-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VGOmPLFLAZ4hpQy6PmEoKowVudd+5EqQKjM8SBlTbVX9GpHAtAoatshoqaBXMXQP 7L3PbqFSzVsY+2FI5yvMEg== 0000820027-96-000548.txt : 19961003 0000820027-96-000548.hdr.sgml : 19961003 ACCESSION NUMBER: 0000820027-96-000548 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960731 FILED AS OF DATE: 19961002 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IDS GROWTH FUND INC CENTRAL INDEX KEY: 0000049702 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 410329910 STATE OF INCORPORATION: MN FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-02111 FILM NUMBER: 96638305 BUSINESS ADDRESS: STREET 1: 80 SOUTH 8TH STREET STREET 2: T33/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55440 BUSINESS PHONE: 6126712772 N-30D 1 IDS GROWTH FUND, INC. PAGE 1 1996 ANNUAL REPORT IDS Growth Fund (prospectus enclosed) (Icon of) trees The goal of IDS Growth Fund is long-term growth of capital. (This annual report includes a prospectus that describes in detail the fund's objective, investment policies, risks, sales charges, fees and other matters of interest. Please read the prospectus carefully before you invest or send money.) Distributed by American Express Financial Advisors Inc. PAGE 2 (Icon of) trees Going for Growth In the long run, a company's stock price usually reflects its business fortunes. Therefore, if a company thrives, its stock tends to follow suit. That's why many long-term investors, including Growth Fund, focus on growth stocks - those of companies that enjoy rising sales and profits. While there will be interruptions along the way, patient investors look forward to sharing in that same prosperity. PAGE 3 Contents (Icon of) One open book inside of another. The purpose of this annual report is to tell investors how the Fund performed. The prospectus, which is bound into the middle of this annual report, describes the Fund in detail. 1996 annual report From the president 4 From the portfolio manager 4 Ten largest holdings 6 Making the most of your Fund 7 Long-term performance 8 Independent auditors' report (Fund) 9 Financial statements (Fund) 10 Notes to financial statements (Fund) 13 Independent auditor's report (Portfolio) 19 Financial statements (Portfolio) 20 Notes to financial statements (Portfolio) 23 Investments in securities 32 IDS mutual funds 35 Federal income tax information 38 1996 prospectus The Fund in brief 3p Goal 3p Investment policies and risks 3p Structure of the Fund 4p Manager and distributor 4p Portfolio manager 4p Alternative purchase arrangements 4p Sales charge and Fund expenses 5p Performance 7p Financial highlights 7p Total returns 9p Investment policies and risks 12p Facts about investments and their risks 12p Valuing Fund shares 16p How to purchase, exchange or redeem shares 17p Alternative purchase arrangements 17p How to purchase shares 19p How to exchange shares 22p How to redeem shares 23p Reductions and waivers of the sales charge 28p Special shareholder services 33p Services 33p Quick telephone reference 33p PAGE 4 Distributions and taxes 34p Dividend and capital gain distributions 34p Reinvestments 35p Taxes 36p How to determine the correct TIN 38p How the Fund is organized 39p Shares 39p Voting rights 39p Shareholder meetings 39p Special considerations regarding master/feeder structure 40p Board members and officers 41p Investment manager 43p Administrator and transfer agent 44p Distributor 44p About American Express Financial Corporation 46p General information 46p Appendix 47p Descriptions of derivative instruments 47p PAGE 5 To our shareholders (Photo of) William R. Pearce, President of the Fund (Photo of) Mitzi Malevich, Portfolio manager From the president The volatility in the stock market in recent months has put some investors, even experienced ones, on edge. Although no one can know exactly what will happen next, history tells us that ups and downs are intrinsic to stock investing. But history also shows that changing strategies with every twist and turn of the market is an impractical and, worse yet, typically unproductive way to invest. What matters more, therefore, is how we react to market volatility. If we take a long-term view and accept the downs with the ups, we improve our chances of success. For in the investment world, the race most often goes not to the swift, but to the persistent. Along the way, of course, you'll still want to review your investment program to make sure it's on track to achieving your financial goals. Your American Express financial advisor will help you do just that, and I suggest you take advantage of his or her services on a regular basis. On May 13, 1996, the Fund began investing its assets in Growth Portfolio instead of directly in securities of individual companies. Following the portfolio manager's letter are the financial statements of both the Fund and Portfolio. The notes to the financials and the prospectus go into more detail of how the new structure works. William R. Pearce From the portfolio manager Despite a precipitous decline by growth stocks late in the fiscal year, IDS Growth Fund generated a double-digit total return for shareholders during the August 1995 through July 1995 period. (A substantial part of the return came in the form of a capital gain that was paid to shareholders last december and reduced the Fund's net asset value by the same amount at that time.) For the 12 months, the Fund's return exceeded that of the average for growth mutual funds as measured by the Lipper Growth Fund Index. The powerful bull market set motion at the start of 1995 continued for the first several months of the fiscal period, as stocks rode an ongoing wave of moderate economic growth, low inflation, healthy corporate profits and falling long-term interest rates. Although stocks of virtually all stripes performed positively, those of growth companies were best overall as their generally impressive earnings attracted an increasing amount of investors' capital. PAGE 6 Technology, health care strong Moreover, to the particular benefit of this Fund, growth stocks in the technology and health-care sectors - where we maintained much of the portfolio - were often at the forefront of the market's advance. Complementing them were good gains among our financial services stocks, a group to which we lessened our exposure as the period progressed. We also found winners among energy, metals, food/beverage and telecommunications stocks. One portfolio shift worth noting was our decision last fall to sell our stocks of retailers, based on our negative view of prospects for that business sector. That strategy paid off, as retailers experienced a generally lean holiday sales season. More important to the Fund's success during the first several months of the fiscal period, however, was our fundamental policy of holding minimal cash reserves, whose return was far below what we were able to realize from stocks. A psychological shift Although there was only