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. 47 (File Number 2-51586) X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 33 (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, 1997 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.
<PAGE>
Cross reference sheet showing the location in the prospectus and Statement of
Additional Information of the information called for by items enumerated in
Parts A and B of Form N-1A.
Negative answers omitted are so indicated.
PART A
Item No. Section in Prospectus
1 Cover page of prospectus
2 (a) Sales charge and Fund expenses
(b) The Fund in brief
(c) The Fund in brief
3 (a) Financial highlights
(b) NA
(c) Performance
(d) Financial highlights
4 (a) The Fund in brief; Investment policies and risks; How the Fund is
organized
(b) Investment policies and risks
(c) Investment policies and risks
5 (a) Board members and officers
(b)(i) Investment manager; About American Express Financial Corporation
- General information
(b)(ii) Investment manager
(b)(iii) Investment manager
(c) Portfolio manager
(d) Administrator and transfer agent
(e) Administrator and transfer agent
(f) Distributor
(g) Investment manager; About American Express Financial Corporation
- General information
5A(a) *
(b) *
6 (a) Shares; Voting rights
(b) NA
(c) NA
(d) Voting rights
(e) Cover page; Special shareholder services
(f) Dividend and capital gain distributions; Reinvestments
(g) Taxes
(h) Alternative purchase arrangements
7 (a) Distributor
(b) Valuing Fund shares
(c) How to purchase, exchange or redeem shares
(d) How to purchase shares
(e) NA
(f) Distributor
(g) Alternative purchase arrangements; Reductions and waivers of the
sales charge
8 (a) How to redeem shares
(b) NA
(c) How to purchase shares: Three ways to invest
(d) How to purchase, exchange or redeem shares: Redemption policies -
"Important...
9 None
PART B
Item No. Section in Statement of Additional Information
10 Cover page of SAI
11 Table of Contents
12 NA
13 (a) Additional Investment Policies; all appendices except Dollar-Cost
Averaging
(b) Additional Investment Policies
(c) Additional Investment Policies
(d) Security Transactions
14 (a) Board members and officers**; Board Members and Officers
(b) Board Members and Officers
(c) Board Members and Officers
15 (a) NA
(b) Principal Holders of Securities, if applicable
(c) Board Members and Officers
16 (a)(i) How the Fund is organized; About the American Express Financial
Corporation**
(a)(ii) Agreements: Investment Management Services Agreement, Plan and
Agreement of Distribution
(a)(iii) Agreements: Investment Management Services Agreement
(b) Agreements: Investment Management Services Agreement
(c) NA
(d) Agreements: Administrative Services Agreement, Shareholder
Service Agreement
(e) NA
(f) Agreement: Distribution Agreement
(g) NA
(h) Custodian Agreement; Independent Auditors
(i) Agreements: Transfer Agency Agreement; Custodian Agreement
17 (a) Security Transactions
(b) Brokerage Commissions Paid to Brokers Affiliated with American
Express Financial Corporation
(c) Security Transactions
(d) Security Transactions
(e) Security Transactions
18 (a) Shares; Voting rights**
(b) NA
19(a) Investing in the Fund
(b) Valuing Fund Shares; Investing in the Fund
(c) Redeeming Shares
20 Taxes
21 (a) Agreements: Distribution Agreement
(b) NA
(c) NA
22 (a) Performance Information (for money market funds only)
(b) Performance Information (for all funds except money market funds)
23 Financial Statements
* Designates information is located in annual report.
** Designates location in prospectus.
<PAGE>
IDS Bond Fund
Prospectus
Oct. 30, 1997
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 is incorporated here by reference.
For a free copy, contact American Express Shareholder Service.
Like all mutual fund shares, 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.
Please note that the Fund:
o is not a bank deposit
o is not federally insured
o is not endorsed by any bank or government agency
o is not guaranteed to achieve its goal
American Express Shareholder Service
P.O. Box 534
Minneapolis, MN
55440-0534
800-862-7919
TTY: 800-846-4852
Web site address: http://www.americanexpress.com/advisors
<PAGE>
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
<PAGE>
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>
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. For further information, refer to the later section in the prospectus
titled "Investment policies and 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 $__ 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 member 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.
<PAGE>
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.
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 (as a percentage 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% 0.28%
Total 0.84% 1.60% 0.77%
*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, a transfer agency fee and other nonadvisory expenses. Class Y expenses have
been restated to reflect the 0.10% shareholder services fee effective May 9,
1997.
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 $ 8 $ 25 $ 43 $ 96
- ----------- ----------- ------------ ------------ -----------
*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.
<PAGE>
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>
<TABLE>
<CAPTION>
Performance
Financial highlights
IDS Bond Fund, Inc.
Fiscal period ended Aug. 31,
Per share income and capital changesa
Class A
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $4.99 $5.05 $4.91 $5.48 $5.11 $4.74 $4.39 $4.74 $4.60 $4.72
beginning of period
Income from investment operations:
Net investment income .35 .36 .38 .41 .40 .40 .41 .40 .42 .44
(loss)
Net gains (losses) .23 (.07) .23 (.51) .38 .37 .33 (.36) .15 (.12)
(both realized
and unrealized)
Total from investment .58 .29 .61 (.10) .78 .77 .74 .04 .57 .32
operations
Less distributions:
Dividends from net (.35) (.35) (.37) (.41) (.41) (.40) (.39) (.39) (.43) (.44)
investment income
Distributions from -- -- (.10) (.06) -- -- -- -- -- --
realized gains
Total distributions (.35) (.35) (.47) (.47) (.41) (.40) (.39) (.39) (.43) (.44)
Net asset value, $5.22 $4.99 $5.05 $4.91 $5.48 $5.11 $4.74 $4.39 $4.74 $4.60
end of period
Ratios/supplemental data
Class A
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
Net assets, end of $2,646 $2,563 $2,363 $2,249 $2,490 $2,174 $1,902 $1,730 $1,811 1,733
period (in millions)
Ratio of expenses to .84% .84% .78% .68% .70% .72% .77% .77% .75% .73%
average daily net assets(c)
Ratio of net income 6.86% 7.01% 7.84% 7.71% 7.78% 8.29% 9.03% 8.83% 9.04% 9.45%
(loss) to average
daily net assets
Portfolio turnover rate 50% 45% 43% 40% 60% 64% 74% 81% 97% 76%
(excluding short-term
securities)
Total return(b) 12.1% 5.8% 13.7% (2.0%) 15.8% 16.9% 17.6% .9% 13.0% 7.2%
</TABLE>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Total return does not reflect payment of a sales charge.
(c) Effective fiscal year 1996, expense ratio is based on total expenses of the
Fund before reduction of earnings credits on cash balances.
<PAGE>
IDS Bond Fund, Inc.
Fiscal period ended Aug. 31,
Per share income and capital changes(a)
Class B Class Y
1997 1996 1995(b) 1997 1996 1995(b)
Net asset value, $4.99 $5.05 $4.79 $4.99 $5.05 $4.79
beginning of period
Income from investment operations:
Net investment income .31 .32 .17 .36 .37 .19
(loss)
Net gains (both realized .23 (.07) .26 .23 (.07) .26
and unrealized)
Total from investment .54 .25 .43 .59 .30 .45
operations
Less distributions:
Dividends from net (.31) (.31) (.17) (.36) (.36) (.19)
investment income
Net asset value, $5.22 $4.99 $5.05 $5.22 $4.99 $5.05
end of period
Ratios/supplemental data
Class B Class Y
1997 1996 1995(b) 1997 1996 1995(b)
Net assets, end of $913 $848 $782 $116 $88 $64
period (in millions)
Ratio of expenses to 1.60% 1.60% 1.63%(c) .70% .67% .67%(c)
average daily net assets(e)
Ratio of net income 6.10% 6.24% 6.81%(c) 7.01% 7.19% 8.44%(c)
(loss) to average
daily net assets
Portfolio turnover rate 50% 45% 43% 50% 45% 43%
(excluding short-term
securities)
Total return(d) 11.2% 5.0% 9.0% 12.2% 5.9% 9.4%
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date was March 20, 1995.
(c) Adjusted to an annual basis.
(d) Total return does not reflect payment of a sales charge.
(e) Effective fiscal year 1996, expense ratio is based on total expenses
of the Fund before the reduction of earnings credits on cash balances.
The information in these tables have 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.
<PAGE>
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, 1997
<TABLE>
<CAPTION>
- ---------------------- -------------------- --------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Purchase made 1 year ago Since inception 5 years ago 10 years ago
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Bond Fund:
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Class A +6.45% -- % +7.74% +9.31%
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Class B +7.21% +9.04%* -- % -- %
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Class Y +12.21% +11.50%* -- % -- %
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Lehman Aggregate
Bond Index +10.01% +8.64%** +6.80% +9.05%
- ---------------------- -------------------- --------------------- --------------------- --------------------
*Inception date was March 20, 1995.
**Measurement period started April 1, 1995.
Cumulative total returns as of Aug. 31, 1997
- ---------------------- -------------------- --------------------- --------------------- --------------------
Purchase made 1 year ago Since inception 5 years ago 10 years ago
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Bond Fund:
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Class A +6.45% -- % +45.20% +143.77%
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Class B +7.21% +23.65%* -- % -- %
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Class Y +12.21% +30.58%* -- % -- %
- ---------------------- -------------------- --------------------- --------------------- --------------------
- ---------------------- -------------------- --------------------- --------------------- --------------------
Lehman Aggregate
Bond Index +10.01% +22.34%** +38.92% +137.89%
- ---------------------- -------------------- --------------------- --------------------- --------------------
*Inception date was March 20, 1995.
**Measurement period started April 1, 1995.
</TABLE>
<PAGE>
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. 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.
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. 31, 1997, was 6.14% for Class A, 5.70%
for Class B and 6.54% 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.
<PAGE>
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 invests primarily in bonds and other debt securities (including
municipal obligations) issued by U.S. and foreign corporations and governments.
At least 50% of the Fund's net assets will be invested in investment-grade
corporate bonds (bonds that independent rating agencies rate in one of their top
four grades), unrated corporate bonds the investment 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 investment 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 investment manager believes it is advantageous to do so.
<PAGE>
<TABLE>
<CAPTION>
Bond ratings and holdings for fiscal 1997
<S> <C> <C> <C>
- --------------------------- ------------------ ---------------------------------- --------------------------
Percent of net assets in
S&P rating unrated securities
Percent of net assets (or Moody's Protection of principal and assessed by AEFC
equivalent) interest
- --------------------------- ------------------ ---------------------------------- --------------------------
- --------------------------- ------------------ ---------------------------------- --------------------------
25.90% AAA Highest quality 0.48%
- --------------------------- ------------------ ---------------------------------- --------------------------
- --------------------------- ------------------ ---------------------------------- --------------------------
6.61 AA High quality --
- --------------------------- ------------------ ---------------------------------- --------------------------
- --------------------------- ------------------ ---------------------------------- --------------------------
12.49 A Upper medium grade 0.02
- --------------------------- ------------------ ---------------------------------- --------------------------
- --------------------------- ------------------ ---------------------------------- --------------------------
17.20 BBB Medium grade 0.30
- --------------------------- ------------------ ---------------------------------- --------------------------
- --------------------------- ------------------ ---------------------------------- --------------------------
15.50 BB Moderately speculative 0.24
- --------------------------- ------------------ ---------------------------------- --------------------------
- --------------------------- ------------------ ---------------------------------- --------------------------
8.01 B Speculative 0.42
- --------------------------- ------------------ ---------------------------------- --------------------------
- --------------------------- ------------------ ---------------------------------- --------------------------
0.15 CCC Highly speculative 0.18
- --------------------------- ------------------ ---------------------------------- --------------------------
- --------------------------- ------------------ ---------------------------------- --------------------------
-- CC Poor quality --
- --------------------------- ------------------ ---------------------------------- --------------------------
- --------------------------- ------------------ ---------------------------------- --------------------------
-- C Lowest quality --
- --------------------------- ------------------ ---------------------------------- --------------------------
- --------------------------- ------------------ ---------------------------------- --------------------------
-- D In default --
- --------------------------- ------------------ ---------------------------------- --------------------------
- --------------------------- ------------------ ---------------------------------- --------------------------
2.57 Unrated Unrated securities 0.93
- --------------------------- ------------------ ---------------------------------- --------------------------
</TABLE>
(See the Appendix to this prospectus describing corporate bond ratings for
further information.)
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. Because such securities do not pay current cash
income, the market value of these securities may be subject to greater
volatility than other debt securities. 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.
<PAGE>
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 investment 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
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 investment 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.
<PAGE>
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. Securities and instruments, however, can be
sold in private sales, and many may be sold to other institutions and qualified
buyers or on foreign markets. The investment 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.
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.
<PAGE>
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 are valued according to methods selected by the board
o 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>
<S> <C> <C> <C>
-------------------------- -------------------------- --------------------------
Sales charge and Service fee Other information
distribution (12b-1) fee
- --------------------------- -------------------------- -------------------------- --------------------------
- --------------------------- -------------------------- -------------------------- --------------------------
Class A Maximum initial sales 0.175% of average daily Initial sales charge
charge of 5%; no 12b-1 net assets waived or reduced for
fee certain purchases
- --------------------------- -------------------------- -------------------------- --------------------------
- --------------------------- -------------------------- -------------------------- --------------------------
Class B No initial sales charge; 0.175% of average daily Shares convert to Class
maximum CDSC of 5% net assets A in the ninth year of
declines to 0% after six ownership; CDSC waived
years; 12b-1 fee of in certain circumstances
0.75% of average daily
net assets
- --------------------------- -------------------------- -------------------------- --------------------------
- --------------------------- -------------------------- -------------------------- --------------------------
Class Y None 0.10% of average daily Available only to
net assets certain qualifying
institutional investors
- --------------------------- -------------------------- -------------------------- --------------------------
</TABLE>
Conversion of Class B shares to Class A shares - During the ninth calendar year
of owning your Class B shares, Class B shares will convert to Class A shares and
will no longer be subject to a distribution fee. Class B shares that convert to
Class A shares are not subject to a sales charge. Class B shares purchased
through reinvested dividends and distributions also will convert to Class A
shares in the same proportion as the other Class B shares. This means more of
your money will be put to work for you.
<PAGE>
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.
<TABLE>
<CAPTION>
Sales charges on purchase or redemption
<S> <C>
If you purchase Class A shares If you purchase Class B shares
You will not have all of your purchase price All of your money is invested in shares of
invested. Part of your purchase price will go stock. However, you will pay a sales charge if
to pay the sales charge. You will not pay a you redeem your shares within six years of
sales charge when you redeem your shares. purchase.
You will be able to take advantage of No reductions of the sales charge are
reductions in the sales charge. available for large 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.
Ongoing expenses
If you purchase Class A shares If you purchase Class B shares
Your shares will have a lower expense ratio The distribution and transfer agency fees for
than Class B shares because Class A does not Class B will cause your shares to have a
pay a distribution fee and the transfer agency higher expense ratio and to pay lower
fee for Class A is lower than the fee for Class dividends than Class A shares. After eight
B. As a result, Class A shares will pay higher years, Class B shares will convert to Class A
dividends than Class B shares. shares and you will no longer be subject to higher fees.
</TABLE>
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.
<PAGE>
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 a distribution fee. The following investors are eligible to purchase
Class Y shares:
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.
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.
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.
How to purchase shares
If you are investing in this Fund for the first time, you will 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 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.
<PAGE>
Purchase policies:
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.
The minimums allowed for investment may change from time to time.
Wire orders can be accepted only on days when your bank, AEFC, the Fund
and Norwest Bank Minneapolis are open for business.
Wire purchases are completed when wired payment is received and the Fund
accepts the purchase.
AEFC and the Fund are not responsible for any delays that occur in wiring
funds, including delays in processing by the bank.
You must pay any fee the bank charges for wiring.
The Fund reserves the right to reject any application for any reason.
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.
Three ways to invest
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------- ---------------------------------------- --------------------------------------
1 Send your check and application (or Minimum amounts
By regular account your name and account number if you
have an established account) to: Initial investment: $2,000
American Express Additional investments: $100
Financial Advisors Inc.
P.O. Box 74 Account balances: $300*
Minneapolis, MN 55440-0074
Qualified retirement
Your financial advisor will help you accounts: none
with this process.
- --------------------------- ---------------------------------------- --------------------------------------
2 Contact your financial advisor to set Minimum amounts
By scheduled investment up one of the following scheduled
plan plans: Initial investment: $100
automatic payroll deduction Additional investments:$100/each payment
bank authorization Account balances: none
(on active plans of
direct deposit of Social Security monthly payments)
check
If account balance is below $2,000,
other plan approved by the Fund frequency of payments must be at
least monthly.
- --------------------------- ---------------------------------------- --------------------------------------
- --------------------------- ---------------------------------------- --------------------------------------
3 If you have an established account, If this information is not included,
By wire you may wire money to: the order may be rejected and all
money received by the Fund, less any
Norwest Bank Minneapolis costs the Fund or AEFC incurs, will
Routing No. 091000019 be returned promptly.
Minneapolis, MN
Attn: Domestic Wire Dept. Minimum amounts
Each wire investment: $1,000
Give these instructions: Credit IDS Account
#00-30-015 for personal account # (your account
number) for (your name).
</TABLE>
*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.
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 on any other fund, including fees and expenses,
read that fund's prospectus carefully.
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 use the sales charge imposed on
the purchase of Class A shares to create or increase 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.
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.
<PAGE>
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> <C>
- ------------------------------------ ----------------------------------- -----------------------------------
1 Include in your letter: Regular mail:
By letter
the name of the fund(s) American Express
Shareholder Service
the class of shares to be Attn: Redemptions
exchanged or redeemed P.O. Box 534
Minneapolis, MN
your account number(s) (for 55440-0534
exchanges, both funds must be
registered in the same Express mail:
ownership)
American Express
your Taxpayer Identification Shareholder Service
Number (TIN) Attn: Redemptions
733 Marquette Ave.
the dollar amount or number of Minneapolis, MN 55402
shares you want to exchange or
redeem
signature of all registered
account owners
for redemptions, indicate how
you want your money delivered
to you
any paper certificates of
shares you hold
- ------------------------------------ ----------------------------------- -----------------------------------
2
By phone The Fund and AEFC will honor AEFC answers phone requests
any telephone exchange or promptly, but you may
American redemption request believed to experience delays when call
Express Financial Advisors be authentic and will use volume is high. If you are
Telephone reasonable procedures to unable to get through, use mail
Transaction confirm that they are. This procedure as an alternative.
