<PAGE>
PAGE 1
1997 Annual Report
IDS Extra Income Fund
(prospectus enclosed)
(icon of) coins
The primary goal of IDS Extra Income Fund, Inc. is to provide high
current income. Capital growth is a secondary goal.
(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
Distributed by American Express Financial Advisors Inc.
<PAGE>
PAGE 2
(icon of) coins
Bonds with something extra
Bonds aren't necessarily conservative securities strictly for
people willing to settle for modest returns. High-yield corporate
bonds, for example, are actually quite aggressive investments,
offering high potential returns to investors willing to take more
risk.
These are the bonds that Extra Income Fund invests in. High-yield
bonds are issued by a wide range of companies-from well-established
ones that might be experiencing financial difficulty to new,
rapidly growing ones that have yet to build a credit history.
Importantly, the Fund spreads its investments among many bonds
representing many types of businesses. This helps to reduce the
investment risk for shareholders.
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PAGE 3
Contents
(icon of) One open book inside of another.
The purpose of this annual report is to tell investors how the Fund
performed.
The prospectus, which is bound into the middle of this annual
report, describes the Fund in detail.
1997 annual report
From the president 4
From the portfolio manager 4
The Portfolio's ten largest holdings 6
Making the most of the Fund 7
The Fund's long-term performance 8
Independent auditors' report (Fund) 9
Financial statements (Fund) 10
Notes to financial statements (Fund) 13
Independent auditors' report (Portfolio) 18
Financial statements (Portfolio) 19
Notes to financial statements (Portfolio) 22
Investments in securities 27
IDS mutual funds 42
Federal income tax information 46
1997 prospectus
The Fund in brief 3p
Goals 3p
Investment policies and risks 3p
Structure of the Fund 4p
Manager and distributor 4p
Portfolio manager 4p
Alternative purchase arrangements 4p
Sales charge and Fund expenses 5p
Performance 7p
Financial highlights 7p
Total returns 9p
Yield 10p
Investment policies and risks 11p
Facts about investments and their risks 11p
Valuing Fund shares 16p
How to purchase, exchange or redeem shares 17p
Alternative purchase arrangements 17p
How to purchase shares 19p
How to exchange shares 22p
How to redeem shares 22p
Reductions and waivers of the sales charge 27p
Special shareholder services 31p
Services 31p
Quick telephone reference 31p<PAGE>
Page 4
Distributions and taxes 32p
Dividend and capital gain distributions 32p
Reinvestments 33p
Taxes 33p
How to determine the correct TIN 35p
How the Fund and Portfolio are organized 36p
Shares 36p
Voting rights 36p
Shareholder meetings 36p
Special considerations regarding
master/feeder structure 37p
Board members and officers 39p
Investment manager 41p
Administrator and Transfer Agent 41p
Distributor 42p
About American Express Financial Corporation 43p
General information 43p
Appendices 44p
Description of corporate bond ratings 44p
Descriptions of derivative instruments 46p
(This annual report is not part of the prospectus.)
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PAGE 5
To our Shareholders
(photo of) William R. Pearce, President of the Fund
(photo of) Jack Utter, Portfolio Manager
From the president
If you're an experienced investor, you know that the past two years
have been unusually strong ones in many financial markets. Perhaps
just as important, you also know that 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.
That fact reinforces the need for investors to periodically review
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
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.
On June 10, 1996, the Fund began investing its assets in High Yield
Portfolio instead of directly in securities of individual
companies. Following the portfolio manager's letter are the
financial statements of both the Fund and Portfolio. The notes to
the financial statements and the prospectus go into more detail of
how the new structure works.
William R. Pearce
From the portfolio manager
The high-yield segment of the bond market proved a productive place
to be during the past fiscal year, as the above-average interest
offered by high-yield bonds continued to attract considerable
investment capital. For investors in Class A shares of IDS Extra
Income Fund, the result was a total return of 10.9% for the June
1996 through May 1997 period.
The factors that have fueled high-yield bonds in recent years-good
economic growth, low inflation, mostly low long-term interest rates
and healthy corporate profits-remained in place during the past 12
months. In such an environment, high-yield bonds usually perform
well, as their generous interest payments are complemented by a
perceived improvement in the creditworthiness of their issuers-that
is, a greater likelihood that they will be able to met their
principal and interest payments. As they had for some time, high-
yield bonds outperfomed the overall bond market for much of the
period, although their overall advance was less dramatic than in
previous years.
