<PAGE>
1998 ANNUAL REPORT
IDS
Bond Fund
(prospectus enclosed)
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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 annual report includes a prospectus that describes in detail the Fund's
objective, investment policies, risks, sales charges, fees and other matters of
interest. Please read the prospectus carefully before you invest or send money.)
AMERICAN EXPRESS Financial Advisors (logo)
Distributed by American Express Financial Advisors Inc.
<PAGE>
(icon of) Greek column
Striking a balance among bonds
A bond is like an I.O.U. But with a bond, it's a corporation or the government
- -- the bond issuer -- that promises to pay the money back. In return for lending
money to the issuer, bond investors get paid interest, which varies by bond
quality. (The lower the quality, the higher the interest.)
Bond Fund invests largely in high-quality bonds, but includes some lower-quality
and even some foreign bonds seeking to boost the return. The portfolio manager
shifts this mix, as well as the balance between corporate and government bonds,
as investment conditions dictate. In doing so, the Fund seeks to maximize the
long-term return potential for investors.
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Contents
The purpose of this annual report is to tell investors how the Fund performed.
(icon of) one open book inside of another
The prospectus, which is bound into the middle of this annual report, describes
the Fund in detail.
1998 annual report
From the chairman 4
From the portfolio manager 4
The Fund's ten largest holdings 6
Making the most of the Fund 7
The Fund's long-term performance 8
Independent auditors' report 9
Financial statements 10
Notes to financial statements 13
Investments in securities 24
IDS mutual funds 46
Federal income tax information 50
1998 prospectus
The Fund in brief 3p
Goal 3p
Investment policies and risks 3p
Manager and distributor 3p
Portfolio manager 3p
Alternative purchase arrangements 3p
Sales charge and Fund expenses 4p
Performance 6p
Financial highlights 6p
Total returns 8p
Yield 10p
Investment policies and risks 11p
Facts about investments and their risks 11p
Alternative investment option 15p
Valuing Fund shares 16p
How to purchase, exchange or redeem shares 17p
Alternative purchase arrangements 17p
How to purchase shares 20p
How to exchange shares 23p
How to redeem shares 23p
Reductions and waivers of the sales charge 28p
Special shareholder services 33p
Services 33p
Quick telephone reference 33p
Distributions and taxes 34p
Dividend and capital gain distributions 34p
Reinvestments 35p
Taxes 35p
How to determine the correct TIN 37p
How the Fund is organized 38p
Shares 38p
Voting rights 38p
Shareholder meetings 38p
Board members and officers 38p
Investment manager 40p
Administrator and transfer agent 40p
Distributor 41p
About American Express Financial Corporation 42p
General information 42p
Year 2000 43p
Appendices 44p
Description of corporate bond ratings 44p
Descriptions of derivative instruments 46p
(This annual report is not part of the prospectus.)
<PAGE>
To our shareholders
From the chairman
If you're an experienced investor, you know that the past few years have
been unusually strong in many financial markets. Perhaps just as
important, history shows that bull markets don't last forever. Though
they're often unpredictable, declines -- whether they're brief or
long-lasting, moderate or substantial -- are always a possibility. We saw
evidence of that this past August, when turmoil in foreign financial
markets spawned a sharp drop in the U.S. stock market.
The potential for such volatility reinforces the need for investors to
review periodically their long-term goals and examine whether their
investment program remains on track to achieving them. Your quarterly
investment statements are one part of that monitoring process. The other
is a meeting with your American Express financial advisor. That becomes
even more important if there's a major change in your financial situation
or in the financial markets.
William R. Pearce
(picture of) William Pearce
William R. Pearce
Chairman of the board
<PAGE>
From the portfolio manager
A strong bond market in the U.S. countered the effect of a steep decline
in emerging market bonds and ultimately led to a positive performance for
IDS Bond Fund during the past 12 months. For the fiscal year -- September
1997 through August 1998 -- the Fund's Class A shares generated a total
return (net asset value change and dividends) of 6.3% for the fiscal year.