Service: includes asking identifying
800-437-3133 questions and tape recording Acting on your instructions,
or calls. If reasonable procedures your financial advisor may
612-671-3800 are not followed, the Fund or conduct telephone transactions
AEFC will be liable for any on your behalf.
loss resulting from fraudulent
requests. Phone privileges may be
modified or discontinued at any
Phone exchange and redemption time.
privileges automatically apply
to all accounts except Minimum amount
custodial, corporate or Redemption: $100
qualified retirement accounts
unless you request these Maximum amount
privileges NOT apply by writing Redemption: $50,000
American Express Shareholder
Service. Each registered owner
must sign the request.
</TABLE>
<PAGE>
Exchange policies:
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.
Exchanges must be made into the same class of shares of the new fund.
If your exchange creates a new account, it must satisfy the minimum
investment amount for new purchases.
Once we receive your exchange request, you cannot cancel it.
Shares of the new fund may not be used on the same day for another exchange.
If your shares are pledged as collateral, the exchange will be delayed until
written approval is obtained from the secured party.
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:
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.
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>
Three ways to receive payment when you redeem shares
1 o Mailed to the address on record
By regular or o Payable to names listed on the account
express mail NOTE: You will be charged a fee if you request express
mail delivery.
2 o Minimum wire redemption: $1,000
By wire 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 o Minimum payment: $50
By scheduled o Contact your financial advisor or American Express
Shareholder Service to
payout plan 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
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 offering price Net amount 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:
the amount you are investing in this Fund now;
the amount of your existing investment in this Fund, if any; and
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 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.)
<PAGE>
Other policies that affect your sales charge:
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.
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.
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:
Current or retired board members, officers or employees of the Fund or AEFC
or its subsidiaries, their spouses and unmarried children under 21.
Current or retired American Express financial advisors, their spouses and
unmarried children under 21.
Investors who have a business relationship with a newly associated financial
advisor who joined AEFA from another investment firm provided that (1) the
purchase is made within six months of the advisor's appointment date with
AEFA, (2) the purchase is made with proceeds of a redemption of shares that
were sponsored by the financial advisor's previous broker-dealer, and (3) the
proceeds must be the result of a redemption of an equal or greater value where
a sales load was previously assessed.
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.)
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. The CDSC will be waived only in
the circumstances described for waivers for Class B shares.
<PAGE>
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.
Send the Fund a written request along with your payment, indicating the amount
of the redemption and the date on which it occurred.
Purchases made with dividend or capital gain distributions from the same
class of another fund in the IDS MUTUAL FUND GROUP that has a sales charge.
Purchases made through or under a "wrap fee" product sponsored by American
Express Financial Advisors Inc. (total amount of all investments must be
$50,000); the University of Texas System ORP; or a segregated separate account
offered by Nationwide Life Insurance Company or Nationwide Life and Annuity
Insurance Company.
Purchases made with the proceeds from IDS Life Real Estate Variable Annuity
surrenders through December 31, 1997.
*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%
<PAGE>
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 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.
Waivers of the contingent deferred sales charge The CDSC on Class B shares will
be waived on redemptions of shares:
In the event of the shareholder's death,
Purchased by any board member, officer or employee of a fund or AEFC or its
subsidiaries,
Held in a trusteed employee benefit plan,
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.
<PAGE>
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 Financial Advisors 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
TTY Service
For the hearing impaired
800-846-4852
American Express Financial Advisors Easy Access Line
Automated account information (TouchTone(R) phones only), including current Fund
prices and performance, account values and recent account transactions
800-862-7919
Distributions 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.
<PAGE>
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. The Fund will offset any net realized capital
gains by any available capital loss carryovers. Net realized long-term capital
gains, if any, are distributed at the end of the calendar year as capital gain
distributions. Before they are distributed, net long-term capital gains are
included in the value of each share. After they are 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.
Reinvestments
Dividends and capital gain distributions are automatically reinvested in
additional shares in the same class of the Fund, unless:
you request the Fund in writing or by phone to pay distributions to you in cash,
or
you direct the Fund to invest your distributions in the same class of another
publicly available IDS fund for which you have previously opened an account.
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. Prior to
reinvestment, no interest will accrue on amounts represented by uncashed
distribution or redemption checks.
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.
<PAGE>
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.
If you do not 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:
a $50 penalty for each failure to supply your correct TIN
a civil penalty of $500 if you make a false statement that results in no
backup withholding 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 (Uniform The minor
Gifts/Transfers to Minors Act)
A living trust The grantor-trustee (the person who
puts the money into the trust)
<PAGE>
An irrevocable trust, pension The legal entity (not the personal
trust or estate 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 tax-exempt
organization The 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.
How the Fund is organized
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.
<PAGE>
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. Board members and
officers serve 47 IDS and IDS Life funds and 15 Master Trust portfolios, except
for William H. Dudley, who does not serve the nine IDS Life funds.
Independent board members and officers
Chairman of the board
William R. Pearce*
Chairman of the board, Board Services Corporation (provides administrative
services to boards including the boards of the IDS and IDS Life funds and Master
Trust portfolios).
H. Brewster Atwater, Jr.
Former chairman and chief executive officer, General Mills, Inc.
Lynne V. Cheney
Distinguished fellow, American Enterprise Institute for Public Policy Research.
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.
Alan K. Simpson
Former United States senator for Wyoming.
Edson W. Spencer
Former chairman and chief executive officer, Honeywell, Inc.
<PAGE>
Wheelock Whitney
Chairman, Whitney Management Company.
C. Angus Wurtele
Chairman of the board, The Valspar Corporation.
Officer
Vice president, general counsel and secretary
Leslie L. Ogg
President, treasurer and corporate secretary of Board Services Corporation.
Board members and officers associated with AEFC
President
John R. Thomas*
Senior vice president, AEFC.
William H. Dudley*
Senior advisor to the chief executive officer, AEFC.
David R. Hubers*
President and chief executive officer, AEFC.
Officers associated with AEFC
Vice President
Peter J. Anderson*
Senior vice president, AEFC.
Treasurer
Melinda S. Urion*
Senior vice president and chief financial officer, AEFC.
Refer to the SAI for the board members' and officers' biographies.
*Interested persons as defined by the Investment Company Act of 1940.
<PAGE>
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, 1997, 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 agreement, the Administrative Services Agreement, has
a declining annual rate beginning at 0.05% and decreasing to 0.025% as assets
increase.
The second agreement, the Transfer Agency Agreement, has an annual fee per
shareholder account as follows:
Class A $15.50
Class B $16.50
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.
<PAGE>
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 fee) 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 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 average daily net assets for Class A
and Class B shares and 0.10% for Class Y shares.
Total expenses paid by the Fund's Class A shares for the fiscal year ended Aug.
31, 1997, were 0.84% of its average daily net assets. Expenses for Class B and
Class Y were 1.60% and 0.70%, respectively.
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 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, 1997 were more than $165 billion.
American Express Financial Advisors serves individuals and businesses through
its nationwide network of more than 175 offices and more than 8,500 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>
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.
<PAGE>
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.
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>
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>
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>
STATEMENT OF ADDITIONAL INFORMATION
FOR
IDS BOND FUND
Oct. 30, 1997
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, 1997, and it is to be used with the prospectus dated
Oct. 30, 1997, and the Annual Report for the fiscal year ended Aug. 31, 1997.
<PAGE>
TABLE OF CONTENTS
Goal and Investment Policies..................................See Prospectus
Additional Investment Policies...........................................p.4
Security Transactions....................................................p.7
Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation..................................p.10
Performance Information.................................................p.10
Valuing Fund Shares.....................................................p.13
Investing in the Fund...................................................p.14
Redeeming Shares........................................................p.18
Pay-out Plans...........................................................p.19
Taxes...................................................................p.20
Agreements..............................................................p.21
Organizational Information..............................................p.24
Board Members and Officers..............................................p.24
Compensation for Fund Board Members.....................................p.28
Independent Auditors....................................................p.29
Financial Statements.......................................See Annual Report
Prospectus..............................................................p.29
<PAGE>
Appendix A: Foreign Currency Transactions..............................p.30
Appendix B: Options and Interest Rate Futures Contracts................p.35
Appendix C: Mortgage-Backed Securities.................................p.41
Appendix D: Dollar-Cost Averaging......................................p.42
<PAGE>
ADDITIONAL INVESTMENT POLICIES
These are investment policies in addition to those presented in the prospectus.
The policies below are fundamental policies of IDS Bond Fund, Inc. (the Fund)
and may be changed only with shareholder approval. 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.
<PAGE>
`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.
`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 receives 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, except the Fund 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.
`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.
<PAGE>
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 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.
The term "municipal obligation" as used in the prospectus includes debt
obligations issued by or on behalf of states, territories or possessions of the
United States, the District of Columbia and their political subdivisions,
agencies and instrumentalities, the interest on which is generally exempt from
federal income tax. Municipal obligations are classified as principally as
either "general obligations" or "revenue obligations." General obligation bonds
are secured by the municipality's pledge of its credit and taxing power for the
payment of principal and interest. Revenue obligations are generally payable
only from the revenue derived from a particular facility or class of facilities,
or in some cases from the proceeds of a special excise tax or other special
revenue source.
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
<PAGE>
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.
The Fund may invest in foreign securities that are traded in the form of
American Depositary Receipts (ADRs). ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying securities of
foreign issuers. European Depositary Receipts (EDRs) and Global Depositary
Receipts (GDRs) are receipts typically issued by foreign banks or trust
companies, evidencing ownership of underlying securities issued by either a
foreign or U.S. issuer. Generally Depositary Receipts in registered form are
designed for use in the U.S. securities market and Depositary Receipts in bearer
form are designed for use in securities markets outside the U.S. Depositary
Receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. Depositary Receipts also
involve the risks of other investments in foreign securities.
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.
<PAGE>
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 with respect to the Fund and other funds and trusts in the IDS
MUTUAL FUND GROUP 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
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
<PAGE>
overall execution. AEFC has represented 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.
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 $159,232 for the fiscal year ended
Aug. 31, 1997, $49,696 for the fiscal year 1996, and $71,924 for the fiscal year
1995. 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, except for the affiliates as noted below.
As of the fiscal year ended Aug. 31, 1997, 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
Name of Issuer End of Fiscal Year
Bank America $ 9,715,700
Salomon 38,735,709
Goldman Sachs Group 9,969,389
Morgan Stanley Group 7,845,589
Morgan (JP) 12,603,500
Merrill Lynch 13,590,594
<PAGE>
The portfolio turnover rate was 50% in the fiscal year ended Aug. 31, 1997, and
45% in fiscal year 1996.
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 that
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 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.
<PAGE>
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>
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 6.14% for Class A, 5.70% for Class B and 6.54%
for Class Y for the 30-day period ended Aug. 31, 1997.
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 5.98% for Class A, 5.52% for Class B and 6.37%
for Class Y for the 30-day period ended Aug. 31, 1997.
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, Morningstar, 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>
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. 2, 1997, the
first business day following the end of the fiscal year, the computation looked
like this:
<TABLE>
<CAPTION>
Net assets before Shares outstanding at
shareholder transactions divided by end of previous day equals Net asset value of one
share
- ---------- ------------------------- ----------- ------------------------- ------- -------------------------
<S> <C> <C> <C>
Class A $2,648,673,805 506,729,253 5.227
Class B 913,719,341 174,807,602 5.227
Class Y 115,795,247 22,153,291 5.227
</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):
`Securities, except bonds other than convertibles, traded on a securities
exchange for which a last-quoted sales price is readily available are valued at
the last-quoted sales price on the exchange where such security is primarily
traded.
`Securities traded on a securities exchange for which a last-quoted sales price
is not readily available are valued at the mean of the closing bid and asked
prices, looking first to the bid and asked prices on the exchange where the
security is primarily traded and, if none exist, to the over-the-counter market.
`Securities included in the NASDAQ National Market System are valued at the
last-quoted sales price in this market.
`Securities included in the NASDAQ National Market System for which a
last-quoted sales price is not readily available, and other securities traded
over-the-counter but not included in the NASDAQ National Market System are
valued at the mean of the closing bid and asked prices.
`Futures and options traded on major exchanges are valued at the last-quoted
sales price on their primary exchange.
`Foreign securities traded outside the United States are generally valued as of
the time their trading is complete, which is usually different from the close of
the Exchange. Foreign securities quoted in foreign currencies are translated
into U.S. dollars at the current rate of exchange. Occasionally, events
affecting the value of such securities may occur between such times and the
close of the Exchange that will not be reflected in the computation of the
Fund's net asset value. If events materially affecting the value of such
securities occur during such period, these securities will be valued at their
fair value according to procedures decided upon in good faith by the board.
<PAGE>
`Short-term securities maturing more than 60 days from the valuation date are
valued at the readily available market price or approximate market value based
on current interest rates. Short-term securities maturing in 60 days or less
that originally had maturities of more than 60 days at acquisition date are
valued at amortized cost using the market value on the 61st day before maturity.
Short-term securities maturing in 60 days or less at acquisition date are valued
at amortized cost. Amortized cost is an approximation of market value determined
by systematically increasing the carrying value of a security if acquired at a
discount, or reducing the carrying value if acquired at a premium, so that the
carrying value is equal to maturity value on the maturity date.
`Securities without a readily available market price, bonds other than
convertibles and other assets are valued at fair value as determined in good
faith by the board. The board is responsible for selecting methods it believes
provide fair value. When possible, bonds are valued by a pricing service
independent from the Fund. If a valuation of a bond is not available from a
pricing service, the bond will be valued by a dealer knowledgeable about the
bond if such a dealer is available.
The Exchange, AEFC and the Fund will be closed on the following holidays: New
Year's Day, 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. 2, 1997, was determined by dividing
the net asset value of one share, $5.227, by 0.95 (1.00-0.05 for a maximum 5%
sales charge) for a public offering price of $5.50. The sales charge is paid to
American Express Financial Advisors Inc. (AEFA) 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:
Amount of Investment Public Offering Price Net 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
<PAGE>
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 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 Offering Price Net 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%
- ------------------------------------------------------------------------------
<PAGE>
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 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 interests.) 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.
<PAGE>
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 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 the same class of another fund in the IDS MUTUAL FUND GROUP but cannot be
split to make purchases in two or more funds. Automatic directed dividends are
available between accounts of any ownership except:
<PAGE>
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);
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 that fund's 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, as amended
(the 1940 Act), 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.
<PAGE>
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 the 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
circumstances, 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.
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 American Express Shareholder Service,
P.O. Box 534, Minneapolis, MN 55440-0534, or call American Express Financial
Advisors Telephone Transaction Service at 800-437-3133 (National/Minnesota) or
612-671-3800 (Mpls./St. Paul). 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.
<PAGE>
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.
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%. or 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.
TAXES
If you buy shares in the Fund and then exchange into another fund, it is
considered a redemption 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 redemption 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
<PAGE>
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 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, 1997, 0.85% 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.
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, 1997, the daily rate applied to the Fund's net assets was equal to
0.486% 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>
The management fee is paid monthly. Under the agreement, the total amount paid
was $17,488,348 for the fiscal year ended Aug. 31, 1997, $16,984,406 for fiscal
year 1996, and $13,073,299 for fiscal year 1995.
Under the 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; 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 $901,226 for the fiscal year ended Aug. 31, 1997, $1,317,590 for fiscal year
1996, and $1,093,511 for fiscal year 1995.
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 at
(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, 1997, the daily rate applied to the Fund's net assets was equal to
0.043% 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 $1,606,573 for the fiscal year ended Aug. 31, 1997.
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
<PAGE>
changed from time to time upon agreement of the parties without shareholder
approval. Under the agreement, the Fund paid fees of $3,722,233 for the fiscal
year ended Aug. 31, 1997.
Distribution Agreement
Under a Distribution Agreement, sales charges deducted for distributing Fund
shares are paid to AEFA daily. These charges amounted to $8,298,848 for the
fiscal year ended Aug. 31, 1997. After paying commissions to personal financial
advisors, and other expenses, the amount retained was $(937,881). The amounts
were $12,491,616 and $(2,546,886) for fiscal year 1996, and $7,800,870 and
$545,125 for fiscal year 1995.
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 average
daily net assets for Class A and Class B and 0.10% for Class Y.
Plan and Agreement of Distribution
For Class B shares, to help AEFA defray the cost of distribution and servicing,
not covered by the sales charges received under the Distribution Agreement, the
Fund and AEFA 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, AEFA 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 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 AEFA. 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. 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.
<PAGE>
For the fiscal year ended Aug. 31, 1997, under the agreement, the Fund paid fees
of $6,695,640.
Custodian Agreement
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.
Total fees and expenses
The Fund paid total fees and nonadvisory expenses of $36,473,849 for the fiscal
year ended Aug. 31, 1997.
ORGANIZATIONAL INFORMATION
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.
BOARD MEMBERS AND OFFICERS
The following is a list of the Fund's board members. They serve 15 Master Trust
portfolios and 47 IDS and IDS Life funds (except for William H. Dudley, who does
not serve on the nine IDS Life fund boards.)
All shares have cumulative voting rights with respect to the election of board
members.
H. Brewster Atwater, Jr.
Born in 1931
4900 IDS Tower
Minneapolis, MN
Former chairman and chief executive officer, General Mills, Inc. Director, Merck
& Co., Inc. and Darden Restaurants, Inc.
<PAGE>
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, Union Pacific
Resources, and FPL Group, Inc. (holding company for Florida Power and Light).
William H. Dudley**
Born in 1932
2900 IDS Tower
Minneapolis, MN
Senior advisor to the chief executive officer, 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).
<PAGE>
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.
William R. Pearce+*
Born in 1927
901 S. Marquette Ave.
Minneapolis, MN
Chairman of the board, Board Services Corporation (provides administrative
services to boards). Director, trustee and officer of registered investment
companies whose boards are served by the company. Former vice chairman of the
board, Cargill, Incorporated (commodity merchants and processors).
Alan K. Simpson'
Born in 1931
1201 Sunshine Ave.
Cody, WY
Former three-term United States Senator for Wyoming. Former Assistant Republican
Leader, U.S. Senate. Director, PacifiCorp (electric power).
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.
<PAGE>
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 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.
