<PAGE>
PAGE 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. _____ _____
Post-Effective Amendment No. 46 (File Number 2-51586) X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 32 (File Number 811-2503) X
IDS BOND FUND, INC.
IDS Tower 10
Minneapolis, Minnesota 55402-0010
Leslie L. Ogg, 901 Marquette Ave. S., Suite 2810
Minneapolis, Minnesota 55402-3268
(612) 330-9283
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check
appropriate box)
immediately upon filing pursuant to paragraph (b)
X on October 30, 1996 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(i)
on (date) pursuant to paragraph (a)(i)
75 days after filing pursuant to paragraph (a)(ii)
on (date) pursuant to paragraph (a)(ii) of rule 485
If appropriate, check the following box:
This Post-Effective Amendment designates a new effective date
for a previously filed Post-Effective Amendment.
Registrant has registered an indefinite number or amount of
securities under the Securities Act of 1933 pursuant to section
24-f of the Investment Company Act of 1940. Registrants' Rule
24f-2 Notice for its most recent fiscal year will be filed on or
about October 28, 1996.
<PAGE>
PAGE 2
Cross reference sheet showing the location in its prospectus and
the Statement of Additional Information of the information called
for by the items enumerated in Parts A and B of Form N-1A.
Negative answers omitted from prospectus are so indicated.
<TABLE><CAPTION>
PART A PART B
Section Section in
Item No. in Prospectus Item No. Statement of Additional Information
<S> <C> <C> <C>
1 Cover page of prospectus 10 Cover page of SAI
2(a) Sales charge and Fund expenses 11 Table of Contents
(b) The Fund in brief
(c) The Fund in brief 12 NA
3(a) Financial highlights 13(a) Additional Investment Policies; all
(b) NA appendices except Dollar-Cost Averaging
(c) Performance (b) Additional Investment Policies
(d) Financial highlights (c) Additional Investment Policies
(d) Security Transactions
4(a) The Fund in brief; Investment policies and
risks; How the Fund is organized 14(a) Board members and officers of the Fund;**
(b) Investment policies and risks Board members and officers
(c) Investment policies and risks (b) Board members and Officers
(c) Board members and Officers
5(a) Board members and officers; Board members
and officers of the Fund (listing) 15(a) NA
(b)(i) Investment manager; About American Express (b) NA
Financial Corporation -- General (c) Board members and Officers
Information
(b)(ii) Investment manager 16(a)(i) How the Fund is organized; About American
(b)(iii) Investment manager Express Financial Corporation**
(c) Portfolio manager (a)(ii) Agreements: Investment Management Services
(d) Administrator and transfer agent Agreement, Plan and Supplemental
(e) Administrator and transfer agent Agreement of Distribution
(f) Distributor (a)(iii) Agreements: Investment Management Services Agreement
(g) Investment manager; About American Express (b) Agreements: Investment Management Services Agreement
Financial Corporation -- General (c) NA
Information (d) Agreements: Administrative Services
Agreement, Shareholder Service Agreement
5A(a) * (e) NA
(b) * (f) Agreements: Distribution Agreement
(g) NA
6(a) Shares; Voting rights (h) Custodian; Independent Auditors
(b) NA (i) Agreements: Transfer Agency Agreement; Custodian
(c) NA
(d) Voting rights 17(a) Security Transactions
(e) Cover page; Special shareholder services (b) Brokerage Commissions Paid to Brokers Affiliated
(f) Dividends and capital gains distributions; with American Express Financial Corporation
Reinvestments (c) Security Transactions
(g) Taxes (d) Security Transactions
(h) Alternative purchase arrangements (e) Security Transactions
18(a) Shares; Voting rights**
(b) NA
7(a) Distributor
(b) Valuing Fund shares 19(a) Investing in the Fund
(c) How to purchase, exchange or redeem shares (b) Valuing Fund Shares; Investing in the Fund
(d) How to purchase shares (c) NA
(e) NA
(f) Distributor 20 Taxes
8(a) How to redeem shares 21(a) Agreements: Distribution Agreement
(b) NA (b) Agreements: Distribution Agreement
(c) How to purchase shares: Three ways to invest (c) NA
(d) How to purchase, exchange or redeem shares:
Redemption policies -- "Important..." 22(a) Performance Information (for money market
funds only)
9 None (b) Performance Information (for all funds except
money market funds)
23 Financial Statements
*Designates information is located in annual report.
**Designates location in prospectus.
/TABLE
<PAGE>
PAGE 3
IDS Bond Fund
Prospectus
Oct. 30, 1996
The goal of IDS Bond Fund, Inc. is to provide shareholders with a
high level of current income while attempting to conserve the value
of the investment and to continue a high level of income for the
longest period of time. The Fund invests primarily in corporate
bonds and other debt securities.
This prospectus contains facts that can help you decide if the Fund
is the right investment for you. Read it before you invest and
keep it for future reference.
Additional facts about the Fund are in a Statement of Additional
Information (SAI), filed with the Securities and Exchange
Commission (SEC) and available for reference, along with other
related materials, on the SEC Internet web site
(http://www.sec.gov). The SAI, dated Oct. 30, 1996, is
incorporated here by reference. For a free copy, contact American
Express Shareholder Service.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
SHARES IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY. INVESTMENTS IN THE FUND INVOLVE
INVESTMENT RISK INCLUDING POSSIBLE LOSS OF PRINCIPAL.
American Express Shareholder Service
P.O. Box 534
Minneapolis, MN
55440-0534
612-671-3733
TTY: 800-846-4852
<PAGE>
PAGE 4
Table of contents
The Fund in brief
Goal
Investment policies and risks
Manager and distributor
Portfolio manager
Alternative purchase arrangements
Sales charge and Fund expenses
Performance
Financial highlights
Total returns
Yield
Investment policies and risks
Facts about investments and their risks
Alternative investment option
Valuing Fund shares
How to purchase, exchange or redeem shares
Alternative purchase arrangements
How to purchase shares
How to exchange shares
How to redeem shares
Reductions and waivers of the sales charge
Special shareholder services
Services
Quick telephone reference
Distributions and taxes
Dividend and capital gain distributions
Reinvestments
Taxes
How to determine the correct TIN
How the Fund is organized
Shares
Voting rights
Shareholder meetings
Board members and officers
Investment manager
Administrator and transfer agent
Distributor
About American Express Financial Corporation
General information
Appendices
Description of corporate bond ratings
Descriptions of derivative instruments
<PAGE>
PAGE 5
The Fund in brief
Goal
IDS Bond Fund (the Fund) seeks to provide shareholders with a high
level of current income while attempting to conserve the value of
the investment and to continue a high level of income for the
longest period of time. Because any investment involves risk,
achieving this goal cannot be guaranteed. Only shareholders can
change the goal.
Investment policies and risks
The Fund is a diversified mutual fund that invests primarily in
bonds and other debt securities issued by U.S. and foreign
corporations and governments. At least half of the Fund's net
assets must be in bonds rated "investment grade."
The Fund also invests in lower-quality debt securities, convertible
securities, stocks, derivative instruments and money market
instruments. Some of the Fund's investments may be considered
speculative and involve additional investment risks.
Manager and distributor
The Fund is managed by American Express Financial Corporation
(AEFC), a provider of financial services since 1894. AEFC
currently manages more than $52 billion in assets for the IDS
MUTUAL FUND GROUP. Shares of the Fund are sold through American
Express Financial Advisors Inc., a wholly owned subsidiary of AEFC.
Portfolio manager
Frederick Quirsfeld joined AEFC in 1985 and serves as vice
president and senior portfolio manager. He has managed this Fund
since 1985. He also is a part of the portfolio management team for
Total Return Portfolio.
Alternative purchase arrangements
The Fund offers its shares in three classes. Class A shares are
subject to a sales charge at the time of purchase. Class B shares
are subject to a contingent deferred sales charge (CDSC) on
redemptions made within six years of purchase and an annual
distribution (12b-1) fee. Class Y shares are sold without a sales
charge to qualifying institutional investors.
Sales charge and Fund expenses
Shareholder transaction expenses are incurred directly by an
investor on the purchase or redemption of Fund shares. Fund
operating expenses are paid out of Fund assets for each class of
shares. Operating expenses are reflected in the Fund's daily share
price and dividends, and are not charged directly to shareholder
accounts.
<PAGE>
PAGE 6
Shareholder transaction expenses
Class A Class B Class Y
Maximum sales charge on purchases*
(as a percentage of offering price).......5% 0% 0%
Maximum deferred sales charge
imposed on redemptions (as a
percentage of original purchase price)....0% 5% 0%
Annual Fund operating expenses
(% of average daily net assets):
Class A Class B Class Y
Management fee 0.49% 0.49% 0.49%
12b-1 fee 0.00% 0.75% 0.00%
Other expenses** 0.35% 0.36% 0.18%
Total*** 0.84% 1.60% 0.67%
*This charge may be reduced depending on your total investments in
IDS funds. See "Reductions of the sales charge."
**Other expenses include an administrative services fee, a
shareholder services fee for Class A and Class B, a transfer agency
fee and other non-advisory expenses.
***Expense ratio based on total expenses of the Fund before
reduction of earnings credit on cash balances.
Example: Suppose for each year for the next 10 years, Fund
expenses are as above and annual return is 5%. If you sold your
shares at the end of the following years, for each $1,000 invested,
you would pay total expenses of:
1 year 3 years 5 years 10 years
Class A $58 $75 $ 94 $149
Class B $66 $91 $107 $170**
Class B* $16 $51 $ 87 $170**
Class Y $ 7 $21 $ 37 $ 84
*Assuming Class B shares are not redeemed at the end of the period.
**Based on conversion of Class B shares to Class A shares after
eight years.
This example does not represent actual expenses, past or future.
Actual expenses may be higher or lower than those shown. Because
Class B pays annual distribution (12b-1) fees, long-term
shareholders of Class B may indirectly pay an equivalent of more
than a 6.25% sales charge, the maximum permitted by the National
Association of Securities Dealers.
<PAGE>
PAGE 7
IDS Bond Fund, Inc.
Performance
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changes*
<TABLE>
<CAPTION> Class A
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $5.05 $4.91 $5.48 $5.11 $4.74 $4.39 $4.74 $4.60 $4.72 $5.28
beginning of period
Income from investment operations:
Net investment income .36 .38 .41 .40 .40 .41 .40 .42 .44 .46
Net gains (losses) (.07) .23 (.51) .38 .37 .33 (.36) .15 (.12) (.31)
(both realized
and unrealized)
Total from investment .29 .61 (.10) .78 .77 .74 .04 .57 .32 .15
operations
Less distributions:
Dividends from net (.35) (.37) (.41) (.41) (.40) (.39) (.39) (.43) (.44) (.46)
investment income
Distributions from -- (.10) (.06) -- -- -- -- -- -- (.25)
realized gains
Total distributions (.35) (.47) (.47) (.41) (.40) (.39) (.39) (.43) (.44) (.71)
Net asset value, $4.99 $5.05 $4.91 $5.48 $5.11 $4.74 $4.39 $4.74 $4.60 $4.72
end of period
Ratios/supplemental data
Class A
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
Net assets, end of $2,563 $2,363 $2,249 $2,490 $2,174 $1,902 $1,730 $1,811 $1,733 $1,813
period (in millions)
Ratio of expenses to .84% .78% .68% .70% .72% .77% .77% .75% .73% .75%
average daily net assets+
Ratio of net income 7.01% 7.84% 7.71% 7.78% 8.29% 9.03% 8.83% 9.04% 9.45% 8.83%
to average
daily net assets
Portfolio turnover rate 45% 43% 40% 60% 64% 74% 81% 97% 76% 73%
(excluding short-term
securities)
Total return** 5.8% 13.7% (2.0%) 15.8% 16.9% 17.6% .9% 13.0% 7.2% 2.6%
*For a share outstanding throughout the period. Rounded to the nearest cent.
**Total return does not reflect payment of a sales charge.
+Effective fiscal year 1996, expense ratio is based on total expenses of the Fund
before reduction of earnings credit on cash balances.
<PAGE>
PAGE 8
IDS Bond Fund, Inc.
Performance
Financial highlights
Fiscal period ended Aug. 31,
Per share income and capital changes*
Class B Class Y
1996 1995** 1996 1995**
Net asset value, $5.05 $4.79 $5.05 $4.79
beginning of period
Income from investment operations:
Net investment income .32 .17 .37 .19
Net gains (losses) (.07) .26 (.07) .26
(both realized and
unrealized)
Total from investment .25 .43 .30 .45
operations
Less distributions:
Dividends from net (.31) (.17) (.36) (.19)
investment income
Net asset value, $4.99 $5.05 $4.99 $5.05
end of period
Ratios/supplemental data
Class B Class Y
1996 1995** 1996 1995**
Net assets, end of $848 $782 $88 $64
period (in millions)
Ratio of expenses to 1.60% 1.63%+ .67% .67%+
average daily net assets#
Ratio of net income 6.24% 6.81%+ 7.19% 8.44%+
to average
daily net assets
Portfolio turnover rate 45% 43% 45% 43%
(excluding short-term
securities)
Total return++ 5.0% 9.0% 5.9% 9.4%
*For a share outstanding throughout the period. Rounded to the
nearest cent.
**Inception date was March 20, 1995 for Class B and Class Y.
+Adjusted to an annual basis.
++Total return does not reflect payment of a sales charge.
#Effective fiscal year 1996, expense ratio is based on total expenses
of the Fund before reduction of earnings credit on cash balances.
The information in these tables has been audited by KPMG Peat Marwick LLP,
independent auditors. The independent auditors' report and additional
information about the performance of the Fund are contained in the Fund's
annual report which, if not included with this prospectus, may be obtained
without charge.
</TABLE>
<PAGE>
PAGE 9
Total returns
Total return is the sum of all of your returns for a given period,
assuming you reinvest all distributions. It is calculated by
taking the total value of shares you own at the end of the period
(including shares acquired by reinvestment), less the price of
shares you purchased at the beginning of the period.
Average annual total return is the annually compounded rate of
return over a given time period (usually two or more years). It is
the total return for the period converted to an equivalent annual
figure.
Average annual total returns as of Aug. 31, 1996
Purchase 1 year Since 5 years 10 years
made ago inception ago ago
Bond Fund:
Class A +0.48% -- % +8.65% +8.35%
Class B -0.03% + 6.92% -- % -- %
Class Y +5.93% +10.53% -- % -- %
Lehman
Aggregate
Bond Index +4.25% + 7.76% +7.49% +8.18%
*Inception date was March 20, 1995.
Cumulative total returns as of Aug. 31, 1996
Purchase 1 year Since 5 years 10 years
made ago Inception ago ago
Bond Fund:
Class A +0.48% -- % +51.46% +123.19%
Class B -0.03% +10.24% -- % -- %
Class Y +5.93% +15.76% -- % -- %
Lehman
Aggregate
Bond Index +4.25% +11.21% +43.54% +119.72%
*Inception date was March 20, 1995.
These examples show total returns from hypothetical investments in
Class A, Class B and Class Y shares of the Fund. These returns are
compared to those of a popular index for the same periods. The
performance of Class B and Class Y will vary from the performance
of Class A based on differences in sales charges and fees. March
20, 1995 was the inception date for Class B and Class Y. Past
performance for Class Y for the periods prior to March 20, 1995 may
be calculated based on the performance of Class A, adjusted to
reflect differences in sales charges although not for other
differences in expenses.
<PAGE>
PAGE 10
For purposes of calculation, information about the Fund assumes:
o a sales charge of 5% for Class A shares
o redemption at the end of the period and deduction of the
applicable contingent deferred sales charge for Class B
shares
o no sales charge for Class Y shares
o no adjustments for taxes an investor may have paid on the
reinvested income and capital gains
o a period of widely fluctuating securities prices. Returns
shown should not be considered a representation of the Fund's
future performance.
Lehman Aggregate Bond Index is an unmanaged index made up of a
representative list of government and corporate bonds as well as
asset-backed and mortgage-backed securities. The index is
frequently used as a general measure of bond market performance.
However, the securities used to create the index may not be
representative of the bonds held in the Fund. The index reflects
reinvestment of all distributions and changes in market prices, but
excludes brokerage commissions or other fees.
Yield
Yield is the net investment income earned per share for a specified
time period, divided by the offering price at the end of the
period. The Fund's annualized yield for the 30-day period ended
Aug. 30, 1996, was 6.77% for Class A, 6.35% for Class B and 7.30%
for Class Y. The Fund calculates this 30-day annualized yield by
dividing:
o net investment income per share deemed earned during a 30-day
period by
o the public offering price per share on the last day of the
period, and
o converting the result to a yearly equivalent figure.
This yield calculation does not include any contingent deferred
sales charge, ranging from 5% to 0% on Class B shares, which would
reduce the yield quoted.
The Fund's yield varies from day to day, mainly because share
values and offering prices (which are calculated daily) vary in
response to changes in interest rates. Net investment income
normally changes much less in the short run. Thus, when interest
rates rise and share values fall, yield tends to rise. When
interest rates fall, yield tends to follow.
Past yields should not be considered an indicator of future yields.
Investment policies and risks
The Fund primarily invests in bonds and other debt securities
issued by U.S. and foreign corporations and governments. At least
50% of the Fund's net assets will be invested in investment-grade <PAGE>
PAGE 11
corporate bonds (bonds that independent rating agencies rate in one
of their top four grades), unrated corporate bonds the portfolio
manager believes have investment grade quality, and government
bonds. Under normal market conditions, 65% of the Fund's total
assets will be in bonds.
The Fund also invests in lower-rated debt securities, convertible
securities, preferred stocks, common stocks, derivative instruments
and money market instruments.
The various types of investments the portfolio manager uses to
achieve investment performance are described in more detail in the
next section and in the SAI.
Facts about investments and their risks
Debt securities: The price of bonds generally falls as interest
rates increase, and rises as interest rates decrease. The price of
bonds also fluctuates if the credit rating is upgraded or
downgraded.
The price of bonds below investment grade may react more to the
ability of the issuing company to pay interest and principal when
due than to changes in interest rates. They have greater price
fluctuations, are more likely to experience a default, and
sometimes are referred to as junk bonds. Reduced market liquidity
for these bonds may occasionally make it more difficult to value
them. In valuing bonds, the Fund relies both on independent rating
agencies and the investment manager's credit analysis. Securities
that are subsequently downgraded in quality may continue to be held
by the Fund and will be sold only when the Fund's investment
manager believes it is advantageous to do so.
Bond ratings and holdings for fiscal 1996
<TABLE><CAPTION>
Percent of
S&P Rating Protection of net assets
Percent of (or Moody's principal and in unrated securities
net assets equivalent) interest assessed by AEFC
<S> <C> <C> <C>
19.63% AAA Highest quality 0.34%
5.29 AA High quality 0.04
11.33 A Upper medium grade 0.19
17.38 BBB Medium grade 0.37
15.10 BB Moderately speculative -
9.70 B Speculative 0.31
0.08 CCC Highly speculative 0.34
0.06 CC Poor quality -
- C Lowest quality -
- D In default -
2.49 Unrated Unrated securities 0.90
</TABLE>
(See Appendix to this prospectus describing corporate bond ratings
for further information.)
<PAGE>
PAGE 12
Debt securities sold at a deep discount: Some bonds are sold at
deep discounts because they do not pay interest until maturity.
They include zero coupon bonds and PIK (pay-in-kind) bonds. To
comply with tax laws, the Fund has to recognize a computed amount
of interest income and pay dividends to shareholders even though no
cash has been received. In some instances, the Fund may have to
sell securities to have sufficient cash to pay the dividends.
Convertible securities: These securities generally are preferred
stocks or bonds that can be exchanged for other securities, usually
common stock, at prestated prices. When the trading price of the
common stock makes the exchange likely, convertible securities
trade more like common stock.
Preferred stocks: If a company earns a profit, it generally must
pay its preferred stockholders a dividend at a pre-established
rate.
Common stocks: Stock prices are subject to market fluctuations.
Stocks of smaller companies may be subject to more abrupt or
erratic price movements than stocks of larger, established
companies or the stock market as a whole.
Foreign investments: Securities of foreign companies and
governments may be traded in the United States, but often they are
traded only on foreign markets. Frequently, there is less
information about foreign companies and less government supervision
of foreign markets. Foreign investments are subject to political
and economic risks of the countries in which the investments are
made, including the possibility of seizure or nationalization of
companies, imposition of withholding taxes on income, establishment
of exchange controls or adoption of other restrictions that might
affect an investment adversely. If an investment is made in a
foreign market, the local currency may be purchased using a forward
contract in which the price of the foreign currency in U.S. dollars
is established on the date the trade is made, but delivery of the
currency is not made until the securities are received. As long as
the Fund holds foreign currencies or securities valued in foreign
currencies, the value of those assets will be affected by changes
in the value of the currencies relative to the U.S. dollar.
Because of the limited trading volume in some foreign markets,
efforts to buy or sell a security may change the price of the
security, and it may be difficult to complete the transaction. The
Fund may invest up to 25% of its total assets in foreign
investments.
Derivative instruments: The portfolio manager may use derivative
instruments in addition to securities to achieve investment
performance. Derivative instruments include futures, options and
forward contracts. Such instruments may be used to maintain cash
reserves while remaining fully invested, to offset anticipated
declines in values of investments, to facilitate trading, to reduce
transaction costs or to pursue higher investment returns.
Derivative instruments are characterized by requiring little or no
initial payment and a daily change in price based on or derived
from a security, a currency, a group of securities or currencies,
or an index. A number of strategies or combination of instruments <PAGE>
PAGE 13
can be used to achieve the desired investment performance
characteristics. A small change in the value of the underlying
security, currency or index will cause a sizable gain or loss in
the price of the derivative instrument. Derivative instruments
allow the portfolio manager to change the investment performance
characteristics very quickly and at lower costs. Risks include
losses of premiums, rapid changes in prices, defaults by other
parties and inability to close such instruments. The Fund will use
derivative instruments only to achieve the same investment
performance characteristics it could achieve by directly holding
those securities and currencies permitted under the investment
policies. The Fund will designate cash or appropriate liquid
assets to cover its portfolio obligations. No more than 5% of the
Fund's net assets can be used at any one time for good faith
deposits on futures and premiums for options on futures that do not
offset existing investment positions. This does not, however,
limit the portion of the Fund's assets at risk to 5%. The Fund is
not limited as to the percentage of its assets that may be invested
in permissible investments, including derivatives, except as
otherwise explicitly provided in this prospectus or the SAI. For
descriptions of these and other types of derivative instruments,
see the Appendix to this prospectus and the SAI.
Securities and other instruments that are illiquid: A security or
other instrument is illiquid if it cannot be sold quickly in the
normal course of business. Some investments cannot be resold to
the U.S. public because of their terms or government regulations.
All securities and other instruments, however, can be sold in
private sales, and many may be sold to other institutions and
qualified buyers or on foreign markets. The portfolio manager will
follow guidelines established by the board and consider relevant
factors such as the nature of the security and the number of likely
buyers when determining whether a security is illiquid. No more
than 10% of the Fund's net assets will be held in securities and
other instruments that are illiquid.
Money market instruments: Short-term debt securities rated in the
top two grades or the equivalent are used to meet daily cash needs
and at various times to hold assets until better investment
opportunities arise. Generally, less than 25% of the Fund's total
assets are in these money market instruments. However, for
temporary defensive purposes these investments could exceed that
amount for a limited period of time.
The investment policies described above may be changed by the
board.
Lending portfolio securities: The Fund may lend its securities to
earn income so long as borrowers provide collateral equal to the
market value of the loans. The risks are that borrowers will not
provide collateral when required or return securities when due.
Unless a majority of the outstanding voting securities approve
otherwise, loans may not exceed 30% of the Fund's net assets.
<PAGE>
PAGE 14
Alternative investment option
In the future, the board of the Fund may determine for operating
efficiencies to use a master/feeder structure. Under that
structure, the Fund's assets would be invested in an investment
company with the same goal as the Fund, rather than invested
directly in a portfolio of securities.
Valuing Fund shares
The public offering price is the net asset value (NAV) adjusted for
the sales charge for Class A. It is the NAV for Class B and Class
Y.
The NAV is the value of a single Fund share. The NAV usually
changes daily, and is calculated at the close of business, normally
3 p.m. Central time, each business day (any day the New York Stock
Exchange is open). NAV generally declines as interest rates
increase and rises as interest rates decline.
To establish the net assets, all securities are valued as of the
close of each business day. In valuing assets:
o Securities (except bonds) and assets with available market
values are valued on that basis.
o Securities maturing in 60 days or less are valued at
amortized cost.
o Bonds and assets without readily available market values are
valued according to methods selected in good faith by the
board.
How to purchase, exchange or redeem shares
Alternative purchase arrangements
The Fund offers three different classes of shares - Class A, Class
B and Class Y. The primary differences among the classes are in
the sales charge structures and in their ongoing expenses. These
differences are summarized in the table below. You may choose the
class that best suits your circumstances and objectives.
<TABLE><CAPTION>
Sales charge and
distribution
(12b-1) fee Service fee Other information
<S> <C> <C> <C>
Class A Maximum initial 0.175% of average Initial sales charge
sales charge of daily net assets waived or reduced
5%; no 12b-1 fee for certain purchases
Class B No initial sales 0.175% of average Shares convert to
charge; maximum CDSC daily net assets Class A after eight
of 5% declines to 0% years; CDSC waived in
after six years; 12b-1 certain circumstances
fee of 0.75% of average
daily net assets<PAGE>
PAGE 15
Class Y None None Available only to
certain qualifying
institutional
investors
</TABLE>
Conversion of Class B shares to Class A shares - Eight calendar
years after Class B shares are purchased, Class B shares will
convert to Class A shares and will no longer be subject to a
distribution fee. The conversion will be on the basis of relative
net asset values of the two classes, without the imposition of any
sales charge. Class B shares purchased through reinvested
dividends and distributions will convert to Class A shares in a pro
rata portion as if the Class B shares were purchased other than
through reinvestment.
Considerations in determining whether to purchase Class A or Class
B shares - You should consider the information below in determining
whether to purchase Class A or Class B shares. The distribution
fee (included in "Ongoing expenses") and sales charges are
structured so that you will have approximately the same total
return at the end of eight years regardless of which class you
chose.
Sales charges on purchase or redemption
If you purchase Class A If you purchase Class B
shares shares
o You will not have all o All of your money is
of your purchase price invested in shares of
invested. Part of your stock. However, you will
purchase price will go pay a sales charge if you
to pay the sales charge. redeem your shares within
You will not pay a sales six years of purchase.
charge when you redeem
your shares.
o You will be able to o No reductions of the
take advantage of sales charge are
reductions in the sales available for large
charge. purchases.
If your investments in IDS funds that are subject to a sales charge
total $250,000 or more, you are better off paying the reduced sales
charge in Class A than paying the higher fees in Class B. If you
qualify for a waiver of the sales charge, you should purchase Class
A shares.
<PAGE>
PAGE 16
Ongoing expenses
If you purchase Class A If you purchase Class B
shares shares
o Your shares will have o The distribution and
a lower expense ratio transfer agency fees for
than Class B shares Class B will cause your
because Class A does not shares to have a higher
pay a distribution fee expense ratio and to pay
and the transfer agency lower dividends than
fee for Class A is lower Class A shares. After
than the fee for Class B. eight years, Class B
As a result, Class A shares shares will convert to
will pay higher dividends Class A shares and you
than Class B shares. will no longer be
subject to higher fees.
You should consider how long you plan to hold your shares and
whether the accumulated higher fees and CDSC on Class B shares
prior to conversion would be less than the initial sales charge on
Class A shares. Also consider to what extent the difference would
be offset by the lower expenses on Class A shares. To help you in
this analysis, the example in the "Sales charge and Fund expenses"
section of the prospectus illustrates the charges applicable to
each class of shares.
Class Y shares - Class Y shares are offered to certain
institutional investors. Class Y shares are sold without a front-
end sales charge or a CDSC and are not subject to either a service
fee or a distribution fee. The following investors are eligible to
purchase Class Y shares:
o Qualified employee benefit plans* if the plan:
- uses a daily transfer recordkeeping service offering
participants daily access to IDS funds and has
- at least $10 million in plan assets or
- 500 or more participants; or
- does not use daily transfer recordkeeping and has
- at least $3 million invested in funds of the IDS MUTUAL
FUND GROUP or
- 500 or more participants.
o Trust companies or similar institutions, and charitable
organizations that meet the definition in Section 501(c)(3)
of the Internal Revenue Code.* These must have at least $10
million invested in funds of the IDS MUTUAL FUND GROUP.
o Nonqualified deferred compensation plans* whose
participants are included in a qualified employee benefit
plan described above.
* Eligibility must be determined in advance by American Express
Financial Advisors. To do so, contact your financial advisor.
<PAGE>
PAGE 17
How to purchase shares
If you're investing in this Fund for the first time, you'll need to
set up an account. Your financial advisor will help you fill out
and submit an application. Once your account is set up, you can
choose among several convenient ways to invest.
Important: When opening an account, you must provide AEFC with
your correct Taxpayer Identification Number (Social Security or
Employer Identification number). See "Distributions and taxes."
