1996 semiannual report
IDS
Extra
Income
Fund
(icon of) two coins
The primary goal of IDS Extra Income Fund, Inc. is to provide high current
income. Capital growth is a secondary goal.
Distributed by American Express Financial Advisors Inc.
<PAGE>
(icon of) two 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 IDS 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.
Contents
From the president 3
From the portfolio manager 3
The Portfolio's Ten largest holdings 5
Financial statements (Fund) 6
Notes to financial statements (Fund) 9
Financial statements (Portfolio) 19
Notes to financial statements (Portfolio) 22
Investments in securities 29
Board members and officers 43
IDS mutual funds 44
<PAGE>
To our shareholders
(picture of) William Pearce
William R. Pearce
President of the Fund
(picture of) Jack Utter
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 worldwide 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 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. 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 Managers letter are the
financial statements of both the Fund and Portfolio. The notes to the financials
and the prospectus go into more detail of how the new structure works.
William R. Pearce
From the portfolio manager
High-yield bonds continued to gain ground during the first half of the fiscal
year, setting the stage for a positive return by IDS Extra Income Fund. For the
June through November 1996 period, the total return (which includes net asset
value change and dividends) for the Fund's Class A shares was 5.4%. The factors
that had fueled the high-yield segment of the bond market in recent years -
moderate economic growth, low inflation, mostly low long-term interest rates and
good corporate profits - remained in place during the past six months. In such
an environment, high-yield bonds typically attract more investment capital, as
their above-average interest payments are complemented by an increased
likelihood that their corporate issuers will be able to meet their principal and
interest obligations. As they had for some time, high-yield bonds outperformed
the overall bond market for much of the past six months, although their advance
was less impressive than in previous periods. A September rally In fact,
performance was rather modest through the summer, as investors tried to sort out
which way the economy and inflation were headed. By September, the prevailing
view was that the economy would not overheat and take inflation with it. That
injected a dose of optimism into the market that sent long-term interest rates
lower and bond values sharply higher. The Fund gained nearly 3% in September
alone. 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, careful 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. Best
performers As for market sectors, bond holdings among telecommunications and
media companies - two substantial exposures in the portfolio continued to
generate above-average returns. On the other hand, gaming-company bonds, which
had been strong performers for the Fund in recent years, were generally weak
during the period. As for the rest of the fiscal year, the investment
environment is little changed from several months ago: The economy appears to be
experiencing moderate growth, and inflation seems well-behaved. Mitigating
against those positives is the likelihood of weaker corporate profits in 1997.
In light of that, I have begun to upgrade the overall quality of the portfolio,
which should make it less vulnerable to possible credit concerns in the
high-yield market.
Jack Utter
Class A
6-month performance
(All figures per share)
Net asset value (NAV)
Nov. 30, 1996 $4.36
May 31, 1996 $4.34
Increase $0.02
Distributions
June 1, 1996 - Nov. 30, 1996
From income $0.21
From capital gains $ --
Total distributions $0.21
Total return* +5.4%**
Class B
6-month performance
(All figures per share)
Net asset value (NAV)
Nov. 30, 1996 $4.36
May 31, 1996 $4.34
Increase $0.02
Distributions
June 1, 1996 - Nov. 30, 1996
From income $0.20
From capital gains $ --
Total distributions $0.20
Total return* +5.0%**
Class Y
6-month performance
(All figures per share)
Net asset value (NAV)
Nov. 30, 1996 $4.36
May 31, 1996 $4.34
Increase $0.02
Distributions
June 1, 1996 - Nov. 30, 1996
From income $0.21
From capital gains $ --
Total distributions $0.21
Total return* +5.4%**
*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.
<PAGE>
The Portfolio's ten largest holdings
High Yield Portfolio
The ten holdings here make up 10.19% of the Portfolio's total net assets.
- -----------------------------------------------------------------------
Percent Value
(of Fund's net assets) (as of Nov. 30, 1996)
- -----------------------------------------------------------------------
Trump Atlantic City Funding 1.68% $46,976,500
11.25% 1st Mtge 2006
Gaylord Container 1.10 30,800,000
12.75% Sr Sub Disc Deb 2005
Adelphia Communications 1.05 29,292,222
9.50% Pay-in-kind 2004
Plitt Theatres 1.03 28,685,500
10.875% 2004
Cablevision Systems .96 26,870,976
11.125% Pay-in-kind
Revlon Worldwide .93 25,875,000
11.52% Zero Coupon Sr Disc Nts 1998
U.S. Treasury .91 25,588,080
7% 2006
Specialty Equipment .89 24,901,875
11.375% Sr Sub Nts 2003
ISP Holdings .83 23,325,750
9.75% Sr. Nts 1999
Norcal Waste Systems .80 22,330,000
12.75% Sr Nts
<PAGE>
Financial statements
Statement of assets and liabilities
IDS Extra Income Fund,Inc.
Nov. 30, 1996
Assets
(Unaudited)
Investment in High Yield Portfolio (Note 1) $2,796,669,546
Liabilities
Dividends payable to shareholders 1,945,258
Accrued distribution fee 17,334
Accrued service fee 26,553
Accrued transfer agency fee 27,779
Accrued supplemental transfer agency fee 159
Accrued administrative services fee 6,889
Other accrued expenses 99,117
Total liabilities 2,123,089
Net assets applicable to outstanding capital stock $2,794,546,457
Represented by
Capital stock -- authorized 10,000,000,000
shares of $.01 par value (Note 1) $ 6,415,496
Additional paid-in-capital 2,946,677,299
Undistributed net investment income 704,894
Accumulated net realized loss (Note 1) (251,981,619)
Unrealized appreciation of investments and on
translation of assets and liabilities in foreign currencies 92,730,387
Total - representing net assets applicable to outstanding
capital stock $2,794,546,457
Net assets applicable to outstanding shares:
Class A $2,367,023,663
Class B $ 427,519,031
Class Y $ 3,763
Net asset value per share of outstanding capital stock:
Class A shares 543,395,655 $ 4.36
Class B shares 98,153,059 $ 4.36
Class Y shares 864 $ 4.36
See accompanying notes to financial statements.
<PAGE>
<TABLE>
Statement of operations
IDS Extra Income Fund, Inc.
Six months ended Nov. 30, 1996 (Unaudited)
Investment Income
<CAPTION>
June 1, 1996 to June 10, 1996 to Total
June 9, 1996 Nov. 30, 1996
(Notes 1 and 4)
Income:
<S> <C> <C> <C>
Dividends $ -- $ 10,294,069 $ 10,294,069
Interest 4,448,638 116,106,451 120,555,089
--------- ----------- -----------
Total Income 4,448,638 126,400,520 130,849,158
Expenses (Note 2):
Investment management services fee 263,749 -- 263,749
Distribution fee -- Class B 38,787 1,236,501 1,275,288
Transfer agency fee 42,993 1,125,823 1,168,816
Incremental transfer agency fee -- Class B 363 11,528 11,891
Service fee
Class A 71,775 1,842,236 1,914,011
Class B 9,050 287,804 296,854
Administrative services fee 21,343 564,991 586,334
Compensation of board members 280 3,500 3,780
Compensation of officers 245 6,125 6,370
Custodian fees 1,862 -- 1,862
Postage 3,640 91,000 94,640
Registration fees 7,502 145,015 152,517
Reports to shareholders 140 3,500 3,640
Audit fees 280 1,750 2,030
Administrative 223 4,707 4,930
Other 337 3,132 3,469
Total expenses 462,569 5,327,612 5,790,181
Earnings credits on cash balances (Note 4) (1,015) -- (1,015)
------- -- -------
461,554 5,327,612 5,789,166
Expenses, including investment management services fee,
allocated from High Yield Portfolio -- 7,083,953 7,083,953
-- --------- ---------
Total net expenses 461,554 12,411,565 12,873,119
------- ---------- ----------
Investment income -- net 3,987,084 113,988,955 117,976,039
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on security transactions (3,257,778) 4,423,671 1,165,893
Net change in unrealized appreciation or
depreciation of investments (11,244,894) 26,554,603 15,309,709
Net gain (loss) on investments (14,502,672) 30,978,274 16,475,602
Net increase (decrease) in net assets
resulting from operations $(10,515,588) $144,967,229 $134,451,641
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Financial statements
Statements of changes in net assets
IDS Extra Income Fund,Inc.
<CAPTION>
Nov. 30, 1996 May 31, 1996
Six months Nine months
ended ended
(Unaudited)
Operations and distributions
<S> <C> <C>
Investment income -- net $117,976,039 $ 141,910,062
Net realized gain on investments 1,165,893 30,587,183
Net change in unrealized appreciation or
depreciation of investments 15,309,709 63,851,546
---------- ----------
Net increase in net assets resulting from operations 134,451,641 236,348,791
----------- -----------
Distributions to shareholders from:
Net investment income
Class A (108,679,911) (131,968,668)
Class B (15,368,897) (10,053,530)
Class Y (406) (35,126)
----- --------
Total distributions (124,049,214) (142,057,324)
------------- -------------
Capital share transactions (Note 3)
Proceeds from sales
Class A shares (Note 2) 347,302,233 409,958,480
Class B shares 184,875,560 211,284,632
Class Y shares 1,076 281,250
Reinvestment of distributions at net asset value
Class A shares 73,853,891 88,685,134
Class B shares 12,852,668 8,360,841
Class Y shares 411 26,891
Payments for redemptions
Class A shares (208,151,192) (262,062,635)
Class B shares (Note 2) (41,802,265) (33,183,891)
Class Y shares (6,815) (1,890,774)
------- -----------
Increase in net assets from capital share transactions 368,925,567 421,459,928
Total increase in net assets 379,327,994 515,751,395
Net assets at beginning of period 2,415,218,463 1,899,467,068
Net assets at end of period
(including undistributed net investment
income of $704,894 and $6,778,069) $2,794,546,457 $2,415,218,463
============= =============
</TABLE>
See accompanying notes to financial statements.
