-----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, KqyVCD9pJln4+kqaP6Q4xmo3IQY75M3IW/tHTyRP41u4GRaTcfkjyp6n1en8jZEP Ve+wEs/3zxuF9Q14n0mTZA== 0000820027-98-000432.txt : 19980626 0000820027-98-000432.hdr.sgml : 19980626 ACCESSION NUMBER: 0000820027-98-000432 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980430 FILED AS OF DATE: 19980624 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IDS GLOBAL SERIES INC CENTRAL INDEX KEY: 0000842918 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MN FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05696 FILM NUMBER: 98653608 BUSINESS ADDRESS: STREET 1: IDS TOWER 10 CITY: MINNEAPOLIS STATE: MN ZIP: 55440 BUSINESS PHONE: 6126712772 FORMER COMPANY: FORMER CONFORMED NAME: IDS GLOBAL BOND FUND INC DATE OF NAME CHANGE: 19901011 N-30D 1 1998 SEMIANNUAL REPORT IDS Global Bond Fund (icon of) globe The goal of IDS Global Bond Fund, a part of IDS Global Series, Inc., is a high total return through income and growth of capital. AMERICAN EXPRESS Financial Advisors Distributed by American Express Financial Advisors Inc. (icon of) globe A bounty of bonds In today's global economy, investment opportunities don't stop at the water's edge. While bonds issued by the U.S. government and corporations once made up almost all of the bond market, today more than half of the world's debt securities are issued from outside the United States. This means expanded opportunity for investors. Global Bond Fund's aim is to take advantage of opportunities in bond markets at any time and in any place, providing investors with greater portfolio diversification. Contents From the chairman 3 From the portfolio manager 3 The Portfolio's ten largest holdings 5 Financial statements (Fund) 6 Notes to financial statements (Fund) 9 Financial statements (Portfolio) 18 Notes to financial statements (Portfolio) 21 Investments in securities 26 Board members and officers 35 IDS mutual funds 36 To our shareholders From the chairman If you're an experienced investor, you know that the past few years have been unusually strong in many financial markets. Perhaps just as important, history shows that bull markets don't last forever. Though they're often unpredictable, declines -- whether they're brief or long-lasting, moderate or substantial -- are always a possibility. 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 potential for such volatility 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 From the portfolio manager Stable-to-declining interest rates in most global bond markets combined with an emphasis on U.S. dollar-based investments enabled the Fund to produce a positive result over the past six months. For the first half of the fiscal year -- November 1997 through April 1998 -- the Fund's Class A shares generated a total return (net asset value change and dividends) of 3.6%. Persistently low inflation and improving financial conditions in all the industrialized countries put a ceiling on any tendency for interest rates to rise. In fact, several European countries, which enjoyed a convergence of sounder economic policies, were able to lower short-term interest rates in anticipation of the introduction of the common European currency, the euro, scheduled for 1999. The value of the dollar continued to benefit from skepticism about the euro until late in the period, when a surge of confidence in the new currency sent the dollar lower. The dollar was also strong versus Japan's yen, owing to dismal economic conditions in that country. Adding to the dollar's strength was the general economic recession in parts of east Asia, an impact that peaked around the end of 1997 and then subsided as emergency financial aid was mobilized to assist the most distressed countries. The dominant dollar Throughout the six months, I kept minimal exposure to low-yielding yen-denominated bonds while basing nearly all other Asian bond investments in dollars. The latter group enjoyed marked improvement in valuation early in 1998. I also maintained the dollar emphasis by currency hedging tactics that negated fluctuations in foreign currencies. Finally, despite the upheaval in Asia, the Fund realized its strongest returns from a small core of dollar-denominated investments in Latin American markets. These securities offered high yields and relatively consistent performance as investor confidence in that region continued to increase. Looking forward, there are indications that investments in foreign bonds should enjoy improved performance in upcoming months. This outlook is based on several factors. One is that the increasing confidence in major economies of Europe should bolster the value of European currencies in dollar terms. Another is that, while interest rates in Europe are generally lower than in the U.S., even lower rates of inflation abroad should allow for further price appreciation in European bonds. Also, the dollar-based emerging markets, including Latin America, will likely continue to perform well as long as the Federal Reserve refrains from raising interest rates here at home. And finally, there currently are extraordinary opportunities in Asian bonds, though the economic recovery in that region will be long and uneven. Ray Goodner (picture of) Ray Goodner Ray Goodner Portfolio manager To our shareholders Class A 6-month performance (All figures per share) Net asset value (NAV) April 30, 1998 $ 6.19 Oct. 31, 1997 $ 6.26 Decrease $ 0.07 Distributions Nov. 1, 1997 - April 30, 1998 From income $ 0.22 From capital gains $ 0.07 Total distributions $ 0.29 Total return* +3.6%** Class B 6-month performance (All figures per share) Net