<PAGE>
PAGE 1
FINANCIAL PLANNING
IDS Federal Income Fund
1994 annual report
(prospectus enclosed)
(Icon of) federal building
The goals of IDS Federal Income Fund, Inc. are to provide
shareholders with a high level of current income and safety of
principal consistent with investment in U.S. government and
government agency securities.
IDS
An American Express company
AMERICAN
EXPRESS
Distributed by IDS Financial Services Inc.
<PAGE>
PAGE 2
(Icon of) federal building
A comfortable compromise
Balancing risk and reward is something all investors must consider.
In the fixed-income area, intermediate-term securities issued by
the federal government and its agencies offer a good middle ground.
These securities, which form the core of Federal Income Fund,
normally provide greater investment stability than long-term bonds,
while still offering a yield higher than that of guaranteed
investments such as bank CDs. For a conservative investor, that
can be a rewarding combination.<PAGE>
PAGE 3
Contents
(Icon of) One book inside of another and their both being opened
together.
The purpose of this annual report is to tell investors how the fund
performed.
The prospectus, which is bound into the middle of this annual
report, describes the fund in detail.
1994 annual report
From the president 4
From the portfolio manager 4
Making the most of your fund 6
Long-term performance 7
Independent auditors' report 8
Financial statements 9
Notes to financial statements 12
Investments in securities 17
IDS mutual funds 20
Federal income tax information 23
1994 prospectus
The fund in brief
Goals 3p
Types of fund investments 3p
Manager and distributor 3p
Portfolio manager 3p
Sales charge and fund expenses
Sales charge 4p
Operating expenses 4p
Performance
Financial highlights 5p
Total returns 6p
Yield 7p
Key terms 8p
Investment policies and risks
Facts about investments and their risks 9p
Valuing assets 12p
How to buy, exchange or sell shares
How to buy shares 13p
How to exchange shares 15p
How to sell shares 15p
Reductions of the sales charge 19p
Waivers of the sales charge 20p
Special shareholder services
Services 21p
Quick telephone reference 21p
<PAGE>
PAGE 4
Distributions and taxes
Dividend and capital gain distributions 22p
Reinvestments 22p
Taxes 23p
How the fund is organized
Shares 26p
Voting rights 26p
Shareholder meetings 26p
Directors and officers 27p
Investment manager and transfer agent 28p
Distributor 29p
About IDS
General information 31p
<PAGE>
PAGE 5
To our shareholders
(Photo of) William R. Pearce, President of the fund
(Photo of) James W. Snyder, Portfolio manager
From the president
As you read this report, you'll find it very different from those
you've received from us in the past. We've made substantial
changes in the design and organization to make the information
easier to find and understand.
The annual report and prospectus are combined into a single
document, and each provides information important to you. The
annual report gives you the fund's performance information and a
snapshot of its investments. A good place to begin is with the
portfolio manager's letter, which describes the events and
investment strategies that most influenced the fund's performance
during the year. The prospectus includes essential data such as
the fund's investment policies and service information.
In redesigning our reports, we asked IDS financial planners and
some of you for suggestions and recommendations. We believe that
you'll find the results of our work worthwhile.
William R. Pearce
From the portfolio manager
Rising interest rates caused considerable disruption in the bond
market during the past several months. As was the case for
investors in most short-term fixed-income funds, the result was a
decline in share prices.
After many months of very modest growth, the economy began showing
signs of gaining meaningful momentum in the summer of 1993. Most
of the time, a stronger economy fuels fears of higher inflation,
which usually results in higher interest rates.
That proved to be the case, as interest rates, which had been on a
largely downward path for some two years, moved slightly higher
from mid-October through November. Rates then stabilized until
early February, when the Federal Reserve began pushing rates higher
to head off a potentially rapid increase it the inflation rate.
The interest-rate rise continued almost unabated through April.
Because higher rates drive down bond prices, the values of the
bonds in the fund's portfolio fell, causing a decline in the fund's
net asset value.
Rates up, values down
The decline occurred despite the fact that we manage the fund to
minimize fluctuations in net asset value by investing in securities
with different maturity dates and by using a small amount of
derivative instruments. (At this writing, about 6% of the fund's
portfolio is in derivatives known as inverse floaters and 2% in
interest-only instruments.) While we believe that employing these
instruments proves beneficial to the fund over time, in the short <PAGE>
PAGE 6
term they react more negatively to interest rate rises than do
traditional fixed-income securities.
As for the yield, because the majority of the portfolio is invested
in mortgage-backed securities issued by agencies of the U.S.
government, the level of mortgage refinancings is the major
influence. In the past year, the great number of refinancings
resulted in mortgages with higher interest rates being paid off
early. This in turn meant the fund had to reinvest the money
received from principal payments in lower-yielding securities,
which lessened the fund's yield to shareholders.