When you purchase shares for a new or existing account, the price
you pay per share is determined at the close of business on the day
your investment is received and accepted at the Minneapolis
headquarters.
Purchase policies:
o Investments must be received and accepted in the Minneapolis
headquarters on a business day before 3 p.m. Central time to
be included in your account that day and to receive that
day's share price. Otherwise, your purchase will be
processed the next business day and you will pay the next
day's share price.
o The minimums allowed for investment may change from time to
time.
o Wire orders can be accepted only on days when your bank,
AEFC, the Fund and Norwest Bank Minneapolis are open for
business.
o Wire purchases are completed when wired payment is received
and the Fund accepts the purchase.
o AEFC and the Fund are not responsible for any delays that
occur in wiring funds, including delays in processing by the
bank.
o You must pay any fee the bank charges for wiring.
o The Fund reserves the right to reject any application for any
reason.
o If your application does not specify which class of shares
you are purchasing, it will be assumed that you are investing
in Class A shares.
<PAGE>
PAGE 18
Three ways to invest
<TABLE><CAPTION>
<S> <C> <C>
1
By regular account Send your check and application Minimum amounts
(or your name and account number Initial investment: $2,000
if you have an established account) Additional
to: investments: $ 100
American Express Financial Advisors Inc. Account balances: $ 300*
P.O. Box 74 Qualified retirement
Minneapolis, MN 55440-0074 accounts: none
Your financial advisor will help
you with this process.
2
By scheduled Contact your financial advisor Minimum amounts
investment plan to set up one of the following Initial investment: $100
scheduled plans: Additional
investments: $100/mo.
o automatic payroll deduction Account balances: none
(on active plans of
o bank authorization monthly payments)
o direct deposit of
Social Security check
o other plan approved by the Fund
3
By wire If you have an established account, If this information is not
you may wire money to: included, the order may be
rejected and all money
Norwest Bank Minneapolis received by the Fund, less
Routing No. 091000019 any costs the Fund or AEFC
Minneapolis, MN incurs, will be returned
Attn: Domestic Wire Dept. promptly.
Give these instructions: Minimum amounts
Credit IDS Account #00-30-015 Each wire investment: $1,000
for personal account # (your
account number) for (your name).
*If your account balance falls below $300, you will be asked in writing to bring it up to $300 or establish a scheduled
investment plan. If you don't do so within 30 days, your shares can be redeemed and the proceeds mailed to you.
</TABLE>
How to exchange shares
You can exchange your shares of the Fund at no charge for shares of
the same class of any other publicly offered fund in the IDS MUTUAL
FUND GROUP available in your state. Exchanges into IDS Tax-Free
Money Fund must be made from Class A shares. For complete
information, including fees and expenses, read the prospectus
carefully before exchanging into a new fund.
If your exchange request arrives at the Minneapolis headquarters
before the close of business, your shares will be redeemed at the
net asset value set for that day. The proceeds will be used to
purchase new fund shares the same day. Otherwise, your exchange
will take place the next business day at that day's net asset
value.
For tax purposes, an exchange represents a redemption and purchase
and may result in a gain or loss. However, you cannot create a tax
loss (or reduce a taxable gain) by exchanging from the Fund within
91 days of your purchase. For further explanation, see the SAI.
<PAGE>
PAGE 19
How to redeem shares
You can redeem your shares at any time. American Express
Shareholder Service will mail payment within seven days after
receiving your request.
When you redeem shares, the amount you receive may be more or less
than the amount you invested. Your shares will be redeemed at net
asset value, minus any applicable sales charge, at the close of
business on the day your request is accepted at the Minneapolis
headquarters. If your request arrives after the close of business,
the price per share will be the net asset value, minus any
applicable sales charge, at the close of business on the next
business day.
A redemption is a taxable transaction. If your proceeds from your
redemption are more or less than the cost of your shares, you will
have a gain or loss, which can affect your tax liability.
Redeeming shares held in an IRA or qualified retirement account may
subject you to certain federal taxes, penalties and reporting
requirements. Consult your tax advisor.
<TABLE><CAPTION>
Two ways to request an exchange or redemption of shares
<S> <C>
1
By letter Include in your letter:
o the name of the fund(s)
o the class of shares to be exchanged or redeemed
o your account number(s) (for exchanges, both funds must be registered in the same
ownership)
o your Taxpayer Identification Number (TIN)
o the dollar amount or number of shares you want to exchange or redeem
o signature of all registered account owners
o for redemptions, indicate how you want your money delivered to you
o any paper certificates of shares you hold
Regular mail:
American Express Shareholder Service
Attn: Redemptions
P.O. Box 534
Minneapolis, MN 55440-0534
Express mail:
American Express Shareholder Service
Attn: Redemptions
733 Marquette Ave.
Minneapolis, MN 55402
2
By phone
American Express Telephone o The Fund and AEFC will honor any telephone exchange or redemption request believed
Transaction Service: to be authentic and will use reasonable procedures to confirm that they are. This
800-437-3133 or includes asking identifying questions and tape recording calls. If reasonable
612-671-3800 procedures are not followed, the Fund or AEFC will be liable for any loss resulting
from fraudulent requests.
o Phone exchange and redemption privileges automatically apply to all accounts except
custodial, corporate or qualified retirement accounts unless you request these
privileges NOT apply by writing American Express Shareholder Service. Each registered
owner must sign the request.
o AEFC answers phone requests promptly, but you may experience delays when call volume
is high. If you are unable to get through, use mail procedure as an alternative.
o Acting on your instructions, your financial advisor may conduct telephone transactions
on your behalf.
o Phone privileges may be modified or discontinued at any time.
Minimum amount
Redemption: $100
Maximum amount
Redemption: $50,000
/TABLE
<PAGE>
PAGE 20
Exchange policies:
o You may make up to three exchanges within any 30-day period,
with each limited to $300,000. These limits do not apply to
scheduled exchange programs and certain employee benefit plans or
other arrangements through which one shareholder represents the
interests of several. Exceptions may be allowed with pre-approval
of the Fund.
o Exchanges must be made into the same class of shares of the new
fund.
o If your exchange creates a new account, it must satisfy the
minimum investment amount for new purchases.
o Once we receive your exchange request, you cannot cancel it.
o Shares of the new fund may not be used on the same day for
another exchange.
o If your shares are pledged as collateral, the exchange will be
delayed until written approval is obtained from the secured party.
o AEFC and the Fund reserve the right to reject any exchange,
limit the amount, or modify or discontinue the exchange privilege,
to prevent abuse or adverse effects on the Fund and its
shareholders. For example, if exchanges are too numerous or too
large, they may disrupt the Fund's investment strategies or
increase its costs.
Redemption policies:
o A "change of mind" option allows you to change your mind after
requesting a redemption and to use all or part of the proceeds to
purchase new shares in the same account from which you redeemed.
If you reinvest in Class A, you will purchase the new shares at net
asset value rather than the offering price on the date of a new
purchase. If you reinvest in Class B, any CDSC you paid on the
amount you are reinvesting also will be reinvested. To take
advantage of this option, send a written request within 30 days of
the date your redemption request was received. Include your
account number and mention this option. This privilege may be
limited or withdrawn at any time, and it may have tax consequences.
o A telephone redemption request will not be allowed within 30
days of a phoned-in address change.
Important: If you request a redemption of shares you recently
purchased by a check or money order that is not guaranteed, the
Fund will wait for your check to clear. It may take up to 10 days
from the date of purchase before a check is mailed to you. (A
check may be mailed earlier if your bank provides evidence
satisfactory to the Fund and AEFC that your check has cleared.)
<PAGE>
PAGE 21
Three ways to receive payment when you redeem shares
<TABLE><CAPTION>
<S> <C>
1
By regular or express mail o Mailed to the address on record.
o Payable to names listed on the account.
NOTE: The express mail delivery charges
you pay will vary depending on the
courier you select.
2
By wire o Minimum wire redemption: $1,000.
o Request that money be wired to your bank.
o Bank account must be in the same
ownership as the IDS fund account.
NOTE: Pre-authorization required. For
instructions, contact your financial
advisor or American Express Shareholder Service.
3
By scheduled payout plan o Minimum payment: $50.
o Contact your financial advisor or American Express
Shareholder Service to set up regular
payments to you on a monthly, bimonthly,
quarterly, semiannual or annual basis.
o Purchasing new shares while under a payout
plan may be disadvantageous because of
the sales charges.
</TABLE>
Reductions and waivers of the sales charge
Class A - initial sales charge alternative
On purchases of Class A shares, you pay a 5% sales charge on the
first $50,000 of your total investment and less on investments
after the first $50,000:
Total investment Sales charge as a
percent of:*
Public Net
offering amount
price invested
Up to $50,000 5.0% 5.26%
Next $50,000 4.5 4.71
Next $400,000 3.8 3.95
Next $500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
* To calculate the actual sales charge on an investment greater
than $50,000 and less than $1,000,000, amounts for each applicable
increment must be totaled. See the SAI.
Reductions of the sales charge on Class A shares
Your sales charge may be reduced, depending on the totals of:
o the amount you are investing in this Fund now,
o the amount of your existing investment in this Fund, if any, and
o the amount you and your primary household group are investing or
have in other funds in the IDS MUTUAL FUND GROUP that carry a sales
charge. (The primary household group consists of accounts in any <PAGE>
PAGE 23
ownership for spouses or domestic partners and their unmarried
children under 21. Domestic partners are individuals who maintain
a shared primary residence and have joint property or other
insurable interests.)
Other policies that affect your sales charge:
o IDS Tax-Free Money Fund and Class A shares of IDS Cash
Management Fund do not carry sales charges. However, you may count
investments in these funds if you acquired shares in them by
exchanging shares from IDS funds that carry sales charges.
o IRA purchases or other employee benefit plan purchases made
through a payroll deduction plan or through a plan sponsored by an
employer, association of employers, employee organization or other
similar entity, may be added together to reduce sales charges for
all shares purchased through that plan.
o If you intend to invest $1 million over a period of 13 months,
you can reduce the sales charges in Class A by filing a letter of
intent.
For more details, see the SAI.
Waivers of the sales charge for Class A shares
Sales charges do not apply to:
o Current or retired board members, officers or employees of the
Fund or AEFC or its subsidiaries, their spouses and unmarried
children under 21.
o Current or retired American Express financial advisors, their
spouses and unmarried children under 21.
o Qualified employee benefit plans* using a daily transfer
recordkeeping system offering participants daily access to IDS
funds.
(Participants in certain qualified plans for which the initial
sales charge is waived may be subject to a deferred sales charge of
up to 4% on certain redemptions. For more information, see the
SAI.)
o Shareholders who have at least $1 million invested in funds of
the IDS MUTUAL FUND GROUP. If the investment is redeemed in the
first year after purchase, a CDSC of 1% will be charged on the
redemption.
o Purchases made within 30 days after a redemption of shares (up
to the amount redeemed):
- of a product distributed by American Express Financial
Advisors in a qualified plan subject to a deferred sales
charge or
- in a qualified plan where American Express Trust Company has
a recordkeeping, trustee, investment management or investment
servicing relationship.
<PAGE>
PAGE 24
Send the Fund a written request along with your payment, indicating
the amount of the redemption and the date on which it occurred.
o Purchases made with dividend or capital gain distributions from
another fund in the IDS MUTUAL FUND GROUP that has a sales charge.
o Purchases made through American Express Strategic Portfolio
Service (total amount of all investments made in the Strategic
Portfolio Service must be at least $50,000).
o Purchases made under the University of Texas System ORP.
*Eligibility must be determined in advance by American Express
Financial Advisors. To do so, contact your financial advisor.
Class B - contingent deferred sales charge alternative
Where a CDSC is imposed on a redemption, it is based on the amount
of the redemption and the number of calendar years, including the
year of purchase, between purchase and redemption. The following
table shows the declining scale of percentages that apply to
redemptions during each year after a purchase:
If a redemption is The percentage rate
made during the for the CDSC is:
First year 5%
Second year 4%
Third year 4%
Fourth year 3%
Fifth year 2%
Sixth year 1%
Seventh year 0%
If the amount you are redeeming reduces the current net asset value
of your investment in Class B shares below the total dollar amount
of all your purchase payments during the last six years (including
the year in which your redemption is made), the CDSC is based on
the lower of the redeemed purchase payments or market value.
The following example illustrates how the CDSC is applied. Assume
you had invested $10,000 in Class B shares and that your investment
had appreciated in value to $12,000 after 15 months, including
reinvested dividend and capital gain distributions. You could
redeem any amount up to $2,000 without paying a CDSC ($12,000
current value less $10,000 purchase amount). If you redeemed
$2,500, the CDSC would apply only to the $500 that represented part
of your original purchase price. The CDSC rate would be 4% because
a redemption after 15 months would take place during the second
year after purchase.
Because the CDSC is imposed only on redemptions that reduce the
total of your purchase payments, you never have to pay a CDSC on
any amount you redeem that represents appreciation in the value of
your shares, income earned by your shares or capital gains. In
addition, when determining the rate of any CDSC, your redemption
will be made from the oldest purchase payment you made. Of course,
once a purchase payment is considered to have been redeemed, the <PAGE>
PAGE 25
next amount redeemed is the next oldest purchase payment. By
redeeming the oldest purchase payments first, lower CDSCs are
imposed than would otherwise be the case.
The CDSC on Class B shares will be waived on redemptions of shares:
o In the event of the shareholder's death,
o Purchased by any board member, officer or employee of a fund or
AEFC or its subsidiaries,
o Held in a trusteed employee benefit plan,
o Held in IRAs or certain qualified plans for which American
Express Trust Company acts as custodian, such as Keogh plans, tax-
sheltered custodial accounts or corporate pension plans, provided
that the shareholder is:
- at least 59-1/2 years old, and
- taking a retirement distribution (if the redemption is part
of a transfer to an IRA or qualified plan in a product
distributed by American Express Financial Advisors, or a
custodian-to-custodian transfer to a product not distributed
by American Express Financial Advisors, the CDSC will not be
waived), or
- redeeming under an approved substantially equal periodic
payment arrangement.
For investors in Class A shares who have over $1 million invested
in one year, the 1% CDSC on redemption of those shares will be
waived in the same circumstances described for Class B.
Special shareholder services
Services
To help you track and evaluate the performance of your investments,
AEFC provides these services:
Quarterly statements listing all of your holdings and transactions
during the previous three months.
Yearly tax statements featuring average-cost-basis reporting of
capital gains or losses if you redeem your shares along with
distribution information which simplifies tax calculations.
A personalized mutual fund progress report detailing returns on
your initial investment and cash-flow activity in your account. It
calculates a total return to reflect your individual history in
owning Fund shares. This report is available from your financial
advisor.
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
<PAGE>
PAGE 26
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
Distribution and taxes
As a shareholder you are entitled to your share of the Fund's net
income and any net gains realized on its investments. The Fund
distributes dividends and capital gain distributions to qualify as
a regulated investment company and to avoid paying corporate income
and excise taxes. Dividend and capital gain distributions will
have tax consequences you should know about.
Dividend and capital gain distributions
The Fund's net investment income from dividends and interest is
distributed to you monthly as dividends. Short-term capital gains
are distributed at the end of the calendar year and are included in
net investment income. Long-term capital gains are realized
whenever a security held for more than one year is sold for a
higher price than was paid for it. Net realized long-term capital
gains, if any, are distributed at the end of the calendar year as
capital gain distributions. Before they're distributed, net long-
term capital gains are included in the value of each share. After
they're distributed, the value of each share drops by the per-share
amount of the distribution. (If your distributions are reinvested,
the total value of your holdings will not change.)
Dividends for each class will be calculated at the same time, in
the same manner and will be the same amount prior to deduction of
expenses. Expenses attributable solely to a class of shares will
be paid exclusively by that class. Class B shareholders will
receive lower per share dividends than Class A and Class Y
shareholders because expenses for Class B are higher than for Class
A or Class Y. Class A shareholders will receive lower per share
dividends than Class Y shareholders because expenses for Class A
are higher than for Class Y.
Reinvestments
Dividends and capital gain distributions are automatically
reinvested in additional shares in the same class of the Fund,
unless:
o you request the Fund in writing or by phone to pay
distributions to you in cash, or<PAGE>
PAGE 27
o you direct the Fund to invest your distributions in any
publicly available IDS fund for which you've previously
opened an account. You pay no sales charge on shares
purchased through reinvestment from this Fund into any IDS
fund.
The reinvestment price is the net asset value at close of business
on the day the distribution is paid. (Your quarterly statement
will confirm the amount invested and the number of shares
purchased.)
If you choose cash distributions, you will receive only those
declared after your request has been processed.
If the U.S. Postal Service cannot deliver the checks for the cash
distributions, we will reinvest the checks into your account at the
then-current net asset value and make future distributions in the
form of additional shares.
Taxes
Distributions are subject to federal income tax and also may be
subject to state and local taxes. Distributions are taxable in the
year the Fund declares them regardless of whether you take them in
cash or reinvest them.
Each January, you will receive a tax statement showing the kinds
and total amount of all distributions you received during the
previous year. You must report distributions on your tax returns,
even if they are reinvested in additional shares.
Buying a dividend creates a tax liability. This means buying
shares shortly before a capital gain distribution. You pay the
full pre-distribution price for the shares, then receive a portion
of your investment back as a distribution, which is taxable.
Redemptions and exchanges subject you to a tax on any capital gain.
If you sell shares for more than their cost, the difference is a
capital gain. Your gain may be either short term (for shares held
for one year or less) or long term (for shares held for more than
one year).
Your Taxpayer Identification Number (TIN) is important. As with
any financial account you open, you must list your current and
correct Taxpayer Identification Number (TIN) -- either your Social
Security or Employer Identification number. The TIN must be
certified under penalties of perjury on your application when you
open an account at AEFC.
<PAGE>
PAGE 28
If you don't provide the TIN, or the TIN you report is incorrect,
you could be subject to backup withholding of 31% of taxable
distributions and proceeds from certain sales and exchanges. You
also could be subject to further penalties, such as:
o a $50 penalty for each failure to supply your correct TIN
o a civil penalty of $500 if you make a false statement that
results in no backup withholding
o criminal penalties for falsifying information
You also could be subject to backup withholding because you failed
to report interest or dividends on your tax return as required.
How to determine the correct TIN
Use the Social Security or
For this type of account: Employer Identification number
of:
Individual or joint account The individual or individuals
listed on the account
Custodian account of a minor The minor
(Uniform Gifts/Transfers to
Minors Act)
A living trust The grantor-trustee (the person
who puts the money into the
trust)
An irrevocable trust, pension The legal entity (not the
trust or estate personal representative or
trustee, unless no legal entity
is designated in the account
title)
Sole proprietorship The owner
Partnership The partnership
Corporate The corporation
Association, club or The organization
tax-exempt organization
For details on TIN requirements, ask your financial advisor or
local American Express Financial Advisors office for federal Form
W-9, "Request for Taxpayer Identification Number and
Certification."
Important: This information is a brief and selective summary of
certain federal tax rules that apply to this Fund. Tax matters are
highly individual and complex, and you should consult a qualified
tax advisor about your personal situation.
<PAGE>
PAGE 29
How the Fund is organized
The Fund is a diversified, open-end management investment company,
as defined in the Investment Company Act of 1940. Originally
incorporated on June 27, 1974 in Nevada, the Fund changed its state
of incorporation on June 13, 1986 by merging into a Minnesota
corporation incorporated on April 7, 1986. The Fund headquarters
are at 901 S. Marquette Ave., Suite 2810, Minneapolis, MN 55402-
3268.
Shares
The Fund is owned by its shareholders. The Fund issues shares in
three classes - Class A, Class B and Class Y. Each class has
different sales arrangements and bears different expenses. Each
class represents interests in the assets of the Fund. Par value is
one cent per share. Both full and fractional shares can be issued.
The Fund no longer issues stock certificates.
Voting rights
As a shareholder, you have voting rights over the Fund's management
and fundamental policies. You are entitled to one vote for each
share you own. Shares of the Fund have cumulative voting rights.
Each class has exclusive voting rights with respect to the
provisions of the Fund's distribution plan that pertain to a
particular class and other matters for which separate class voting
is appropriate under applicable law.
Shareholder meetings
The Fund does not hold annual shareholder meetings. However, the
board members may call meetings at their discretion, or on demand
by holders of 10% or more of the outstanding shares, to elect or
remove board members.
Board members and officers
Shareholders elect a board that oversees the operations of the Fund
and chooses its officers. Its officers are responsible for day-to-
day business decisions based on policies set by the board. The
board has named an executive committee that has authority to act on
its behalf between meetings. The board members serve on the boards
of all 43 funds in the IDS MUTUAL FUND GROUP, except for Mr.
Dudley, who is a board member of all 34 publicly offered funds.
Board members and officers of the Fund
President and interested board member
William R. Pearce
President of all funds in the IDS MUTUAL FUND GROUP.
<PAGE>
PAGE 30
Independent board members
Lynne V. Cheney
Distinguished fellow, American Enterprise Institute for Public
Policy Research.
Robert F. Froehlke
Former president of all funds in the IDS MUTUAL FUND GROUP.
Heinz F. Hutter
Former president and chief operating officer, Cargill, Inc.
Anne P. Jones
Attorney and telecommunications consultant.
Melvin R. Laird
Senior counsellor for national and international affairs, The
Reader's Digest Association, Inc.
Edson W. Spencer
Former chairman and chief executive officer, Honeywell, Inc.
Wheelock Whitney
Chairman, Whitney Management Company.
C. Angus Wurtele
Chairman of the board, The Valspar Corporation.
Interested board members who are officers and/or employees of AEFC
William H. Dudley
Executive vice president, AEFC.
David R. Hubers
President and chief executive officer, AEFC.
John R. Thomas
Senior vice president, AEFC.
Officers who also are officers and/or employees of AEFC
Peter J. Anderson
Vice president of all funds in the IDS MUTUAL FUND GROUP.
Melinda S. Urion
Treasurer of all funds in the IDS MUTUAL FUND GROUP.
Other officer
Leslie L. Ogg
Vice president, general counsel and secretary of all funds in the
IDS MUTUAL FUND GROUP.
Refer to the SAI for the board members' and officers' biographies.
<PAGE>
PAGE 31
Investment manager
The Fund pays AEFC for managing its assets. Under its Investment
Management Services Agreement, AEFC is paid a fee for these
services based on the average daily net assets of the Fund, as
follows:
Assets Annual rate
(billions) at each asset level
First $1.0 0.520%
Next 1.0 0.495
Next 1.0 0.470
Next 3.0 0.445
Next 3.0 0.420
Over 9.0 0.395
For the fiscal year ended Aug. 31, 1996 the Fund paid AEFC a total
investment management fee of 0.49% of its average daily net assets.
Under the Agreement, the Fund also pays taxes, brokerage
commissions and nonadvisory expenses.
Administrator and transfer agent
The Fund pays AEFC for shareholder accounting and transfer agent
services under two agreements. The first, the Administrative
Services Agreement, has a declining annual rate beginning at 0.05%
and decreasing to 0.025% as assets increase. The second, the
Transfer Agency Agreement, has an annual fee per shareholder
account for this service as follows:
o Class A $15.50
o Class B $16.50
o Class Y $15.50
Distributor
The Fund has an exclusive distribution agreement with American
Express Financial Advisors, a wholly owned subsidiary of AEFC.
Financial advisors representing American Express Financial Advisors
provide information to investors about individual investment
programs, the Fund and its operations, new account applications,
and exchange and redemption requests. The cost of these services
is paid partially by the Fund's sales charges.
Persons who buy Class A shares pay a sales charge at the time of
purchase. Persons who buy Class B shares are subject to a
contingent deferred sales charge on a redemption in the first six
years and pay an asset-based sales charge (also known as a 12b-1
plan) of 0.75% of the Fund's average daily net assets. Class Y
shares are sold without a sales charge and without an asset-based
sales charge.
Financial advisors may receive different compensation for selling
Class A, Class B and Class Y shares. Portions of the sales charge
also may be paid to securities dealers who have sold the Fund's <PAGE>
PAGE 32
shares or to banks and other financial institutions. The amounts
of those payments range from 0.8% to 4% of the Fund's offering
price depending on the monthly sales volume.
Under a Shareholder Service Agreement, the Fund also 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.
Total expenses paid by the Fund's Class A shares for the fiscal
year ended Aug. 31, 1996, were 0.84% of its average daily net
assets. Expenses for Class B and Class Y were 1.60% and 0.67%,
respectively.
Total fees and expenses (excluding taxes and brokerage commissions)
cannot exceed the most restrictive applicable state expense
limitation.
About American Express Financial Corporation
General information
The AEFC family of companies offers not only mutual funds but also
insurance, annuities, investment certificates and a broad range of
financial management services.
Besides managing investments for all publicly offered funds in the
IDS MUTUAL FUND GROUP, AEFC also manages investments for itself and
its subsidiaries, IDS Certificate Company and IDS Life Insurance
Company. Total assets under management on Aug. 31, 1996 were more
than $138 billion.
American Express Financial Advisors serves individuals and
businesses through its nationwide network of more than 175 offices
and more than 7,900 advisors.
Other AEFC subsidiaries provide investment management and related
services for pension, profit sharing, employee savings and
endowment funds of businesses and institutions.
AEFC is located at IDS Tower 10, Minneapolis, MN 55440-0010. It is
a wholly owned subsidiary of American Express Company (American
Express), a financial services company with headquarters at
American Express Tower, World Financial Center, New York, NY 10285.
The Fund may pay brokerage commissions to broker-dealer affiliates
of AEFC.
<PAGE>
PAGE 33
Appendix A
Description of corporate bond ratings
Bond ratings concern the quality of the issuing corporation. They
are not an opinion of the market value of the security. Such
ratings are opinions on whether the principal and interest will be
repaid when due. A security's rating may change, which could
affect its price. Ratings by Moody's Investors Service, Inc. are
Aaa, Aa, A, Baa, Ba, B, Caa, Ca and C. Ratings by Standard &
Poor's Corporation are AAA, AA, A, BBB, BB, B, CCC, CC, C and D.
The following is a compilation of the two agencies' rating
descriptions. For further information, see the SAI.
Aaa/AAA - Judged to be of the best quality and carry the smallest
degree of investment risk. Interest and principal are secure.
Aa/AA - Judged to be high-grade although margins of protection for
interest and principal may not be quite as good as Aaa or AAA rated
securities.
A - Considered upper-medium grade. Protection for interest and
principal is deemed adequate but may be susceptible to future
impairment.
Baa/BBB - Considered medium-grade obligations. Protection for
interest and principal is adequate over the short-term; however,
these obligations may have certain speculative characteristics.
Ba/BB - Considered to have speculative elements. The protection of
interest and principal payments may be very moderate.
B - Lack characteristics of more desirable investments. There may
be small assurance over any long period of time of the payment of
interest and principal.
Caa/CCC - Are of poor standing. Such issues may be in default or
there may be risk with respect to principal or interest.
Ca/CC - Represent obligations that are highly speculative. Such
issues are often in default or have other marked shortcomings.
C - Are obligations with a higher degree of speculation. These
securities have major risk exposures to default.
D - Are in payment default. The D rating is used when interest
payments or principal payments are not made on the due date.
Non-rated securities will be considered for investment when they
possess a risk comparable to that of rated securities consistent
with the Fund's objectives and policies. When assessing the risk
involved in each non-rated security, the Fund will consider the
financial condition of the issuer or the protection afforded by the
terms of the security.
<PAGE>
PAGE 34
Definitions of zero-coupon and pay-in-kind securities
A zero-coupon security is a security that is sold at a deep
discount from its face value and makes no periodic interest
payments. The buyer of such a security receives a rate of return
by gradual appreciation of the security, which is redeemed at face
value on the maturity date.
A pay-in-kind security is a security in which the issuer has the
option to make interest payments in cash or in additional
securities. The securities issued as interest usually have the
same terms, including maturity date, as the pay-in-kind securities.
<PAGE>
PAGE 35
Appendix B
Descriptions of derivative instruments
What follows are brief descriptions of derivative instruments the
Fund may use. At various times the Fund may use some or all of
these instruments and is not limited to these instruments. It may
use other similar types of instruments if they are consistent with
the Fund's investment goal and policies. For more information on
these instruments, see the SAI.
Options and futures contracts. An option is an agreement to buy or
sell an instrument at a set price during a certain period of time.
A futures contract is an agreement to buy or sell an instrument for
a set price on a future date. The Fund may buy and sell options
and futures contracts to manage its exposure to changing interest
rates, security prices and currency exchange rates. Options and
futures may be used to hedge the Fund's investments against price
fluctuations or to increase market exposure.
Asset-backed and mortgage-backed securities. Asset-backed
securities include interests in pools of assets such as motor
vehicle installment sale contracts, installment loan contracts,
leases on various types of real and personal property, receivables
from revolving credit (credit card) agreements or other categories
of receivables. Mortgage-backed securities include collateralized
mortgage obligations and stripped mortgage-backed securities.