asset value (NAV) April 30, 1998 $ 6.19 Oct. 31, 1997 $ 6.26 Decrease $ 0.07 Distributions Nov. 1, 1997 - April 30, 1998 From income $ 0.20 From capital gains $ 0.07 Total distributions $ 0.27 Total return* +3.2%** Class Y 6-month performance (All figures per share) Net asset value (NAV) April 30, 1998 $ 6.19 Oct. 31, 1997 $ 6.26 Decrease $ 0.07 Distributions Nov. 1, 1997 - April 30, 1998 From income $ 0.22 From capital gains $ 0.07 Total distributions $ 0.29 Total return* +3.6%** * 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. The Portfolio's ten largest holdings (icon of) pie chart The ten holdings listed here make up 39.25% of the Portfolio's net assets Percent Value (of Portfolio's net assets) (as of April 30, 1998) U.S. Treasury 7.68% $76,504,080 7.50% 2001 U.S. Treasury 7.04 70,068,586 7.50% 2016 Govt of Canada 4.62 46,062,498 5.78% 2023 United Kingdom Treasury 4.02 40,020,552 8.00% 2003 United Kingdom Treasury 3.80 37,809,624 9.00% 2000 Govt of Italy 3.07 30,534,750 8.50% 2004 Govt of Sweden 2.49 24,780,056 8.00% 2007 Govt of Spain 2.38 23,703,536 8.80% 2006 Federal Republic of Germany 2.10 20,923,957 6.00% 2016 United Mexican States 2.05 20,425,955 11.50% 2026 Note: Certain foreign investment risks include: changes in currency exchange rates, adverse political or economic order, and lack of similar regulatory requirements followed by U.S. companies. For further detail about these holdings, please refer to the section entitled "Investments in securities" herein.
Financial statements Statement of assets and liabilities IDS Global Bond Fund April 30, 1998 Assets (Unaudited) Investment in World Income Portfolio (Note 1) $994,985,565 ------------ Liabilities Dividends payable to shareholders 5,198,971 Accrued distribution fee 5,129 Accrued service fee 4,719 Accrued transfer agency fee 3,677 Accrued administrative services fee 1,419 Other accrued expenses 19,010 ------ Total liabilities 5,232,925 --------- Net assets applicable to outstanding capital stock $989,752,640 ============ Represented by Capital stock-- $.01 par value (Note 1) $ 1,598,788 Additional paid-in capital 966,554,081 Undistributed net investment income 7,125,552 Accumulated net realized gain (loss) (6,912,341) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 21,386,560 ---------- Total-- representing net assets applicable to outstanding capital stock $989,752,640 ------------ Net assets applicable to outstanding shares: Class A $738,571,735 Class B $251,179,748 Class Y $ 1,157 Net asset value per share of outstanding capital stock: Class A shares 119,303,257 $ 6.19 Class B shares 40,575,381 $ 6.19 Class Y shares 187 $ 6.19 See accompanying notes to financial statements.
Statement of operations IDS Global Bond Fund Six months ended April 30, 1998 Investment income (Unaudited) Income: Dividends $ 196,271 Interest 35,019,115 Less foreign taxes withheld (943,162) -------- Total income 34,272,224 ---------- Expenses (Note 2): Expenses allocated from World Income Portfolio 3,740,064 Distribution fee -- Class B 892,271 Transfer agency fee 655,833 Incremental transfer agency fee-- Class B 11,388 Service fee Class A 636,768 Class B 207,093 Administrative services fees and expenses 255,805 Postage35,392 Registration fees 54,738 Reports to shareholders 2,585 Audit fees 3,750 Other 9,149 ----- Total expenses 6,504,836 Earnings credits on cash balances (Note 2) (58,043) ------- Total net expenses 6,446,793 --------- Investment income (loss) -- net 27,825,431 Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions 2,906,335 Foreign currency transactions (4,022,083) ---------- Net realized gain (loss) on investments (1,115,748) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 7,147,562 --------- Net gain (loss) on investments and foreign currencies 6,031,814 --------- Net increase (decrease) in net assets resulting from operations $33,857,245 =========== See accompanying notes to financial statements.
Financial statements Statements of changes in net assets IDS Global Bond Fund Operations and distributions April 30, 1998 Oct. 31, 1997 Six months ended Year ended (Unaudited) Investment income (loss)-- net $ 27,825,431 $ 50,828,054 Net realized gain (loss) on investments (1,115,748) 5,408,940 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 7,147,562 (12,524,038) Net increase (decrease) in net assets resulting from operations 33,857,245 43,712,956 ---------- ---------- Distributions to shareholders from: Net investment income Class A (17,606,555) (32,842,975) Class B (4,823,824) (7,066,228) Class Y (28) (50) Net realized gain Class A (16,718,446) (4,577,136) Class B (5,381,162) (1,029,102) Class Y (25) (7) --- -- Total distributions (44,530,040) (45,515,498) ----------- ----------- Capital share transactions (Note 3) Proceeds from sales Class A shares (Note 2) 79,374,659 207,212,140 Class B shares 42,398,048 119,100,620 Reinvestment of distributions at net asset value Class A shares 28,857,818 31,634,837 Class B shares 9,658,169 7,250,496 Class Y shares 52 57 Payments for redemptions Class A shares (109,928,803) (177,248,829) Class B shares (Note 2) (29,359,550) (36,747,365) ----------- ----------- Increase (decrease) in net assets from capital share transactions 21,000,393 151,201,956 ---------- ----------- Total increase (decrease) in net assets 10,327,598 149,399,414 Net assets at beginning of period 979,425,042 830,025,628 ----------- ----------- Net assets at end of period $989,752,640 $979,425,042 ============ ============ Undistributed net investment income $ 7,125,552 $ 1,730,528 ------------ ------------ See accompanying notes to financial statements.
