1997 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.
American Express Financial Advisors
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 chairman 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
From the chairman
If you're an experienced investor, you know that the past few years have
been unusually strong in many financial markets. Perhaps just as
important, history shows that bull markets don't last forever. Though
they're often unpredictable, declines -- whether they're brief or long
lasting, moderate or substantial -- are always a possibility. We saw
evidence of that in late October, when declines in certain Asian markets
spawned a sharp drop in several financial markets worldwide, including the
U.S.
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.
William R. Pearce
(picture of) William R. Pearce
William R. Pearce
Chairman of the board
<PAGE>
From the portfolio manager
Favorable investment conditions, highlighted by a growing economy and a
largely positive interest rate trend, set the stage for a strong
performance by high yield bonds during the past six months. IDS Extra
Income Fund's results reflected the good environment, as its Class A
shares generated a total return (net asset value change and dividends) of
7.9% in the first half of its fiscal year -- June through November 1997.
The period got off to a good start as ongoing reports of well behaved
inflation led to a decline in long term interest rates. Although the
prices of high yield bonds react less to interest rate changes than do
those of other bond classes, the interest rate downturn clearly benefited
Fund performance. Apart from a run up in August brought on by fear that
economic growth might be strong enough to push inflation higher, long term
rates generally followed a downward path through the end of the period.
Economy provides support
The economy also worked in high yield bonds' favor, as it continued to
grow at a relatively brisk pace. An expanding economy benefits high yield
bonds because it is expected that the companies that issue the bonds will
enjoy improved business and, consequently, find it easier to make their
interest and principal payments. Therefore, investors are willing to pay
higher prices for the bonds. Moreover, investors' appetite for above
average yield remained healthy over the period, evidenced by the fact that
a substantial supply of new bonds was readily absorbed by buyers.
The only notable negative for the high yield market came in late
October/early November, when financial crises in several foreign markets
prompted some investors to move out of high yield bonds and into Treasury
bonds. This flight to quality drove down high yield prices for a brief
time.
B bonds boost yield
During the six months, I continued my longstanding strategy of owning more
B rated bonds than is common for most high yield funds. (B is one grade
below a BB rating, which is the top in the below investment grade
category.) Thanks to thorough securities research, the Fund enjoyed the
greater yield that B rated bonds provide while experiencing relatively few
credit problems. I also maintained a low level (less than 5%) of cash
reserves in the portfolio. This also enhanced performance, as high yield
bonds generated a far better return than cash equivalent investments.
As we begin the second half of the fiscal year, inflation has yet to
become a threat and the economy is still in good shape. Therefore, unless
there's a meaningful change in those factors, high yield bonds should
continue to fare relatively well in the upcoming months.
Jack Utter
(picture of) Jack Utter
Jack Utter
Portfolio Manager
<PAGE>
To our shareholders
Class A
6 month performance
(All figures per share)
Net asset value (NAV)
Nov. 30, 1997 $ 4.55
May 31, 1997 $ 4.39
Increase $ 0.16
Distributions
June 1, 1997 Nov. 30, 1997
From income $ 0.19
From capital gains $ --
Total distributions $ 0.19
Total return* +7.9%**
Class B
6 month performance
(All figures per share)
Net asset value (NAV)
Nov. 30, 1997 $ 4.55
May 31, 1997 $ 4.39
Increase $ 0.16
Distributions
June 1, 1997 Nov. 30, 1997
From income $ 0.17
From capital gains $ --
Total distributions $ 0.17
Total return* +7.5%**
Class Y
6 month performance
(All figures per share)
Net asset value (NAV)
Nov. 30, 1997 $ 4.55
May 31, 1997 $ 4.39
Increase $ 0.16
Distributions
June 1, 1997 Nov. 30, 1997
From income $ 0.19
From capital gains $ --
Total distributions $ 0.19
Total return* +8.0%**
*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
Percent Value
(of Portfolio's net assets) (as of Nov. 30, 1997)
Cablevision Systems 1.05% $38,932,287
11.125% Pay in kind Preferred
Trump Holdings .87% 32,397,750
15.50% 2005
Tenet Healthcare .83 30,721,875
10.125% 2005
NTL .82 30,500,000
10.75% 2006
Gaylord Container .81 30,240,000
12.75% 2005
Plitt Theatres .81 30,078,000
10.875% 2004
Adelphia Communications .75 27,975,200
9.50% Pay in kind 2004
Repap New Brunswick .74 27,360,000
10.625% 2005
Trump Atlantic City Funding .72 26,742,913
11.25% 2006
Omnipoint .69 25,546,000
11.625% 2006
(icon of) pie chart
The ten holdings listed here make up 8.09% of the Portfolio's total net assets
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
IDS Extra Income Fund, Inc.
Nov. 30, 1997
Assets
(Unaudited)
<S> <C>
Investment in High Yield Portfolio (Note 1) $3,712,149,962
--------------
Total assets 3,712,149,962
-------------
Liabilities
Dividends payable to shareholders 2,727,402
Accrued distribution fee 33,685
Accrued service fee 35,251
Accrued transfer agency fee 9,548
Accrued administrative services fee 8,695
Other accrued expenses 239,050
-------
Total liabilities 3,053,631
---------
Net assets applicable to outstanding capital stock $3,709,096,331
==============
Represented by
Capital stock-- $.01 par value (Note 1) $ 8,152,310
Additional paid in capital 3,718,930,880
Undistributed net investment income 2,111,830
Accumulated net realized gain (loss) (195,828,421)
Unrealized appreciation (depreciation) on investments 175,729,732
-----------
Total-- representing net assets applicable to outstanding capital stock $3,709,096,331
==============
Net assets applicable to outstanding shares: Class A $2,879,825,685
Class B $ 828,816,468
Class Y $ 454,178
Net asset value per share of outstanding capital stock: Class A shares 632,952,751 $ 4.55
Class B shares 182,178,365 $ 4.55
Class Y shares 99,859 $ 4.55
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
IDS Extra Income Fund, Inc.
Six months ended Nov. 30, 1997
Investment income
(Unaudited)
Income:
<S> <C>
Dividends $ 11,841,170
Interest 149,252,092
-----------
Total income 161,093,262
-----------
Expenses (Note 2):
Expenses allocated from High Yield Portfolio 9,917,652
Distribution fee -- Class B 2,726,959
Transfer agency fee 1,523,167
Incremental transfer agency fee-- Class B 23,361
Service fee
Class A 2,392,491
Class B 633,147
Class Y 117
Administrative services fees and expenses 767,134
Compensation of board members 6,604
Postage 225,931
Registration fees 299,628
Reports to shareholders 90,798
Audit fees 5,500
Other 3,218
-----
Total expenses 18,615,707
Earnings credits on cash balances (Note 2) (211,759)
--------
Total net expenses 18,403,948
----------
Investment income (loss) -- net 142,689,314
-----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on security transactions 48,628,971
Net change in unrealized appreciation (depreciation) on investments 67,199,701
----------
Net gain (loss) on investments 115,828,672
-----------
Net increase (decrease) in net assets resulting from operations $258,517,986
============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statements of changes in net assets
IDS Extra Income Fund, Inc.