Notes to financial statements
IDS Extra Income Fund, Inc.
(Unaudited as of Nov. 30, 1996)
_______________________________________________________________________
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 offers Class A,
Class B and Class Y shares. Class A shares are sold with a front-end sales
charge. Class B shares may be subject to a contingent deferred sales charge and
such shares automatically convert to Class A after eight years. Class Y shares
have no sales charge and are offered only to qualifying institutional investors.
All classes of shares have identical voting, dividend, liquidation and other
rights, and the same terms and conditions, except that the level of distribution
fee, transfer agency fee and service fee (class specific expenses) differs among
classes. Income, expenses (other than class specific expenses) and realized and
unrealized gains or losses on investments are allocated to each class of shares
based upon its relative net assets.
Investment in High Yield Portfolio
Effective June 10, 1996, the Fund began investing all of its assets in the High
Yield Portfolio (the Portfolio), a series of Income Trust, an open-end
investment company that has the same objectives as the Fund. This was
accomplished by transferring the Fund's assets to the Portfolio in return for a
proportionate ownership interest in the Portfolio. The Portfolio invests
primarily in long-term corporate bonds in the lower ranking categories, commonly
known as junk bonds.
The Fund records daily its share of the Portfolio's income, expenses and
realized and unrealized gains and losses. The financial statements of the
Portfolio are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The Fund records its investment in the Portfolio at value that is equal to the
Fund's proportionate ownership interest in the net assets of the Portfolio. The
percentage of the Portfolio owned by the Fund at Nov. 30, 1996 was 99.98%.
Valuation of securities held by the Portfolio is discussed in Note 1 of the
Portfolio's Notes to financial statements, which are included elsewhere in this
report.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increase and decrease in net assets from operations
during the period. Actual results could differ from those estimates.
<PAGE>
Federal taxes
Since the Fund's policy is to comply with all sections of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to the shareholders, no provision for income or excise taxes is
required.
Net investment income (loss) and net realized gains (losses) allocated from the
Portfolio may differ for financial statement and tax purposes primarily because
of the deferral of losses on certain futures contracts, the recognition of
certain foreign currency gains (losses) as ordinary income (loss) for tax
purposes, and losses deferred due to "wash sale" transactions. The character of
distributions made during the year from net investment income or net realized
gains may differ from their ultimate characterization for federal income tax
purposes. Also, due to the timing of dividend distributions, the fiscal year in
which amounts are distributed may differ from the year that the income or
realized gains (losses) were recorded by the Fund.
Dividends to shareholders
Dividends 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.
_______________________________________________________________________
2. Expenses and sales charges
In addition to the expenses allocated from the Portfolio, the Fund accrues its
own expenses as follows:
Effective March 20, 1995, the Fund entered into agreements with American Express
Financial Corporation (AEFC) for providing administrative services and serving
as transfer agent. 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.
Under this agreement, the Fund also pays taxes; audit and certain legal fees;
registration fees for shares; office expenses; consultant's fees; compensation
of board members, officers and employees; corporate filing fees; organizational
expenses; and any other expenses properly payable by the 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:
o Class A $15.50
o Class B $16.50
o Class Y $15.50
<PAGE>
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.
Sales charges received by American Express Financial Advisors, Inc. for
distributing Fund shares were $6,784,122 for Class A and $108,978 for Class B
for the period ended Nov. 30, 1996. The Fund also pays custodian fees to
American Express Trust Company, an affiliate of AEFC.
Prior to April 30, 1996, the Fund had a retirement plan for its independent
board members. The plan was terminated April 30, 1996. The total liability for
the plan is $51,123, which will be paid out at some future date.
_______________________________________________________________________
3. Capital share transactions
Transactions in shares of capital stock for the periods indicated are as
follows:
Period ended Nov. 30, 1996
Class A Class B Class Y
_______________________________________________________________________
Sold 80,180,631 42,700,912 249
Issued for reinvested
distributions 17,063,088 2,968,105 95
Redeemed (48,099,143) (9,664,677) (1,562)
_______________________________________________________________________
Net increase (decrease) 49,144,576 36,004,340 (1,218)
- -----------------------------------------------------------------------
Nine months ended May 31, 1996
Class A Class B Class Y
_______________________________________________________________________
Sold 96,295,627 49,606,436 67,241
Issued for reinvested 20,843,375 1,956,298 6,442
distributions
Redeemed (61,588,802) (7,759,632) (453,087)
_______________________________________________________________________
Net increase (decrease) 55,550,200 43,803,102 (379,404)
- -----------------------------------------------------------------------
_______________________________________________________________________
4. Capital loss carryover
For federal income tax purposes, the Fund had a capital loss carryover of
approximately $242,479,000 at Nov. 30, 1996, that if not offset by subsequent
capital gains, will expire in 1999 through 2004. It is unlikely the board will
authorize a distribution of any net realized gains until the available capital
loss carryover has been offset or expires.
_______________________________________________________________________
5. Pre-conversion to Master
Prior to transferring its securities to High Yield Portfolio on June 10, 1996,
various transactions took place as stated below.
Expenses and sales charges
Prior to the conversion on June 10, 1996, the Fund paid an investment management
fee to AEFC. Subsequent to the conversion, the investment management fee is
assessed at the Portfolio level. (See the footnotes to the Portfolio financial
statements for the terms of the investment management agreement which remain
unchanged.)
During the period from June 1, 1996 to June 9, 1996, the Fund's custodian and
transfer agency fees were reduced by $1,015 as a result of earnings credits from
overnight cash balances.
Securities transactions
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $36,119,723 and $57,658,250, respectively, for the
period from June 1, 1996 to June 9, 1996. Realized gains and losses were
determined on an identified cost basis.
Income from securities lending amounted to $546 for the period from June 1, 1996
to June 9, 1996.
<PAGE>
<TABLE>
- -----------------------------------------------------------------------
6. Financial highlights
The tables below show certain important financial information for evaluating the
Fund's results.
IDS Extra Income Fund, Inc.
Performance
Financial highlights
Fiscal period ended May 31,
Per share income and capital changes*
Class A
<CAPTION>
1996*** 1996** 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $4.34 $4.15 $4.02 $4.44 $4.24 $3.72 $3.47 $4.46 $4.67 $4.94 $5.16
beginning of period
Income from investment operations:
Net investment income .20 .28 .39 .43 .47 .44 .42 .46 .53 .53 .53
Net gains (losses) .03 .20 .13 (.42) .16 .52 .24 (1.01) (.20) (.27) (.12)
(both realized
and unrealized)
Total from investment .23 .48 .52 .01 .63 .96 .66 (.55) .33 .26 .41
operations
Less distributions:
Dividends from net (.21) (.29) (.39) (.43) (.43) (.44) (.41) (.44) (.54) (.53) (.53)
investment income
Distributions from -- -- -- -- -- -- -- -- -- -- (.10)
realized gains
Total distributions (.21) (.29) (.39) (.43) (.43) (.44) (.41) (.44) (.54) (.53) (.63)
Net asset value, $4.36 $4.34 $4.15 $4.02 $4.44 $4.24 $3.72 $3.47 $4.46 $4.67 $4.94
end of period
Ratios/supplemental data
Class A
1996*** 1996** 1995 1994 1993 1992 1991 1990 1989 1988 1987
Net assets, end of $2,367 $2,145 $1,822 $1,626 $1,547 $1,304 $990 $931 $1,302 $1,186 $1,110
period (in millions)
Ratio of expenses to .90%+ .94%+ .87% .79% .81% .83% .88% .84% .82% .81% .82%
average daily net assets
Ratio of net income 9.06%+ .90%+ 9.93% 9.85% 10.03% 11.13% 12.45% 12.28% 11.67% 11.38% 10.34%
to average
daily net assets
Portfolio turnover rate 47% 61% 70% 74% 70% 89% 88% 88% 102% 105% 87%
(excluding short-term
securities)
Average brokerage $0.0633 -- -- -- -- -- -- -- -- -- --
commission rate+++
Total return++ 5.4% 11.7% 14.2% (0.2%) 15.8% 26.9% 21.2% (12.5%) 7.4% 5.8% 8.3%
*For a share outstanding throughout the period. Rounded to the
nearest cent.
**The Fund's fiscal year-end changed from Aug. 31 to May 31,
effective 1996.
***Six months ended Nov. 30, 1996 (Unaudited).
+Adjusted to an annual basis.
++Total return does not reflect payment of a sales charge.
+++Effective fiscal year 1997, the Fund is required to disclose an
average brokerage commission rate. The rate is calculated by
dividing the total brokerage commissions paid on applicable
purchases and sales of portfolio securities for the period by
the total number of related shares purchased and sold.
</TABLE>
<PAGE>
<TABLE>
PAGE
IDS Extra Income Fund, Inc.