Notes to financial statements IDS Global Bond Fund (Unaudited as to April 30, 1998) 1 Summary of significant accounting policies The Fund is a series of IDS Global Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a non-diversified, open-end management investment company. IDS Global Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the board. 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. Investment in World Income Portfolio Effective May 13, 1996, the Fund began investing all of its assets in the World Income Portfolio (the Portfolio), a series of World 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. World Income Portfolio seeks to provide shareholders with a high total return through income and, as a secondary goal, steady growth of capital by investing primarily in debt securities of U.S. and foreign issuers. 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 April 30, 1998 was 99.93%. 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. 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. Dividends to shareholders Dividends declared daily and paid each calendar quarter from net investment income 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. 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 an agreement with American Express Financial Corporation (AEFC) for providing administrative services. 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 0.06% to 0.04% 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: oClass A $15.50 oClass B $16.50 oClass Y $15.50 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 $1,094,066 for Class A and $114,000 for Class B for the six months ended April 30, 1998. During the six months ended April 30, 1998 the Fund's transfer agency fees were reduced by $58,043 as a result of earning credits from overnight cash balances. 3 Capital share transactions Transactions in shares of capital stock for the periods indicated are as follows: Six months ended April 30, 1998 Class A Class B Class Y Sold 12,833,327 6,855,896 -- Issued for reinvested 4,692,011 1,570,633 9 distributions Redeemed (17,781,147) (4,752,695) -- ----------- ---------- ---- Net increase (decrease) (255,809) 3,673,834 9 Year ended Oct. 31, 1997 Class A Class B Class Y Sold 33,399,760 19,191,695 -- Issued for reinvested 5,086,811 1,165,774 9 distributions Redeemed (28,583,381) (5,927,484) -- ----------- ---------- ---- Net increase (decrease) 9,903,190 14,429,985 9
Notes to financial statements Global Bond Fund 4 Financial highlights The tables below show certain important financial information for evaluating the Fund's results. Fiscal period ended Oct. 31, Per share income and capital changesa Class A 1998c 1997 1996 1995 1994 1993 1992 1991 1990 1989b Net asset value, beginning of period $6.26 $6.28 $6.11 $5.76 $6.27 $5.91 $5.58 $5.46 $5.22 $5.00 Income from investment operations: Net investment income (loss) .04 .35 .38 .35 .36 .26 .33 .50 .40 .12 Net gains (losses) .18 (.05) .18 .41 (.45) .62 .47 .12 .27 .22 (both realized and unrealized) Total from investment .22 .30 .56 .76 (.09) .88 .80 .62 .67 .34 operations Less distributions: Dividends from net (.15) (.28) (.39) (.33) (.35) (.27) (.30) (.50) (.40) (.12) investment income Distributions from (.14) (.04) -- (.02) (.07) (.10) (.06) -- (.03) -- realized gains Excess distributions of -- -- -- (.06) -- (.15) (.11) -- -- -- realized gains Total distributions (.29) (.32) (.39) (.41) (.42) (.52) (.47) (.50) (.43) (.12) Net asset value, end of period $6.19 $6.26 $6.28 $6.11 $5.76 $6.27 $5.91 $5.58 $5.46 $5.22 Ratios/supplemental data Class A 1998c 1997 1996 1995 1994 1993 1992 1991 1990 1989b Net assets, end of $739 $748 $689 $548 $466 $255 $91 $50 $28 $11 period (in millions) Ratio of expenses to 1.15%e 1.16% 1.20% 1.25% 1.26% 1.31% 1.39% 1.34% 1.73%h 1.00%g average daily net assetsd Ratio of net income (loss) 5.91%e 5.74% 5.72% 6.15% 5.56% 5.11% 6.50% 7.15% 10.60%h 7.04%e,g to average daily net assets Portfolio turnover rate 15% 55% 49% 92% 64% 90% 160% 123% 130% 91% (excluding short-term securities) Total returnf 3.6% 4.9% 8.9% 13.6% (1.5%) 15.8% 14.8% 11.9% 13.3% 6.7% a For a share outstanding throughout the period. Rounded to the nearest cent. b Inception date. Period from March 20, 1989 to Oct. 31, 1989. c Six months ended April 30, 1998 (Unaudited). d Effective fiscal year 1996, expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. e Adjusted to an annual basis. f Total return does not reflect payment of a sales charge. g During the period from March 20, 1989 to Oct. 31, 1989, AEFC reimbursed the Fund for expenses in excess of 1% of daily net assets. Had AEFC not done so, the ratio of expenses and ratio of net investment income would have been 1.77% and 5.77%, respectively. h For the nine months ended July 31, 1990, AEFC voluntarily reimbursed the Fund for a portion of its expenses. Had AEFC not done so, the ratio of expenses and ratio of net investment income would have been 1.87% and 10.46%, respectively.
