AXP(SM)
Utilities
Income Fund
1999 ANNUAL REPORT
(PROSPECTUS ENCLOSED)
(icon of) magnifying glass
The primary goal of AXP Utilities Income Fund 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.
(This annual report includes a prospectus that describes in detail the Fund's
objective, investment strategy, risks, sales charges, fees and other matters of
interest. Please read the prospectus carefully before you invest or send money.)
Distributed by American Express Financial Advisors Inc.
AMERICAN EXPRESS Financial Advisors (logo)
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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.
AXP UTILITIES INCOME FUND (This annual report is not part of the prospectus.)
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Table of Contents
1999 ANNUAL REPORT
The purpose of this annual report is to tell investors how the Fund performed.
From the Chairman 4
From the Portfolio Manager 4
Fund Facts 6
The 10 Largest Holdings 7
Making the Most of the Fund 8
The Fund's Long-term Performance 9
Independent Auditors' Report 11
Financial Statements 12
Notes to Financial Statements 15
Investments in Securities 21
Federal Income Tax Information 27
1999 PROSPECTUS
The prospectus, which is bound into the middle of this annual report, describes
the Fund in detail.
The Fund 3p
Goal 3p
Investment Strategy 3p
Risks 5p
Past Performance 7p
Fees and Expenses 9p
Management 10p
Buying and Selling Shares 10p
Valuing Fund Shares 10p
Investment Options 11p
Purchasing Shares 12p
Sales Charges 15p
Exchanging/Selling Shares 19p
Distributions and Taxes 24p
Personalized Shareholder
Information 25p
About the Company 26p
Quick Telephone Reference 28p
Financial Highlights 29p
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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From the Chairman
(picture of) Arne H. Carlson
Arne H. Carlson
Chairman of the board
American Express(R) Funds held shareholder meetings in June 1999. Shareholders
approved all of the proposals advanced by management. Among the proposals were:
o The election of Board members and the selection of KPMG LLP as independent
auditors.
o Change in the Fund name from "IDS" to "AXP."
o A new shareholder service and distribution plan.
o A change in the investment management services agreement.
No other business was presented at the meeting, which was concluded by a report
to shareholders from the Investment Department of American Express Financial
Corporation.
Thanks to all of you for your effort in reviewing the proxy material and voting
your proxies.
Arne H. Carlson
From the Portfolio Manager
(picture of) Bernhard M. Fleming
Bernhard M. Fleming
Portfolio manager
In a volatile period for the stock market, AXP Utilities Income Fund provided
relatively consistent performance on the way to generating a total return of
20.15% (Class A shares) for the July 1998 through June 1999 fiscal year. (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.)
At the outset of the period, it appeared that the U.S. stock market might be
gearing up for another spectacular surge, as it sprinted to an all-time high by
mid-July. But just as quickly, the environment changed. The catalyst was a new
outbreak of the so-called "Asian flu," the economic malady that first struck
Southeast Asia in 1997. This time it surfaced in Russia and, soon after, Latin
America, and re-ignited fear that American companies' profits would suffer as a
result of reduced business overseas. Investors responded with heavy
stock-selling that, by the time things quieted down in the fall, drove the broad
market down by nearly 20%.
AXP UTILITIES INCOME FUND (This annual report is not part of the prospectus.)
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But, supported in large part by three interest-rate reductions by the Federal
Reserve, stocks soon got back on their feet and, with another display of the
remarkable resilience they've shown in recent years, staged a spectacular rally
through the end of 1998. After a brief setback in late winter caused by concerns
about a potential increase in inflation, stocks again got back on the positive
track to conclude the period on a positive note.
PHONES SET THE PACE
For their part, utilities stocks experienced a less-volatile ride, as their
"defensive" nature enabled them to hold up better than the market as a whole
during the downturns while still allowing them to participate in the rallies.
For the period overall, telephone stocks were the clear winners, led by big
gains by major players such as AT&T and WorldCom. Well behind phones'
performance, though still making a solid contribution, were electric companies,
which were followed by natural gas providers, easily the weakest of the three
groups.
As for the portfolio mix, I kept the great majority of assets in phone and
electric securities, with roughly equal amounts in each. The rest went mainly
into natural gas issues and cash reserves. On a geographic basis, foreign
investments, primarily in European phone companies, were reduced from about 11%
of assets in mid-1998 to about 7% at the end of the fiscal year, as I believed
the U.S. market offered better opportunity for gain. As the period progressed, I
also reduced the natural gas exposure and put most of the proceeds into the
phone group.