In addition to Mr. Pearce, who is chairman and Mr. Thomas who is president, the
Fund's other officers are:
Leslie L. Ogg
Born in 1938
901 S. Marquette Ave.
Minneapolis, MN
President, treasurer and corporate secretary of Board Services Corporation. Vice
president, general counsel and secretary for the Fund.
<PAGE>
Officers who also are officers and/or employees of AEFC
Peter J. Anderson
Born in 1942
IDS Tower 10
Minneapolis, MN
Director and senior vice president-investments of AEFC. Vice
president-investments for the Fund.
Melinda S. Urion
Born in 1953
IDS Tower 10
Minneapolis, MN
Director, senior vice president and chief financial officer of AEFC. Director,
executive vice president and controller of IDS Life Insurance Company. Treasurer
for the Fund.
COMPENSATION FOR FUND BOARD MEMBERS
Members of the board who are not officers of the Fund or AEFC receive an annual
fee of $2,600 and the chair of the Contracts Committee receives an additional
$86. 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 $26. Expenses for attending meetings are reimbursed.
During the fiscal year ended Aug. 31, 1997, the independent members of the
board, for attending up to 32 meetings, received the following compensation:
<TABLE>
<CAPTION>
Compensation Table
Total cash
compensation from
Aggregate Pension or Estimated annual the IDS MUTUAL
compensation Retirement benefit upon FUND GROUP and
Board member from the Fund benefits accrued retirement Preferred Master
as Fund expenses Trust Group
- ---------------------------- ---------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
H. Brewster Atwater, Jr. $2,892 $0 $0 $83,100
(part of year)
Lynne V. Cheney 3,547 0 0 96,600
Robert F Froehlke 3,601 0 0 103,800
Heinz F. Hutter 3,636 0 0 105,500
Anne P. Jones 3,823 0 0 110,800
Melvin R. Laird 3,563 0 0 97,800
Alan K. Simpson 2,312 0 0 62,400
(part of year)
Edson W. Spencer 3,997 0 0 127,000
Wheelock Whitney 3,686 0 0 108,700
C. Angus Wurtele 3,711 0 0 109,900
</TABLE>
<PAGE>
On Aug. 31, 1997, the Fund's board members and officers as a group owned less
than 1% of the outstanding shares of a class.
INDEPENDENT AUDITORS
The financial statements contained in the Annual Report to shareholders for the
fiscal year ended Aug. 31, 1997, 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 Annual Report to shareholders for the fiscal year ended 1997,
pursuant to Section 30(d) of the 1940 Act 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, 1997, is hereby incorporated in
this SAI by reference.
<PAGE>
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>
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 (spread)
between the prices at which they are buying and
<PAGE>
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
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.
<PAGE>
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.
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
<PAGE>
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>
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 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
<PAGE>
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.
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.
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.
<PAGE>
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.
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,
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
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>
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>
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 technique 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 on a regular basis through changing market conditions,
including times when the price of their shares falls or the market declines, 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>
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, 1997, 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,
1997. 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, 1997, and the results of its operations, changes in its net
assets and the financial highlights for the periods stated in the first
paragraph above, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
October 3, 1997
(This annual report is not part of the prospectus.)
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
IDS Bond Fund, Inc.
Aug. 31, 1997
Assets
<S> <C>
Investments in securities, at value (Note 1)
(identified cost $3,598,123,524) $3,713,891,176
Receivable for investment securities sold 26,758,426
Dividends and accrued interest receivable 51,993,491
U.S. government securities held as collateral (Note 5) 52,675,521
----------
Total assets 3,845,318,614
-------------
Liabilities
Disbursements in excess of cash on demand deposit 155,415
Dividends payable to shareholders 1,431,175
Payable for investment securities purchased 80,024,440
Payable upon return of securities loaned (Note 5) 88,675,521
Accrued investment management services fee 48,851
Accrued distribution fee 18,714
Accrued service fee 17,355
Accrued transfer agency fee 10,268
Accrued administrative services fee 4,341
Other accrued expenses 300,866
-------
Total liabilities 170,686,946
-----------
Net assets applicable to outstanding capital stock $3,674,631,668
==============
Represented by
Capital stock-- authorized 10,000,000,000 shares of $.01 par value 7,036,901
Additional paid-in capital 3,491,363,004
Undistributed net investment income 5,069,429
Accumulated net realized gain (loss) (Note 1) 56,456,360
Unrealized appreciation (depreciation) on investments and on translation
of assets and liabilities in foreign currencies (Notes 1 and 4) 114,705,974
-----------
Total-- representing net assets applicable to outstanding capital stock $3,674,631,668
==============
Net assets applicable to outstanding shares: Class A $2,646,102,492
Class B $ 912,836,720
Class Y $ 115,692,456
Net asset value per share of outstanding capital stock: Class A shares 506,729,253 $ 5.22
Class B shares 174,807,602 $ 5.22
Class Y shares 22,153,291 $ 5.22
See accompanying notes to financial statements.
(This annual report is not part of the prospectus.)
<PAGE>
Statement of operations
IDS Bond Fund, Inc.
Year ended Aug. 31, 1997
Investment income
Income:
Dividends $ 2,687,372
Interest 273,959,592
Less: Foreign taxes withheld (666)
----
Total income 276,646,298
-----------
Expenses (Note 2):
Investment management services fee 17,488,348
Distribution fee -- Class B 6,695,640
Transfer agency fee 3,648,525
Incremental transfer agency fee-- Class B 73,708
Service fee
Class A 4,480,168
Class B 1,546,659
Class Y 33,002
Administrative services fees and expenses 1,606,573
Compensation of board members 36,232
Compensation of officers 9,580
Custodian fees 336,692
Postage 518,688
Registration fees 171,975
Reports to shareholders 49,070
Audit fees 40,000
Other 22,482
------
Total expenses 36,757,342
Earnings credits on cash balances (Note 2) (283,493)
--------
Total net expenses 36,473,849
----------
Investment income (loss) -- net 240,172,449
-----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 70,808,847
Foreign currency transactions 7,118
Financial futures contracts (6,349,276)
Options contracts written (Note 7) (119,192)
--------
Net realized gain (loss) on investments and foreign currencies 64,347,497
Net change in unrealized appreciation (depreciation) on investments and on
translation of assets and liabilities in foreign currencies 98,764,325
----------
Net gain (loss) on investments and foreign currencies 163,111,822
-----------
Net increase (decrease) in net assets resulting from operations $403,284,271
============
See accompanying notes to financial statements.
(This annual report is not part of the prospectus.)
<PAGE>
<CAPTION>
Financial statements
Statements of changes in net assets
IDS Bond Fund, Inc.
Year ended Aug. 31,
Operations and distributions 1997 1996
<S> <C> <C>
Investment income (loss)-- net $ 240,172,449 $ 238,059,906
Net realized gain (loss) on investments and foreign currencies 64,347,497 36,066,563
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 98,764,325 (96,036,937)
---------- -----------
Net increase (decrease) in net assets resulting from operations 403,284,271 178,089,532
----------- -----------
Distributions to shareholders from:
Net investment income
Class A (177,119,796) (175,703,125)
Class B (53,865,341) (52,732,279)
Class Y (6,665,317) (5,540,758)
---------- ----------
Total distributions (237,650,454) (233,976,162)
------------ ------------
Capital share transactions (Note 6)
Proceeds from sales
Class A shares (Note 2) 365,266,875 589,054,034
Class B shares 255,566,189 377,985,661
Class Y shares 58,488,053 46,288,572
Reinvestment of distributions at net asset value
Class A shares 120,214,339 116,649,304
Class B share 47,142,116 46,578,257
Class Y shares 6,665,317 5,540,758
Payments for redemptions
Class A shares (523,078,485) (464,239,661)
Class B shares (Note 2) (278,467,674) (346,225,740)
Class Y shares (41,490,635) (26,441,033)
----------- -----------
Increase (decrease) in net assets from capital share transactions 10,306,095 345,190,152
---------- -----------
Total increase (decrease) in net assets 175,939,912 289,303,522
Net assets at beginning of year 3,498,691,756 3,209,388,234
------------- -------------
Net assets at end of year $3,674,631,668 $3,498,691,756
============== ==============
Undistributed net investment income $ 5,069,429 $ 3,595,907
-------------- --------------
See accompanying notes to financial statements.
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
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 shares during the ninth calendar year of ownership. Class Y shares
have no sales charge and are offered only to qualifying institutional
investors.
All classes of shares have identical voting, dividend, liquidation and
other rights, and the same terms and conditions, except that the level of
distribution fee, transfer agency fee and service fee (class specific
expenses) differs among classes. Income, expenses (other than class
specific expenses) and realized and unrealized gains or losses on
investments are allocated to each class of shares based upon its relative
net assets.
Significant accounting policies followed by the Fund are summarized below:
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increase and decrease in
net assets from operations during the period. Actual results could differ
from those estimates.
Valuation of securities
All securities are valued at the close of each business day. Securities
traded on national securities exchanges or included in national market
systems are valued at the last quoted sales price. Debt securities are
generally traded in the over-the-counter market and are valued at a price
deemed best to reflect fair value as quoted by dealers who make markets in
these securities or by an independent pricing service. Securities for
which market quotations are not readily available, are valued at fair
value according to methods selected in good faith by the board. Short-term
securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current
interest rates; those maturing in 60 days or less are valued at amortized
cost.
Option transactions
In order to produce incremental earnings, protect gains, and facilitate
buying and selling of securities for investment purposes, the Fund may buy
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 an option is exercised, the proceeds on sales for a
written call option, the purchase cost for a written put option or the
cost of a security for a purchased put or call option is adjusted by the
amount of premium received or paid.
Futures transactions
In order to gain exposure to or protect itself from changes in the market,
the Fund may buy and sell financial futures contracts traded on any U.S.
or foreign exchange. The Fund also may buy or write put and call options
on these contracts. Risks of entering into futures contracts and related
options include the possibility that there may be an illiquid market and
that a change in the value of the contract or option may not correlate
with changes in the value of the underlying securities.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin)
are made or received by the Fund each day. The variation margin payments
are equal to the daily changes in the contract value and are recorded as
unrealized gains and losses. The Fund recognizes a realized gain or loss
when the contract is closed or expires.
Foreign currency translations and
foreign currency contracts
Securities and other assets and liabilities denominated in foreign
currencies are translated daily into U.S. dollars at the closing rate of
exchange. Foreign currency amounts related to the purchase or sale of
securities and income and expenses are translated at the exchange rate on
the transaction date. The effect of changes in foreign exchange rates on
realized and unrealized security gains or losses is reflected as a
component of such gains or losses. In the statement of operations, net
realized gains or losses from foreign currency transactions may arise from
sales for 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.
Illiquid securities
At Aug. 31, 1997, investments in securities included issues that are
illiquid. The Fund currently limits investments in illiquid securities to
10% of the Fund's net assets, at market value, at the time of purchase.
The aggregate value of such securities at Aug. 31, 1997 was $14,803,141
representing 0.4% of net assets. Pursuant to guidelines adopted by the
Fund's board, certain unregistered securities are determined to be liquid
and are not included in the 10% limitation specified above.
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 short-term debt securities at least equal to the amount of its
commitment. As of Aug. 31, 1997, the Fund had entered into outstanding
when-issued or forward commitments of $49,900,000.
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 $1,048,473 and accumulated net realized gain has been
increased by $1,048,706 resulting in a net reclassification adjustment to
decrease additional paid-in capital by $233.
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.
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 its Administrative Services Agreement, the Fund pays AEFC for
administration and accounting services at a percentage of the Fund's
average daily net assets in reducing percentages from 0.05% to 0.025%
annually. Additional administrative services paid by the Fund are office
expenses, consultants' fees and compensation of officers and employees.
Under this agreement, the Fund also pays taxes, audit and certain legal
fees, registration fees for shares, compensation of board members,
corporate filing fees, organizational expenses, and any other expenses
properly payable by Fund approved by the board.
Under a separate Transfer Agency Agreement, AEFC maintains shareholder
accounts and records. The Fund pays AEFC an annual fee per shareholder
account for this service as follows:
oClass A $15.50
oClass B $16.50
oClass Y $15.50
Also effective March 20, 1995, the Fund entered into agreements with
American Express Financial Advisors Inc. for distribution and shareholder
servicing-related services. Under a Plan and Agreement of Distribution,
the Fund pays a distribution fee at an annual rate of 0.75% of the Fund's
average daily net assets attributable to Class B shares for
distribution-related services.
Under a Shareholder Service Agreement, the Fund pays a fee for service
provided to shareholders by financial advisors and other servicing agents.
The fee is calculated at a rate of 0.175% of the Fund's average daily net
assets attributable to Class A and Class B shares and commencing on May 9,
1997, the fee is calculated at a rate of 0.10% of the Fund's average daily
net assets attributable to Class Y shares.
Sales charges received by American Express Financial Advisors Inc. for
distributing Fund shares were $7,583,025 for Class A and $715,823 for
Class B for the year ended Aug. 31, 1997.
During the year ended Aug. 31, 1997 the Fund's custodian and transfer
agency fees were reduced by $283,493 as a result of earnings credits from
overnight cash balances.
3
Securities
transactions
Cost of purchases and proceeds from sales of securities (other than
short-term obligations) aggregated $1,746,969,227 and $1,585,957,718,
respectively, for the year ended Aug. 31, 1997. Realized gains and losses
are determined on an identified cost basis.
4
Interest rate
futures contracts
At Aug. 31, 1997, investments in securities included securities valued at
$4,140,820 that were pledged as collateral to cover initial margin deposit
on 1,270 open sale contracts. The market value of the open sale contracts
at Aug. 31, 1997 was $141,477,500 with a net unrealized loss of
$1,053,907. See Summary of significant accounting policies.
5
Lending of
portfolio securities
At Aug. 31, 1997, securities valued at $86,353,640 were on loan to
brokers. For collateral, the Fund received $36,000,000 in cash and U.S.
government securities valued at $52,675,521. Income from securities
lending amounted to $122,414 for the year ended Aug. 31, 1997. The risks
to the Fund of securities lending are that the borrower may not provide
additional collateral when required or return the securities when due.
6
Capital share
transactions
Transactions in shares of capital stock for the years indicated are as
follows:
Year ended Aug. 31, 1997
Class A Class B Class Y
Sold 70,920,637 49,648,273 11,312,033
Issued for reinvested 23,385,736 9,173,422 1,302,408
distributions
Redeemed (101,710,017) (54,072,632) (8,062,196)
------------ ----------- ----------
Net increase (decrease) (7,403,644) 4,749,063 4,552,245
========== ========= =========
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 (decrease) 46,494,861 15,275,778 4,957,659
========== ========== =========
7
Option contracts
written
The number of contracts and premium amounts associated with option
contracts written is as follows:
Year ended Aug. 31, 1997
Calls
Contracts Premium
Balance Aug. 31, 1996 -- $ --
Opened 68,600 150,920
Closed (68,600) (150,920)
------- --------
Balance Aug. 31, 1997 -- $ --
------- --------
See Summary of significant accounting policies.
8
Financial
highlights
"Financial highlights" showing per share data and selected information is
presented on pages 6 and 7 of the prospectus.
(This annual report is not part of the prospectus.)
<PAGE>
<TABLE>
<CAPTION>
Investments in securities
IDS Bond Fund, Inc.