Operations and distributions
Nov. 30, 1997 May 31, 1997
Six months ended Year ended
(Unaudited)
<S> <C> <C>
Investment income (loss)-- net $ 142,689,314 $ 246,363,183
Net realized gain (loss) on investments 48,628,971 8,683,225
Net change in unrealized appreciation (depreciation) on investments 67,199,701 31,109,353
---------- ----------
Net increase (decrease) in net assets resulting from operations 258,517,986 286,155,761
----------- -----------
Distributions to shareholders from:
Net investment income
Class A (114,568,176) (215,602,233)
Class B (27,430,479) (36,099,715)
Class Y (9,921) (1,317)
------ ------
Total distributions (142,008,576) (251,703,265)
------------ ------------
Capital share transactions (Note 3)
Proceeds from sales
Class A shares (Note 2) 431,672,292 752,439,394
Class B shares 274,200,537 423,508,478
Class Y shares 321,784 125,331
Reinvestment of distributions at net asset value
Class A shares 77,937,944 147,052,512
Class B shares 23,007,132 30,338,648
Class Y shares 9,661 1,317
Payments for redemptions
Class A shares (306,077,867) (490,907,479)
Class B shares (Note 2) (104,545,207) (116,153,166)
Class Y shares (7,152) (8,197)
------ ------
Increase (decrease) in net assets from capital share transactions 396,519,124 746,396,838
----------- -----------
Total increase (decrease) in net assets 513,028,534 780,849,334
Net assets at beginning of period 3,196,067,797 2,415,218,463
------------- -------------
Net assets at end of period $3,709,096,331 $3,196,067,797
============== ==============
Undistributed net investment income $ 2,111,830 $ 1,431,092
-------------- --------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
IDS Extra Income Fund, Inc.
(Unaudited as to Nov. 30, 1997)
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 has 10 billion authorized shares of capital stock. The Fund offers
Class A, Class B and Class Y shares. Class A shares are sold with a front
end sales charge. Class B shares may be subject to a contingent deferred
sales charge and such shares automatically convert to Class A shares
during the ninth calendar year of ownership. Class Y shares have no sales
charge and are offered only to qualifying institutional investors.
All classes of shares have identical voting, dividend, liquidation and
other rights, and the same terms and conditions, except that the level of
distribution fee, transfer agency fee and service fee (class specific
expenses) differs among classes. Income, expenses (other than class
specific expenses) and realized and unrealized gains or losses on
investments are allocated to each class of shares based upon its relative
net assets.
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. High Yield
Portfolio invests primarily in long term corporate bonds in the lower
rating 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 the 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, 1997 was 99.97%. 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.
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 paid 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. Additional administrative
service expenses paid by the Fund are office expenses, consultants' fees
and compensation of officers and employees. Under this agreement, the Fund
also pays taxes, audit and certain legal fees, registration fees for
shares, compensation of board members, corporate filing fees,
organizational expenses and any other expenses properly payable by the
Fund and approved by the board.
Under a separate Transfer Agency Agreement, American Express Client
Service Corporation (AECSC) maintains shareholder accounts and records.
The Fund pays AECSC an annual fee per shareholder account for this service
as follows:
o Class A $15.50
o Class B $16.50
o Class Y $15.50
Also effective March 20, 1995, the Fund entered into agreements with
American Express Financial Advisors Inc. for distribution and shareholder
servicing related services. Under a Plan and Agreement of Distribution,
the Fund pays a distribution fee at an annual rate of 0.75% of the Fund's
average daily net assets attributable to Class B shares for distribution
related services.
Under a Shareholder Service Agreement, the Fund pays a fee for service
provided to shareholders by financial advisors and other servicing agents.
The fee is calculated at a rate of 0.175% of the Fund's average daily net
assets attributable to Class A and Class B shares and commencing on May 9,
1997, the fee is calculated at a rate of 0.10% of the Fund's average daily
net assets attributable to Class Y shares.
Sales charges received by American Express Financial Advisors Inc. for
distributing Fund shares were $8,701,864 for Class A and $298,824 for
Class B for the six months ended Nov. 30, 1997.
During the six months ended Nov. 30, 1997, the Fund's transfer agency fees
were reduced by $211,759 as a result of earnings credits from overnight
cash balances.
3
Capital share
transactions
Six months ended Nov. 30, 1997
Class A Class B Class Y
Sold 95,116,681 60,427,728 69,917
Issued for reinvested 17,157,114 5,062,786 2,122
distributions
Redeemed (67,379,131) (23,021,960) (1,557)
----------- ----------- ------
Net increase (decrease) 44,894,664 42,468,554 70,482
---------- ---------- ------
Year ended May 31, 1997
lass A Class B Class Y
Sold 172,870,021 97,289,537 28,878
Issued for reinvested 33,783,196 6,963,319 302
distributions
Redeemed (112,846,209) (26,691,764) (1,885)
------------ ----------- ------
Net increase (decrease) 93,807,008 77,561,092 27,295
---------- ---------- ------
4
Capital loss
carryover
For federal income tax purposes, the Fund had a capital loss carryover of
$243,565,780 at May 31, 1997, that if not offset by subsequent capital
gains, will expire in 1999 through 2006. 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.
<PAGE>
<TABLE>
<CAPTION>
Notes to financial statements
IDS Extra Income Fund, Inc.
5
Financial
highlights
The tables below show certain important financial information for
evaluating the Fund's results.
Fiscal period ended May 31,
Per share income and capital changes(a)
Class A
1997(c) 1997 1996(b) 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $ 4.39 $ 4.34 $ 4.15 $ 4.02 $ 4.44 $ 4.24 $ 3.72 $ 3.47 $ 4.46 $ 4.67 $ 4.94
beginning of period
Income from investment operations:
Net investment income(loss) .19 .39 .28 .39 .43 .47 .44 .42 .46 .53 .53
Net gains (losses) .16 .06 .20 .13 (.42) .16 .52 .24 (1.01) (.20) (.27)
(both realized
and unrealized)
Total from investment .35 .45 .48 .52 .01 .63 .96 .66 (.55) .33 .26
operations
Less distributions:
Dividends from net (.19) (.40) (.29) (.39) (.43) (.43) (.44) (.41) (.44) (.54) (.53)
investment income
Net asset value, $ 4.55 $ 4.39 $ 4.34 $ 4.15 $ 4.02 $ 4.44 $ 4.24 $ 3.72 $ 3.47 $ 4.46 $ 4.67
end of period
Ratios/supplemental data
Class A
1997(c) 1997 1996(b) 1995 1994 1993 1992 1991 1990 1989 1988
Net assets, end of $ 2,880 $ 2,582 $ 2,145 $ 1,822 $ 1,626 $ 1,547 $ 1,304 $ 990 $ 931 $ 1,302 $ 1,186
period (in millions)
Ratio of expenses to .91%(e) .92% .94%(e) .87% .79% .81% .83% .88% .84% .82% .81%
average daily net assets(d)
Ratio of net income (loss) to 8.34%(e) 9.01% 8.90%(e)9.93% 9.85% 10.03% 11.13% 12.45% 12.28% 11.67% 11.38%
average daily net assets
Portfolio turnover rate 45% 92% 61% 70% 74% 70% 89% 88% 88% 102% 105%
(excluding short-term
securities)
Total return(f) 7.9% 10.9% 11.7% 14.2% (0.2%) 15.8% 26.9% 21.2% (12.5%) 7.4% 5.8%
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) The Fund's fiscal year-end was changed from Aug. 31 to May 31,
effective 1996.
(c) Six months ended Nov. 30, 1997 (Unaudited).
(d) Effective fiscal year 1996, expense ratio is based on total expenses
of the Fund before reduction of earnings credits on cash balances.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS Extra Income Fund, Inc.