Portfolio shifts
To counter the effects of the changing investment environment, we
lowered the average maturity level of the portfolio by reducing our
holdings of inverse floaters, interest-only instruments and
mortgage-backed securities, and adding to our position in short-
term U.S. Treasury securities. While these strategies made the
fund less vulnerable to interest-rate swings, they also reduced its
yield slightly.
Looking ahead, we expect a calmer bond market than we experienced
during the past 12 months. With our present portfolio structure,
we are in a position to move assets quickly, which will allow us to
take advantage of attractive investment opportunities as they
become available.
James Snyder
12-month performance
(All figures per share)
Net asset value (NAV)
June 30, 1994 $ 4.85
June 30, 1993 $ 5.30
Decrease $(0.45)
Distributions
July 1, 1993 - June 30, 1994
From income $ 0.41
From capital gains $ 0.02
Total distributions $ 0.43
Total return* (0.53%)
*If you purchased shares in the fund during this period, your
return also would have been affected by the sales charge, as
described in the prospectus.
<PAGE>
PAGE 7
Making the most of your fund
Average annual total return
(as of June 30, 1994)
1 year 5 years Since inception*
- -5.50% +6.12% +7.40%
*Aug. 19, 1985
Your investment and return value fluctuate so that your shares,
when redeemed, may be worth more or less than the original cost.
Figures included the effect of the maximum 5% sales charge. This
was a period of widely fluctuating security prices. Past
performance is no guarantee of future results.
Build your assets systematically
To keep your assets growing steadily, one of the best ways to
invest in the fund is by dollar-cost averaging -- a time-tested
strategy that can make market fluctuations work for you. To
dollar-cost average, simply invest a fixed amount of money
regularly. You'll automatically buy more shares when the fund's
share price is low, fewer shares when it is high.
This does not ensure a profit or avoid a loss if the market
declines. But, if you can continue to invest regularly through
changing market conditions, it can be an effective way to
accumulate shares to meet your long-term goals.
How dollar-cost averaging works
Month Amount Per-share Number of shares purchased
invested market price
Jan $100 $20 5.00
Feb 100 18 5.56
Mar 100 17 5.88
Apr 100 15 6.67
May 100 16 6.25
June 100 18 5.56
July 100 17 5.88
Aug 100 19 5.26
Sept 100 21 4.76
Oct 100 20 5.00
(footnotes to table) By investing an equal number of dollars each
month...
(arrow in table pointing to April) you automatically buy more
shares when the per share market price is low
(arrow in table pointing to September) and fewer shares when the
per share market price is high.
You have paid an average price of only $17.91 per share over the 10
months, while the average market price actually was $18.10.
<PAGE>
PAGE 8
Your fund's long-term performance
Three ways to benefit from a mutual fund:
o your shares increase in value when the fund's investments do
well
o you receive capital gains when the gains on investments sold
by the fund exceed losses
o you receive income when the fund's stock dividends, interest
and short-term gains exceed its expenses.
All three make up your total return. And you potentially can
increase your investment if, like most investors, you reinvest your
dividends and capital gain distributions to buy additional shares
of the fund or another fund.
How your $10,000 has grown in IDS Federal Income Fund
Average annual total return
(as of June 30, 1994)
Since
1 year 5 years 8/19/85
- -5.5% +6.12% +7.40%
Lehman Aggregate X
$20,000 Bond Index
X
$18,901
X Federal Income Fund
Lehman
Treasury Index
$9,500
'85 '86 '87 '88 '89 '90 '91 '92 '93 '94
Assumes: Holding period from 9/1/85 to 6/30/94. Returns do not
reflect taxes payable on distributions. Also see "Performance" in
the fund's current prospectus. Reinvestment of all income and
capital gain distributions for the fund, with a value of $9,626.
Lehman Aggregate Bond Index is made up of a representative list of
government and corporate bonds as well as asset-backed securities
and mortgage-backed securities. The index is frequently used as a
general measure of bond market performance. However, the
securities used to create the index may not be representative of
the bonds held in the fund.
Lehman Treasury Bond Index is made up of a representative list of
government bonds which include all publicly issued obligations of
the U.S. Treasury. The index is frequently used as a general
measure of bond market performance. However, the securities used
to create the index may not be representative of the debt
securities held in the fund.
Your investment and return value fluctuate so that your shares,
when redeemed, may be worth more or less than the original cost. <PAGE>
PAGE 9
This was a period of widely fluctuating security prices. Past
performance is no guarantee of future results.
On the chart above you can see how the fund's total return compared
to two widely cited performance indexes, the Lehman Treasury Index
and Lehman Aggregate Bond Index. In comparing Federal Income Fund
to the two indexes, you should take into account the fact that the
fund's performance reflects the maximum sales charge of 5%, while
such charges are not reflected in the performance of the indexes.
If you were actually to buy either individual stocks or growth
mutual funds, any sales charges that you pay would reduce your
total return as well.