Fiscal period ended May 31,
Per share income and capital changes*
Class B Class Y
<CAPTION>
1996+++ 1996++ 1995** 1996+++ 1996++ 1995**
<S> <C> <C> <C> <C> <C> <C>
Net asset value, $4.34 $4.15 $3.93 $4.34 $4.15 $3.93
beginning of period
Income from investment operations:
Net investment income .19 .25 .18 .20 .28 .20
Net gains .03 .20 .21 .03 .20 .21
(both realized
and unrealized)
Total from investment .22 .45 .39 .23 .48 .41
operations
Less distributions:
Dividends from net (.20) (.26) (.17) (.21) (.29) (.19)
investment income
Net asset value, $4.36 $4.34 $4.15 $4.36 $4.34 $4.15
end of period
Ratios/supplemental data
Class B Class Y
1996+++ 1996++ 1995** 1996+++ 1996++ 1995**
Net assets, end of $269 $270 $76 -- -- $2
period (in millions)
Ratio of expenses to 1.66%+ 1.70%+ 1.72%+ .70%+ .76%+ .78%+
average daily net assets
Ratio of net income 10.06%+ 8.34%+ 9.51%+ 3.63%+ 8.24%+ 10.19%+
to average
daily net assets
Portfolio turnover rate 47% 61% 70% 47% 61% 70%
(excluding short-term
securities)
Average brokerage
commission rate# $0.0633 -- -- $0.0633 -- --
Total return*** 5.0% 11.1% 9.9% 5.4% 11.8% 10.4%
*For a share outstanding throughout the period. Rounded to the
nearest cent.
**Inception date was March 20, 1995 for Class B and Class Y.
***Total return does not reflect payment of a sales charge.
+Adjusted to an annual basis.
++The Fund's fiscal year-end was changed from Aug. 31 to May 31,
effective 1996.
+++Six months ended Nov. 30, 1996 (Unaudited).
#Effective fiscal year 1997, the Fund is required to disclose an
average brokerage commission rate. The rate is calculated by
dividing the total brokerage commissions paid on applicable
purchases and sales of portfolio securities for the period by the
total number of related shares purchased and sold.
</TABLE>
<PAGE>
Financial statements
Statement of assets and liabilities
High Yield Portfolio
Nov. 30, 1996
Assets
(Unaudited)
Investments in securities, at value (Note 1)
(identified cost $2,078,592,178) $2,801,335,747
Dividends and accrued interest receivable 56,094,864
U.S. government securities held as collateral (Note 5) 1,028,841
Receivable for investment securities sold 37,488,542
- --------------------------------------------------------------------------------
Total assets 2,895,947,994
- --------------------------------------------------------------------------------
Liabilities
Disbursements in excess of cash on demand deposit 14,017,501
Payable for investment securities purchased 83,533,771
Payable upon return of securities loaned (Note 5) 1,028,841
Accrued investment management services fee 86,639
Other accrued expenses 47,220
- --------------------------------------------------------------------------------
Total liabilities 98,713,972
- --------------------------------------------------------------------------------
Net assets $2,797,234,022
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
<PAGE>
Statement of operations
High Yield Portfolio
For the period ended June 10, 1996
(commencement of operations) to Nov. 30, 1996
Investment income
(Unaudited)
Income:
Interest $116,125,438
Dividends 10,295,842
- --------------------------------------------------------------------------------
Total income 126,421,280
- --------------------------------------------------------------------------------
Expenses (Note 2):
Investment management services fee 7,048,585
Compensation of board members 3,500
Custodian fees 46,550
Audit fees 5,250
Administrative 858
Other 5,792
- --------------------------------------------------------------------------------
Total expenses 7,110,535
Earnings credits on cash balances (Note 2) (25,375)
- -------------------------------------------------------------------------------
Total net expenses 7,085,160
- --------------------------------------------------------------------------------
Investment income -- net 119,336,120
- --------------------------------------------------------------------------------
Realized and unrealized gain -- net
Net realized gain on security transactions 4,420,244
Net change in unrealized appreciation or depreciation
of investments 26,567,783
- --------------------------------------------------------------------------------
Net gain on investments 30,988,027
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations $150,324,147
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
<PAGE>
Financial Statements
Statement of changes in net assets
High Yield Portfolio
For the period from June 10, 1996
(commencement of operations) to Nov. 30, 1996
Operations and distributions
(Unaudited)
Investment income -- net $119,336,120
Net realized gain on investments 4,420,244
Net change in unrealized appreciation or depreciation
of investments 26,567,783
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations 150,324,147
- --------------------------------------------------------------------------------
Net contributions 2,646,879,875
- --------------------------------------------------------------------------------
Total increase in net assets 2,797,204,022
Net assets at beginning of period (Note 1) 30,000
- --------------------------------------------------------------------------------
Net assets at end of period $2,797,234,022
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
<PAGE>
Notes to financial statements
High Yield Portfolio
(Unaudited as to Nov. 30, 1996)
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1. Summary of significant accounting policies
The High Yield Portfolio (the Portfolio) is a series of Income Trust (the Trust)
and is registered under the Investment Company Act of 1940 (as amended) as a
diversified, open-end management investment company. High Yield Portfolio
invests primarily in long-term corporate bonds in the lower-rating categories,
commonly known as junk bonds. The Declaration of Trust permits the Trustees to
issue non-transferable interests in the Portfolio. On April 15, 1996, AEFC
contributed $30,000 to the Portfolio. Operations did not formally commence until
June 10, 1996, at which time, an existing fund transferred its assets to the
Portfolio in return for an ownership percentage of the Portfolio.
Significant accounting polices followed by the Portfolio are summarized below:
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increase and decrease in net assets from operations
during the period. Actual results could differ from those estimates.
Valuation of securities
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price; securities for which market quotations
are not readily available are valued at fair value according to methods selected
in good faith by the board. Determination of fair value involves, among other
things, reference to market indexes, matrixes and data from independent brokers.
Short-term securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current interest
rates; those maturing in 60 days or less are valued at amortized cost.
<PAGE>
Option transactions
In order to produce incremental earnings, protect gains and facilitate buying
and selling of securities for investment purposes, the Portfolio 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 Portfolio also may buy or sell put and call
options and write covered call options on portfolio securities and may write
cash-secured put options. The risk in writing a call option is that the
Portfolio gives up the opportunity of profit if the market price of the security
increases. The risk in writing a put option is that the Portfolio may incur a
loss if the market price of the security decreases and the option is exercised.
The risk in buying an option is that the Portfolio pays a premium whether or not
the option is exercised. The Portfolio also has the additional risk of not being
able to enter into a closing transaction if a liquid secondary market does not
exist.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Portfolio
will realize a gain or loss upon expiration or closing of the option
transaction. When an option is exercised, the proceeds on sales for a written
call option, the purchase cost for a written put option or the cost of a
security for a purchased put or call option is adjusted by the amount of premium
received or paid.
Futures transactions
In order to gain exposure to or protect itself from changes in the market, the
Portfolio may buy and sell stock index futures contracts traded on any U.S. or
foreign exchange. The Portfolio also may buy or write put and call options on
these futures contracts. Risks of entering into futures contracts and related
options include the possibility that there may be an illiquid market and that a
change in the value of the contract or option may not correlate with changes in
the value of the underlying securities.
Upon entering into a futures contract, the Portfolio is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Portfolio each day. The variation margin payments are
equal to the daily changes in the contract value and are recorded as unrealized
gains and losses. The Portfolio recognizes a realized gain or loss when the
contract is closed or expires.
Securities purchased on a when-issued basis
Delivery and payment for securities that have been purchased by the Portfolio 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 Portfolio's net assets the same as owned
securities. The Portfolio designates cash or liquid high-grade debt securities
at least equal to the amount of its commitment. As of Nov. 30, 1996, the
Portfolio had entered into outstanding when-issued or forward commitments of
$5,825,000.
Foreign currency translations
and foreign currency contracts
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars at the closing rate of exchange. Foreign
currency amounts related to the purchase or sale of securities and income and
expenses are translated at the exchange rate on the transaction date. The effect
of changes in foreign exchange rates on realized and unrealized security gains
or losses is reflected as a component of such gains or losses. In the statement
of operations, net realized gains or losses from foreign currency transactions
may arise from sales of foreign currency, closed forward contracts, exchange
gains or losses realized between the trade date and settlement dates on
securities transactions, and other translation gains or losses on dividends,
interest income and foreign withholding taxes.
The Portfolio may enter into forward foreign currency exchange contracts for
operational purposes and to protect against adverse exchange rate fluctuation.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Portfolio and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates from an
independent pricing service. The Portfolio is subject to the credit risk that
the other party will not complete the obligations of the contract.
Federal taxes
For federal income tax purposes the Portfolio qualifies as a partnership and
each investor in the Portfolio is treated as the owner of its proportionate
share of the net assets, income, expenses and realized and unrealized gains and
losses of the Portfolio. Accordingly, as a "pass-through" entity, the Portfolio
does not pay any income dividends or capital gain distributions.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date. 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. Fees and expenses
The Trust, on behalf of the Portfolio, has entered into an Investment Management
Services Agreement with American Express Financial Corporation (AEFC) for
managing its portfolio. Under this agreement, AEFC determines which securities
will be purchased, held or sold. The management fee is a percentage of the
Portfolio's average daily net assets in reducing percentages from 0.59% to
0.465% annually.