modest change in key fundamentals such as inflation, economic growth and corporate profits, by early summer of this year many professional investors, spurred mainly by a run- up in long-term interest rates, evidently decided that stocks had run their course for the time being and it was time to sell. As is usually the case, they first went after those issues that had risen the most - namely, growth stocks, especially those in the technology area. The result was that, in June and July, funds such as this one were forced to give back a sizable portion of their previous gains, some 12% in the case of this Fund. It was a frustrating way to end what had been a very gratifying fiscal year. Still, substantial swings in value are a fact of life for a relatively aggressive fund such as this one. And frankly, I won't be surprised to see more of them in the months ahead. But, I continue to believe that the opportunities in growth stocks are as numerous and exciting as ever. Over time, I expect them to prove rewarding for the Fund and its shareholders. Mean while, I look forward to updating you on our results six months from now. Mitzi Malevich Class A 12- month performance (All figures per share) Net asset value (NAV) July 31, 1996 $23.16 July 31, 1995 $21.50 Increase $ 1.66 PAGE 7 Distributions Aug. 1, 1995 - July 31, 1996 From income $ .01 From capital gains $ 1.14 Total distributions $ 1.15 Total return* +13.3%** Class B 12-month performance (all figures per share) Net asset value (NAV) July 31, 1996 $22.92 July 31, 1995 $21.45 Increase $ 1.47 Distributions Aug. 1. 1995 - July 31, 1996 From income $ .00 From capital gains $ 1.14 Total distributions $ 1.14 Total return* +12.4%** Class Y 12-month performance (all figures per share) Net asset value (NAV) July 31, 1996 $23.21 July 31, 1995 $21.51 Increase $ 1.70 Distributions Aug. 1, 1995 - July 31, 1996 From income $ .02 From capital gains $1.14 Total distributions $ 1.16 Total return* +13.4%** * The prospectus discusses the effect of sales charge, if any on the various classes. **The total return is a hypothetical investment in the Fund with all distributions reinvested. PAGE 8 The Portfolio's ten largest holdings Pie Chart: The ten holdings listed here make up 28.19% of the Portfolio's net assets ___________________________________________________________________ Percent Value (of Portfolio's net assets) (as July 31, 1996) ___________________________________________________________________ Cisco Systems 3.75% $82,800,000 A leader in the "router" segment of the networks industry. Cisco routers allow interconnection of PC's, minicomputers and mainframe to local and global networks. First Data 3.29 72,529,695 Operates in one business segment providing high-quality, high volume information processing and related services to specific client groups: the transaction card, payment instruments, teleservices, mutual funds, health care receivables and information management industries. Tellabs 3.25 71,700,000 Designer, manufacturer and marketer of a broad range of products and equipment for use by telephone companies, the Bell System, specialized common carriers and other providers of telecommunication services. HEALTHSOUTH 2.75 60,750,000 A fast-growing chain of hospitals and outpatient centers. The company specializes in patient rehabilitation that enables patients to return to a normal lifestyle as soon as possible after accidents, surgery or illness. Boston Scientific 2.60 57,300,000 Developer, manufacturer and marketer of medical devices. The company's products are used in a broad range of medical specialties, including cardiology, vascular surgery, urology, gastroenterology and radiology. Coca-Cola 2.57 56,564,063 The world's largest producer and distributor of soft drinks, concentrates and syrups. Nucor 2.55 56,250,000 One of the largest and most profitable domestic steel mini-mills. Nucor is a leading producer of the joist and girders used in construction. Pfizer 2.53 55,900,000 A leading producer of pharmaceutical, hospital products, animal health items, non-prescription medications and specialty chemicals. Service Intl 2.50 55,125,000 Operates funeral homes, cemeteries, crematories and other funeral and cemetery related businesses located throughout Europe, North America and the Pacific Rim. PAGE 9 Oracle Systems 2.40 52,818,750 One of the largest independent vendors of database-management software. Oracle offers a wide variety of new products, enhancements and applications software, supported by excellent service. PAGE 10 Making the most of your Fund Average annual total return (as of July 31, 1996) 1 year Since inception* 5 years 10 years Class A +7.61% --% +15.11% +13.69% Class B +7.43% +21.80% --% --% Class Y +13.44% +25.61% --% --% * Inception date was March 20, 1995. The performance of Class B and Class Y will vary from the performance of Class A based on differences in sales charges and fees. Your investment and return values fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. Figures reflect the deduction of the maximum 5% sales charge. This was a period of widely fluctuating security prices. Past performance is no guarantee of future results. 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. This 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, it can be an effective way to accumulate shares to meet your long-term goals. How dollar-cost averaging works Month Amount Per-share Number of shares purchased invested market price Jan $100 $20 5.00 XXXXX Feb 100 18 5.56 XXXXXx March 100 17 5.88 XXXXXx April 100 15 6.67 XXXXXXx May 100 16 6.25 XXXXXXx June 100 18 5.56 XXXXXx July 100 17 5.88 XXXXXx Aug 100 19 5.26 XXXXXx Sept 100 21 4.76 XXXXx Oct 100 20 5.00 XXXXX (footnotes to table) By investing an equal number of dollars each month... (arrow in table pointing to April) you automatically buy more shares when the per share market price is low. (arrow in table pointing to September) and fewer shares when the per share market price is high. PAGE 11 You have paid an average price of only $17.91 per share over the 10 months, while the average market price actually was $18.10. PAGE 12 The Fund's long term performance Three ways to benefit from a mutual fund: o your shares increase in value when the Fund's investments do well o you receive capital gains when the gains on investments sold by the Fund exceed losses o you receive income when the Fund's stock dividends, interest and short-term gains exceed its expenses. All three make up your total return. And you potentially can increase your investment if, like most investors, you reinvest your dividends and capital gain distributions to buy additional shares of the Fund or another fund. How your $10,000 has grown in IDS Growth Fund $36,109 Growth Fund Class A S&P 500 Stock Index Lipper Growth Fund Index $9,500 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 Average annual total return (as of July 31, 1996) 1 year Since inception* 5 years 10 years Class A +7.61% --% +15.11% +13.69% Class B +7.43% +21.80% +--% --% Class Y +13.44% +25.61% +--% --% * Inception date was March 20, 1995. Assumes: Holding period from 8/1/86 to 7/31/96. Returns do not reflect taxes payable on distributions. Reinvestment of all income and capital gain distributions for the Fund, with a value of $25,568. Also see "Performance" in the Fund's current prospectus. Standard & Poor's 500 Stock Index (S&P 500), an unmanaged list of common stocks, is frequently used as a general measure of market performance. However, the S&P 500 companies are generally larger than those in which the fund invests. PAGE 13 Lipper Growth Fund Index, an unmanaged index published by Lipper Analytical Services, Inc., includes 30 funds that are generally similar to this fund, although some funds in the index may have somewhat different investment policies or objectives. On the graph above you can see how the fund's total return compared to two widely cited unmanaged performance indexes, the S&P 500 Stock Index and the Lipper Growth Fund Index. In comparing Growth Fund to the two indexes, you should take into account the fact that the fund's performance reflects the maximum sales charge of 5%, while such charges are not reflected in the performance of the indexes. If you were actually to buy either individual stocks or growth mutual funds, any sales charges that you pay would reduce your total return as well. Your investment and return values fluctuate so that your shares, when redeemed, may be worth more or less than the original cost. This was a period of widely fluctuating security prices. Past performance is no guarantee of future results. PAGE 14 Independent auditors' report ___________________________________________________________________ The board and shareholders IDS Growth Fund, Inc.: We have audited the accompanying statement of assets and liabilities, of IDS Growth Fund (a series of IDS Growth Fund,Inc.) as of July 31, 1996, and the related statement of operations for the year then ended and the statements of changes in net assets for each of the years in the two-year period ended July 31, 1996, and the financial highlights for each of the years in the ten-year period ended July 31, 1996. These financial statements and the financial highlights are the responsibility of fund management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of IDS Growth Fund at July 31, 1996, and the results of its operations, changes in its net assets and the financial highlights for the periods stated in the first paragraph above, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Minneapolis, Minnesota September 6, 1996 PAGE 15 Statement of assets and liabilities IDS Growth Fund July 31, 1996
Assets Investment in Growth Portfolio (Note 1) $2,182,123,011 Total assets 2,182,123,011 Liabilities Disbursement in excess of cash on demand deposit 100 Accrued distribution fee 5,657 Accrued service fee 10,150 Accrued transfer agency fee 7,889 Accrued administrative services fee 2,762 Other accrued expenses 359,264 Total liabilities 385,822 Net assets applicable to outstanding capital stock $2,181,737,189 Represented by Capital stock -- authorized 10,000,000,000 shares of $.01 par value $ 943,188 Additional paid-in-capital 1,518,871,436 Accumulated net realized gain (Note 1) 66,700,638 Unrealized appreciation of investments 595,221,927 Net assets applicable to outstanding shares: $2,181,737,189 Class A $1,871,320,106 Class B $ 281,101,412 Class Y $ 29,315,671 Net asset value per share of outstanding Class A shares 80,790,697 $ 23.16 capital stock Class B shares 12,265,133 $ 22.92 Class Y shares 1,262,972 $ 23.21 See accompanying notes to financial statements.
PAGE 16 Statement of operations IDS Growth Fund Year ended July 31, 1996
Aug. 1, 1995 to May 13, 1996 to May 12, 1996 July 31, 1996 Total (Note 1 and 4) Investment income Income: Dividends $ 9,443,030 $ 2,748,876 $ 12,191,906* Interest 5,010,541 1,861,493 6,872,034 Total Income 14,453,571 4,610,369 19,063,940 Expenses (Note 2): Investment management services fee 8,770,070 -- 8,770,070 Distribution fee - - Class B 652,772 435,033 1,087,805 Transfer agency fee 1,588,204 604,793 2,192,997 Incremental transfer agency fee -- Class B 15,332 8,750 24,082 Service fee Class A 2,126,051 750,257 2,876,308 Class B 153,093 101,358 254,451 Administrative services fee 637,866 233,195 871,061 Compensation of board members 20,003 7,691 27,694 Compensation of officers 7,683 4,302 11,985 Custodian fees 69,984 -- 69,984 Postage 134,891 63,300 198,191 Registration fees 230,627 145,142 375,769 Reports to shareholders 41,134 18,700 59,834 Audit fees 19,573 5,427 25,000 Administrative 8,891 3,224 12,115 Other 17,730 15,676 33,406 Total expenses 14,493,904 2,396,848 16,890,752 Earnings credits on cash balances (Note 4) (6,678) -- (6,678) 14,487,226 2,396,848 16,884,074 Expenses, including investment management services fees allocated from Growth Portfolio -- 3,285,045 3,285,045 Total net expenses 14,487,226 5,681,893 20,169,119 Investment loss -- net (33,655) (1,071,524) (1,105,179) Realized and unrealized gain (loss) -- net Net realized gain on security transactions 96,512,819 15,110,714 111,623,533 Net change in unrealized appreciation or depreciation 252,572,044 (175,993,041) 76,579,003 Net gain (loss) on investments 349,084,863 (160,882,327) 188,202,536 Net increase (decrease) in net assets resulting from operations $349,051,208 $(161,953,851) $187,097,357 * Net of foreign taxes withheld of $88,052 See accompanying notes to financial statements
PAGE 17 Statement of changes in net assets IDS Growth Fund
Operations and distributions July 31, 1996 July 31, 1995 Year ended Year ended Investment income (loss) - net $ (1,105,179) $ 1,926,511 Net realized gain on investments 111,623,533 47,367,171 Net change in unrealized appreciation or depreciation of investments 76,579,003 305,991,050 Net increase in net assets resulting from operations 187,097,357 355,284,732 Distributions to shareholders from: Net investment income Class A (745,861) (2,221,716) Class Y (10,284) -- Net realized gain Class A (76,543,593) (83,810,550) Class B (5,509,162) -- Class Y (639,403) -- Total distributions (83,448,303) (86,032,266) Capital share transactions (Note 3) Proceeds from sales Class A shares (Note 2) 705,002,561 250,703,122 Class B shares 251,558,924 35,052,302 Class Y shares 25,249,056 7,107,887 Reinvestment of distributions at net asset value Class A shares 75,873,952 84,354,729 Class B shares 5,493,274 -- Class Y shares 649,686 -- Payments for redemptions Class A shares (394,806,319) (170,480,957) Class B shares (Note 2) (12,785,969) (402,110) Class Y shares (5,236,466) (121,596) Increase in net assets from capital share transactions 650,998,699 206,213,377 Total increase in net assets 754,647,753 475,465,843 Net assets at beginning of period 1,427,089,436 951,623,593 Net assets at end of period (including undistributed net investment income of $0 and $756,145) $2,181,737,189 $1,427,089,436 See accompanying notes to financial statements