Despite relatively robust economic growth, the inflation rate remained
remarkably low during the period. Against that backdrop, long-term
interest rates followed a generally declining path. Using the yield on the
30-year Treasury bond as a measuring stick, long rates went from about
6.7% in September of last year to about 5.3% this past August. Because
bond prices move in the opposite directions of interest rates, the U.S.
bond market, particularly long-term Treasury issues, benefited
accordingly.
Working in the Fund's favor during the year was the slightly long duration
of its portfolio, a strategy that increases its sensitivity to interest
rate changes -- the longer the duration, the greater the sensitivity.
Therefore, when rates came down, the Fund's net asset value benefited more
than it would have with a neutral duration.
(This annual report is not part of the prospectus.)
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A mix of assets
I kept the portfolio well diversified during the period. The majority of
investments were in investment-grade, or high-quality, bonds, including
those issued by U.S. corporations and the federal government and its
agencies. To boost the Fund's yield, I also maintained an exposure to
high-yield corporate bonds and emerging market bonds (those issued by
governments of developing foreign countries).
Overall, U.S. Treasury bonds performed best by far, as they benefited the
most from the interest-rate decline sparked in part by a so-called "flight
to quality" -- that is, heavy buying on the part of investors who wanted
to move their money out of slumping emerging market bonds. Although the
Fund's exposure to emerging markets was small (about 7% of assets), the
severity of the decline was enough to penalize the Fund's net asset value.
The Fund's holdings among corporate and mortgage-backed bonds, on the
other hand, performed positively, but lagged well behind Treasury bonds'
gain.
As the new fiscal year begins, we have yet to see any indication that
inflation is about to pick up. If that continues, as I expect, a
meaningful rise in long-term interest rates seems unlikely. As for the
emerging markets, I think the worst is probably over, though the
volatility is likely to stay with us. My focus will remain on shoring up
the Fund's dividend with a moderate exposure to high-yield U.S. corporate
bonds, complemented by a small amount of emerging market issues.
Fred Quirsfeld
(picture of) Fred Quirsfeld
Fred Quirsfeld
Portfolio manager
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Class A
12-month performance
(All figures per share)
Net asset value (NAV)
Aug. 31, 1998 $5.11
Aug. 31, 1997 $5.22
Decrease $0.11
Distributions
Sept. 1, 1997 - Aug. 31, 1998
From income $0.38
From capital gains $0.06
Total distributions $0.44
Total return* +6.3%**
Class B
12-month performance
(All figures per share)
Net asset value (NAV)
Aug. 31, 1998 $5.11
Aug. 31, 1997 $5.22
Decrease $0.11
Distributions
Sept. 1, 1997 - Aug. 31, 1998
From income $0.34
From capital gains $0.06
Total distributions $0.40
Total return* +5.5%**
Class Y
12-month performance
(All figures per share)
Net asset value (NAV)
Aug. 31, 1998 $5.11
Aug. 31, 1997 $5.22
Decrease $0.11
Distributions
Sept. 1, 1997 - Aug. 31, 1998
From income $0.38
From capital gains $0.06
Total distributions $0.44
Total return* +6.4%**
* The prospectus discusses the effect of sales charges, if any, on the various
classes.
** The total return is a hypothetical investment in the Fund with all
distributions reinvested.
(This annual report is not part of the prospectus.)
<PAGE>
The Fund's ten largest holdings
Percent Value
(of Fund's net assets) (as of Aug. 31, 1998)
Virginia Electric Power .91% $36,502,900
6.75% 2007
New York Telephone .78 31,024,591
9.38% 2031
Viacom Intl .75 29,961,563
8.00% 2006
Connecticut Light & Power .75 29,942,550
7.75% 2002
Scotland Bank .58 23,304,400
8.80% 2004
Ford Capital .58 23,239,358
9.50% 2010
Bistro Trust .58 23,022,773
9.50% 2002
Tenet Healthcare .56 22,363,586
8.13% 2008
USX-Marathon Group .56 22,223,075
9.38% 2022
Salomon .53 21,211,050
7.00% 1999
Excludes U.S. Treasury and government agency holdings.
For further detail about these holdings, please refer to the section
entitled "Investments in securities" herein.
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The ten holdings listed here make up 6.58% of the Fund's net assets
(This annual report is not part of the prospectus.)