Interest and principal payments depend on payment of the underlying
loans or mortgages. The value of these securities may also be
affected by changes in interest rates, the market's perception of
the issuers and the creditworthiness of the parties involved. The
non-mortgage related asset-backed securities do not have the
benefit of a security interest in the related collateral. Stripped
mortgage-backed securities include interest only (IO) and principal
only (PO) securities. Cash flows and yields on IOs and POs are
extremely sensitive to the rate of principal payments on the
underlying mortgage loans or mortgage-backed securities.
Indexed securities. The value of indexed securities is linked to
currencies, interest rates, commodities, indexes or other financial
indicators. Most indexed securities are short- to intermediate-
term fixed income securities whose values at maturity or interest
rates rise or fall according to the change in one or more specified
underlying instruments. Indexed securities may be more volatile
than the underlying instrument itself.
Inverse floaters. Inverse floaters are created by underwriters
using the interest payment on securities. A portion of the
interest received is paid to holders of instruments based on
current interest rates for short-term securities. The remainder,
minus a servicing fee, is paid to holders of inverse floaters. As
interest rates go down, the holders of the inverse floaters receive
more income and an increase in the price for the inverse floaters.
As interest rates go up, the holders of the inverse floaters
receive less income and a decrease in the price for the inverse
floaters.
<PAGE>
PAGE 36
Structured products. Structured products are over-the-counter
financial instruments created specifically to meet the needs of one
or a small number of investors. The instrument may consist of a
warrant, an option or a forward contract embedded in a note or any
of a wide variety of debt, equity and/or currency combinations.
Risks of structured products include the inability to close such
instruments, rapid changes in the market and defaults by other
parties.
<PAGE>
PAGE 37
STATEMENT OF ADDITIONAL INFORMATION
FOR
IDS BOND FUND
Oct. 30, 1996
This Statement of Additional Information (SAI) is not a prospectus.
It should be read together with the prospectus and the financial
statements contained in the Annual Report which may be obtained
from your American Express financial advisor or by writing to
American Express Shareholder Service, P.O. Box 534, Minneapolis, MN
55440-0534.
This SAI is dated Oct. 30, 1996, and it is to be used with the
prospectus dated Oct. 30, 1996, and the Annual Report for the
fiscal year ended Aug. 31, 1996.
<PAGE>
PAGE 38
TABLE OF CONTENTS
Goal and Investment Policies......................See Prospectus
Additional Investment Policies................................p. 3
Security Transactions.........................................p. 6
Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation........................p. 8
Performance Information.......................................p. 9
Valuing Fund Shares...........................................p. 11
Investing in the Fund.........................................p. 11
Redeeming Shares..............................................p. 15
Pay-out Plans.................................................p. 16
Capital Loss Carryover........................................p. 17
Taxes.........................................................p. 17
Agreements....................................................p. 18
Board Members and Officers....................................p. 21
Custodian.....................................................p. 25
Independent Auditors..........................................p. 25
Financial Statements..............................See Annual Report
Prospectus....................................................p. 25
Appendix A: Foreign Currency Transactions....................p. 26
Appendix B: Options and Interest Rate Futures Contracts......p. 31
Appendix C: Mortgage-Backed Securities.......................p. 37
Appendix D: Dollar-Cost Averaging............................p. 38
<PAGE>
PAGE 39
ADDITIONAL INVESTMENT POLICIES
These are investment policies in addition to those presented in the
prospectus. Unless holders of a majority of the outstanding voting
securities agree to make the change the Fund will not:
'Act as an underwriter (sell securities for others). However,
under the securities laws, the Fund may be deemed to be an
underwriter when it purchases securities directly from the issuer
and later resells them.
'Borrow money or property, except as a temporary measure for
extraordinary or emergency purposes, in an amount not exceeding
one-third of the market value of its total assets (including
borrowings) less liabilities (other than borrowings) immediately
after the borrowing. The Fund has not borrowed in the past and has
no present intention to borrow.
'Make cash loans if the total commitment amount exceeds 5% of the
Fund's total assets.
'Concentrate in any one industry. According to the present
interpretation by the Securities and Exchange Commission (SEC),
this means no more than 25% of the Fund's total assets, based on
current market value at time of purchase, can be invested in any
one industry.
'Purchase more than 10% of the outstanding voting securities of an
issuer.
'Invest more than 5% of its total assets in securities of any one
company, government or political subdivision thereof, except the
limitation will not apply to investments in securities issued by
the U.S. government, its agencies or instrumentalities, and except
that up to 25% of the Fund's total assets may be invested without
regard to this 5% limitation.
'Buy or sell real estate, unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent
the Fund from investing in securities or other instruments backed
by real estate or securities of companies engaged in the real
estate business or real estate investment trusts. For purposes of
this policy, real estate includes real estate limited partnerships.
'Buy or sell physical commodities unless acquired as a result of
ownership of securities or other instruments, except this shall not
prevent the Fund from buying or selling options and futures
contracts or from investing in securities or other instruments
backed by, or whose value is derived from, physical commodities.
'Purchase securities of an issuer if the board members and officers
of the Fund and of American Express Financial Corporation (AEFC)
hold more than a certain percentage of the issuer's outstanding
securities. If the holdings of all board members and officers of
the Fund and of AEFC who own more than 0.5% of an issuer's
securities are added together, and if in total they own more than
5%, the Fund will not purchase securities of that issuer.
<PAGE>
PAGE 40
'Lend Fund securities in excess of 30% of its net assets. The
current policy of the Fund's board is to make these loans, either
long- or short-term, to broker-dealers. In making loans, the Fund
gets the market price in cash, U.S. government securities, letters
of credit or such other collateral as may be permitted by
regulatory agencies and approved by the board. If the market price
of the loaned securities goes up, the Fund will get additional
collateral on a daily basis. The risks are that the borrower may
not provide additional collateral when required or return the
securities when due. During the existence of the loan, the Fund
receives cash payments equivalent to all interest or other
distributions paid on the loaned securities. A loan will not be
made unless the investment manager believes the opportunity for
additional income outweighs the risks.
Unless changed by the board the Fund will not:
Buy on margin or sell short, but it may make margin payments in
connection with transactions in stock index futures contracts.
'Pledge or mortgage its assets beyond 15% of total assets, buy
securities on margin, sell short or purchase commodity contracts,
except the Fund may enter into futures contracts. If the Fund were
ever to pledge or mortgage its assets, valuation of all of its
assets would continue to be based on market values.
'Invest more than 5% of its total assets in securities of
companies, including any predecessors, that have a record of less
than three years continuous operations.
'Invest more than 10% of its total assets in securities of
investment companies.
'Invest in a company to control or manage it.
'Invest in exploration or development programs for oil, gas or
mineral leases.
'Invest more than 5% of its net assets in warrants. Under one
state's law no more than 2% of the Fund's net assets may be
invested in warrants not listed on the New York or American Stock
Exchange.
'Invest more than 10% of the Fund's net assets in securities and
derivative instruments that are illiquid. For purposes of this
policy illiquid securities include some privately placed
securities, public securities and Rule 144A securities that for one
reason or another may no longer have a readily available market,
loans and loan participations, repurchase agreements with
maturities greater than seven days, non-negotiable fixed-time
deposits and over-the-counter options.
In determining the liquidity of Rule 144A securities, which are
unregistered securities offered to qualified institutional buyers,
and interest-only and principal-only fixed mortgage-backed
securities (IOs and POs) issued by the U.S. government or its
agencies and instrumentalities, the investment manager, under
guidelines established by the board, will consider any relevant
<PAGE>
PAGE 41
factors including the frequency of trades, the number of dealers
willing to purchase or sell the security and the nature of
marketplace trades.
In determining the liquidity of commercial paper issued in
transactions not involving a public offering under Section 4(2) of
the Securities Act of 1933, the investment manager, under
guidelines established by the board, will evaluate relevant factors
such as the issuer and the size and nature of its commercial paper
programs, the willingness and ability of the issuer or dealer to
repurchase the paper, and the nature of the clearance and
settlement procedures for the paper.
Loans, loan participations and interests in securitized loan pools
are interests in amounts owed by a corporate, governmental or other
borrower to a lender or consortium of lenders (typically banks,
insurance companies, investment banks, government agencies or
international agencies). Loans involve a risk of loss in case of
default or insolvency of the borrower and may offer less legal
protection to the Fund in the event of fraud or misrepresentation.
In addition, loan participations involve a risk of insolvency of
the lender or other financial intermediary.
The Fund may make contracts to purchase securities for a fixed
price at a future date beyond normal settlement time (when-issued
securities or forward commitments). Under normal market
conditions, the Fund does not intend to commit more than 5% of its
total assets to these practices. The Fund does not pay for the
securities or receive dividends or interest on them until the
contractual settlement date. The Fund will designate cash or
liquid high-grade debt securities at least equal in value to its
commitments to purchase the securities. When-issued securities or
forward commitments are subject to market fluctuations and they may
affect the Fund's total assets the same as owned securities.
The Fund may maintain a portion of its assets in cash and cash-
equivalent investments. The cash-equivalent investments the fund
may use are short-term U.S. and Canadian government securities and
negotiable certificates of deposit, non-negotiable fixed-time
deposits, bankers' acceptances and letters of credit of banks or
savings and loan associations having capital, surplus and undivided
profits (as of the date of its most recently published annual
financial statements) in excess of $100 million (or the equivalent
in the instance of a foreign branch of a U.S. bank) at the date of
investment. Any cash-equivalent investments in foreign securities
will be subject to the limitations on foreign investments described
in the prospectus. The Fund also may purchase short-term corporate
notes and obligations rated in the top two classifications by
Moody's Investors Service, Inc. (Moody's)or Standard & Poor's
Corporation (S&P) or the equivalent and may use repurchase
agreements with broker-dealers registered under the Securities
Exchange Act of 1934 and with commercial banks. A risk of a
repurchase agreement is that if the seller seeks the protection of
the bankruptcy laws, the Fund's ability to liquidate the security
involved could be impaired.
<PAGE>
PAGE 42
Notwithstanding any of the Fund's other investment policies, the
Fund may invest its assets in an open-end management investment
company having substantially the same investment objectives,
policies and restrictions as the Fund for the purpose of having
those assets managed as part of a combined pool.
For a discussion about foreign currency transactions, see Appendix
A. For a discussion on options and interest rate futures
contracts, see Appendix B. For a discussion on mortgage-backed
securities, see Appendix C.
SECURITY TRANSACTIONS
Subject to policies set by the board, AEFC is authorized to
determine, consistent with the Fund's investment goal and policies,
which securities will be purchased, held or sold. In determining
where the buy and sell orders are to be placed, AEFC has been
directed to use its best efforts to obtain the best available price
and most favorable execution except where otherwise authorized by
the board.
AEFC has a strict Code of Ethics that prohibits its affiliated
personnel from engaging in personal investment activities that
compete with or attempt to take advantage of planned portfolio
transactions for any fund in the IDS MUTUAL FUND GROUP. AEFC
carefully monitors compliance with its Code of Ethics.
Normally, the Fund's securities are traded on a principal rather
than an agency basis. In other words, AEFC will trade directly
with the issuer or with a dealer who buys or sells for its own
account, rather than acting on behalf of another client. AEFC does
not pay the dealer commissions. Instead, the dealer's profit, if
any, is the difference, or spread, between the dealer's purchase
and sale price for the security.
On occasion, it may be desirable to compensate a broker for
research services or for brokerage services by paying a commission
that might not otherwise be charged or a commission in excess of
the amount another broker might charge. The board has adopted a
policy authorizing AEFC to do so to the extent authorized by law,
if AEFC determines, in good faith, that such commission is
reasonable in relation to the value of the brokerage or research
services provided by a broker or dealer, viewed either in the light
of that transaction or AEFC's overall responsibilities to the funds
in the IDS MUTUAL FUND GROUP and other funds for which it acts as
investment advisor.
Research provided by brokers supplements AEFC's own research
activities. Such services include economic data on, and analysis
of, U.S. and foreign economies; information on specific industries;
information about specific companies, including earnings estimates;
purchase recommendations for stocks and bonds; portfolio strategy
services; political, economic, business and industry trend
assessments; historical statistical information; market data
services providing information on specific issues and prices; and
technical analysis of various aspects of the securities markets,
including technical charts. Research services may take the form of
written reports, computer software or personal contact by <PAGE>
PAGE 43
telephone or at seminars or other meetings. AEFC has obtained, and
in the future may obtain, computer hardware from brokers, including
but not limited to personal computers that will be used exclusively
for investment decision-making purposes, which include the
research, portfolio management and trading functions and other
services to the extent permitted under an interpretation by the
SEC.
When paying a commission that might not otherwise be charged or a
commission in excess of the amount another broker might charge,
AEFC must follow procedures authorized by the board. To date,
three procedures have been authorized. One procedure permits AEFC
to direct an order to buy or sell a security traded on a national
securities exchange to a specific broker for research services it
has provided. The second procedure permits AEFC, in order to
obtain research, to direct an order on an agency basis to buy or
sell a security traded in the over-the-counter market to a firm
that does not make a market in that security. The commission paid
generally includes compensation for research services. The third
procedure permits AEFC, in order to obtain research and brokerage
services, to cause the Fund to pay a commission in excess of the
amount another broker might have charged. AEFC has advised the
Fund it is necessary to do business with a number of brokerage
firms on a continuing basis to obtain such services as the handling
of large orders, the willingness of a broker to risk its own money
by taking a position in a security, and the specialized handling of
a particular group of securities that only certain brokers may be
able to offer. As a result of this arrangement, some portfolio
transactions may not be effected at the lowest commission, but AEFC
believes it may obtain better overall execution. AEFC has assured
the Fund that under all three procedures the amount of commission
paid will be reasonable and competitive in relation to the value of
the brokerage services performed or research provided.
All other transactions shall be placed on the basis of obtaining
the best available price and the most favorable execution. In so
doing, if in the professional opinion of the person responsible for
selecting the broker or dealer, several firms can execute the
transaction on the same basis, consideration will be given by such
person to those firms offering research services. Such services
may be used by AEFC in providing advice to all the funds in the IDS
MUTUAL FUND GROUP even though it is not possible to relate the
benefits to any particular fund or account.
Each investment decision made for the Fund is made independently
from any decision made for another fund in the IDS MUTUAL FUND
GROUP or other account advised by AEFC or any of its subsidiaries.
When the Fund buys or sells the same security as another fund or
account, AEFC carries out the purchase or sale in a way the Fund
agrees in advance is fair. Although sharing in large transactions
may adversely affect the price or volume purchased or sold by the
Fund, the Fund hopes to gain an overall advantage in execution.
AEFC has assured the Fund it will continue to seek ways to reduce
brokerage costs.
<PAGE>
PAGE 44
On a periodic basis, AEFC makes a comprehensive review of the
broker-dealers and the overall reasonableness of their commissions.
The review evaluates execution, operational efficiency and research
services.
The Fund paid total brokerage commissions of $49,696 for the fiscal
year ended Aug. 31, 1996, $71,924 for fiscal year 1995, and $59,965
for fiscal year 1994. Substantially all firms through whom
transactions were executed provide research services.
No transactions were directed to brokers because of research
services they provided to the Fund.
As of the fiscal year ended Aug. 31, 1996, the Fund held securities
of its regular brokers or dealers or of the parent of those brokers
or dealers that derived more than 15% of gross revenue from
securities-related activities as presented below:
Value of Securities
Owned at End of
Name of Issuer Fiscal Year
Bank America $18,181,620
Merrill Lynch 11,685,291
Salomon Brothers, Inc. 31,235,950
Dean Witter 8,094,004
Goldman Sachs 9,561,840
Nations Bank 13,498,687
First Chicago 8,773,069
The portfolio turnover rate was 45% in the fiscal year ended Aug.
31, 1996, and 43% in fiscal year 1995.
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH AMERICAN
EXPRESS FINANCIAL CORPORATION
Affiliates of American Express Company (American Express) (of which
AEFC is a wholly owned subsidiary) may engage in brokerage and
other securities transactions on behalf of the Fund according to
procedures adopted by the Fund's board and to the extent consistent
with applicable provisions of the federal securities laws. AEFC
will use an American Express affiliate only if (i) AEFC determines
that the Fund will receive prices and executions at least as
favorable as those offered by qualified independent brokers
performing similar brokerage and other services for the Fund and
(ii) the affiliate charges the Fund commission rates consistent
with those the affiliate charges comparable unaffiliated customers
in similar transactions and if such use is consistent with terms of
the Investment Management Services Agreement.
AEFC may direct brokerage to compensate an affiliate. AEFC will
receive research on South Africa from New Africa Advisors, a
wholly-owned subsidiary of Sloan Financial Group. AEFC owns 100%
of IDS Capital Holdings Inc. which in turn owns 40% of Sloan
Financial Group. New Africa Advisors will send research to AEFC
and in turn AEFC will direct trades to a particular broker. The <PAGE>
PAGE 45
broker will have an agreement to pay New Africa Advisors. All
transactions will be on a best execution basis. Compensation
received will be reasonable for the services rendered.
No brokerage commissions were paid to brokers affiliated with AEFC
for the three most recent fiscal years.
PERFORMANCE INFORMATION
The Fund may quote various performance figures to illustrate past
performance. Average annual total return and current yield
quotations used by the Fund are based on standardized methods of
computing performance as required by the SEC. An explanation of
the methods used by the Fund to compute performance follows below.
Average annual total return
The Fund may calculate average annual total return for a class for
certain periods by finding the average annual compounded rates of
return over the period that would equate the initial amount
invested to the ending redeemable value, according to the following
formula:
P(1+T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of a period, at the
end of the period (or fractional portion thereof)
Aggregate total return
The Fund may calculate aggregate total return for a class for
certain periods representing the cumulative change in the value of
an investment in the Fund over a specified period of time according
to the following formula:
ERV - P
P
where: P = a hypothetical initial payment of $1,000
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of a period, at the
end of the period (or fractional portion thereof)
Annualized yield
The Fund may calculate an annualized yield for a class by dividing
the net investment income per share deemed earned during a period
by the net asset value per share on the last day of the period and
annualizing the results.
<PAGE>
PAGE 46
Yield is calculated according to the following formula:
Yield = 2[(a-b + 1)6 - 1]
cd
where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of
reimbursements
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = the maximum offering price per share on the last
day of the period
The Fund's annualized yield was 6.77% for Class A, 6.35% for Class
B and 7.30% for Class Y for the 30-day period ended Aug. 30, 1996.
The Fund's yield, calculated as described above according to the
formula prescribed by the SEC, is a hypothetical return based on
market value yield to maturity for the Fund's securities. It is
not necessarily indicative of the amount which was or may be paid
to the Fund's shareholders. Actual amounts paid to Fund
shareholders are reflected in the distribution yield.
Distribution yield
Distribution yield is calculated according to the following
formula:
D divided by POP F equals DY
30 30
where: D = sum of dividends for 30-day period
POP = sum of public offering price for 30-day period
F = annualizing factor
DY = distribution yield
The Fund's distribution yield was 7.18% for Class A, 6.79% for
Class B and 7.73% for Class Y for the 30-day period ended Aug. 30,
1996.
In its sales material and other communications, the Fund may quote,
compare or refer to rankings, yields or returns as published by
independent statistical services or publishers and publications
such as The Bank Rate Monitor National Index, Barron's, Business
Week, Donoghue's Money Market Fund Report, Financial Services Week,
Financial Times, Financial World, Forbes, Fortune, Global Investor,
Institutional Investor, Investor's Daily, Kiplinger's Personal
Finance, Lipper Analytical Services, Money, Mutual Fund Forecaster,
Newsweek, The New York Times, Personal Investor, Stanger Report,
Sylvia Porter's Personal Finance, USA Today, U.S. News and World
Report, The Wall Street Journal and Wiesenberger Investment
Companies Service.
<PAGE>
PAGE 47
VALUING FUND SHARES
The value of an individual share for each class is determined by
using the net asset value before shareholder transactions for the
day. On Sept. 3, 1996, the first business day following the end of
the fiscal year, the computation looked like this:
<TABLE><CAPTION>
Net assets before Shares outstanding Net asset value
shareholder transactions at end of previous day of one share
<S> <C> <C> <C>
Class A $2,565,523,156 divided by 514,132,897 equals $4.99
Class B 848,592,110 170,058,539 4.99
Class Y 87,829,220 17,601,046 4.99
</TABLE>
In determining net assets before shareholder transactions, the
Fund's securities are valued as follows as of the close of business
of the New York Stock Exchange (the Exchange):
The Exchange, AEFC and the Fund will be closed on the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
INVESTING IN THE FUND
Sales Charge
Shares of the Fund are sold at the public offering price determined
at the close of business on the day an application is accepted.
The public offering price is the net asset value of one share plus
a sales charge, if applicable. For Class B and Class Y, there is
no initial sales charge so the public offering price is the same as
the net asset value. For Class A, the public offering price for an
investment of less than $50,000, made Sept. 3, 1996, was determined
by dividing the net asset value of one share, $4.99, by 0.95 (1.00-
0.05 for a maximum 5% sales charge) for a public offering price of
$5.25. The sales charge is paid to American Express Financial
Advisors by the person buying the shares.
Class A - Calculation of the Sales Charge
Sales charges are determined as follows:
Within each increment,
sales charge as a
percentage of:
Public Net
Amount of Investment Offering Price Amount Invested
First $ 50,000 5.0% 5.26%
Next 50,000 4.5 4.71
Next 400,000 3.8 3.95
Next 500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
Sales charges on an investment greater than $50,000 and less than
$1,000,000 are calculated for each increment separately and then
totaled. The resulting total sales charge, expressed as a
<PAGE>
PAGE 48
percentage of the public offering price and of the net amount
invested, will vary depending on the proportion of the investment
at different sales charge levels.
For example, compare an investment of $60,000 with an investment of
$85,000. The $60,000 investment is composed of $50,000 that incurs
a sales charge of $2,500 (5.0% x $50,000) and $10,000 that incurs a
sales charge of $450 (4.5% x $10,000). The total sales charge of
$2,950 is 4.92% of the public offering price and 5.17% of the net
amount invested.
In the case of the $85,000 investment, the first $50,000 also
incurs a sales charge of $2,500 (5.0% x $50,000) and $35,000 incurs
a sales charge of $1,575 (4.5% x $35,000). The total sales charge
of $4,075 is 4.79% of the public offering price and 5.04% of the
net amount invested.
The following table shows the range of sales charges as a
percentage of the public offering price and of the net amount
invested on total investments at each applicable level.
On total investment, sales
charge as a percentage of
Public Net
Offering Price Amount Invested
Amount of Investment ranges from:
First $ 50,000 5.00% 5.26%
More than 50,000 to 100,000 5.00-4.50 5.26-4.71
More than 100,000 to 500,000 4.50-3.80 4.71-3.95
More than 500,000 to 999,999 3.80-2.00 3.95-2.04
$1,000,000 or more 0.00 0.00
The initial sales charge is waived for certain qualified plans that
meet the requirements described in the prospectus. Participants in
these qualified plans may be subject to a deferred sales charge on
certain redemptions. The deferred sales charge on certain
redemptions will be waived if the redemption is a result of a
participant's death, disability, retirement, attaining age 59 1/2,
loans or hardship withdrawals. The deferred sales charge varies
depending on the number of participants in the qualified plan and
total plan assets as follows:
Deferred Sales Charge
Number of Participants
Total Plan Assets 1-99 100 or more
Less than $1 million 4% 0%
$1 million or more 0% 0%
Class A - Reducing the Sales Charge
Sales charges are based on the total amount of your investments in
the Fund. The amount of all prior investments plus any new
purchase is referred to as your "total amount invested." For <PAGE>
PAGE 49
example, suppose you have made an investment of $20,000 and later
decide to invest $40,000 more. Your total amount invested would be
$60,000. As a result, $10,000 of your $40,000 investment qualifies
for the lower 4.5% sales charge that applies to investments of more
than $50,000 and up to $100,000.
The total amount invested includes any shares held in the Fund in
the name of a member of your primary household group. (The Primary
household group consists of accounts in any ownership for spouses
or domestic partners and their unmarried children under 21.
Domestic partners are individuals who maintain a shared primary
residence and have joint property or other insurable interest.)
For instance, if your spouse already has invested $20,000 and you
want to invest $40,000, your total amount invested will be $60,000
and therefore you will pay the lower charge of 4.5% on $10,000 of
the $40,000.
Until a spouse remarries, the sales charge is waived for spouses
and unmarried children under 21 of deceased board members, officers
or employees of the Fund or AEFC or its subsidiaries and deceased
advisors.
The total amount invested also includes any investment you or your
immediate family already have in the other publicly offered funds
in the IDS MUTUAL FUND GROUP where the investment is subject to a
sales charge. For example, suppose you already have an investment
of $30,000 in another IDS Fund. If you invest $40,000 more in this
Fund, your total amount invested in the funds will be $70,000 and
therefore $20,000 of your $40,000 investment will incur a 4.5%
sales charge.
Finally, Individual Retirement Account (IRA) purchases, or other
employee benefit plan purchases made through a payroll deduction
plan or through a plan sponsored by an employer, association of
employers, employee organization or other similar entity, may be
added together to reduce sales charges for shares purchased through
that plan.
Class A - Letter of Intent (LOI)
If you intend to invest $1 million over a period of 13 months, you
can reduce the sales charges in Class A by filing a LOI. The
agreement can start at any time and will remain in effect for 13
months. Your investment will be charged normal sales charges until
you have invested $1 million. At that time, your account will be
credited with the sales charges previously paid. Class A
investments made prior to signing an LOI may be used to reach the
$1 million total, excluding Cash Management Fund and Tax-Free Money
Fund. However, we will not adjust for sales charges on investments
made prior to the signing of the LOI. If you do not invest $1
million by the end of 13 months, there is no penalty, you'll just
miss out on the sales charge adjustment. A LOI is not an option
(absolute right) to buy shares.
Here's an example. You file a LOI to invest $1 million and make an
investment of $100,000 at that time. You pay the normal 5% sales
charge on the first $50,000 and 4.5% sales charge on the next
$50,000 of this investment. Let's say you make a second <PAGE>
PAGE 50
investment of $900,000 (bringing the total up to $1 million) one
month before the 13-month period is up. On the date that you bring
your total to $1 million, AEFC makes an adjustment to your account.
The adjustment is made by crediting your account with additional
shares, in an amount equivalent to the sales charge previously
paid.
Systematic Investment Programs
After you make your initial investment of $2,000 or more, you can
arrange to make additional payments of $100 or more on a regular
basis. These minimums do not apply to all systematic investment
programs. You decide how often to make payments - monthly,
quarterly, or semiannually. You are not obligated to make any
payments. You can omit payments or discontinue the investment
program altogether. The Fund also can change the program or end it
at any time. If there is no obligation, why do it? Putting money
aside is an important part of financial planning. With a
systematic investment program, you have a goal to work for.
How does this work? Your regular investment amount will purchase
more shares when the net asset value per share decreases, and fewer
shares when the net asset value per share increases. Each purchase
is a separate transaction. After each purchase your new shares
will be added to your account. Shares bought through these
programs are exactly the same as any other fund shares. They can
be bought and sold at any time. A systematic investment program is
not an option or an absolute right to buy shares.
The systematic investment program itself cannot ensure a profit,
nor can it protect against a loss in a declining market. If you
decide to discontinue the program and redeem your shares when their
net asset value is less than what you paid for them, you will incur
a loss.
For a discussion on dollar-cost averaging, see Appendix D.
Automatic Directed Dividends
Dividends, including capital gain distributions, paid by another
fund in the IDS MUTUAL FUND GROUP subject to a sales charge, may be
used to automatically purchase shares in the same class of this
Fund without paying a sales charge. Dividends may be directed to
existing accounts only. Dividends declared by a fund are exchanged
to this Fund the following day. Dividends can be exchanged into
one fund but cannot be split to make purchases in two or more
funds. Automatic directed dividends are available between accounts
of any ownership except:
Between a non-custodial account and an IRA, or 401(k) plan account
or other qualified retirement account of which American Express
Trust Company acts as custodian;
Between two American Express Trust Company custodial accounts with
different owners (for example, you may not exchange dividends from
your IRA to the IRA of your spouse);
<PAGE>
PAGE 51
Between different kinds of custodial accounts with the same
ownership (for example, you may not exchange dividends from your
IRA to your 401(k) plan account, although you may exchange
dividends from one IRA to another IRA).
Dividends may be directed from accounts established under the
Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors
Act (UTMA) only into other UGMA or UTMA accounts with identical
ownership.
The Fund's investment goal is described in its prospectus along
with other information, including fees and expense ratios. Before
exchanging dividends into another fund, you should read its
prospectus. You will receive a confirmation that the automatic
directed dividend service has been set up for your account.
REDEEMING SHARES
You have a right to redeem your shares at any time. For an
explanation of redemption procedures, please see the prospectus.
During an emergency, the board can suspend the computation of net
asset value, stop accepting payments for purchase of shares or
suspend the duty of the Fund to redeem shares for more than seven
days. Such emergency situations would occur if:
'The Exchange closes for reasons other than the usual weekend and
holiday closings or trading on the Exchange is restricted, or
'Disposal of the Fund's securities is not reasonably practicable or
it is not reasonably practicable for the Fund to determine the fair
value of its net assets, or
'The SEC, under the provisions of the Investment Company Act of
1940 (the 1940 Act), as amended, declares a period of emergency to
exist.
