50 (.07) 1.21 1.06 .40 .56 .88
operations
Less distributions:
Dividends from net (.12) (.24) (.28) (.31) (.31) (.33) (.32) (.35) (.37) (.34)
investment income
Distributions from (1.00) (.22) -- (.16) (.44) (.18) (.06) (.05) (.06) --
realized gains
Total distributions (1.12) (.46) (.28) (.47) (.75) (.51) (.38) (.40) (.43) (.34)
Net asset value, $8.42 $8.04 $7.24 $6.26 $6.23 $7.05 $6.35 $5.67 $5.67 $5.54
end of period
Ratios/supplemental data
Class A
1997b 1997 1996 1995 1994 1993 1992 1991 1990 1989c
Net assets, end of $863 $740 $677 $601 $651 $655 $406 $252 $197 $72
period (in millions)
Ratio of expenses to .87%d .89% .90% .89% .82% .86% .92% .90% .96% .87%d
average daily net assetse
Ratio of net income (loss) 3.09%d 3.42% 4.03% 4.84% 4.55% 4.78% 5.37% 6.37% 6.65% 7.09%d
to average daily net assets
Portfolio turnover rate 45% 90% 84% 68% 102% 64% 49% 57% 53% 41%
(excluding short-term
securities)
Total returnf 18.9% 18.1% 20.2% 8.4% (1.7%) 19.9% 19.2% 7.3% 10.3% 18.2%
Average brokerage
commisson rateg $.0511 $.0454 -- -- -- -- -- -- -- --
aFor a share outstanding throughout the period. Rounded to the nearest
cent.
b Six months ended Dec. 31, 1997 (Unaudited).
cInception date. Period from Aug. 1, 1988 to June 30, 1989.
dAdjusted to an annual basis.
eEffective fiscal year 1996, expense ratio is based on total expenses of
the Fund before reduction of earnings credits on cash balances.
fTotal return does not reflect payment of a sales charge.
g Effective fiscal year 1997, the Fund is required to disclose an average
brokerage commission rate per share for security trades on which
commissions are charged. The comparability of this information may be
affected by the fact that commission rates per share vary significantly
among foreign countries.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fiscal period ended June 30,
Per share income and capital changesa
Class B Class Y
1997b 1997 1996 1995c 1997b 1997 1996 1995c
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $8.04 $7.23 $6.26 $5.98 $8.04 $7.24 $6.26 $5.98
beginning of period
Income from investment operations:
Net investment income .09 .19 .23 .15 .13 .26 .31 .16
(loss)
Net gains (losses) both 1.38 1.03 .96 .26 1.37 1.02 .96 .27
realized and unrealized)
Total from investment 1.47 1.22 1.19 .41 1.50 1.28 1.27 .43
operations
Less distributions:
Dividends from net (.09) (.19) (.22) (.13) (.12) (.26) (.29) (.15)
investment income
Distributions from (1.00) (.22) -- -- (1.00) (.22) -- --
realized gains
Total distributions (1.09) (.41) (.22) (.13) (1.12) (.48) (.29) (.15)
Net asset value, $8.42 $8.04 $7.23 $6.26 $8.42 $8.04 $7.24 $6.26
end of period
Ratios/supplemental data
Class B Class Y
1997b 1997 1996 1995c 1997b 1997 1996 1995c
Net assets, end of $132 $93 $47 $7 $-- -- -- --
period (in millions)
Ratio of expenses to 1.63%d 1.65% 1.68% 1.83%d .80%d .74% .73% .84%d
average daily net assetse
Ratio of net income 2.32%d 2.66% 3.05% 4.83%d 3.15%d 3.57% 4.13% 5.84%d
(loss) to average daily net assets
Portfolio turnover rate 45% 90% 84% 68% 45% 90% 84% 68%
(excluding short-term
securities)
Total returnf 18.5% 17.3% 19.3% 6.9% 18.9% 18.3% 20.4% 7.2%
Average brokerage
commisson rateg $.0511 $.0454 -- -- $.0511 $.0454 -- --
a For a share outstanding throughout the period. Rounded to the nearest
cent.
b Six months ended Dec. 31, 1997 (Unaudited).
c Inception date was March 20, 1995.
d Adjusted to an annual basis.
e Effective fiscal year 1996, expense ratio is based on total expenses of
the Fund before reduction of earnings credits on cash balances.
f Total return does not reflect payment of a sales charge.
gEffective fiscal year 1997, the Fund is required to disclose an average
brokerage commission rate per share for security trades on which
commissions are charged. The comparability of this information may be
affected by the fact that commission rates per share vary significantly
among foreign countries.