<PAGE>
PAGE 10
Independent auditors' report
___________________________________________________________________
The board of trustees and shareholders
IDS Federal Income Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments in securities,
of IDS Federal Income Fund, Inc. as of June 30, 1994, and the
related statement of operations for the year then ended and the
statements of changes in net assets for each of the years in the
two-year period ended June 30, 1994, and the financial highlights
for each of the years in the eight-year period ended June 30, 1994,
and for the period from August 19, 1985 (commencement of
operations), to June 30, 1986. These financial statements and the
financial highlights are the responsibility of Fund management. Our
responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements and the financial highlights are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Investment securities held in custody are
confirmed to us by the custodian. As to securities purchased and
sold but not received or delivered, we request confirmations from
brokers, and where replies are not received, we carry out other
appropriate auditing procedures. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of IDS
Federal Income Fund, Inc. at June 30, 1994, and the results of its
operations for the year then ended and the changes in its net
assets for each of the years in the two-year period ended June 30,
1994, and the financial highlights for the periods stated in the
first paragraph above, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick
Minneapolis, Minnesota
August 5, 1994
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PAGE 11
<TABLE>
Financial statements
Statement of assets and liabilities
IDS Federal Income Fund, Inc.
June 30, 1994
_____________________________________________________________________________________________________________
<CAPTION>
Assets
_____________________________________________________________________________________________________________
<S> <C>
Investments in securities, at value (Note 1)
(identified cost $1,079,138,683) $1,048,406,463
Accrued interest receivable 8,731,656
Receivable for investment securities sold 59,499,085
_____________________________________________________________________________________________________________
Total assets 1,116,637,204
_____________________________________________________________________________________________________________
Liabilities
_____________________________________________________________________________________________________________
Disbursements in excess of cash on demand deposit 1,494,635
Dividends payable to shareholders 74,923
Payable for investment securities purchased 88,743,799
Accrued investment management and services fee 442,762
Accrued distribution fee 38,414
Accrued transfer agency fee 98,726
Other accrued expenses 246,670
Open option contracts written, at value
(premium received $234,539)(Note 5) 175,469
_____________________________________________________________________________________________________________
Total liabilities 91,315,398
_____________________________________________________________________________________________________________
Net assets applicable to outstanding capital stock $1,025,321,806
_____________________________________________________________________________________________________________
Represented by
_____________________________________________________________________________________________________________
Capital stock -- authorized 10,000,000,000 shares of $.01 par value;
outstanding 211,575,822 shares $ 2,115,758
Additional paid-in capital 1,084,020,018
Undistributed net investment income (439,420)
Accumulated net realized loss (Notes 1 and 6) (32,269,181)
Unrealized depreciation (Note 4) (28,105,369)
_____________________________________________________________________________________________________________
Total -- representing net assets applicable to outstanding capital stock $1,025,321,806
_____________________________________________________________________________________________________________
Net asset value per share of outstanding capital stock $ 4.85
_____________________________________________________________________________________________________________
See accompanying notes to financial statements.
<PAGE>
PAGE 12
Financial statements
Statement of operations
IDS Federal Income Fund, Inc.
Year ended June 30, 1994
_____________________________________________________________________________________________________________
<CAPTION>
Investment income
_____________________________________________________________________________________________________________
<S> <C>
Income:
Interest $61,504,534
Fee income (Note 1) 3,569,081
_____________________________________________________________________________________________________________
Total income 65,073,615
_____________________________________________________________________________________________________________
Expenses (Note 2):
Investment management and services fee 5,369,312
Distribution fee 458,958
Transfer agency fee 1,172,477
Compensation of directors 33,418
Compensation of officers 8,702
Custodian fees 100,341
Postage 265,731
Registration fees 145,630
Reports to shareholders 53,088
Audit fees 31,500
Administrative 14,048
Other 34,834
_____________________________________________________________________________________________________________
Total expenses 7,688,039
_____________________________________________________________________________________________________________
Investment income -- net 57,385,576
_____________________________________________________________________________________________________________
Realized and unrealized gain (loss) -- net
_____________________________________________________________________________________________________________
Net realized loss on security transactions (34,576,043)
Net realized gain on closed interest rate futures contracts 8,449,197
Net realized gain on closed or expired option contracts written (Note 5) 1,374,791
_____________________________________________________________________________________________________________
Net realized loss on investments (24,752,055)
Net change in unrealized appreciation or depreciation (38,009,969)
_____________________________________________________________________________________________________________
Net loss on investments (62,762,024)
_____________________________________________________________________________________________________________
Net decrease in net assets resulting from operations $(5,376,448)
_____________________________________________________________________________________________________________
See accompanying notes to financial statements.
<PAGE>
PAGE 13
Financial statements
Statements of changes in net assets
IDS Federal Income Fund, Inc.