Should the Fund stop selling shares, the board may make a deduction
from the value of the assets held by the Fund to cover the cost of
future liquidations of the assets so as to distribute fairly these
costs among all shareholders.
The Fund has elected to be governed by Rule 18f-1 under the 1940
Act, which obligates the Fund to redeem shares in cash, with
respect to any one shareholder during any 90-day period, up to
lesser of $250,000 or 1% of the net assets of the Fund at the
beginning of the period. Although redemptions in excess of this
limitation would normally be paid in cash, the Fund reserves the
right to make these payments in whole or in part in securities or
other assets in case of an emergency, or if the payment of a
redemption in cash would be detrimental to the existing
shareholders of the Fund as determined by the board. In these
circumstancs, the securities distributed would be valued as set
forth in the prospectus. Should the Fund distribute securities, a
shareholder may incur brokerage fees or other transaction costs in
converting the securities to cash.
<PAGE>
PAGE 52
PAY-OUT PLANS
You can use any of several pay-out plans to redeem your investment
in regular installments. If you redeem Class B shares you may be
subject to a contingent deferred sales charge as discussed in the
prospectus. While the plans differ on how the pay-out is figured,
they all are based on the redemption of your investment. Net
investment income dividends and any capital gain distributions will
automatically be reinvested, unless you elect to receive them in
cash. If you are redeeming a tax-qualified plan account for which
American Express Trust Company acts as custodian, you can elect to
receive your dividends and other distributions in cash when
permitted by law. If you redeem an IRA or a qualified retirement
account, certain restrictions, federal tax penalties and special
federal income tax reporting requirements may apply. You should
consult your tax advisor about this complex area of the tax law.
Applications for a systematic investment in a class of the Fund
subject to a sales charge normally will not be accepted while a
pay-out plan for any of those funds is in effect. Occasional
investments, however, may be accepted.
To start any of these plans, please write or call American Express
Shareholder Service, P.O. Box 534, Minneapolis, MN 55440-0534,
612-671-3733. Your authorization must be received in the
Minneapolis headquarters at least five days before the date you
want your payments to begin. The initial payment must be at least
$50. Payments will be made on a monthly, bimonthly, quarterly,
semiannual or annual basis. Your choice is effective until you
change or cancel it.
The following pay-out plans are designed to take care of the needs
of most shareholders in a way AEFC can handle efficiently and at a
reasonable cost. If you need a more irregular schedule of
payments, it may be necessary for you to make a series of
individual redemptions, in which case you'll have to send in a
separate redemption request for each pay-out. The Fund reserves
the right to change or stop any pay-out plan and to stop making
such plans available.
Plan #1: Pay-out for a fixed period of time
If you choose this plan, a varying number of shares will be
redeemed at regular intervals during the time period you choose.
This plan is designed to end in complete redemption of all shares
in your account by the end of the fixed period.
Plan #2: Redemption of a fixed number of shares
If you choose this plan, a fixed number of shares will be redeemed
for each payment and that amount will be sent to you. The length
of time these payments continue is based on the number of shares in
your account.
<PAGE>
PAGE 53
Plan #3: Redemption of a fixed dollar amount
If you decide on a fixed dollar amount, whatever number of shares
is necessary to make the payment will be redeemed in regular
installments until the account is closed.
Plan #4: Redemption of a percentage of net asset value
Payments are made based on a fixed percentage of the net asset
value of the shares in the account computed on the day of each
payment. Percentages range from 0.25% to 0.75%. For example, if
you are on this plan and arrange to take 0.5% each month, you will
get $50 if the value of your account is $10,000 on the payment
date.
CAPITAL LOSS CARRYOVER
For federal income tax purposes, the Fund had capital loss
carryover of $12,597,428 at Aug. 31, 1996, that will expire in
2003.
It is unlikely that the board will authorize a distribution of any
net realized capital gains until the available capital loss
carryover has been offset or has expired.
TAXES
If you buy shares in the Fund and then exchange into another fund,
it is considered a sale and subsequent purchase of shares. Under
the tax laws, if this exchange is done within 91 days, any sales
charge waived on Class A shares on a subsequent purchase of shares
applies to the new shares acquired in the exchange. Therefore, you
cannot create a tax loss or reduce a tax gain attributable to the
sales charge when exchanging shares within 91 days.
Retirement Accounts
If you have a nonqualified investment in the Fund and you wish to
move part or all of those shares to an IRA or qualified retirement
account in the Fund, you can do so without paying a sales charge.
However, this type of exchange is considered a sale of shares and
may result in a gain or loss for tax purposes. In addition, this
type of exchange may result in an excess contribution under IRA or
qualified plan regulations if the amount exchanged plus the amount
of the initial sales charge applied to the amount exchanged exceeds
annual contribution limitations. For example: If you were to
exchange $2,000 in Class A shares from a nonqualified account to an
IRA without considering the 5% ($100) initial sales charge
applicable to that $2,000, you may be deemed to have exceeded
current IRA annual contribution limitations. You should consult
your tax advisor for further details about this complex subject.
Net investment income dividends received should be treated as
dividend income for federal income tax purposes. Corporate
shareholders are generally entitled to a deduction equal to 70% of <PAGE>
PAGE 54
that portion of the Fund's dividend that is attributable to
dividends the Fund received from domestic (U.S.) securities. For
the fiscal year ended Aug. 31, 1996, 0.9% of the Fund's net
investment income dividends qualified for the corporate deduction.
Capital gain distributions received by individual and corporate
shareholders, if any, should be treated as long-term capital gains
regardless of how long they owned their shares. Short-term capital
gains earned by the Fund are paid to shareholders as part of their
ordinary income dividend and are taxable.
Under federal tax law, by the end of a calendar year the Fund must
declare and pay dividends representing 98% of ordinary income for
that calendar year and 98% of net capital gains (both long-term and
short-term) for the 12-month period ending Oct. 31 of that calendar
year. The Fund is subject to an excise tax equal to 4% of the
excess, if any, of the amount required to be distributed over the
amount actually distributed. The Fund intends to comply with
federal tax law and avoid any excise tax.
The Fund may be subject to U.S. taxes resulting from holdings in a
passive foreign investment company (PFIC). A foreign corporation
is a PFIC when 75% or more of its gross income for the taxable year
is passive income or if 50% or more of the average value of its
assets consists of assets that produce or could produce passive
income.
This is a brief summary that relates to federal income taxation
only. Shareholders should consult their tax advisor as to the
application of federal, state and local income tax laws to Fund
distributions.
AGREEMENTS
Investment Management Services Agreement
The Fund has an Investment Management Services Agreement with AEFC.
For its services, AEFC is paid a fee based on the following
schedule:
Assets Annual rate at
(billions) each asset level
First $1.0 0.520%
Next 1.0 0.495
Next 1.0 0.470
Next 3.0 0.445
Next 3.0 0.420
Over 9.0 0.395
On Aug. 31, 1996, the daily rate applied to the Fund's net assets
was equal to 0.488% on an annual basis. The fee is calculated for
each calendar day on the basis of net assets as of the close of
business two business days prior to the day for which the
calculation is made.
<PAGE>
PAGE 55
The management fee is paid monthly. Under the agreement, the total
amount paid was $16,984,406 for the fiscal year ended Aug. 31,
1996, $13,073,299 for fiscal year 1995, and $12,577,197 for fiscal
year 1994.
Under the current agreement, the Fund also pays taxes, brokerage
commissions and nonadvisory expenses, which include custodian fees;
audit and certain legal fees; fidelity bond premiums; registration
fees for shares; Fund office expenses; consultants' fees;
compensation of board members, officers and employees; corporate
filing fees; organizational expenses; expenses incurred in
connection with lending securities of the Fund; and expenses
properly payable by the Fund, approved by the board. Under the
agreement, the Fund paid nonadvisory expenses of $1,317,590 for the
fiscal year ended Aug. 31, 1996, $1,093,511 for fiscal year 1995,
and $858,165 for fiscal year 1994.
Administrative Services Agreement
The Fund has an Administrative Services Agreement with AEFC. Under
this agreement, the Fund pays AEFC for providing administration and
accounting services. The fee is calculated as follows:
Assets Annual rate
(billions) each asset level
First $1.0 0.050%
Next 1.0 0.045
Next 1.0 0.040
Next 3.0 0.035
Next 3.0 0.030
Over 9.0 0.025
On Aug. 31, 1996, the daily rate applied to the Fund's net assets
was equal to 0.044% on an annual basis. The fee is calculated for
each calendar day on the basis of net assets as of the close of
business two business days prior to the day for which the
calculation is made. Under the agreement, the Fund paid fees of
$1,517,544 for the fiscal year ended Aug. 31, 1996.
Transfer Agency Agreement
The Fund has a Transfer Agency Agreement with AEFC. This agreement
governs AEFC's responsibility for administering and/or performing
transfer agent functions, for acting as service agent in connection
with dividend and distribution functions and for performing
shareholder account administration agent functions in connection
with the issuance, exchange and redemption or repurchase of the
Fund's shares. Under the agreement, AEFC will earn a fee from the
Fund determined by multiplying the number of shareholder accounts
at the end of the day by a rate determined for each class per year
and dividing by the number of days in the year. The rate for Class
A and Class Y is $15.50 per year and for Class B is $16.50 per
year. The fees paid to AEFC may be changed from time to time upon
agreement of the parties without shareholder approval. Under the
agreement, the Fund paid fees of $3,631,149 for the fiscal year
ended Aug. 31, 1996.
<PAGE>
PAGE 56
Distribution Agreement
Under a Distribution Agreement, sales charges deducted for
distributing Fund shares are paid to American Express Financial
Advisors daily. These charges amounted to $12,491,616 for the
fiscal year ended Aug. 31, 1996. After paying commissions to
personal financial advisors, and other expenses, the amount
retained was -$2,546,886. The amounts were $7,800,870 and $545,125
for fiscal year 1995, and $9,286,207 and $3,244,957 for fiscal year
1994.
Additional information about commissions and compensation for the
fiscal year ended Aug. 31, 1996, is contained in the following
table:
<TABLE><CAPTION>
(1) (2) (3) (4) (5)
Net Compensation
Name of Underwriting on Redemption
Principal Discounts and and Brokerage Other
Underwriter Commissions Repurchases Commissions Compensation
<S> <C> <C> <C> <C>
AEFC None None None $6,447,035*
American
Express
Financial
Advisors $12,491,616 None None None
</TABLE>
*Distribution fees paid pursuant to the Plan and Agreement of
Distribution.
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.
Plan and Agreement of Distribution
For Class B shares, to help American Express Financial Advisors
defray the cost of distribution and servicing, not covered by the
sales charges received under the Distribution Agreement, the Fund
and American Express Financial Advisors entered into a Plan and
Agreement of Distribution (Plan). These costs cover almost all
aspects of distributing the Fund's shares except compensation to
the sales force. A substantial portion of the costs are not
specifically identified to any one fund in the IDS MUTUAL FUND
GROUP. Under the Plan, American Express Financial Advisors is paid
a fee at an annual rate of 0.75% of the Fund's average daily net
assets attributable to Class B shares.
The Plan must be approved annually by the board, including a
majority of the disinterested board members, if it is to continue
for more than a year. At least quarterly, the board must review
written reports concerning the amounts expended under the Plan and
the purposes for which such expenditures were made. The Plan and
any agreement related to it may be terminated at any time by vote <PAGE>
PAGE 57
of a majority of board members who are not interested persons of
the Fund and have no direct or indirect financial interest in the
operation of the Plan or in any agreement related to the Plan, or
by vote of a majority of the outstanding voting securities of the
Fund's Class B shares or by American Express Financial Advisors.
The Plan (or any agreement related to it) will terminate in the
event of its assignment, as that term is defined in the 1940 Act,
as amended. The Plan may not be amended to increase the amount to
be spent for distribution without shareholder approval, and all
material amendments to the Plan must be approved by a majority of
the board members, including a majority of the board members who
are not interested persons of the Fund and who do not have a
financial interest in the operation of the Plan or any agreement
related to it. The selection and nomination of disinterested board
members is the responsibility of the other disinterested board
members. No board member who is not an interested person, has any
direct or indirect financial interest in the operation of the Plan
or any related agreement. For the fiscal year ended Aug. 31, 1996,
under the agreement, the Fund paid fees of $6,447,035.
Total fees and expenses
Total fees and nonadvisory expenses cannot exceed the most
restrictive applicable state limitation. Currently, the most
restrictive applicable state expense limitation, subject to
exclusion of certain expenses, is 2.5% of the first $30 million of
the Fund's average daily net assets, 2% of the next $70 million and
1.5% of average daily net assets over $100 million, on an annual
basis. At the end of each month, if the fees and expenses of the
Fund exceed this limitation for the Fund's fiscal year in progress,
AEFC will assume all expenses in excess of the limitation. AEFC
then may bill the Fund for such expenses in subsequent months up to
the end of that fiscal year, but not after that date. No interest
charges are assessed by AEFC for expenses it assumes. The Fund
paid total fees and nonadvisory expenses of $35,770,036 for the
fiscal year ended Aug. 31, 1996.
BOARD MEMBERS AND OFFICERS
The following is a list of the Fund's board members who, except for
Mr. Dudley, also are board members of all other funds in the IDS
MUTUAL FUND GROUP. Mr. Dudley is a board member of the 34 publicly
offered funds. All shares have cumulative voting rights with
respect to the election of board members.
Lynne V. Cheney'
Born in 1941
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W.
Washington, D.C.
Distinguished Fellow AEI. Former Chair of National Endowment of
the Humanities. Director, The Reader's Digest Association Inc.,
Lockheed-Martin, the Interpublic Group of Companies, Inc.
(advertising), and FPL Group, Inc. (holding company for Florida
Power and Light).<PAGE>
PAGE 58
William H. Dudley**
Born in 1932
2900 IDS Tower
Minneapolis, MN
Executive vice president and director of AEFC.
Robert F. Froehlke+
Born in 1922
1201 Yale Place
Minneapolis, MN
Former president of all funds in the IDS MUTUAL FUND GROUP.
Director, the ICI Mutual Insurance Co., Institute for Defense
Analyses, Marshall Erdman and Associates, Inc. (architectural
engineering) and Public Oversight Board of the American Institute
of Certified Public Accountants.
David R. Hubers+**
Born in 1943
2900 IDS Tower
Minneapolis, MN
President, chief executive officer and director of AEFC.
Previously, senior vice president, finance and chief financial
officer of AEFC.
Heinz F. Hutter+'
Born in 1929
P.O. Box 2187
Minneapolis, MN
Former president and chief operating officer, Cargill, Incorporated
(commodity merchants and processors).
Anne P. Jones
Born in 1935
5716 Bent Branch Rd.
Bethesda, MD
Attorney and telecommunications consultant. Former partner, law
firm of Sutherland, Asbill & Brennan. Director, Motorola, Inc. and
C-Cor Electronics, Inc.
Melvin R. Laird
Born in 1922
Reader's Digest Association, Inc.
1730 Rhode Island Ave., N.W.
Washington, D.C.
Senior counsellor for national and international affairs, The
Reader's Digest Association, Inc. Former nine-term congressman,
secretary of defense and presidential counsellor. Director, Martin
Marietta Corp., Metropolitan Life Insurance Co., The Reader's
Digest Association, Inc., Science Applications International Corp.,
Wallace Reader's Digest Funds and Public Oversight Board (SEC
Practice Section, American Institute of Certified Public
Accountants). <PAGE>
PAGE 59
William R. Pearce+*
Born in 1927
901 S. Marquette Ave.
Minneapolis, MN
President of all funds in the IDS MUTUAL FUND GROUP since June
1993. Former vice chairman of the board, Cargill, Incorporated
(commodity merchants and processors).
Edson W. Spencer+
Born in 1926
4900 IDS Center
80 S. 8th St.
Minneapolis, MN
President, Spencer Associates Inc. (consulting). Former chairman
of the board and chief executive officer, Honeywell Inc. Director,
Boise Cascade Corporation (forest products). Member of
International Advisory Council of NEC (Japan).
John R. Thomas**
Born in 1937
2900 IDS Tower
Minneapolis, MN
Senior vice president and director of AEFC.
Wheelock Whitney+
Born in 1926
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN
Chairman, Whitney Management Company (manages family assets).
C. Angus Wurtele'
Born in 1934
Valspar Corporation
Suite 1700
Foshay Tower
Minneapolis, MN
Chairman of the board and retired chief executive officer, The
Valspar Corporation (paints). Director, Bemis Corporation
(packaging), Donaldson Company (air cleaners & mufflers) and
General Mills, Inc. (consumer foods).
+ Member of executive committee.
' Member of joint audit committee.
* Interested person by reason of being an officer and employee of
the Fund.
**Interested person by reason of being an officer, board member,
employee and/or shareholder of AEFC or American Express.
The board also has appointed officers who are responsible for day-
to-day business decisions based on policies it has established.
<PAGE>
PAGE 60
In addition to Mr. Pearce, who is president, the Fund's other
officers are:
Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN
Vice president, general counsel and secretary of all funds in the
IDS MUTUAL FUND GROUP.
Officers who also are officers and/or employees of AEFC
Peter J. Anderson
Born in 1942
IDS Tower 10
Minneapolis, MN
Vice president-investments of all funds in the IDS MUTUAL FUND
GROUP. Director and senior vice president-investments of AEFC.
Melinda S. Urion
Born in 1953
IDS Tower 10
Minneapolis, MN
Treasurer of all funds in the IDS MUTUAL FUND GROUP. Director,
senior vice president and chief financial officer of AEFC.
Director and executive vice president and controller of IDS Life
Insurance Company.
Members of the board who are not officers of the Fund or of AEFC
receive an annual fee of $2,600 and the chair of the Contracts
Committee receives an additional $90. Board members receive a $50
per day attendance fee for board meetings. The attendance fee for
meetings of the Contracts and Investment Review Committees is $50;
for meetings of the Audit Committee and Personnel Committee $25 and
for traveling from out-of-state $8. Expense for attending meetings
are reimbursed.
During the fiscal year ended Aug. 31, 1996, the members of the
board, for attending up to 23 meetings, received the following
compensation:
<PAGE>
PAGE 61
<TABLE><CAPTION> Compensation Table
Pension or
Aggregate Retirement Estimated Total cash
compensation benefits annual compensation
from the accrued as benefit upon from the IDS
Board member Fund Fund expenses* retirement MUTUAL FUND GROUP
<S> <C> <C> <C> <C>
Lynne V. Cheney $3,817 $1,754 $1,750 $69,300
Robert F. Froehlke 3,811 5,547 1,750 69,100
Heinz F. Hutter 3,827 2,781 846 69,300
Anne P. Jones 3,857 1,689 1,750 70,800
Donald M. Kendall 2,575 1,716 1,750 46,000
(part of year)
Melvin R. Laird 3,908 3,481 1,750 72,900
Lewis W. Lehr 2,626 -- 1,706 48,000
(part of year)
Edson W. Spencer 3,966 480 933 75,100
Wheelock Whitney 3,841 2,914 1,750 70,300
C. Angus Wurtele 3,758 3,007 1,735 66,800
</TABLE>
On Aug. 31, 1996, the Fund's board members and officers as a group
owned less than 1% of the outstanding shares. During the fiscal
year ended Aug. 31, 1996, no board member or officer earned more
than $60,000 from this Fund. All board members and officers as a
group earned $102,926, including $23,369 of retirement plan
benefits, from this Fund.
* The Fund had a retirement plan for its independent board members.
The plan was terminated April 30, 1996.
CUSTODIAN
The Fund's securities and cash are held by First Bank National
Association, 180 E. Fifth St., St. Paul, MN 55101-1631, through a
custodian agreement. The custodian is permitted to deposit some or
all of its securities in central depository systems as allowed by
federal law. For its services, the Fund pays the Custodian a
maintenance charge and a charge per transaction in addition to
reimbursing the custodian's out-of-pocket expenses.
INDEPENDENT AUDITORS
The financial statements contained in the Annual Report to
shareholders for the fiscal year ended Aug. 31, 1996, were audited
by independent auditors, KPMG Peat Marwick LLP, 4200 Norwest
Center, 90 S. Seventh St., Minneapolis, MN 55402-3900. The
independent auditors also provide other accounting and tax-related
services as requested by the Fund.
FINANCIAL STATEMENTS
The Independent Auditors' Report and the Financial Statements,
including Notes to the Financial Statements and the Schedule of
Investments in Securities, contained in the 199_ Annual Report to
shareholders, pursuant to Section 30(d) of the Investment Company
Act of 1940, as amended, are hereby incorporated in this SAI by
reference. No other portion of the Annual Report, however, is
incorporated by reference.
PROSPECTUS
The prospectus for IDS Bond Fund dated Oct. 30, 1996, is hereby
incorporated in this SAI by reference.<PAGE>
PAGE 62
APPENDIX A
FOREIGN CURRENCY TRANSACTIONS
Since investments in foreign countries usually involve currencies
of foreign countries, and since the Fund may hold cash and cash-
equivalent investments in foreign currencies, the value of the
Fund's assets as measured in U.S. dollars may be affected favorably
or unfavorably by changes in currency exchange rates and exchange
control regulations. Also, the Fund may incur costs in connection
with conversions between various currencies.
Spot Rates and Forward Contracts. The Fund conducts its foreign
currency exchange transactions either at the spot (cash) rate
prevailing in the foreign currency exchange market or by entering
into forward currency exchange contracts (forward contracts) as a
hedge against fluctuations in future foreign exchange rates. A
forward contract involves an obligation to buy or sell a specific
currency at a future date, which may be any fixed number of days
from the contract date, at a price set at the time of the contract.
These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks)
and their customers. A forward contract generally has no deposit
requirements. No commissions are charged at any stage for trades.
The Fund may enter into forward contracts to settle a security
transaction or handle dividend and interest collection. When the
Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency or has been notified of a
dividend or interest payment, it may desire to lock in the price of
the security or the amount of the payment in dollars. By entering
into a forward contract, the Fund will be able to protect itself
against a possible loss resulting from an adverse change in the
relationship between different currencies from the date the
security is purchased or sold to the date on which payment is made
or received or when the dividend or interest is actually received.
The Fund also may enter into forward contracts when management of
the Fund believes the currency of a particular foreign country may
suffer a substantial decline against another currency. It may
enter into a forward contract to sell, for a fixed amount of
dollars, the amount of foreign currency approximating the value of
some or all of the Fund's securities denominated in such foreign
currency. The precise matching of forward contract amounts and the
value of securities involved generally will not be possible since
the future value of such securities in foreign currencies more than
likely will change between the date the forward contract is entered
into and the date it matures. The projection of short-term
currency market movements is extremely difficult and successful
execution of a short-term hedging strategy is highly uncertain.
The Fund will not enter into such forward contracts or maintain a
net exposure to such contracts when consummating the contracts
would obligate the Fund to deliver an amount of foreign currency in
excess of the value of the Fund's securities or other assets
denominated in that currency.
<PAGE>
PAGE 63
The Fund will designate cash or securities in an amount equal to
the value of the Fund's total assets committed to consummating
forward contracts entered into under the second circumstance set
forth above. If the value of the securities declines, additional
cash or securities will be designated on a daily basis so that the
value of the cash or securities will equal the amount of the Fund's
commitments on such contracts.
At maturity of a forward contract, the Fund may either sell the
security and make delivery of the foreign currency or retain the
security and terminate its contractual obligation to deliver the
foreign currency by purchasing an offsetting contract with the same
currency trader obligating it to buy, on the same maturity date,
the same amount of foreign currency.
If the Fund retains the security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described
below) to the extent there has been movement in forward contract
prices. If the Fund engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the foreign
currency. Should forward prices decline between the date the Fund
enters into a forward contract for selling foreign currency and the
date it enters into an offsetting contract for purchasing the
foreign currency, the Fund will realize a gain to the extent that
the price of the currency it has agreed to sell exceeds the price
of the currency it has agreed to buy. Should forward prices
increase, the Fund will suffer a loss to the extent the price of
the currency it has agreed to buy exceeds the price of the currency
it has agreed to sell.
It is impossible to forecast what the market value of securities
will be at the expiration of a contract. Accordingly, it may be
necessary for the Fund to buy additional foreign currency on the
spot market (and bear the expense of such purchase) if the market
value of the security is less than the amount of foreign currency
the Fund is obligated to deliver and a decision is made to sell the
security and make delivery of the foreign currency. Conversely, it
may be necessary to sell on the spot market some of the foreign
currency received on the sale of the portfolio security if its
market value exceeds the amount of foreign currency the Fund is
obligated to deliver.
The Fund's dealing in forward contracts will be limited to the
transactions described above. This method of protecting the value
of the Fund's securities against a decline in the value of a
currency does not eliminate fluctuations in the underlying prices
of the securities. It simply establishes a rate of exchange that
can be achieved at some point in time. Although such forward
contracts tend to minimize the risk of loss due to a decline in
value of hedged currency, they tend to limit any potential gain
that might result should the value of such currency increase.
Although the Fund values its assets each business day in terms of
U.S. dollars, it does not intend to convert its foreign currencies
into U.S. dollars on a daily basis. It will do so from time to
time, and shareholders should be aware of currency conversion
costs. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference <PAGE>
PAGE 64
(spread) between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign
currency to the Fund at one rate, while offering a lesser rate of
exchange should the Fund desire to resell that currency to the
dealer.
Options on Foreign Currencies. The Fund may buy put and write
covered call options on foreign currencies for hedging purposes.
For example, a decline in the dollar value of a foreign currency in
which securities are denominated will reduce the dollar value of
such securities, even if their value in the foreign currency
remains constant. In order to protect against such diminutions in
the value of securities, the Fund may buy put options on the
foreign currency. If the value of the currency does decline, the
Fund will have the right to sell such currency for a fixed amount
in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have
resulted.
As in the case of other types of options, however, the benefit to
the Fund derived from purchases of foreign currency options will be
reduced by the amount of the premium and related transaction costs.
In addition, where currency exchange rates do not move in the
direction or to the extent anticipated, the Fund could sustain
losses on transactions in foreign currency options which would
require it to forego a portion or all of the benefits of
advantageous changes in such rates.
The Fund may write options on foreign currencies for the same types
of hedging purposes. For example, when the Fund anticipates a
decline in the dollar value of foreign-denominated securities due
to adverse fluctuations in exchange rates it could, instead of
purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most
likely not be exercised and the diminution in value of securities
will be fully or partially offset by the amount of the premium
received.
As in the case of other types of options, however, the writing of a
foreign currency option will constitute only a partial hedge up to
the amount of the premium, and only if rates move in the expected
direction. If this does not occur, the option may be exercised and
the Fund would be required to buy or sell the underlying currency
at a loss which may not be offset by the amount of the premium.
Through the writing of options on foreign currencies, the Fund also
may be required to forego all or a portion of the benefits which
might otherwise have been obtained from favorable movements on
exchange rates.
All options written on foreign currencies will be covered. An
option written on foreign currencies is covered if the Fund holds
currency sufficient to cover the option or has an absolute and
immediate right to acquire that currency without additional cash
consideration upon conversion of assets denominated in that
<PAGE>
PAGE 65
currency or exchange of other currency held in its portfolio. An
option writer could lose amounts substantially in excess of its
initial investments, due to the margin and collateral requirements
associated with such positions. Options on foreign currencies are
traded through financial institutions acting as market-makers,
although foreign currency options also are traded on certain
national securities exchanges, such as the Philadelphia Stock
Exchange and the Chicago Board Options Exchange, subject to SEC
regulation. In an over-the-counter trading environment, many of
the protections afforded to exchange participants will not be
available. For example, there are no daily price fluctuation
limits, and adverse market movements could therefore continue to an
unlimited extent over a period of time. Although the purchaser of
an option cannot lose more than the amount of the premium plus
related transaction costs, this entire amount could be lost.
Foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the Options
Clearing Corporation (OCC), thereby reducing the risk of
counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more
readily available than in the over-the-counter market, potentially
permitting the Fund to liquidate open positions at a profit prior
to exercise or expiration, or to limit losses in the event of
adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of availability of a liquid
secondary market described above, as well as the risks regarding
adverse market movements, margining of options written, the nature
of the foreign currency market, possible intervention by
governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-
counter market. For example, exercise and settlement of such
options must be made exclusively through the OCC, which has
established banking relationships in certain foreign countries for
the purpose. As a result, the OCC may, if it determines that
foreign governmental restrictions or taxes would prevent the
orderly settlement of foreign currency option exercises, or would
result in undue burdens on OCC or its clearing member, impose
special procedures on exercise and settlement, such as technical
changes in the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions on exercise.
Foreign Currency Futures and Related Options. The Fund may enter
into currency futures contracts to sell currencies. It also may
buy put options and write covered call options on currency futures.