Fiscal period ended Oct. 31, Per share income and capital changesa Class B Class Y 1998c 1997 1996 1995b 1998c 1997 1996g 1995b Net asset value, $6.26 $6.28 $6.11 $5.74 $6.26 $6.30 $6.11 $5.74 beginning of period Income from investment operations: Net investment income (loss) .03 .31 .33 .24 .04 .35 .29 .27 Net gains on securities .17 (.05) .18 .41 .18 (.06) .20 .41 (both realized and unrealized) Total from investment .20 .26 .51 .65 .22 .29 .49 .68 operations Less distributions: Dividends from net (.13) (.24) (.34) (.24) (.15) (.29) (.30) (.27) investment income Distributions from (.14) -- -- -- (.14) -- -- -- realized gains Excess distributions of -- (.04) -- (.04) -- (.04) -- (.04) realized gains Total distributions (.27) (.28) (.34) (.28) (.29) (.33) (.30) (.31) Net asset value, end of period $6.19 $6.26 $6.28 $6.11 $6.19 $6.26 $6.30 $6.11 Ratios/supplemental data Class B Class Y 1998c 1997 1996 1995b 1998c 1997 1996g 1995b Net assets, end of $251 $231 $141 $37 $-- $-- $-- $2 period (in millions) Ratio of expenses to 1.91%e 1.92% 1.96% 2.05%e .80%e 1.01% 1.01% 1.10%e average daily net assetsd Ratio of net income (loss) to 5.16%e 5.00% 4.96% 5.88%e 6.30%e 5.89% 6.06% 6.68%e average daily net assets Portfolio turnover rate 15% 55% 49% 92% 15% 55% 49% 92% (excluding short-term securities) Total returnf 3.2% 4.1% 8.1% 11.5% 3.6% 5.1% 7.3% 12.0% a For a share outstanding throughout the period. Rounded to the nearest cent. b Inception date was March 20, 1995. c Six months ended April 30, 1998 (Unaudited). d Effective fiscal year 1996, expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances . e Adjusted to an annual basis. f Total return does not reflect payment of a sales charge. g Periods from Nov. 1, 1995 to Nov. 20, 1995 and from Dec. 4, 1995 to Oct 31, 1996. From Nov. 20, 1995 to Dec. 4, 1995 there were no Class Y shares outstanding.
Financial statements Statement of assets and liabilities World Income Portfolio April 30, 1998 Assets (Unaudited) Investments in securities, at value (Note 1) (identified cost $977,677,075) $1,000,615,252 Cash in bank on demand deposit 387,918 Dividends and accrued interest receivable 27,561,149 Receivable for investment securities sold 18,240,034 Unrealized appreciation on foreign currency contracts held, at value (Notes 1 and 4) 122,565 U.S. government securities held as collateral for securities loaned (Note 5) 2,886,546 --------- Total assets 1,049,813,464 ------------- Liabilities Payable for investment securities purchased 5,330,188 Unrealized depreciation on foreign currency contracts held, at value (Notes 1 and 4) 1,766,063 Payable upon return of securities loaned (Note 5) 46,916,546 Accrued investment management services fee 19,883 Other accrued expenses 31,505 Open option contracts written, at value (premium received $152,000) (Note 6) 105,000 ------- Total liabilities 54,169,185 ---------- Net assets $ 995,644,279 ============== See accompanying notes to financial statements.
Statement of operations World Income Portfolio Six months ended April 30, 1998 Investment income (Unaudited) Income: Dividends $ 196,400 Interest 35,039,016 Less foreign taxes withheld (943,788) -------- Total income 34,291,628 ---------- Expenses (Note 2): Investment management services fee 3,584,101 Compensation of board members 5,852 Custodian fees 138,472 Audit fees 11,250 Other 9,620 ----- Total expenses 3,749,295 Earnings credits on cash balances (Note 2) (6,757) ------ Total net expenses 3,742,538 Investment income (loss) -- net 30,549,090 ---------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) 2,908,242 Foreign currency transactions (4,024,733) ---------- Net realized gain (loss) on investments (1,116,491) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 7,152,328 --------- Net gain (loss) on investments and foreign currencies 6,035,837 --------- Net increase (decrease) in net assets resulting from operations $36,584,927 =========== See accompanying notes to financial statements.