Year ended June 30,
_____________________________________________________________________________________________________________
<CAPTION>
Operations and distributions 1994 1993
_____________________________________________________________________________________________________________
<S> <C> <C>
Investment income -- net $ 57,385,576 $ 57,435,345
Net realized gain (loss) on investments (24,752,055) 25,836,238
Net change in unrealized appreciation or depreciation (38,009,969) (1,059,269)
_____________________________________________________________________________________________________________
Net increase (decrease) in net assets resulting from operations (5,376,448) 82,212,314
_____________________________________________________________________________________________________________
Distributions to shareholders from:
Net investment income (57,139,239) (57,971,568)
Net realized gains on investments (28,095,757) (2,941,850)
_____________________________________________________________________________________________________________
Total distributions (85,234,996) (60,913,418)
_____________________________________________________________________________________________________________
Capital share transactions
_____________________________________________________________________________________________________________
Proceeds from sales of
132,557,506 and 123,595,985 shares (Note 2) 671,874,642 647,636,194
Net asset value of 14,452,759 and 9,485,733 shares
issued in reinvestment of distributions 73,532,781 49,651,783
Payments for redemptions of
128,743,048 and 100,549,963 shares (654,662,328) (527,278,272)
_____________________________________________________________________________________________________________
Increase in net assets from capital share transactions
representing net addition of
18,267,217 and 32,531,755 shares 90,745,095 170,009,705
_____________________________________________________________________________________________________________
Total increase in net assets 133,651 191,308,601
Net assets at beginning of year 1,025,188,155 833,879,554
_____________________________________________________________________________________________________________
Net assets at end of year
$1,025,321,806 $1,025,188,155
_____________________________________________________________________________________________________________
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 14
IDS Federal Income Fund, Inc.
Notes to Financial Statements
___________________________________________________________________
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.
Significant accounting policies followed by the Fund are summarized
below:
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 of directors. 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.
Options transactions
In order to produce incremental earnings, protect gains, and
facilitate buying and selling of securities for investment
purposes, the fund may buy and sell put and call options and write
covered call options on portfolio securities and may write
cash-secured put options on U.S. government securities. The fund
also may purchase mortgage-backed security (MBS) put spread options
and write covered MBS call spread options. MBS spread options are
based upon the changes in the price spread between a specified
mortgage-backed security and a like-duration Treasury security. The
risk in writing a call option is that the fund gives up the
opportunity of profit if the market price of the security
increases. The risk in writing a put option is that the fund may
incur a loss if the market price of the security decreases and the
option is exercised. The risk in buying an option is that the fund
pays a premium whether or not the option is exercised. The fund
also has the additional risk of not being able to enter into a
closing transaction if a liquid secondary market does not exist.
The fund also may write over-the-counter options where the
completion of the obligation is dependent upon the credit standing
of the other party.
Option contracts are valued daily at the closing prices on their
primary exchanges and unrealized appreciation or depreciation is
recorded. The fund will realize a gain or loss upon expiration or
closing of the option transaction. When options on debt securities
or futures are exercised, the fund 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.
<PAGE>
PAGE 15
IDS Federal Income Fund, Inc.
Notes to Financial Statements (continued)
___________________________________________________________________
Futures transactions
In order to gain exposure to or protect itself from changes in the
market, the fund may buy and sell interest rate 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 fund is required to
deposit either cash or securities in an amount (initial margin)
equal to a certain percentage of the contract value. Subsequent
payments (variation margin) are made or received by the fund each
day. The variation margin payments are equal to the daily changes
in the contract value and are recorded as unrealized gains and
losses. The fund recognizes a realized gain or loss when the
contract is closed or expires.
Securities purchased on a when-issued basis
Delivery and payment for securities that have been purchased by the
fund on a forward-commitment or when-issued basis can take place
one month or more after the transaction date. During this period,
such securities are subject to market fluctuations, and they may
affect the fund's gross assets the same as owned securities. As of
June 30, 1994, the fund had entered into outstanding when-issued or
forward commitments of $88,743,799.
During the year ended June 30, 1994, the fund entered into
transactions to sell purchase commitments to third parties at the
current market values and concurrently acquired other purchase
commitments for similar securities at later dates. As an inducement
for a fund to "roll over" its purchase commitments, the fund
receives negotiated fees. For the year ended June 30, 1994, such
fees earned by the fund amounted to $3,569,081.
Federal taxes
Since the fund's policy is to comply with all sections of the
Internal Revenue Code applicable to regulated investment companies
and to distribute all of its taxable income to shareholders, no
provision for income or excise taxes is required.