PAGE 18 Notes to financial statements IDS Growth Fund, Inc. ____________________________________________________________ 1. Summary of significant accounting policies IDS Growth Fund (a series of IDS Growth Fund, Inc.) is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. 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 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. Investment in Growth Portfolio Effective May 13, 1996, the Fund began investing all of its assets in the Growth Portfolio (Portfolio), a series of Growth Trust, an open-end investment company that has the same objectives as the Fund. This was accomplished by transferring the Fund's assets to the Portfolio in return for a proportionate ownership interest in the Portfolio. Growth Portfolio invest primarily in stocks of U.S. An foreign companies that appear to offer growth opportunities. The Fund records daily its share of the Portfolio's income, expenses and realized and unrealized gains and losses. The financial statements of the Portfolio are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. The Fund records its investment in the Portfolio at value which is equal to the Fund's proportionate ownership interest in the net assets of the Portfolio. The percentage of the Portfolio owned by the Fund at July 31, 1996 was 98.96%. Valuation of securities held by the Portfolio is discussed in Note 1 of the Portfolio's Notes to Financial Statements, which are included elsewhere in this report. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increase and decrease in net assets from operations during the period. Actual results could differ from those estimates. PAGE 19 Federal taxes Since the Fund's policy is to comply with all sections of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to the shareholders, no provision for income or excise taxes is required. Net investment income (loss) and net realized gains (losses) allocated from the Portfolio may differ for financial statement and tax purposes primarily because of the deferral of losses on certain futures contracts, the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes, and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. On the statement of assets and liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been increased by $1,105,179 and paid-in-capital has been decreased by $1,105,179. Dividends to shareholders An annual dividend declared and paid at the end of the calendar year from net investment income is reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the income dividend. ________________________________________________________________ 2. Expenses and sales charges In addition to the expenses allocated from the Portfolio, the Fund accrues its own expenses as follows: Effective March 20, 1995, the Fund entered into agreements with American Express Financial Corporation (AEFC) for providing administrative services and serving as transfer agent. Under its Administrative Services Agreement, the Fund pays AEFC for administration and accounting services at a percentage of the Fund's average daily net assets in reducing percentages from 0.05% to 0.03% annually. Under this agreement, the Fund also pays taxes; audit and certain legal fees; registration fees for shares; office expenses; consultant's fees; compensation of board members, officers and employees; corporate filing fees; organizational expenses; and any other expenses properly payable by the Fund approved by the board. Under a separate Transfer Agency Agreement, AEFC maintains shareholder accounts and records. The Fund pays AEFC an annual fee per shareholder account for this service as follows: Class A $15 Class B $16 Class Y $15 PAGE 20 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. AEFC will assume and pay any expenses (except taxes and brokerage commissions) that exceed the most restrictive applicable state expense limitation. Sales charges received by American Express Financial Advisors for distributing Fund shares were $8,347,400 for Class A and $70,598 for Class B for the period ended July 31, 1996. Prior to April 30, 1996, the Fund had a retirement plan for its independent board members. The plan was terminated April 30, 1996. The retirement plan expense amounted to $13,971 for the period. The total liability for the plan is $62,611 which will be paid out at some future date. _________________________________________________________________ 3. Capital share transactions Transactions in shares of capital stock for the periods indicated are as follows: Year ended July 31, 1996 Class A Class B Class Y ____________________________________________________________ Sold 30,026,905 10,775,556 1,074,249 Issued for reinvested 3,405,937 248,093 29,133 distributions Redeemed (16,841,935) (550,504) (222,683) ____________________________________________________________ Net increase 16,590,907 10,473,145 880,699 ____________________________________________________________ Year ended July 31, 1995 Class A Class B* Class Y* ____________________________________________________________ Sold 13,666,035 1,812,389 388,348 Issued for reinvested 5,080,692 -- -- distributions Redeemed (9,255,889) (20,401) (6,075) ____________________________________________________________ Net increase 9,490,838 1,791,988 382,273 ____________________________________________________________ *Inception date was March 20, 1995. PAGE 21 ____________________________________________________________ 4. Pre-conversion to Master Prior to transferring its securities to Growth Portfolio on May 13, 1996, various transactions took place as stated below. Expenses and sales charges Prior to the conversion on May 13, 1996, the Fund paid an investment management fee to AEFC. Subsequent to the conversion, the investment management fee is assessed st the Portfolio level. (See the footnotes to the Portfolio financial statement for the terms of the investment management agreement which remain unchanged). Prior to the conversion, the management fee was adjusted by a performance incentive adjustment based on the Fund's average daily net assets over a rolling 12-month period as measured against the change in the Lipper Growth Fund Index. The adjustment increased the fee by $919,558 for the period from Aug. 1, 1995 to May 12, 1996. During the period from Aug. 1, 1995 to May 12, 1996, the Fund's custodian fees were reduced by $6,678 as a result of earnings credits from overnight cash balances. Securities transactions Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $674,762,313 and $295,169,274 respectively, for the period from Aug. 1, 1995 to May 12, 1996. Brokerage commissions paid to brokers affiliated with AEFC were $23,844 during this period. Lending of portfolio securities Income from securities lending amounted to $246,679 for the period from Aug. 1, 1995 to May 12, 1996. ___________________________________________________________________ 