Under the agreement, the Trust also pays taxes and nonadvisory expenses, which
include custodian fees to be paid to an affiliate of AEFC; audit and certain
legal fees; fidelity bond premiums; registration fees for units; Portfolio
office expenses; consultants' fees; compensation of trustees; corporate filing
fees; expenses incurred in connection with lending securities of the Portfolio:
and any other expenses properly payable by the Trust or Portfolio, approved by
the board.
For the period from June 10, 1996 to Nov. 30, 1996, the Portfolio's custodian
fees were reduced by $25,375 as a result of earnings credits from overnight cash
balances.
Pursuant to a Placement Agency Agreement, American Express Financial Advisors
Inc. acts as placement agent of the units of the Trust.
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3. Securities transactions
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $1,461,907,793 and $1,106,020,842, respectively, for the
period from June 10, 1996 to Nov. 30, 1996. For the same period, the portfolio
turnover rate was 47%. Realized gains and losses are determined on an identified
cost basis.
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4. Lending of portfolio securities
At Nov. 30, 1996, securities valued at $995,000 were on loan to brokers. For
collateral, the Portfolio received in U.S. government securities valued at
$1,028,841. Income from securities lending amounted to $10,073 for the period
ended Nov. 30, 1996. The risks to the Portfolio of securities lending are that
the borrower may not provide additional collateral when required or return the
securities when due.
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5. Illiquid securities
Investments in securities include issues that are illiquid. The Portfolio
currently limits investments in illiquid securities to 10% of the net assets, at
market value, at the time of purchase. The aggregate value of such securities at
Nov. 30, 1996 was $111,352,402 representing 3.98% of the net assets. Pursuant to
guidelines adopted by the board, certain unregistered securities are determined
to be liquid and are not included within the 10% limitation specified above.
<PAGE>
<TABLE>
Investments in securities
High Yield Portfolio (Percentages represent value of
Nov. 30, 1996 (Unaudited) investments compared to net assets)
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Bonds (88.3%)
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<CAPTION>
Issuer Coupon Maturity Principal Value (a)
rate year amount
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Mortgage-backed securities (1.7%)
<S> <C> <C> <C> <C>
U.S. Treasury 7.00 2006 $ 24,000,000 $ 25,588,080
Federal Home Loan Mtge Corp 7.625 2017 6,148 (b) 6,334
Inverse Floater 7.26 2024 9,865,946 (k) 9,190,622
8.80 2023 4,407,829 (k) 3,688,868
Merrill Lynch Mtge Investors 8.22 2021 9,511,705 (c) 9,302,447
--------------------
Total 47,776,351
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Financial (4.2%)
Banks and savings & loans (0.4%)
First Nationwide Bank
Sr Sub Nts 10.625 2003 10,250,000 (c) 10,941,875
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Financial services (2.3%)
Cityscape Financial 11.00 1998 15,000,000 15,000,000
GPA Delaware 8.75 1998 10,000,000 10,200,000
Homeside
Sr Nts 11.25 2003 14,225,000 (c) 15,860,875
Malan Realty Investors REIT
Cv Sub Deb 9.50 2004 2,300,000 2,190,750
Olympic Financial
Sr Nts 13.00 2000 16,375,000 18,196,719
Ryder
Sr Sub Nts 10.00 2006 3,500,000 (c) 3,574,375
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Total 65,022,719
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Insurance (1.5%)
Americo Life
Sr Sub Nts 9.25 2005 15,000,000 14,850,000
Life Partners
Sr Sub Nts 12.75 2002 10,000,000 10,837,500
Reliance Group Holdings 9.75 2003 15,000,000 15,562,500
--------------------
Total 41,250,000
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Industrial (67.2%)
Aerospace & defense (1.9%)
Alliant Techsystems
Sr Sub Nts 11.75 2003 9,250,000 (c) 10,244,375
K&F Inds
Sr Sub Nts 10.375 2004 4,900,000 5,157,250
Sequa 9.625 1999 3,000,000 3,108,750
Sr Sub Nts 9.375 2003 20,750,000 20,931,562
TransDigm
Sr Secured Nts 13.00 2000 14,030,000 (e) 12,907,600
--------------------
Total 52,349,537
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Automotive & related (0.4%)
Penda 10.75 2004 12,000,000 11,040,000
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Beverages and tobacco (0.5%)
Stroh Brewery
Sr Sub Nts 11.10 2001 14,887,000 15,538,306
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Building materials & construction (1.0%)
Baldwin 10.37 2003 2,750,000 (d) 1,182,500
Presley Companies
Sr Nts 12.50 2001 10,000,000 9,775,000
Schuller Intl Group
Sr Nts 10.875 2004 12,000,000 13,320,000
Southdown
Sr Sub Nts 10.00 2006 4,700,000 4,958,500
--------------------
Total 29,236,000
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Chemicals (1.2%)
ISP Holdings
Sr Nts 9.75 1999 22,215,000 (c) 23,325,750
NL Inds
Zero Coupon Sr Nts 10.12 1998 12,000,000 (g) 9,960,000
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Total 33,285,750
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Communications equipment & services (9.2%)
Celcaribe
Zero Coupon 10.42 1998 3,800,000 (c,g) 4,294,000
Zero Coupon 13.44 1998 7,350,000 (g) 6,174,000
Cencall Communications
Zero Coupon Sr Nts 20.74 1999 8,000,000 (g) 5,280,000
Comcast Cellular
Zero Coupon 7.04 2000 10,000,000 (f) 7,225,000
Zero Coupon 11.74 2000 26,900,000 (f) 19,368,000
Communications & Power Inds
Sr Sub Nts 12.00 2005 10,000,000 (c) 10,937,500
Geotek Communications
Cv 12.00 2001 5,000,000 (e) 4,875,000
Zero Coupon 17.41 2000 23,250,000 (g) 14,763,750
GST Telecommunications
Zero Coupon Cv 5.81 2000 2,320,000 (c,g) 1,902,400
Impsat 12.125 2003 10,000,000 (c) 10,325,000
Intermedia Communications of Florida
Sr Nts 13.50 2005 15,000,000 (c) 17,175,000
Intl Wireless Communication
Zero Coupon, Sr Nts 14.00 2001 14,750,000 (c,f) 8,038,750
MFS Communications
Sr Dis Nts 6.90 1999 8,000,000 (g) 6,920,000
Mobil Telecommunications Technology
Sr Nts 13.50 2002 8,500,000 8,818,750
Nextlink Communications
Sr Nts 12.50 2006 15,000,000 15,825,000
Omnipoint
Sr Nts 11.625 2006 15,000,000 (c) 15,825,000
Sr Nts Series A 11.625 2006 5,000,000 (c) 5,275,000
Pagemart Nationwide
Zero Coupon Sr Nts 15.80 2000 23,000,000 (c,g) 15,352,500
Peoples Telephone
Sr Nts 12.25 2002 7,000,000 7,367,500
Pricellular Wire
Zero Coupon Sr Dis Nts 2.76 1998 5,000,000 (g) 4,875,000
Sr Nts 10.75 2004 6,500,000 (c) 6,776,250
Zero Coupon Sr Dis Nts 10.85 1999 13,350,000 (g) 11,447,625
RSL Communications
With Warrants 12.25 2001 9,500,000 (c) 9,357,500
Sygnet Wireless
Sr Nts 11.50 2006 7,500,000 7,612,500
Teleport Communications
Sr Nts Zero Coupon 11.12 2001 20,000,000 (g) 13,600,000
Winstar Communications
Zero Coupon Sr Disc Nts 13.57 2000 20,000,000 (e,g) 11,650,000
Zero Coupon Sr Sub Disc 14.50 2000 10,000,000 (e,g) 6,500,000
--------------------
Total 257,561,025
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Computers & office equipment (2.0%)
Advanced Micro Devices
Sr Nts 11.00 2003 14,500,000 15,714,375
Anacomp
Sr Sub Nts Pay-in-Kind 13.00 2002 14,750,000 (m) 15,727,187
Softkey Intl
Cv 5.50 2000 2,500,000 (c) 2,100,000
Unisys
Sr Nts 11.75 2004 15,500,000 16,236,250
Sr Nts 12.00 2003 8,000,000 8,400,000
--------------------
Total 58,177,812
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Energy (3.1%)
Abraxas Petroleum
Sr Nts 11.50 2004 4,000,000 (c) 4,140,000
Costilla Energy
Sr Nts 10.25 2006 10,000,000 10,375,000