Aug. 31, 1997
(Percentages represent value of
investments compared to net assets)
Bonds (90.6%)
Issuer Coupon Maturity Principal Value(a)
rate year amount
U.S. government obligations (7.0%)
<S> <C> <C> <C> <C>
U.S. Treasury 5.875% 2004 $36,450,000(b) $ 35,675,073
6.375 1999 2,000,000(k) 2,013,960
6.375 2002 17,300,000 17,419,370
7.00 2006 15,300,000(k) 15,901,902
7.125 1999 56,500,000(b) 57,764,470
7.50 2001 29,900,000 31,303,506
7.875 2004 16,000,000(k) 17,400,320
8.875 2017 42,750,000 53,008,290
Tips 3.375 2007 5,962,127(l) 5,857,790
Govt Trust Certs Israel 9.25 2001 9,299,922 9,780,170
Resolution Funding Corp
Zero Coupon 7.48 1999 11,500,000(e) 10,487,885
Total 256,612,736
Mortgage-backed securities (17.4%)
Federal Home Loan Mtge Corp 6.00 2010 12,993,103 12,730,772
6.50 2007 598,522 606,410
8.00 2017-24 15,156,714 15,645,302
8.50 2026 19,289,015 20,152,005
Collateralized Mtge Obligation
7.00 2022 22,000,000 21,570,100
8.50 2022 17,000,000 18,271,430
Trust Series Z 8.25 2024 11,235,911(c) 11,693,437
Federal Natl Mtge Assn 5.50 2009 9,732,193 9,327,139
6.00 2024-26 83,816,868 79,208,173
6.50 2008-24 190,539,402 186,024,113
7.00 2003-26 51,442,687 50,943,780
8.00 2025 21,779,117 22,447,736
8.50 2011-24 70,041,069(m) 73,406,442
9.00 2009-24 11,264,284 12,106,178
Collateralized Mtge Obligation 5.00 2024 9,961,155 9,309,895
Trust Series Z 6.00 2024 6,165,162(c) 4,938,358
Govt Natl Mtge Assn 7.00 2008 37,851,735 38,490,294
8.00 2024-26 26,248,580 27,055,996
9.00 2025 3,083,157 3,298,978
Merrill Lynch Mtge Investors 6.96 2028 7,515,000 7,328,299
8.20 2021 6,329,546(d) 6,262,295
Prudential Bache
Collateralized Mtge Obligation Trust 7.965 2019 7,723,901 7,932,299
Total 638,749,431
Aerospace & defense (3.0%)
Airplanes GPA 10.875 2019 6,000,000 6,825,000
Alliant Techsystems
Sr Sub Nts 11.75 2003 6,000,000 6,622,500
BE Aerospace 9.875 2006 7,000,000 7,245,000
Boeing 8.75 2031 15,000,000 18,026,250
Goodrich (BF) 9.625 2001 10,000,000 10,907,300
L-3 Comms 10.375 2007 7,965,000(d) 8,522,550
McDonnell Douglas
Medium-term Nts 7.22 2010 10,000,000 10,105,000
Newport News Shipbuilding 8.625 2006 7,500,000 7,762,500
Northrop Grumman 7.00 2006 8,000,000 7,919,440
Sequa 9.625 1999 10,000,000 10,337,500
TransDigm 13.00 2000 5,000,000(h) 5,250,000
United Technologies 8.875 2019 10,000,000 11,679,400
Total 111,202,440
Airlines (1.1%)
Continental Airlines 6.94 2015 14,705,882 14,482,206
7.82 2015 4,901,961 5,090,588
Delta Air Lines 10.125 2010 10,000,000 12,022,300
Northwest Airlines 8.07 2015 4,957,313 5,167,503
8.97 2015 2,946,923 3,117,196
Total 39,879,793
Automotive & related (1.0%)
Ford Motor Credit 7.20 2007 5,500,000 5,626,885
General Motors Acceptance
Medium-term Nts 7.625 1998 10,000,000 10,098,000
Hayes Wheels Intl 9.125 2007 10,000,000(d) 10,150,000
Mascotech
Cv 4.50 2003 6,500,000 6,061,250
Tower Automotive
Cv 5.00 2004 2,900,000(d) 3,135,625
Total 35,071,760
Banks and savings & loans (2.8%)
BankAmerica
Sub Nts 7.70 2026 10,000,000(d) 9,715,700
BankBoston Capital 8.25 2026 10,000,000 10,187,600
Barclays NA Capital 9.75 2021 13,600,000 15,419,816
First Nationwide Holdings
Sr Sub Nts 10.625 2003 5,890,000 6,464,275
Firstar Capital Trust 8.32 2026 10,000,000 10,323,100
GreenPoint Financial 9.10 2027 5,000,000(d) 5,183,100
Mellon Capital 7.72 2026 3,850,000 3,774,925
Meridian Bancorp
Sub Deb 7.875 2002 10,400,000 10,903,152
Morgan (JP)
Sr Sub Nts 4.00 2012 13,000,000(o) 12,603,500
Society
Sub Nts 8.125 2002 3,000,000 3,169,410
Union Planters Trust 8.20 2026 10,000,000 9,986,900
Washington Mutual 8.375 2027 5,800,000(d) 5,937,402
Total 103,668,880
Building materials & construction (0.6%)
McQuay (AAF)
Sr Nts 8.875 2003 8,000,000 8,080,000
Owens-Corning Fiberglas 9.375 2012 6,900,000 7,762,638
Pulte
Sr Nts 7.00 2003 7,700,000 7,565,096
Total 23,407,734
Chemicals (0.3%)
Grace (WR) 8.00 2004 10,420,000 10,990,703
Communications equipment & services (0.9%)
Comcast Cellular 9.50 2007 8,500,000(d) 8,776,250
Echo Communications
Zero Coupon 6.09 1999 11,000,000(f) 9,570,000
Geotek Communications
Cv 12.00 2001 4,135,000(h) 3,514,750
Jordan Inds 9.875 2007 4,100,000(d) 4,079,500
Zero Coupon 11.74 2000 6,000,000(f) 4,342,500
PhoneTel Technologies 12.00 2006 3,000,000 3,052,500
Total 33,335,500
Computers & office equipment (0.6%)
Decisionone 9.75 2007 5,000,000 5,175,000
Read-Rite
Cv 6.50 2004 4,725,000 4,961,250
Softkey
Cv 5.50 2000 12,000,000(d) 10,560,000
Total 20,696,250
Electronics (0.4%)
Reliance Electric 6.80 2003 6,000,000 6,049,320
Thomas & Betts 6.50 2006 9,200,000 8,860,796
Total 14,910,116
Energy (2.7%)
Enron Oil & Gas 6.70 2006 5,000,000 4,938,700
Oryx Energy
Deb 10.00 2001 9,650,000 10,544,362
Parker & Parsley Petroleum
Sr Nts 8.25 2007 9,500,000 10,262,280
PDV America 7.875 2003 15,000,000 15,406,350
Snyder Oil 8.75 2007 6,000,000(d) 5,985,000
Texaco Capital
Gtd Deb 7.50 2043 3,000,000 3,011,580
Gtd Deb 8.625 2032 10,000,000 11,661,900
UNC
Sr Nts 9.125 2003 14,000,000 14,665,000
USX 9.375 2022 17,500,000 20,539,225
Total 97,014,397
Energy equipment & services (0.4%)
DI Inds 8.875 2007 3,750,000 3,740,625
Foster Wheeler 6.75 2005 11,000,000 10,802,220
Total 14,542,845
Financial services (2.4%)
Arvin Capital 9.50 2027 10,000,000 10,469,400
Bat-Crave-800
Sr Nts 6.68 2000 10,100,000(d) 10,080,810
Sub Certs 6.86 2000 7,000,000 6,986,700
Corporate Property Investors 7.18 2013 7,000,000(d) 6,769,280
First Union REIT
Sub Nts 8.875 2003 10,000,000 10,250,000
Malan Realty Investors REIT
Cv Sub Deb 9.50 2004 310,000 311,550
Property Trust America REIT 7.50 2014 15,000,000 14,626,500
Salomon
Medium-term Nts 6.625 2000 6,700,000 6,690,419
Sr Nts 7.00 1999 21,000,000 21,220,290
Total 87,404,949
Food (0.2%)
Chiquita Brands Intl
Sr Nts 10.25 2006 7,000,000 7,577,500
Furniture & appliances (0.4%)
Interface 9.50 2005 7,500,000 7,950,000
Lifestyle Furnishings 10.875 2006 6,000,000 6,637,500
Total 14,587,500
Health care (0.4%)
IMED
Sr Sub Nts 9.75 2006 6,250,000(d) 6,429,687
Lilly (Eli) 6.77 2036 7,950,000 7,594,874
Phoenix Shannon
Cv 9.50 2000 2,000,000(d,g) 600,000
Total 14,624,561
Health care services (2.2%)
Columbia/HCA Healthcare 7.69 2025 2,800,000 2,749,124
La Petite Holdings 9.625 2001 9,425,000 9,589,937
Magellan Health
Sr Sub Nts 11.25 2004 7,500,000 8,315,625
Merit Behavioral 11.50 2005 3,250,000 3,534,375
NOVACARE
Cv Sub Deb 5.50 2000 7,000,000 6,676,250
Owens & Minor
Sr Sub Nts 10.875 2006 4,000,000 4,380,000
Paracelsus Healthcare
Sr Sub Nts 10.00 2006 8,500,000 8,627,500
Tenet Healthcare
Sr Nts 8.625 2003 3,850,000 4,013,625
Sr Sub Nts 10.125 2005 22,000,000 24,145,000
Vencor 8.625 2007 8,250,000(d) 8,260,313
Total 80,291,749
Industrial equipment & services (0.1%)
AGCO
Sr Sub Nts 8.50 2006 5,200,000 5,447,000
Insurance (3.0%)
Americo Life
Sr Sub Nts 9.25 2005 9,400,000 9,423,500
Arkwright
Credit Sensitive Nts 9.625 2026 5,000,000(d) 5,661,300
Conseco Finance Trust 8.70 2026 9,300,000 9,631,173
Equitable Cos
Sr Nts 9.00 2004 4,250,000 4,732,758
Equitable IBM 7.33 2009 5,500,000 5,627,188
Executive Risk 8.675 2027 11,500,000 11,944,475
General American Life 7.625 2024 8,000,000(d) 7,440,400
Leucadia Natl
Sr Sub Nts 7.875 2006 10,850,000 10,936,040
Nationwide Trust
Credit Sensitive Nts 9.875 2025 11,500,000(d) 12,862,635
New York Life
Credit Sensitive Nts 7.50 2023 6,000,000(d) 5,838,180
Principal Mutual 8.00 2044 10,000,000(d) 10,123,000
SAFECO Capital Trust 8.07 2037 10,000,000(d) 9,953,500
Zurich Capital Trust 8.38 2037 7,500,000(d) 7,844,625
Total 112,018,774
Leisure time & entertainment (0.4%)
Caesars World
Sr Sub Nts 8.875 2002 6,000,000 6,187,500
Lodgenet Entertainment
Sr Nts 10.25 2006 5,500,000 5,596,250
Riviera Holdings 10.00 2004 4,250,000 4,196,875
Total 15,980,625
Media (4.4%)
Ackerley Communications
Sr Secured Nts 10.75 2003 11,000,000 11,742,500
Cablevision Systems
Sr Sub Nts 9.25 2005 6,000,000 6,255,000
Cox Communications 7.625 2025 7,000,000 7,018,900
Marcus Cable
Zero Coupon 6.59 1999 10,000,000(f) 8,900,000
News Corp 10.15 2010 3,738,650(d) 4,355,193
Plitt Theatres 10.875 2004 4,000,000 4,250,000
Time Warner 8.375 2033 17,500,000 18,440,450
Deb 9.15 2023 10,000,000 11,420,600
Turner Broadcasting
Sr Deb 8.40 2024 19,500,000 19,873,620
Sr Nts 8.375 2013 10,000,000 10,628,500
United Artist Theatre 9.30 2015 13,394,255 12,958,941
Universal Outdoor
Sr Sub Nts 9.75 2006 11,000,000 11,742,500
Series B 9.75 2006 1,000,000 1,067,500
Viacom Intl
Sub Deb 7.00 2003 5,000,000 4,747,740
Sub Deb 8.00 2006 30,150,000 29,471,625
Total 162,873,069
Metals (0.5%)
Ryerson Tull 8.50 2001 11,800,000 12,242,500
Santa Fe Pacific Gold
Sr Deb 8.375 2005 5,000,000 5,200,000
Total 17,442,500
Multi-industry conglomerates (1.2%)
Mark IV Inds
Sr Sub Nts 8.75 2003 8,000,000 8,320,000
Marshall & Ilsley 7.65 2026 10,000,000 9,759,000
Prime Succession
Sr Sub Nts 10.75 2004 4,240,000 4,674,600
USI American Holdings
Sr Nts 7.25 2006 10,920,000 10,632,367
Westinghouse Electric 8.875 2001 10,000,000 10,559,000
Total 43,944,967
Paper & packaging (1.5%)
Fort Howard 11.00 2002 8,727,721 9,236,547
Gaylord Container 9.75 2007 8,500,000(d) 8,648,750
Sr Sub Deb 12.75 2005 15,000,000 16,406,250
Intl Paper 5.125 2012 9,000,000 7,333,650
Riverwood Intl
Sr Nts 10.625 2007 3,750,000(d) 3,806,250
Scotia Pacific Holding 7.95 2015 4,155,390 4,230,021
Warren (SD)
Sr Nts 12.00 2004 5,000,000 5,625,000
Total 55,286,468
Restaurants & lodging (0.5%)
Hammons (John Q) Hotels
1st Mtge 8.875 2004 7,000,000 7,087,500
La Quinta Inns 9.25 2003 10,000,000 10,350,000
Total 17,437,500
Retail (1.4%)
Corporate Express
Cv 4.50 2007 2,500,000 2,293,750
Costco Companies
Zero Coupon Cv 3.50 2017 19,000,000(d,e) 9,998,750
Dairy Mart Convenience Stores
Sr Sub Nts 10.25 2004 6,250,000 6,281,250
Kroger 8.15 2006 13,000,000 13,910,000
Wal-Mart Stores 7.00 2006 16,817,153(d) 16,987,174
8.875 2011 3,500,000 3,633,630
Total 53,104,554
Soaps & cosmetics (0.2%)
Sweetheart Cup
Sr Sub Nts 9.625 2000 6,500,000 6,532,500
Textiles & apparel (0.3%)
Dominion Textiles
Sr Nts 9.25 2006 3,000,000 3,142,500
WestPoint Stevens
Sr Nts 8.75 2001 7,500,000 7,790,625
Total 10,933,125
Transportation (0.6%)
CSX7.25 2027 9,700,000(d) 9,932,703
Norfolk Southern 7.35 2007 10,000,000 10,270,200
Total 20,202,903
Utilities -- electric (11.5%)
Appalachian Power 8.50 2022 5,000,000 5,287,300
Arizona Public Service
Sale Lease-Backed Obligation 8.00 2015 12,556,000 13,187,943
Cajun Electric Power Cooperative
Mtge Trust 8.92 2019 5,000,000 5,420,600
California Energy 10.25 2004 10,000,000 10,800,000
Cleveland Electric Illuminating 7.19 2000 8,000,000(d) 8,041,280
7.67 2004 20,500,000 20,843,785
1st Mtge 8.375 2011 8,115,000 8,096,579
1st Mtge 9.50 2005 15,100,000 16,415,965
CMS Energy 8.125 2002 10,000,000 10,135,600
Consumers Power
1st Mtge 7.375 2023 10,000,000 9,614,800
Connecticut Light & Power 7.75 2002 28,750,000(d) 28,947,800
7.875 2001 3,500,000 3,577,980
EIP Funding 10.25 2012 6,769,000 7,701,768
First Palo Verde Funding 10.15 2016 6,311,000 6,689,660
10.30 2014 3,187,000 3,378,220
Long Island Lighting 8.625 2004 8,500,000 8,900,350
Gen Ref Mtge 9.625 2024 20,188,000 21,177,818
Gen Ref Mtge 9.75 2021 15,500,000 16,463,170
Midland Cogeneration Venture 11.75 2005 14,900,000 17,488,875
Sub Secured Sale
Lease-Backed Obligation 10.33 2002 9,659,491 10,613,366
Niagara Mohawk Power
1st Mtge 7.75 2006 19,600,000 19,731,712
Ohio Edison
1st Mtge 7.875 2023 6,000,000 5,860,860
Public Service Electric & Gas
1st Ref Mtge 6.75 2006 5,500,000 5,499,945
RGS Funding
Sale Lease-Backed Obligation 9.82 2022 9,938,469 12,111,814
Salton Sea
Sr Nts 7.84 2010 10,000,000 10,290,600
Sithe Independence Funding 8.50 2007 7,500,000 7,943,925
9.00 2013 4,700,000 5,199,281
Texas-New Mexico Power
1st Mtge 9.25 2000 6,000,000 6,307,500
Secured Deb 10.75 2003 5,000,000 5,412,500
Texas Utilities Electric 7.17 2007 13,900,000 13,763,085
1st Collateral Trust 7.375 2025 3,000,000 2,901,630
1st Collateral Trust 9.75 2021 9,900,000 11,501,325
1st Mtge 7.625 2025 10,000,000 9,935,500
Secured Facility 9.45 2005 4,067,000 4,303,984
Texas Utility Capital 8.175 2037 10,000,000 10,099,800
Tucson Electric Power
1st Mtge 8.50 2009 7,000,000 6,667,500
Virginia Electric Power
1st Mtge 6.75 2007 35,000,000 34,542,900
Western Massachusetts Electric 7.375 2001 12,000,000 11,874,840
Wisconsin Electric Power 6.875 2095 8,000,000 7,411,600
Total 424,143,160
Utilities -- gas (1.6%)
Coastal 7.42 2037 6,000,000 5,924,160
Columbia Gas Systems 6.80 2005 7,700,000 7,655,879
Equitable Resources 7.50 1999 5,000,000 5,115,950
Questar Pipeline 9.375 2021 8,000,000 8,792,800
Southern California Gas
1st Mtge 7.375 2023 6,900,000 6,741,300
Southwest Gas 9.75 2002 7,900,000 8,637,781
Tenneco 7.625 2007 5,000,000 5,094,150
9.20 2012 9,000,000 10,425,600
Total 58,387,620
Utilities -- telephone (4.5%)
Ameritech Capital Funding
Gtd Deb 9.10 2016 16,000,000 18,821,280
AT&T
Deb 8.35 2025 17,500,000 18,558,575
BellSouth Telecommunications 6.50 2005 7,200,000 7,104,240
7.00 2095 10,000,000 9,707,400
GTE 10.25 2020 7,000,000 7,902,230
New York Telephone 9.375 2031 23,665,000 26,798,483
Pacific Bell 6.625 2034 10,000,000 9,056,900
7.125 2026 10,200,000 10,083,108
7.375 2043 10,000,000 9,888,700
360 Communications
Sr Nts 7.50 2006 17,470,000 17,666,013
U S WEST Communications
Deb 7.20 2026 14,000,000 13,328,700
Worldcom 7.75 2007 15,000,000 15,583,350
Total 164,498,979
Miscellaneous (2.0%)
Adams Outdoor Advertising
Sr Nts 10.75 2006 7,500,000 8,156,250
American General 7.57 2045 10,000,000(d) 9,531,200
ECM Funding LP 11.92 2002 1,846,307(h) 1,841,691
First Empire 8.23 2027 10,450,000 10,628,486
Keystone Consolidated Inds 9.625 2007 5,000,000(d) 5,050,000
Norcal Waste Systems
Sr Nts 13.25 2005 7,500,000 8,390,625
Pierce Leahy
Sr Sub Nts 11.125 2006 4,723,000 5,313,375
SC Intl 9.25 2007 13,000,000(d) 13,032,500
Triangle Bancorp 9.375 2027 5,000,000(d) 5,213,400
Yale University 7.375 2096 6,000,000 6,077,520
Total 73,235,047
Municipal bonds (0.3%)(p)
Denver Colorado City & County School
District #1 Taxable-Pension-School
Facilities Lease (AMBAC Insured) 6.94 2012 7,700,000 7,653,800
New Jersey Economic Development
Authority State Pension Funding
Revenue Bond (MBIA Insured) 7.425 2029 4,600,000 4,716,380
Total 12,370,180
Foreign (12.8%)(i)
ABN Amro
(U.S. Dollar) 7.75 2023 9,000,000 9,260,460
ALFA Bank
(U.S. Dollar) 11.28 1997 3,000,000(o) 3,000,000
Austria Republic Euro
(U.S. Dollar) 10.00 1998 5,000,000 5,156,250
BAA Euro
(British Pound) 5.75 2006 2,500,000 4,573,010
Banca Italy N.Y.