5. Financial highlights "Financial highlights " showing per data and selected information is presented on pages 7 and 8 of the prospectus. PAGE 22 Independent auditors' report The board of trustees and unitholders Growth Trust: We have audited the accompanying statement of assets and liabilities, including the schedule of investments in securities, of Growth Portfolio (a series of Growth Trust) as of July 31, 1996, and the related statements of operations and changes in net assets for the period from May 13, 1996 (commencement of operations) to July 31, 1996. These financial statements are the responsibility of fund management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Investment securities held in custody are confirmed to us by the custodian. As to securities purchased and sold but not received or delivered, and securities on loan, we request confirmations from brokers, and where replies are not received, we carry out other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Growth Portfolio at July 31, 1996, and the results of its operations for the year then ended and the changes in its net assets for the period from May 13, 1996 (commencement of operations) to July 31, 1996, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Minneapolis, Minnesota September 6, 1996 PAGE 23 Statement of assets and liabilities Growth Portfolio July 31, 1996 Assets Investments in securities, at value (Note 1) (identified cost $1,596,400,239) $2,191,506,852 Dividends and accrued interest receivable 1,116,073 Receivable for investment securities sold 22,095,500 U.S. government securities held as collateral (Note 4) 74,151,956 Total assets 2,288,870,381 Liabilities Disbursements in excess of cash on demand deposit 6,693,434 Payable upon return of securities loaned (Note 4) 76,891,356 Accrued investment management services fee 86,777 Other accrued expenses 31,666 Total liabilities 83,703,233 Net assets $2,205,167,148 See accompany notes to financial statements. PAGE 24 Statement of operations Growth Portfolio For the period from May 13, 1996 (commencement of operations) to July 31, 1996 Investment income Income: Interest $1,881,058 Dividend 2,778,360 Total income 4,659,418 Expenses (Note 2): Investment management services fee 3,271,780 Compensation of board members 1,640 Custodian fees 44,330 Audit fees 4,231 Administrative 185 Total expenses 3,322,166 Earning credits on cash balances (Note 2) (2,345) Total net expenses 3,319,821 Investment income -- net 1,339,597 Realized and unrealized gain (loss) -- net Net realized gain on security transactions (Note 3) 12,989,728 Net change in unrealized appreciation or depreciation of investments (176,108,355) Net loss on investments (163,118,627) Net decrease in net assets resulting from operations $(161,779,030) See accompanying notes to financial statements. PAGE 25 Statement of changes in net assets Growth Portfolio For the period from May 13, 1996 to (commencement of operations) to July 31, 1996 Operations and distributions Investment income - - net $ 1,339,597 Net realized gain on investments 12,989,728 Net change in unrealized appreciation or depreciation of investments (176,108,355) Net decrease in net assets resulting from operations (161,779,030) Net contributions 2,366,946,178 Total increase in net assets 2,205,167,148 Net assets at beginning of period (Note 1) -- Net assets at end of period $2,205,167,148 See accompanying notes to financial statements. PAGE 26 Notes to financial statements Growth Portfolio ___________________________________________________________________ 1. Summary of significant accounting policies The Growth Portfolio (Portfolio) is a series of Growth Trust (Trust) and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. Growth Portfolio seeks to provide unitholders with long- term growth of capital by investing primarily in stocks of U.S. and foreign companies that appear to offer growth opportunities. The Portfolio also may invest in preferred stocks, convertible securities, debt securities derivative instruments and money market instruments. The Declaration of Trust permits the Trustees to issue non-transferable interests in the Portfolio. The Portfolio commenced operations on May 13, 1996. At this time, an existing fund transferred its assets to the Portfolio in return for an ownership percentage of the Portfolio. Significant accounting policies followed by the Portfolio are summarized below: Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increase and decrease in net assets from operations during the period. Actual results could differ from those estimates. Valuation of securities All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price; securities for which market quotations are not readily available 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 Portfolio 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 Portfolio also may buy and sell put and call options and write covered call options on portfolio securities and may write cash-secured put options. The risk in writing a call option is that the Portfolio gives up the opportunity of profit PAGE 27 if the market price of the security increases. The risk in writing a put option is that the Portfolio may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Portfolio pays a premium whether or not the option is exercised. The Portfolio also has the additional risk of not being able to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Portfolio will realize a gain or loss upon expiration or closing of the option transaction. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. Futures transactions In order to gain exposure to or protect itself from changes in the market, the Portfolio may buy and sell stock index futures contracts traded on any U.S. or foreign exchange. The Portfolio also may buy or write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility that there may be an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Portfolio is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Portfolio each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Portfolio recognizes a realized gain or loss when the contract is closed or expires. Foreign currency translations and foreign currency contracts Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars at the closing rate of exchange. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement dates on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. PAGE 28 The Portfolio may enter into forward foreign currency exchange contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Portfolio and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Portfolio is subject to the credit risk that the other party will not complete the obligations of the contract. Federal taxes For federal income tax purposes the Portfolio qualifies as a partnership and each investor in the Portfolio is treated as the owner of its proportionate share of the net assets, income, expenses and realized and unrealized gains and losses of the Portfolio. Accordingly, as a "pass-through" entity, the Portfolio does not pay any income dividends or capital gain distributions. Other Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date and interest income, including level-yield amortization of premium and discount, is accrued daily. ___________________________________________________________________ 2. Fees and expenses The Trust, on behalf of the Portfolio, has entered into an Investment Management Services Agreement with American Express Financial Corporation (AEFC) for managing its portfolio. Under this agreement, AEFC determines which securities will be purchased, held or sold. The management fee is a percentage of the Portfolio's average daily net assets in reducing percentages from 0.6% to 0.5% annually. The fees may be increased or decreased by a performance adjustment based on a comparison of the performance of Class A shares of the IDS Growth Fund to the Lipper Growth Fund Index. The maximum adjustment is 0.12% of the Portfolio's average daily net assets on an annual basis. The adjustment increased the fee by $330,001 for the period from May 13, 1996 to July 31, 1996. Under the agreement, the Trust also pays taxes and nonadvisory expenses, which include custodian fees to be paid to an affiliate of AEFC; audit and certain legal fees; fidelity bond premiums; registration fees for units; Portfolio office expenses; consultants' fees; compensation of trustees; corporate filing fees; expenses incurred in connection with lending securities of the Portfolio;and any other expenses properly payable by the Trust or Portfolio, approved by the board. For the period from May 13, 1996 to July 31, 1996, the Portfolio's custodian fees were reduced by $2,345 as a result of earnings credits from overnight cash balances. Pursuant to a Placement Agency Agreement, American Express Financial Advisors Inc. acts as placement agent of the units of the Trust. PAGE 29 ___________________________________________________________________ 3. Securities transactions Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $230,068,508 and $94,393,890 respectively, for the period from May 13, 1996 to July 31, 1996. For the same period, the portfolio turnover rate was 5%. Realized gains and losses are determined on an identified cost basis. Brokerage commissions paid to brokers affiliated with AEFC were $189,172 for this period. ___________________________________________________________________ 4. Lending of portfolio securities At July 31, 1996, securities valued at $82,068,675 were on loan to brokers. For collateral, the Portfolio received $2,739,400 in cash and U.S. government securities valued at $74,151,956. Income from securities lending amounted to $177,912 for the period ended July 31, 1996. The risks to the Portfolio of securities lending are that the borrower may not provide additional collateral when required or return the securities when done. PAGE 30 Investments in securities
Growth Portfolio July 31, 1996 (Percentages represent value of investments compared to net assets) ____________________________________________________________________________________________________________________________ Common stocks (92.6%) ____________________________________________________________________________________________________________________________ Issuer Shares Value(a) _____________________________________________________________________________________________________________________________ Airlines (1.0%) Northwest Airlines 600,000 (b,d) $22,050,000 _____________________________________________________________________________________________________________________________ Automotive & related (0.8%) Gentex 400,000 (b) 7,500,000 Oxford Resources Cl A 400,000 (b) 9,500,000 ___________ Total 17,000,000 _____________________________________________________________________________________________________________________________ Banks and savings & loans (1.3%) MBNA 1,000,000 27,875,000 _____________________________________________________________________________________________________________________________ Beverages & tobacco (2.5%) Coca-Cola 1,206,700 56,564,063 _____________________________________________________________________________________________________________________________ Building materials & construction (1.7%) Clayton Homes 1,033,900 18,093,250 Tyco Intl 500,000 20,500,000 ____________ Total 38,593,250 _____________________________________________________________________________________________________________________________ Communications equipment (15.8%) ADC Telecom 600,000 (b) 25,350,000 Andrew 1,200,000 (b,d) 49,050,000 Cisco Systems 1,600,000 (b) 82,800,000 Ericsson (LM) Tel Cl B ADR 1,500,000 (c) 30,468,750 First Data 934,360 72,529,695 Silicon Graphics 700,000 (b) 16,450,000 Tellabs 1,200,000 (b) 71,700,000 ____________ Total 348,348,445 _____________________________________________________________________________________________________________________________ Computers & office equipment (8.0%) Compaq Computer 500,000 (b,d) 27,375,000 CSG Systems Intl 50,600 (b) 1,049,950 Danka Business Systems ADR 1,000,000 (c,d) 27,500,000 Gemstar Intl 150,000 (b) 3,637,500 Intuit 200,000 (b) 7,000,000 Microsoft 200,000 (b) 23,575,000 NETCOM On-Line Communication Services 400,000 (b) 7,500,000 Oracle Systems 1,350,000 (b) 52,818,750 Solectron 800,000 (b) 25,200,000 ____________ Total 175,656,200 ______________________________________________________________________________________________________________________________ Chemicals (1.1%) Monsanto 750,000 23,437,500 ______________________________________________________________________________________________________________________________ Electronics (7.5%) Applied Materials 800,000 (b) 19,100,000 AVX 800,000 14,100,000 DuPont Photomasks 22,500 (b) 427,500 Harman Intl 500,000 22,437,500 Intel 500,000 37,562,500 Maxim Integrated Products 1,000,000 (b) 28,500,000 MEMC Electronic 600,000 (b) 21,225,000 SGS-Thomson Microelectronics 300,000 (b) 10,350,000 Vishay Intertechnology 630,000 11,655,000 ____________ Total 165,357,500 _____________________________________________________________________________________________________________________________ Energy (1.0%) Mobil 200,000 22,075,000 PAGE 31 _____________________________________________________________________________________________________________________________ Energy equipment & services (3.5%) Fluor 750,000 45,187,500 Schlumberger 400,000 (c) 32,000,000 ____________ Total 77,187,500 _____________________________________________________________________________________________________________________________ Financial services (3.5%) Green Tree 1,200,000 40,350,000 Merrill Lynch 600,000 36,225,000 ____________ Total 76,575,000 _____________________________________________________________________________________________________________________________ Health care (10.9%) Amgen 