Currency futures contracts are similar to currency forward
contracts, except that they are traded on exchanges (and have
margin requirements) and are standardized as to contract size and
delivery date. Most currency futures call for payment of delivery
in U.S. dollars. The Fund may use currency futures for the same
purposes as currency forward contracts, subject to Commodity
Futures Trading Commission (CFTC) limitations. All futures
contracts are aggregated for purposes of the percentage
limitations.<PAGE>
PAGE 66
Currency futures and options on futures values can be expected to
correlate with exchange rates, but will not reflect other factors
that may affect the values of the Fund's investments. A currency
hedge, for example, should protect a Yen-denominated bond against a
decline in the Yen, but will not protect the Fund against price
decline if the issuer's creditworthiness deteriorates. Because the
value of the Fund's investments denominated in foreign currency
will change in response to many factors other than exchange rates,
it may not be possible to match the amount of a forward contract to
the value of the Fund's investments denominated in that currency
over time.
The Fund will hold securities or other options or futures positions
whose values are expected to offset its obligations. The Fund will
not enter into an option or futures position that exposes the Fund
to an obligation to another party unless it owns either (i) an
offsetting position in securities or (ii) cash, receivables and
short-term debt securities with a value sufficient to cover its
potential obligations.
<PAGE>
PAGE 67
APPENDIX B
OPTIONS AND INTEREST RATE FUTURES CONTRACTS
The Fund may buy or write options traded on any U.S. or foreign
exchange or in the over-the-counter market. The Fund may enter
into interest rate futures contracts traded on any U.S. or foreign
exchange. The Fund also may buy or write put and call options on
these futures. Options in the over-the-counter market will be
purchased only when the investment manager believes a liquid
secondary market exists for the options and only from dealers and
institutions the investment manager believes present a minimal
credit risk. Some options are exercisable only on a specific date.
In that case, or if a liquid secondary market does not exist, the
Fund could be required to buy or sell securities at disadvantageous
prices, thereby incurring losses.
OPTIONS. An option is a contract. A person who buys a call option
for a security has the right to buy the security at a set price for
the length of the contract. A person who sells a call option is
called a writer. The writer of a call option agrees to sell the
security at the set price when the buyer wants to exercise the
option, no matter what the market price of the security is at that
time. A person who buys a put option has the right to sell a
security at a set price for the length of the contract. A person
who writes a put option agrees to buy the security at the set price
if the purchaser wants to exercise the option, no matter what the
market price of the security is at that time. An option is covered
if the writer owns the security (in the case of a call) or sets
aside the cash (in the case of a put) that would be required upon
exercise.
The price paid by the buyer for an option is called a premium. In
addition the buyer generally pays a broker a commission. The
writer receives a premium, less a commission, at the time the
option is written. The cash received is retained by the writer
whether or not the option is exercised. A writer of a call option
may have to sell the security for a below-market price if the
market price rises above the exercise price. A writer of a put
option may have to pay an above-market price for the security if
its market price decreases below the exercise price.
Options can be used to produce incremental earnings, protect gains
and facilitate buying and selling securities for investment
purposes. The use of options and futures contracts may benefit the
Fund and its shareholders by improving the Fund's liquidity and by
helping to stabilize the value of its net assets.
Buying options. Put and call options may be used as a trading
technique to facilitate buying and selling securities for
investment reasons. Options are used as a trading technique to
take advantage of any disparity between the price of the underlying
security in the securities market and its price on the options
market. It is anticipated the trading technique will be utilized
only to effect a transaction when the price of the security plus <PAGE>
PAGE 68
the option price will be as good or better than the price at which
the security could be bought or sold directly. When the option is
purchased, the Fund pays a premium and a commission. It then pays
a second commission on the purchase or sale of the underlying
security when the option is exercised. For record-keeping and tax
purposes, the price obtained on the purchase of the underlying
security will be the combination of the exercise price, the premium
and both commissions. When using options as a trading technique,
commissions on the option will be set as if only the underlying
securities were traded.
Put and call options also may be held by the Fund for investment
purposes. Options permit the Fund to experience the change in the
value of a security with a relatively small initial cash
investment. The risk the Fund assumes when it buys an option is
the loss of the premium. To be beneficial to the Fund, the price
of the underlying security must change within the time set by the
option contract. Furthermore, the change must be sufficient to
cover the premium paid, the commissions paid both in the
acquisition of the option and in a closing transaction or in the
exercise of the option and subsequent sale (in the case of a call)
or purchase (in the case of a put) of the underlying security.
Even then the price change in the underlying security does not
ensure a profit since prices in the option market may not reflect
such a change.
Writing covered options. The Fund will write covered options when
it feels it is appropriate and will follow these guidelines:
'Underlying securities will continue to be bought or sold solely on
the basis of investment considerations consistent with the Fund's
goal.
'All options written by the Fund will be covered. For covered call
options if a decision is made to sell the security, the Fund will
attempt to terminate the option contract through a closing purchase
transaction.
'The Fund will write options only as permitted under federal or
state laws or regulations, such as those that limit the amount of
total assets subject to the options. While no limit has been set
by the Fund, it will conform to the requirements of those states.
For example, California limits the writing of options to 50% of the
assets of a fund.
Net premiums on call options closed or premiums on expired call
options are treated as short-term capital gains. Since the Fund is
taxed as a regulated investment company under the Internal Revenue
Code, any gains on options and other securities held less than
three months must be limited to less than 30% of its annual gross
income.
If a covered call option is exercised, the security is sold by the
Fund. The Fund will recognize a capital gain or loss based upon
the difference between the proceeds and the security's basis.
<PAGE>
PAGE 69
Options on many securities are listed on options exchanges. If the
Fund writes listed options, it will follow the rules of the options
exchange. Options are valued at the close of the New York Stock
Exchange. An option listed on a national exchange, Chicago Board
Options Exchange (CBOE) or NASDAQ will be valued at the last-quoted
sales price or, if such a price is not readily available, at the
mean of the last bid and asked prices.
FUTURES CONTRACTS. A futures contract is an agreement between two
parties to buy and sell a security for a set price on a future
date. They have been established by boards of trade which have
been designated contracts markets by the Commodity Futures Trading
Commission (CFTC). Futures contracts trade on these markets in a
manner similar to the way a stock trades on a stock exchange, and
the boards of trade, through their clearing corporations, guarantee
performance of the contracts. Currently, there are futures
contracts based on such debt securities as long-term U.S. Treasury
bonds, Treasury notes, GNMA modified pass-through mortgage-backed
securities, three-month U.S. Treasury bills and bank certificates
of deposit. While futures contracts based on debt securities do
provide for the delivery and acceptance of securities, such
deliveries and acceptances are very seldom made. Generally, the
futures contract is terminated by entering into an offsetting
transaction. An offsetting transaction for a futures contract sale
is effected by the Fund entering into a futures contract purchase
for the same aggregate amount of the specific type of financial
instrument and same delivery date. If the price in the sale
exceeds the price in the offsetting purchase, the Fund immediately
is paid the difference and realizes a gain. If the offsetting
purchase price exceeds the sale price, the Fund pays the difference
and realizes a loss. Similarly, closing out a futures contract
purchase is effected by the Fund entering into a futures contract
sale. If the offsetting sale price exceeds the purchase price, the
Fund realizes a gain, and if the offsetting sale price is less than
the purchase price, the Fund realizes a loss. At the time a
futures contract is made, a good-faith deposit called initial
margin is set up within a segregated account at the Fund's
custodian bank. The initial margin deposit is approximately 1.5%
of a contract's face value. Daily thereafter, the futures contract
is valued and the payment of variation margin is required so that
each day the Fund would pay out cash in an amount equal to any
decline in the contract's value or receive cash equal to any
increase. At the time a futures contract is closed out, a nominal
commission is paid, which is generally lower than the commission on
a comparable transaction in the cash markets.
The purpose of a futures contract, in the case of a portfolio
holding long-term debt securities, is to gain the benefit of
changes in interest rates without actually buying or selling long-
term debt securities. For example, if the Fund owned long-term
bonds and interest rates were expected to increase, it might enter
into futures contracts to sell securities which would have much the
same effect as selling some of the long-term bonds it owned.
<PAGE>
PAGE 70
Futures contracts are based on types of debt securities referred to
above, which have historically reacted to an increase or decline in
interest rates in a fashion similar to the debt securities the Fund
owns. If interest rates did increase, the value of the debt
securities in the portfolio would decline, but the value of the
Fund's futures contracts would increase at approximately the same
rate, thereby keeping the net asset value of the Fund from
declining as much as it otherwise would have. If, on the other
hand, the Fund held cash reserves and interest rates were expected
to decline, the Fund might enter into interest rate futures
contracts for the purchase of securities. If short-term rates were
higher than long-term rates, the ability to continue holding these
cash reserves would have a very beneficial impact on the Fund's
earnings. Even if short-term rates were not higher, the Fund would
still benefit from the income earned by holding these short-term
investments. At the same time, by entering into futures contracts
for the purchase of securities, the Fund could take advantage of
the anticipated rise in the value of long-term bonds without
actually buying them until the market had stabilized. At that
time, the futures contracts could be liquidated and the Fund's cash
reserves could then be used to buy long-term bonds on the cash
market. The Fund could accomplish similar results by selling bonds
with long maturities and investing in bonds with short maturities
when interest rates are expected to increase or by buying bonds
with long maturities and selling bonds with short maturities when
interest rates are expected to decline. But by using futures
contracts as an investment tool, given the greater liquidity in the
futures market than in the cash market, it might be possible to
accomplish the same result more easily and more quickly.
Successful use of futures contracts depends on the investment
manager's ability to predict the future direction of interest
rates. If the investment manager's prediction is incorrect, the
Fund would have been better off had it not entered into futures
contracts.
OPTIONS ON FUTURES CONTRACTS. Options on futures contracts give
the holder a right to buy or sell futures contracts in the future.
Unlike a futures contract, which requires the parties to the
contract to buy and sell a security on a set date, an option on a
futures contract merely entitles its holder to decide on or before
a future date (within nine months of the date of issue) whether to
enter into such a contract. If the holder decides not to enter
into the contract, all that is lost is the amount (premium) paid
for the option. Furthermore, because the value of the option is
fixed at the point of sale, there are no daily payments of cash to
reflect the change in the value of the underlying contract.
However, since an option gives the buyer the right to enter into a
contract at a set price for a fixed period of time, its value does
change daily and that change is reflected in the net asset value of
the Fund.
RISKS. There are risks in engaging in each of the management tools
described above. The risk the Fund assumes when it buys an option
is the loss of the premium paid for the option. Purchasing options
also limits the use of monies that might otherwise be available for
long-term investments.
<PAGE>
PAGE 71
The risk involved in writing options on futures contracts the Fund
owns, or on securities held in its portfolio, is that there could
be an increase in the market value of such contracts or securities.
If that occurred, the option would be exercised and the asset sold
at a lower price than the cash market price. To some extent, the
risk of not realizing a gain could be reduced by entering into a
closing transaction. The Fund could enter into a closing
transaction by purchasing an option with the same terms as the one
it had previously sold. The cost to close the option and terminate
the Fund's obligation, however, might be more or less than the
premium received when it originally wrote the option. Furthermore,
the Fund might not be able to close the option because of
insufficient activity in the options market.
A risk in employing futures contracts to protect against the price
volatility of portfolio securities is that the prices of securities
subject to futures contracts may not correlate perfectly with the
behavior of the cash prices of the Fund's securities. The
correlation may be distorted because the futures market is
dominated by short-term traders seeking to profit from the
difference between a contract or security price and their cost of
borrowed funds. Such distortions are generally minor and would
diminish as the contract approached maturity.
Another risk is that the Fund's investment manager could be
incorrect in anticipating as to the direction or extent of various
interest rate movements or the time span within which the movements
take place. For example, if the Fund sold futures contracts for
the sale of securities in anticipation of an increase in interest
rates, and interest rates declined instead, the Fund would lose
money on the sale.
TAX TREATMENT. As permitted under federal income tax laws, the
Fund intends to identify futures contracts as mixed straddles and
not mark them to market, that is, not treat them as having been
sold at the end of the year at market value. Such an election may
result in the Fund being required to defer recognizing losses
incurred by entering into futures contracts and losses on
underlying securities identified as being hedged against.
Federal income tax treatment of gains or losses from transactions
in options on futures contracts and indexes will depend on whether
such option is a section 1256 contract . If the option is a non-
equity option, the Fund will either make a 1256(d) election and
treat the option as a mixed straddle or mark to market the option
at fiscal year end and treat the gain/loss as 40% short-term and
60% long-term. Certain provisions of the Internal Revenue Code may
also limit the Fund's ability to engage in futures contracts and
related options transactions. For example, at the close of each
quarter of the Fund's taxable year, at least 50% of the value of
its assets must consist of cash, government securities and other
securities, subject to certain diversification requirements. Less
than 30% of its gross income must be derived from sales of
securities held less than three months.
<PAGE>
PAGE 72
The IRS has ruled publicly that an exchange-traded call option is a
security for purposes of the 50%-of-assets test and that its issuer
is the issuer of the underlying security, not the writer of the
option, for purposes of the diversification requirements. In order
to avoid realizing a gain within the three-month period, the Fund
may be required to defer closing out a contract beyond the time
when it might otherwise be advantageous to do so. The Fund also
may be restricted in purchasing put options for the purpose of
hedging underlying securities because of applying the short sale
holding period rules with respect to such underlying securities.
Accounting for futures contracts will be according to generally
accepted accounting principles. Initial margin deposits will be
recognized as assets due from a broker (the Fund's agent in
acquiring the futures position). During the period the futures
contract is open, changes in value of the contract will be
recognized as unrealized gains or losses by marking to market on a
daily basis to reflect the market value of the contract at the end
of each day's trading. Variation margin payments will be made or
received depending upon whether gains or losses are incurred. All
contracts and options will be valued at the last-quoted sales price
on their primary exchange.
<PAGE>
PAGE 73
APPENDIX C
MORTGAGE-BACKED SECURITIES
A mortgage pass-through certificate is one that represents an
interest in a pool, or group, of mortgage loans assembled by the
Government National Mortgage Association (GNMA), Federal Home Loan
Mortgage Corporation (FHLMC), Federal National Mortgage Association
(FNMA) or non-governmental entities. In pass-through certificates,
both principal and interest payments, including prepayments, are
passed through to the holder of the certificate. Prepayments on
underlying mortgages result in a loss of anticipated interest, and
the actual yield (or total return) to the Fund, which is influenced
by both stated interest rates and market conditions, may be
different than the quoted yield on certificates. Some U.S.
government securities may be purchased on a when-issued basis,
which means that it may take as long as 45 days after the purchase
before the securities are delivered to the Fund.
Stripped Mortgage-Backed Securities. The Fund may invest in
stripped mortgage-backed securities. Generally, there are two
classes of stripped mortgage-backed securities: Interest Only (IO)
and Principal Only (PO). IOs entitle the holder to receive
distributions consisting of all or a portion of the interest on the
underlying pool of mortgage loans or mortgage-backed securities.
POs entitle the holder to receive distributions consisting of all
or a portion of the principal of the underlying pool of mortgage
loans or mortgage-backed securities. The cash flows and yields on
IOs and POs are extremely sensitive to the rate of principal
payments (including prepayments) on the underlying mortgage loans
or mortgage-backed securities. A rapid rate of principal payments
may adversely affect the yield to maturity of IOs. A slow rate of
principal payments may adversely affect the yield to maturity of
POs. On an IO, if prepayments of principal are greater than
anticipated, an investor may incur substantial losses. If
prepayments of principal are slower than anticipated, the yield on
a PO will be affected more severely than would be the case with a
traditional mortgage-backed security.
Mortgage-Backed Security Spread Options. The Fund may purchase
mortgage-backed security (MBS) put spread options and write covered
MBS call spread options. MBS spread options are based upon the
changes in the price spread between a specified mortgage-backed
security and a like-duration Treasury security. MBS spread options
are traded in the OTC market and are of short duration, typically
one to two months. The Fund would buy or sell covered MBS call
spread options in situations where mortgage-backed securities are
expected to underperform like-duration Treasury securities.
<PAGE>
PAGE 74
APPENDIX D
DOLLAR-COST AVERAGING
A technique that works well for many investors is one that
eliminates random buy and sell decisions. One such system is
dollar-cost averaging. Dollar-cost averaging involves building a
portfolio through the investment of fixed amounts of money on a
regular basis regardless of the price or market condition. This
may enable an investor to smooth out the effects of the volatility
of the financial markets. By using this strategy, more shares will
be purchased when the price is low and less when the price is high.
As the accompanying chart illustrates, dollar-cost averaging tends
to keep the average price paid for the shares lower than the
average market price of shares purchased, although there is no
guarantee.
While this does not ensure a profit and does not protect against a
loss if the market declines, it is an effective way for many
shareholders who can continue investing through changing market
conditions to accumulate shares in a fund to meet long-term goals.
Dollar-cost averaging
___________________________________________________________________
Regular Market Price Shares
Investment of a Share Acquired
$100 $6.00 16.7
100 4.00 25.0
100 4.00 25.0
100 6.00 16.7
100 5.00 20.0
$500 $25.00 103.4
Average market price of a share over 5 periods:
$5.00 ($25.00 divided by 5).
The average price you paid for each share:
$4.84 ($500 divided by 103.4).
<PAGE>
PAGE 75
Independent auditors' report
The board and shareholders
IDS Bond Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments in securities,
of IDS Bond Fund, Inc. as of August 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 then ended, and the financial highlights for each of the
years in the ten-year period ended August 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. 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
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
Bond Fund, Inc. at August 31, 1996, and the results of its
operations for the year then ended and the changes in its net
assets for each of the years in the two-year period then ended, 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
October 4, 1996
<PAGE>
PAGE 76
Financial statements
<TABLE>
<CAPTION>
Statement of assets and liabilities
IDS Bond Fund, Inc.
Aug. 31, 1996
_____________________________________________________________________________________________________________
Assets
_____________________________________________________________________________________________________________
<S> <C>
Investments in securities, at value (Note 1)
(identified cost $3,446,346,292) $3,462,079,470
Receivable for investment securities sold 1,876,613
Dividends and accrued interest receivable 55,316,922
U.S. government securities held as collateral (Note 5) 62,346,351
_____________________________________________________________________________________________________________
Total assets 3,581,619,356
_____________________________________________________________________________________________________________
Liabilities
_____________________________________________________________________________________________________________
Disbursements in excess of cash on demand deposit 5,322,996
Dividends payable to shareholders 2,903,612
Payable for investment securities purchased 11,841,602
Payable upon return of securities loaned (Note 5) 62,346,351
Accrued investment management services fee 47,033
Accrued distribution fee 17,533
Accrued service fee 16,489
Accrued transfer agency fee 10,241
Accrued administrative services fee 4,197
Other accrued expenses 417,546
_____________________________________________________________________________________________________________
Total liabilities 82,927,600
_____________________________________________________________________________________________________________
Net assets applicable to outstanding capital stock $3,498,691,756
_____________________________________________________________________________________________________________
Represented by
_____________________________________________________________________________________________________________
Capital stock -- authorized 10,000,000,000 shares of $.01 par value $ 7,017,925
Additional paid-in capital 3,481,076,118
Undistributed net investment income 3,595,907
Accumulated net realized loss (Notes 1 and 9) (8,939,843)
Unrealized appreciation of investments and on translation of
assets and liabilities in foreign currencies (Notes 1 and 8) 15,941,649
_____________________________________________________________________________________________________________
Total -- representing net assets applicable to outstanding capital stock $3,498,691,756
_____________________________________________________________________________________________________________
Net assets applicable to outstanding shares: Class A $2,563,138,920
Class B $ 847,802,500
Class Y $ 87,750,336
Net asset value per share of outstanding capital stock: Class A shares 514,132,897 $ 4.99
Class B shares 170,058,539 $ 4.99
Class Y shares 17,601,046 $ 4.99
See accompanying notes to financial statements.
<PAGE>
PAGE 77
Financial statements
Statement of operations
IDS Bond Fund, Inc.
Year ended Aug. 31, 1996
_____________________________________________________________________________________________________________
Investment income
_____________________________________________________________________________________________________________
Income:
Interest $271,585,109
Dividends (net of foreign taxes withheld $31,908) 2,244,833
_____________________________________________________________________________________________________________
Total income 273,829,942
_____________________________________________________________________________________________________________
Expenses (Note 2):
Investment management services fee 16,984,406
Distribution fee -- Class B 6,447,035
Transfer agency fee 3,554,516
Incremental transfer agency fee -- Class B 76,633
Service fee
Class A 4,383,432
Class B 1,488,880
Administrative services fee 1,517,544
Compensation of board members 70,631
Compensation of officers 32,295
Custodian fees 201,307
Postage 470,318
Registration fees 315,754
Reports to shareholders 144,750
Audit fees 39,500
Administrative 26,221
Other 49,199
_____________________________________________________________________________________________________________
Total expenses 35,802,421
Earnings credits on cash balances (Note 2) (32,385)
_____________________________________________________________________________________________________________
Total net expenses 35,770,036
_____________________________________________________________________________________________________________
Investment income -- net 238,059,906
_____________________________________________________________________________________________________________
Realized and unrealized gain (loss) -- net
_____________________________________________________________________________________________________________
Net realized gain on security and foreign currency transactions (including
loss of $26,954 from foreign currency transactions) (Note 3) 35,510,938
Net realized gain on closed interest rate futures contracts 555,625
_____________________________________________________________________________________________________________
Net realized gain on investments and foreign currency 36,066,563
Net change in unrealized appreciation or depreciation of investments
and on translation of assets and liabilities in foreign currencies (96,036,937)
_____________________________________________________________________________________________________________
Net loss on investments and foreign currency (59,970,374)
_____________________________________________________________________________________________________________
Net increase in net assets resulting from operations $178,089,532
_____________________________________________________________________________________________________________
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 78
Financial statements
<TABLE>
<CAPTION>
Statements of changes in net assets
IDS Bond Fund, Inc.
Year ended Aug. 31,
_____________________________________________________________________________________________________________
Operations and distributions 1996 1995
_____________________________________________________________________________________________________________
<S> <C> <C>
Investment income -- net $ 238,059,906 $ 198,350,433
Net realized gain (loss) on investments and foreign currency 36,066,563 (29,440,601)
Net change in unrealized appreciation or depreciation of investments
and on translation of assets and liabilities in foreign currencies (96,036,937) 182,633,301
_____________________________________________________________________________________________________________
Net increase in net assets resulting from operations 178,089,532 351,543,133
_____________________________________________________________________________________________________________
Distributions to shareholders from:
Net investment income
Class A (175,703,125) (172,502,967)
Class B (52,732,279) (22,840,548)
Class Y (5,540,758) (2,210,213)
Net realized gain
Class A -- (44,353,816)
_____________________________________________________________________________________________________________
Total distributions (233,976,162) (241,907,544)
_____________________________________________________________________________________________________________
Capital share transactions (Note 6)
_____________________________________________________________________________________________________________
Proceeds from sales
Class A shares (Note 2) 589,054,034 340,793,447
Class B shares 377,985,661 125,204,756
Class Y shares 46,288,572 69,208,436
Fund merger (Note 7)
Class A shares -- 4,455,838
Class B shares -- 667,109,887
Reinvestment of distributions at net asset value
Class A shares 116,649,304 143,593,478
Class B shares 46,578,257 19,534,420
Class Y shares 5,540,758 2,033,460
Payments for redemptions
Class A shares (464,239,661) (442,588,203)
Class B shares (Note 2) (346,225,740) (67,847,577)
Class Y shares (26,441,033) (10,418,481)
_____________________________________________________________________________________________________________
Increase in net assets from capital share transactions 345,190,152 851,079,461
_____________________________________________________________________________________________________________
Total increase in net assets 289,303,522 960,715,050
Net assets at beginning of year 3,209,388,234 2,248,673,184
_____________________________________________________________________________________________________________
Net assets at end of year
(including undistributed net investment income
of $3,595,907 and $301,819) $3,498,691,756 $3,209,388,234
_____________________________________________________________________________________________________________
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 79
Notes to financial statements
IDS Bond Fund, Inc.
___________________________________________________________________
1. Summary of significant accounting policies
The Fund is registered under the Investment Company Act of 1940 (as
amended) as a diversified, open-end management investment company.
The Fund invests primarily in corporate bonds and other debt
securities. 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.
Significant accounting policies followed by the Fund are summarized
below:
Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of increase and decrease in net assets from
operations during the period. Actual results could differ from
those estimates.
Valuation of securities
All securities are valued at the close of each business day.
Securities traded on national securities exchanges or included in
national market systems are valued at the last quoted sales price;
securities for which market quotations are not readily available,
including illiquid securities, are valued at fair value according
to methods selected in good faith by the board. Determination of
fair value involves, among other things, reference to market
indexes, matrixes and data from independent brokers. Short-term
securities maturing in more than 60 days from the valuation date
are valued at the market price or approximate market value based on
current interest rates; those maturing in 60 days or less are
valued at amortized cost.
<PAGE>
PAGE 80
Option transactions
In order to produce incremental earnings, protect gains, and
facilitate buying and selling of securities for investment
purposes, the Fund may buy or write options traded on any U.S. or
foreign exchange or in the over-the-counter market where the
completion of the obligation is dependent upon the credit standing
of the other party. The Fund also may buy and sell put and call
options and write covered call options on portfolio securities and
may write cash-secured put options. The risk in writing a call
option is that the Fund gives up the opportunity of profit if the
market price of the security increases. The risk in writing a put
option is that the Fund may incur a loss if the market price of the
security decreases and the option is exercised. The risk in buying
an option is that the Fund pays a premium whether or not the option
is exercised. The Fund also has the additional risk of not being
able to enter into a closing transaction if a liquid secondary
market does not exist.
Option contracts are valued daily at the closing prices on their
primary exchanges and unrealized appreciation or depreciation is
recorded. The Fund will realize a gain or loss upon expiration or
closing of the option transaction. When options on debt securities
or futures are exercised, the Fund will realize a gain or loss.
When other options are exercised, the proceeds on sales for a
written call option, the purchase cost for a written put option or
the cost of a security for a purchased put or call option is
adjusted by the amount of premium received or paid.
Futures transactions
In order to gain exposure to or protect itself from changes in the
market, the Fund may buy and sell interest rate futures contracts
traded on any U.S. or foreign exchange. The Fund also may buy or
write put and call options on these 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.
Securities purchased on a when-issued basis
Delivery and payment for securities that have been purchased by the
Fund on a forward-commitment or when-issued basis can take place
one month or more after the transaction date. During this period,
such securities are subject to market fluctuations, and they may
affect the Fund's net assets the same as owned securities. The Fund
designates cash or liquid high-grade debt securities at least equal
to the amount of its commitment. As of Aug. 31, 1996, the Fund had
entered into outstanding when-issued or forward commitments of
$4,765,000.
<PAGE>
PAGE 81
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 Fund may enter into forward foreign currency exchange contracts
for operational purposes and to protect against adverse exchange
rate fluctuation. The net U.S. dollar value of foreign currency
underlying all contractual commitments held by the Fund and the
resulting unrealized appreciation or depreciation are determined
using foreign currency exchange rates from an independent pricing
service. The Fund is subject to the credit risk that the other
party will not complete the obligations of the contract.
Federal taxes
Since the Fund's policy is to comply with all sections of the
Internal Revenue Code applicable to regulated investment companies
and to distribute all of its taxable income to shareholders, no
provision for income or excise taxes is required.
Net investment income (loss) and net realized gains (losses) may
differ for financial statement and tax purposes primarily because
of the deferral of losses on certain futures contracts, the
recognition of certain foreign currency gains (losses) as ordinary
income (loss) for tax purposes and losses deferred due to "wash
sale" transactions. The character of distributions made during the
year from net investment income or net realized gains may differ
from their ultimate characterization for federal income tax
purposes. Also, due to the timing of dividend distributions, the
fiscal year in which amounts are distributed may differ from the
year that the income or realized gains (losses) were recorded by
the Fund.
On the statement of assets and liabilities, as a result of
permanent book-to-tax differences, undistributed net investment
income has been decreased by $789,656 and accumulated net realized
loss has been decreased by $800,583, resulting in a net
reclassification adjustment to decrease paid-in-capital by $10,927.
Dividends to shareholders
Dividends from net investment income, declared daily and payable
monthly, 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.
<PAGE>
PAGE 82
Other
Security transactions are accounted for on the date securities are
purchased or sold. Dividend income is recognized on the ex-dividend
date. For U.S. dollar denominated bonds, interest income includes
level-yield amortization of premium and discount. For foreign
bonds, except for original issue discount, the Fund does not
amortize premium and discount. Interest income, including
level-yield amortization of premium and discount, is accrued daily.
2. Expenses and sales charges
Effective March 20, 1995, the Fund entered into agreements with
American Express Financial Corporation (AEFC) for managing its
portfolio, providing administrative services and serving as
transfer agent. Under its Investment Management Services Agreement,
AEFC determines which securities will be purchased, held or sold.
The management fee is a percentage of the Fund's average daily net
assets in reducing percentages from 0.52% to 0.395% annually.
Under an Administrative Services Agreement, the Fund pays AEFC for
administration and accounting services at a percentage of the
Fund's average daily net assets in reducing percentages from 0.05%
to 0.025% annually.
Under a separate Transfer Agency Agreement, AEFC maintains
shareholder accounts and records. The Fund pays AEFC an annual fee
per shareholder account for this service as follows:
o Class A $15.50
o Class B $16.50
o Class 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.