Financial statements Statements of changes in net assets World Income Portfolio Operations April 30, 1998 Oct. 31, 1997 Six months ended Year ended (Unaudited) Investment income (loss)-- net $ 30,549,090 $ 55,752,766 Net realized gain (loss) on investments (1,116,491) 5,413,929 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 7,152,328 (12,533,266) --------- ----------- Net increase (decrease) in net assets resulting from operations 36,584,927 48,633,429 Net contributions (withdrawals) from partners (26,194,448) 101,894,400 ----------- ----------- Total increase (decrease) in net assets 10,390,479 150,527,829 Net assets at beginning of period 985,253,800 834,725,971 ----------- ----------- Net assets at end of period $995,644,279 $985,253,800 ============ ============ See accompanying notes to financial statements.
Notes to financial statements World Income Portfolio (Unaudited as to April 30, 1998) 1 Summary of significant accounting policies World Income Portfolio (the Portfolio) is a series of World Trust (the Trust) and is registered under the Investment Company Act of 1940 (as amended) as a non-diversified, open-end management investment company. World Income Portfolio invests primarily in debt securities of U.S. and foreign issuers. The Declaration of Trust permits the Trustees to issue non-transferable interests in 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. 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 Portfolio 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 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 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 financial futures contracts traded on any U.S. or foreign exchange. The Portfolio also may buy and 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. 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. Illiquid securities At April 30, 1998, investments in securities included issues that are illiquid. The Portfolio currently limits investments in illiquid securities to 10% of net assets, at market value, at the time of purchase. The aggregate value of such securities at April 30, 1998 was $9,975,000 representing 1.0% of net assets. Pursuant to guidelines adopted by the board, certain unregistered securities are determined to be liquid and are not included within the 10% limitation specified above. 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 or upon receipt of ex-dividend notification in the case of certain foreign securities. For U.S. dollar denominated bonds, interest income includes level-yield amortization of premium and discount. For foreign bonds, the Fund amortizes premium and original issue discount daily and market discount is recognized at the time of sale. 2 Fees and expenses The Trust, on behalf of the Portfolio, has entered into an Investment Management Services Agreement with 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 0.77% to 0.67% annually. Under the agreement, the Trust also pays taxes and nonadvisory expenses, which include custodian fees, audit and certain legal fees, fidelity bond premiums, registration fees for units, 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 and approved by the board. During the six months ended April 30, 1998, the Portfolio's custodian fees were reduced by $6,757 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. 3 Securities transactions Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $158,092,088 and $143,846,271, respectively, for the six months ended April 30, 1998. For the same period, the portfolio turnover rate was 15%. Realized gains and losses are determined on an identified cost basis. 4 Foreign currency contracts At April 30, 1998, the Portfolio had entered into foreign currency exchange contracts that obligate the Portfolio to deliver currencies at specified future dates. The unrealized appreciation and/or depreciation on these contracts is included in the accompanying financial statements. See "Summary of significant accounting policies." The terms of the open contracts are as follows: Exchange date Currency to Currency to Unrealized Unrealized be delivered be received appreciation depreciation June 8, 1998 18,700,000 10,436,782 $ -- $ 4,954 Deutsche Mark U.S. Dollar June 22, 1998 1,000,000,000 7,660,047 51,209 -- Japanese Yen U.S. Dollar Nov. 15, 1998 3,010,033 4,500,000,000 71,356 -- U.S. Dollar Korean Won Nov. 19, 1998 3,000,000 11,655,000,000 -- 1,761,109 U.S. Dollar Indonesian Rupiah Total $122,565 $1,766,063 5 Lending of portfolio securities At April 30, 1998, securities valued at $45,359,113 were on loan to brokers. For collateral, the Portfolio received $44,030,000 in cash and U.S. government securities valued at 2,886,546. Income from securities lending amounted to $127,170 for the six months ended April 30, 1998. The risks to the Portfolio of securities lending are that the borrower may not provide additional collateral when required or return the securities when due. 6 Option contracts written The number of contracts and premium amounts associated with option contracts written is as follows: Six months ended April 30, 1998 Puts Calls Contracts Premium Contracts Premium Balance Oct. 31, 1997 -- $ -- -- $ -- Opened 100 152,000 100 134,500 Closed -- -- (100) (134,500) --- --- ---- -------- Balance April 30, 1998 100 $152,000 -- $ -- See "Summary of significant accounting policies."