Fiscal period ended May 31,
Per share income and capital changes(a)
Class B Class Y
1997(d) 1997 1996(c) 1995(b) 1997(d) 1997 1996(c) 1995(b
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $ 4.39 $ 4.34 $ 4.15 $ 3.93 $ 4.39 $ 4.34 $ 4.15 $ 3.93
beginning of period
Income from investment operations:
Net investment income (loss) .17 .36 .25 .18 .19 .40 .28 .20
Net gains (losses) .16 .06 .20 .21 .16 .06 .20 .21
(both realized
and unrealized)
Total from investment .33 .42 .45 .39 .35 .46 .48 .41
operations
Less distributions:
Dividends from net (.17) (.37) (.26) (.17) (.19) (.41) (.29) (.19)
investment income
Net asset value, $ 4.55 $ 4.39 $ 4.34 $ 4.15 $ 4.55 $ 4.39 $ 4.34 $ 4.15
end of period
Ratios/supplemental data
Class B Class Y
1997(d) 1997 1996(c) 1995(b) 1997(d) 1997 1996(c) 1995(b)
Net assets, end of $ 829 $ 613 $ 270 $ 76 $ -- $ -- $ -- $ 2
period (in millions)
Ratio of expenses to 1.67%(f) 1.68% 1.70%(f)1.72%(f) .83%(f) .85% .76%(f) .78%(f)
average daily net assetse
Ratio of net income (loss) to 7.58%(f) 8.18% 8.34%(f)9.51%(f) 8.37%(f)8.68% 8.24%(f)10.19%(f)
average daily net assets
Portfolio turnover rate 45% 92% 61% 70% 45% 92% 61% 70%
(excluding short-term
securities)
Total return(g) 7.5% 10.1% 11.1% 9.9% 8.0% 11.1% 11.8% 10.4%
(a) For a share outstanding throughout the period. Rounded to the
nearest cent.
(b) Inception date was March 20, 1995.
(c) The Fund's fiscal year-end was changed from Aug. 31 to
May 31, effective 1996.
(d) Six months ended Nov. 30, 1997 (Unaudited).
(e) Effective fiscal year 1996, the expense ratio is based on total
expenses of the Fund before reduction of earnings credits on
cash balances.
(f) Adjusted to an annual basis.
(g) Total return does not reflect payment of a sales charge.
</TABLE>
<PAGE>
Financial statements
Statement of assets and liabilities
High Yield Portfolio
Nov. 30, 1997
IDS Extra Income
Assets
(Unaudited)
Investments in securities, at value (Note 1)
(identified cost $3,474,839,490) $3,650,617,733
Cash in bank on demand deposit 3,002,464
Dividends and accrued interest receivable 73,736,989
Receivable for investment securities sold 48,594,919
----------
Total assets 3,775,952,105
-------------
Liabilities
Payable for investment securities purchased 62,619,745
Accrued investment management services fee 112,728
Other accrued expenses 64,991
------
Total liabilities 62,797,464
----------
Net assets applicable to outstanding capital stock $3,713,154,641
==============
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Financial statements
Statement of operations
High Yield Portfolio
Six months ended Nov. 30, 1997
IDS Extra Income
Investment income
(Unaudited)
Income:
<S> <C>
Dividends $ 11,844,608
Interest 149,298,575
-----------
Total income 161,143,183
-----------
Expenses (Note 2):
Investment management services fee 9,770,940
Compensation of board members 10,608
Custodian fees 81,526
Audit fees 16,500
Other 40,988
Total net expenses 9,920,562
---------
Investment income (loss) -- net 151,222,621
-----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on security transactions (Note 3) 48,640,869
Net change in unrealized appreciation (depreciation) on investments 67,224,769
----------
Net gain (loss) on investments 115,865,638
-----------
Net increase (decrease) in net assets resulting from operations $267,088,259
============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
High Yield Portfolio
Operations
Six months ended For the period from
Nov. 30, 1997 June 10,1996*
(Unaudited) to May 31, 1997
<S> <C> <C>
Investment income (loss)-- net $ 151,222,621 $ 255,009,695
Net realized gain (loss) on investments 48,640,869 11,905,305
Net change in unrealized appreciation (depreciation) on investments 67,224,769 42,485,867
---------- ----------
Net increase (decrease) in net assets resulting from operations 267,088,259 309,400,867
Net contributions (withdrawals) from partners 247,002,008 2,889,633,507
----------- -------------
Total increase (decrease) in net assets 514,090,267 3,199,034,374
Net assets at beginning of period (Note 1) 3,199,064,374 30,000
------------- ------
Net assets at end of period $3,713,154,641 $3,199,064,374
============== ==============
*Commencement of operations.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
High Yield Portfolio
(Unaudited as to Nov. 30, 1997)
1
Summary of
significant
accounting policies
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, American Express Financial Corporation
(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. Debt securities are
generally traded in the over the counter market and are valued at a price
deemed best to reflect fair value as quoted by dealers who make markets in
these securities or by an independent pricing service. Securities for
which market quotations are not readily available are valued at fair value
according to methods selected in good faith by the board. Short term
securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current
interest rates; those maturing in 60 days or less are valued at amortized
cost.
Option transactions
In order to produce incremental earnings, protect gains and facilitate
buying and selling of securities for investment purposes, the Portfolio
may buy and 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 and sell put and call options and write covered call options on
portfolio securities and may write cash secured put options. The risk in
writing a call option is that the 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 options on debt securities or futures are
exercised, the Portfolio will realize a gain or loss. When other options
are exercised, the proceeds on sales for a written call option, the
purchase cost for a written put option or the cost of a security for a
purchased put or call option is adjusted by the amount of premium received
or paid.
Futures transactions
In order to gain exposure to or protect itself from changes in the market,
the Portfolio may buy and sell financial futures contracts traded on any
U.S. or foreign exchange. The Portfolio also may buy and 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.
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.
Illiquid securities
At Nov. 30, 1997, investments in securities included issues that are
illiquid. The Portfolio currently limits investments in illiquid
securities to 10% of net assets, at market value, at the time of purchase.
The aggregate value of such securities at Nov. 30, 1997 was $55,337,512
representing 1.49% 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.
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 Portfolio 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 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, brokerage commissions and
nonadvisory expenses which include custodian fees, audit and certain legal
fees, fidelity bond premiums, registration fees for units, 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 and approved by the board.
Pursuant to a Placement Agency Agreement, American Express Financial
Advisors Inc. acts as placement agent of the units of the Trust.
3
Securities
transactions
Cost of purchases and proceeds from sales of securities (other than short
term obligations) aggregated $1,954,014,989 and $1,521,762,924,
respectively, for the six months ended Nov. 30, 1997. For the same period,
the portfolio turnover rate was 45%. Realized gains and losses are
determined on an identified cost basis.