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Making the most of the Fund
Build your assets systematically
One of the best ways to invest in the Fund is by dollar-cost averaging --
a time-tested strategy that can make market fluctuations work for you. To
dollar-cost average, simply invest a fixed amount of money regularly.
You'll automatically buy more shares when the Fund's share price is low,
fewer shares when it is high.
This does not ensure a profit or avoid a loss if the market declines. But,
if you can continue to invest regularly through changing market
conditions, it can be an effective way to accumulate shares to meet your
long-term goals.
How dollar-cost averaging works
Month Amount Per-share Number of shares purchased
invested market price
Jan $100 $20 5.00 XXXXX
Feb 100 18 5.56 XXXXXx
March 100 17 5.88 XXXXXx
April 100 15 6.67 XXXXXXx
May 100 16 6.25 XXXXXXx
June 100 18 5.56 XXXXXx
July 100 17 5.88 XXXXXx
Aug 100 19 5.26 XXXXXx
Sept 100 21 4.76 XXXXx
Oct 100 20 5.00 XXXXX
(footnotes to table) By investing an equal number of dollars each
month...
(arrow in table pointing to April) you automatically buy more shares when the
per share market price is low...
(arrow in table pointing to September) and fewer shares when the per share
market price is high.
You have paid an average price of only $17.91 per share over the 10
months, while the average market price actually was $18.10.
Three ways to benefit from a mutual fund:
o your shares increase in value when the Fund's
investments do well
o you receive capital gains when the gains on
investments sold by the Fund exceed losses
o you receive income when the Fund's stock dividends, interest
and short-term gains exceed its expenses.
All three make up your total return. And you potentially can increase your
investment if, like most investors, you reinvest your dividends and
capital gain distributions to buy additional shares of the Fund or another
fund.
(This annual report is not part of the prospectus.)
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The Fund's long-term performance
Assumes: oHolding period from 9/1/88 to 8/31/98. oReturns do not reflect
taxes payable on distributions. oReinvestment of all income and capital
gain distributions for the Fund, with a value of $14,353. Also see
"Performance" in the Fund's current prospectus.
The Lehman Aggregate Bond Index is made up of a representative list of
government and corporate bonds as well as asset-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 Bond Fund.
How your $10,000 has grown in IDS Bond Fund
$24,180
Bond Fund
Class A
$20,000
Lehman Aggregate
Bond Index
$10,000
$9,500
'88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98
Average annual total return
(as of Aug. 31, 1998)
1 year Since inception* 5 years 10 years
Class A +0.99% --% +5.91% +9.23%
Class B +1.59% +8.31% --% --%
Class Y +6.40% +9.99% --% --%
*Inception date was March 20, 1995.
On the graph above you can see how the Fund's total return compared to a
widely cited performance measure, the Lehman Aggregate Bond Index. In
comparing Bond Fund (Class A) with this index, you should take into
account the fact that the Fund's performance reflects the maximum sales
charge of 5%, while such charges are not reflected in the performance of
the index.
Your investment and return values fluctuate so that your shares, when
redeemed, may be worth more or less than the original cost. Average annual
total return figures reflect the impact of the applicable sales charge up
to a maximum of 5%. This was a period of widely fluctuating security
prices. Past performance is no guarantee of future results.
(This annual report is not part of the prospectus.)
<PAGE>
The financial statements contained in Post-Effective Amendment #48 to
Registration Statement No. 2-51586 filed on or about October 27, 1998 are
incorporated herein by reference.
<PAGE>
IDS mutual funds
Global/International funds
Funds in this group seek capital growth and/or income by investing primarily in
foreign securities. Foreign investments may be subject to currency fluctuations
and political and economic risks of the countries in which the investments are
made. They are high risk mutual funds with a potential for high reward.
IDS Emerging Markets Fund
Invests in a Portfolio comprised primarily of stocks of companies in developing
countries throughout the world that are believed to offer growth potential.
Seeks to provide long-term growth of capital.
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IDS Global Growth Fund
Invests in a Portfolio comprised primarily of stocks of companies throughout the
world that are positioned to meet market needs in a changing world economy.
These companies offer above-average potential for long-term growth.