Forcenergy
Sr Sub Nts 9.50 2006 5,000,000 5,200,000
HarCor Energy
Sr Nts 14.875 2002 4,353,000 (c) 5,049,480
HS Resources
Sr Sub Nts 9.25 2006 4,250,000 (c) 4,303,125
Sr Sub Nts 9.875 2003 9,700,000 9,918,250
Petroleum Heat & Power
Sub Deb 9.375 2006 10,000,000 9,562,500
Trans Texas Gas
Sr Secured Nts 11.50 2002 15,000,000 16,237,500
Transamerican Refining
1st Mtge 16.50 2002 9,700,000 9,603,000
United Meridian
Sr Sub Nts 10.375 2005 5,800,000 6,322,000
Veritas DGC
Sr Nts 9.75 2003 5,500,000 5,610,000
--------------------
Total 86,320,855
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Food (1.0%)
Chiquita Brands Intl 9.625 2004 8,500,000 8,733,750
Specialty Foods
Sr Nts 10.25 2001 10,000,000 (c) 9,600,000
11.25 2003 10,000,000 (c) 8,400,000
--------------------
Total 26,733,750
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Furniture & appliances (0.2%)
Lifestyle Furnishings 10.875 2006 6,500,000 (c) 6,922,500
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Health care (0.5%)
Dade Intl
Sr Sub Nts 11.125 2006 5,850,000 (c,e) 6,361,875
Maxxim Medical
Sr Sub Nts 10.50 2001 6,600,000 (c) 6,897,000
--------------------
Total 13,258,875
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Heathcare services (2.4%)
Healthsource
Cv 5.00 2003 3,000,000 (e) 2,373,750
Magellan Health Services
Sr Sub Nts Cl A 11.25 2004 12,500,000 (c) 13,828,125
Merit Behavioral 11.50 2005 5,500,000 (c) 5,775,000
Paracelsus Healthcare
Sr Sub Nts 10.00 2006 19,000,000 16,530,000
Regency Health Services 12.25 2003 5,000,000 5,356,250
Tenet Healthcare
Sr Sub Nts 10.125 2005 20,000,000 22,150,000
--------------------
Total 66,013,125
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Household products (2.4%)
Coty
Sr Sub Nts 10.25 2005 7,000,000 7,577,500
Rayovac
Sr Sub Nts 10.25 2006 10,175,000 (c) 10,531,125
Remington Product
Sr Sub Nts 11.00 2004 5,000,000 (c) 4,650,000
Revlon Worldwide
Zero Coupon Sr Disc Nts 11.52 1998 30,000,000 (c,f) 25,875,000
Samsonite
Sr Sub Nts 11.125 2005 5,000,000 5,525,000
Twin Laboratories 10.25 2006 12,250,000 (e) 12,801,250
--------------------
Total 66,959,875
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Industrial equipment & services (3.0%)
ACF Inds 11.60 2000 3,020,000 3,038,875
Allied Waste North America
Sr Sub Nts 10.25 2004 5,000,000 (c) 5,137,500
Borg-Warner Security
Sr Sub Nts 9.125 2003 10,000,000 9,462,500
Clark Materials Handling
Sr Nts 10.75 2006 6,500,000 (c) 6,678,750
Goss Graphic Systems
Sr Sub Nts 12.00 2006 10,000,000 10,100,000
Molten Metal Tehcnology
Cv Sub Nts 5.50 2006 1,500,000 (e) 1,113,750
Motors and Gears
Sr Nts 10.75 2006 11,000,000 (c) 11,261,250
Prime Succession
Sr Sub Nts 10.75 2004 10,000,000 (c) 10,812,500
Specialty Equipment
Sr Sub Nts 11.375 2003 23,300,000 24,901,875
--------------------
Total 82,507,000
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Leisure time & entertainment (8.5%)
Alliance Entertainment
Sr Sub Nts 11.25 2005 24,000,000 (c) 16,080,000
Alliance Gaming
Sr Nts 12.875 2003 13,850,000 14,577,125
Boomtown
1st Mtge 11.50 2003 10,000,000 (c) 10,562,500
Casino Magic-Louisiana
1st Mtge 13.00 2003 12,500,000 (c) 12,437,500
Coast Hotels & Casino
1st Mtge 13.00 2002 19,800,000 (c) 21,532,500
Icon Fitness
Sr Dis Nts 14.00 2001 20,000,000 (g) 10,325,000
Lady Luck Gaming
1st Mtge 11.875 2001 5,000,000 4,850,000
Mohegan Tribal Gaming
Sr Nts 13.50 2002 13,400,000 (c) 17,420,000
Plitt Theatres 10.875 2004 27,850,000 28,685,500
PRT Funding
Sr Nts 11.625 2004 2,000,000 1,682,500
Stratosphere
1st Mtge 8.68 2002 12,000,000 (d) 11,400,000
Trump Atlantic City Funding
1st Mtge 11.25 2006 49,975,000 46,976,500
Trump Holdings
Sr Nts 15.50 2005 10,000,000 11,462,500
United Artists 11.50 2002 6,000,000 (c) 6,375,000
United Artists Theatres
Pass Thru Certs 9.30 2015 13,884,723 12,878,081
Waterford Gaming
Sr Nts 12.75 2003 10,000,000 (c) 10,400,000
--------------------
Total 237,644,706
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Media (10.6%)
Ackerley Communications
Sr Secured Nts 10.75 2003 13,500,000 (c) 14,445,000
Adams Outdoor Advertising
Sr Nts 10.75 2006 15,300,000 (e) 16,103,250
Adelphia Communications
Pay-in-Kind 9.5 2004 34,665,352 (d,m) 29,292,222
Sr Deb 11.875 2004 5,000,000 4,937,500
American Telecasting
Zero Coupon 8.66 1999 9,606,320 (e,g) 5,955,919
Zero Coupon Sr Disc Nts 7.72 2000 10,000,000 (c,g) 5,550,000
Benedek Broadcasting
Sr Nts 11.875 2005 2,500,000 2,603,125
Benedek Communications
Zero Coupon Sr Disc Nts 13.25 2001 9,500,000 (g) 5,225,000
CAI Wireless Systems
Sr Nts 12.25 2002 11,250,000 9,337,500
Citicasters
Sr Sub Nts 9.75 2004 15,000,000 15,243,750
CS Wireless Systems
Zero Coupon With Warrants 12.79 2001 3,250,000 (c,g) 4,680,000
Echostar Satellite Broadcasting
Zero Coupon 12.84 2000 25,500,000 (g) 19,316,250
Heritage Media Services
Sr Sub Nts 8.75 2006 17,900,000 17,363,000
Lamar Advertising
Sr Sub Nts 9.625 2006 4,000,000 4,070,000
Lenfest Communications
Sr Nts 8.375 2005 20,000,000 19,300,000
Outdoor Systems
Sr Nts 9.375 2006 10,000,000 10,050,000
Paxson Communications
Sr Sub Nts 11.625 2002 7,000,000 7,157,500
Pegasus Media & Communications
Cl B 12.50 2005 7,500,000 (c) 8,100,000
People's Choice TV
Zero Coupon With Warrants 13.25 2000 23,500,000 (g) 9,165,000
Petersen Publishing
Sr Sub Nts 11.125 2006 6,500,000 (c) 6,662,500
TKR Cable
Deb 10.50 2007 9,525,000 10,642,378
UIH Australia/Pacific
Zero Coupon Sr Disc Nts 14.29 2001 10,000,000 (g) 5,387,500
United Intl Holdings
Zero Coupon Disc Nts 11.55 1999 15,000,000 (f) 10,668,750
Zero Coupon Disc Nts 12.00 1999 12,600,000 (f) 8,961,750
Universal Outdoor
Sr Sub Nts 9.75 2006 20,000,000 20,500,000
Viacom Intl
Sub Deb 8.00 2006 8,000,000 7,740,000
Sub Deb 7.00 2003 15,000,000 14,412,600
Wireless One
With Warrants 13.00 2003 5,000,000 4,962,500
--------------------
Total 297,832,994
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Metals (3.1%)
Bar Technologies 13.50 2001 10,000,000 (c) 10,100,000
Carbide/Graphite Group
Sr Nts 11.50 2003 9,091,000 9,954,645
EnviroSource
Sr Nts 9.75 2003 18,750,000 17,343,750
NS Group 12.50 2003 14,000,000 (l) 13,930,000
Ryerson Tull 9.125 2006 9,000,000 9,540,000
WCI Steel
Sr Nts 10.00 2004 10,500,000 (c) 10,591,875
Sr Nts 10.50 2002 14,000,000 15,785,000
--------------------
Total 87,245,270
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Multi-industry conglomerates (0.7%)
Tally Mfg & Technology
Sr Nts 10.75 2003 18,500,000 19,101,250
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Paper & packaging (6.0%)
BPC Holding
Sr Nts Pay-in-Kind 12.50 2006 9,750,000 (m) 10,249,688
Crown Paper
Sr Sub Nts 11.00 2005 7,000,000 6,475,000
Florida Coast Paper
1st Mtge 12.75 2003 10,000,000 10,550,000
Gaylord Container
Sr Sub Disc Deb 12.75 2005 28,000,000 30,800,000
Pacific Lumber
Sr Nts 10.50 2003 10,000,000 10,050,000
Plastic Container
Sr Secured Nts 10.75 2001 14,200,000 15,123,000
Repap Wisconsin
Sr Nts 9.875 2006 10,000,000 9,850,000
Riverwood Intl 10.875 2008 15,000,000 13,650,000
Silgan 13.25 2002 5,528,000 5,659,290
Sr Sub Nts 11.75 2002 10,350,000 11,048,625
Stone Container
1st Mtge 10.75 2002 10,000,000 10,437,500
Sr Nts 12.625 1998 4,500,000 4,798,125
Sweetheart Cup
Sr Sub Nts 10.50 2003 10,000,000 10,450,000
Warren (SD)
Sr Nts 12.00 2004 16,500,000 (c) 17,407,500
--------------------
Total 166,548,728
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Restaurants & lodging (1.1%)
Flagstar
Sr Nts 10.75 2001 16,000,000 14,640,000
Sr Nts 10.875 2002 4,000,000 3,630,000
Hammons (John Q) Hotels
1st Mtge 8.875 2004 12,000,000 11,910,000