</TABLE>
<PAGE>
Investments in securities
IDS Utilities Income Fund, Inc. (Percentages represent
Dec. 31, 1997 (Unaudited) value of investments
compared to net assets)
Common stocks (89.9%)
Issuer Shares Value(a)
Communications equipment & services (0.1%)
MasTec 50,000(b)$ 1,143,750
Utilities -- electric (38.1%)
Allegheny Energy 300,000 9,750,000
Baltimore Gas & Electric 400,000 13,625,000
Black Hills Corp 100,000 3,525,000
CalEnergy 200,000(b) 5,750,000
Carolina Power & Light 350,000 14,853,125
Cinergy 100,000 3,831,250
CMS Energy 450,000(b) 19,828,125
Consolidated Edison 330,000 13,530,000
Dominion Resources 200,000 8,512,500
DPL 700,000 20,125,000
DQE 300,000 10,537,500
DTE Energy 350,000 12,140,625
Duke Energy 400,000 22,150,000
Edison Intl 400,000 10,875,000
FirstEnergy 500,000(b) 14,500,000
FPL Group 400,000 23,675,000
GPU 325,000 13,690,625
KU Energy 200,000 7,850,000
Long Island Lighting 300,000 9,037,500
MDU Resources Group 300,000 9,487,500
Nevada Power 300,000 7,968,750
New Century Energies 400,000 19,175,000
New England Electric System200,000 8,550,000
NIPSCO Inds 300,000 14,831,250
Northern States Power 307,000 17,882,750
PacifiCorp 200,000 5,462,500
Pinnacle West Capital 450,000 19,068,750
Sierra Pacific Resources 400,000 15,000,000
SIGCORP 150,000 4,406,250
Teco Energy 700,000 19,687,500
Total 379,306,500
Utilities -- gas (13.4%)
Coastal 250,000 15,484,375
Columbia Gas System 175,000 13,748,438
Consolidated Natural Gas 100,000 6,050,000
El Paso Natural Gas 150,000 9,975,000
Energen 200,000 7,950,000
Enron 200,000 8,312,500
MCN 190,000 7,671,250
New Jersey Resources 300,000 12,018,750
NICOR 205,000 8,648,437
Northwest Natural Gas 262,500 8,137,500
ONEOK 225,000 9,084,375
Questar 200,000 8,925,000
Washington Gas Light 250,000 7,734,375
WICOR 200,000 9,287,500
Total 133,027,500
Utilities -- telephone (32.4%)
AirTouch Communications 200,000(b) 8,312,500
Ameritech 475,000 38,237,500
AT&T 160,000 9,800,000
BCE 1,200,000(d) 39,975,000
BellAtlantic 520,000 47,320,000
BellSouth 785,000 44,205,312
Century Telephone
Enterprises 350,000 17,434,375
Cincinnati Bell 450,000 13,950,000
Frontier 300,000 7,218,750
GTE 175,000 9,143,750
MCI Communications 150,000(b) 6,421,875
SBC Communications 550,000 40,287,500
Teleport Communications
Group Cl A 150,000(b) 8,231,250
U S WEST Communications
Group 700,000 31,587,500
Total 322,125,312
Miscellaneous (1.1%)
American Waterworks 410,000 11,198,125
Foreign (4.8%)(c)
Grupo Iusacell ADR 350,000(b) 7,590,625
Mahanagar Telephone 600,000 9,006,000
Portugal Telecom ADR 200,000 9,400,000
TELUS 500,000 11,089,733
VEBA 150,000 10,216,847
Total 47,303,205
Total common stocks
(Cost: $691,258,155) $894,104,392
Preferred stocks (3.7%)
Issuer Shares Value(a)
Airtouch Communications
6% Cv 300,000 $10,687,500
MCN Energy Group
8% Cv 80,000(f) 5,000,000
MCN Financing
8.75% Cv 218,000(f) 7,466,500
WorldCom
8% Cv 127,575 13,395,375
Total preferred stocks
(Cost: $31,520,935) $36,549,375
Bonds (4.3%)
Issuer and Principal Value(a)
coupon rate amount
U.S. government obligation (0.7%)
U.S. Treasury
6.25% 2023 $7,500,000 $ 7,723,200
Mortgage-backed security (0.6%)
Federal Natl Mtge Assn
7% 2026 5,707,790 5,760,245
Domestic (2.1%)
Bell Telephone of Pennsylvania
7.375% 2033 5,000,000 5,209,600
Diamond Offshore
3.125% 2007 3,500,000 3,508,750
Tele-Communications
9.875% 2022 4,500,000 5,646,960
TU Electric Capital
8.175% 2037 6,000,000 6,447,120
Total 20,812,430
Foreign (0.9%)(c)
Hydro-Quebec
(Canadian Dollar)
8.50% 2029 5,000,000 6,003,250
TransCanada Pipeline
(U.S. Dollar)
9.875% 2021 2,000,000 2,748,280
Total 8,751,530
Total bonds
(Cost: $39,395,696) $43,047,405
Short-term securities (1.9%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agencies (0.4%)
Federal Home Loan Mtge Corp Disc Nt
01-30-98 5.77% $2,100,000 $ 2,090,290
Federal Natl Mtge Assn Disc Nt
01-20-98 5.76 600,000 598,186
World Bank Disc Nt
01-27-98 5.72 1,200,000 1,195,060
Total 3,883,536
Commercial paper (1.4%)