(This annual report is not part of the prospectus.)
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Page 6
Research pays off
As has long been the case, Fund performance benefited from holding
more B-rated bonds than is common for most high-yield funds. (B is
one grade below a BB rating, which is the highest in the below-
investment-grade category.) In recent years, thorough securities
research has allowed the Fund to enjoy the greater yield that B-
rated bonds provide while experiencing relatively few credit
problems. Also enhancing performance was the strategy of
maintaining a low cash-reserve level (about 5% of assets) in the
portfolio, as high-yield bonds generated a far better return than
cash-equivalent investments.
As for market sectors, bond holdings among telecommunications and
media companies-two substantial exposures in the portfolio-
generated above-average returns during the first several months of
the period. Probably the most consistent performance, though, was
provided by so-called "emerging market" bonds-those issued in less-
developed countries such as Indonesia, Venezuela, Mexico, Brazil,
Argentina and Russia. Although they comprised a small portion of
the total portfolio (about 5%), these bonds' strong returns clearly
gave the Fund a performance boost.
Fundamentals still OK
I made only minor changes to the portfolio over the fiscal year,
one being a modest upgrade of its overall credit quality. In
general, the portfolio is structured slightly more defensively than
it was some months ago, a reflection of my view that interest rates
may move higher as 1997 progresses. Still, at this writing (mid-
June), economic growth, inflation and demand for high-yield issues
still appear to be working in the Fund's favor. Therefore, barring
a major setback in any of those factors, I look forward to a
reasonably good return in the months ahead.
Jack Utter
Class A
12-month performance
(All figures per share)
Net asset value (NAV)
May 31, 1997 $4.39
May 31, 1996 $4.34
Increase $0.05
Distributions
June 1, 1996 - May 31, 1997
From income $0.40
From capital gains --
Total distributions $0.40
Total return* +10.9%**
(This annual report is not part of the prospectus.)<PAGE>
Page 7
Class B
12-month performance
(All figures per share)
Net asset value (NAV)
May 31, 1997 $4.39
May 31, 1996 $4.34
Increase $0.05
Distributions
June 1, 1996 - May 31, 1997
From income $0.37
From capital gain --
Total distributions $0.37
Total return* +10.1%**
Class Y
12-month performance
(All figures per share)
Net asset value (NAV)
May 31, 1997 $4.39
May 31, 1996 $4.34
Increase $0.05
Distributions
June 1, 1996 - May 31, 1997
From income $0.41
From capital gains --
Total distributions $0.41
Total return* +11.1%**
*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>
PAGE 8
The Portfolio's ten largest holdings
Percent Value
(of Portfolio's net assets) (as of May 31, 1997)
Trump Holdings 1.00% $32,047,125
15.50% 2005
Gaylord Container .96 30,730,000
12.75% 2005
Cablevision Systems .95 30,402,411
11.125% Pay-in-kind Preferred
Advanced Micro Devices .93 29,826,250
11.00% 2003
Plitt Theatres .91 29,033,625
10.875% 2004
Intl Cabletel .85 27,250,000
11.48% Zero Coupon 2001
Trump Atlantic City Funding .83 26,406,100
11.25% 2006
Specialty Foods .80 25,572,500
10.25% 2001
Repap New Brunswick .80 25,513,625
9.875% 2000
Specialty Equipment .78 25,076,625
11.375% 2003
The ten holdings here make up 8.81% of the Portfolio's total net
assets.
(This annual report is not part of the prospectus)<PAGE>
PAGE 9
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.
Using this strategy does not ensure a profit or avoid a loss if the
market declines, and requires that you be able to keep on investing
on a regular basis, even when the price of your shares falls or the
market declines. Investing in this manner 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.
(This annual report is not part of the prospectus.)<PAGE>
PAGE 10
The Fund's long-term performance
Three ways to benefit from a mutual fund:
o your shares increase in value when the Fund's investments do
well
o you receive capital gains when the gains on investments sold
by the Fund exceed losses
o you receive income when the Fund's stock dividends, interest
and short-term gains exceed its expenses.