(U.S. Dollar) 8.25 2007 9,200,000 9,842,988
Banco General
(U.S. Dollar) 7.70 2002 7,500,000(d) 7,430,100
Bank of China
(U.S. Dollar) 8.25 2014 10,000,000 10,328,800
Carter Holt Harvey
(U.S. Dollar) 8.875 2004 10,500,000 11,487,525
Celcaribe
(U.S. Dollar) Zero Coupon 5.83 1998 2,870,000(d,f) 4,592,000
(U.S. Dollar) Zero Coupon 16.23 1998 3,250,000(d,f) 3,120,000
China Power & Light
(U.S. Dollar) Sr Nts 7.50 2006 8,000,000 8,176,800
Cia Latino Americana
(U.S. Dollar) 11.625 2004 1,825,000(d) 1,939,063
City of Moscow
(U.S. Dollar) 9.50 2000 6,000,000(d) 6,172,500
(U.S. Dollar) Zero Coupon 10.96 1997 6,000,000(e) 5,774,400
Comp Paranaense De Energ
(U.S. Dollar) 9.75 2005 4,000,000(d) 4,135,000
Dao Heng Bank
(U.S. Dollar) Sub Nts 7.75 2007 7,750,000(d) 7,759,222
DGS Intl Finance
(U.S. Dollar) 10.00 2007 4,575,000(d) 4,483,500
Deutsche Finance Netherlands
(U.S. Dollar) Zero Coupon 4.50 2017 13,640,000(d,e) 6,223,250
Doman Inds
(U.S. Dollar) 8.75 2004 4,000,000 3,940,000
Dominion Textiles
(U.S. Dollar) 8.875 2003 7,500,000 7,706,250
Espirito Santo Centrais
(U.S. Dollar) 10.00 2007 6,000,000(d) 5,977,500
Ford Capital
(U.S. Dollar) 9.125 1998 4,000,000 4,087,760
(U.S. Dollar) 9.50 2010 18,350,000 21,708,784
Global Telesystems
(U.S. Dollar) 8.75 2000 5,000,000(d) 5,075,000
Govt of Algeria
(U.S. Dollar) 7.06 2006 6,000,000 5,310,000
Govt of Poland PDI Euro
(U.S. Dollar) 4.00 2014 9,600,000 8,124,000
Greater Beijing First
(U.S. Dollar) 9.25 2004 3,500,000(d) 3,444,945
(U.S. Dollar) 9.50 2007 5,000,000(d) 4,893,950
Grupo Iusacell Sa De
(U.S. Dollar) 10.00 2004 3,000,000(d) 3,060,000
Grupo Televisa
(U.S. Dollar) Sr Nts 11.375 2003 6,000,000 6,585,000
Groupe Videotron
(U.S. Dollar) 10.625 2005 5,000,000 5,600,000
GST Telecommunications
(U.S. Dollar) Zero Coupon Cv 5.24 2000 1,045,000(d,f) 836,000
Guangdong Enterprises
(U.S. Dollar) 8.875 2007 3,600,000(d) 3,624,228
Honam Oil Refinery
(U.S. Dollar) 7.125 2005 9,000,000(d) 8,984,160
Hutchison Whampoa
(U.S. Dollar) 7.50 2027 8,000,000(d) 7,740,560
Hyundai Semiconductor
(U.S. Dollar) 8.625 2007 10,000,000(d) 10,176,900
Imexsa Export Trust
(U.S. Dollar) 10.125 2003 7,500,000(d) 8,006,250
India Kiat Financial
(U.S. Dollar) 10.00 2007 10,750,000(d) 10,346,875
Israel Electric
(U.S. Dollar) Sr Nts 7.25 2006 10,000,000(d) 10,039,200
Korea Electric Power
(U.S. Dollar) 6.375 2003 5,000,000 4,819,050
(U.S. Dollar) 8.00 2002 2,800,000 2,924,152
MacMillan Bole Delaware
(U.S. Dollar) 8.50 2004 3,000,000 3,172,260
Mexican Cetes
(Mexican Peso) Zero Coupon 20.59 1998 48,250,000(e) 5,214,378
(Mexican Peso) Zero Coupon 19.05 1998 42,580,000(e) 4,668,471
Ministry Finance Russia
(U.S. Dollar) 9.25 2001 4,000,000(d) 4,100,000
People's Republic of China
(U.S. Dollar) 7.375 2001 3,500,000 3,574,375
(U.S. Dollar) 9.00 2096 10,000,000 11,304,100
Petronas
(U.S. Dollar) 7.75 2015 10,000,000(d) 10,273,600
Petrozuata Finance
(U.S. Dollar) 7.63 2009 3,000,000(d) 3,066,780
(U.S. Dollar) 8.22 2017 7,000,000(d) 7,327,950
Philippine Long Distance Telephone
(U.S. Dollar) 7.85 2007 4,000,000(d) 3,796,160
(U.S. Dollar) 8.35 2017 3,000,000(d) 2,818,020
Placer Dome
(U.S. Dollar) 7.125 2003 5,000,000 5,041,700
Province of Mendoza
(U.S. Dollar) 10.00 2007 4,000,000(d) 3,975,000
Quno
(U.S. Dollar) Sr Nts 9.125 2005 7,000,000 7,315,000
Repap New Brunswick
(U.S. Dollar) 9.875 2000 11,250,000 11,278,125
Republic of Argentina
(Argentine Peso) 8.75 2002 10,000,000(d) 9,832,670
Republic of Israel
(U.S. Dollar) 6.375 2005 7,300,000 7,027,856
Republic of Italy
(U.S. Dollar) 6.875 2023 9,000,000 8,739,630
Republic of Panama
(U.S. Dollar) 7.875 2002 3,000,000(d) 2,988,060
Rogers Cablesystems
(Canadian Dollar) Sr Secured Nts 6.95 2014 3,700,000 2,770,837
Rogers Cantel Mobile
(U.S. Dollar) 9.375 2008 9,300,000 9,974,250
Rosetelecom (AO)
(U.S. Dollar) 9.375 2000 3,000,000(h) 3,000,000
Scotland Bank
(U.S. Dollar) 8.80 2004 20,500,000(d) 22,325,935
Taiwan Semiconductor
(U.S. Dollar) Zero Coupon 0.00 2002 3,680,000(d,e) 3,937,600
Tarkett Intl
(U.S. Dollar) 9.00 2002 11,000,000 11,151,250
Telekom Malaysia
(U.S. Dollar) 7.875 2025 15,000,000(d) 15,385,200
WMC Finance
(U.S. Dollar) 7.25 2013 10,000,000 9,932,600
Zhuhai Highway
(U.S. Dollar) 12.00 2008 10,000,000(d) 11,300,000
Total 471,757,239
Total bonds
(Cost: $3,214,340,688) $3,330,165,054
Common stocks (0.1%)
Issuer Shares Value(a)
Celcaribe 528,450(d,g) $ 2,113,800
Triangle Wire & Cable 211,111(g,h,n) --
Total common stocks
(Cost: $5,628,900) $ 2,113,800
Preferred stocks & other (1.2%)
Issuer Shares Value(a)
Asia Pulp & Paper
12.00% 6,330 $ 6,298,350
Dairy Mart
Warrants 51,666(d) 103,332
Evergreen Media
6.00% Cv 50,000 2,850,000
Intermedia Communications
7.00% Cv 160,000 4,700,000
Natl Australia Bank
7.875% Cv 240,000 6,855,000
Pinto Totta Intl Finance
7.77% 100,000(d,o) 9,939,700
Salomon
2.375% 400,000 10,825,000
Transdigm
Warrants 3,989(h) 1,196,700
Total preferred stocks & other
(Cost: $39,255,311) $42,768,082
Short-term securities (9.2%)
Issuer Annualized Amount on Value(a)
yield on payable at
date of maturity
purchase
U.S. government agencies (0.5%)
Federal Home Loan Mtge Corp Disc Nts
09-02-97 5.44% $ 400,000 $ 399,820
09-12-97 5.46 2,000,000 1,996,078
09-19-97 5.42 2,300,000 2,293,100
09-19-97 5.44 6,000,000 5,981,933
Federal Natl Mtge Assn Disc Nt
09-16-97 5.49 7,430,000 7,410,808
Total 18,081,739
Commercial paper (8.7%)
ABN Amro North American Finance
10-16-97 5.92 11,400,000 11,314,453
A. I. Credit
10-14-97 5.55 10,000,000 9,928,198
American General Capital
09-03-97 5.54 15,900,000(j) 15,890,283
American General Finance
10-20-97 5.55 10,600,000 10,517,258
Ameritech
09-12-97 5.61 10,000,000 9,978,903
Ameritech Capital Funding
10-24-97 5.56 3,300,000(j) 3,270,701
Associates Corp North America
10-09-97 5.53 5,700,000 5,665,230
AT&T
09-08-97 5.51 8,400,000 8,388,513
Avco Financial Services
11-25-97 5.59 13,000,000 12,820,456
12-03-97 5.59 15,600,000 15,364,544
Beneficial
10-10-97 5.55 10,000,000 9,937,247
10-22-97 5.55 10,000,000 9,914,254
Campbell Soup
11-17-97 5.50 5,800,000(j) 5,727,178
Cargill Global
09-09-97 5.52 6,600,000(j) 6,589,953
Ciesco LP
09-25-97 5.53 1,600,000 1,593,633
Commercial Credit
10-03-97 5.55 10,000,000 9,947,961
Commerzbank U.S. Finance
09-10-97 5.53 12,700,000 12,678,657
CPC Intl
10-14-97 5.58 1,700,000(j) 1,687,322
11-24-97 5.58 7,000,000(j) 6,904,421
Deustche Bank Financial
09-16-97 5.51 6,900,000 6,882,112
Fleet Funding
09-15-97 5.54 6,000,000(j) 5,985,307
Ford Motor Credit
09-22-97 5.53 9,300,000 9,267,321
General Electric
09-22-97 5.54 4,800,000 4,783,133
Goldman Sachs Group
09-19-97 5.54 10,000,000 9,969,389
Lincoln Natl
09-05-97 5.53 18,000,000(j) 17,983,500
May Department Stores
10-28-97 5.55 9,100,000 9,014,635
MCI Communications
09-16-97 5.63 4,000,000(j) 3,987,675
Metlife Funding
10-01-97 5.53 9,100,000 9,055,511
Mobil Australia Finance (Delaware)
10-17-97 5.92 7,000,000(j) 6,944,423
Morgan Stanley Group
10-14-97 5.55 7,900,000 7,845,589
NBD Bank Canada
09-12-97 5.53 6,000,000 5,988,083
10-24-97 5.57 10,000,000 9,909,639
Novartis Finance
09-02-97 5.50 7,000,000(j) 6,996,803
Paccar Financial
09-10-97 5.53 4,300,000 4,292,774
Pacific Mutual
09-02-97 5.52 1,300,000 1,299,404
Pfizer
09-12-97 5.53 9,300,000(j) 9,281,563
Reed Elsevier
10-07-97 5.58 1,500,000(j) 1,490,705
SBC Communications Capital
11-03-97 5.57 10,000,000(j) 9,896,417
Toyota Motor Credit
09-16-97 5.53 11,800,000 11,769,353
Total 320,762,501
Total short-term securities
(Cost: $338,898,625) $ 338,844,240
Total investments in securities
(Cost: $3,598,123,524)(q) $3,713,891,176
See accompanying notes to investments in securities.
(This annual report is not part of the prospectus.)
</TABLE>
<PAGE>
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) 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.
(d) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security has
been determined to be liquid under guidelines established by the board.
(e) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(f) 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.
(g) Non-income producing. For long term debt securities, item identified is in
default as to payment of interest and/or principal.
(h) Identifies issues considered to be illiquid as to their marketability (see
Note 1 to the financial statements). Information concerning such security
holdings at Aug. 31, 1997, is as follows:
Security Acquisition Cost
date
ECM Funding LP
11.92% 2002 04-13-92 $1,846,307
Geotek Communications
12% Cv 2001 03-04-96 4,135,000
Rosetelecom (AO)
9.375% 2000 04-28-97 3,000,000
Transdigm
13% 2000 12-06-95 4,543,348
Warrants 12-06-95 274,974
Triangle Wire & Cable
Common 01-13-92 5,000,045
(i) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated.
(j) 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.
(k) Partially pledged as initial deposit on the following open interest rate
futures contracts (see Note 4 to the financial statements):
Notional
Type of security amount
Sale contracts
U.S. Treasury Note Sept. 97 $50,000,000
U.S. Treasury Bond Sept. 97 38,500,000
U.S. Treasury Bond Dec. 97 38,500,000
(l) U.S. Treasury inflation-protection securities (TIPS) are securities in which
the principal amount is adjusted for inflation and the semi-annual interest
payments equal a fixed percentage of the inflation-adjusted principal amount.
(m) At Aug. 31, 1997, the cost of securities purchased, including interest
purchased, on a when-issued basis was $49,900,000.
(n) Negligible market value.
(o) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Aug. 31, 1997.
(p) The following abbreviations are used in portfolio descriptions to identify
the insurer of the issue:
AMBAC -- American Municipal Bond Association Corporation
MBIA -- Municipal Bond Investors Assurance
(q) At Aug. 31, 1997, the cost of securities for federal income tax purposes was
$3,593,426,565 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
Unrealized appreciation.........................................$139,682,021
Unrealized depreciation..........................................(19,217,410)
-----------
Net unrealized appreciation.....................................$120,464,611
============
(This annual report is not part of the prospectus.)
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 3, 1997
Statement of assets and liabilities, August 31, 1997
Statement of operations, year ended August 31, 1997
Statements of changes in net assets, for the years ended
August 31, 1997 and August 31, 1996
Notes to financial statements
Investments in securities, August 31, 1997
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. Copy of Investment Management and Services Agreement between Registrant
and American Express Financial Corporation, dated March 20, 1995, is
filed electronically herewith.
6. Copy of Distribution Agreement between Registrant and American Express
Financial Advisors Inc. dated March 20, 1995,
filed electronically herewith.
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, filed
electronically as Exhibit 8 to Registrant's Post-Effective Amendment
No. 46 to Registration Statement No. 2-51586 is
incorporated herein by reference.
<PAGE>
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). Copy of Transfer Agency Agreement between Registrant and American
Express Financial Corporation, dated March 20, 1995, is filed
electronically herewith.
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). Copy of Shareholder Service Agreement between Registrant and American
Express Financial Advisors Inc., dated March 20,
1995, is filed electronically herewith.
9(e). Copy of Administrative Services Agreement between Registrant and
American Express Financial Corporation, dated March 20, 1995, is filed
electronically herewith.
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.
9(g). Copy of the Class Y Shareholder Service Agreement between IDS Precious
Metals Fund, Inc. and American Express Financial Advisors Inc., dated
May 9, 1997 filed electronically on or about May 27, as Exhibit 9(e) to
IDS Precious Metals Fund Inc.'s Amendment No. 30 to Registration
Statement No. 2-93745, is incorporated herein by reference.
Registrant's Class Y Shareholder Service Agreement differs from the one
incorporated by reference only by the fact that Registrant is one
executing party.
10. Opinion and consent of counsel as to the legality of the securities
being registered is filed electronically herewith.
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. Copy of Plan and Agreement of Distribution between Registrant and
American Express Financial Advisors Inc. dated March
20, 1995, is filed electronically herewith.
<PAGE>
16. Copy of Schedule for computation of each performance quotation provided
in the Registration Statement in response to Item 22(b), filed as
Exhibit No. 16 to Registrant's Post-Effective Amendment No. 32 to
Registration Statement No. 2-51586 is incorporated herein 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 to sign Amendments to this Registration
Statement, dated January 8, 1997 is filed electronically herewith.
19(b). Officers' Power of Attorney dated Nov. 1, 1995 to sign Amendments to
this Registration Statement filed electronically as exhibit 19(b) to
Registrant's Post-Effective Amendment No. 46 to Registration Statement
No. 2-51586 is incorporated herein by reference.
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, 1997
Class A 147,485
Class B 73,023
Class Y 16,830
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.
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
<PAGE>
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>
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 28th day of October, 1997.
IDS BOND FUND, INC.
By: _________________________________________
Melinda S. Urion, Treasurer
By /s/ William R. Pearce**
William R. Pearce, Chief Executive Officer
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 28th day of October, 1997.
Signature Capacity
/s/ William R. Pearce* Chief Executive Officer and Chairman
William R. Pearce of the Board
/s/ John R. Thomas* President and Director
John R. Thomas
/s/ H. Brewster Atwater, Jr.* Director
H. Brewster Atwater, Jr.
/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
<PAGE>
/s/ Alan K. Simpson* Director
Alan K. Simpson
/s/ Edson W. Spencer* Director
Edson W. Spencer
/s/ Wheelock Whitney* Director
Wheelock Whitney
/s/ C. Angus Wurtele* Director
C. Angus Wurtele
*Signed pursuant to Directors' Power of Attorney, dated January 8, 1997, filed
electronically herewith, 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
to Registration Statement No. 2-51586 by:
- -----------------------------------
Leslie L. Ogg
<PAGE>
CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 47
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.
Exhibit Index
IDS Bond Fund Inc.
File No. 2-51586/811-2503
Exhibit Description
5. Copy of Investment Management and Services Agreement between
Registrant and American Express Financial Corporation, dated
March 20, 1995.
6. Copy of Distribution Agreement between Registrant and American
Express Financial Advisors Inc. Dated March 20, 1995.
9(b). Copy of Transfer Agency Agreement between Registrant and
American Express Financial Corporation, dated March 20, 1995.
9(d). Copy of Shareholder Service Agreement between Registrant and
American Financial Advisors Inc., dated March 20, 1995.
9(e). Copy of Administrative Services Agreement between Registrant
and American Express Financial Corporation, dated March 20,
1995.
10. Opinion and consent of counsel as to the legality of the
securities being registered.
11. Independent Auditors' Consent.
15. Copy of Plan and Agreement of Distribution between Registrant
and American Express Financial Advisors Inc. dated March 20,
1995.
17. Financial Data Schedule
19(a). Directors' Power of Attorney to sign Amendments to this
Registration Statement, dated January 8, 1997.
INVESTMENT MANAGEMENT SERVICES AGREEMENT
AGREEMENT made the 20th day of March, 1995, by and between IDS Bond Fund,
Inc. (the "Fund"), a Minnesota corporation, and American Express Financial
Corporation, a Delaware corporation.
Part One: INVESTMENT MANAGEMENT AND OTHER SERVICES
(1) The Fund hereby retains American Express Financial Corporation, and
American Express Financial Corporation hereby agrees, for the period of this
Agreement and under the terms and conditions hereinafter set forth, to furnish
the Fund continuously with suggested investment planning; to determine,
consistent with the Fund's investment objectives and policies, which securities
in American Express Financial Corporation's discretion shall be purchased, held
or sold and to execute or cause the execution of purchase or sell orders; to
prepare and make available to the Fund all necessary research and statistical
data in connection therewith; to furnish all services of whatever nature
required in connection with the management of the Fund as provided under this
Agreement; and to pay such expenses as may be provided for in Part Three;
subject always to the direction and control of the Board of Directors (the
"Board"), the Executive Committee and the authorized officers of the Fund.