--------------------
Total 30,180,000
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Retail (5.0%)
Dairy Mart Convenience Stores
Sr Sub Nts Series A 10.25 2004 18,700,000 18,045,500
Sr Sub Nts Series B 10.25 2004 6,250,000 6,031,250
Di Giorgio
Sr Nts 12.00 2003 16,000,000 16,160,000
Grand Union
Sr Nts 12.00 2004 8,000,000 8,320,000
Home Depot
Cv 3.25 2001 1,000,000 998,750
Jitney-Jungle Stores
Sr Nts 12.00 2006 10,000,000 10,650,000
Pathmark Stores
Zero Coupon Jr Sub Nts 10.75 1999 13,500,000 (g) 9,247,500
Penn Traffic
Sr Nts 8.625 2003 5,000,000 4,100,000
Pueblo Xtra Intl
Sr Nts 9.50 2003 19,140,000 17,943,750
Ralphs Grocery
Sr Nts 10.45 2004 15,000,000 15,600,000
Saks Holdings
Cv 5.50 2006 3,800,000 3,871,250
Specialty Retailers 11.00 2003 6,750,000 7,028,438
Sports Authority
Cv 5.25 2001 1,550,000 (c) 1,532,562
Stater Brothers Holdings 11.00 2001 14,500,000 15,587,500
White Rose Foods
Zero Coupon 12.75 1998 5,000,000 (f) 3,900,000
--------------------
Total 139,016,500
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Textiles & apparel (0.8%)
Hat Brand Holdings -- 2002 5,000,000 (d,e) 3,000,000
Hosiery Corp of America 13.75 2002 9,993,175 10,992,492
US Leather
Sr Nts 10.25 2003 9,000,000 7,717,500
--------------------
Total 21,709,992
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Miscellaneous (2.6%)
Darling-Delaware
Sr Sub Nts 11.00 2000 9,932,000 9,894,755
ECM Funding 11.92 2002 2,474,310 (e,i) 2,721,741
Newport News Ship
Sr Sub Nts 9.25 2006 4,500,000 (c) 4,601,250
Norcal Waste Systems 12.75 2005 20,300,000 22,330,000
Outsourcing Solutions
Sr Sub Nts 11.00 2006 5,500,000 (c) 5,740,625
Pierce Leahy
Sr Sub Nts 11.125 2006 8,750,000 (c) 9,625,000
SC Intl Services
Sr Sub Nts 13.00 2005 15,000,000 16,800,000
--------------------
Total 71,713,371
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Utilities (2.2%)
Electric
California Energy
Sr Nts 9.50 2006 8,000,000 (c) 8,220,000
Sr Secured Nts 9.875 2003 9,000,000 9,461,250
First Palo Verde Funding 10.15 2016 3,193,000 3,384,580
Long Island Lighting
Deb 8.90 2019 2,000,000 2,015,220
Deb 9.00 2022 2,000,000 2,052,720
Midland Funding II 11.75 2005 5,000,000 5,575,000
13.25 2006 12,500,000 14,656,250
Niagara Mohawk Power
1st Mtge 9.75 2005 9,000,000 9,536,130
Texas-New Mexico Power
Secured Deb 10.75 2003 7,000,000 7,560,000
--------------------
Total 62,461,150
- ----------------------------------------------------------------------------------------------------------------------
Foreign (13.0%)
APP Intl Finance
(U.S. Dollar) 11.75 2005 6,600,000 7,029,000
Australis Holdings
(U.S. Dollar) Zero Coupon With Warrants 14.99 2000 13,400,000 (e,g) 7,772,000
Australis Media
(U.S. Dollar) Zero Coupon With Warrants 14.92 2000 12,750,000 (g) 7,331,250
Banco Nacional de Comercio Exterior
(U.S. Dollar) 7.25 2004 10,000,000 8,787,500
Banque Audi 9.375 2001 2,300,000 (c) 2,369,000
Cable Systems
(U.S. Dollar) 10.75 1999 2,644,643 (e) 2,591,750
Caguas Humacas
(U.S. Dollar) 10.50 1998 10,263,129 (e) 9,955,235
Celestica Intl
(U.S. Dollar) Sr Sub Nts 10.50 2006 5,000,000 (c) 5,187,500
Clearnet Communications
(U.S. Dollar) Zero Coupon 15.67 2000 10,800,000 (g) 6,966,000
Doman Inds
(U.S. Dollar) 8.75 2004 10,500,000 9,870,000
Dominion Textiles
(U.S. Dollar) Sr Nts 8.875 2003 5,000,000 5,050,000
Fresh Del Monte Produce
(U.S. Dollar) 10.00 2003 22,000,000 20,707,500
FSW Intl
(U.S. Dollar) Sr Nts 12.50 2006 9,000,000 (c) 9,225,000
Govt of Russia
(U.S. Dollar) 6.36 2020 10,000,000 (o) 5,825,000
Grupo Industrial Durango
(U.S. Dollar) 12.625 2003 5,000,000 5,412,500
Grupo Televisa S.A.
(U.S. Dollar) Sr Nts 11.875 2006 4,500,000 4,995,000
(U.S. Dollar) Zero Coupon Sr Nts 13.25 2001 18,000,000 (g) 11,790,000
Gulf Canada Resources
(U.S. Dollar) 9.25 2004 13,500,000 14,377,500
Imexsa Export Trust
(U.S. Dollar) 10.125 2003 10,000,000 (c) 10,500,000
Intl Cabletel
(U.S. Dollar) Zero Coupon 11.48 2001 31,000,000 (c,g) 19,878,750
MDC Communications
(U.S. Dollar) Sr Sub Nts 10.50 2006 12,100,000 12,372,250
Newsquest Capital
(U.S. Dollar) Sr Sub Nts 11.00 2006 5,000,000 (c) 5,106,250
PLD Telekom
(U.S. Dollar) With Warrants 14.42 2001 4,000,000 (g) 3,281,560
Polysindo Intl Fin
(U.S. Dollar) 11.375 2006 9,825,000 10,611,000
Repap New Brunswick
(U.S. Dollar) Sr Nts 9.875 2000 4,400,000 4,383,500
(U.S. Dollar) Sr Nts 10.625 2005 10,600,000 10,308,500
Republic of Argentina
(U.S. Dollar) Sr Unsub 11.00 2006 16,000,000 16,680,000
Republic of Brazil
(U.S. Dollar) 6.563 2012 3,250,000 (i) 2,405,000
Rogers Cablesystems
(U.S. Dollar) Sr Secured Nts 9.625 2002 9,000,000 9,405,000
Rogers Cantel
(U.S. Dollar) Sr Sub Nts 11.125 2002 10,000,000 10,800,000
Russia-Interest Notes
(U.S. Dollar) 6.597 2049 7,000,000 4,821,250
Scandinavian Broadcasting
Cv Sub Deb 7.25 2005 3,730,000 3,622,763
Tarkett Intl
(U.S. Dollar) 9.00 2002 10,000,000 (c) 10,212,500
Telewest
(U.S. Dollar) 11.00 2000 20,000,000 (g) 13,600,000
Tjiwi Kimia
(U.S. Dollar) 13.25 2001 10,000,000 11,425,000
Transport Maritima Mex
(U.S. Dollar) Sr Nts 10.00 2006 7,600,000 7,676,000
United Mexican States
(U.S. Dollar) 11.50 2026 2,669,000 2,789,105
(U.S. Dollar) 11.375 2016 15,000,000 15,525,000
Venezuela
(U.S. Dollar) 6.625 2007 8,000,000 (i) 6,980,000
Viridian
(U.S. Dollar) Deb 10.50 2014 10,000,000 12,350,000
(U.S. Dollar) 9.75 2003 3,500,000 3,797,500
Vneshekonom Bank
(U.S. Dollar) Zero Coupon 24.07 1997 14,000,000 10,955,000
--------------------
Total 364,727,663
- ----------------------------------------------------------------------------------------------------------------------
Total bonds
(Cost: $2,374,255,502) $2,469,076,976
</TABLE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
Stocks and other (7.7%)
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Issuer Shares Value (a)
- ----------------------------------------------------------------------------------------------------------------------
Advanced Micro Devices
<S> <C> <C>
Common 100,000 (d) $ 2,425,000
Alliance Gaming
15% Pay-in-Kind Preferred 59,454 (m) 5,581,244
American Communication Services
Warrants 17,200 (c) 1,462,000
American Telecasting
Warrants 85,225 191,756
Bar Technologies
Warrants 10,000 550,000
Benedek Communications
15% Preferred 70,000 (d) 7,560,000
Warrants 70,000 350,000
Cablevision Systems
11.125% Pay-in-Kind Preferred 305,352 (c,m) 26,870,976
11.75% Pay-in-Kind Preferred 112,498 (m) 10,518,563
Celcaribe
Common 1,195,110 (d) 2,151,198
Chevy Chase
10.375% Preferred 82,000 4,182,000
Chevy Chase Savings
13% Preferred 180,000 5,850,000
Clearnet Communications
Warrants 35,640 271,755
Communications & Power Inds
14% Preferred 59,161 (d) 5,993,421
Common 3,500 (c) 379,750
Crown Packaging
Warrants 10,000 5,000
Dairy Mart Convenience Stores
Warrants 311,333 933,999
Earthwatch
12% Preferred Cv 700,000 (c) 7,000,000
EchoStar Communications
Common 100,000 (d) 2,675,000
El Paso Electric
11.4% Pay-in-kind Preferred 32,528 (m) 3,578,080
First Nationwide Bank
11.5% Preferred 166,500 18,981,000
Foodmaker
Warrants 7,000 173,250
Fresenius Medical Care
9% Preferred 5,500 5,610,000
Gaylord Container
Common 437,500 (d) 2,789,063
Warrants 562,500 3,550,781
Geotek Communications
Warrants 872,500 1,308,750
GPA Financial
8% Preferred Cv 48,026 4,774,987
HarCor Energy
Common 100,000 (d) 493,750
Warrants 110,000 (c) 247,500
Harvard Inds
14.25% Pay-in-kind Preferred 496,774 (m) 7,948,384
Hat Brand Holdings
Warrants 90,346 (e,n) --
Hemmeter Enterprises
Warrants 36,000 (c,n) --
Hosiery Corp of America
Warrants 10,000 (c) 55,000
Houlihan's Restaurant
Warrants 5,886 30,166
IFINT Diversified Holdings