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IDS International Fund
Invests primarily in common stocks of foreign companies that offer potential for
superior growth. The Fund may invest up to 20% of its assets in the U.S. market.
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IDS Global Balanced Fund
Invests in stocks and bonds in, for the most part, major markets throughout the
world, including the U.S. Seeks to provide a balance of growth of capital and
current income.
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IDS Global Bond Fund
Invests in a Portfolio comprised primarily of debt securities of U.S. and
foreign issuers to seek high total return through income and growth of capital.
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Growth funds
Funds in this group seek capital growth, primarily from common stocks. They are
high risk mutual funds with a potential for high reward.
IDS Precious Metals Fund
Invests primarily in the securities of foreign or domestic companies that
explore for, mine and process or distribute gold and other precious metals. A
highly aggressive and speculative fund that seeks long-term growth of capital.
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IDS Discovery Fund
Invests in small- and medium-size, growth-oriented companies emphasizing
technological innovation and productivity enhancement. Buys and holds larger
growth-oriented stocks.
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IDS Small Company Index Fund
Invests in all or a representative group of the equity securities comprising the
S&P SmallCap 600 Index, as it strives to provide long-term capital appreciation.
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IDS Strategy Aggressive Fund
Invests primarily in common stocks of companies that are selected for their
potential for above-average growth. Above-average means that their growth
potential is better, in the opinion of the portfolio's investment manager, than
the S&P 500 Stock Index.
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IDS Research Opportunities Fund
Invests in a Portfolio comprised primarily of equity securities of companies
included in the S&P 500 Stock Index that are believed to have strong growth
potential. The Portfolio is managed using a research methodology by the Research
Department of AEFC. Goal is long-term appreciation.
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(This annual report is not part of the prospectus.)
<PAGE>
IDS Growth Fund
Invests in a Portfolio comprised primarily of companies that have above-average
potential for long-term growth as a result of new management, marketing
opportunities or technological superiority.
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IDS New Dimensions Fund
Invests in a Portfolio comprised primarily of companies with
significant growth potential due to superiority in
technology, marketing or management. The Fund frequently
changes its industry mix.
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IDS Progressive Fund
Invests primarily in undervalued common stocks. The Fund holds stocks for the
long term with the goal of capital growth.
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Growth & income funds
These funds focus on securities of medium to large, well-established companies
that offer long-term growth of capital and reasonable income from dividends and
interest. Foreign investments may be subject to currency fluctuations and
political and economic risks of the countries in which the investments are made.
IDS Equity Select Fund
Invests primarily in a combination of moderate growth stocks that generaly pay
dividends and bonds. Seeks growth of capital and income.
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IDS Blue Chip Advantage Fund
Invests in selected stocks from a major market index. Securities purchased are
those recommended by our research analysts as the best from each industry
represented on the index. Offers potential for long-term growth as well as
dividend income.
(icon of) ribbon
IDS Managed Allocation Fund
Invests in a Portfolio comprised primarily of U.S. equity securities, U.S. and
foreign debt securities, foreign equity securities and money market instruments.
The Fund provides diversification among these major investment categories and
has a target mix that represents the way the Fund's investments will be
allocated over the long term. Seeks maximum total return.
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IDS Stock Fund
Invests in a Portfolio comprised primarily of common stock of companies
representing many sectors of the economy. Seeks current income and growth of
capital.
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IDS Equity Value Fund
Invests primarily in undervalued common stocks that offer potential for growth
of capital and income.
(icon of) three growing flowers
IDS Utilities Income Fund
Invests primarily in the stocks of public utility companies to seek high current
income and growth of income and capital with reduced volatility.
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IDS Diversified Equity Income Fund
Invests in a Portfolio comprised primarily in high-yielding common stocks to
seek high current income and, secondarily, to benefit from the growth potential
offered by stock investments.
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IDS Mutual
Invests in a Portfolio that seeks to balance between common stocks and senior
securities (preferred stocks and bonds). Seeks a balance of growth of capital
and current income.
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(This annual report is not part of the prospectus.)
<PAGE>
IDS mutual funds
Income funds
The funds in this group invest their assets primarily in corporate bonds or
government securities to seek interest income. Secondary objective is capital
growth. Risk varies by bond quality.