Net investment income (loss) and net realized gains (losses) may
differ for financial statement and tax purposes primarily because
of the deferral of losses on certain futures contracts, the
recognition of certain foreign currency gains (losses) as ordinary
income (loss) for tax purposes, and losses deferred due to "wash
sale" transactions. The character of distributions made during the
year from net investment income or net realized gains may differ
from their ultimate characterization for federal income tax
purposes. Also, due to the timing of dividend distributions, the <PAGE>
PAGE 16
IDS Federal Income Fund, Inc.
Notes to Financial Statements (continued)
___________________________________________________________________
fiscal year in which amounts are distributed may differ from the
year that the income or realized gains (losses) were recorded by
the fund.
On the statement of assets and liabilities, as a result of
permanent book-to-tax differences, undistributed net investment
income and accumulated net realized loss have been decreased by
$685,757.
Dividends to shareholders
Dividends from net investment income, declared daily and payable
monthly, are reinvested in additional shares of the fund at net
asset value or payable in cash. Capital gains, when available, are
distributed along with the last income dividend of the calendar
year.
Other
Security transactions are accounted for on the date securities are
purchased or sold. Interest income, including level-yield
amortization of premium and discount is accrued daily.
___________________________________________________________________
2. Expenses and sales charges
Under terms of an agreement dated Nov. 14, 1991, the fund pays IDS
Financial Corporation (IDS) a fee for managing its investments,
record-keeping and other specified services. The fee is a
percentage of the fund's average daily net assets consisting of a
group asset charge in reducing percentages from 0.46% to 0.32%
annually on the combined net assets of all non-money market funds
in the IDS MUTUAL FUND GROUP and an individual annual asset charge
of 0.13% of average daily net assets.
The fund also pays IDS a distribution fee at an annual rate of $6
per shareholder account and a transfer agency fee at an annual rate
of $15.50 per shareholder account. The transfer agency fee is
reduced by earnings on monies pending shareholder redemptions.
IDS will assume and pay any expenses (except taxes and brokerage
commissions) that exceed the most restrictive applicable state
expense limitation.
Sales charges by IDS Financial Services Inc. for distributing fund
shares were $23,989,780 for the year ended June 30, 1994. The fund
also pays custodian fees to IDS Trust Company, an affiliate of IDS.
The fund has a retirement plan for its independent directors. Upon
retirement directors receive monthly payments equal to one-half of
the retainer fee for as many months as they served as directors up
to 120 months. There are no death benefits. The plan is not funded
but the fund recognizes the cost of payments during the time the
directors serve on the Board. The retirement plan expense amounted
to $15,312 for the year ended June 30, 1994.<PAGE>
PAGE 17
IDS Federal Income Fund, Inc.
Notes to Financial Statements (continued)
___________________________________________________________________
3. Securities transactions
Cost of purchases and proceeds from sales of securities (other than
short-term obligations) aggregated $3,111,248,091 and
$3,022,243,850, respectively, for the year ended June 30, 1994.
Realized gains and losses are determined on an identified cost
basis.
Income from securities lending amounted to $19,062 for the year
ended June 30, 1994.
___________________________________________________________________
4. Interest rate futures contracts
At June 30, 1994, investments in securities included securities
valued at $7,220,000 that were pledged as collateral to cover
initial margin deposit on 1,050 purchase contracts. The market
value of the open contracts at June 30, 1994, was $154,659,063 with
a net unrealized gain of $2,567,781.
___________________________________________________________________
5. Options contracts written
The number of contracts and premium amounts associated with options
contracts written is as follows:
<TABLE>
<CAPTION>
Year ended June 30, 1994
___________________________________________________________________
Puts Calls MBS Calls
___________________________________________________________________
Contracts Premium Contracts Premium National Premium
___________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Balance June 30, 1993 -- $ -- -- $ -- -- $ --
Opened 200 89,226 2,135 1,728,104 31,000,000 145,313
Closed -- -- (250) (275,595) -- --
Exercised -- -- (103) (100,873) -- --
Expired -- -- (1,782) (1,351,636) -- --
___________________________________________________________________________________________
Balance June 30, 1994 200 $89,226 -- $ -- 31,000,000 $145,313
___________________________________________________________________________________________
</TABLE>
___________________________________________________________________
6. Capital loss carryover
For federal income tax purposes, the fund had a capital loss
carryover of $32,363,757 at June 30, 1994, that if not offset by
subsequent capital gains, will expire in 2002.
___________________________________________________________________
7. Financial highlights
"Financial highlights" showing per share data and selected
information is presented on page 5 of the prospectus.