Looking to the current fiscal year, while the possibility of higher interest
rates in the months ahead could present a problem for utility stocks, some
favorable fundamentals remain in place. Chief among them are positive momentum
in the electrics and attractive prices and healthy yields among the telephones.
Bernhard M. Fleming
(This annual report is not partf of the prospectus.) ANNUAL REPORT - 1999
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Fund Facts
Class A -- 12-month performance
(All figures per share)
Net asset value (NAV)
June 30, 1999 $9.91
June 30, 1998 $8.98
Increase $0.93
Distributions -- July 1, 1998 - June 30, 1999
From income $0.37
From capital gains $0.43
Total distributions $0.80
Total return* +20.15%**
Class B -- 12-month performance
(All figures per share)
Net asset value (NAV)
June 30, 1999 $9.91
June 30, 1998 $8.98
Increase $0.93
Distributions -- July 1, 1998 - June 30, 1999
From income $0.30
From capital gains $0.43
Total distributions $0.73
Total return* +19.29%**
Class Y -- 12-month performance
(All figures per share)
Net asset value (NAV)
June 30, 1999 $9.91
June 30, 1998 $8.98
Increase $0.93
Distributions -- July 1, 1998 - June 30, 1999
From income $0.38
From capital gains $0.43
Total distributions $0.81
Total return* +20.25%**
*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.
AXP UTILITIES INCOME FUND (This annual report is not part of the prospectus.)
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The 10 Largest Holdings
Percent Value
(of net assets) (as of June 30, 1999)
MCI WorldCom 4.23% $77,625,000
Ameritech 3.81 69,825,000
AT&T 3.35 61,393,749
Enron 2.68 49,050,000
BellSouth 2.56 46,875,000
Bell Atlantic 2.50 45,762,500
ALLTEL 2.34 42,900,000
GTE 2.27 41,662,500
U S WEST Communications Group 2.24 41,125,000
SBC Communications 2.21 40,600,000
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
(icon of) pie chart
The 10 holdings listed here
make up 28.19% of net assets
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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Making the Most of the Fund
BUILD YOUR ASSETS SYSTEMATICALLY
One of the best ways to invest in the Fund is by dollar-cost averaging -- a
time-tested strategy that can make market fluctuations work for you. To
dollar-cost average, simply invest a fixed amount of money regularly. You'll
automatically buy more shares when the Fund's share price is low, fewer shares
when it is high. The chart below shows how dollar-cost averaging works. In these
three hypothetical scenarios, you will see six months of share price
fluctuations.
This strategy does not ensure a profit or avoid a loss if the market declines.
But, if you can continue to invest regularly through changing market conditions
even when the price of your shares fall or the market declines, it can be an
effective way to accumulate shares to meet your long-term goals.
How dollar-cost averaging works
Jan Feb Mar Apr May Jun
$15 $16 $18 $20
$10 $10 $12 $14
$ 5
Accumulated shares* Average market Your average
price per share cost per share
42.25 $15 $14.20
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Jan Feb Mar Apr May Jun
$15
$10 $10 $10
$ 5 $8 $5 $5 $8
Accumulated shares* Average market Your average
price per share cost per share
85.0 $7.66 $7.05
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Jan Feb Mar Apr May Jun
$15
$10 $10 $8 $6 $7
$ 5 $4 $4
Accumulated shares* Average market Your average
price per share cost per share
103.5 $6.50 $5.80
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$100 invested per month. Total invested: $600.
*Shares purchased is determined by dividing the amount invested per month by the
current share price.
THREE WAYS TO BENEFIT FROM A MUTUAL FUND:
o your shares increase in value when the Fund's investments do well
o you receive capital gains when the gains on investments sold by the Fund
exceed losses
o you receive income when the Fund's stock dividends, interest and
short-term gains exceed its expenses.
All three make up your total return. You potentially can increase your
investment if, like most investors, you reinvest your dividends and capital gain
distributions to buy additional shares of the Fund or another fund.
AXP UTILITIES INCOME FUND (This annual report is not part of the prospectus.)
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The Fund's Long-term Performance
How your $10,000 has grown in AXP Utilities Income Fund
$50,000
X
S&P 500 Index
$40,000
X
$37,562
$30,000 AXP Utilities Income Fund
Class A
X
Lipper Utility Fund Index
$20,000
$10,000
$9,500
89 90 91 92 93 94 95 96 97 98 99
Average annual total return (as of June 30, 1999)
1 year 5 years 10 years Since inception
Class A +14.15% +17.69% +14.15% --%
Class B +15.29% --% --% +21.11%*
Class Y +20.25% --% --% +22.33%*
*Inception date was March 20, 1995.