All three make up your total return. And you potentially can
increase your investment if, like most investors, you reinvest your
dividends and capital gain distributions to buy additional shares
of the Fund or another fund.
How your $10,000 has grown in IDS Extra Income Fund
$24,238
Extra Income
Fund
Class A
$20,000
Lehman Aggregate
Bond Index
$9,500
'87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97
Average annual total return
(as of May 31, 1997)
1 year Since 5 years 10 years
inception*
Class A +5.37% --% 10.10% +9.26%
Class B +6.07% +12.95% --% --%
Class Y +11.05% +15.52% --% --%
*Inception date was March 20, 1995.
Assumes: Holding period from 6/1/87 to 5/31/97. Returns do not
reflect taxes payable on distributions. Reinvestment of all income
and capital gain distributions for the Fund, with a value of
$16,042. Also see "Performance" in the Fund's current prospectus.
The Lehman Aggregate Bond Index is an unmanaged index made up of a
representative list of government and corporate bonds as well as
(This annual report is not part of the prospectus.)<PAGE>
Page 11
asset-backed securities 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 Portfolio.
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 Extra Income 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>
PAGE 12
The financial statements contained in Post-Effective Amendment #28
to Registration Statement No. 2-86637 filed on or about July 29,
1997, are incorporated herein by reference.
(This annual report is not part of the prospectus.)<PAGE>
PAGE 13
IDS mutual funds
Global/International funds
Funds in this group seek capital growth and/or income by investing
primarily in foreign securities. Foreign investments may be
subject to currency fluctuations and political and economic risks
of the countries in which the investments are made. They are high
risk mutual funds with a potential for high reward.
IDS Emerging Markets Fund
Invests in a Portfolio comprised primarily of stocks of companies
in developing countries throughout the world that are believed to
offer growth potential. Seeks to provide long-term growth of
capital.
(icon of) world with countries
IDS Global Growth Fund
Invests in a Portfolio comprised primarily of stocks of companies
throughout the world that are positioned to meet market needs in a
changing world economy. These companies offer above-average
potential for long-term growth.
(icon of) world
IDS International Fund
Invests primarily in common stocks of foreign companies that offer
potential for superior growth. The Fund may invest up to 20% of
its assets in the U.S. market.
(icon of) three flags
IDS Global Balanced Fund
Invests in stocks and bonds in, for the most part, major markets
throughout the world, including the U.S. Seeks to provide a
balance of growth of capital and current income.
(icon of) scale holding two worlds
IDS Global Bond Fund
Invests in a Portfolio comprised primarily of debt securities of
U.S. and foreign issuers to seek high total return through income
and growth of capital.
(icon of) globe
Growth funds
Funds in this group seek capital growth, primarily from common
stocks. They are high risk mutual funds with a potential for high
reward.
(This annual report is not part of the prospectus.)<PAGE>
Page 14
IDS Precious Metals Fund
Invests primarily in the securities of foreign or domestic
companies that explore for, mine and process or distribute gold and
other precious metals. A highly aggressive and speculative fund
that seeks long-term growth of capital.
(icon of) cart of precious gems
IDS Discovery Fund
Invests in small-and medium-size, growth-oriented companies
emphasizing technological innovation and productivity enhancement.
Buys and holds larger growth-oriented stocks.
(icon of) ship
IDS Small Company Index Fund
Invests in all or a representative group of the equity securities
comprising the S&P SmallCap 600 Index, as it strives to provide
long-term capital appreciation.
(icon of) office building
IDS Strategy Aggressive Fund
Invests primarily in common stocks of companies that are selected
for their potential for above-average growth. Above-average means
that their growth potential is better, in the opinion of the
portfolio's investment manager, than the Standard & Poor's
Corporation (S&P) 500 Stock Index.
(icon of) chess piece
IDS Research Opportunities Fund
Invests in a Portfolio comprised primarily of equity securities of
companies included in the S&P 500 Index that are believed to have
strong growth potential. The Portfolio is managed using a research
methodology by the Research Department of AEFC. Goal is long-term
appreciation.
(icon of) magnifying glass
(This annual report is not part of the prospectus)<PAGE>
Page 15
IDS Growth Fund
Invests in a Portfolio comprised primarily of companies that have
above-average potential for long-term growth as a result of new
management, marketing opportunities or technological superiority.