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 Inc.
for distributing Fund shares were $11,888,126 for Class A and
$603,490 for Class B for the year ended Aug. 31, 1996.
During the year ended Aug. 31, 1996, the Fund's custodian and
transfer agency fees were reduced by $32,385 as a result of
earnings credits from overnight cash balances.
<PAGE>
PAGE 83
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 $23,369 for the year. The
total liability for the plan is $87,931, which will be paid out at
some future date.
3. Securities transactions
Cost of purchases and proceeds from sales of securities (other than
short-term obligations) aggregated $1,496,267,065 and
$1,434,459,183, respectively, for the year ended Aug. 31, 1996.
Realized gains and losses are determined on an identified cost
basis.
4. Illiquid securities
At Aug. 31, 1996, investments in securities included issues that
are illiquid. The Fund currently limits investments in illiquid
securities to 10% of the net assets, at market value, at the time
of purchase. The aggregate value of such securities at Aug. 31,
1996 was $23,781,007, representing 0.7% of the net assets. Pursuant
to guidelines adopted by the Fund's board, certain unregistered
securities are determined to be liquid and are not included within
the 10% limitation specified above.
___________________________________________________________________
5. Lending of portfolio securities
At Aug. 31, 1996, securities valued at $60,866,000 were on loan to
brokers. For collateral, the Fund received $62,346,351 in U.S.
government securities. Income from securities lending amounted to
$146,607 for the year ended Aug. 31, 1996. The risks to the Fund of
securities lending are that the borrower may not provide additional
collateral when required or return the securities when due.
___________________________________________________________________
6. Capital share transactions
Transactions in shares of capital stock for the years indicated are
as follows:
Year ended Aug. 31, 1996
Class A Class B Class Y
____________________________________________________________
Sold 114,769,614 73,749,573 9,060,737
Issued for reinvested 22,892,773 9,133,222 1,088,615
distributions
Redeemed (91,167,526) (67,607,017) (5,191,693)
____________________________________________________________
Net increase 46,494,861 15,275,778 4,957,659
____________________________________________________________
<PAGE>
PAGE 84
Year ended Aug. 31, 1995
Class A Class B* Class Y*
_____________________________________________________________
Sold 70,297,518 25,211,637 14,357,265
Fund merger 930,821 139,358,656 --
Issued for reinvested 29,953,783 3,918,832 407,713
distributions
Redeemed (91,890,852) (13,706,364) (2,121,591)
_____________________________________________________________
Net increase 9,291,270 154,782,761 12,643,387
_____________________________________________________________
*Inception date was March 20, 1995.
___________________________________________________________________
7. Fund merger
On March 17, 1995, IDS Bond Fund acquired the assets and assumed
the identified liabilities of IDS Strategy - Income Fund.
The aggregate net assets of IDS Bond Fund immediately before the
acquisition were $2,217,255,191.
The merger was accomplished by a tax-free exchange of 115,800,789
shares of IDS Strategy - Income Fund valued at $671,565,725.
In exchange for the IDS Strategy - Income Fund shares and assets,
IDS Bond Fund issued the following number of shares:
Class A 930,821
Class B 139,358,656
IDS Strategy - Income Fund's net assets at that date were as
follows, which include the following amounts of capital stock,
unrealized depreciation and accumulated net realized loss that was
combined with IDS Bond Fund.
<TABLE><CAPTION>
Total net Capital stock Unrealized Accumulated net
assets depreciation realized loss
_________________________________________________________________________________________
<S> <C> <C> <C> <C>
Class A $ 4,455,838 $ 4,702,952 $ (109,256) $ (137,858)
Class B 667,109,887 704,106,719 (16,357,326) (20,639,506)
</TABLE>
___________________________________________________________________
8. Interest rate futures contracts
Upon entering into a futures contract, the Fund is required to
deposit either cash or securities in an amount (initial margin)
equal to a certain percentage of the contract value. Subsequent
payments (variation margin) are made or received by the Fund each
day. The variation margin payments are equal to the daily changes
in the contract value and are recorded as unrealized gains and
losses. The Fund recognizes a realized gain or loss when the
contract is closed or expires.
<PAGE>
PAGE 85
Investments in securities at Aug. 31, 1996, included securities
valued at $1,999,140 that were pledged as collateral to cover
initial margin deposit on 300 sale contracts. The market value of
the open contracts on Aug. 31, 1996 was $32,034,375 with a net
unrealized gain of $206,250.
9. Capital loss carryover
For federal income tax purposes, the Fund had a capital loss
carryover of $12,597,428 at Aug. 31, 1996, that if not offset by
subsequent capital gains, will expire in 2003. It is unlikely the
board will authorize a distribution of any net realized gains until
the available capital loss carryover has been offset or expires.
___________________________________________________________________
10. Financial highlights
"Financial highlights" showing per share data and selected
information is presented on pages 6 and 7 of the prospectus.
<PAGE>
PAGE 86
Investments in securities
<TABLE>
<CAPTION>
IDS Bond Fund, Inc. (Percentages represent value of
Aug. 31, 1996 investments compared to net assets)
_____________________________________________________________________________________________________________________________
Bonds (85.8%)
_____________________________________________________________________________________________________________________________
Issuer Coupon Maturity Principal Value(a)
rate year amount
_____________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
U.S. government obligations (7.6%)
U.S. Treasury 6.375% 1999 $ 2,000,000 (o) $ 1,999,140
6.375 2002 17,300,000 16,968,878
6.75 1997 10,000,000 (b) 10,067,000
7.125 1999 56,500,000 (b) 57,402,870
7.50 2001 29,900,000 30,878,328
7.875 2004 12,000,000 12,713,760
8.875 2017 60,500,000 70,860,020
Govt Trust Certs Israel 9.25 2001 11,100,000 11,760,561
Resolution Funding Corp 8.125 2019 40,925,000 43,896,564
Zero Coupon 8.68 1999 11,500,000 (g) 9,700,480
______________
Total 266,247,601
_______________________________________________________________________________________________________________________________
Mortgage-backed securities (17.3%)
Federal Home Loan Mtge Corp 6.00 2010 14,604,905 13,758,259
6.50 2007 832,126 813,603
8.00 2017-24 17,087,818 17,114,854
Collateralized Mtge Obligation 3.24 2023 7,640,693 3,595,481
7.00 2022 22,000,000 20,556,000
8.50 2022 17,000,000 17,727,600
Inverse Floater 6.825 2023 4,000,000 (c) 2,567,480
Trust Series Z 8.25 2024 10,349,076 (d) 9,976,820
Federal Natl Mtge Assn 5.50 2009 10,980,941 10,071,609
6.00 2024-26 89,223,202 80,042,449
6.50 2008-25 207,956,183 193,913,878
7.00 2026 52,441,432 49,934,207
8.00 2025 24,264,755 24,272,277
8.50 2023-24 23,588,734 24,031,021
9.00 2009-24 13,596,855 14,127,948
Collateralized Mtge Obligation 5.00 2024 9,961,155 8,632,437
Trust Series Z 6.00 2024 5,807,000 (d) 4,093,529
7.00 2019 18,851,932 (d) 18,173,449
See accompanying notes to investments in securities.
<PAGE>
PAGE 87
Govt Natl Mtge Assn 7.00 2008 44,385,419 43,719,638
8.00 2024-26 27,850,017 27,876,196
9.00 2025 4,459,813 4,654,930
Merrill Lynch Mtge Investors 8.29 2021 7,088,692 (e) 6,290,106
Prudential Bache
Collateralized Mtge Obligation Trust 7.97 2019 8,324,622 8,253,279
______________
Total 604,197,050
______________________________________________________________________________________________________________________________
Financial (6.1%)
Banks and savings & loans (1.7%)
BankAmerica
Sub Nts 7.50 2002 18,000,000 18,181,620
Barclays NA Capital 9.75 2021 13,600,000 15,337,264
Meridian Bancorp
Sub Deb 7.875 2002 10,400,000 10,664,680
Society
Sub Nts 8.125 2002 3,000,000 3,159,810
Standard Credit Card 8.625 2002 12,000,000 12,100,439
______________
Total 59,443,813
_____________________________________________________________________________________________________________________________
Financial services (2.6%)
Camden Property Trust 7.33 2001 3,000,000 3,198,750
Corporate Property Investors 7.18 2013 7,000,000 (e) 6,454,630
Developers Diversified Realty
Cv Sub Deb 7.00 1999 3,500,000 3,574,375
First Union REIT
Sub Nts 8.875 2003 10,000,000 9,250,000
Homeside
Sr Nts 11.25 2003 9,225,000 (e) 9,766,969
Malan Realty Investors REIT
Cv Sub Deb 9.50 2004 4,050,000 3,756,375
Olympic Financial
Sr Nts 13.00 2000 12,900,000 14,061,000
Omega Health Care
Cv 8.50 2001 4,000,000 4,120,000
Property Trust America REIT 7.50 2014 15,000,000 13,340,550
Salomon
Sr Nts 7.00 1999 21,000,000 20,935,950
Saul (BF) REIT 11.625 2002 2,630,000 (e) 2,725,337
______________
Total 91,183,936
_____________________________________________________________________________________________________________________________
Insurance (1.8%)
Americo Life
Sr Sub Nts 9.25 2005 9,000,000 8,583,750
Arkwright
Credit Sensitive Nts 9.625 2026 5,000,000 (e) 5,031,350
Berkley (WR) 8.70 2022 3,000,000 3,132,060
Equitable Cos
Sr Nts 9.00 2004 4,250,000 4,615,203
Equitable IBM 7.33 2009 5,500,000 (e) 5,402,891
General American Life 7.625 2024 8,000,000 (e) 6,926,480
Leucadia Natl 7.75 2013 11,780,000 10,796,488
Nationwide Mutual 7.50 2024 8,000,000 (e) 7,047,360
Nationwide Trust
Credit Sensitive Nts 9.875 2025 3,500,000 (e) 3,736,530
Principal Mutual 8.00 2044 10,000,000 (e) 9,198,800
______________
Total 64,470,912
_____________________________________________________________________________________________________________________________
Industrial (28.1%)
Aerospace & defense (2.2%)
Airplanes GPA 10.875 2019 6,000,000 6,375,000
Alliant Techsystems
Sr Sub Nts 11.75 2003 6,000,000 (e) 6,540,000
BE Aerospace 9.875 2006 7,000,000 (e) 7,008,750
Boeing 8.75 2031 15,000,000 16,720,650
Goodrich (BF) 9.625 2001 10,000,000 10,882,100
Northrop Grumman 7.75 2016 8,000,000 (e) 7,630,160
Sequa 9.625 1999 10,000,000 10,162,500
United Technologies 8.875 2019 10,000,000 11,154,100
______________
Total 76,473,260
<PAGE>
PAGE 88
Airlines (1.2%)
Continental Airlines 6.94 2015 15,000,000 (e) 14,299,650
7.82 2015 5,000,000 (e) 4,991,850
Delta Air Lines 10.125 2010 10,000,000 11,555,200
10.375 2022 3,700,000 4,379,135
Northwest Airlines 8.07 2015 5,000,000 4,987,650
8.97 2015 3,000,000 3,065,370
______________
Total 43,278,855
_____________________________________________________________________________________________________________________________
Automotive & related (0.4%)
General Motors Acceptance 7.625 1998 10,000,000 10,156,400
Mascotech
Cv 4.50 2003 6,500,000 5,021,250
_____________
Total 15,177,650
_____________________________________________________________________________________________________________________________
Building materials (0.9%)
McQuay (AAF)
Sr Nts 8.875 2003 8,000,000 7,760,000
Owens-Corning Fiberglas 9.375 2012 6,900,000 7,473,597
Pulte
Sr Nts 7.00 2003 7,700,000 7,304,297
Schuller Intl Group
Sr Nts 10.875 2004 7,500,000 8,118,750
______________
Total 30,656,644
_____________________________________________________________________________________________________________________________
Chemicals (0.9%)
General Chemical
Sr Sub Nts 9.25 2003 7,000,000 6,938,750
G-I Holdings 10.00 2006 780 (e) 759
Zero Coupon Sr Disc Nts 12.92 1998 15,000,000 (e,g) 12,618,750
Grace (WR) 8.00 2004 10,420,000 10,522,533
______________
Total 30,080,792
_____________________________________________________________________________________________________________________________
Communications equipment (0.4%)
Comcast Cellular
Zero Coupon 9.45 2000 8,150,000 (g) 5,684,625
Geotek Communications
Cv 12.00 2001 5,000,000 (j) 5,500,000
Ionica
Units 13.50 2006 3,855,000 (e) 3,840,544
______________
Total 15,025,169
_____________________________________________________________________________________________________________________________
Computers & office equipment (0.7%)
Data General
SF Deb 8.375 2002 6,700,000 6,130,500
Softkey
Cv 5.50 2000 12,000,000 (e) 9,660,000
Solectron 6.00 2006 3,000,000 (e) 2,752,500
Unisys
Credit Sensitive Nts 15.00 1997 4,350,000 (f) 4,600,125
______________
Total 23,143,125
_____________________________________________________________________________________________________________________________
Electronics (0.4%)
Reliance Electric 6.80 2003 6,000,000 5,813,760
Thomas & Betts 6.50 2006 9,200,000 (e) 8,477,524
______________
Total 14,291,284
_____________________________________________________________________________________________________________________________
Energy (2.8%)
Atlantic Richfield 9.125 2011 9,000,000 10,176,030
Clark-Schwebel
Sr Nts 10.50 2006 5,750,000 (e) 5,929,688
Honam Oil Refinery 7.125 2005 9,000,000 (e) 8,535,060
Oryx Energy 9.50 1999 4,000,000 4,181,800
Parker & Parsley Petroleum
Sr Nts 8.25 2007 9,500,000 9,691,140
PDV America 7.875 2003 15,000,000 14,306,100
Texaco Capital
Gtd Deb 7.50 2043 3,000,000 2,831,160
Gtd Deb 8.625 2032 10,000,000 11,039,300
UNC
Sr Nts 9.125 2003 14,000,000 13,702,500
<PAGE>
PAGE 89
USX 9.375 2022 17,500,000 18,949,350
______________
Total 99,342,128
_____________________________________________________________________________________________________________________________
Energy equipment & services (0.6%)
Cliffs Drilling
Sr Nts 10.25 2003 6,500,000 (e) 6,597,500
Foster Wheeler 6.75 2005 15,000,000 14,080,050
______________
Total 20,677,550
_____________________________________________________________________________________________________________________________
Food (0.1%)
Specialty Foods
Sr Nts 10.25 2001 3,000,000 (e) 2,760,000
_____________________________________________________________________________________________________________________________
Furniture & appliances (0.4%)
Interface 9.50 2005 7,500,000 (e) 7,228,125
Lifestyle Furnishings 10.875 2006 6,000,000 (e) 6,052,500
_____________
Total 13,280,625
_____________________________________________________________________________________________________________________________
Health care (0.2%)
Lilly (Eli) 6.77 2036 7,950,000 6,985,347
Phoenix Shannon
Cv 9.50 2000 2,000,000 (e) 1,760,000
_____________
Total 8,745,347
_____________________________________________________________________________________________________________________________
Health care services (2.1%)
Columbia/HCA Healthcare 6.91 2005 7,000,000 6,745,340
7.69 2025 4,000,000 3,877,920
Foundation Health
Sr Nts 7.75 2003 8,400,000 8,446,368
Healthsource
Cv 5.00 2003 4,000,000 (j) 3,055,000
La Petite Holdings
Sr Secured Nts 9.625 2001 8,795,000 8,179,350
Magellan Health
Sr Sub Nts 11.25 2004 7,500,000 (e) 8,034,375
Merit Behavioral 11.50 2005 3,250,000 (e) 3,408,438
Owens & Minor
Sr Sub Nts 10.875 2006 4,000,000 4,145,000
Tenet Healthcare
Sr Nts 8.625 2003 3,000,000 3,120,000
Sr Sub Nts 10.125 2005 22,000,000 23,677,500
_____________
Total 72,689,291
_____________________________________________________________________________________________________________________________
Industrial equipment & services (0.1%)
AGCO
Sr Sub Nts 8.50 2006 5,100,000 (e) 5,080,875
_____________________________________________________________________________________________________________________________
Leisure time & entertainment (1.0%)
Caesars World
Sr Sub Nts 8.875 2002 6,000,000 6,315,000
MGM Grand Hotel Finance
1st Mtge 11.75 1999 10,000,000 10,587,500
1st Mtge 12.00 2002 10,000,000 10,900,000
Trump Atlantic City Funding
1st Mtge 11.25 2006 7,500,000 7,200,000
______________
Total 35,002,500
_____________________________________________________________________________________________________________________________
Media (5.5%)
Ackerley Communications
Sr Secured Nts 10.75 2003 10,000,000 (e) 10,550,000
Adelphia Communications
Sr Deb 11.875 2004 7,000,000 7,008,750
Cablevision Systems
Sr Sub Deb 10.75 2004 4,000,000 4,100,000
Sr Sub Nts 9.25 2005 6,000,000 5,760,000
Continental Cablevision
Sr Deb 8.875 2005 5,000,000 5,343,750
Cox Communications 7.625 2025 7,000,000 6,622,490
Lenfest Communications
Sr Nts 8.375 2005 10,000,000 9,225,000
News American Holdings 8.875 2023 17,000,000 17,428,400
News Corp 10.15 2010 3,807,175 (e) 4,304,392
<PAGE>
PAGE 90
Outdoor Systems
Sr Sub Nts 11.56 2008 5,833,333 5,833,333
Plitt Theatres 10.875 2004 7,500,000 7,678,125
Scandinavian Broadcasting
Cv Sub Deb 7.25 2005 5,600,000 5,530,000
Tele-Communications
Sr Deb 7.875 2013 6,800,000 6,023,168
Sr Deb 9.80 2012 8,000,000 8,383,120
Sr Deb 9.875 2022 10,000,000 10,445,100
Time Warner
Deb 9.15 2023 10,000,000 10,179,300
TKR Cable
Sr Deb 10.50 2007 5,225,000 5,723,308
Turner Broadcasting
Sr Nts 8.375 2013 10,000,000 9,594,600
United Artist Theatre 9.30 2015 13,636,781 (e) 12,443,563
Universal Outdoor
Sr Nts 11.00 2003 5,000,000 5,312,500
Zero Coupon 9.95 1999 3,500,000 (h) 2,585,625
Viacom Intl
Sr Nts 7.75 2005 3,000,000 2,883,900
Sub Deb 7.00 2003 5,000,000 4,590,250
Sub Deb 8.00 2006 26,300,000 24,196,000
______________
Total 191,744,674
_____________________________________________________________________________________________________________________________
Metals (0.8%)
Magma Copper
Sr Sub Nts 12.00 2001 10,000,000 10,912,500
Ryerson Tull 8.50 2001 11,800,000 11,829,500
Santa Fe Pacific Gold
Sr Deb 8.375 2005 5,000,000 4,868,750
______________
Total 27,610,750
_____________________________________________________________________________________________________________________________
Multi-industry conglomerates (0.7%)
Coltec Inds
Sr Nts 9.75 2000 5,000,000 5,137,500
Mark IV Inds
Sr Sub Nts 8.75 2003 8,000,000 8,030,000
Prime Succession
Sr Sub Nts 10.75 2004 4,240,000 (e) 4,367,200
Talley Mfg & Technology
Sr Nts 10.75 2003 7,000,000 7,297,500
______________
Total 24,832,200
_____________________________________________________________________________________________________________________________
Paper & packaging (2.2%)
Federal Paper Board 10.00 2011 11,900,000 14,180,516
Fort Howard 11.00 2002 9,087,473 9,360,097
Gaylord Container
Sr Sub Deb 12.75 2005 5,000,000 5,362,500
Intl Paper 5.125 2012 9,000,000 6,922,710
Plastic Containers
Sr Secured Nts 10.75 2001 10,000,000 10,262,500
Pope & Talbot 8.375 2013 11,000,000 9,894,060
Scotia Pacific Holding 7.95 2015 4,365,325 4,283,344
Silgan
Sr Sub Nts 11.75 2002 11,850,000 12,398,063
Warren (SD)
Sr Nts 12.00 2004 5,000,000 (e) 5,268,750
______________
Total 77,932,540
_____________________________________________________________________________________________________________________________
Restaurants & lodging (0.2%)
Hammons (John Q) Hotel
1st Mtge 8.875 2004 7,000,000 6,597,500
_____________________________________________________________________________________________________________________________
Retail (2.3%)
American Stores 8.00 2026 15,000,000 14,664,600
Dairy Mart Convenience Stores
Sr Sub Nts 10.25 2004 6,250,000 5,890,625
Kash n' Karry Food Stores
Pay-in-kind 11.50 2003 9,486,080 (n) 9,486,080
Kroger 8.15 2006 13,000,000 13,162,500
Musicland Group
Sr Sub Nts 9.00 2003 7,000,000 4,025,000
<PAGE>
PAGE 91
Penn Traffic
Sr Nts 8.625 2003 6,500,000 5,395,000
Pueblo Xtra Intl
Sr Nts 9.50 2003 7,000,000 6,300,000
Wal-Mart Stores 7.00 2006 18,000,000 (e) 17,691,660
8.875 2011 3,500,000 3,666,775
______________
Total 80,282,240
_____________________________________________________________________________________________________________________________
Soaps & cosmetics (0.3%)
Coty
Sr Sub Nts 10.25 2005 5,500,000 5,802,500
Sweetheart Cup
Sr Sub Nts 9.625 2000 6,500,000 6,573,125
______________
Total 12,375,625
_____________________________________________________________________________________________________________________________
Textiles & apparel (0.5%)
Dominion Textiles
Sr Nts 9.25 2006 3,000,000 2,973,750
Stevens (JP) 9.00 2017 6,000,000 5,775,000
WestPoint Stevens
Sr Nts 8.75 2001 7,500,000 7,518,750
______________
Total 16,267,500
_____________________________________________________________________________________________________________________________
Miscellaneous (1.2%)
Adams Outdoor Advertising
Sr Nts 10.75 2006 6,800,000 (j) 7,021,000
ECM Funding LP 11.92 2002 2,488,204 (j) 2,737,025
Norcal Waste Systems
Sr Nts 12.50 2005 10,000,000 (e) 10,587,500
Pierce Leahy
Sr Sub Nts 11.125 2006 4,875,000 (e) 5,063,906
SC Intl
Sr Sub Nts 13.00 2005 8,900,000 9,734,374
Yale University 7.375 2096 6,000,000 5,607,780
______________
Total 40,751,585
_____________________________________________________________________________________________________________________________
Transportation (0.5%)
Southern Pacific Rail
Sr Nts 9.375 2005 15,345,000 16,495,875
_____________________________________________________________________________________________________________________________
Utilities (14.7%)
Electric (10.3%)
Appalachian Power 8.50 2022 5,000,000 5,148,650
Arizona Public Service
1st Mtge 8.00 2025 5,800,000 5,616,546
1st Mtge 8.75 2024 9,000,000 9,343,800
Sale Lease-Backed Obligation 8.00 2015 12,556,000 12,350,960
Cajun Electric Power Cooperative
Mtge Trust 8.92 2019 5,000,000 5,452,100
California Energy
Zero Coupon 6.08 2004 10,000,000 (h) 10,050,000
Cleveland Electric Illuminating
1st Mtge 9.50 2005 23,100,000 22,589,259
Commonwealth Edison
1st Mtge 8.375 2023 5,000,000 4,842,400
1st Mtge 9.75 2020 10,000,000 10,608,600
1st Mtge 9.875 2020 12,800,000 13,967,872
Consumers Power
1st Mtge 7.375 2023 10,000,000 8,989,200
EIP Funding 10.25 2012 6,894,000 6,661,327
First Palo Verde Funding 10.15 2016 13,400,000 13,510,014
10.30 2014 4,500,000 4,546,080
Long Island Lighting
Gen Ref Mtge 9.625 2024 28,888,000 28,522,567
Gen Ref Mtge 9.75 2021 15,500,000 15,315,240
Louisiana Power & Light Waterford
Sale Lease-Backed Obligation 10.67 2017 7,500,000 8,022,150
Midland Cogeneration Venture 11.75 2005 14,900,000 15,738,125
Sub Secured Sale
Lease-Backed Obligation 10.33 2002 11,084,055 11,596,692
Niagara Mohawk Power
1st Mtge 6.875 2001 5,000,000 4,568,150
1st Mtge 7.75 2006 19,600,000 17,217,228
<PAGE>
PAGE 92
Pacific Gas & Electric
1st Ref Mtge 7.25 2026 14,000,000 12,494,860
Pennsylvania Power & Light
1st Mtge 9.25 2019 900,000 963,837
Public Service Electric & Gas
1st Ref Mtge 6.75 2006 5,500,000 5,226,980
RGS Funding
Sale Lease-Backed Obligation 9.82 2022 9,939,934 11,506,766
Salton Sea
Sr Nts 7.84 2010 10,000,000 (e) 9,422,800
San Diego Gas & Electric
1st Mtge 9.625 2020 16,925,000 18,469,914
Sithe Independence Funding 8.50 2007 7,500,000 7,333,200
9.00 2013 4,700,000 4,586,542
Texas-New Mexico Power
1st Mtge 9.25 2000 6,000,000 6,225,000
1st Mtge 10.00 2017 2,879,000 2,886,198
Secured Deb 10.75 2003 5,000,000 5,293,750
Texas Utilities Electric
1st Collateral Trust 7.375 2025 3,000,000 2,699,790
1st Collateral Trust 9.75 2021 9,900,000 10,881,486
1st Mtge 7.625 2025 10,000,000 9,222,200
Secured Facility 9.45 2005 4,129,000 4,278,800
Tucson Electric Power
1st Mtge 8.50 2009 7,000,000 6,623,750
Wisconsin Electric Power 6.875 2095 8,000,000 6,874,080
______________
Total 359,646,913
______________________________________________________________________________________________________________________________
Gas (1.7%)
Coastal
Sr Deb 7.75 2035 6,000,000 5,650,920
Sr Deb 10.25 2004 7,750,000 8,940,555
Equitable Resources 7.50 1999 5,000,000 5,076,300
Questar Pipeline 9.375 2021 8,000,000 8,637,200
Southern California Gas
1st Mtge 7.375 2023 6,900,000 6,414,033
Southwest Gas 9.75 2002 7,900,000 8,512,803
Tenneco 9.00 2012 9,000,000 9,841,860
Tennessee Gas Pipeline 6.00 2011 3,600,000 2,993,112
Transco Energy 9.875 2020 4,800,000 5,502,768
______________
Total 61,569,551
_____________________________________________________________________________________________________________________________
Telephone & other (2.7%)
Ameritech Capital Funding
Gtd Deb 9.10 2016 16,000,000 18,004,320
BellSouth Telecommunications 6.50 2005 7,200,000 6,848,280
7.00 2095 10,000,000 9,019,400
GTE 10.25 2020 7,000,000 7,935,270
New York Tel 9.375 2031 23,665,000 25,075,671
Pacific Bell 6.625 2034 10,000,000 8,376,700
7.125 2026 10,200,000 9,376,248
7.375 2043 10,000,000 9,136,200
______________
Total 93,772,089
_____________________________________________________________________________________________________________________________
Municipal bonds (0.4%) (l)
Los Angeles County Pension Obligation Capital
Appreciation Series C Zero Coupon (MBIA Insured) 7.09 2008 10,000,000 (g) 4,070,400
San Bernardino County Finance Authority
Pension Obligation Revenue Bond (MBIA Insured) 6.99 2010 2,000,000 1,906,000
7.09 2011 8,000,000 7,611,520
______________
Total 13,587,920
_____________________________________________________________________________________________________________________________
Foreign (11.1%)(k)
ABN Amro
(U.S. Dollar) 7.75 2023 9,000,000 8,809,920
Argentina Republic
(U.S. Dollar) Zero Coupon 5.46 2001 5,000,000 (h) 5,742,500
Argentina Republic Euro
(U.S. Dollar) Zero Coupon 6.31 2005 2,970,000 (f) 2,305,463
Austria Republic Euro
(U.S. Dollar) 10.00 1998 5,000,000 5,300,000
BAA Euro
(British Pound) 5.75 2006 2,500,000 4,004,295
<PAGE>
PAGE 93
Banca Italy N.Y.