Common 42,418 (e) 890,778
Intermedia Communications
Warrants 22,750 1,137,500
Intl Wireless Communication
Warrants 14,750 148
K-III Communications
10% Preferred 75,000 (c) 7,002,188
Kelley Oil & Gas
$2.625 Cv Preferred 100,000 (d) 2,412,500
Lady Luck
Pay-in-Kind Preferred 70,484 2,149,762
Lady Luck Gaming
Common 200,000 (d) 450,000
Nextel Communications
Warrants 18,902 189
Pagemart Nationwide
Common 50,750 (c,d) 355,250
Panamsat
12.75% Pay-in-Kind Preferred 372 (d,m) 453,840
Common 150,000 (d) 4,312,500
Pantry Pride
14.875% Preferred 100,000 10,250,000
Paxson Communications
12.5% Pay-in-Kind Preferred 99,800 (m) 9,456,050
Pegasus Media & Communications
Common 750 (d) 253,219
Reliance Group Holdings
Warrants 277,791 664,093
Riggs Natl
Series B Preferred 72,825 2,057,306
SD Warren
14% Preferred 200,000 (d) 6,600,000
Silgan Holdings
13.25% Pay-in-Kind Preferred 5,156 (m) 5,510,475
Specialty Foods Acquisition
Common 300,000 (d) 187,500
Station Casinos
7% Cv Preferred 50,000 2,500,000
Supermarket General
$3.52 Pay-in-Kind Cv Preferred 275,000 (d,m) 7,700,000
Time Warner
10.25% Pay-in-Kind Preferred 14,301 (c,m) 15,498,709
TransDigm
Warrants 11,195 1,533,671
Triangle Wire & Cable
Common 548,889 (d,e) 548,889
Webcraft Technology
Common 32,502 (d,e) 325
Wireless One
Common 25,000 (d) 234,375
Warrants 23,250 162,750
- ---------------------------------------------------------------------------------------------------------------------
Total stocks and other
(Cost: $220,347,950) $216,814,390
</TABLE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
Short-term securities (3.8%)
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
Issuer Annualized Amount Value (a)
yield on payable at
date of maturity
purchase
- ---------------------------------------------------------------------------------------------------------------------
U.S. government agency (0.1%)
Federal Home Loan Mtge Corp Disc Nt
<S> <C> <C> <C>
12-19-96 5.27 $ 2,300,000 $ 2,293,627
12-19-96 5.30 2,400,000 2,393,312
--------------------
Total 4,686,939
- ---------------------------------------------------------------------------------------------------------------------
Commercial paper (3.2%)
BellSouth Telephone
12-12-96 5.30 3,900,000 3,893,136
CAFCO
12-03-96 5.29 2,100,000 (h) 2,099,081
12-18-96 5.28 4,300,000 (h) 4,288,734
Gateway Fuel
12-11-96 5.27 6,600,000 6,589,433
General Electric Capital
12-02-96 5.28 8,500,000 8,497,521
Intel
12-24-96 5.31 2,100,000 2,091,496
Merrill Lynch
12-06-96 5.55 7,500,000 7,493,063
Met Life Funding
12-06-96 5.28 2,170,000 2,164,946
02-20-97 5.37 6,247,000 6,166,632
Mobil Australia Finance
12-20-96 5.27 3,700,000 (h) 3,689,208
Morgan Stanley
01-24-97 5.39 6,000,000 5,948,338
Motorola
12-09-96 5.27 800,000 798,952
12-23-96 5.29 5,400,000 5,381,819
Sandoz
12-18-96 5.29 6,700,000 6,682,412
UBS Finance
12-02-96 5.90 22,000,000 21,992,789
USAA Capital
12-02-96 5.32 1,700,000 1,699,501
--------------------
Total 89,477,061
- ---------------------------------------------------------------------------------------------------------------------
Total short-term securities
(Cost: $94,173,002) $94,164,000
- ---------------------------------------------------------------------------------------------------------------------
Total investment in securities of unaffiliated issuers
(Cost: $2,688,776,454) $2,780,055,369
- ------------------------------------------------------------------------------------------------------------------------------------
Investment in securities of affiliated issuer (j)
Common stock (0.8%)
- ------------------------------------------------------------------------------------------------------------------------------------
Issuer Shares Value (a)
Kash Karry Food Stores
Common 822,430 (d) $ 21,280,376
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment in securities of affiliated issuers
(Cost: $19,815,725) $21,280,376
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment in securities
(Cost: $2,708,592,179) $2,801,335,745
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the
financial statements.
(b) Adjustable rate mortgage; interest rate varies to reflect current market
conditions; rate shown is the effective rate on November 30, 1996.
(c) Represents a security sold under Rule 144A, which is exempt from
registration under the Secruities Act of 1933, as amended. This security has
been determined to be liquid under guidelines established by the board.
(d) Non-income producing. For long-term debt securities, item
identified is in default as to payment of interest and/or principal.
(e) Identifies issues considered to be illiquid (see Note 7 to the financial
statements). Information concerning such security holdings at November 30, 1996.
Security Acquisition Cost
dates
Adams Outdoor Advertising
Sr Nts 03-05-96 thru 09-17-96 15,464,125
American Telecasting 09-21-95 thru 02-02-96 6,996,044
Australias Holdings *
(U.S. Dollar)
Zero Coupon with Warrants 10-29-96 7,513,380
Cable Systems
(U.S. Dollar) 02-02-96 2,478,654
Caguas Humacas
(U.S. Dollar) 02-02-96 9,823,639
Dade Intl
Sr Sub Nts 04-30-96 5,850,000
ECM Funding 04-13-92 2,474,310
Geotek Communications
Cv 03-04-96 4,630,000
Hat Brand Holdings
Warrants 09-03-92 --
Zero Coupon 2002 09-03-96 5,000,000
Healthsource *
Cv 06-28-96 thru 07-03-96 2,337,750
IFINT Diversified Holdings
Common 08-18-94 35,493
Molten Metal Technology *
Cv Sub Nts 10-30-96 1,050,000
TransDigm
Sr Secured Nts 09-29-93 thru 04-24-96 12,722,817
Warrants 09-29-93 thru 04-24-96 1,027,809
Triangle Wire & Cable
Common 01-13-92 13,000,117
Twin Laboratories * 05-02-96 thru 10-02-96 12,390,313
Webcraft Technology
Common 12-22-86 16,875
Winstar Communications 10-01-95 thru 02-01-96 4,971,878
10-18-95 thru 02-01-96 10,565,242
* Represents a security sold under Rule 144A, which is exempt from registration
under the Securities Act of 1933, as amended.
(f) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(g) 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.
(h) 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.
(i) Interest rate varies either based on a predetermined schedule or to
reflect current market conditions; rate shown is the effective rate on
Nov. 30, 1996.
(j) Investments representing 5% or more of the outstanding voting
securities of the issuer. Transactions with companies that are or
were affiliates during the period ended Nov. 30, 1996 are:
<TABLE>
<CAPTION>
Beginning Purchase Sales Ending Dividend
Issuer cost cost cost cost income
<S> <C> <C> <C> <C> <C>
Kash Karry Food Stores $19,815,725 $ -- $ -- $19,815,725 $ --
Envirodyne Inds 11,146,875 -- 11,146,875 -- --
Total $30,962,600 $ -- $11,146,875 $19,815,725 $ --
</TABLE>
(k) Inverse floaters represent securities that pay interest at a rate that
increases (decreases) in the same magnitude as, or in a multiple of, a decline
(increase) in the LIBOR (London InterBank Offering Rate) Index. Interest rate
disclosed is the rate in effect on Nov. 30, 1996. Inverse floaters in the
aggregate represent 0.5% of the Portfolio's net assets as of Nov. 30, 1996.
(l) Security is partially or fully on loan. See note 5 to the financial
statements.
(m) Pay-in-kind securities are securities in which the issuer has the option to
make interest payments in cash or in additional securities. These securities
issued as interest, usually have the same terms, including maturity date, as the
pay-in-kind securities.
(n) Presently negligible market value.
(o) At Nov. 30, 1996, the cost of securities purchased, including interest
purchased, on a when-issued basis was $5,628,370.