Colgate-Palmolive
01-29-98 5.62 4,900,000(e) 4,878,658
Fleet Funding
01-09-98 5.83 6,000,000(e) 5,992,267
Gannett
01-13-98 5.83 1,400,000 1,397,293
Goldman Sachs
01-14-98 5.83 1,300,000 1,297,277
Total 13,565,495
Letter of credit (0.1%)
Bank of America-
AES - Hawaii
01-09-98 5.94 1,000,000 998,684
Total short-term securities
(Cost: $18,447,715) $ 18,447,715
Total investments in securities
(Cost: $780,622,501)(g) $992,148,887
============
See accompanying notes to investments in securities.
<PAGE>
Investments in securities
IDS Utilities Income Fund, Inc.
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) 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.
(f) 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
non-callable for three years and upon maturity, convert into shares of common
stock.
(g) At Dec. 31, 1997, the cost of securities for federal income tax purposes was
approximately $780,623,000 and the approximate aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation.........................................$214,807,000
Unrealized depreciation...........................................(3,281,000)
----------
Net unrealized appreciation.....................................$211,526,000
<PAGE>
Board members and officers
Independent board members and officers
Chairman William R. Pearce*
of the board Chairman of the board, Board Services Corporation (provides
administrative services to boards including the boards of the
IDS and IDSLife funds and Master Trust portfolios).
H. Brewster Atwater, Jr.
Former chairman and chief executive officer, General Mills,
Inc.
Lynne V. Cheney
Distinguished fellow, American Enterprise Institute for Public
Policy Research.
Heinz F. Hutter
Former president and chief operating officer, Cargill, Inc.
Anne P. Jones
Attorney and telecommunications consultant.
Alan K. Simpson
Former United States senator for Wyoming.
Edson W. Spencer
Former chairman and chief executive officer, Honeywell, Inc.
Wheelock Whitney
Chairman, Whitney Management Company.
C. Angus Wurtele
Chairman of the board, The Valspar Corporation.
Officer
Vice president, Leslie L. Ogg*
general counsel President, treasurer and corporate secretary of Board Services
and secretary Corporation.
Board members and officers associated with AEFC
President John R. Thomas*
Senior vice president, AEFC.
William H. Dudley*
Senior advisor to the chief executive officer, AEFC.
David R. Hubers*
President and chief executive officer, AEFC.
Officers associated with AEFC
Vice president Peter J. Anderson*
Senior vice president, AEFC
Treasurer Matthew N. Karstetter*
Vice president, AEFC
* Interested person as defined by the Investment Company Act of 1940.
<PAGE>
IDS mutual funds
Global/International funds
Funds in this group seek capital growth and/or income by investing primarily in
foreign securities. Foreign investments may be subject to currency fluctuations
and political and economic risks of the countries in which the investments are
made. They are high risk mutual funds with a potential for high reward.
IDS Emerging Markets Fund
Invests in a Portfolio comprised primarily of stocks of companies in developing
countries throughout the world that are believed to offer growth potential.
Seeks to provide long-term growth of capital.
(icon of) world with countries
IDS Global Growth Fund
Invests in a Portfolio comprised primarily of stocks of companies throughout the
world that are positioned to meet market needs in a changing world economy.
These companies offer above-average potential for long-term growth.
(icon of) world
IDS International Fund
Invests primarily in common stocks of foreign companies that offer potential for
superior growth. The Fund may invest up to 20% of its assets in the U.S. market.
(icon of) three flags
IDS Global Balanced Fund
Invests in stocks and bonds in, for the most part, major markets throughout the
world, including the U.S. Seeks to provide a balance of growth of capital and
current income.