Assumes: Holding period from 7/1/89 to 6/30/99. Returns do not reflect taxes
payable on distributions. Reinvestment of all income and capital gain
distributions for the Fund, with a value of $20,546. Also see "Past Performance"
in the Fund's current prospectus.
On the graph above you can see how the Fund's total return compared to two
widely cited performance indexes, the S&P 500 Index and the Lipper Utility Fund
Index. In comparing AXP Utilities Income Fund (Class A) to these indexes, you
should take into account the fact that the Fund's performance reflects the
maximum sales charge of 5%, while such charges are not reflected in the
performance of the index.
Your investment and return values fluctuate so that your shares, when redeemed,
may be worth more or less than the original cost. Average annual total return
figures reflect the impact of the applicable sales charge up to a maximum of 5%.
This was a period of widely fluctuating security prices. Past performance is no
guarantee of future results.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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S&P 500 Index, an unmanaged list of common stocks, is frequently used as a
general measure of market performance. The index reflects reinvestment of all
distributions and changes in market prices, but excludes brokerage commissions
or other fees. However, the S&P 500 companies may be generally larger than those
in which the Fund invests.
Lipper Utility Fund Index, an unmanaged index published by Lipper Inc., includes
30 funds that are generally similar to the Fund, although some funds in the
index may have somewhat different investment policies or objectives. This Fund
invests at least 65% of its equity portfolio in the utilities industry.
AXP UTILITIES INCOME FUND (This annual report is not part of the prospectus.)
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The financial statements contained in Post-Effective Amendment #22 to
Registration Statement No. 33-20872 filed on or about August 26, 1999, are
incorporated herein by reference.
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Federal Income Tax Information
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its fiscal
year. The dividends listed below are reported to you on your year-end statement.
Shareholders should consult a tax advisor on how to report distributions for
state and local purposes.
AXP Utilities Income Fund, Inc.
Fiscal year ended June 30, 1999
Class A
Income distributions taxable as dividend income, 75.11% qualifying for deduction
by corporations.
Payable date Per share
Sept. 24, 1998 $0.05507
Dec. 22, 1998 0.21609
March 24, 1999 0.04979
June 23, 1999 0.05264
Total $0.37359
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 22, 1998 $0.43058
Total distributions $0.80417
The distribution of $0.64667 per share, payable Dec. 22, 1998, consisted of
$0.05388 derived from net investment income, $0.16221 from net short-term
capital gains (a total of $0.21609 taxable as dividend income) and $0.43058 from
net long-term capital gains.
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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Class B
Income distributions taxable as dividend income, 75.11% qualifying for deduction
by corporations.
Payable date Per share
Sept. 24, 1998 $0.03822
Dec. 22, 1998 0.19904
March 24, 1999 0.03197
June 23, 1999 0.03438
Total $0.30361
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 22, 1998 $0.43058
Total distributions $0.73419
The distribution of $0.62962 per share, payable Dec. 22, 1998, consisted of
$0.03683 derived from net investment income, $0.16221 from net short-term
capital gains (a total of $0.19904 taxable as dividend income) and $0.43058 from
net long-term capital gains.
Class Y
Income distributions taxable as dividend income, 75.11% qualifying for deduction
by corporations.
Payable date Per share
Sept. 24, 1998 $0.05668
Dec. 22, 1998 0.21779
March 24, 1999 0.05179
June 23, 1999 0.05469
Total $0.38095
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 22, 1998 $0.43058
Total distributions $0.81153
The distribution of $0.64837 per share, payable Dec. 22, 1998, consisted of
$0.05558 derived from net investment income, $0.16221 from net short-term
capital gains (a total of $0.21779 taxable as dividend income) and $0.43058 from
net long-term capital gains.
AXP UTILITIES INCOME FUND (This annual report is not part of the prospectus.)
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S-6341 N (8/99)
AXP Utilities Income Fund
IDS Tower 10
Minneapolis, MN 55440-0010
AMERICAN EXPRESS Financial Advisors (logo)
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STATEMENT OF DIFFERENCES
Difference Description
1) The layout is different 1) Some of the layout in the
throughout the annual report. annual report to
shareholders is in two
columns.
2) There are pictures, icons 2) Each picture, icon and
and graphs throughout the graph is described in
annual report. parentheses.