<PAGE>
PAGE 18
<TABLE>
<CAPTION>
Investments in securities
IDS Federal Income Fund, Inc. (Percentages represent value of
June 30, 1994 investments compared to net assets)
_____________________________________________________________________________________________________________________________
Bonds (98.1%)
_____________________________________________________________________________________________________________________________
Issuer Coupon Maturity Principal Value(a)
rate year amount
_____________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
U.S. government obligations (37.8%)
U.S. Treasury 3.875% 1995 $ 55,000,000 $ 54,439,000
4.125 1995 54,000,000 53,375,754
4.25 1995 92,000,000 90,755,231
6.00 1996 130,000,000 129,589,187
7.25 1996 57,850,000 59,021,457
______________
Total 387,180,629
_____________________________________________________________________________________________________________________________
Mortgage-backed securities (60.3%)
Federal Home Loan Mortgage Corporation (16.4%)
5.624 2022 332,108 341,449
6.421 2020 310,600 317,057
8.00 2008-23 61,101,372 60,973,235
9.50 2024 33,525,098 35,348,025
Collateralized Mtge Obligation 5.75 2015 14,000,000 12,984,720
6.50 2019-24 40,900,000 36,643,629
6.85 2020 4,604,000 4,202,761
7.00 2008 3,600,000 3,296,250
7.50 2020 12,527,000 12,594,020
Collateralized Mtge Obligation
Inverse Floater 6.404 2000 1,925,102 (b) 1,483,532
Interest Only 10.00 2020 896,176 (e) 171,748
______________
Total 168,356,426
_____________________________________________________________________________________________________________________________
See accompanying notes to investments in securities.<PAGE>
PAGE 19
Investments in securities
IDS Federal Income Fund, Inc. (Percentages represent value of
June 30, 1994 investments compared to net assets)
_____________________________________________________________________________________________________________________________
Bonds (continued)
<CAPTION>
_____________________________________________________________________________________________________________________________
Issuer Coupon Maturity Principal Value(a)
rate year amount
_____________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Mortgage-backed securities (cont'd)
Federal National Mortgage Association (43.8%)
6.50 % 2008-24 $139,028,562 (c,h) $ 126,717,010
7.40 2004 19,860,000 (d) 19,612,344
8.00 2006-08 53,363,263 53,913,572
8.00 2020 58,000,000 (d) 57,075,625
8.50 2007-23 68,325,351 69,322,758
8.50 2024 10,700,000 (d) 10,827,062
Collateralized Mtge Obligation 6.25 2005 9,228,000 8,137,942
6.50 2020 20,967,901 20,341,590
Collateralized Mtge Obligation
Inverse Floater 5.28 2023 313,459 (b) 153,595
6.098 1999 4,235,417 (b) 3,263,918
6.792 2023 5,860,510 (b) 3,102,407
8.978 2008 6,737,200 (b) 4,615,790
9.844 2022 6,000,000 (b) 5,635,320
12.111 2020 4,250,000 (b) 4,080,000
Collateralized Mtge Obligation
Principal Only 12.568 2021 1,564,410 (f) 1,148,934
Collateralized Mtge Obligation
Trust Series Z 6.00 2024 8,628,139 (g) 5,452,552
Interest Only 7.00 2023 49,554,143 (e) 52,938,127
7.50 2007 2,313,087 (e) 1,764,537
9.50 2018-22 2,566,626 (e) 1,057,141
______________
Total 449,160,224
_____________________________________________________________________________________________________________________________
Government National Mortgage Association (0.1%)
11.00 2019 770,033 835,727
_____________________________________________________________________________________________________________________________
See accompanying notes to investments in securities.<PAGE>
PAGE 20
Investments in securities
<CAPTION>
IDS Federal Income Fund, Inc. (Percentages represent value of
June 30, 1994 investments compared to net assets)
_____________________________________________________________________________________________________________________________
Bonds (continued)
_____________________________________________________________________________________________________________________________
Issuer Coupon Maturity Principal Value(a)
rate year amount
_____________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Mortgage-backed securities (cont'd)
Other mortgage-backed securities (--%)
Daiwa Securities
Collateralized Mtge Obligation
Inverse Floater 17.00% 2009 $ 506,610 (b) $ 510,592
_____________________________________________________________________________________________________________________________
Total bonds
(Cost: $1,036,775,818) $1,006,043,598
_____________________________________________________________________________________________________________________________
<CAPTION>
Short-term securities (4.1%)
_____________________________________________________________________________________________________________________________
Issuer Annualized Amount Value(a)
yield on payable
date of at
purchase maturity
_____________________________________________________________________________________________________________________________
<S> <C> <C> <C>
U.S. government agencies (3.6%)
Federal Home Loan
Bank Disc Notes
07-19-94 4.21% $ 900,000 $ 898,115
Federal Home Loan
Mtge Corp Disc Notes
07-01-94 4.19 2,300,000 2,300,000
07-01-94 4.20 3,500,000 3,500,000
Federal Natl Mtge
Assn Disc Notes
07-25-94 4.25 12,500,000 12,464,750
Student Loan Mtge
Assn Disc Notes
07-01-94 4.17 ,700,000 17,700,000
______________
Total 36,862,865
_____________________________________________________________________________________________________________________________
Commercial paper (0.5%)
Wal-mart Stores
07-01-94 4.10 5,500,000 5,500,000
_____________________________________________________________________________________________________________________________
Total short-term securities
(Cost: $42,362,865) $ 42,362,865
_____________________________________________________________________________________________________________________________
Total investments in securities
(Cost: $1,079,138,683)(i) $1,048,406,463
_____________________________________________________________________________________________________________________________
See accompanying notes to investments in securities.<PAGE>
PAGE 21
Investments in securities
IDS Federal Income Fund, Inc.