Investments in securities World Income Portfolio April 30, 1998 (Unaudited) (Percentages represent value of investments compared to net assets) Bonds (96.6%)(b) Issuer Coupon Principal Value(a) rate amount Argentina (3.1%) Comp Nav Perez Companc (U.S. Dollar) 01-30-04 9.00% $1,975,000(d) $1,994,750 Province of Mendoza (U.S. Dollar) 09-04-07 10.00 4,000,000(d) 3,873,640 Republic of Argentina (Japanese Yen) 03-27-01 5.50 880,000,000 6,805,832 (U.S. Dollar) 03-31-05 6.69 10,450,000(j) 9,598,325 01-30-17 11.375 7,300,000 8,084,750 Total 30,357,297 Austria (0.3%) Autobahn Schnell (Japanese Yen) 03-11-00 6.00 397,000,000 3,292,718 Bermuda (0.2%) Central Euro Media (Deutsche Mark) Sr Nts Series RG 08-15-04 4.45 3,925,000 2,154,670 Brazil (0.7%) Comp Paranaense De Energ (U.S. Dollar) 05-02-05 9.75 5,000,000(d) 5,027,400 Espirito Santo Centrais (U.S. Dollar) Sr Nts 07-15-07 10.00 1,850,000(d) 1,784,584 Total 6,811,984 Canada (4.8%) Govt of Canada (Canadian Dollar) 06-01-23 5.78 50,810,000 46,062,498 Rogers Cablesystems (Canadian Dollar) 01-15-14 9.65 2,000,000 1,528,722 Total 47,591,220 Cayman Islands (0.5%) Roil (U.S. Dollar) 12-05-02 12.78 5,000,000(c) 4,975,000 China (2.5%) Bank of China (U.S. Dollar) 03-15-14 8.25 5,000,000 4,807,450 Greater Beijing (U.S. Dollar) Sr Nts 06-15-04 9.25 3,500,000(d) 2,955,680 06-15-07 9.50 5,000,000(d) 3,982,700 People's Republic of China (U.S. Dollar) 07-03-01 7.375 4,450,000 4,505,856 Zhuhai Highway (U.S. Dollar) Sub Nts 07-01-08 11.50 9,550,000(d) 8,942,811 Total 25,194,497 Denmark (4.9%) Govt of Denmark (Danish Krone) 11-15-00 9.00 40,000,000 6,525,160 05-15-03 8.00 113,200,000 18,738,222 03-15-06 8.00 65,000,000 11,202,230 11-10-24 7.00 70,000,000 12,002,550 Total 48,468,162 France (1.1%) Govt of France (European Currency Unit) 04-25-05 7.50 8,710,000 11,084,799 Germany (6.8%) Federal Republic of Germany (Deutsche Mark) 07-22-02 8.00 15,265,000 9,624,628 11-11-04 7.50 31,870,000 20,365,695 06-20-16 6.00 34,650,000 20,923,957 07-04-27 6.50 26,400,000 16,755,446 Total 67,669,726 Greece (0.8%) Hellenic Republic (Greek Drachma) 03-21-00 9.80 2,550,000,000 8,098,545 Hong Kong (1.0%) Dao Heng Bank (U.S. Dollar) Sub Nts 01-24-07 7.75 5,500,000(d) 4,986,410 Hutchison Whampo Finance (U.S. Dollar) Company Guaranty 08-01-27 7.50 5,000,000(d) 4,501,200 Total 9,487,610 Indonesia (1.1%) Indah Kiat Finance Mauritius (U.S. Dollar) Company Guaranty 07-01-07 10.00 4,350,000 3,621,375 Indah Kiat Pulp & Paper (U.S. Dollar) 11-01-00 8.875 2,500,000 2,206,250 Polysindo Intl Finance (U.S. Dollar) Company Guaranty 06-15-06 11.375 2,300,000 1,368,500 Tjiwi Kimia Finance Mauritius (U.S. Dollar) Company Guaranty 08-01-04 10.00 2,450,000 2,009,000 Tjiwi Kimia Intl (U.S. Dollar) Company Guaranty 08-01-01 13.25 2,000,000 1,875,000 Total 11,080,125
Italy (4.1%) Govt of Italy (Italian Lira) 01-01-04 8.50 46,125,000,000 30,534,750 11-01-26 7.25 15,270,000,000 10,521,030 Total 41,055,780 Japan (0.3%) Matsushita Electric Ind (Japanese Yen) Cv Series 4 03-31-99 1.30 325,000,000 2,535,000 Nippon Express (Japanese Yen) Cv Series 4 03-31-04 1.00 120,000,000 896,160 Total 3,431,160 Malaysia (0.4%) Petronas (U.S. Dollar) 08-15-15 7.75 4,550,000 4,182,224 Mexico (5.3%) Banco Nacional de Comercio Exterior (U.S. Dollar) 02-02-04 7.25 8,000,000(e) 7,540,000 Grupo Televisa (U.S. Dollar) Sr Nts Series A 05-15-03 11.375 2,500,000 2,745,900 Imexsa Export Trust (U.S. Dollar) 05-31-03 10.125 3,000,000(d) 3,120,000 United Mexican States (British Pound) Medium-term Nts Series E 05-30-02 14.48 5,000,000 8,205,785 (Japanese Yen) 08-17-98 5.00 580,000,000 4,421,224 (U.S. Dollar) 09-15-16 11.375 5,000,000(e) 5,862,500 05-15-26 11.50 16,951,000(e) 20,425,955 Total 52,321,364 New Zealand (1.0%) Govt of New Zealand (New Zealand Dollar) 02-15-00 6.50 10,000,000 5,439,580 Telecom Corp of New Zealand (New