800,000 (b) 43,700,000 Boston Scientific 1,200,000 (b,d) 57,300,000 Gensia 161 (b) 835 IDEXX Laboratories 400,000 (b) 15,500,000 Johnson & Johnson 700,000 33,425,000 Medtronics 600,000 28,425,000 Perclose 34,800 (b) 687,300 Pfizer 800,000 55,900,000 Sola Intl 200,000 (b) 5,925,000 ____________ Total 240,863,135 _____________________________________________________________________________________________________________________________ Health care services (6.3%) HealthCare COMPARE 600,000 (b) 23,175,000 HEALTHSOUTH 2,000,000 (b) 60,750,000 Service Intl 1,000,000 (d) 55,125,000 ____________ Total 139,050,000 _____________________________________________________________________________________________________________________________ Industrial equipment & services (4.5%) Caterpillar 400,000 26,350,000 Deere 1,200,000 42,900,000 Sanifill 750,000 (b) 31,781,250 ____________ Total 101,031,250 _____________________________________________________________________________________________________________________________ Industrial transportation (1.3%) Wisconsin Central 900,000 (b) 28,125,000 _____________________________________________________________________________________________________________________________ Insurance (3.0%) Risk Capital Holdings 883,300 (b) 15,347,337 Travelers 1,200,000 50,700,000 ____________ Total 66,047,337 _____________________________________________________________________________________________________________________________ Leisure time & entertainment (5.8%) Disney (Walt) 500,000 27,812,500 Duracell Intl 600,000 27,075,000 Harley Davidson 300,000 12,300,000 Marriott Intl 600,000 30,825,000 Mattel 1,200,000 29,700,000 ____________ Total 127,712,500 _____________________________________________________________________________________________________________________________ Metals (3.6%) Birmingham Steel 1,100,000 17,875,000 Nucor 1,200,000 56,250,000 Stillwater Mining 200,000 (b) 4,300,000 ____________ Total 78,425,000 _____________________________________________________________________________________________________________________________ Multi-industry conglomerates (4.2%) Alco Standard 1,000,000 43,750,000 Apollo Group 750,000 (b) 20,625,000 Manpower 200,000 6,800,000 Olsten 800,000 21,200,000 ____________ Total 92,375,000 _____________________________________________________________________________________________________________________________ Textiles & apparel (2.9%) Nike 500,000 51,437,500 St. John Knits 300,000 11,850,000 ___________ Total 63,287,500 PAGE 32 _____________________________________________________________________________________________________________________________ Utilities -- telephone (2.4%) AirTouch Communications 900,000 (b) 24,750,000 MFS Communications 900,000 (b,d) 28,350,000 ___________ Total 53,100,000 _____________________________________________________________________________________________________________________________ Total common stocks (Cost: $1,445,618,554) $2,040,736,180 _____________________________________________________________________________________________________________________________
Short-term securities (6.8%) _____________________________________________________________________________________________________________________________ Issuer Annualized Amount Value(a) yield on payable date of at purchase maturity _____________________________________________________________________________________________________________________________ U.S. government agencies (0.3%) Federal Home Loan Bank Disc Nt 08-01-96 5.29% $1,400,000 $ 1,400,000 Federal Home Loan Mtge Corp Disc Nt 08-29-96 5.24 2,400,000 2,390,256 Federal Natl Mtge Assn Disc Nts 08-06-96 5.24 520,000 519,622 08-20-96 5.24 2,000,000 1,994,490 ____________ 6,304,368 _____________________________________________________________________________________________________________________________ Certificate of deposit (0.2%) Domestic Harris Trust 08-09-96 5.40 5,700,000 5,700,000 _____________________________________________________________________________________________________________________________ Commercial paper (6.3%) A.I. Credit 08-20-96 5.41 4,500,000 4,486,647 Ameritech 08-13-96 5.40 5,100,000 5,089,501 09-17-96 5.43 2,200,000 (e) 2,183,284 AT&T Capital 08-06-96 5.38 10,800,000 10,791,975 BellSouth Telephone 08-05-96 5.40 6,700,000 6,696,002 CAFCO 08-23-96 5.42 4,900,000 (e) 4,883,890 09-19-96 5.42 6,900,000 (e) 6,846,495 Cargill 08-27-96 5.31 3,600,000 3,586,246 CIT Group 08-16-96 5.41 5,900,000 5,886,774 Commercial Credit 08-08-96 5.39 8,500,000 8,491,125 Commerzbank U.S. Finance 08-26-96 5.31 5,500,000 5,479,795 Consolidated Rail 08-30-96 5.41 4,500,000 (e) 4,480,534 Metlife Funding 08-14-96 5.40 6,032,000 6,018,167 Mobil Australia Finance 08-02-96 5.35 1,800,000 (e) 1,799,574 Morgan Stanley Group 08-12-96 5.37 4,800,000 4,791,090 09-05-96 5.37 5,200,000 5,173,003 Penney (JC) 08-07-96 5.40 8,000,000 7,992,827 SAFECO Credit 08-23-96 5.41 4,300,000 4,285,889 St. Paul Companies 08-09-96 5.37 5,500,000 (e) 5,493,461 Sandoz 09-16-96 5.44 1,400,000 (e) 1,389,630 Smithkline Beecham 08-13-96 5.40 6,200,000 6,188,881 PAGE 33 Societe Generale North America 08-12-96 5.39 3,700,000 3,693,952 Southwest Bell Telephone 08-05-96 5.39 9,500,000 9,494,353 Transamerica Finance 08-02-96 5.40 4,500,000 4,499,327 USAA Capital 09-06-96 5.33 2,600,000 2,586,220 09-19-96 5.39 4,200,000 4,168,941 U S WEST Communications 09-03-96 5.37 2,300,000 2,288,721 _____________ Total 138,766,304 _____________________________________________________________________________________________________________________________ Total short-term securities (Cost: $150,781,685) $ 150,770,672 _____________________________________________________________________________________________________________________________ Total investments in securities (Cost: $1,596,400,239)(f) $2,191,506,852 _____________________________________________________________________________________________________________________________ Notes to investments in securities _____________________________________________________________________________________________________________________________ (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Presently non-income producing. (c) Foreign security values are stated in U.S. dollars. Foreign securities represent 4.1% of the Fund's net assets as of July 31, 1996. (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 the guidelines established by the board. (f) At July 31, 1996, the cost of securities for federal income tax purposes was $1,596,400,238 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $637,012,736 Unrealized depreciation (41,906,122) ______________________________________________________________________________________________ Net unrealized appreciation $595,106,614 ______________________________________________________________________________________________ See accompanying notes to investments in securities.