<PAGE>
<TABLE>
<CAPTION>
Investments in securities
High Yield Portfolio
Nov. 30, 1997 (Unaudited)
(Percentages represent value of
investments compared to net assets)
Bonds (88.6%)
Issuer Coupon Maturity Principal Value(a)
rate year amount
Mortgage backed securities (0.2%)
<S> <C> <C> <C> <C>
Federal Home Loan Mtge Corp 7.50% 2017 $ 5,173(b) $ 5,411
Merrill Lynch Mtge Investors 8.19 2021 7,300,939 7,328,318
Total 7,333,729
Aerospace & defense (1.4%)
Alliant Techsystems
Sr Sub Nts 11.75 2003 9,250,000 10,175,000
K&F Inds
Sr Sub Nts 9.25 2007 4,500,000(c) 4,567,500
L 3 Communications
Sr Sub Nts 10.375 2007 10,645,000 11,496,600
Sequa 9.625 1999 3,000,000 3,105,000
Sr Sub Nts 9.375 2003 20,750,000 21,683,750
Total 51,027,850
Automotive & related (0.7%)
Hayes Wheels Intl 9.125 2007 10,000,000 10,300,000
Oxford Auto
Sr Sub Nts 10.125 2007 14,370,000(c) 15,016,650
Total 25,316,650
Banks and savings & loans (0.7%)
First Nationwide Bank
Sr Sub Nts 10.625 2003 11,000,000 12,265,000
Wilshire Financial Services 13.00 2004 10,000,000(c) 14,006,250
Total 26,271,250
Beverages & tobacco (0.4%)
Stroh Brewery
Sr Sub Nts 11.10 2006 14,887,000 14,589,260
Building materials & construction (0.1%)
Southdown
Sr Sub Nts 10.00 2006 4,700,000 5,134,750
Chemicals (0.9%)
Freedom Chemicals 10.625 2006 9,000,000 10,057,500
ISP Holdings
Sr Nts 9.75 2002 22,215,000 23,520,131
Total 33,577,631
Communications equipment & services (18.2%)
CCPR Services 10.00 2007 22,350,000 23,020,500
Celcaribe
Zero Coupon 10.42 1998 3,800,000(c,g) 6,270,000
Zero Coupon 13.44 1998 7,350,000(g) 7,276,500
Cencall Communications
Zero Coupon Sr Nts 15.37 1999 11,500,000(g) 10,407,500
Clearnet Communications
Zero Coupon Sr Disc Nts 11.82 2005 12,000,000 9,030,000
Comcast Cellular
Sr Nts 9.50 2007 20,000,000 20,900,000
Communications & Power Inds
Sr Sub Nts 12.00 2005 10,000,000 11,112,500
EchoStar Communications
Zero Coupon Sr Disc Nts 7.95 2004 12,000,000(g) 10,800,000
Zero Coupon Sr Disc Nts 11.81 2004 30,500,000(g) 25,162,500
Geotek Communications
Cv 12.00 2001 4,135,000(e) 2,873,825
Zero Coupon 17.41 2000 23,250,000(g) 13,717,500
Globalstar
Sr Nts 11.25 2004 7,500,000 7,537,500
with Warrants 11.375 2004 13,500,000(c) 13,601,250
GST Equipment Funding
Sr Nts 13.25 2007 6,750,000 7,695,000
Hypertion Telecommunications
Sr Nts 12.25 2004 14,000,000 15,085,000
Impsat 12.125 2003 10,000,000 11,087,500
Intermedia Communications
Sr Nts 8.875 2007 6,400,000 6,416,000
Zero Coupon Sr Disc Nts 11.25 2007 23,000,000(g) 15,755,000
Intl Wireless Communication
Zero Coupon Sr Nts 14.00 2001 14,750,000(f) 8,628,750
Iridium LLC/Capital 11.25 2005 4,000,000 3,880,000
13.00 2005 22,150,000 22,980,625
ITC Deltacom
Sr Nts 11.00 2007 14,550,000 15,423,000
Jordon Telecom Products
Sr Nts 9.875 2007 8,250,000 8,353,125
Zero Coupon Sr Disc Nts 6.98 2007 11,000,000(g) 8,690,000
Metrocall
Sr Sub Nts 10.375 2007 13,750,000 14,025,000
Metronet Communications
with Units 12.00 2007 8,750,000 9,953,125
NTL
Sr Nts 10.75 2006 40,000,000 30,500,000
Nextlink Communications
Sr Nts 12.50 2006 15,000,000 17,025,000
Norcal Waste Systems 13.50 2005 20,300,000 23,268,875
Omnipoint
Sr Nts 11.625 2006 24,100,000 25,546,000
Sr Nts Series A 11.625 2006 13,450,000 14,257,000
Optel
with Common Stock 13.00 2005 17,000,000(c) 17,595,000
Outsourcing Solutions
Sr Sub Nts 11.00 2006 20,895,000 23,245,687
Pagemart Nationwide
Zero Coupon Sr Nts 15.80 2000 23,000,000(g) 19,550,000
Peoples Telephone
Sr Nts 12.25 2002 12,500,000 13,125,000
Phonetel Technologies
Sr Nts 12.00 2006 23,500,000 24,205,000
Pierce Leahy
Sr Sub Nts 11.125 2006 5,433,000(c) 6,139,290
Price Communications Celluar
Zero Coupon Sr Disc Nts 11.18 2007 12,000,000(c,f) 6,870,000
Price Wireless
Sr Sub Nts 11.75 2007 10,000,000(c) 10,825,000
Pricellular Wireless
Zero Coupon Sr Disc Nts 10.85 1998 18,250,000(g) 18,706,250
Sr Sub Nts 14.00 2001 10,000,000 11,175,000
Pronet
Sr Sub Nts 11.875 2005 19,350,000 20,607,750
RSL Communications
with Warrants 12.25 2006 14,500,000 15,805,000
SC Intl Services
Sr Sub Nts with Rights 9.25 2007 22,000,000(c) 22,770,000
Teleport Communications
Zero Coupon Sr Nts 11.12 2001 30,000,000(g) 23,850,000
Unifi Communications
with Warrants 14.00 2004 10,000,000 9,862,500
Vialog
with Units 12.75 2001 11,100,000(c) 11,322,000
Total 675,932,052
Computers & office equipment (1.3%)
Anacomp
Sr Sub Nts 10.875 2004 13,000,000 13,390,000
Read Rite
Cv 6.50 2004 4,375,000 3,921,094
Softkey
Cv 5.50 2000 2,500,000 2,256,250
Unisys
Sr Nts 11.75 2004 17,500,000 19,950,000
Sr Nts 12.00 2003 8,000,000 9,060,000
Total 48,577,344
Energy (3.7%)
Belco Oil & Gas
Sr Sub Nts 8.875 2007 5,800,000 5,807,250
Benton Oil & Gas 9.375 2007 9,000,000(c) 9,112,500
Bellwether Exploration
Sr Sub Nts 10.875 2007 9,000,000 9,765,000
Clark R & M
Sr Sub Nts 8.875 2007 11,000,000(c) 11,000,000
Clark Schwebel
Deb 12.50 2007 4,507,412(c) 4,822,931
Costilla Energy
Sr Nts 10.25 2006 10,000,000 10,500,000
Empire Gas
Sr Nts 7.00 2004 11,350,000(i) 10,442,000
Energy Corp of America
Sr Sub Nts 9.50 2007 9,000,000 8,955,000
Forcenergy
Sr Sub Nts 8.50 2007 4,500,000 4,545,000
Sr Sub Nts 9.50 2006 5,000,000 5,275,000
Harcor Energy
Sr Nts Series B 14.875 2002 10,615,000 12,207,250
Hurricane Hydrocarbons
Sr Nts 11.75 2004 15,000,000(c) 15,112,500
HS Resources
Sr Sub Nts 9.25 2006 4,250,000 4,430,625
Sr Sub Nts 9.875 2003 9,700,000 10,063,750
Petroleum Heat & Power
Sub Deb 9.375 2006 2,800,000 2,632,000
Transamerican Energy
Sr Nts 11.50 2002 11,600,000(c) 11,629,000
Total 136,299,806
Energy equipment & services (0.6%)
Dailey Intl 9.75 2007 4,000,000(c) 4,180,000
Plains Resources 10.25 2006 9,000,000 9,720,000
Pride Petroleum Services
Sr Nts 9.375 2007 6,600,000 7,111,500
Total 21,011,500
Financial services (1.0%)
Arcadia Financial
with Warrants 11.50 2007 22,750,000 22,636,250
Gemini 13.50 2001 13,500,000(e,i) 13,500,000
Total 36,136,250
Food (2.9%)
Ameriserv Food
Sr Sub Nts 10.125 2007 8,400,000(c) 8,757,000
Aurora Foods