June 30, 1994
_____________________________________________________________________________________________________________________________
Notes to investments in securities
_____________________________________________________________________________________________________________________________
(a) Securities are valued by procedures described in Note 1 to the financial statements.
(b) Inverse floaters represent securities which pay interest at a rate that increases (decreases) with a decline
(increase) in the LIBOR (London InterBank Offering Rate) Index. Interest rate disclosed is the rate in effect on June
30, 1994.
(c) Partially pledged as initial deposit on the following open interest rate futures purchase contracts (see Note 4 to the
financial statements):
Type of security Par Value
______________________________________________________________
U.S. Treasury Sept. 94 10 year notes $1,502,000,000
______________________________________________________________
(d) At June 30, 1994, the cost of securities purchased on a when-issued basis was $88,743,799.
(e) Principal amounts and interest rates disclosed for interest-only securities represent amortized cost and coupon rates,
respectively.
(f) Principal Only - interest rate disclosed for this security represents the current yield based upon estimated future
cash flows.
(g) This security is a collateralized mortgage obligation whose payment of principal has been deferred until payment of
previous series within the trust has been paid off.
(h) At June 30, 1994, securities valued at $7,220,000 were held to cover open call options written.
(i) At June 30, 1994, the cost of securities for federal income tax purposes was $1,079,044,108 and the aggregate gross
unrealized appreciation and depreciation based on that cost was:
Unrealized appreciation $ 6,568,643
Unrealized depreciation (37,206,288)
____________________________________________________________
Net unrealized depreciation $(30,637,645)
____________________________________________________________
</TABLE>
<PAGE>
PAGE 22
IDS mutual funds
Cash equivalent investments
These money market funds have three main goals: conversation of
capital, constant liquidity and the highest possible current income
consistent with these objectives. Very limited risk.
IDS Cash Management Fund
Invests in such money market securities as high quality commercial
paper, bankers' acceptances, certificates of deposits (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
Income investments
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 Global Bond Fund
Invests primarily in debt securities of U.S. and foreign issuers to
achieve high total return through income and growth of capital.
(icon of) globe
IDS Extra Income Fund
Invests mainly in long-term, high-yielding corporate fixed-income
securities in the lower rated, higher risk bond categories to
provide high current income. Secondary objective is capital
growth.
(icon of) cornucopia
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
<PAGE>
PAGE 23
IDS Strategy, Income Fund
Invests primarily in corporate and government bonds to seek high
current income while conserving capital. Also may seek capital
appreciation when consistent with its primary goals.
(icon of) chess piece
IDS Selective Fund
Invests in 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 primarily in securities issued or guaranteed as to
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) federal building
IDS Strategy, Short-Term Income Fund
Invests primarily in short-term and intermediate-term bonds and
notes to seek a high level of current income.
(icon of) chess piece
Tax-exempt income investments
These funds provide tax-free income by investing in municipal
bonds. The income is generally free from federal income tax. Risk
varies by bond quality.
IDS High Yield Tax-Exempt Fund
Invests primarily in medium- and lower-quality municipal bonds and
notes.
(icon of) shield with basket of apples enclosed
IDS State Tax-Exempt Funds
(CA, MA, MI, MN, NY, OH)
Invests primarily in high- and medium-grade municipal securities to
provide income to residents of each respective state that is exempt
from federal, state and local income taxes. (New York is the only
state that is exempt at the local level.)
(icon of) shield with U.S. enclosed
<PAGE>
PAGE 24
IDS Tax-Exempt Bond Fund
Invests mainly in bonds and notes of state or local government
units, with at least 75 percent 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 eagle head
Growth and income investments
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. Moderate risk.
IDS International Fund
Invests primarily in common stocks of foreign companies that offer
potential for superior growth. The Fund may invest up to 20
percent of its assets in the U.S. market.
(icon of) three flags
IDS Strategy, Worldwide Growth Fund
Invests primarily in common stocks of companies throughout the
world that offer potential for superior growth. Holding may range
from small- to large-capitalization stocks, including those of
companies involve in areas of rapid economic growth.
(icon of) chess piece
IDS Managed Retirement Fund
Invests in a combination of common stocks, fixed income investments
and money market securities to seek a maximum total return through
a combination of growth of capital and current income.
(icon of) bird in a nest
IDS Equity Plus Fund
Invests primarily in a combination of moderate growth stocks,
higher-yielding equities and bonds. Seeks growth of capital and
income.