Zealand Dollar) 02-10-03 6.25 5,000,000(d) 4,946,855 Total 10,386,435 Norway (0.9%) Govt of Norway (Norwegian Krone) 01-31-99 9.00 65,000,000 8,995,285 Philippines (0.6%) Philippine Long Distance Telephone (U.S. Dollar) Medium-term Nts Series E 03-06-07 7.85 1,500,000(d) 1,378,845 03-06-17 8.35 4,700,000(d) 4,251,808 Total 5,630,653 Russia (1.1%) Alfa-Russia Finance (U.S. Dollar) Medium-term Nts Bank Guaranty 07-28-00 10.375 3,000,000 2,685,000 Rostelecom (U.S. Dollar) 02-15-00 9.375 5,000,000(c) 5,000,000 Tatneft Finance (U.S. Dollar) Company Guaranty 10-29-02 9.00 4,000,000(d) 3,637,720 Total 11,322,720 South Africa (1.4%) Escom (South African Rand) 09-01-01 8.00 81,000,000 14,048,640 South Korea (0.5%) Korea Electric Power (U.S. Dollar) 12-01-03 6.375 4,000,000 3,507,520 Republic of Korea (U.S. Dollar) 04-15-08 8.875 1,625,000 1,598,756 Total 5,106,276 Spain (3.4%) Govt of Spain (Spanish Peseta) 04-30-99 9.40 1,500,000,000 10,338,000 04-30-06 8.80 2,902,000,000 23,703,536 Total 34,041,536 Sweden (4.3%) Govt of Sweden (Japanese Yen) Medium-term Nts 06-21-99 3.875 600,000,000 4,710,000 (Swedish Krona) 02-09-05 6.00 44,500,000 6,011,283 08-15-07 8.00 160,200,000 24,780,056 Paulson Enteprenad (Swedish Krona) 12-15-00 7.00 56,560,000 6,811,125 Total 42,312,464 United Kingdom (10.8%) Abbey Natl First Capital (U.S. Dollar) 10-15-04 8.20 5,000,000 5,499,050 IPC Magazines Group (British Pound) 03-15-08 9.675 2,475,000(d) 4,036,433 Texon Intl (Deutsche Mark) Sr Nts 02-01-08 3.12 4,000,000 2,285,012 United Kingdom Treasury (British Pound) 03-03-00 9.00 21,700,000 37,809,624 06-10-03 8.00 22,000,000 40,020,552 12-07-05 8.50 9,200,000 17,786,121 Total 107,436,792 United States (32.7%) Chesapeake (U.S. Dollar) 05-01-03 9.875 1,000,000 1,141,340 Cleveland Electric Illuminating (U.S. Dollar) 1st Mtge Series B 05-15-05 9.50 3,000,000 3,343,770 Dayton Hudson (U.S. Dollar) 12-01-22 8.50 3,265,000 3,585,590 Executive Risk Capital (U.S. Dollar) Company Guaranty Series B 02-01-27 8.675 3,500,000 3,870,020 Federal Natl Mtge Assn (U.S. Dollar) 02-01-27 7.50 4,244,504 4,363,690 06-01-27 7.50 8,649,430 8,892,306 Federal Natl Mtge Assn Global (Japanese Yen) 12-20-99 2.00 500,000,000 3,872,500 General Motors (U.S. Dollar) 07-15-01 9.125 2,000,000 2,173,480 Govt Natl Mtge Assn (U.S. Dollar) 10-15-26 8.00 7,965,241 8,272,221 GTE North (U.S. Dollar) Series F 02-15-10 6.375 9,950,000(e) 9,912,091 MGM Grand (U.S. Dollar) 02-01-05 6.95 7,600,000 7,590,804 Nationwide CSN Trust (U.S. Dollar) 02-15-25 9.875 7,000,000(d) 8,366,890 New Jersey Economic Development Authority State Pension Funding Revenue Bond (MBIA Insured) (U.S. Dollar) 02-15-29 7.43 5,100,000(f) 5,560,020 New York Life Insurance (U.S. Dollar) 12-15-23 7.50 7,000,000(d) 7,079,030 Northwest Airlines (U.S. Dollar) Company Guaranty 1st Series 1996 01-02-15 8.97 1,954,104 2,127,277 Overseas Private Investment (U.S. Dollar) U.S. Govt Guaranty Series 1996A 01-15-09 6.99 7,500,000 7,767,450 PDV America (U.S. Dollar) Sr Nts 08-01-03 7.875 3,500,000 3,621,905 Phillips Petroleum (U.S. Dollar) 04-15-23 7.92 3,115,000 3,301,620 Questar Pipeline (U.S. Dollar) 06-01-21 9.375 1,000,000 1,120,730 Salomon Smith Barney Holdings (U.S. Dollar) 01-15-03 6.125 10,400,000 10,292,672 SBC Communications (U.S. Dollar) 08-15-31 8.50 5,000,000 5,508,850 Southern California Gas (U.S. Dollar) 1st Mtge Series BB 03-01-23 7.375 900,000 912,726 Swiss Bank (U.S. Dollar) Sub Deb 07-15-25 7.50 4,700,000 5,061,618 TU Electric Capital (U.S. Dollar) Company Guaranty 01-30-37 8.18 6,150,000 6,292,557 U.S. Treasury (U.S. Dollar) 02-15-00 5.875 10,000,000 10,050,200 08-15-00 6.00 8,000,000 8,067,040 11-15-01 7.50 72,250,000 76,504,080 02-15-05 7.50 10,000,000(e) 10,982,700 11-15-16 7.50 60,200,000 70,068,586 (U.S. Dollar) TIPS 01-15-07 3.375 10,000,000(g) 9,897,091 U S WEST Communications (U.S. Dollar) 11-10-26 7.20 6,000,000 6,014,340 USX (U.S. Dollar) 03-01-08 6.85 4,775,000 4,791,235 Zurich Capital (U.S. Dollar) Company Guaranty 06-01-37 8.38 4,550,000(d) 4,976,654 Total 325,383,083 Venezuela (2.0%) Govt of Venezuela (U.S. Dollar) Series A 03-31-07 6.625 11,357,143 10,178,839 (U.S. Dollar) Series B 03-31-07 6.75 11,142,857 9,986,786 Total 20,165,625 Total bonds (Cost: $938,960,713) $962,086,390