(U.S. Dollar) 8.25 2007 9,200,000 9,457,416
Bank of China
(U.S. Dollar) 8.25 2014 10,000,000 9,286,400
Brazil C Bonds
(U.S. Dollar) 8.00 2014 4,329,720 2,795,375
Brazil DCB
(U.S. Dollar) 6.875 2012 7,000,000 (f) 4,965,625
Carter Holt Harvey
(U.S. Dollar) 7.625 2002 5,000,000 5,036,650
(U.S. Dollar) 8.875 2004 10,500,000 11,200,665
Celcaribe
(U.S. Dollar) Zero Coupon 2.14 2004 2,870,000 (e,g) 3,113,950
(U.S. Dollar) Zero Coupon 24.37 2004 3,250,000 (e,g) 2,665,000
China Power & Light
(U.S. Dollar) Sr Nts 7.50 2006 8,000,000 7,781,040
Doman Inds
(U.S. Dollar) 8.75 2004 4,000,000 3,680,000
Dominion Textiles
(U.S. Dollar) 8.875 2003 7,500,000 7,359,375
Financiera Ener Nacional
(U.S. Dollar) 9.375 2006 14,750,000 (e) 14,676,250
Ford Capital
(U.S. Dollar) 9.125 1998 4,000,000 4,159,760
(U.S. Dollar) 9.50 2010 18,350,000 20,813,671
Govt of Poland PDI Euro
(U.S. Dollar) 3.75 2014 34,600,000 (f) 27,312,375
Govt of Russia
(U.S. Dollar) 6.60 2049 8,000,000 (p) 4,715,000
Govt of Venezuela
(British Pounds) 6.375 2007 7,000,000 (f) 5,407,500
Grupo Televisa
(U.S. Dollar) Sr Nts 11.375 2003 10,000,000 (e) 10,475,000
Groupe Videotron
(U.S. Dollar) 10.625 2005 5,000,000 5,350,000
GST Telecommunications
(U.S. Dollar) Zero Coupon Cv 5.24 2000 1,045,000 (e,h) 877,800
Guang Dong Enterprise
(U.S. Dollar) 8.75 2003 4,000,000 (e) 3,620,600
Imexsa Export Trust
(U.S. Dollar) 10.125 2003 7,500,000 (e) 7,640,625
Korea Electric Power
(U.S. Dollar) 7.75 2013 8,900,000 8,672,961
(U.S. Dollar) 8.00 2002 2,800,000 2,868,544
MacMillan Bole Delaware
(U.S. Dollar) 8.50 2004 3,000,000 3,098,520
Matsushita Electric
(Japanese Yen) Cv 1.30 2002 467,000,000 4,994,051
Nippon Express
(Japanese Yen) Cv 1.00 2004 460,000,000 4,318,052
People's Republic of China
(U.S. Dollar) 7.375 2001 3,500,000 3,494,610
(U.S. Dollar) 9.00 1996 10,000,000 9,471,600
Petronas
(U.S. Dollar) 7.75 2015 10,000,000 (e) 9,738,400
Placer Dome
(U.S. Dollar) 7.125 2003 5,000,000 4,873,550
Quno
(U.S. Dollar) Sr Nts 9.125 2005 7,000,000 6,833,750
Reliance Inds
(U.S. Dollar) 8.125 2005 4,500,000 (e) 4,312,485
Repap New Brunswick
(U.S. Dollar) 9.875 2000 7,000,000 6,973,750
Republic of Israel
(U.S. Dollar) 6.375 2005 7,300,000 6,734,031
Republic of Italy
(U.S. Dollar) 6.875 2023 9,000,000 7,993,260
(U.S. Dollar) Cv 5.00 2001 3,000,000 3,003,750
Republic of Slovenia
(U.S. Dollar) 7.00 2001 7,200,000 (e) 7,185,600
Rogers Cablesystems
(U.S. Dollar) Sr Secured Nts 7.06 2014 3,700,000 2,406,110
Rogers Cantel Mobile
(U.S. Dollar) 9.375 2008 9,300,000 9,125,625
Scotland Bank
(U.S. Dollar) 8.80 2004 20,500,000 (e) 21,881,290
Sumitomo Bank
(Japanese Yen) Cv 0.75 2001 375,000,000 (e) 3,684,075
<PAGE>
PAGE 94
Tarkett Intl
(U.S. Dollar) 9.00 2002 11,000,000 (e) 11,151,250
Telekom Malaysia
(U.S. Dollar) 7.875 2025 15,000,000 (e) 14,542,350
Transdigm
(U.S. Dollar) 13.00 2000 5,000,000 (j) 4,575,000
United Mexican States
(U.S. Dollar) 11.50 2026 6,583,460 6,332,466
WMC Finance
(U.S. Dollar) 7.25 2013 10,000,000 9,473,300
Zhuhai Highway
(U.S. Dollar) 11.50 2008 10,000,000 (e) 10,250,000
______________
Total 386,540,635
_____________________________________________________________________________________________________________________________
Total bonds
(Cost: $2,981,884,532) $3,001,256,004
</TABLE>
<PAGE>
PAGE 95
<TABLE>
<CAPTION>
Stocks & other (1.2%)
_____________________________________________________________________________________________________________________________
Issuer Shares Value(a)
_____________________________________________________________________________________________________________________________
<S> <C> <C>
American Life Holdings
$2.16 Cm Preferred 120,000 $3,045,000
Cablevision Systems
Pay-in-kind Preferred 104,241 (e,i,n) 9,798,654
Celcaribe
Common 528,450 (e,i) 792,675
Dairy Mart
Warrants 51,666 (e,j) 154,998
First Nationwide Bank
11.50% Cm Preferred 80,000 8,720,000
Kash n' Karry Food Stores
Common 149,570 (i) 3,589,680
Salomon
2.375% Preferred 400,000 10,300,000
Station Casinos
7% Cv Preferred 30,000 1,522,500
Security Pacific
Cv Preferred 136,500 3,480,750
Transdigm
Warrants 3,989 (j) 526,548
Triangle Wire Cable
Common 211,111 (i,j) 211,111
Webcraft Technology
Common 32,502 (i,j) 325
_____________________________________________________________________________________________________________________________
Total stocks & other
(Cost: $45,723,235) $42,142,241
_____________________________________________________________________________________________________________________________
</TABLE>
<PAGE>
PAGE 96
<TABLE>
<CAPTION>
Short-term securities (12.0%)
_____________________________________________________________________________________________________________________________
Issuer Annualized Amount Value(a)
yield on payable
date of at
purchase maturity
_____________________________________________________________________________________________________________________________
<S> <C> <C> <C>
U.S. government agency (0.5%)
Federal Home Loan Mtge Corp Disc Nts
09-19-96 5.19% $14,400,000 $ 14,360,708
09-20-96 5.23 1,940,000 1,934,385
______________
Total 16,295,093
_____________________________________________________________________________________________________________________________
Commercial paper (11.3%)
AIG Funding
09-16-96 5.40 7,700,000 7,681,657
Alabama Power
10-22-96 5.34 9,035,000 8,962,424
Ameritech
09-26-96 5.40 9,700,000 9,659,546
10-04-96 5.34 6,700,000 (m) 6,666,463
Associates
North America
09-03-96 5.35 2,900,000 2,898,714
Avco Financial
11-15-96 5.37 10,000,000 9,880,833
BBV Finance
09-13-96 5.30 6,200,000 6,188,179
CAFCO
09-11-96 5.44 7,520,000 7,505,436
09-25-96 5.30 6,000,000 5,978,000
Cargill
09-20-96 5.31 6,200,000 6,181,779
Ciesco LP
10-09-96 5.31 4,800,000 4,772,544
11-06-96 5.39 8,200,000 8,113,558
Clorox
09-30-96 5.29 2,200,000 2,190,338
Coca-Cola
10-15-96 5.37 4,400,000 (m) 4,368,640
Commercial Credit
09-24-96 5.33 10,400,000 10,363,253
10-03-96 5.32 9,000,000 8,956,357
Commerzbank US Finance
09-10-96 5.30 6,700,000 6,690,173
Consolidated Rail
10-03-96 5.50 4,000,000 (m) 3,978,489
Dean Witter
09-05-96 5.35 8,100,000 8,094,004
Deustche Finance
10-16-96 5.32 4,900,000 4,865,801
Fleet Funding
09-03-96 5.35 7,000,000 (m) 6,996,896
10-11-96 5.33 13,000,000 (m) 12,921,530
Ford Motor Credit
09-13-96 5.39 5,800,000 5,788,795
10-04-96 5.33 6,100,000 6,069,466
Gannett
10-16-96 5.54 11,000,000 (m) 10,920,609
Goldman Sachs
09-27-96 5.33 9,600,000 9,561,840
Hewlett-Packard
09-17-96 5.42 4,400,000 4,387,118
Household Finance
09-20-96 5.31 15,000,000 14,955,917
Kellogg
09-04-96 5.33 5,485,000 5,481,770
Merrill Lynch
09-06-96 5.38 5,400,000 5,395,185
Metlife Funding
09-09-96 5.39 4,600,000 4,593,836
09-23-96 5.33 5,400,000 5,381,715
09-24-96 5.31 9,700,000 9,665,856
10-24-96 5.32 4,000,000 3,968,320
<PAGE>
PAGE 97
Mobil Australia
09-18-96 5.45 9,000,000 (m) 8,973,821
Natl Australia Funding
10-02-96 5.43 8,500,000 8,457,445
Natl Bank Detroit Canadian
09-13-96 5.30 8,000,000 7,984,747
NationsBank
09-04-96 5.40 7,000,000 6,999,915
11-26-96 5.37 6,500,000 6,498,772
Penney (JC) Funding
09-24-96 5.41 9,200,000 9,165,767
10-02-96 5.28 3,500,000 3,483,635
10-10-96 5.30 5,400,000 5,368,380
Pfizer
09-12-96 5.30 7,500,000 (m) 7,486,800
Pitney Bowes Credit
10-08-96 5.52 4,765,000 4,736,773
Reed Elsevier
09-16-96 5.39 8,000,000 (m) 7,980,978
SAFECO Credit
10-09-96 5.36 6,500,000 6,459,929
10-11-96 5.33 9,600,000 9,542,163
Sandoz
09-03-96 5.42 2,700,000 2,698,789
Siemens
09-25-96 5.32 1,000,000 996,319
Southern California Gas
10-23-96 5.48 16,534,000 (m) 16,396,760
Transamerica Financial
09-09-96 5.44 8,800,000 8,788,120
09-16-96 5.44 7,000,000 6,981,064
USAA Capital
09-19-96 5.41 13,200,000 13,157,204
U S WEST Communications
09-12-96 5.39 7,100,000 7,087,338
09-23-96 5.40 4,300,000 4,283,303
_____________
Total 393,613,063
_____________________________________________________________________________________________________________________________
Letter of credit (0.2%)
First Chicago-
Natl Bank Detroit
09-19-96 5.43 8,800,000 8,773,069
______________________________________________________________________________________________________________________________
Total short-term securities
(Cost: $418,738,525) $418,681,225
_____________________________________________________________________________________________________________________________
Total investments in securities
(Cost: $3,446,346,292)(q) $3,462,079,470
_____________________________________________________________________________________________________________________________
Notes to investments in securities
_____________________________________________________________________________________________________________________________
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b) Security is partially or fully on loan. See Note 5 to the financial statements.
(c) Inverse floaters represent securities that pay interest at a rate that increases (decreases) in the same magnitude as, or in a
multiple of, a decline (increase) in the LIBOR (London InterBank Offered Rate) Index. Interest rate disclosed is the rate in effect
on Aug. 31, 1996. Inverse floaters in the aggregate represent 0.1% of the Fund's net assets as of Aug. 31, 1996.
(d) This security is a collateralized mortgage obligation that pays no interest or principal during its initial accrual period
until payment of a previous series within the trust have been paid off. Interest is accrued at an effective yield.
(e) 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.
(f) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the
effective rate on Aug. 31, 1996.
(g) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition.
(h) For those zero coupon bonds that become coupon paying at a future date, the interest rate disclosed represents the annualized
effective yield from the date of acquisition to interest reset date disclosed.
(i) Non-income producing.
(j) Identifies issues considered to be illiquid as to their marketability (see Note 4 to the financial statements). Information
concerning such security holdings at Aug. 31, 1996, is as follows:
Acquisition
Security date Cost
_______________________________________________________________________________________________
Adams Outdoor Advertising
10.75% Sr Nts 2006 03-05-96 $6,817,500
Dairy Mart
Warrants 11-28-95 --<PAGE>
PAGE 98
ECM Funding LP
11.92% 2002 04-13-92 2,488,204
Geotek Communications
12% Cv 2001 03-04-96 5,000,000
Healthsource*
5% Cv 2003 06-28-96 3,117,000
Transdigm
13% 2000 12-06-95 4,375,000
Warrants 12-06-95 274,974
Triangle Wire Cable
Common 01-13-92 5,000,045
Webcraft Technology
Common 12-22-86 16,875
* Represents a security sold under Rule 144A, which is exempt from registration under
the Securities Act of 1933, as amended.
(k) Foreign security values are stated in U.S. dollars. For debt securities, principal amounts are denominated in the currency
indicated.
(l) The following abbreviation is used in portfolio descriptions to identify the issuer of the issue:
MBIA -- Municipal Bond Investors Assurance
(m) 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.
(n) Pay-in-kind securities are securities in which the issuer has the option to make interest payments in cash or in
additional securities. The securities issued as interest usually have the same terms, including maturity date, as the
pay-in-kind securities.
(o) Partially pledged as initial deposit on the following open interest rate futures sale contracts (see Note 8 to the
financial statements):
Notional
Type of security amount
_____________________________________________________________________
Dec. T-Bond Futures $30,000,000
____________________________________________________________________
(p) At Aug. 31, 1996, the cost of securities purchased, including interest purchased, on a when-issued basis was $4,765,000.
(q) At Aug. 31, 1996, the cost of securities for federal income tax purposes was $3,442,688,706 and the aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation $84,279,776
Unrealized depreciation (64,889,012)
___________________________________________________________________________________
Net unrealized appreciation $19,390,764
___________________________________________________________________________________
</TABLE>
<PAGE>
PAGE 99
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS:
List of financial statements filed as part of this
Post-Effective Amendment to the Registration Statement:
- Independent Auditors' Report dated October 4, 1996
- Statement of Assets and Liabilities, Aug. 31, 1996
- Statement of Operations, Year ended Aug. 31, 1996
- Statement of Changes in Net Assets, for the two-year
period ended Aug. 31, 1995 and Aug. 31, 1996
- Notes to Financial Statements
- Investment in Securities, Aug. 31, 1996
- Notes to Investments in Securities
(b) EXHIBITS:
1. Copy of Articles of Incorporation, as amended October 14,
1988, filed electronically as Exhibit 1 to Registrant's
Post-Effective Amendment No. 28 to Registration Statement No.
2-51586, is incorporated herein by reference.
2. Copy of By-laws, as amended January 12, 1989, filed
electronically as Exhibit 2 to Registrant's Post-Effective
Amendment No. 30 to Registration Statement No. 2-51586, is
incorporated herein by reference.
3. Not Applicable.
4. Copy of Stock certificate, filed as Exhibit 4 to Registrant's
Amendment Number One to Registration Statement No. 2-51586 dated
October 29, 1974, is incorporated herein by reference.
5. Form of Investment Management and Services Agreement between
Registrant and American Express Financial Corporation, dated March
20, 1995, filed electronically as Exhibit 5 to Registrant's Post-
Effective Amendment No. 43 to Registration Statement No. 2-51586 is
incorporated herein by reference.
6. Form of Distribution Agreement between Registrant and American
Express Financial Advisors Inc. dated March 20, 1995, filed
electronically as Exhibit 6 to Registrant's Post-Effective
Amendment No. 43 to Registration Statement No. 2-51586 is
incorporated herein by reference.
7. All employees are eligible to participate in a profit sharing
plan. Entry into the plan is Jan. 1 or July 1. The Registrant
contributes each year an amount up to 15 percent of their annual
salaries, the maximum deductible amount permitted under Section 404
(a) of the Internal Revenue Code.
8. Copy of Custodian Agreement between Registrant and First
National Bank of Minneapolis, dated July 23, 1986, is filed
electronically herewith.
<PAGE>
PAGE 100
9(a). Copy of Plan and Agreement of Merger, dated April 10, 1986,
filed electronically as Exhibit 9 to Registrant's Post-Effective
Amendment No. 24 to Registration Statement No. 2-51586, is
incorporated herein by reference.
9(b). Form of Transfer Agency Agreement between Registrant and
American Express Financial Corporation, dated March 20, 1995, filed
electronically as Exhibit 9(b) to Registrant's Post-Effective
Amendment No. 43 to Registration Statement No. 2-51586 is
incorporated herein by reference.
9(c). Copy of License Agreement dated Jan. 25, 1988, between IDS
Financial Corporation and Registrant, filed as Exhibit 9c to
Registrant's Post-Effective Amendment No. 35 to Registration
Statement No. 2-51586, is herein incorporated by reference.
9(d). Form of Shareholder Service Agreement between Registrant and
American Express Financial Advisors Inc., dated March 20, 1995,
filed electronically as Exhibit 9(d) to Registrant's Post-Effective
Amendment No. 43 to Registration Statement No. 2-51586 is
incorporated herein by reference.
9(e). Form of Administrative Services Agreement between Registrant
and American Express Financial Corporation, dated March 20, 1995,
filed electronically as Exhibit 9(e) to Registrant's Post-Effective
Amendment No. 43 to Registration Statement No. 2-51586 is
incorporated herein by reference.
9(f). Copy of Agreement and Plan of Reorganization, dated
September 8, 1994, between IDS Strategy Fund, Inc. and IDS Bond
Fund, Inc., filed electronically as Exhibit 4 on Registrant's Pre-
Effective Amendment No. 1, on Form N-14, is incorporated herein by
reference.
10. Opinion and consent of counsel as to the legality of the
securities being registered is filed with Registrant's most recent
24f-2 notice.
11. Independent Auditors' Consent is filed electronically
herewith.
12. None.
13. Not applicable.
14. Forms of Keogh, IRA and other retirement plans, filed as
Exhibits 14(a) through 14(g) to IDS Government Securities Money
Fund, Inc., Post-Effective Amendment No. 1 to Registration
Statement No. 2-75165 on August 26, 1982, are incorporated herein
by reference.
15. Form of Plan and Supplemental Agreement of Distribution
between Registrant and American Express Financial Advisors Inc.
dated March 20, 1995, filed electronically as Exhibit 15 to
Registrant's Post-Effective Amendment No. 43 to Registration
Statement No. 2-51586 is incorporated herein by reference.
<PAGE>
PAGE 101
16. Form of Schedule for computation of each performance
quotation provided in the Registration Statement in response to
Item 22(b), filed as Exhibit 16 to Registrant's Post-Effective
Amendment No. 32 to Registration Statement No. 2-51586, is herein
incorporated by reference.
17. Financial Data Schedule is filed electronically herewith.
18. Copy of Plan pursuant to Rule 18f-3 under the 1940 Act filed
electronically as Exhibit 18 to Registrant's Post-Effective
Amendment No. 44 to Registration Statement No. 2-51586 is
incorporated herein by reference.
19(a). Directors' Power of Attorney dated November 10, 1994 to sign
Amendments to this Registration Statement, filed electronically as
Exhibit 18(a) to this Post-Effective Amendment No. 42, is
incorporated herein by reference.
19(b). Officers' Power of Attorney dated Nov. 1, 1995 to sign
Amendments to this Registration Statement is filed electronically
herewith.
Item 25. Person Controlled by or Under Common Control with
Registrant: None.
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Holders as of
Title of Class October 16, 1995
Common Stock 236,422
Item 27. Indemnification
The Articles of Incorporation of the registrant provide that the
Fund shall indemnify any person who was or is a party or is
threatened to be made a party, by reason of the fact that she or he
is or was a director, officer, employee or agent of the Fund, or is
or was serving at the request of the Fund as a director, officer,
employee or agent of another company, partnership, joint venture,
trust or other enterprise, to any threatened, pending or completed
action, suit or proceeding, wherever brought, and the Fund may
purchase liability insurance and advance legal expenses, all to the
fullest extent permitted by the laws of the State of Minnesota, as
now existing or hereafter amended. The By-laws of the registrant
provide that present or former directors or officers of the Fund
made or threatened to be made a party to or involved (including as
a witness) in an actual or threatened action, suit or proceeding
shall be indemnified by the Fund to the full extent authorized by
the Minnesota Business Corporation Act, all as more fully set forth
in the By-laws filed as an exhibit to this registration statement.
<PAGE>
PAGE 102
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
Any indemnification hereunder shall not be exclusive of any other
rights of indemnification to which the directors, officers,
employees or agents might otherwise be entitled. No
indemnification shall be made in violation of the Investment
Company Act of 1940.
<PAGE>
PAGE 1<PAGE>
Item 29(c). Not applicable.
Item 30. Location of Accounts and Records
American Express Financial Corporation
IDS Tower 10
Minneapolis, MN 55440
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) Not Applicable.
(b) Not Applicable.
(c) The Registrant undertakes to furnish each person
to whom a prospectus is delivered with a copy of
the Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE>
PAGE 103
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, IDS Bond Fund,
Inc., certifies that it meets the requirements for the
effectiveness of this Amendment to its Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Minneapolis and State of Minnesota on the 29th day
of October, 1996.
IDS BOND FUND, INC.
By
Melinda S. Urion, Treasurer
By /s/ William R. Pearce**
William R. Pearce, President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by
the following persons in the capacities indicated on the 29th day
of October, 1996.
Signature Capacity
/s/ William R. Pearce** President and Principal
William R. Pearce Executive Officer and
Director
/s/ Leslie L. Ogg** Vice President, General
Leslie L. Ogg Counsel and Secretary
/s/ Lynne V. Cheney* Director
Lynne V. Cheney
/s/ William H. Dudley* Director
William H. Dudley
/s/ Robert F. Froehlke* Director
Robert F. Froehlke
/s/ David R. Hubers* Director
David R. Hubers
/s/ Heinz F. Hutter* Director
Heinz F. Hutter
/s/ Anne P. Jones* Director
Anne P. Jones
/s/ Melvin R. Laird* Director
Melvin R. Laird
/s/ Edson W. Spencer* Director
Edson W. Spencer
<PAGE>
PAGE 104
/s/ John R. Thomas* Director
John R. Thomas
/s/ Wheelock Whitney* Director
Wheelock Whitney
/s/ C. Angus Wurtele* Director
C. Angus Wurtele
*Signed pursuant to Directors' Power of Attorney, dated November
10, 1994, filed electronically as Exhibit 18(a) to Registrant's
Post-Effective Amendment No. 42, by:
Leslie L. Ogg
**Signed pursuant to Officers' Power of Attorney dated Nov. 1,
1995, filed electronically as Exhibit 19(b) to Registrant's Post-
Effective Amendment No. 46 by:
Leslie L. Ogg
<PAGE>
PAGE 105
CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 46
TO REGISTRATION STATEMENT NO. 2-51586
This Post-Effective Amendment contains the following papers and
documents:
The facing sheet.
Cross reference sheet.
Part A.
The prospectus.
Part B.
Statement of Additional Information.
Financial Statements.
Part C.
Other information.
Exhibits.
The signatures.
<PAGE>
PAGE 1
IDS BOND FUND, INC.
FILE NO. 2-51586/811-2503
EXHIBIT INDEX
Exhibit 8: Copy of Custodian Agreement between Registrant
and First National Bank of Minneapolis, dated
July 23, 1986.
Exhibit 11: Independent Auditors' Consent
Exhibit 17: Financial Data Schedule
Exhibit 19(b): Officers' Power of Attorney dated Nov. 1, 1995 to
sign Amendments to this Registration Statement.
<PAGE>
PAGE 1
CUSTODIAN AGREEMENT
THIS CUSTODIAN AGREEMENT dated July 23rd, 1986, between IDS Bond
Fund, Inc., a Minnesota Corporation (hereinafter also called the
"Corporation") and First National Bank of Minneapolis, a
corporation organized under the laws of the United States of
America with its principal place of business at Minneapolis,
Minnesota (hereinafter also called the "Custodian").
WHEREAS, the Corporation desires that its securities and cash be
hereafter held and administered by the Custodian pursuant to the
terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements herein
made, the Corporation and the Custodian agree as follows:
Section 1. Definitions
The word "securities" as used herein shall be construed to include,
without being limited to, shares, stocks, treasury stocks,
including any stocks of this Corporation, notes, bonds, debentures,
evidences of indebtedness, options to buy or sell stocks or stock
indexes, certificates of interest or participation in any profit-
sharing agreements, collateral trust certificates, preorganization
certificates or subscriptions, transferable shares, investment
contracts, voting trust certificates, certificates of deposit for a
security, fractional or undivided interests in oil, gas or other
mineral rights, or any certificates of interest or participation
in, temporary or interim certificates for, receipts for, guarantees
of, or warrants or rights to subscribe to or purchase any of the
foregoing, acceptances and other obligations and any evidence of
any right or interest in or to any cash, property or assets and any
interest or instrument commonly known as a security. In addition,
for the purpose of this Agreement, the word "securities" also shall
include other instruments in which the Corporation may invest
including currency forward contracts and commodities such as
interest rate or index futures contracts, margin deposits on such
contracts or options on such contracts.
The words "custodian order" shall mean a request or direction,
including a computer printout, directed to the Custodian and signed
in the name or the Corporation by any two individuals designated in
the current certified list referred to in Section 2.
The word "facsimile" shall mean an exact copy or likeness which is
electronically transmitted for instant reproduction.
Section 2. Names, Titles and Signatures of Authorized Persons
The Corporation will certify to the Custodian the names and
signatures of its present officers and other designated persons
authorized on behalf of the Corporation to direct the Custodian by
custodian order as hereinbefore defined. The Corporation agrees
that whenever any change occurs in this list it will file with the
Custodian a copy of a resolution certified by the Secretary or an
Assistant Secretary of the Corporation as having been duly adopted
by the Board of Directors or the Executive Committee of the Board <PAGE>
PAGE 2
of Directors of the Corporation designating those persons currently
authorized on behalf of the Corporation to direct the Custodian by
custodian order, as hereinbefore defined, and upon such filing (to
be accompanied by the filing of specimen signatures of the
designated persons) the persons so designated in said resolution
shall constitute the current certified list. The Custodian is
authorized to rely and act upon the names and signatures of the
individuals as they appear in the most recent certified list from
the Corporation which has been delivered to the Custodian as
hereinabove provided.
Section 3. Use of Subcustodians
The Custodian may make arrangements, where appropriate, with other
banks having not less than two million dollars aggregate capital,
surplus and undivided profits for the custody of securities and
cash.
The Custodian also may enter into arrangements for the custody of
"Foreign Securities" and cash entrusted to its care through an
"Eligible Foreign Custodian," as those terms are defined by Rule
17f-5 under the Investment Company Act of 1940 (the "Act"), or such
other entity as permitted by the Securities and Exchange Commission
(the "SEC") (such Eligible Foreign Custodians, collectively,
"Foreign Custodial Agents") provided, if required by the SEC, that
the Board has given its prior approval to the use of, and
Custodian's contract with, each Foreign Custodial Agent by
resolution, and a certified copy of such resolution has been
provided to the Custodian. To the extent the provisions of this
Agreement are consistent with the requirements of the Act, rules,
orders or no-action letters of the SEC, they shall apply to all
such foreign custodianships. To the extent such provisions are
inconsistent with or additional requirements are established by the
Act or such rules, orders or no-action letters, the requirements of
the Act or such rules, orders or no-action letters will prevail and
the parties will adhere to such requirements; provided, however, in
the absence of notification from the Corporation of any changes or
additions to such requirements, the Custodian shall have no duty or
responsibility to inquire as to any such changes or additions.
All subcustodians of the Custodian (such subcustodians,
collectively, the "Subcustodians"), including all Foreign Custodial
Agents, shall be subject to the instructions of the Custodian and
not to those of the Corporation and shall act solely as agent of
the Custodian.
Section 4. Receipt and Disbursement of Money
(1) The Custodian shall open and maintain a separate account or
accounts in the name of the Corporation and cause any Subcustodians
to open and maintain such account or accounts, subject only to
checks, drafts or directives by the Custodian or such Subcustodian
pursuant to the terms of this Agreement. The Custodian or such
Subcustodian shall hold in such account or accounts, subject to the
provisions hereof, all cash received by it from or for the account
of the Corporation. The Custodian or such Subcustodian shall make
payments of cash to or for the account of the Corporation from such
cash only:<PAGE>
PAGE 3
(a) for the purchase of securities for the portfolio of the
Corporation upon the receipt of such securities by the
Custodian or such Subcustodian;
(b) for the purchase or redemption of shares of capital
stock of the Corporation;
(c) for the payment of interest, dividends, taxes,
management fees, or operating expenses (including,
without limitation thereto, fees for legal, accounting
and auditing services);
(d) for payment of distribution fees, commissions, or
redemption fees, if any;
(e) for payments in connection with the conversion,
exchange or surrender of securities owned or subscribed
to by the Corporation held by or to be delivered to the
Custodian;
(f) for payments in connection with the return of
securities loaned by the Corporation upon receipt of
such securities or the reduction of collateral upon
receipt of proper notice;
(g) for payments for other proper corporate purposes; or
(h) upon the termination of this Agreement.
Before making any such payment for the purposes permitted under the
terms of items (a), (b), (c), (d), (e), (f) or (g) of paragraph (1)
of this section, the Custodian shall receive and may rely upon a
custodian order directing such payment and stating that the payment
is for such a purpose permitted under these items (a), (b), (c),
(d), (e), (f) or (g) and that in respect to item (g), a copy of a
resolution of the Board of Directors or of the Executive Committee
of the Board of Directors of the Corporation signed by an officer
of the Corporation and certified by its Secretary or an Assistant
Secretary, specifying the amount of such payment, setting forth the
purpose to be a proper corporate purpose, and naming the person or
persons to whom such payment is made. Notwithstanding the above,
for the purposes permitted under items (a) or (f) of paragraph (1)
of this section, the Custodian may rely upon a facsimile order.