American Express Financial Corporation agrees to maintain an adequate
organization of competent persons to provide the services and to perform the
functions herein mentioned. American Express Financial Corporation agrees to
meet with any persons at such times as the Board deems appropriate for the
purpose of reviewing American Express Financial Corporation's performance under
this Agreement.
(2) American Express Financial Corporation agrees that the investment
planning and investment decisions will be in accordance with general investment
policies of the Fund as disclosed to American Express Financial Corporation from
time to time by the Fund and as set forth in its prospectuses and registration
statements filed with the United States Securities and Exchange Commission (the
"SEC").
(3) American Express Financial Corporation agrees that it will maintain
all required records, memoranda, instructions or authorizations relating to the
acquisition or disposition of securities for the Fund.
(4) The Fund agrees that it will furnish to American Express Financial
Corporation any information that the latter may reasonably request with respect
to the services performed or to be performed by American Express Financial
Corporation under this Agreement.
(5) American Express Financial Corporation is authorized to select the
brokers or dealers that will execute the purchases and sales of portfolio
securities for the Fund and is directed to use its best efforts to obtain the
best available price and most favorable execution, except as prescribed herein.
Subject to prior authorization by the Fund's Board of appropriate policies and
procedures, and subject to termination at any time by the Board, American
Express Financial Corporation may also be authorized to effect individual
securities transactions at commission rates in excess of the minimum commission
rates available, to the extent authorized by law, if American Express Financial
Corporation determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by
<PAGE>
such broker or dealer, viewed in terms of either that particular transaction or
American Express Financial Corporation's overall responsibilities with respect
to the Fund and other funds for which it acts as investment adviser.
(6) It is understood and agreed that in furnishing the Fund with the
services as herein provided, neither American Express Financial Corporation, nor
any officer, director or agent thereof shall be held liable to the Fund or its
creditors or shareholders for errors of judgment or for anything except willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
reckless disregard of its obligations and duties under the terms of this
Agreement. It is further understood and agreed that American Express Financial
Corporation may rely upon information furnished to it reasonably believed to be
accurate and reliable.
Part Two: COMPENSATION TO INVESTMENT MANAGER
(1) The Fund agrees to pay to American Express Financial Corporation,
and American Express Financial Corporation covenants and agrees to accept from
the Fund in full payment for the services furnished, a fee for each calendar day
of each year equal to the total of 1/365th (1/366th in each leap year) of the
amount computed as shown below. The computation shall be made for each day on
the basis of net assets as of the close of business of the full business day two
(2) business days prior to the day for which the computation is being made. In
the case of the suspension of the computation of net asset value, the asset
charge for each day during such suspension shall be computed as of the close of
business on the last full business day on which the net assets were computed.
Net assets as of the close of a full business day shall include all transactions
in shares of the Fund recorded on the books of the Fund for that day.
The asset charge shall be based on the net assets of the Fund as set
forth in the following table.
Asset Charge
Assets Annual Rate at
(Billions) Each Asset Level
First $1 0.520%
Next $1 0.495
Next $1 0.470
Next $3 0.445
Next $3 0.420
Over $9 0.395
(2) The fee shall be paid on a monthly basis and, in the event of the
termination of this Agreement, the fee accrued shall be prorated on the basis of
the number of days that this Agreement is in effect during the month with
respect to which such payment is made.
(3) The fee provided for hereunder shall be paid in cash by the Fund to
American Express Financial Corporation within five business days after the last
day of each month.
<PAGE>
Part Three: ALLOCATION OF EXPENSES
(1) The Fund agrees to pay:
(a) Fees payable to American Express Financial Corporation for its services
under the terms of this Agreement.
(b) Taxes.
(c) Brokerage commissions and charges in connection with the purchase and
sale of assets.
(d) Custodian fees and charges.
(e) Fees and charges of its independent certified public accountants for
services the Fund requests.
(f) Premium on the bond required by Rule 17g-1 under the Investment Company
Act of 1940.
(g) Fees and expenses of attorneys (i) it employs in matters not involving
the assertion of a claim by a third party against the Fund, its directors and
officers, (ii) it employs in conjunction with a claim asserted by the Board
against American Express Financial Corporation, except that American Express
Financial Corporation shall reimburse the Fund for such fees and expenses if it
is ultimately determined by a court of competent jurisdiction, or American
Express Financial Corporation agrees, that it is liable in whole or in part to
the Fund, and (iii) it employs to assert a claim against a third party.
(h) Fees paid for the qualification and registration for public sale of the
securities of the Fund under the laws of the United States and of the several
states in which such securities shall be offered for sale.
(i) Fees of consultants employed by the Fund.
(j) Directors, officers and employees expenses which shall include fees,
salaries, memberships, dues, travel, seminars, pension, profit sharing, and all
other benefits paid to or provided for directors, officers and employees,
directors and officers liability insurance, errors and omissions liability
insurance, worker's compensation insurance and other expenses applicable to the
directors, officers and employees, except the Fund will not pay any fees or
expenses of any person who is an officer or employee of American Express
Financial Corporation or its affiliates.
(k) Filing fees and charges incurred by the Fund in connection with filing
any amendment to its articles of incorporation, or incurred in filing any other
document with the State of Minnesota or its political subdivisions.
(l) Organizational expenses of the Fund.
(m) Expenses incurred in connection with lending portfolio securities of
the Fund.
<PAGE>
(n) Expenses properly payable by the Fund, approved by the Board.
(2) American Express Financial Corporation agrees to pay all expenses
associated with the services it provides under the terms of this Agreement.
Further, American Express Financial Corporation agrees that if, at the end of
any month, the expenses of the Fund under this Agreement and any other agreement
between the Fund and American Express Financial Corporation, but excluding those
expenses set forth in (1)(b) and (1)(c) of this Part Three, exceed the most
restrictive applicable state expenses limitation, the Fund shall not pay those
expenses set forth in (1)(a) and (d) through (n) of this Part Three to the
extent necessary to keep the Fund's expenses from exceeding the limitation, it
being understood that American Express Financial Corporation will assume all
unpaid expenses and bill the Fund for them in subsequent months but in no event
can the accumulation of unpaid expenses or billing be carried past the end of
the Fund's fiscal year.
Part Four: MISCELLANEOUS
(1) American Express Financial Corporation shall be deemed to be an
independent contractor and, except as expressly provided or authorized in this
Agreement, shall have no authority to act for or represent the Fund.
(2) A "full business day" shall be as defined in the By-laws.
(3) The Fund recognizes that American Express Financial Corporation now
renders and may continue to render investment advice and other services to other
investment companies and persons which may or may not have investment policies
and investments similar to those of the Fund and that American Express Financial
Corporation manages its own investments and/or those of its subsidiaries.
American Express Financial Corporation shall be free to render such investment
advice and other services and the Fund hereby consents thereto.
(4) Neither this Agreement nor any transaction had pursuant hereto
shall be invalidated or in any way affected by the fact that directors,
officers, agents and/or shareholders of the Fund are or may be interested in
American Express Financial Corporation or any successor or assignee thereof, as
directors, officers, stockholders or otherwise; that directors, officers,
stockholders or agents of American Express Financial Corporation are or may be
interested in the Fund as directors, officers, shareholders, or otherwise; or
that American Express Financial Corporation or any successor or assignee, is or
may be interested in the Fund as shareholder or otherwise, provided, however,
that neither American Express Financial Corporation, nor any officer, director
or employee thereof or of the Fund, shall sell to or buy from the Fund any
property or security other than shares issued by the Fund, except in accordance
with applicable regulations or orders of the SEC.
(5) Any notice under this Agreement shall be given in writing,
addressed, and delivered, or mailed postpaid, to the party to this Agreement
entitled to receive such, at such party's principal place of business in
Minneapolis, Minnesota, or to such other address as either party may designate
in writing mailed to the other.
<PAGE>
(6) American Express Financial Corporation agrees that no officer,
director or employee of American Express Financial Corporation will deal for or
on behalf of the Fund with himself as principal or agent, or with any
corporation or partnership in which he may have a financial interest, except
that this shall not prohibit:
(a) Officers, directors or employees of American Express Financial
Corporation from having a financial interest in the Fund or in American Express
Financial Corporation.
(b) The purchase of securities for the Fund, or the sale of securities
owned by the Fund, through a security broker or dealer, one or more of whose
partners, officers, directors or employees is an officer, director or employee
of American Express Financial Corporation, provided such transactions are
handled in the capacity of broker only and provided commissions charged do not
exceed customary brokerage charges for such services.
(c) Transactions with the Fund by a broker-dealer affiliate of American
Express Financial Corporation as may be allowed by rule or order of the SEC, and
if made pursuant to procedures adopted by the Fund's Board.
(7) American Express Financial Corporation agrees that, except as
herein otherwise expressly provided or as may be permitted consistent with the
use of a broker-dealer affiliate of American Express Financial Corporation under
applicable provisions of the federal securities laws, neither it nor any of its
officers, directors or employees shall at any time during the period of this
Agreement, make, accept or receive, directly or indirectly, any fees, profits or
emoluments of any character in connection with the purchase or sale of
securities (except shares issued by the Fund) or other assets by or for the
Fund.
Part Five: RENEWAL AND TERMINATION
(1) This Agreement shall continue in effect until March 19, 1997, or
until a new agreement is approved by a vote of the majority of the outstanding
shares of the Fund and by vote of the Fund's Board, including the vote required
by (b) of this paragraph, and if no new agreement is so approved, this Agreement
shall continue from year to year thereafter unless and until terminated by
either party as hereinafter provided, except that such continuance shall be
specifically approved at least annually (a) by the Board of the Fund or by a
vote of the majority of the outstanding shares of the Fund and (b) by the vote
of a majority of the directors who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval. As used in this paragraph, the term
"interested person" shall have the same meaning as set forth in the Investment
Company Act of 1940, as amended (the "1940 Act").
(2) This Agreement may be terminated by either the Fund or American
Express Financial Corporation at any time by giving the other party 60 days'
written notice of such intention to terminate, provided that any termination
shall be made without the payment of any penalty, and provided further that
termination may be effected either by the Board of the Fund or by a vote of the
majority of the outstanding voting shares of the Fund. The vote of the majority
of the outstanding voting shares of the Fund for the purpose of this Part Five
shall be the vote at a shareholders' regular meeting, or a special meeting duly
called for the purpose, of 67% or more of the Fund's shares present at such
<PAGE>
meeting if the holders of more than 50% of the outstanding voting shares are
present or represented by proxy, or more than 50% of the outstanding voting
shares of the Fund, whichever is less.
(3) This Agreement shall terminate in the event of its assignment, the
term "assignment" for this purpose having the same meaning as set forth in the
1940 Act.
IN WITNESS THEREOF, the parties hereto have executed the foregoing
Agreement as of the day and year first above written.
IDS BOND FUND, INC.
By /s/ Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL CORPORATION
By /s/ Janis E. Miller
Vice President
DISTRIBUTION AGREEMENT
Agreement made as of the 20th day of March, 1995, by and between IDS Bond Fund,
Inc. (the "Fund"), a Minnesota corporation, for and on behalf of each class of
the Fund and American Express Financial Advisors Inc., a Delaware corporation.
Part One: DISTRIBUTION OF SECURITIES
(1) The Fund covenants and agrees that, during the term of this agreement and
any renewal or extension, American Express Financial Advisors shall have the
exclusive right to act as principal underwriter for the Fund and to offer for
sale and to distribute either directly or through any affiliate any and all
shares of each class of capital stock issued or to be issued by the Fund.
(2) American Express Financial Advisors hereby covenants and agrees to act as
the principal underwriter of each class of capital shares issued and to be
issued by the Fund during the period of this agreement and agrees during such
period to offer for sale such shares as long as such shares remain available for
sale, unless American Express Financial Advisors is unable or unwilling to make
such offer for sale or sales or solicitations therefor legally because of any
federal, state, provincial or governmental law, rule or agency or for any
financial reason.
(3) With respect to the offering for sale and sale of shares of each class to be
issued by the Fund, it is mutually understood and agreed that such shares are to
be sold on the following terms:
(a) All sales shall be made by means of an application, and every
application shall be subject to acceptance or rejection by the Fund at its
principal place of business. Shares are to be sold for cash, payable at the time
the application and payment for such shares are received at the principal place
of business of the Fund.
(b) No shares shall be sold at less than the asset value (computed in
the manner provided by the currently effective prospectus or Statement of
Additional Information and the Investment Company Act of 1940, and rules
thereunder). The number of shares or fractional shares to be acquired by each
applicant shall be determined by dividing the amount of each accepted
application by the public offering price of one share of the capital stock of
the appropriate class as of the close of business on the day when the
application, together with payment, is received by the Fund at its principal
place of business. The computation as to the number of shares and fractional
shares shall be carried to three decimal points of one share with the
computation being carried to the nearest 1/lOOOth of a share. If the day of
receipt of the application and payment is not a full business day, then the
asset value of the share for use in such computation shall be determined as of
the close of business on the next succeeding full business day. In the event of
a period of emergency, the computation of the asset value for the purpose of
determining the number of shares or fractional shares to be acquired by the
applicant may be deferred until the close of business on the first full business
day following the termination of the period of emergency. A period of emergency
shall have the definition given thereto in the Investment Company Act of 1940,
and rules thereunder.
<PAGE>
(4) The Fund agrees to make prompt and reasonable effort to do any and all
things necessary, in the opinion of American Express Financial Advisors, to have
and to keep the Fund and the shares properly registered or qualified in all
appropriate jurisdictions and, as to shares, in such amounts as American Express
Financial Advisors may from time to time designate in order that the Fund's
shares may be offered or sold in such jurisdictions.
(5) The Fund agrees that it will furnish American Express Financial Advisors
with information with respect to the affairs and accounts of the Fund, and in
such form, as American Express Financial Advisors may from time to time
reasonably require and further agrees that American Express Financial Advisors,
at all reasonable times, shall be permitted to inspect the books and records of
the Fund.
(6) American Express Financial Advisors or its agents may prepare or cause to be
prepared from time to time circulars, sales literature, broadcast material,
publicity data and other advertising material to be used in the sales of shares
issued by the Fund, including material which may be deemed to be a prospectus
under rules promulgated by the Securities and Exchange Commission (each separate
promotional piece is referred to as an "Item of Soliciting Material"). At its
option, American Express Financial Advisors may submit any Item of Soliciting
Material to the Fund for its prior approval. Unless a particular Item of
Soliciting Material is approved in writing by the Fund prior to its use,
American Express Financial Advisors agrees to indemnify the Fund and its
directors and officers against any and all claims, demands, liabilities and
expenses which the Fund or such persons may incur arising out of or based upon
the use of any Item of Soliciting Material. The term "expenses" includes amounts
paid in satisfaction of judgments or in settlements. The foregoing right of
indemnification shall be in addition to any other rights to which the Fund or
any director or officer may be entitled as a matter of law. Notwithstanding the
foregoing, such indemnification shall not be deemed to abrogate or diminish in
any way any right or claim American Express Financial Advisors may have against
the Fund or its officers or directors in connection with the Fund's registration
statement, prospectus, Statement of Additional Information or other information
furnished by or caused to be furnished by the Fund.
(7) American Express Financial Advisors agrees to submit to the Fund each
application for shares immediately after the receipt of such application and
payment therefor by American Express Financial Advisors at its principal place
or business.
(8) American Express Financial Advisors agrees to cause to be delivered to each
person submitting an application a prospectus or circular to be furnished by the
Fund in the form required by the applicable federal laws or by the acts or
statutes of any applicable state, province or country.
(9) The Fund shall have the right to extend to shareholders of each class the
right to use the proceeds of any cash dividend paid by the Fund to that
shareholder to purchase shares of the same class at the net asset value at the
close of business upon the day of purchase, to the extent set forth in the
currently effective prospectus or Statement of Additional Information.
<PAGE>
(10) Shares of each class issued by the Fund may be offered and sold at their
asset value to the shareholders of the same class of other funds in the IDS
MUTUAL FUND GROUP who wish to exchange their investments in shares of the other
funds in the IDS MUTUAL FUND GROUP to investments in shares of the Fund, to the
extent set forth in the currently effective prospectus or Statement of
Additional Information, such asset value to be computed as of the close of
business on the day of sale of such shares of the Fund.
(11) American Express Financial Advisors and the Fund agree to use their best
efforts to conform with all applicable state and federal laws and regulations
relating to any rights or obligations under the term of this agreement.
Part Two: ALLOCATION OF EXPENSES
Except as provided by any other agreements between the parties, American Express
Financial Advisors covenants and agrees that during the period of this agreement
it will pay or cause or be paid all expenses incurred by American Express
Financial Advisors, or any of its affiliates, in the offering for sale or sale
of each class of the Fund's shares.
Part Three: COMPENSATION
(1) It is covenanted and agreed that American Express Financial Advisors shall
be paid:
(i) for a class of shares imposing a front-end sales charge, by the
purchasers of Fund shares in an amount equal to the difference between the total
amount received upon each sale of shares issued by the Fund and the asset value
of such shares at the time of such sale; and
(ii) for a class of shares imposing a deferred sales charge, by owners
of Fund shares at the time the sales charge is imposed in an amount equal to any
deferred sales charge, as described in the Fund's prospectus.
Such sums as are received by the Fund shall be received as Agent for American
Express Financial Advisors and shall be remitted to American Express Financial
Advisors daily as soon as practicable after receipt.
(2) The asset value of any share of each class of the Fund shall be determined
in the manner provided by the classes currently effective prospectus and
Statement of Additional Information and the Investment Company Act of 1940, and
rules thereunder.
Part Four: MISCELLANEOUS
(1) American Express Financial Advisors shall be deemed to be an independent
contractor and, except as expressly provided or authorized in this agreement,
shall have no authority to act for or represent the Fund.
(2) American Express Financial Advisors shall be free to render to others
services similar to those rendered under this agreement.