(icon of) three apple trees
<PAGE>
PAGE 25
IDS Blue Chip Advantage Fund
Invests in selected stocks from a major market index. Securities
purchased are those recommended by IDS 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 Stock Fund
Invests primarily in common stocks of blue chip U.S. companies
representing almost every major sector of the economy. Seeks
current income and growth of capital.
(icon of) building with columns
IDS Strategy, Equity Fund
Invests primarily in undervalued common stocks that offer potential
for growth of capital and income.
(icon of) chess piece
IDS Utilities Income Fund
Invests primarily in the stocks of public utility companies to
provide high current income and growth of income and capital with
reduced volatility.
(icon of) electrical cord
IDS Diversified Equity Income Fund
Invests primarily in high-yielding common stocks to provide high
current income and, secondarily to benefit from the growth
potential offered by stock investments.
(icon of) four puzzle pieces
IDS Mutual
Invests in a 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
Growth investments
Funds in this group seek capital growth, primarily from common
stocks. They are high risk mutual funds with a potential for high
reward.
<PAGE>
PAGE 26
IDS Discovery Fund
Invests in small and medium-sized, growth-oriented companies
emphasizing technological innovation and productivity enhancement.
Buys and holds larger growth-oriented stocks.
(icon of) ship
IDS Strategy, Aggressive Equity 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 Growth Fund
Invests primarily in companies that have above-average potential
for long-term growth as a result of new management, marketing
opportunities or technological superiority.
(icon of) flower
IDS Global Growth Fund
Invests in 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 New Dimensions Fund
Invests primarily in domestic 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
Specialty growth investment
This fund aggressively seeks capital growth as a hedge against
inflation.
<PAGE>
PAGE 27
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. This is the most aggressive and most
speculative IDS mutual fund.
(icon of) cart of precious gems
For more complete information about any of these funds, including
charges and expenses, you can obtain a prospectus by contacting
your financial planner or writing to IDS Shareholder Service, P.O.
Box 534, Minneapolis, MN 55440-0534. Read it carefully before you
invest or send money.
<PAGE>
PAGE 28
Federal income tax information
IDS Federal Income Fund, Inc.
__________________________________________________________________
The fund is required by the Internal Revenue Code of 1986 to tell
its shareholders about the tax treatment of the dividends it pays
during its fiscal year. Distributions before 1/1/94 were reported
to you on a Form 1099-DIV, Dividends and Distributions, last
January. Shareholders should consult a tax adviser on how to report
distributions for state and local purposes.
IDS Federal Income Fund, Inc.
Fiscal year ended June 30, 1994
Income distributions -- taxable as dividend income, none qualifying
for deductions by corporations.
Payable date Per share
July 26, 1993 $0.0248
Aug. 25, 1993 0.0260
Sept. 24, 1993 0.0259
Oct. 25, 1993 0.0269
Nov. 24, 1993 0.0281
Dec. 29, 1993 0.1471
Jan. 27, 1994 0.0282
Feb. 25, 1994 0.0264
March 28, 1994 0.0239
April 28, 1994 0.0203
May 26, 1994 0.0157
June 28, 1994 0.0156
Total $0.4089
Capital gain distribution -- taxable as long-term capital gain.
Payable date Per share
Dec. 29, 1993 $0.0257
Total distributions $0.4346
The distribution of $0.1728 per share, payable Dec. 29, 1993
consisted of $0.0291 derived from net investment income, $0.1180
from short-term capital gains (a total of $0.1471 taxable as
dividend income) and $0.0257 from net long-term capital gains.<PAGE>
PAGE 29
Quick telephone reference
IDS Telephone Transaction Service
Redemptions and exchanges, dividend payments or reinvestments and
automatic payment arrangements
National/Minnesota: 800-437-3133
Mpls./St. Paul area: 671-3800
IDS Shareholder Service
Fund performance, objectives and account inquiries
612-671-3733
TTY Service
For the hearing impaired
800-846-4852
IDS Infoline
Automated account information (TouchToneR 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
Your IDS financial planner:
AN AMERICAN EXPRESS COMPANY
1894 IDS 1994
A CENTURY OF INVESTING IN THE FUTURE
IDS Federal Income Fund
IDS Tower 10
Minneapolis, MN 55440-0010
<PAGE>
PAGE 30
STATEMENT OF DIFFERENCES
Difference Description
1) The layout is different 1) Some of the layout in the
throughout the annual report. annual report to
shareholders is in two
columns.
2) Headings. 2) The headings in the
annual report and
prospectus are placed
in blue strip at the top
of the page.
3) There are pictures, icons 3) Each picture, icon and
and graphs throughout the graph is described in
annual report and prospectus. parentheses.
4) Footnotes for charts and 4) The footnotes for each
graphs are described at chart or graph are typed
the left margin. below the description of
the chart or graph.