IDS Extra Income Fund
Invests in a Portfolio comprised mainly of long-term, high-yielding corporate
fixed-income securities in the lower rated, higher risk bond categories to seek
high current income. Secondary objective is capital growth.
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IDS Bond Fund
Invests mainly in corporate bonds, at least 50% in the higher rated, lower risk
bond categories, or the equivalent, and in government bonds.
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IDS Selective Fund
Invests in a Portfolio comprised primarily of high-quality corporate bonds and
other highly rated debt instruments including government securities and
short-term investments. Seeks current income and preservation of capital.
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IDS Federal Income Fund
Invests in a Portfolio comprised primarily of securities issued or guaranteed as
to the timely payment of principal and interest by the U.S. government, its
agencies and instrumentalities. Seeks a high level of current income and safety
of principal consistent with its type of investments.
(icon of) shield with eagle head
Tax-exempt income funds
These funds provide tax-free income by investing in municipal bonds. The income
is generally free from federal income tax, but a portion of the income may be
subject to state and local taxes. Risk varies by bond quality.
IDS Tax-Exempt Bond Fund
Invests mainly in bonds and notes of state or local government units, with at
least 75% in the four highest rated, lowest risk bond categories.
(icon of) shield with Greek column
IDS Insured Tax-Exempt Fund
Invests primarily in municipal securities that are insured as to the timely
payment of principal and interest. The insurance feature minimizes credit risk
of the Fund but does not guarantee the market value of the Fund's shares.
(icon of) shield with star
IDS State Tax-Exempt Funds
(CA, MA, MI, MN, NY, OH)
Invests primarily in high- and medium-grade municipal securities to provide
income to residents of each respective state that is exempt from federal, state
and local income taxes. (New York is the only state that is exempt at the local
level.)
(icon of) shield with U.S. enclosed
IDS High Yield Tax-Exempt Fund
Invests in a Portfolio comprised primarily of medium- and lower-quality
municipal bonds and notes. Lower-quality securities generally involve greater
risk of principal and income.
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IDS Intermediate Tax-Exempt Fund
Invests in mainly investment-grade bonds and other debt securities with
intermediate-term maturities issued by state and local government units. Goal is
to seek a high level of current income exempt from federal taxes.
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(This annual report is not part of the prospectus.)
<PAGE>
Money market funds
These money market funds have three main goals: conservation of capital,
constant liquidity and the highest possible current income consistent with these
objectives. An investment in these funds is neither insured nor guaranteed by
the U.S. government, and there can be no assurance that these funds will be able
to maintain a stable net asset value of $1.00 per share. Very limited risk.
IDS Cash Management Fund
Invests in such money market securities as high quality commercial paper,
bankers' acceptances, certificates of deposit (CDs) and other bank securities.
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IDS Tax-Free Money Fund
Invests primarily in short-term bonds and notes issued by state and local
governments to seek high current income exempt from federal income taxes.
(icon of) shield with piggy bank enclosed
For more complete information about any of these funds, including charges and
expenses, you can obtain a prospectus by contacting your financial advisor or
writing to American Express Shareholder Service, P.O. Box 534, Minneapolis, MN
55440-0534. Read it carefully before you invest or send money.
(This annual report is not part of the prospectus.)
<PAGE>
Federal income tax information
IDS Bond Fund Inc.
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its
fiscal year. Some of the dividends listed below were reported to you on
Form 1099-DIV, Dividends and Distributions, last January. Dividends paid
to you since the end of last year will be reported to you on a tax
statement sent next January. Shareholders should consult a tax advisor on
how to report distributions for state and local purposes.
IDS Bond Fund, Inc.
Fiscal year ended Aug. 31, 1998
Class A
Income distributions
taxable as dividend income, 0.96% qualifying for deduction by corporations.
Payable date Per share
Sept. 25, 1997 $0.03028
Oct. 28, 1997 0.03190
Nov. 25, 1997 0.03027
Dec. 26, 1997 0.05066
Jan. 28, 1998 0.03041
Feb. 26, 1998 0.02930
March 26, 1998 0.02921
April 28, 1998 0.02943
May 27, 1998 0.02983
June 25, 1998 0.02834
July 27, 1998 0.02842
Aug. 26, 1998 0.02934
Total $0.37739
(This annual report is not part of the prospectus.)