PAGE 34 IDS mutual funds Cash equivalent investments These money market funds have three main goals: conservation of capital, constant liquidity and the highest possible current income consistent with these objectives. Very limited risk. IDS Cash Management Fund Invests in such money market securities as high quality commercial paper, bankers' acceptances, certificates of deposits (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 Income investments 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 Global Bond Fund Invests primarily in debt securities of U.S. and foreign issuers to seek high total return through income and growth of capital. (icon of) globe IDS Extra Income Fund Invests 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) 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 PAGE 35 IDS Selective Fund Invests in 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 primarily in 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 enclosed Tax-exempt income investments These funds provide tax-free income by investing in municipal bonds. The income is generally free from federal income tax. Risk varies by bond quality. IDS High Yield Tax-Exempt Fund Invests primarily in 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 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 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 enclosed 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 enclosed PAGE 36 Growth and income investments 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. Moderate risk. 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 Managed Allocation Fund Invests in 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) bird in a nest 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 Stock Fund Invests in 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 PAGE 37 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 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 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 Growth investments Funds in this group seek capital growth, primarily from common stocks. They are high risk mutual funds with a potential for high reward. 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) office building 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 PAGE 38 IDS Global Growth Fund Invests in 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 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 primarily in 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 primarily in 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 primarily in companies with significant growth potential due to superiority in technology, marketing or management. The fund frequently changes its industry mix. (icon of) dimension Specialty growth investment This fund aggressively seeks capital growth as a hedge against inflation. 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. This is the most aggressive and most speculative IDS mutual fund. (icon of) cart of precious gems PAGE 39 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 40 Federal income tax information IDS Growth Fund The Fund is required by the Internal Revenue Code of 1986 to tell its shareholders about the tax treatment of the dividends it pays during its fiscal year. Some of the dividends listed below were reported to you on a Form 1099-DIV, Dividends and Distributions, last January. Dividends paid to you since the end of last year will be reported to you on a tax statement sent next January. Shareholders should consult a tax advisor on how to report distributions for state and local purposes. IDS Growth Fund Fiscal year ended July 31, 1996 Class A Income distributions taxable as dividend income, none qualifying for deduction by corporations. Payable date Per share ___________________________________________________ Dec. 29, 1995 $0.01040 ___________________________________________________ Capital gain distribution taxable as long-term capital gain. Payable date Per share ___________________________________________________ Dec. 29, 1995 $1.13970 ___________________________________________________ Total distributions $1.15010 ___________________________________________________ The distribution of $1.15010 per share, payable Dec. 29, 1995, consisted of $0.01040 from net investment income and $1.13970 from net long-term capital gains. PAGE 41 Class B Income distributions taxable as dividend income, non qualifying for deduction by corporations. Payable date Per share ___________________________________________________ Dec. 29, 1995 $0.01040 Capital gain distribution taxable as long-term capital gain. Payable date Per share ___________________________________________________ Dec. 29, 1995 $1.13970 ___________________________________________________ Total distributions $1.15010 ___________________________________________________ The distribution of $1.15010 per share, payable Dec. 29, 1995, consisted of $0.0104 from net investment income and $1.13970 from net long-term capital gains. Class Y Income distributions taxable as dividend income, none qualifying for deduction by corporations. Payable date Per share ___________________________________________________ Dec. 29, 1995 $0.01040 ___________________________________________________ Capital gain distribution taxable as long-term capital gain. Payable date Per share ___________________________________________________ Dec. 29, 1995 $1.13970 ___________________________________________________ Total distributions $1.15010 ___________________________________________________ The distribution of $1.15010 per share, payable Dec. 29, 1995, consisted of $0.01040 from net short-term capital gains and $1.13970 from net long-term capital gains. PAGE 42 Quick telephone reference American Express Telephone Transaction Service Redemptions and exchanges, dividend payments or reinvestments and automatic payment arrangements 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 (TouchToneR 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 AMERICAN EXPRESS FINANCIAL ADVISORS IDS Growth Fund IDS Tower 10 Minneapolis, MN 55440-0010 PAGE 43 STATEMENT OF DIFFERENCES Difference Description 1) The layout is different 1) Some of the layout in the throughout the annual report. annual report to shareholders is in two columns. 2) Headings. 2) The headings in the annual report and prospectus are placed in a blue strip at the top of the page. 3) There are pictures, icons 3) Each picture, icon and and graphs throughout the graph is described in annual report and prospectus. parentheses. 4) Footnotes for charts and 4) The footnotes for each graphs are described at chart or graph are typed the left margin. below the description of the chart or graph. -----END PRIVACY-ENHANCED MESSAGE-----