(2) The Custodian is hereby appointed the attorney-in-fact of the
Corporation to endorse and collect all checks, drafts or other
orders for the payment of money received by the Custodian for the
account of the Corporation and drawn on or to the order of the
Corporation and to deposit same to the account of the Corporation
pursuant to this Agreement.
(3) Subject to the prior authorization provisions of Section 3 of
this Agreement, the Corporation authorizes the Custodian to
establish and maintain in each country or other jurisdiction in
which the principal trading market for any Foreign Securities is
located, or in which any Foreign Securities are to be presented for
payment, an account or accounts which may include nostro accounts
with Custodian branches and omnibus accounts of Custodian at <PAGE>
PAGE 4
Foreign Custodial Agents for receipt of cash in such currencies as
directed by custodian order. For purposes of this Agreement, cash
so held in any such account shall be evidenced by separate book
entries maintained by Custodian and shall be deemed to be cash held
by Custodian. Cash received or credited by Custodian or any
Custodian branch or any Foreign Custodial Agent in a currency other
than United States dollars shall be maintained in such currency and
shall not be converted or remitted except in accordance with the
custodian order, except as permitted by Section 7.
Section 5. Receipt of Securities
Except as permitted by the second paragraph of this section, the
Custodian shall, and shall cause any Subcustodians to, hold in a
separate account or accounts, and physically segregated at all
times from those of any other persons, firms or corporations,
pursuant to the provisions hereof, all securities and cash received
for the account of the Corporation. The Custodian shall, and shall
cause any Subcustodians to, record and maintain a record of all
certificate numbers. Securities so received shall be held in the
name of the Corporation, in the name of an exclusive nominee duly
appointed by the Custodian or such Subcustodian, or in bearer form,
as appropriate.
Subject to such rules, regulations or guidelines as the SEC may
adopt, the Custodian may deposit all or any part of the securities
owned by the Corporation in a securities depository which includes
any system for the central handling of securities established by a
national securities exchange or a national securities association
registered with the SEC under the Securities Exchange Act of 1934,
or such other person as may be permitted by the SEC, pursuant to
which system all securities of any particular class or series of
any issuer deposited within the system are treated as fungible and
may be transferred or pledged by bookkeeping entry without physical
delivery of such securities.
All securities are to be held or disposed of by the Custodian for,
and subject at all times to the instructions of, the Corporation
pursuant to the terms of this Agreement. The Custodian shall have
no power or authority to assign, hypothecate, pledge or otherwise
dispose of any such securities, except pursuant to the directive of
the Corporation and only for the account of the Corporation as set
forth in Section 6 of this Agreement.
Section 6. Transfer Exchange, Delivery, etc. of Securities
The Custodian shall have sole power to release or deliver any
securities of the Corporation held by it pursuant to this
Agreement. The Custodian agrees to transfer, exchange or deliver
securities held by it or any Subcustodian only:
(a) for sales of such securities for the account of the
Corporation, upon receipt of payment therefor;
(b) when such securities are called, redeemed, retired or
otherwise become payable;
<PAGE>
PAGE 5
(c) for examination upon the sale of any such securities in
accordance with "street delivery" custom which would
include delivery against interim receipts or other
proper delivery receipts;
(d) in exchange for or upon conversion into other
securities alone or other securities and cash whether
pursuant to any plan of merger, consolidation,
reorganization, recapitalization or readjustment, or
otherwise;
(e) for the purpose of exchanging interim receipts or
temporary certificates for permanent certificates;
(f) upon conversion of such securities pursuant to their
terms into other securities;
(g) upon exercise of subscription, purchase or other
similar rights represented by such securities;
(h) for loans of such securities by the Corporation upon
receipt of collateral; or
(i) for other proper corporate purposes.
As to any deliveries made by the Custodian pursuant to items (a),
(b), (c), (d), (e), (f), (g) and (h), securities or cash received
in exchange therefore shall be delivered to the Custodian, a
Subcustodian or a securities depository. Before making any such
transfer, exchange or delivery, the Custodian shall receive a
custodian order or a facsimile from the Corporation requesting such
transfer, exchange or delivery and stating that it is for a purpose
permitted under this section (whenever a facsimile is utilized, the
Corporation will also deliver an original signed custodian order)
and, in respect to item (i), a copy of a resolution of the Board of
Directors or of the Executive Committee or the Board of Directors
of the Corporation signed by an officer of the Corporation and
certified by its Secretary or an Assistant Secretary, specifying
the securities, setting forth the purpose for which such payment,
transfer, exchange or delivery is to be made, declaring such
purpose to be a proper corporate purpose, and naming the person or
persons to whom such transfer, exchange or delivery of such
securities shall be made.
Section 7. Custodian's Acts Without Instructions
Unless and until the Custodian receives a contrary custodian order
from the Corporation, the Custodian shall or shall cause a
Subcustodian to:
(a) present for payment all coupons and other income items
held by the Custodian or such Subcustodian for the
account of the Corporation which call for payment upon
presentation and hold all cash received upon such
payment for the account of the Corporation;
<PAGE>
PAGE 6
(b) present for payment all securities held by it or such
Subcustodian which mature or when called, redeemed,
retired or otherwise become payable;
(c) ascertain all stock dividends, rights and similar
securities to be issued with respect to any securities
other than Foreign Securities;
(d) collect and hold for the account of the Corporation all
stock dividends, rights and similar securities issued
with respect to any securities;
(e) ascertain all interest and cash dividends to be paid to
security holders with respect to any securities other
than Foreign Securities;
(f) collect and hold all interest and cash dividends for
the account of the Corporation;
(g) present for exchange securities converted pursuant to
their terms into other securities;
(h) exchange interim receipts or temporary securities for
definitive securities;
(i) execute in the name of the Corporation such ownership
and other certificates as may be required to obtain
payments in respect thereto, provided that the
Corporation shall have furnished to the Custodian or
such Subcustodian any information necessary in
connection with such certificates; and
(j) convert interest and dividends received with respect to
Foreign Securities into United States dollars whenever
it is practicable to do so through customary banking
channels, including the Custodian's own banking
facilities.
Section 8. Settlement Procedures
Settlement procedures for transactions in Foreign Securities,
including receipts and payments of cash held in any nostro account
or omnibus account, shall be carried out in accordance with
instructions in the operational manual provided by the Custodian
(the "Operational Manual"). It is understood that such settlement
procedures may vary, as provided in the Operational Manual, from
securities market to securities market, to reflect particular
settlement practices in such markets.
With respect to any transaction involving Foreign Securities, the
Custodian or any Subcustodian in its discretion may cause the
Corporation to be credited on the contractual settlement date with
the proceeds of any sale or exchange of Foreign Securities and to
be debited on the contractual settlement date for the cost of
Foreign Securities purchased or acquired. The Custodian may
reverse any such credit or debit if the transaction with respect to
which such credit or debit was made fails to settle within a
reasonable period, determined by the Custodian in its discretion, <PAGE>
PAGE 7
after the contractual settlement date except that if any Foreign
Securities delivered pursuant to this section are returned by the
recipient thereof, the Custodian may cause any such credits and
debits to be reversed at any time. With respect to any
transactions as to which the Custodian does not determine so to
credit or debit the Corporation, the proceeds from the sale or
exchange of Foreign Securities will be credited and the cost of
such Foreign Securities purchased or acquired will be debited on
the date such proceeds or Foreign Securities are received by the
Custodian.
Notwithstanding the preceding paragraph, settlement, payment and
delivery for Foreign Securities may be effected in accordance with
the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market
in which the transaction occurs, including, without limitation,
delivering Foreign Securities to the purchaser thereof or to a
dealer therefor against a receipt with the expectation of receiving
later payment for such Foreign Securities from such purchaser or
dealer.
Section 9. Records
The Custodian hereby agrees that it shall create, maintain, and
retain all records relating to its activities and obligations under
this Agreement in such manner as will meet their obligations under
this Agreement and the obligations of the Corporation under the
Act, particularly Section 31 thereof and Rules 31a-1 and 31a-2
thereunder and Section 17(f) thereof and the rules thereunder, and
applicable federal, state and foreign tax laws and other laws or
administrative rules or procedures, in each case as currently in
effect, which may be applicable to the Corporation. All records so
maintained in connection with the performance of its duties under
this Agreement shall remain the property of the Corporation and, in
the event of termination of this Agreement, shall be delivered in
accordance with the provisions of this Agreement.
(a) With respect to securities and cash held by the
Custodian's branches, such securities and cash may be
placed in an omnibus account for the customers of the
Custodian, and the Custodian shall maintain separate
book entry records for each such omnibus account.
(b) With respect to securities and cash deposited by the
Custodian with a Foreign Custodial Agent, the Custodian
shall identify on its books as belonging to the
Corporation the securities and cash shown on the
Custodian's account on the books of such Foreign
Custodial Agent.
<PAGE>
PAGE 8
(c) With respect to securities and cash deposited with a
securities depository or clearing agency, incorporated
or organized under the laws of a country other than the
United States, which operates the central system for
handling of securities or equivalent book-entries in
that country or which operates a transnational system
for the central handling of securities or equivalent
book-entries (on "Eligible Foreign Securities
Depository"), the Custodian shall cause the securities
and cash shown on the account on the books of the
Eligible Foreign Securities Depository to be identified
as belonging to the Custodian as agent for the
Corporation.
The Custodian hereby agrees that the books and records of the
Custodian (including any Custodian branch) pertaining to its
actions under this Agreement shall be open to the physical, on-
premises inspection and audit by the independent accountant (the
"Accountant") employed by, or other representatives of, the
Corporation, and, upon the request of the Accountant, confirmation
of the contents of those records shall be provided by the
Custodian. The Custodian shall use its best efforts to cause any
Foreign Custodial Agent to afford access to the Accountant to the
books and records of such Foreign Custodial Agent with respect to
securities and cash held by such Foreign Custodial Agent for the
Corporation. The Custodian also agrees to furnish the Accountant
with such reports of the Custodian's (including any Custodian
branches') auditors as they relate to the services provided under
this Agreement and as are necessary for the Accountant to conduct
its examination of the books and records pertaining to affairs of
the Corporation, and the Custodian shall use its best efforts to
obtain and furnish similar reports of any Foreign Custodial Agent
holding securities and cash for the Corporation.
Section 10. Registration of Securities
Securities which are ordinarily held in registered form may be
registered in the name of the Custodian's nominee or, as to any
securities in the physical possession of an entity other than the
Custodian, in the name of such entity's nominee. The Corporation
agrees to hold any such nominee harmless from any liability as a
holder of record of such securities. The Custodian may without
notice to the Corporation cause any such securities to cease to be
registered in the name of any such nominee and to be registered in
the name of the Corporation. In the event that any security
registered in the name of the Custodian's nominee or held by any
Subcustodians and registered in the name of such Subcustodian's
nominee is called for partial redemption by the issuer of such
security, the Custodian may allot, or cause to be allotted, the
called portion to the respective beneficial holders of such class
of security in any manner the Custodian deems to be fair and
equitable.
<PAGE>
PAGE 9
Section 11. Transfer Taxes
The Corporation shall pay or reimburse the Custodian and any
Subcustodian for any transfer taxes payable upon transfers of
securities made hereunder, including transfers resulting from the
termination of this Agreement. The Custodian shall, and shall use
its best efforts to cause any Subcustodian to, execute such
certificates in connection with securities delivered to it or such
Subcustodian under this Agreement as may be required, under any
applicable law or regulation, to exempt from taxation any transfers
and/or deliveries of any such securities which may be entitled to
such exemption.
Section 12. Voting and Other Action
Neither the Custodian or any Subcustodian nor any nominee of the
Custodian or such Subcustodian shall vote any of the securities
held hereunder by or for the account of the Corporation. The
Custodian shall, and shall use its best efforts to cause any
Subcustodian to, promptly deliver to the Corporation all notices,
proxies and proxy soliciting materials with relation to such
securities, such proxies to be executed by the registered holder of
such securities (if registered otherwise than in the name of the
Corporation), but without indicating the manner in which such
proxies are to be voted.
The Custodian shall, and shall use its best efforts to cause any
Subcustodian to, transmit promptly to the Corporation all written
information (including, without limitation, pendency of calls and
maturities of securities and expirations of rights in connection
therewith) received by the Custodian or such Subcustodian from
issuers of the securities being held for the Corporation. With
respect to tender or exchange offers, the Custodian shall, and
shall use its best efforts to cause any Subcustodian to, transmit
promptly to the Corporation all written information received by the
Custodian or such Subcustodian from issuers of the securities whose
tender or exchange is sought and from the party (or his agents)
making the tender or exchange offer.
Section 13. Custodian's Reports
The Custodian shall furnish the Corporation as of the close of
business each day a statement showing all transactions and entries
for the account of the Corporation. The books and records of the
Custodian pertaining to its actions as Custodian under this
Agreement and securities held hereunder by the Custodian shall be
open to inspection and audit by officers of the Corporation,
internal auditors employed by the Corporation's investment adviser,
and independent auditors employed by the Corporation. The
Custodian shall furnish the Corporation in such form as may
reasonably be requested by the Corporation a report, including a
list of the securities held by it in custody for the account of the
Corporation, identification of any subcustodian, and identification
of such securities held by such subcustodian, as of the close of
business on the last business day of each month, which shall be
certified by a duly authorized officer of the Custodian. It is
further understood that additional reports may from time to time be
requested by the Corporation. Should any report ever be filed <PAGE>
PAGE 10
with any governmental authority pertaining to lost or stolen
securities, the Custodian will concurrently provide the Corporation
with a copy of that report.
The Custodian also shall furnish such reports on its systems of
internal accounting control as the Corporation may reasonably
request from time to time.
Section 14. Security Interests, Liens and Transfers of Beneficial
Ownership
The securities and cash held by the Custodian hereunder shall not
be subject to any right, change, security interest, lien or claim
of any kind in favor of the Custodian or its creditors, except a
claim of payment for their safe custody or administration, and
beneficial ownership of such securities and cash shall be freely
transferable without the payment of money or value other than for
safe custody or administration. Any agreement the Custodian shall
enter into with any Subcustodian, including any Foreign Custodial
Agent, shall contain a provision which is substantially identical
to the foregoing.
In the event that there shall be asserted any attachment or lien on
or against any securities or cash held in any omnibus account or
nostro account referred to in this Agreement which results from any
claim against the Custodian (including any branch) or any such
account, which is not directly related to transactions in
securities or cash for the Corporation, the Custodian will use its
best efforts promptly to discharge such attachment or lien. If the
Custodian shall not have discharged such attachment or lien within
five business days, it shall notify the Corporation of the
existence of the attachment or lien. If the attachment or lien is
not discharged on the date required for delivery or payment with
respect to any securities or cash in accordance with the provisions
of the Operational Manual:
(a) in the case of such securities, at the option of the
Corporation, the Custodian shall either immediately
transfer to the Corporation a like amount of such
securities (provided the same shall be reasonably
available) or immediately transfer an amount in United
States dollars equal to the market value of such
securities, valued in accordance with such procedures
as may be mutually agreed to by the parties hereto;
(b) in the case of cash, the Custodian shall immediately
transfer to the Corporation an equal amount of cash in
United States dollars.
Section 15. Compensation
For its services hereunder the Custodian shall be paid such
compensation and out-of-pocket or incidental expenses at such times
as may from time to time be agreed on in writing by the parties
hereto in a Custodian Fee Agreement.
<PAGE>
PAGE 11
Section 16. Standard of Care
The Custodian shall not be liable for any action taken in good
faith upon any custodian order or facsimile herein described or
certified copy of any resolution of the Board of Directors or of
the Executive Committee of the Board of Directors of the
Corporation, and may rely on the genuineness of any such document
which it may in good faith believe to have been validly executed.
The Corporation agrees to indemnify and hold harmless the
Custodian, any Subcustodian, or any nominees thereof from all
taxes, charges, expenses, assessments, claims and liabilities
(including counsel fees) incurred or assessed against any such
entity in connection with the performance of this Agreement, except
such as may arise from such entity's own negligent action,
negligent failure to act or willful misconduct. The Custodian is
authorized to charge any account of the Corporation for such items.
In the event of any advance of cash for any purpose made by the
Custodian resulting from orders or instructions of the Corporation,
or in the event that the Custodian or any nominee thereof shall
incur or be assessed any taxes, charges, expenses, assessments,
claims or liabilities in connection with the performance of this
Agreement, except such as may arise from such entity's own
negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the Corporation
shall be security therefor.
The Custodian shall maintain a standard of care equivalent to that
which would be required of a bailee for hire and shall not be
liable for any loss or damage to the Corporation resulting from
participation in a securities depository unless such loss or damage
arises by reason of any negligence, misfeasance, or willful
misconduct of officers or employees of the Custodian, or from its
failure to enforce effectively such rights as it may have against
any securities depository or from use of a Subcustodian, unless
such loss or damage arises by reason of any negligence,
misfeasance, or willful misconduct of officers or employees of the
Custodian, or from its failure to enforce effectively such rights
as it may have against such Subcustodian. Anything in the
foregoing to the contrary notwithstanding, the Custodian shall
exercise, in the performance of its obligations undertaken or
reasonably assumed with respect to this Agreement, including the
recommendation to the Board of Foreign Custodial Agents, reasonable
care, for which the Custodian shall be responsible to the same
extent as if it were performing such duties directly and holding
such securities and cash in Minnesota, United States of America.
The Custodian shall be indemnified and held harmless by the
Corporation from and against any loss or liability for any action
taken or omitted to be taken hereunder in good faith upon custodian
order and may rely on the genuineness of all such orders and
documents as it in good faith believes to have been validly
executed. The Custodian shall be responsible for the securities
and cash held by or deposited with any Subcustodian to the same
extent as if such securities and cash were directly held by or
deposited with the Custodian. The Custodian hereby agrees that it
shall indemnify and hold the Corporation harmless from and against
any loss which shall occur as a result of the failure of a Foreign
Custodial Agent holding the securities and cash to exercise <PAGE>
PAGE 12
reasonable care with respect to the safekeeping of such securities
and cash to the extent that the Custodian would be required to
indemnify and hold the Corporation harmless if the Custodian were
itself holding such securities and cash in Minnesota. It is also
understood that the Custodian shall not have liability for loss
except by reason of the Custodian's negligence, fraud or willful
misconduct, or by reason of negligence, fraud or willful misconduct
of any Subcustodian holding such securities or cash for the
Corporation.
The Custodian warrants that the established procedures to be
followed by any Subcustodian, in the opinion of the Custodian after
due inquiry, afford protection for such securities and cash at
least equal to that afforded by the Custodian's established
procedures with respect to similar securities and cash held by the
Custodian (including its securities depositories) in Minnesota.
However, the Custodian shall have no liability for any loss or
liability occasioned by delay in the actual receipt by it or any
Subcustodian of notice of any payment, redemption, or other
transaction regarding securities unless such delay is a result of
its own negligence, fraud, or willful misconduct.
The Custodian shall not be responsible for any loss of the
Corporation, or to take any action with respect to any attachment
or lien on any omnibus account or nostro account, except as
provided in Section 14 of this Agreement, if such loss, attachment
or lien arises by reason of any cause or circumstances beyond the
control of the Custodian or any Subcustodian acting on behalf of
the Custodian, including acts of civil or military authority,
expropriation, national emergency, acts of God, insurrection, war,
riots, or failure of transportation, communication or power supply,
or the failure of any person, firm or corporation (other than the
Custodian or any Subcustodian acting on behalf of the Custodian) to
perform any obligation if such failure results in any such loss.
Section 17. Insurance
The Custodian represents and warrants that it presently maintains
and shall maintain for the duration of this Agreement a bankers'
blanket bond (the "Bond") which provides standard fidelity and non-
negligent loss coverage with respect to securities and cash which
may be held by the Custodian and securities and cash which may be
held by any Subcustodian which may be utilized by the Custodian
pursuant to this Agreement. The Custodian agrees that, if at any
time the Custodian for any reason discontinues such coverage, it
shall immediately notify the Corporation in writing. The Custodian
represents that only the named insured on the Bond, which includes
the Custodian but not any of its customers, is directly protected
against loss. The Custodian represents that while it might resist
a claim of one of its customers to recover for a loss not covered
by the Bond, as a practical matter, where a claim is brought and a
loss is possibly covered by the Bond, the Custodian would give
notice of the claim to its insurer, and the insurer would normally
determine whether to defend the claim against the Custodian or to
pay the claim on behalf of the Custodian.
<PAGE>
PAGE 13
The Custodian also represents that it does not intend to obtain any
insurance for the benefit of the Corporation which protects against
the imposition of exchange control restrictions or the transfer
from any foreign jurisdiction of the proceeds of sale of any
securities or against confiscation, expropriation or
nationalization of any securities or the assets of the issuer of
such securities by a government of any foreign country in which the
issuer of such securities is organized or in which securities are
held for safekeeping either by the Custodian or any Subcustodian in
such country. The Custodian represents that it has discussed the
availability of expropriation insurance with the Corporation. The
Custodian also represents that it has advised the Corporation as to
its understanding of the position of the Staff of the SEC that any
investment company investing in securities of foreign issuers has
the responsibility for reviewing the possibility of the imposition
of exchange control restrictions which would affect the liquidity
of such investment company's assets and the possibility of exposure
to political risk, including the appropriateness of insuring
against such risk. The Custodian represents that the Corporation
has acknowledged that it has the responsibility to review the
possibility of such risks and what, if any, action should be taken.
Section 18. Termination and Amendment of Agreement
The Corporation and the Custodian mutually may agree from time to
time in writing to amend, to add to, or to delete from any
provision of this Agreement.
The Custodian may terminate this Agreement by giving the
Corporation ninety days' written notice of such termination by
registered mail addressed to the Corporation at its principal place
of business.
The Corporation may terminate this Agreement at any time by written
notice thereof delivered, together with a copy of the resolution of
the Board of Directors authorizing such termination and certified
by the Secretary of the Corporation, by registered mail to the
Custodian.
Upon such termination of this Agreement, assets of the Corporation
held by the Custodian shall be delivered by the Custodian to a
successor custodian, if one has been appointed by the Corporation,
upon receipt by the Custodian of a copy of the resolution of the
Board of Directors of the Corporation certified by the Secretary,
showing appointment of the successor custodian, and provided that
such successor custodian is a bank or trust company, organized
under the laws of the United States or of any State of the United
States, having not less than two million dollars aggregate capital,
surplus and undivided profits. Upon the termination of this
Agreement as a part of the transfer of assets, either to a
successor custodian or otherwise, the Custodian will deliver
securities held by it hereunder, when so authorized and directed by
resolution of the Board of Directors of the Corporation, to a duly
appointed agent of the successor custodian or to the appropriate
transfer agents for transfer of registration and delivery as
directed. Delivery of assets on termination of this Agreement
shall be effected in a reasonable, expeditious and orderly manner; <PAGE>
PAGE 14
and in order to accomplish an orderly transition from the Custodian
to the successor custodian, the Custodian shall continue to act as
such under this Agreement as to assets in its possession or
control. Termination as to each security shall become effective
upon delivery to the successor custodian, its agent, or to a
transfer agent for a specific security for the account of the
successor custodian, and such delivery shall constitute effective
delivery by the Custodian to the successor under this Agreement.
In addition to the means of termination hereinbefore authorized,
this Agreement may be terminated at any time by the vote of a
majority of the outstanding shares of the Corporation and after
written notice of such action to the Custodian.
Section 19. General
Nothing expressed or mentioned in or to be implied from any
provision of this Agreement is intended to, or shall be construed
to give any person or corporation other than the parties hereto,
any legal or equitable right, remedy or claim under or in respect
of this Agreement, or any covenant, condition or provision herein
contained, this Agreement and all of the covenants, conditions and
provisions hereof being intended to be and being for the sole and
exclusive benefit of the parties hereto and their respective
successors and assigns.
This Agreement shall be governed by the laws of the State of
Minnesota.
Attest: IDS BOND FUND, INC.
/s/ William C. Herber By /s/ Leslie L. Ogg
William C. Herber Leslie L. Ogg
Secretary Vice President
FIRST NATIONAL BANK OF
MINNEAPOLIS
By________________________
By________________________
<PAGE>
PAGE 1
INDEPENDENT AUDITORS' CONSENT
___________________________________________________________________
The Board and Shareholders
IDS Bond Fund, Inc.:
We consent to the use of our report incorporated herein by
reference and to the references to our Firm under the headings
"Financial highlights" in Part A and "INDEPENDENT AUDITORS" in
Part B of the Registration Statement.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
October 30, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> IDS BOND FUND CLASS A
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 3446346292
<INVESTMENTS-AT-VALUE> 3462079470
<RECEIVABLES> 57193535
<ASSETS-OTHER> 62346351
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3458619356
<PAYABLE-FOR-SECURITIES> 11841602
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 71085998
<TOTAL-LIABILITIES> 82927600
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3488104970
<SHARES-COMMON-STOCK> 514132897
<SHARES-COMMON-PRIOR> 467638036
<ACCUMULATED-NII-CURRENT> 4385563
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (9740426)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15941649
<NET-ASSETS> 3498691756
<DIVIDEND-INCOME> 2244833
<INTEREST-INCOME> 271585109
<OTHER-INCOME> 0
<EXPENSES-NET> (35770036)
<NET-INVESTMENT-INCOME> 238059906
<REALIZED-GAINS-CURRENT> 36066563
<APPREC-INCREASE-CURRENT> (96036937)
<NET-CHANGE-FROM-OPS> 178089532
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (175703125)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 114769614
<NUMBER-OF-SHARES-REDEEMED> (91167526)
<SHARES-REINVESTED> 22892773
<NET-CHANGE-IN-ASSETS> 345190152
<ACCUMULATED-NII-PRIOR> 198350433
<ACCUMULATED-GAINS-PRIOR> (29440601)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 16984406
<INTEREST-EXPENSE> 0
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<TABLE> <S> <C>
<ARTICLE> 6
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<NUMBER> 2
<NAME> IDS BOND FUND CLASS B
<PERIOD-TYPE> 12-MOS
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
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<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 87750336
<SHARES-COMMON-PRIOR> 12643387
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<OVERDISTRIBUTION-GAINS> 0
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<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
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</TABLE>
<PAGE>
PAGE 1
OFFICERS POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as officers of the below listed
open-end, diversified investment companies that previously have
filed registration statements and amendments thereto pursuant to
the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 with the Securities and Exchange Commission:
1933 Act 1940 Act
Reg. Number Reg. Number
IDS Bond Fund, Inc. 2-51586 811-2503
IDS California Tax-Exempt Trust 33-5103 811-4646
IDS Discovery Fund, Inc. 2-72174 811-3178
IDS Equity Select Fund, Inc. 2-13188 811-772
IDS Extra Income Fund, Inc. 2-86637 811-3848
IDS Federal Income Fund, Inc. 2-96512 811-4260
IDS Global Series, Inc. 33-25824 811-5696
IDS Growth Fund, Inc. 2-38355 811-2111
IDS High Yield Tax-Exempt Fund, Inc. 2-63552 811-2901
IDS International Fund, Inc. 2-92309 811-4075
IDS Investment Series, Inc. 2-11328 811-54
IDS Life Investment Series, Inc. 2-73115 811-3218
IDS Life Managed Fund, Inc. 2-96367 811-4252
IDS Life Moneyshare Fund, Inc. 2-72584 811-3190
IDS Life Special Income Fund, Inc. 2-73113 811-3219
IDS Managed Retirement Fund, Inc. 2-93801 811-4133
IDS Market Advantage Series, Inc. 33-30770 811-5897
IDS Money Market Series, Inc. 2-54516 811-2591
IDS New Dimensions Fund, Inc. 2-28529 811-1629
IDS Precious Metals Fund, Inc. 2-93745 811-4132
IDS Progressive Fund, Inc. 2-30059 811-1714
IDS Selective Fund, Inc. 2-10700 811-499
IDS Special Tax-Exempt Series Trust 33-5102 811-4647
IDS Stock Fund, Inc. 2-11358 811-498
IDS Strategy Fund, Inc. 2-89288 811-3956
IDS Tax-Exempt Bond Fund, Inc. 2-57328 811-2686
IDS Tax-Free Money Fund, Inc. 2-66868 811-3003
IDS Utilities Income Fund, Inc. 33-20872 811-5522
hereby constitutes and appoints William R. Pearce and Leslie L. Ogg
or either one of them, as her or his attorney-in-fact and agent, to
sign for her or him in her or his name, place and stead, as an
officer, any and all further amendments to said registration
statements filed pursuant to said Acts and any rules and
regulations thereunder, and to file such amendments with all
exhibits thereto and other documents in connection therewith with
<PAGE>
PAGE 2
the Securities and Exchange Commission, granting to either of them
the full power and authority to do and perform each and every act
required and necessary to be done in connection therewith.
Dated the 1st day of November, 1995.
/s/ William R. Pearce
William R. Pearce
/s/ Melinda S. Urion
Melinda S. Urion