Sr Sub Nts 9.875 2007 16,000,000 16,720,000
Chiquita Brands Intl 9.625 2004 8,500,000 9,031,250
CFP Holdings
Sr Nts 11.625 2004 15,175,000(c) 14,719,750
Fine Host
Cv 5.00 2004 2,000,000(c) 1,885,000
Gorges/Quik to Fix Food
Sr Sub Nts Series B 11.50 2006 14,250,000 14,926,875
Pilgrim's Pride
Sr Sub Nts 10.875 2003 3,970,000 4,198,275
Specialty Foods
Sr Nts 10.25 2001 20,000,000 20,100,000
Twin Laboratories
Sr Sub Nts 10.25 2006 15,250,000 16,317,500
Total 106,655,650
Furniture & appliances (0.2%)
Lifestyle Furnishings 10.875 2006 6,500,000 7,263,750
Health care (0.3%)
Maxxim Medical
Sr Sub Nts 10.50 2006 6,600,000 7,177,500
MVE
Sr Nts 12.50 2002 3,600,000 3,663,000
Total 10,840,500
Health care services (2.3%)
Paracelsus Healthcare
Sr Sub Nts 10.00 2006 22,500,000 23,456,250
Tenet Healthcare
Sr Sub Nts 8.625 2007 15,000,000 15,411,000
Sr Sub Nts 10.125 2005 28,250,000 30,721,875
Vencor
Sr Sub Nts 8.625 2007 16,450,000(c) 16,244,375
Total 85,833,500
Household products (0.8%)
Coty
Sr Sub Nts 10.25 2005 7,000,000 7,455,000
Rayovac
Sr Sub Nts 10.25 2006 7,175,000 7,766,937
Revlon Worldwide
Zero Coupon Sr Disc Nts 11.52 2001 20,000,000(f) 13,800,000
Syratech
Sr Nts 11.00 2007 2,360,000 2,242,000
Total 31,263,937
Industrial equipment & services (3.2%)
ACF Inds 11.60 2000 1,460,000 1,454,525
Borg Warner Security
Sr Sub Nts 9.125 2003 10,000,000 10,100,000
Sr Sub Nts 9.625 2007 6,600,000 6,831,000
Clark Materials Handling
Sr Nts 10.75 2006 11,000,000 11,742,500
Coach USA
Sr Nts 9.375 2007 9,000,000 9,157,500
Goss Graphic Systems
Sr Sub Nts 12.00 2006 10,000,000 11,300,000
Motors and Gears
Sr Nts 10.75 2006 18,000,000 19,125,000
Prime Succession
Sr Sub Nts 10.75 2004 10,000,000 11,050,000
Shefield Steel
with Common Stock 11.50 2005 11,000,000(c) 11,000,000
Specialty Equipment
Sr Sub Nts 11.375 2003 23,300,000 25,047,500
Total 116,808,025
Insurance (1.2%)
Americo Life
Sr Sub Nts 9.25 2005 15,000,000 15,356,250
Integon Capital 10.75 2027 10,000,000 13,425,000
Reliance Group Holdings 9.75 2003 15,000,000 15,787,500
Total 44,568,750
Leisure time & entertainment (7.4%)
Affinity Group
Sr Nts 11.00 2007 9,000,000 9,585,000
AMC Entertainment
Sr Sub Nts 9.50 2009 4,500,000 4,623,750
CLN Holdings
Zero Coupon Sr Disc Nts 10.425 2001 29,750,000 18,742,500
Zero Coupon Sr Disc Nts 13.655 2001 9,750,000 5,996,250
Coast Hotels & Casino
1st Mtge 13.00 2002 19,800,000 22,176,000
HMH Properties 8.875 2007 7,000,000 7,210,000
Hollywood Theaters
Sr Sub Nts 10.625 2007 5,950,000(c) 6,351,625
Icon Fitness
Zero Coupon Sr Disc Nts 14.00 2001 21,750,000(g) 12,723,750
Icon Health & Fitness
Sr Sub Nts 13.00 2002 7,500,000 8,400,000
IHF Holdings
Zero Coupon Sr Disc Nts 15.00 2004 7,275,000 6,292,875
Lady Luck Gaming
1st Mtge 11.875 2001 7,500,000 7,593,750
Lodgenet Entertainment
Sr Nts with Rights 10.25 2006 15,000,000 15,506,250
Plitt Theatres 10.875 2004 27,850,000 30,078,000
Riviera Holdings 10.00 2004 11,000,000 10,890,000
Trump Atlantic City Funding
1st Mtge 11.25 2006 26,945,000 26,742,913
Trump Holdings
Sr Nts 15.50 2005 28,050,000 32,397,750
United Artists Theatre
Pass Thru Certificates 9.30 2015 13,637,787 13,978,731
Venetian Casino 12.25 2004 15,105,000 15,293,812
Sr Sub Nts 10.00 2005 6,000,000(c) 5,625,000
Waterford Gaming
Sr Nts 12.75 2003 12,771,000 14,239,665
Total 274,447,621
Media (8.1%)
Acme Television
Zero Coupon Sr Disc Nts 10.87 2004 6,700,000 4,941,250
Amer Telecasting
Zero Coupon Sr Disc Nts 9.79 2005 9,300,000 2,976,000
Ackerley Communications
Sr Secured Nts 10.75 2003 13,500,000 14,445,000
Adams Outdoor Advertising
Sr Nts 10.75 2006 15,300,000 16,715,250
Adelphia Communications
Pay in kind 9.50 2004 27,561,773(j) 27,975,200
Sr Deb 11.875 2004 5,000,000 5,450,000
Benedek Broadcasting
Sr Nts 11.875 2005 2,500,000 2,812,500
Benedek Communications
Zero Coupon Sr Disc Nts 13.25 2001 9,500,000(g) 6,958,750
Big Flower Press Holdings
Sr Sub Nts 8.875 2007 8,000,000(c) 8,100,000
CBS 8.625 2012 4,500,000 4,865,355
8.875 2022 7,750,000 8,367,907
Chancellor Media
Sr Sub Nts 9.375 2004 13,500,000 14,107,500
Garden State Newspapers
Sr Sub Nts 8.75 2009 9,000,000(c) 9,000,000
Jacor Communications 9.75 2006 19,000,000 20,235,000
James Cable Partners
Sr Nts 10.75 2004 17,000,000(c) 17,807,500
Marcus Cable
Sr Disc Nts 5.47 2004 21,750,000 19,973,200
Outdoor Systems
Sr Nts 9.375 2006 10,000,000 10,550,000
Sr Sub Nts 8.875 2007 5,500,000 5,692,500
Paxson Communications
Sr Sub Nts 11.625 2002 7,000,000 7,507,500
Pegasus Communications
Sr Sub Nts with Common Stock 9.625 2005 6,500,000(c) 6,500,000
Pegasus Media & Communications
Cl B 12.50 2005 15,400,000 17,556,000
Spanish Broadcasting
Sr Nts with Rights 11.00 2004 3,150,000 3,472,875
Sr Nts 7.50 2002 4,000,000 4,620,000
Transwestern Publishing
Sr Sub Nts with Common stock 9.625 2007 4,500,000(c) 4,567,500
United Intl Holdings
Zero Coupon Disc Nts 11.55 1999 22,750,000(f) 18,427,500
Zero Coupon Disc Nts 12.00 1999 7,600,000(f) 6,156,000
Viacom Intl
Sub Deb 8.00 2006 17,000,000 16,872,500
Sub Deb 7.00 2003 15,000,000 14,520,900
Total 301,173,687
Metals (1.9%)
Bar Technologies 13.50 2001 10,000,000(c) 10,825,000
EnviroSource
Sr Nts 9.75 2003 21,510,000 21,644,438
Livent 9.75 2004 5,500,000 5,472,500
Maxxam Group Holdings
Sr Nts Series B 12.00 2003 12,000,000 13,020,000
Ryerson Tull 9.125 2006 4,250,000 4,611,250
WCI Steel
Sr Nts 10.00 2004 15,500,000 16,236,250
Total 71,809,438
Multi industry conglomerates (5.2%)
Axiohm Transaction Solutions
Sr Sub Nts 9.75 2007 4,500,000 4,567,500
Booth Creek Ski Holdings
Sr Nts 12.50 2007 5,000,000 4,937,500
Centaur Mining & Exploration
Sr Nts 11.00 2007 11,500,000(c) 11,615,000
Comforce
Sr Nts with Common stock 12.00 2007 15,000,000(c) 15,112,500
Crown Castle
Zero Coupon Sr Disc Nts 10.62 2007 11,000,000(c,f) 6,655,000
Deeptech Intl
Sr Nts 12.00 2000 10,000,000 10,637,500
Dyersburg
Sr Sub Nts with Common stock 9.75 2007 3,750,000(c) 3,890,625
Emergent Group
Sr Nts with Common Stock 10.75 2004 10,000,000(c) 9,987,500