(p) At Nov. 30, 1996, the cost of securities for federal income tax
purpose was approximately $2,707,845,000 and the approximate aggregate gross
unrealized appreciation and depreciation based on that cost was:
Unrealized appreciation $150,031,000
Unrealized depreciation (56,540,000)
- ------------------------------- ------------------------------
Net unrealized appreciation $ 93,491,000
<PAGE>
Board members and officers
Board members and officers of the Fund
- -----------------------------------------------------------------
President and interested board member
William R. Pearce
President of all funds in the IDS MUTUAL FUND GROUP.
- -----------------------------------------------------------------
Independent board members
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.
Melvin R. Laird
Senior counsellor for national and international affairs, The Readers's Digest
Association, Inc.
Edson W. Spencer
Former chairman and chief executive officer, Honeywell, Inc.
Wheelock Whitney
Chairman, Whitney Management Company.
C. Angus Wurtele
Chairman of the board, The Valspar Corporation.
- -----------------------------------------------------------------
Interested board members who are officers and/or employees of AEFC
William H. Dudley
Executive vice president, AEFC.
David R. Hubers
President and chief executive officer, AEFC.
John R. Thomas
Senior vice president, AEFC.
- -----------------------------------------------------------------
Officers who also are officers and/or employees of AEFC
Peter J. Anderson
Vice President of all funds in the IDS MUTUAL FUND GROUP.
Melinda S. Urion
Treasurer of all funds in the IDS MUTUAL FUND GROUP.
- -------------------------------------------------------------------
Other officer
Leslie L. Ogg
Vice president, general counsel and secretary of all funds in the IDS MUTUAL
FUND GROUP.
<PAGE>
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.
(icon of) world globe
IDS Global Growth Fund
Invests in a Portfolio comprised primarily of stocks of companies throughout the
world that are positioned to meet market needs in a changing world economy.
These companies offer above-average potential for long-term growth.
(icon of) world
IDS International Fund
Invests primarily in common stocks of foreign companies that offer potential for
superior growth. The Fund may invest up to 20% of its assets in the U.S. market.
(icon of) three flags
IDS Global Balanced Fund
Invests in stocks-and bonds in, for the most part, major markets throughout the
world, including the U.S. Seeks to provide a balance of growth of capital and
current income.
(icon of) scale of globes
IDS Global Bond Fund
Invests in a Portfolio comprised primarily of debt securities of U.S. and
foreign issuers to seek high total return through income and growth of capital.
(icon of) globe
Growth funds
<PAGE>
Funds in this group seek capital growth, primarily from common stocks. They are
high risk mutual funds with a potential for high reward.
IDS Precious Metals Fund
Invests primarily in the securities of foreign or domestic companies that
explore for, mine and process or distribute gold and other precious metals. A
highly aggressive and speculative fund that seeks long-term growth of capital.
(icon of) cart of precious gems
IDS Discovery Fund
Invests in small- and medium-size, growth-oriented companies emphasizing
technological innovation and productivity enhancement.
Buys and holds larger growth-oriented stocks.
(icon of) ship
IDS Small Company Index Fund
Invests in all or a representative group of the equity securities comprising the
S&P SmallCap 600 Index, as it strives to provide long-term capital appreciation.
(icon of) building
IDS Strategy Aggressive Fund
Invests primarily in common stocks of companies that are selected for their
potential for above-average growth. Above-average means that their growth
potential is better, in the opinion of the portfolio's investment manager, than
the Standard & Poor's Corporation (S&P) 500 Stock Index.
(icon of) chess piece
IDS Research Opportunities Fund
Invests in a Portfolio comprised primarily of equity securities of companies
included in the S&P 500 Index that are believed to have strong growth potential.
The Portfolio is managed using a research methodology by the Research Department
of AEFC. Goal is long-term appreciation.
(icon of) magnifying glass
IDS Growth Fund
Invests in a Portfolio comprised primarily of companies that have above-average
potential for long-term growth as a result of new management, marketing
opportunities or technological superiority.
<PAGE>
(icon of) flower
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 and 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.
IDS Equity Select Fund
Invests primarily in a combination of moderate growth stocks, higher-yielding
equities and bonds. Seeks growth of capital and income.
(icon of) three pine trees
IDS Blue Chip Advantage Fund
Invests in selected stocks from a major market index. Securities purchased are
those recommended by our research analysts as the best from each industry
represented on the index. Offers potential for long-term growth as well as
dividend income.
(icon of) ribbon
IDS Managed Allocation Fund
Invests in a Portfolio comprised primarily of U.S. equity securities, U.S. and
foreign debt securities, foreign equity securities and money market instruments.
The Fund provides diversification among these major investment categories and
has a target mix that represents the way the Fund's investments will be
allocated over the long term. Seeks maximum total return.
(icon of) spinning toy
IDS Stock Fund
<PAGE>
Invests in a Portfolio comprised primarily of common stocks of companies
representing many sectors of the economy. Seeks current income and growth of
capital.
(icon of) building with columns
IDS Equity Value Fund
Invests primarily in undervalued common stocks that offer potential for growth
of capital and income.
(icon of) three growing flowers
IDS Utilities Income Fund
Invests primarily in the stocks of public utility companies to seek high current
income and growth of income and capital with reduced volatility.
(icon of) light bulb
IDS Diversified Equity Income Fund
Invests in a Portfolio comprised primarily in high-yielding common stocks to
seek high current income and, secondarily, to benefit from the growth potential
offered by stock investments.
(icon of) two puzzle pieces
IDS Mutual
Invests in a Portfolio which seeks to balance between common stocks and senior
securities (preferred stocks and bonds). Seeks a balance of growth of capital
and current income.
(icon of) scale of justice
Income funds
The funds in this group invest their assets primarily in corporate bonds or
government securities to seek interest income. Secondary objective is capital
growth. Risk varies by bond quality.
IDS Extra Income Fund
Invests in a Portfolio comprised mainly in long-term, high-yielding corporate
fixed-income securities in the lower rated, higher risk bond categories to seek
high current income. Secondary objective is capital growth.
(icon of) two coins
IDS Bond Fund
<PAGE>
Invests mainly in corporate bonds, at least 50% in the higher rated, lower risk
bond categories, or the equivalent, and in government bonds.
(icon of) Greek column
IDS Selective Fund
Invests in a Portfolio comprised primarily of high-quality corporate bonds and
other highly rated debt instruments including government securities and
short-term investments. Seeks current income and preservation of capital.
(icon of) skyline
IDS Federal Income Fund
Invests in a Portfolio comprised primarily of securities issued or guaranteed as
to the timely payment of principal and interest by the U.S. government, its
agencies and instrumentalities. Seeks a high level of current income and safety
of principal consistent with its type of investments.
(icon of) shield with eagle head
Tax-exempt income funds
These funds provide tax-free income by investing in municipal bonds. The income
is generally free from federal income tax, but a portion of the income may be
subject to state and local taxes. Risk varies by bond quality.
IDS Tax-Exempt Bond Fund
Invests mainly in bonds and notes of state or local government units, with at
least 75% in the four highest rated, lowest risk bond categories.
(icon of) shield with Greek column
IDS Insured Tax-Exempt Fund
Invests primarily in municipal securities that are insured as to the timely
payment of principal and interest. The insurance feature minimizes credit risk
of the Fund but does not guarantee the market value of the Fund's shares.
(icon of) shield with star
IDS State Tax-Exempt Funds
(CA, MA, MI, MN, NY, OH)
Invests primarily in high- and medium-grade municipal securities to provide
income to residents of each respective state that is
<PAGE>
exempt from federal, state and local income taxes. (New York is the only state
that is exempt at the local level.)
(icon of) shield with U.S. enclosed
IDS High Yield Tax-Exempt Fund
Invests in a Portfolio comprised primarily of medium- and lower-quality
municipal bonds and notes. Lower-quality securities generally involve greater
risk of principal and income.
(icon of) shield with basket of apples enclosed
IDS Intermediate Tax-Exempt Fund
Invests in mainly investment-grade bonds and other debt securities with
intermediate-term maturities issued by state and local government units. Goal is
to seek a high level of current income exempt from federal taxes.
(icon of) shield with tree enclosed
Money market funds
These money market funds have three main goals: conservation of capital,
constant liquidity and the highest possible current income consistent with these
objectives. An investment in these funds is neither insured nor guaranteed by
the U.S. government, and there can be no assurance that these funds will be able
to maintain a stable net asset value of $1.00 per share. Very limited risk.
IDS Cash Management Fund
Invests in such money market securities as high quality commercial paper,
bankers' acceptances, certificates of deposit (CDs) and other bank securities.
(icon of) piggy bank
IDS Tax-Free Money Fund
Invests primarily in short-term bonds and notes issued by state and local
governments to seek high current income exempt from federal income taxes.
(icon of) shield with piggy bank enclosed
Quick telephone reference
American Express Telephone Transaction Service
Redemptions and exchanges, dividend payments or reinvestments and
automatic payment arrangements
<PAGE>
National/Minnesota:
800-437-3133
Mpls./St. Paul area:
671-3800
American Express Shareholder Service
Fund performance, objectives and account inquiries
612-671-3733
TTY Service
For the hearing impaired
800-846-4852
American Express Infoline
Automated account information (TouchTone(R) phones only), including current fund
prices and performance, account values and recent account transactions
National/Minnesota:
800-272-4445
Mpls./St. Paul area:
671-1630
AMERICAN EXPRESS FINANCIAL ADVISORS
IDS Extra Income Fund
IDS Tower 10
Minneapolis, MN 55440-0010
<PAGE>