Preferred stock & other (0.5%) Issuer Shares Value(a) Mexico Value Rights 1,000(h) $-- Pinto Totta Intl Finance 7.77% 50,000(b,d) 4,812,500 Total preferred stock & other (Cost: $5,000,000) $4,812,500 Short-term securities (3.4%) (k) Issuer Annualized Amount Value(a) yield on payable at date of maturity purchase U.S. government agency (2.6%) Federal Home Loan Mtge Corp Disc Nts 05-07-98 5.46% $7,300,000 $7,293,382 05-15-98 5.47 3,200,000 3,193,230 05-20-98 5.42 11,400,000 11,367,510 05-29-98 5.45 4,100,000 4,082,732 Total 25,936,854 Commercial paper (0.7%) ABB Treasury Center USA 05-04-98 5.54 1,800,000(i) 1,799,172 Bell Atlantic Finance 05-27-98 5.55 1,100,000 1,095,607 Delaware Funding 05-15-98 5.54 1,600,000(i) 1,596,565 Fleet Funding 05-27-98 5.54 2,000,000(i) 1,992,041 Paccar Financial 05-26-98 5.54 700,000 697,317 Total 7,180,702 Letter of credit (0.1%) Bank of America- AES Hawaii 05-14-98 5.53 600,000 598,806 Total short-term securities (Cost: $33,716,362) $33,716,362 Total investments in securities (Cost: $977,677,075)(l) $1,000,615,252 See accompanying notes to investments in securities. Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Foreign security values are stated in U.S. dollars. For debt securities, principal amounts are denominated in the currency indicated. (c) Identifies issues considered to be illiquid as to their marketability (see Note 1 to the financial statements). Information concerning such security holdings at April 30, 1998, is as follows: Security Acquisition Cost dates Roil 12.78% 2002 04-30-98 $4,975,000 Rostelecom 9.375% 2000 04-28-97 5,000,000 (d) Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security has been determined to be liquid under guidelines established by the board. (e) Security is partially or fully on loan. See Note 5 to the financial statements. (f) The following abbreviation is used in portfolio descriptions to identify the insurer of the issue: MBIA -- Municipal Bond Investors Assurance (g) U.S. Treasury inflation-protection securities (TIPS) are securities in which the principal amount is adjusted for inflation and the semiannual interest payments equal a fixed percentage of the inflation-adjusted principal amount. (h) Negligible market value. (i) 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. (j) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on April 30, 1998. (k) At April 30, 1998, cash or short-term securities were designated to cover open put options written as follows: Issuer Shares Exercise Expiration Value(a) price date Japanese Yen 10,000 $75 June 1998 $105,000 (l) At April 30, 1998, the cost of securities for federal income tax purposes was approximately $976,966,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation...........................................$43,760,000 Unrealized depreciation...........................................(20,111,000) ----------- Net unrealized appreciation.......................................$23,649,000 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. Vice president Frederick C. Quirsfeld* Vice presient, AEFC. Treasurer Matthew N. Karstetter* Vice president, AEFC. * Interested person as defined by the Investment Company Act of 1940. 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. 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 Global Bond Fund IDS Tower 10 Minneapolis, MN 55440-0010 -----END PRIVACY-ENHANCED MESSAGE-----