Global Ocean Carriers
Sr Nts 10.25 2007 13,500,000 13,230,000
Isle of Capri
1st Mortgage 13.00 2004 16,250,000(c) 16,453,125
Jordan Inds
Zero Coupon Sr Sub Debs 11.75 2002 17,692,251(g) 10,438,428
Kitty Hawk
Sr Nts 9.95 2004 9,000,000(c) 9,090,000
Knology Holdings
Sr Disc Nts with Warrants 11.875 2007 1,100,000(c) 5,747,500
Park Ohio Inds
Sr Sub Nts with Common Stocks 9.25 2007 15,000,000(c) 15,150,000
Poindexter (JB) 11.13 2004 9,250,000 9,250,000
Precise Technology
Sr Sub Nts 11.125 2007 4,500,000 4,657,500
Resource America 12.00 2004 9,000,000(c) 9,270,000
Southwest Royalties
Sr Nts with Common Stocks 10.50 2004 3,750,000(c) 3,750,000
Stellex Inds
Sr Sub Nts with Common Stocks 9.50 2007 13,700,000(c) 13,734,250
Viasystems
Sr Sub Nts with Common Stocks 9.75 2007 5,700,000(c) 5,899,500
Wells Aluminum
Sr Nts with Common Stocks 10.125 2005 10,000,000 10,487,500
Total 194,560,928
Paper & packaging (4.9%)
Bear Island
Sr Nts 10.00 2007 4,500,000(c) 4,556,250
BPC Holding
Sr Nts Pay in Kind 12.50 2006 9,750,000(j) 10,737,188
Bway
Sr Sub Nts 10.25 2007 5,500,000(c) 5,967,500
Crown Paper
Sr Sub Nts 11.00 2005 20,000,000 21,100,000
Gaylord Container
Sr Nts 9.75 2007 15,000,000 15,000,000
Sr Sub Disc Deb 12.75 2005 28,000,000 30,240,000
Riverwood Intl 10.25 2006 15,000,000 15,300,000
10.625 2007 5,500,000 5,733,750
10.875 2008 10,000,000 9,800,000
Silgan
Pay in kind 13.25 2006 5,621,000(j) 6,351,730
Sr Sub Nts 9.00 2009 8,250,000 8,497,500
Stone Container
1st Mtge 10.75 2002 10,000,000 10,700,000
Sr Nts 11.875 1998 4,500,000 4,713,750
Sr Nts 12.58 2016 9,000,000 9,922,500
Sweetheart Cup
Sr Sub Nts 10.50 2003 5,330,000 5,250,050
Warren (SD)
Sr Nts 12.00 2004 16,500,000 18,480,000
Total 182,350,218
Restaurants & lodging (0.7%)
Hammons (John Q) Hotels
1st Mtge 8.875 2004 12,000,000 12,180,000
Prime Hospitality
Sr Sub Nts 9.75 2007 11,900,000 12,673,500
Total 24,853,500
Retail (3.3%)
County Seat Stores
Sr Nts with Warrants 12.75 2004 8,000,000(c) 8,240,000
Dairy Mart Convenience Stores
Sr Sub Nts Series A 10.25 2004 18,700,000 18,606,500
Sr Sub Nts Series B 10.25 2004 6,250,000(c) 6,218,750
Food 4 Less
Sr Sub Debs Pay in kind 13.625 2007 13,181,300(j) 16,937,971
Zero Coupon 8.66 2000 5,000,000(g) 4,350,000
Maxim Group
Sr Nts 9.25 2007 12,500,000(c) 12,281,250
Pathmark Stores
Sub Nts 11.625 2002 8,000,000 8,080,000
Zero Coupon Sub Nts 10.75 1999 12,500,000(g) 9,312,500
Penn Traffic
Sr Nts 8.625 2003 10,000,000 8,525,000
Pueblo Xtra Intl
Sr Nts 9.50 2003 16,210,000 15,480,550
Stater Brothers Holdings 11.00 2001 14,500,000 15,950,000
Total 123,982,521
Textiles & apparel (1.1%)
Anvil Knitwear
Sr Nts 10.875 2007 14,000,000 14,455,000
Hosiery Corp of America 13.75 2002 10,000,000 10,800,000
GEAR for Sports
Sr Sub Nts 9.625 2007 9,000,000(c) 9,225,000
11.375 2009 7,300,000(c) 7,519,000
Total 41,999,000
Utilities -- electric (1.5%)
AES
Sr Sub Nts 8.50 2007 12,800,000 12,704,000
First Palo Verde Funding 10.15 2016 3,132,000 3,319,920
Midland Funding II 11.75 2005 5,000,000 5,750,000
13.25 2006 12,500,000 15,265,625
Niagara Mohawk Power
1st Mtge 9.75 2005 9,000,000 10,388,340
Texas New Mexico Power
Secured Deb 10.75 2003 7,000,000 7,595,000
Total 55,022,885
Utilities -- telephone (1.1%)
BTI Telecom
Sr Nts 10.50 2007 11,000,000 11,055,000
Nextel Communications
Sr Disc Nts with Common stock 11.84 2004 4,500,000 3,881,250
Panamsat Intl Systems
Pay in kind 12.75 2005 11,000 13,475
Primus Telecom Group
Sr Nts 11.75 2004 11,550,000 12,358,500
Talton Holdings
Sr Nts with Common Stocks 11.00 2007 7,600,000(c) 8,132,000
Telegroup
Zero Coupon with Common Stock 10.49 2004 5,500,000(c,f) 4,152,500
Total 39,592,725
Miscellaneous (0.3%)
ECM Funding 11.92 2002 1,846,304(e) 1,846,304
XCL 13.50 2004 8,000,000(c) 9,600,000
Total 11,446,304
Foreign (13.0%)
ALFA Bank
(U.S. Dollar) 10.375 2000 5,000,000 4,050,000
APP Intl Finance
(U.S. Dollar) 11.75 2005 4,500,000 4,556,250
Australis Holdings
(U.S. Dollar) Zero Coupon with Warrants 14.99 2002 17,900,000(g) 7,518,000
Australis Media
(U.S. Dollar) Pay in kind 17.77 2003 112,938 36,140
(U.S. Dollar) Zero Coupon with Warrants 14.92 2003 43,500,000(g) 13,920,000
Autopistas Del Sol
(U.S. Dollar) 10.25 2009 13,500,000(c) 12,690,000
Cable Systems
(U.S. Dollar) 10.75 1999 2,316,976(e) 2,305,391
Call Net Enterprises
(U.S. Dollar) Zero Coupon 9.27 2007 5,750,000(g) 3,866,875
Canadian Forest Oil
(U.S. Dollar) Sr Sub Nts 8.75 2007 8,500,000(c) 8,585,000
CEI Citicorp Holdings
(U.S. Dollar) 8.50 2002 3,000,000(c) 2,887,500
(Argentine Peso) 11.25 2007 5,000,000(c) 4,012,500
Cia Latino Americana
(U.S. Dollar) 11.625 2004 3,500,000(c) 3,552,500
City of Moscow
(U.S. Dollar) 9.50 2000 10,000,000(c) 9,650,000
(U.S. Dollar) Zero Coupon 10.96 1997 6,000,000(g) 5,901,000
Colt Telecommunications Group
(U.S. Dollar) Zero Coupon 12.00 2006 8,500,000(g) 6,630,000
DGS Intl Finance
(U.S. Dollar) 10.00 2007 5,975,000 5,736,000
Doman Inds
(U.S. Dollar) 8.75 2004 10,500,000 10,368,750
(U.S. Dollar) 9.25 2007 3,500,000(c) 3,482,500
Dominion Textiles
(U.S. Dollar) Sr Nts 8.875 2003 5,000,000 5,150,000
Espirito Santo Centrais
(U.S. Dollar) 10.00 2007 9,000,000(c) 8,145,000
Fresh Del Monte Produce
(U.S. Dollar) 10.00 2003 22,000,000 22,990,000
Govt of Algeria
(U.S. Dollar) 7.06 2006 5,750,000 4,571,250
Govt of Argentina
(U.S. Dollar) 9.75 2027 5,000,000 4,612,500
Greater Beijing First
(U.S. Dollar) 9.25 2004 3,500,000(c) 3,272,745
(U.S. Dollar) 9.50 2007 5,000,000(c) 4,562,600
Grupo Industrial Durango
(U.S. Dollar) 12.625 2003 5,000,000 5,562,500
Grupo Iusacell Sa De
(U.S. Dollar) 10.00 2004 4,550,000(c) 4,606,875
Grupo Televisa
(U.S. Dollar) Sr Nts 11.875 2006 3,250,000 3,680,625
(U.S. Dollar) Zero Coupon Sr Nts 13.25 2001 4,900,000(g) 3,724,000
GST Telecommunications
(U.S. Dollar) Sr Nts 12.75 2007 6,750,000 6,834,375
Guangdong Enterprises
(U.S. Dollar) Sr Nts 8.875 2007 3,600,000(c) 3,418,452
Gulf Canada Resources
(U.S. Dollar) 9.25 2004 13,500,000 14,225,625
Hutchison Whampoa