(icon of) trees
IDS New Dimensions Fund
Invests in a Portfolio comprised primarily of companies with
significant growth potential due to superiority in technology,
marketing or management. The Fund frequently changes its industry
mix.
(icon of) dimension
IDS Progressive Fund
Invests primarily in undervalued common stocks. The Fund holds
stocks for the long term with the goal of capital growth.
(icon of) shooting star
Growth & income funds
These funds focus on securities of medium to large, well-
established companies that offer long-term growth of capital and
reasonable income from dividends and interest. Foreign investments
may be subject to currency fluctuations and political and economic
risks of the countries in which the investments are made.
IDS Equity Select Fund
Invests primarily in a combination of moderate growth stocks,
higher-yielding equities and bonds. Seeks growth of capital and
income.
(icon of) three pine trees
IDS Blue Chip Advantage Fund
Invests in selected stocks from a major market index. Securities
purchased are those recommended by our research analysts as the
best from each industry represented on the index. Offers potential
for long-term growth as well as dividend income.
(icon of) ribbon
(This annual report is not part of the Prospectus.)<PAGE>
Page 16
IDS Managed Allocation Fund
Invests in a Portfolio comprised primarily of U.S. equity
securities, U.S. and foreign debt securities, foreign equity
securities and money market instruments. The Fund provides
diversification among these major investment categories and has a
target mix that represents the way the Fund's investments will be
allocated over the long term. Seeks maximum total return.
(icon of) gyroscope
IDS Stock Fund
Invests in a Portfolio comprised primarily of common stock of
companies representing many sectors of the economy. Seeks current
income and growth of capital.
(icon of) building with columns
IDS Equity Value Fund
Invests primarily in undervalued common stocks that offer potential
for growth of capital and income.
(icon of) three growing flowers
IDS Utilities Income Fund
Invests primarily in the stocks of public utility companies to seek
high current income and growth of income and capital with reduced
volatility.
(icon of) light bulb
IDS Diversified Equity Income Fund
Invests in a Portfolio comprised primarily of high-yielding common
stocks to seek high current income and, secondarily, to benefit
from the growth potential offered by stock investments.
(icon of) two puzzle pieces
IDS Mutual
Invests in a Portfolio that seeks to balance between common stocks
and senior securities (preferred stocks and bonds). Seeks a
balance of growth of capital and current income.
(icon of) scale of justice
(This annual report is not part of the prospectus)<PAGE>
Page 17
Income funds
The funds in this group invest their assets primarily in corporate
bonds or government securities to seek interest income. Secondary
objective is capital growth. Risk varies by bond quality.
IDS Extra Income Fund
Invests in a Portfolio comprised mainly of long-term, high-yielding
corporate fixed-income securities in the lower rated, higher risk
bond categories to seek high current income. Secondary objective
is capital growth.
(icon of) coins
IDS Bond Fund
Invests mainly in corporate bonds, at least 50% in the higher
rated, lower risk bond categories, or the equivalent, and in
government bonds.
(icon of) greek column
IDS Selective Fund
Invests in a Portfolio comprised primarily of high-quality
corporate bonds and other highly rated debt instruments including
government securities and short-term investments. Seeks current
income and preservation of capital.
(icon of) skyline
IDS Federal Income Fund
Invests in a Portfolio comprised primarily of securities issued or
guaranteed as to the timely payment of principal and interest by
the U.S. government, its agencies and instrumentalities. Seeks a
high level of current income and safety of principal consistent
with its type of investments.
(icon of) shield with eagle head enclosed
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 enclosed
(This annual report is not part of the prospectus.)<PAGE>
Page 18
IDS Insured Tax-Exempt Fund
Invests primarily in municipal securities that are insured as to
the timely payment of principal and interest. The insurance
feature minimizes credit risk of the Fund but does not guarantee
the market value of the Fund's shares.
(icon of) shield with star enclosed
IDS State Tax-Exempt Funds
(CA, MA, MI, MN, NY, OH)
Invests primarily in high- and medium-grade municipal securities to
provide income to residents of each respective state that is exempt
from federal, state and local income taxes. (New York is the only
state that is exempt at the local level.)