(icon of) scale of globes
IDS Global Bond Fund
Invests in a Portfolio comprised primarily of debt securities of U.S. and
foreign issuers to seek high total return through income and growth of capital.
(icon of) globe
Growth funds
Funds in this group seek capital growth, primarily from common stocks. They are
high risk mutual funds with a potential for high reward.
IDS Precious Metals Fund
Invests primarily in the securities of foreign or domestic companies that
explore for, mine and process or distribute gold and other precious metals. A
highly aggressive and speculative fund that seeks long-term growth of capital.
(icon of) cart of precious gems
IDS Discovery Fund
Invests in small- and medium-size, growth-oriented companies emphasizing
technological innovation and productivity enhancement. Buys and holds larger
growth-oriented stocks.
(icon of) ship
IDS Small Company Index Fund
Invests in all or a representative group of the equity securities comprising the
S&P SmallCap 600 Index, as it strives to provide long-term capital appreciation.
(icon of) building
IDS Strategy Aggressive Fund
Invests primarily in common stocks of companies that are selected for their
potential for above-average growth. Above-average means that their growth
potential is better, in the opinion of the portfolio's investment manager, than
the Standard & Poor's Corporation (S&P) 500 Stock Index.
(icon of) chess piece
IDS Research Opportunities Fund
Invests in a Portfolio comprised primarily of equity securities of companies
included in the S&P 500 Index that are believed to have strong growth potential.
The Portfolio is managed using a research methodology by the Research Department
of AEFC. Goal is long-term appreciation.
(icon of) magnifying glass
IDS Growth Fund
Invests in a Portfolio comprised primarily of companies that have above-average
potential for long-term growth as a result of new management, marketing
opportunities or technological superiority.
(icon of) trees
IDS New Dimensions Fund
Invests in a Portfolio comprised primarily of companies with
significant growth potential due to superiority in
technology, marketing or management. The Fund frequently
changes its industry mix.
(icon of) dimension
IDS Progressive Fund
Invests primarily in undervalued common stocks. The Fund holds stocks for the
long term with the goal of capital growth.
(icon of) shooting star
Growth & income funds
These funds focus on securities of medium to large, well-established companies
that offer long-term growth of capital and reasonable income from dividends and
interest. Foreign investments may be subject to currency fluctuations and
political and economic risks of the countries in which the investments are made.
IDS Equity Select Fund
Invests primarily in a combination of moderate growth stocks, higher-yielding
equities and bonds. Seeks growth of capital and income.
(icon of) three pine trees
IDS Blue Chip Advantage Fund
Invests in selected stocks from a major market index. Securities purchased are
those recommended by our research analysts as the best from each industry
represented on the index. Offers potential for long-term growth as well as
dividend income.
(icon of) ribbon
IDS Managed Allocation Fund
Invests in a Portfolio comprised primarily of U.S. equity securities, U.S. and
foreign debt securities, foreign equity securities and money market instruments.
The Fund provides diversification among these major investment categories and
has a target mix that represents the way the Fund's investments will be
allocated over the long term. Seeks maximum total return.
(icon of) gyroscope
IDS Stock Fund
Invests in a Portfolio comprised primarily of common stock of companies
representing many sectors of the economy. Seeks current income and growth of
capital.
(icon of) building with columns
IDS Equity Value Fund
Invests primarily in undervalued common stocks that offer potential for growth
of capital and income.
(icon of) three growing flowers
IDS Utilities Income Fund
Invests primarily in the stocks of public utility companies to seek high current
income and growth of income and capital with reduced volatility.
(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 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.
(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
For more complete information about any of these funds, including charges and
expenses, you can obtain a prospectus by contacting your financial advisor or
writing to American Express Shareholder Service, P.O. Box 534, Minneapolis, MN
55440-0534. Read it carefully before you invest or send money.
<PAGE>
Quick telephone reference
American Express Redemptions and exchanges, National/Minnesota
Financial Advisors dividend payments or 800-437-3133
Telephone Transaction reinvestments and automatic
Service payment arrangements Mpls./St. Paul area:
671-3800
TTY Service For the hearing impaired 800-846-4852
American Express Automated account information 800-862-7919
Financial Advisors (TouchTone(R) phones only),
Easy Access Line including current fund prices
and performance, account values
and recent account transactions
AMERICAN EXPRESS Financial Advisors
IDS Utilities Income Fund
IDS Tower 10
Minneapolis, MN 55440-0010