(U.S. Dollar) 7.45 2017 2,500,000(c) 2,321,875
Hyundai Semiconductor
(U.S. Dollar) 8.625 2007 15,000,000(c) 14,060,100
Imexsa Export Trust
(U.S. Dollar) 10.125 2003 10,000,000(c) 10,362,500
Ionica
(U.S. Dollar) Zero Coupon 7.45 2007 21,000,000(g) 8,610,000
ITT Publimedia
(U.S. Dollar) 9.375 2007 6,500,000 6,825,000
MDC Communications
(U.S. Dollar) Sr Sub Nts 10.50 2006 12,100,000 12,947,000
Metronet Communications
(U.S. Dollar) Zero Coupon 10.66 2007 12,800,000(c,f) 7,616,000
Mexican Cetes
(Mexican Peso) Zero Coupon 1998 85,160,000(f) 9,347,162
Microcell Telecommunications
(U.S. Dollar) Zero Coupon 17.90 2007 12,140,000(f) 4,349,568
Netia Holdings
(U.S. Dollar) 10.25 2007 13,500,000(c) 13,162,500
(U.S. Dollar) Zero Coupon 11.85 2007 8,500,000(c,f) 5,100,000
Newsquest Capital
(U.S. Dollar) Series B 11.00 2006 4,650,000 5,173,125
PCI Chemical
(U.S. Dollar) Sr Nts with Common Stock 9.25 2007 4,500,000(c) 4,466,250
PLD Telekom
(U.S. Dollar) Sr Disc Nts with Warrant 5.26 2004 4,000,000 4,000,000
Philippine Long Distance Telephone
(U.S. Dollar) 7.85 2007 7,500,000(c) 6,600,150
(U.S. Dollar) 8.35 2017 7,500,000(c) 6,337,425
Poland Telecom
(U.S. Dollar) With Warrants 14.00 2007 1,200,000(c) 12,300,000
Repap New Brunswick
(U.S. Dollar) Sr Nts 9.875 2000 15,450,000 15,720,375
(U.S. Dollar) Sr Nts 10.625 2005 28,500,000 27,360,000
Rogers Cablesystems
(U.S. Dollar) Sr Secured Nts 9.625 2002 9,000,000 9,540,000
Russia Federal Loan
(Russian Ruble) 14.00 2000 30,008,877,650 3,939,565
Tarkett Intl
(U.S. Dollar) 9.00 2002 10,000,000 10,137,500
Tatneft Finance
(U.S. Dollar) 9.00 2002 3,800,000(c) 3,439,000
Telewest
(U.S. Dollar) Zero Coupon 11.00 2000 20,000,000(g) 15,250,000
Tjiwi Kimia
(U.S. Dollar) 10.00 2004 10,000,000(c) 9,050,000
(U.S. Dollar) 13.25 2001 7,000,000 7,297,500
United Mexican States
(U.S. Dollar) 11.50 2026 5,000,000 5,793,750
Veninfotel
(U.S. Dollar) Cv Pay in kind 10.00 2002 9,000,000(e,j) 12,510,000
Veritas Holdings
(U.S. Dollar) 9.625 2003 23,470,000 25,112,900
Total 483,834,198
Total bonds
(Cost: $3,149,507,745) $3,289,515,209
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
Investments in securities
High Yield Portfolio
(Percentages represent value of
investments compared to net assets)
Common stocks (0.6%)
Issuer Shares Value(a)
Arena Brands 111,111(d,e)$2,388,886
Celcaribe 1,195,110(d) 4,780,440
Communication &
Power Inds 7,936(d) 968,624
EchoStar Communications 150,000(d) 2,681,250
Gaylord Container 1,000,000(d) 6,812,500
HarCor 100,000(d) 300,000
Imperial Credit REIT 80,600 1,259,375
INFINT Diversified Holdings 42,418(e) 636,270
Lady Luck Gaming 200,000(d) 225,000
Nextel Communications 41,056(d) 1,036,664
Optel 17,000(d) 170
Pagemart Nationwide 50,750(d) 253,750
Pegasus Communications 16,923(d) 373,364
Specialty Food Acquisition 300,000(d) 112,500
Wireless One 25,000(d) 64,844
Total common stocks
(Cost: 21,064,231) $21,893,637
Preferred stocks & other (8.6%)
Issuer Shares Value(a)
American Radio Systems
11.375% Pay in kind 94,753(j) $11,370,360
American Telecasting
Warrants 85,225 4,261
Asia Pulp & Paper
12% 17,600 16,544,000
Australis Holdings
Warrants 13,400 134
Bar Technologies
Warrants 10,000 550,000
Benedek Communications
15% 70,000(d) 8,680,000
Warrants 70,000 70,000
Cablevision Systems
11.125% Pay in kind 340,764(j) 38,932,287
11.75% Pay in kind 126,308(j) 14,778,036
Clearnet Communications
Warrants 42,240 380,160
Communications & Power Inds
14% 154,638(d) 16,237,025
Core Capital
10% Units Cv 222,223(e) 10,000,035
Crown Packaging
Warrants 10,000 1,250
Dairy Mart Convenience Stores
Warrants 311,333(e) 155,667
Earthwatch
12% Cv 700,000(c) 7,000,000
Echo Star Communications
12.125% Pay in kind 10,375 10,634,375
Fairfield Manufacturing
11.25% Pay in kind 11,130 11,797,800
First Nationwide Bank
11.5% Preferred 166,500 18,991,406
Foodmaker
Warrants 7,000 311,500
Geotek Communications
Warrants 872,500 872,500
Globalstar
Warrants 13,500(c) 1,451,250
GPA Financial
8% Cv 38,721(e) 3,803,679
HarCor Energy
Warrants 110,000 165,000
Hem En
Warrants 36,000(k) --
Hosiery Corp of America
Warrants 10,000 70,000
Houlihan's Restaurant
Warrants 5,886(k) --
Hyperion Telecom
12.875% Pay in kind 4,500(c,j) 4,398,750
Intermedia Communications
13.5% Pay in kind 114,540(c,j)13,630,260
Warrants 22,750 1,706,250
Intl Wireless Communication
Warrants 14,750 663,750
Ionica
Warrants 25,500(k) --
Iridium
Warrants 17,150(c) 2,229,500
IXC Comminications
12.50% Pay in kind 4,500 5,141,250
Nextel Communications
Warrants 18,902(k) --
NTL
12% 5,162(c) 5,936,300
Pantry Pride
14.88% 50,000 5,050,000
Paxson Communications
12.5% Pay in kind 142,310(j) 14,657,930
Pegasus Communications
12.75% 63,984 8,741,775
Price Communications
Warrants 41,280 82,560
Primedia
11.625% Pay in kind --(j) 84
Primus Telecom
Warrants 11,550 115,500
RSL
Warrants 9,500 878,750
SDW Holdings
15% 274,350(d) 13,031,625
SFX Broadcasting
12.625% Pay in kind 27,500(j) 3,251,875
SGW Holding
12.50% Pay in kind 2,750(c,j) 2,750,000
12.625% Pay in kind Cv 87,091(j) 899,946
Sinclair Capital
11.63% 140,000 15,470,000
Superior Natl Capital
10.38% 3,700 3,737,000
Time Warner
10.25% Pay in kind 15,822(j) 18,037,080
TransDigm
Warrants 11,195(e) 5,317,455
Unifi
Warrants 10,000 200,000
Warren (SD)
14% 434,930(d) 20,441,710
Wireless One
Warrants 23,250 5,813
Total preferred stocks & other
(Cost: $284,234,515) $319,175,888
Short term securities (0.5%)
Issuer Annualized Amount Value(a)
yield on payable at
date of maturity
purchase
U.S. government agencies (--%)
Federal Home Loan Bank Disc Nt
12 17 97 5.47% $1,100,000 $1,097,008
Federal Home Loan Mtge Corp Disc Nt
12 05 97 5.50 900,000 899,178
Total 1,996,186
Commercial paper (0.5%)
Ameritech Capital Funding
12 12 97 5.56% $ 600,000 $ 598,802
BOC Group
12 22 97 5.58 1,300,000 1,295,390
Colgate Palmolive
12 22 97 5.60 2,200,000(h) 2,192,171
Fleet Funding
01 08 98 5.70 5,500,000 5,465,472
Heinz (HJ)
12 03 97 5.55 1,200,000 1,199,263
12 11 97 5.55 2,600,000 2,595,207
Intl Finance
12 03 97 5.57 800,000 799,507