(icon of) shield with U.S. enclosed
IDS High Yield Tax-Exempt Fund
Invests in a Portfolio comprised primarily of medium- and lower-
quality municipal bonds and notes. Lower-quality securities
generally involve greater risk of principal and income.
(icon of) shield with basket of apples enclosed
IDS Intermediate Tax-Exempt Fund
Invests in mainly investment-grade bonds and other debt securities
with intermediate-term maturities issued by state and local
government units. Goal is to seek a high level of current income
exempt from federal taxes.
(icon of) shield with a tree enclosed
(This annual report is not part of the prospectus)<PAGE>
Page 19
Money market funds
These money market funds have three main goals: conservation of
capital, constant liquidity and the highest possible current income
consistent with these objectives. An investment in these funds is
neither insured nor guaranteed by the U.S. government, and there
can be no assurance that these funds will be able to maintain a
stable net asset value of $1.00 per share. Very limited risk.
IDS Cash Management Fund
Invests in such money market securities as high quality commercial
paper, bankers' acceptances, certificates of deposit (CDs) and
other bank securities.
(icon of) piggy bank
IDS Tax-Free Money Fund
Invests primarily in short-term bonds and notes issued by state and
local governments to seek high current income exempt from federal
income taxes.
(icon of) shield with piggy bank enclosed
For more complete information about any of these funds, including
charges and expenses, you can obtain a prospectus by contacting
your financial advisor or writing to American Express Shareholder
Service, P.O. Box 534, Minneapolis, MN 55440-0534. Read it
carefully before you invest or send money.
(This annual report is not part of the prospectus.)<PAGE>
Page 20
Federal income tax information
IDS Extra Income 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 a Form 1099-DIV, Dividends and Distributions,
last January. Dividends paid to you since the end of last year will
be reported to you on a tax statement sent next January.
Shareholders should consult a tax advisor on how to report
distributions for state and local purposes.
IDS Extra Income Fund, Inc.
Fiscal period ended May 31, 1997
Class A
Income distributions
taxable as dividend income, 7.38% qualifying for deduction by
corporations.
Payable date Per share
June 27, 1996 $0.03525
July 29, 1996 0.03143
Aug. 28, 1996 0.03921
Sept. 26, 1996 0.03704
Oct. 29, 1996 0.03783
Nov. 27, 1996 0.03053
Dec. 27, 1996 0.02846
Jan. 30, 1997 0.03028
Feb. 27, 1997 0.03217
March 27, 1997 0.03245
April 29, 1997 0.03271
May 29, 1997 0.03338
Total distributions $0.40074
(This annual report is not part of the prospectus.)<PAGE>
Page 21
Class B
Income distributions
taxable as dividend income, 7.38% qualifying for deduction by
corporations.
Payable date Per share
June 27, 1996 $0.03267
July 29, 1996 0.02877
Aug. 28, 1996 0.03637
Sept. 26, 1996 0.03445
Oct. 29, 1996 0.03483
Nov. 27, 1996 0.02792
Dec. 27, 1996 0.02576
Jan. 30, 1997 0.02720
Feb. 27, 1997 0.02961
March 27, 1997 0.02989
April 29, 1997 0.02976
May 29, 1997 0.03067
Total distributions $0.36790
Class Y
Income distributions
taxable as dividend income, 7.38% qualifying for deduction by
corporations.
Payable date Per share
June 27, 1996 $0.03585
July 29, 1996 0.03202
Aug. 28, 1996 0.03988
Sept. 26, 1996 0.03763
Oct. 29, 1996 0.03850
Nov. 27, 1996 0.03110
Dec. 27, 1996 0.02909
Jan. 30, 1997 0.03099
Feb. 27, 1997 0.03281
March 27, 1997 0.03296
April 29, 1997 0.03329
May 29, 1997 0.03376
Total distributions $0.40788
(This annual report is not part of the prospectus.)<PAGE>
PAGE 22
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 (TouchToneR phones only), including
current fund prices and performance, account values and recent
account transactions
800-862-7919
AMERICAN
EXPRESS
Financial
Advisors
IDS Extra Income Fund
IDS Tower 10
Minneapolis, MN 55440-0010<PAGE>
Page 23
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.