<PAGE>
(3) Neither this agreement nor any transaction had pursuant hereto shall be
invalidated or in any way affected by the fact that directors, officers, agents
and/or shareholders of the Fund are or may be interested in American Express
Financial Advisors as directors, officers, shareholders or otherwise; that
directors, officers, shareholders or agents of American Express Financial
Advisors are or may be interested in the Fund as directors, officers,
shareholders or otherwise; or that American Express Financial Advisors is or may
be interested in the Fund as shareholder or otherwise, provided, however, that
neither American Express Financial Advisors nor any officer or director of
American Express Financial Advisors or any officers or directors of the Fund
shall sell to or buy from the Fund any property or security other than a
security issued by the Fund, except in accordance with a rule, regulation or
order of the federal Securities and Exchange Commission.
(4) For the purposes of this agreement, a "business day" shall have the same
meaning as is given to the term in the By-laws of the Fund.
(5) Any notice under this agreement shall be given in writing, addressed and
delivered, or mailed postpaid, to the parties to this agreement at each
company's principal place of business in Minneapolis, Minnesota, or to such
other address as either party may designate in writing mailed to the other.
(6) American Express Financial Advisors agrees that no officer, director or
employee of American Express Financial Advisors will deal for or on behalf of
the Fund with himself as principal or agent, or with any corporation or
partnership in which he may have a financial interest, except that this shall
not prohibit:
(a) Officers, directors and employees of American Express Financial
Advisors from having a financial interest in the Fund or in American Express
Financial Advisors.
(b) The purchase of securities for the Fund, or the sale of securities
owned by the Fund, through a security broker or dealer, one or more of whose
partners, officers, directors or employees is an officer, director or employee
of American Express Financial Advisors, provided such transactions are handled
in the capacity of broker only and provided commissions charged do not exceed
customary brokerage charges for such services.
(c) Transactions with the Fund by a broker-dealer affiliate of American
Express Financial Advisors if allowed by rule or order of the Securities and
Exchange Commission and if made pursuant to procedures adopted by the Fund's
Board of Directors.
(7) American Express Financial Advisors agrees that, except as otherwise
provided in this agreement, or as may be permitted consistent with the use of a
broker-dealer affiliate of American Express Financial Advisors under applicable
provisions of the federal securities laws, neither it nor any of its officers,
directors or employees shall at any time during the period of this agreement
make, accept or receive, directly or indirectly, any fees, profits or emoluments
of any character in connection with the purchase or sale of securities (except
securities issued by the Fund) or other assets by or for the Fund.
<PAGE>
Part Five: TERMINATION
(1) This agreement shall continue from year to year unless and until terminated
by American Express Financial Advisors or the Fund, except that such continuance
shall be specifically approved at least annually by a vote of a majority of the
Board of Directors who are not parties to this agreement or interested persons
of any such party, cast in person at a meeting called for the purpose of voting
on such approval, and by a majority of the Board of Directors or by vote of a
majority of the outstanding voting securities of the Fund. As used in this
paragraph, the term "interested person" shall have the meaning as set forth in
the Investment Company Act of 1940, as amended.
(2) This agreement may be terminated by American Express Financial Advisors or
the Fund at any time by giving the other party sixty (60) days written notice of
such intention to terminate.
(3) This agreement shall terminate in the event of its assignment, the term
"assignment" for this purpose having the same meaning as set forth in the
Investment Company Act of 1940, as amended.
IN WITNESS WHEREOF, The parties hereto have executed the foregoing agreement on
the date and year first above written.
IDS BOND FUND, INC.
By /s/ Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
By /s/ Janis E. Miller
Vice President
TRANSFER AGENCY AGREEMENT
AGREEMENT dated as of March 20, 1995, between IDS Bond Fund, Inc. (the "Fund"),
a Minnesota corporation, and American Express Financial Corporation (the
"Transfer Agent"), a Delaware corporation.
In consideration of the mutual promises set forth below, the Fund and the
Transfer Agent agree as follows:
1. Appointment of the Transfer Agent. The Fund hereby appoints the Transfer
Agent, as transfer agent for its shares and as shareholder servicing agent for
the Fund, and the Transfer Agent accepts such appointment and agrees to perform
the duties set forth below.
2. Compensation. The Fund will compensate the Transfer Agent for the performance
of its obligations as set forth in Schedule A. Schedule A does not include
out-of-pocket disbursements of the Transfer Agent for which the Transfer Agent
shall be entitled to bill the Fund separately.
The Transfer Agent will bill the Fund monthly. The fee provided for hereunder
shall be paid in cash by the Fund to American Express Financial Corporation
within five (5) business days after the last day of each month.
Out-of-pocket disbursements shall include, but shall not be limited to, the
items specified in Schedule B. Reimbursement by the Fund for expenses incurred
by the Transfer Agent in any month shall be made as soon as practicable after
the receipt of an itemized bill from the Transfer Agent.
Any compensation jointly agreed to hereunder may be adjusted from time to time
by attaching to this Agreement a revised Schedule A, dated and signed by an
officer of each party.
3. Documents. The Fund will furnish from time to time such certificates,
documents or opinions as the Transfer Agent deems to be appropriate or necessary
for the proper performance of its duties.
4. Representations of the Fund and the Transfer Agent.
(a) The Fund represents to the Transfer Agent that all outstanding shares are
validly issued, fully paid and non-assessable by the Fund. When shares are
hereafter issued in accordance with the terms of the Fund's Articles of
Incorporation and its prospectus, such shares shall be validly issued, fully
paid and non-assessable by the Fund.
(b) The Transfer Agent represents that it is registered under Section 17A(c) of
the Securities Exchange Act of 1934. The Transfer Agent agrees to maintain the
necessary facilities, equipment and personnel to perform its duties and
obligations under this agreement and to comply with all applicable laws.
5. Duties of the Transfer Agent. The Transfer Agent shall be responsible,
separately and through its subsidiaries or affiliates, for the following
functions:
<PAGE>
(a) Sale of Fund Shares.
(1) On receipt of an application and payment, wired instructions and payment, or
payment identified as being for the account of a shareholder, the Transfer Agent
will deposit the payment, prepare and present the necessary report to the
Custodian and record the purchase of shares in a timely fashion in accordance
with the terms of the prospectus. All shares shall be held in book entry form
and no certificate shall be issued unless the Fund is permitted to do so by the
prospectus and the purchaser so requests.
(2) On receipt of notice that payment was dishonored, the Transfer Agent shall
stop redemptions of all shares owned by the purchaser related to that payment,
place a stop payment on any checks that have been issued to redeem shares of the
purchaser and take such other action as it deems appropriate.
(b) Redemption of Fund Shares. On receipt of instructions to redeem shares in
accordance with the terms of the Fund's prospectus, the Transfer Agent will
record the redemption of shares of the Fund, prepare and present the necessary
report to the Custodian and pay the proceeds of the redemption to the
shareholder, an authorized agent or legal representative upon the receipt of the
monies from the Custodian.
(c) Transfer or Other Change Pertaining to Fund Shares. On receipt of
instructions or forms acceptable to the Transfer Agent to transfer the shares to
the name of a new owner, change the name or address of the present owner or take
other legal action, the Transfer Agent will take such action as is requested.
(d) Exchange of Fund Shares. On receipt of instructions to exchange the shares
of the Fund for the shares of another fund in the IDS MUTUAL FUND GROUP or other
American Express Financial Corporation product in accordance with the terms of
the prospectus, the Transfer Agent will process the exchange in the same manner
as a redemption and sale of shares.
(e) Right to Seek Assurance. The Transfer Agent may refuse to transfer, exchange
or redeem shares of the Fund or take any action requested by a shareholder until
it is satisfied that the requested transaction or action is legally authorized
or until it is satisfied there is no basis for any claims adverse to the
transaction or action. It may rely on the provisions of the Uniform Act for the
Simplification of Fiduciary Security Transfers or the Uniform Commercial Code.
The Fund shall indemnify the Transfer Agent for any act done or omitted to be
done in reliance on such laws or for refusing to transfer, exchange or redeem
shares or taking any requested action if it acts on a good faith belief that the
transaction or action is illegal or unauthorized.
(f) Shareholder Records, Reports and Services.
(1) The Transfer Agent shall maintain all shareholder accounts, which shall
contain all required tax, legally imposed and regulatory information; shall
provide shareholders, and file with federal and state agencies, all required tax
and other reports pertaining to shareholder accounts; shall prepare shareholder
mailing lists; shall cause to be printed and mailed all required prospectuses,
annual reports, semiannual reports, statements of additional information (upon
request), proxies and other mailings to shareholders; and shall cause proxies to
be tabulated.
<PAGE>
(2) The Transfer Agent shall respond to all valid inquiries related to its
duties under this Agreement.
(3) The Transfer Agent shall create and maintain all records in accordance with
all applicable laws, rules and regulations, including, but not limited to, the
records required by Section 31(a) of the Investment Company Act of 1940.
(g) Dividends and Distributions. The Transfer Agent shall prepare and present
the necessary report to the Custodian and shall cause to be prepared and
transmitted the payment of income dividends and capital gains distributions or
cause to be recorded the investment of such dividends and distributions in
additional shares of the Fund or as directed by instructions or forms acceptable
to the Transfer Agent.
(h) Confirmations and Statements. The Transfer Agent shall confirm each
transaction either at the time of the transaction or through periodic reports as
may be legally permitted.
(i) Lost or Stolen Checks. The Transfer Agent will replace lost or stolen checks
issued to shareholders upon receipt of proper notification and will maintain any
stop payment orders against the lost or stolen checks as it is economically
desirable to do.
(j) Reports to Fund. The Transfer Agent will provide reports pertaining to the
services provided under this Agreement as the Fund may request to ascertain the
quality and level of services being provided or as required by law.
(k) Other Duties. The Transfer Agent may perform other duties for additional
compensation if agreed to in writing by the parties to this Agreement.
6. Ownership and Confidentiality of Records. The Transfer Agent agrees that all
records prepared or maintained by it relating to the services to be performed by
it under the terms of this Agreement are the property of the Fund and may be
inspected by the Fund or any person retained by the Fund at reasonable times.
The Fund and Transfer Agent agree to protect the confidentiality of those
records.
7. Action by Board and Opinion of Fund's Counsel. The Transfer Agent may rely on
resolutions of the Board of Directors or the Executive Committee of the Board of
Directors and on opinion of counsel for the Fund.
8. Duty of Care. It is understood and agreed that, in furnishing the Fund with
the services as herein provided, neither the Transfer Agent, nor any officer,
director or agent thereof shall be held liable for any loss arising out of or in
connection with their actions under this Agreement so long as they act in good
faith and with due diligence, and are not negligent or guilty of any willful
misconduct. It is further understood and agreed that the Transfer Agent may rely
upon information furnished to it reasonably believed to be accurate and
reliable. In the event the Transfer Agent is unable to perform its obligations
under the terms of this Agreement because of an act of God, strike or equipment
or transmission failure reasonably beyond its control, the Transfer Agent shall
not be liable for any damages resulting from such failure.
<PAGE>
9. Term and Termination. This Agreement shall become effective on the date first
set forth above (the "Effective Date") and shall continue in effect from year to
year thereafter as the parties may mutually agree; provided that either party
may terminate this Agreement by giving the other party notice in writing
specifying the date of such termination, which shall be not less than 60 days
after the date of receipt of such notice. In the event such notice is given by
the Fund, it shall be accompanied by a vote of the Board of Directors, certified
by the Secretary, electing to terminate this Agreement and designating a
successor transfer agent or transfer agents. Upon such termination and at the
expense of the Fund, the Transfer Agent will deliver to such successor a
certified list of shareholders of the Fund (with name, address and taxpayer
identification or Social Security number), a historical record of the account of
each shareholder and the status thereof, and all other relevant books, records,
correspondence, and other data established or maintained by the Transfer Agent
under this Agreement in the form reasonably acceptable to the Fund, and will
cooperate in the transfer of such duties and responsibilities, including
provisions for assistance from the Transfer Agent's personnel in the
establishment of books, records and other data by such successor or successors.
10. Amendment. This Agreement may not be amended or modified in any manner
except by a written agreement executed by both parties.
11. Subcontracting. The Fund agrees that the Transfer Agent may subcontract for
certain of the services described under this Agreement with the understanding
that there shall be no diminution in the quality or level of the services and
that the Transfer Agent remains fully responsible for the services. Except for
out-of-pocket expenses identified in Schedule B, the Transfer Agent shall bear
the cost of subcontracting such services, unless otherwise agreed by the
parties.
12. Miscellaneous.
(a) This Agreement shall extend to and shall be binding upon the parties hereto,
and their respective successors and assigns; provided, however, that this
Agreement shall not be assignable without the written consent of the other
party.
(b) This Agreement shall be governed by the laws of the State of Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers as of the day and year written above.
IDS BOND FUND, INC.
By: /s/ Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL CORPORATION
By: /s/ Janis E. Miller
Vice President
<PAGE>
Schedule A
IDS BOND FUND, INC.
TRANSFER AGENT FEE
Effective the 20th day of March, 1995, the Annual Per Account Fee
accrued daily and payable monthly is revised as follows:
CLASS FEE
A $ 15.50
B 16.50
Y 15.50
<PAGE>
Schedule B
OUT-OF-POCKET EXPENSES
The Fund shall reimburse the Transfer Agent monthly for the following
out-of-pocket expenses:
o typesetting, printing, paper, envelopes, postage and return postage for proxy
soliciting material, and proxy tabulation costs
o printing, paper, envelopes and postage for dividend notices, dividend checks,
records of account, purchase confirmations, exchange confirmations and exchange
prospectuses, redemption confirmations, redemption checks, confirmations on
changes of address and any other communication required to be sent to
shareholders
o typesetting, printing, paper, envelopes and postage for prospectuses, annual
and semiannual reports, statements of additional information, supplements for
prospectuses and statements of additional information and other required
mailings to shareholders
o stop orders
o outgoing wire charges
o other expenses incurred at the request or with the consent of the Fund
Shareholder Service Agreement
This agreement is between IDS Bond Fund, Inc. (the "Fund") and American Express
Financial Advisors Inc., the principal underwriter of the Fund, for services to
be provided to shareholders by personal financial advisors and other servicing
agents. It is effective on the first day the Fund offers multiple classes of
shares.
American Express Financial Advisors represents that shareholders consider their
financial advisor or servicing agent a significant factor in their satisfaction
with their investment and, to help retain financial advisors or servicing
agents, it is necessary for the Fund to pay annual servicing fees to financial
advisors and other servicing agents.
American Express Financial Advisors represents that fees paid to financial
advisors will be used by financial advisors to help shareholders thoughtfully
consider their investment goals and objectively monitor how well the goals are
being achieved. As principal underwriter, American Express Financial Advisors
will use its best efforts to assure that other distributors provide comparable
services to shareholders for the servicing fees received.
American Express Financial Advisors agrees to monitor the services provided by
financial advisors and servicing agents, to measure the level and quality of
services provided, to provide training and support to financial advisors and
servicing agents and to devise methods for rewarding financial advisors and
servicing agents who achieve an exemplary level and quality of services.
The Fund agrees to pay American Express financial advisors and other servicing
agents 0.15 percent of the net asset value for each shareholder account assigned
to a financial advisor or servicing agent that holds either Class A or Class B
shares. In addition, the Fund agrees to pay American Express Financial Advisors'
costs to monitor, measure, train and support services provided by financial
advisors or servicing agents up to 0.025 percent of the net asset value for each
shareholder account assigned to a financial advisor or servicing agent that
holds either Class A or Class B shares. The Fund agrees to pay American Express
Financial Advisors in cash within five (5) business days after the last day of
each month.
American Express Financial Advisors agrees to provide the Fund, prior to the
beginning of the calendar year, a budget covering its expected costs to monitor,
measure, train and support services and a quarterly report of its actual
expenditures. American Express Financial Advisors agrees to meet with
representatives of the Fund at their request to provide information as may be
reasonably necessary to evaluate its performance under the terms of this
agreement.
American Express Financial Advisors agrees that if, at the end of any month, the
expenses of the Fund, including fees under this agreement and any other
agreement between the Fund and American Express Financial Advisors or American
Express Financial Corporation, but excluding taxes, brokerage commissions and
charges in connection with the purchase and sale of assets exceed the most
restrictive applicable state expense limitation for the Fund's current fiscal
year, the Fund shall not pay fees and expenses under this agreement to the
extent necessary to keep the Fund's expenses from exceeding the limitation, it
being understood that American Express Financial Advisors will assume all unpaid
expenses and bill the Fund for them in subsequent months but in
<PAGE>
no event can the accumulation of unpaid expenses or billing be carried past the
end of the Fund's fiscal year.
This agreement shall continue in effect for a period of more than one year so
long as it is reapproved at least annually at a meeting called for the purpose
of voting on the agreement by a vote, in person, of the members of the Board who
are not interested persons of the Fund and have no financial interest in the
operation of the agreement, and of all the members of the Board.
This agreement may be terminated at any time without payment of any penalty by a
vote of a majority of the members of the Board who are not interested persons of
the Fund and have no financial interest in the operation of the agreement or by
American Express Financial Advisors. The agreement will terminate automatically
in the event of its assignment as that term is defined in the Investment Company
Act of 1940. This agreement may be amended at any time provided the amendment is
approved in the same manner the agreement was initially approved and the
amendment is agreed to by American Express Financial Advisors.
Approved this 20th day of March, 1995.
IDS BOND FUND, INC.
/s/ Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
/s/ Janis E. Miller
Vice President
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT made the 20th day of March, 1995, by and between IDS Bond Fund, Inc.
(the "Fund"), a Minnesota corporation, and American Express Financial
Corporation, a Delaware corporation.
Part One: SERVICES
(1) The Fund hereby retains American Express Financial Corporation, and American
Express Financial Corporation hereby agrees, for the period of this Agreement
and under the terms and conditions hereinafter set forth, to furnish the Fund
continuously with all administrative, accounting, clerical, statistical,
correspondence, corporate and all other services of whatever nature required in
connection with the administration of the Fund as provided under this Agreement;
and to pay such expenses as may be provided for in Part Three hereof; subject
always to the direction and control of the Board of Directors, the Executive
Committee and the authorized officers of the Fund. American Express Financial
Corporation agrees to maintain an adequate organization of competent persons to
provide the services and to perform the functions herein mentioned. American
Express Financial Corporation agrees to meet with any persons at such times as
the Board of Directors deems appropriate for the purpose of reviewing American
Express Financial Corporation's performance under this Agreement.