Lincoln Natl
12 16 97 5.59 2,300,000(h) 2,293,950
Metlife Funding
12 11 97 5.55 1,600,000 1,597,051
Total 18,036,813
Total short term securities
(Cost: $20,032,999) $ 20,032,999
Total investment in securities
(Cost: $3,474,839,490)(l) $ 3,650,617,733
===============
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 Nov. 30, 1997.
(c) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security has
been determined to be liquid under guidelines established by the board.
(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 1 to the financial
statements).
Information concerning such security holdings at Nov. 30, 1997 is as follows:
Security dates Acquisition Cost
dates
Arena Brands 09 03 92 $ 5,888,888
Cable Systems
(U.S. Dollar) 02 02 96 2,231,874
Core Capital
10% Unit Cv 10 30 97 10,000,035
Dairy Mart Convenience Stores
Warrants 11 28 95 thru 10 27 96 239,401
ECM Funding 04 13 92 1,846,304
Gemini 11 01 96 13,500,000
Geotek Communications
Cv 03 04 96 4,135,000
GPA Financial
8% Cv 12 23 96 3,820,010
IFINT Diversified Holdings
Common 08 18 94 --
TransDigm
Warrants 09 29 93 thru 04 24 96 1,027,805
Veninfotel
(U.S. Dollar) Cv Pay in kind 03 05 97 8,000,000
(U.S. Dollar) Cv Pay in kind 07 23 97 1,000,000
(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, 1997.
(j) Pay in kind securities are securities in which the issuer has the option to
make interest or dividend payments in cash or in additional securities. These
securities issued as interest or dividends, usually have the same terms,
including maturity date, as the pay in kind securities.
(k) Negligible market value.
(l) At Nov. 30, 1997, the cost of securities for federal income tax purpose was
approximately $3,473,984,000 and the approximate aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation........................................$232,733,000
Unrealized depreciation..........................................56,099,000
Net unrealized appreciation....................................$176,634,000
<PAGE>
Board members and officers
Independent board members and officers
Chairman William R. Pearce*
of the board Chairman of the board, Board Services Corporation (provides
administrative services to boards including the boards of the
IDS and IDSLife funds and Master Trust portfolios).
H. Brewster Atwater, Jr.
Former chairman and chief executive officer, General Mills,
Inc.
Lynne V. Cheney
Distinguished fellow, American Enterprise Institute for Public
Policy Research.
Heinz F. Hutter
Former president and chief operating officer, Cargill, Inc.
Anne P. Jones
Attorney and telecommunications consultant.
Alan K. Simpson
Former United States senator for Wyoming.
Edson W. Spencer
Former chairman and chief executive officer, Honeywell, Inc.
Wheelock Whitney
Chairman, Whitney Management Company.
C. Angus Wurtele
Chairman of the board, The Valspar Corporation.
Officer
Vice president, Leslie L. Ogg*
general counsel President, treasurer and corporate secretary of Board Services
and secretary Corporation.
Board members and officers associated with AEFC
President John R. Thomas*
Senior vice president, AEFC.
William H. Dudley*
Senior advisor to the chief executive officer, AEFC.
David R. Hubers*
President and chief executive officer, AEFC.
Officers associated with AEFC
Vice president Peter J. Anderson*
Senior vice president, AEFC
Treasurer Matthew N. Karstetter*
Vice president, AEFC
* Interested person as defined by the Investment Company Act of 1940.
<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 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 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
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.
(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
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 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 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) two 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
Tax-exempt income funds
These funds provide tax-free income by investing in municipal bonds. The income
is generally free from federal income tax, but a portion of the income may be
subject to state and local taxes. Risk varies by bond quality.
IDS Tax-Exempt Bond Fund
Invests mainly in bonds and notes of state or local government units, with at
least 75% in the four highest rated, lowest risk bond categories.
(icon of) shield with Greek column
IDS Insured Tax-Exempt Fund
Invests primarily in municipal securities that are insured as to the timely
payment of principal and interest. The insurance feature minimizes credit risk
of the Fund but does not guarantee the market value of the Fund's shares.
(icon of) shield with star
IDS State Tax-Exempt Funds
(CA, MA, MI, MN, NY, OH)
Invests primarily in high- and medium-grade municipal securities to provide
income to residents of each respective state that is exempt from federal, state
and local income taxes. (New York is the only state that is exempt at the local
level.)
(icon of) shield with U.S. enclosed
IDS High Yield Tax-Exempt Fund
Invests in a Portfolio comprised primarily of medium- and lower-quality
municipal bonds and notes. Lower-quality securities generally involve greater
risk of principal and income.
(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
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.
<PAGE>
Quick telephone reference
American Express Redemptions and exchanges, National/Minnesota
Financial Advisors dividend payments or 800-437-3133
Telephone Transaction reinvestments and automatic
Service payment arrangements Mpls./St. Paul area:
671-3800
TTY Service For the hearing impaired 800-846-4852
American Express Automated account information 800-862-7919
Financial Advisors (TouchTone(R) phones only),
Easy Access Line including current fund prices
and performance, account values
and recent account transactions
AMERICAN EXPRESS Financial Advisors
IDS Extra Income Fund
IDS Tower 10
Minneapolis, MN 55440-0010