<PAGE>
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 26, 1997 $0.06087
Total distributions $0.43826
The distribution of $0.11153 per share, payable Dec. 26, 1997, consisted
of $0.02986 derived from net investment income, $0.02080 from net
short-term capital gains (a total of $0.05066 taxable as dividend income)
and $0.06087 from net long-term capital gains.
The long-term gains distribution is divided into two rate categories: 28%
$0.04465 and 20% - $0.01622.
Class B
Income distributions
taxable as dividend income, 0.96% qualifying for deduction by corporations.
Payable date Per share
Sept. 25, 1997 $0.02712
Oct. 28, 1997 0.02827
Nov. 25, 1997 0.02719
Dec. 26, 1997 0.04725
Jan. 28, 1998 0.02681
Feb. 26, 1998 0.02614
March 26, 1998 0.02617
April 28, 1998 0.02583
May 27, 1998 0.02667
June 25, 1998 0.02518
July 27, 1998 0.02492
Aug. 26, 1998 0.02610
Total $0.33765
(This annual report is not part of the prospectus.)
<PAGE>
Federal income tax information
IDS Bond Fund, Inc.
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 26, 1997 $0.06087
Total distributions $0.39852
The distribution of $0.10812 per share, payable Dec. 26, 1997, consisted
of $0.02645 derived from net investment income, $0.02080 from net
short-term capital gains (a total of $0.04725 taxable as dividend income)
and $0.06087 from net long-term capital gains.
The long-term gains distribution is divided into two rate categories: 28%
$0.04465 and 20% - $0.01622.
Class Y
Income distributions
taxable as dividend income, 0.96% qualifying for deduction by corporations.
Payable date Per share
Sept. 25, 1997 $0.03058
Oct. 28, 1997 0.03225
Nov. 25, 1997 0.03056
Dec. 26, 1997 0.05099
Jan. 28, 1998 0.03076
Feb. 26, 1998 0.02961
March 26, 1998 0.02951
April 28, 1998 0.02978
May 27, 1998 0.03013
June 25, 1998 0.02864
July 27, 1998 0.02875
Aug. 26, 1998 0.02965
Total $0.38121
(This annual report is not part of the prospectus.)
<PAGE>
Capital gain distribution taxable as long-term capital gain.
Payable date Per share
Dec. 26, 1997 $0.06087
Total distributions $0.44208
The distribution of $0.11186 per share, payable Dec. 26, 1997, consisted
of $0.03019 derived from net investment income, $0.02080 from net
short-term capital gains (a total of $0.05099 taxable as dividend income)
and $0.06087 from net long-term capital gains.
The long-term gains distribution is divided into two rate categories: 28% -
$0.04465 and 20% - $0.01622.
(This annual report is not part of the prospectus.)
<PAGE>
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(back cover)
Quick telephone reference*
American Express Redemptions and exchanges, National/Minnesota
Financial Advisors dividend payments or 800-437-3133
Telephone Transaction reinvestments and automatic
Service payment arrangements Mpls./St. Paul area:
671-3800
TTY Service For the hearing impaired 800-846-4852
American Express Automated account information 800-862-7919
Financial Advisors (TouchTone(R) phones only),
Easy Access Line including current fund prices
and performance, account values
and recent account transactions
*You may experience delays when call volumes are high.
AMERICAN EXPRESS Financial Advisors (logo)
IDS Bond Fund
IDS Tower 10
Minneapolis, MN 55440-0010
<PAGE>
STATEMENT OF DIFFERENCES
Difference Description
1) The layout is different 1) Some of the layout in the
throughout the annual report. annual report to
shareholders is in two
columns.
2) Headings. 2) The headings in the
annual report are
placed in a blue strip
at the top of the page.
3) There are pictures, icons 3) Each picture, icon and
and graphs throughout the graph is described in
annual report. parentheses.
4) Footnotes for charts and 4) The footnotes for each
graphs are described at chart or graph are typed
the left margin. below the description of
the chart or graph.