(2) The Fund agrees that it will furnish to American Express Financial
Corporation any information that the latter may reasonably request with respect
to the services performed or to be performed by American Express Financial
Corporation under this Agreement.
(3) It is understood and agreed that in furnishing the Fund with the services as
herein provided, neither American Express Financial Corporation, nor any
officer, director or agent thereof shall be held liable to the Fund or its
creditors or shareholders for errors of judgment or for anything except willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
reckless disregard of its obligations and duties under the terms of this
Agreement. It is further understood and agreed that American Express Financial
Corporation may rely upon information furnished to it reasonably believed to be
accurate and reliable.
Part Two: COMPENSATION FOR SERVICES
(1) The Fund agrees to pay to American Express Financial Corporation, and
American Express Financial Corporation covenants and agrees to accept from the
Fund in full payment for the services furnished, based on the net assets of the
Fund as set forth in the following table:
Assets Annual Rate At
(Billions) Each Asset Level
First $1 0.050%
Next 1 0.045
Next 1 0.040
Next 3 0.035
Next 3 0.030
Over 9 0.025
<PAGE>
The administrative fee for each calendar day of each year shall be equal to
1/365th (1/366th in each leap year) of the total amount computed. The
computation shall be made for each such day on the basis of net assets as of the
close of business of the full business day two (2) business days prior to the
day for which the computation is being made. In the case of the suspension of
the computation of net asset value, the administrative fee for each day during
such suspension shall be computed as of the close of business on the last full
business day on which the net assets were computed. As used herein, "net assets"
as of the close of a full business day shall include all transactions in shares
of the Fund recorded on the books of the Fund for that day.
(2) The administrative fee shall be paid on a monthly basis and, in the event of
the termination of this Agreement, the administrative fee accrued shall be
prorated on the basis of the number of days that this Agreement is in effect
during the month with respect to which such payment is made.
(3) The administrative fee provided for hereunder shall be paid in cash by the
Fund to American Express Financial Corporation within five (5) business days
after the last day of each month.
Part Three: ALLOCATION OF EXPENSES
(1) The Fund agrees to pay:
(a) Administrative fees payable to American Express Financial Corporation for
its services under the terms of this Agreement.
(b) Taxes.
(c) Fees and charges of its independent certified public accountants for
services the Fund requests.
(d) Fees and expenses of attorneys (i) it employs in matters not involving the
assertion of a claim by a third party against the Fund, its directors and
officers, (ii) it employs in conjunction with a claim asserted by the Board of
Directors against American Express Financial Corporation, except that American
Express Financial Corporation shall reimburse the Fund for such fees and
expenses if it is ultimately determined by a court of competent jurisdiction, or
American Express Financial Corporation agrees, that it is liable in whole or in
part to the Fund, and (iii) it employs to assert a claim against a third party.
(e) Fees paid for the qualification and registration for public sale of the
securities of the Fund under the laws of the United States and of the several
states in which such securities shall be offered for sale.
(f) Office expenses which shall include a charge for occupancy, insurance on the
premises, furniture and equipment, telephone, telegraph, electronic information
services, books, periodicals, published services, and office supplies used by
the Fund, equal to the cost of such incurred by American Express Financial
Corporation.
(g) Fees of consultants employed by the Fund.
<PAGE>
(h) Directors, officers and employees expenses which shall include fees,
salaries, memberships, dues, travel, seminars, pension, profit sharing, and all
other benefits paid to or provided for directors, officers and employees,
directors and officers liability insurance, errors and omissions liability
insurance, worker's compensation insurance and other expenses applicable to the
directors, officers and employees, except the Fund will not pay any fees or
expenses of any person who is an officer or employee of American Express
Financial Corporation or its affiliates.
(i) Filing fees and charges incurred by the Fund in connection with filing any
amendment to its articles of incorporation, or incurred in filing any other
document with the State of Minnesota or its political subdivisions.
(j) Organizational expenses of the Fund.
(k) One-half of the Investment Company Institute membership dues charged jointly
to the IDS MUTUAL FUND GROUP and American Express Financial Corporation.
(l) Expenses properly payable by the Fund, approved by the Board of Directors.
(2) American Express Financial Corporation agrees to pay all expenses associated
with the services it provides under the terms of this Agreement. Further,
American Express Financial Corporation agrees that if, at the end of any month,
the expenses of the Fund under this Agreement and any other agreement between
the Fund and American Express Financial Corporation, but excluding those
expenses set forth in (1)(b) of this Part Three, exceed the most restrictive
applicable state expenses limitation, the Fund shall not pay those expenses set
forth in (1)(a) and (c) through (m) of this Part Three to the extent necessary
to keep the Fund's expenses from exceeding the limitation, it being understood
that American Express Financial Corporation will assume all unpaid expenses and
bill the Fund for them in subsequent months but in no event can the accumulation
of unpaid expenses or billing be carried past the end of the Fund's fiscal year.
Part Four: MISCELLANEOUS
(1) American Express Financial Corporation shall be deemed to be an independent
contractor and, except as expressly provided or authorized in this Agreement,
shall have no authority to act for or represent the Fund.
(2) A "full business day" shall be as defined in the By-laws.
(3) The Fund recognizes that American Express Financial Corporation now renders
and may continue to render investment advice and other services to other
investment companies and persons which may or may not have investment policies
and investments similar to those of the Fund and that American Express Financial
Corporation manages its own investments and/or those of its subsidiaries.
American Express Financial Corporation shall be free to render such investment
advice and other services and the Fund hereby consents thereto.
(4) Neither this Agreement nor any transaction had pursuant hereto shall be
invalidated or in anyway affected by the fact that directors, officers, agents
and/or shareholders of the Fund are or may be interested in American Express
Financial Corporation or any successor or assignee thereof, as directors,
officers, stockholders or otherwise; that directors, officers, stockholders or
agents of American Express Financial Corporation are
<PAGE>
or may be interested in the Fund as directors, officers, shareholders, or
otherwise; or that American Express Financial Corporation or any successor or
assignee, is or may be interested in the Fund as shareholder or otherwise,
provided, however, that neither American Express Financial Corporation, nor any
officer, director or employee thereof or of the Fund, shall sell to or buy from
the Fund any property or security other than shares issued by the Fund, except
in accordance with applicable regulations or orders of the United States
Securities and Exchange Commission.
(5) Any notice under this Agreement shall be given in writing, addressed, and
delivered, or mailed postpaid, to the party to this Agreement entitled to
receive such, at such party's principal place of business in Minneapolis,
Minnesota, or to such other address as either party may designate in writing
mailed to the other.
(6) American Express Financial Corporation agrees that no officer, director or
employee of American Express Financial Corporation will deal for or on behalf of
the Fund with himself as principal or agent, or with any corporation or
partnership in which he may have a financial interest, except that this shall
not prohibit officers, directors or employees of American Express Financial
Corporation from having a financial interest in the Fund or in American Express
Financial Corporation.
(7) The Fund agrees that American Express Financial Corporation may subcontract
for certain of the services described under this Agreement with the
understanding that there shall be no diminution in the quality or level of the
services and that American Express Financial Corporation remains fully
responsible for the services.
(8) This Agreement shall extend to and shall be binding upon the parties hereto,
and their respective successors and assigns; provided, however, that this
Agreement shall not be assignable without the written consent of the other
party. This Agreement shall be governed by the laws of the State of Minnesota.
Part Five: RENEWAL AND TERMINATION
(1) This Agreement shall become effective on the date first set forth above (the
"Effective Date") and shall continue in effect from year to year thereafter as
the parties may mutually agree; provided that either party may terminate this
Agreement by giving the other party notice in writing specifying the date of
such termination, which shall be not less than 60 days after the date of receipt
of such notice.
(2) This Agreement may not be amended or modified in any manner except by a
written agreement executed by both parties.
<PAGE>
IN WITNESS THEREOF, the parties hereto have executed the foregoing Agreement as
of the day and year first above written.
BOND FUND, INC.
By: /s/ Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL CORPORATION
By: /s/ Janis E. Miller
Vice President
October 28, 1997
IDS Bond Fund, Inc.
IDS Tower 10
Minneapolis, Minnesota 55440
Gentlemen:
I have examined the Articles of Incorporation and the By-Laws of the Company and
all necessary certificates, permits, minute books, documents and records of the
Company, and the applicable statutes of the State of Minnesota, and it is my
opinion:
(a) That the Company is a corporation duly organized and existing under the
laws of the State of Minnesota with an authorized capital stock of
10,000,000,000 shares, all of $.01 par value, that such shares may be
issued as full or fractional shares;
(b) That all such authorized shares are, under the laws of the State of
Minnesota, redeemable as provided in the Articles of Incorporation of
the Company and upon redemption shall have the status of authorized
shares and unissued shares;
(c) That the Company registered on August 29, 1978 an indefinite number of
shares pursuant to Rule 24f-2; and
(d) That shares which were sold at not less than their par value and in
accordance with applicable federal and state securities laws were
legally issued, fully paid and nonassessable.
I hereby consent that the foregoing opinion may be used in connection with this
Post-Effective Amendment.
Very truly yours,
Leslie L. Ogg
Attorney at Law
901 S. Marquette Ave., Suite 2810
Minneapolis, Minnesota 55402-3268
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 28, 1997
Plan and Agreement of Distribution
This plan and agreement is between IDS Bond Fund, Inc. (the "Fund") and American
Express Financial Advisors Inc., the principal underwriter of the Fund, for
distribution services to the Fund. It is effective on the first day the Fund
offers multiple classes of shares.
The plan and agreement has been approved by members of the Board of Directors
(the "Board") of the Fund who are not interested persons of the Fund and have no
direct or indirect financial interest in the operation of the plan or any
related agreement, and all of the members of the Board, in person, at a meeting
called for the purpose of voting on the plan and agreement.
The plan and agreement provides that:
1. The Fund will reimburse American Express Financial Advisors for all sales and
promotional expenses attributable to the sale of Class B shares, including sales
commissions, business and employee expenses charged to distribution of Class B
shares, and corporate overhead appropriately allocated to the sale of Class B
shares.
2. The amount of the reimbursement shall be equal on an annual basis to 0.75% of
the average daily net assets of the Fund attributable to Class B shares. The
amount so determined shall be paid to American Express Financial Advisors in
cash within five (5) business days after the last day of each month. American
Express Financial Advisors agrees that if, at the end of any month, the expenses
of the Fund, including fees under this agreement and any other agreement between
the Fund and American Express Financial Advisors or American Express Financial
Corporation, but excluding taxes, brokerage commissions and charges in
connection with the purchase and sale of assets exceed the most restrictive
applicable state expense limitation for the Fund's current fiscal year, the Fund
shall not pay fees and expenses under this agreement to the extent necessary to
keep the Fund's expenses from exceeding the limitation, it being understood that
American Express Financial Advisors will assume all unpaid expenses and bill the
Fund for them in subsequent months, but in no event can the accumulation of
unpaid expenses or billing be carried past the end of the Fund's fiscal year.
3. For each purchase of Class B shares, after eight years the Class B shares
will be converted to Class A shares and those assets will no longer be included
in determining the reimbursement amount.
4. The Fund understands that if a shareholder redeems Class B shares before they
are converted to Class A shares, American Express Financial Advisors will impose
a sales charge directly on the redemption proceeds to cover those expenses it
has previously incurred on the sale of those shares.
5. American Express Financial Advisors agrees to provide at least quarterly an
analysis of distribution expenses and to meet with representatives of the Fund
as reasonably requested to provide additional information.
6. The plan and agreement shall continue in effect for a period of more than one
year provided it is reapproved at least annually in the same manner in which it
was initially approved.
<PAGE>
7. The plan and agreement may not be amended to increase materially the amount
that may be paid by the Fund without the approval of a least a majority of the
outstanding shares of Class B. Any other amendment must be approved in the
manner in which the plan and agreement was initially approved.
8. This agreement may be terminated at any time without payment of any penalty
by a vote of a majority of the members of the Board who are not interested
persons of the Fund and have no financial interest in the operation of the plan
and agreement, or by vote of a majority of the outstanding Class B shares, or by
American Express Financial Advisors. The plan and agreement will terminate
automatically in the event of its assignment as that term is defined in the
Investment Company Act of 1940.
Approved this 20th day of March, 1995.
IDS BOND FUND, INC.
/s/ Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
/s/ Janis E. Miller
Vice President
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> IDS BOND FUND CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 3,598,123,524
<INVESTMENTS-AT-VALUE> 3,713,891,176
<RECEIVABLES> 78,751,917
<ASSETS-OTHER> 52,675,521
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,845,318,614
<PAYABLE-FOR-SECURITIES> 80,024,440
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 90,662,506
<TOTAL-LIABILITIES> 170,686,946
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,498,399,905
<SHARES-COMMON-STOCK> 506,729,253
<SHARES-COMMON-PRIOR> 514,132,897
<ACCUMULATED-NII-CURRENT> 5,069,429
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 56,456,360
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 114,705,974
<NET-ASSETS> 2,646,102,492
<DIVIDEND-INCOME> 2,686,706
<INTEREST-INCOME> 273,959,592
<OTHER-INCOME> 0
<EXPENSES-NET> 36,473,849
<NET-INVESTMENT-INCOME> 240,172,449
<REALIZED-GAINS-CURRENT> 64,347,497
<APPREC-INCREASE-CURRENT> 98,764,325
<NET-CHANGE-FROM-OPS> 403,284,271
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 177,119,796
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 70,920,637
<NUMBER-OF-SHARES-REDEEMED> 101,710,017
<SHARES-REINVESTED> 23,385,736
<NET-CHANGE-IN-ASSETS> 175,939,912
<ACCUMULATED-NII-PRIOR> 3,595,907
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 8,939,843
<GROSS-ADVISORY-FEES> 17,488,348
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 36,757,342
<AVERAGE-NET-ASSETS> 2,614,650,153
<PER-SHARE-NAV-BEGIN> 4.99
<PER-SHARE-NII> 0.35
<PER-SHARE-GAIN-APPREC> 0.23
<PER-SHARE-DIVIDEND> 0.35
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.22
<EXPENSE-RATIO> 0.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> IDS BOND FUND CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 3,598,123,524
<INVESTMENTS-AT-VALUE> 3,713,891,176
<RECEIVABLES> 78,751,917
<ASSETS-OTHER> 52,675,521
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,845,318,614
<PAYABLE-FOR-SECURITIES> 80,024,440
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 90,662,506
<TOTAL-LIABILITIES> 170,686,946
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,498,399,905
<SHARES-COMMON-STOCK> 174,807,602
<SHARES-COMMON-PRIOR> 170,058,539
<ACCUMULATED-NII-CURRENT> 5,069,429
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 56,456,360
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 114,705,974
<NET-ASSETS> 912,836,720
<DIVIDEND-INCOME> 2,686,706
<INTEREST-INCOME> 273,959,592
<OTHER-INCOME> 0
<EXPENSES-NET> 36,473,849
<NET-INVESTMENT-INCOME> 240,172,449
<REALIZED-GAINS-CURRENT> 64,347,497
<APPREC-INCREASE-CURRENT> 98,764,325
<NET-CHANGE-FROM-OPS> 403,284,271
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 53,865,341
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 49,648,273
<NUMBER-OF-SHARES-REDEEMED> 54,072,632
<SHARES-REINVESTED> 9,173,422
<NET-CHANGE-IN-ASSETS> 175,939,912
<ACCUMULATED-NII-PRIOR> 3,595,907
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 8,939,843
<GROSS-ADVISORY-FEES> 17,488,348
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 36,757,342
<AVERAGE-NET-ASSETS> 895,985,707
<PER-SHARE-NAV-BEGIN> 4.99
<PER-SHARE-NII> 0.31
<PER-SHARE-GAIN-APPREC> 0.23
<PER-SHARE-DIVIDEND> 0.31
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.22
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> IDS BOND FUND CLASS Y
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 3,598,123,524
<INVESTMENTS-AT-VALUE> 3,713,891,176
<RECEIVABLES> 78,751,917
<ASSETS-OTHER> 52,675,521
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,845,318,614
<PAYABLE-FOR-SECURITIES> 80,024,440
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 90,662,506
<TOTAL-LIABILITIES> 170,686,946
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,498,399,905
<SHARES-COMMON-STOCK> 22,153,291
<SHARES-COMMON-PRIOR> 17,601,046
<ACCUMULATED-NII-CURRENT> 5,069,429
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 56,456,360
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 114,705,974
<NET-ASSETS> 115,692,456
<DIVIDEND-INCOME> 2,686,706
<INTEREST-INCOME> 273,959,592
<OTHER-INCOME> 0
<EXPENSES-NET> 36,473,849
<NET-INVESTMENT-INCOME> 240,172,449
<REALIZED-GAINS-CURRENT> 64,347,497
<APPREC-INCREASE-CURRENT> 98,764,325
<NET-CHANGE-FROM-OPS> 403,284,271
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,665,317
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,312,033
<NUMBER-OF-SHARES-REDEEMED> 8,062,196
<SHARES-REINVESTED> 1,302,408
<NET-CHANGE-IN-ASSETS> 175,939,912
<ACCUMULATED-NII-PRIOR> 3,595,907
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 8,939,843
<GROSS-ADVISORY-FEES> 17,488,348
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 36,757,342
<AVERAGE-NET-ASSETS> 96,568,597
<PER-SHARE-NAV-BEGIN> 4.99
<PER-SHARE-NII> 0.36
<PER-SHARE-GAIN-APPREC> 0.23
<PER-SHARE-DIVIDEND> 0.36
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.22
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
DIRECTORS/TRUSTEES POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as directors and trustees 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 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 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 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.
<PAGE>
Dated the 8th day of January, 1997.
/s/ H. Brewster Atwater, Jr. /s/ Melvin R. Laird
H. Brewster Atwater, Jr. Melvin R. Laird
/s/ Lynne V. Cheney /s/ William R. Pearce
Lynne V. Cheney William R. Pearce
/s/ William H. Dudley /s/ Alan K. Simpson
William H. Dudley Alan K. Simpson
/s/ Robert F. Froehlke /s/ Edson W. Spencer
Robert F. Froehlke Edson W. Spencer
/s/ David R. Hubers /s/ John R. Thomas
David R. Hubers John R. Thomas
/s/ Heinz F. Hutter /s/ Wheelock Whitney
Heinz F. Hutter Wheelock Whitney
/s/ Anne P. Jones /s/ C. Angus Wurtele
Anne P. Jones C. Angus Wurtele
