<PAGE>
PAGE 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ____ (File No. 2-96512)
Post-Effective Amendment No. 24 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 27 (File No. 811-4260) X
IDS FEDERAL INCOME FUND, INC.
IDS Tower 10, Minneapolis, Minnesota 55440-0010
Leslie L. Ogg - 901 S. Marquette Avenue, Suite 2810,
Minneapolis, MN 55402-3268
(612) 330-9283
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
X on July 26, 1996 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(i)
on (date) pursuant to paragraph (a)(i)
75 days after filing pursuant to paragraph (a)(ii)
on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
The Registrant has registered an indefinite number or amount of
securities under the Securities Act of 1933 pursuant to Section
24-f of the Investment Company Act of 1940. Registrant's Rule
24f-2 Notice for its most recent fiscal period ended May 31, 1996,
will be filed on or about July 25, 1996.
IDS Federal Income Fund, a series of the Registrant, has adopted a
master/feeder operating structure. This Post-Effective Amendment
includes a signature page for Income Trust, the master fund.
<PAGE>
PAGE 2
Cross reference sheet showing the location in its prospectus and
the Statement of Additional Information of the information called
for by the items enumerated in Parts A and B of Form N-1A.
Negative answers omitted from prospectus are so indicated.
<TABLE><CAPTION>
PART A PART B
Section Section in
Item No. in Prospectus Item No. Statement of Additional Information
<C> <C> <C> <C>
1 Cover page of prospectus 10 Cover page of SAI
2(a) Sales charge and Fund expenses 11 Table of Contents
(b) The Fund in brief
(c) The Fund in brief 12 NA
3(a) Financial highlights 13(a) Additional Investment Policies; all
(b) NA appendices except Dollar-Cost Averaging
(c) Performance (b) Additional Investment Policies
(d) Financial highlights (c) Additional Investment Policies
(d) Security Transactions
4(a) The Fund in brief; Investment policies and
risks; How the Fund is organized 14(a) Board members and officers of the Fund;**
(b) Investment policies and risks Board members and officers
(c) Investment policies and risks (b) Board members and Officers
(c) Board members and Officers
5(a) Board members and officers; Board members
and officers of the Fund (listing) 15(a) NA
(b)(i) Investment manager; (b) NA
About American Express Financial (c) Board members and Officers
Corporation -- General Information
(b)(ii) Investment manager 16(a)(i) How the Fund is organized; About American
(b)(iii) Investment manager Express Financial Corporation**
(c) Portfolio manager (a)(ii) Agreements: Investment Management Services
(d) Administrator and transfer agent Agreement, Plan and Supplemental
(e) Administrator and transfer agent Agreement of Distribution
(f) Distributor (a)(iii) Agreements: Investment Management Services Agreement
(g) Investment manager; (b) Agreements: Investment Management Services Agreement
About American Express Financial (c) NA
Corporation -- General Information (d) Agreements: Administrative Services
Agreement, Shareholder Service Agreement
5A(a) * (e) NA
(b) * (f) Agreements: Distribution Agreement
(g) NA
6(a) Shares; Voting rights (h) Custodian; Independent Auditors
(b) NA (i) Agreements: Transfer Agency Agreement; Custodian
(c) NA
(d) Voting rights 17(a) Security Transactions
(e) Cover page; Special shareholder services (b) Brokerage Commissions Paid to Brokers Affiliated
(f) Dividends and capital gain distributions; with American Express Financial Corporation
Reinvestments (c) Security Transactions
(g) Taxes (d) Security Transactions
(h) Alternative sales arrangements; Special (e) Security Transactions
considerations regarding master/feeder
structure 18(a) Shares; Voting rights**
(b) NA
7(a) Distributor
(b) Valuing Fund shares 19(a) Investing in the Fund
(c) How to purchase, exchange or redeem shares (b) Valuing Fund Shares; Investing in the Fund
(d) How to purchase shares (c) NA
(e) NA
(f) Distributor 20 Taxes
8(a) How to redeem shares 21(a) Agreements: Distribution Agreement
(b) NA (b) Agreements: Distribution Agreement
(c) How to purchase shares: Three ways to invest (c) NA
(d) How to purchase, exchange or redeem shares:
Redemption policies -- "Important..." 22(a) Performance Information (for money market
funds only)
9 None (b) Performance Information (for all funds except
money market funds)
23 Financial Statements
*Designates information is located in annual report.
**Designates location in prospectus.
/TABLE
<PAGE>
PAGE 3
IDS Federal Income Fund
Prospectus
July 30, 1996
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.
The Fund seeks to achieve its goals by investing all of its assets
in Government Income Portfolio of Income Trust. The Portfolio is a
separate investment company managed by American Express Financial
Corporation that has the same goals as the Fund. This arrangement
is commonly known as a master/feeder structure.
This prospectus contains facts that can help you decide if the Fund
is the right investment for you. Read it before you invest and
keep it for future reference.
Additional facts about the Fund are in a Statement of Additional
Information (SAI), filed with the Securities and Exchange
Commission (SEC) and available for reference along with other
related materials on the SEC Internet web site
(http://www.sec.gov). The SAI, dated July 30, 1996, is
incorporated here by reference. For a free copy, contact American
Express Shareholder Service.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
SHARES IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY. INVESTMENTS IN THE FUND INVOLVE
INVESTMENT RISK INCLUDING POSSIBLE LOSS OF PRINCIPAL.
American Express Shareholder Service
P.O. Box 534
Minneapolis, MN
55440-0534
612-671-3733
TTY: 800-846-4852
<PAGE>
PAGE 4
The Fund in brief
Goals
Investment policies and risks
Structure of the Fund
Manager and distributor
Portfolio manager
Alternative purchase arrangements
Sales charge and Fund expenses
Performance
Financial highlights
Total returns
Yield
Investment policies and risks
Facts about investments and their risks
Valuing Fund shares
How to purchase, exchange or redeem shares
Alternative purchase arrangements
How to purchase shares
How to exchange shares
How to redeem shares
Reductions and waivers of the sales charge
Special shareholder services
Services
Quick telephone reference
Distributions and taxes
Dividend and capital gain distributions
Reinvestments
Taxes
How to determine the correct TIN
How the Fund is organized
Shares
Voting rights
Shareholder meetings
Special considerations regarding master/feeder structure
Board members and officers
Investment manager
Administrator and Transfer agent
Distributor
About American Express Financial Corporation
General information
Appendix
Descriptions of derivative instruments
<PAGE>
PAGE 5
The Fund in brief
Goals
IDS Federal Income Fund, Inc. (the Fund) seeks 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. It does so by investing all of its
assets in Government Income Portfolio (the Portfolio) of Income
Trust (the Trust). Both the Fund and the Portfolio are diversified
investment companies that have the same goals. Because any
investment involves risk, achieving these goals cannot be
guaranteed. Goals can be changed only by holders of a majority of
outstanding securities.
Investment policies and risks
Both the Fund and the Portfolio have the same investment policies.
Accordingly, the Portfolio will invest at least 65% of its total
assets in securities issued or guaranteed as to principal and
interest by the U.S. government and its agencies. Most investments
are in pools of mortgage loans. The Fund also may invest in non-
governmental debt securities, derivative instruments and money
market instruments. Some of the Fund's investments may be
considered speculative and involve additional investment risks.
Investment policies may be changed by the boards.
The Fund may withdraw its assets from the Portfolio at any time if
the board determines that it is in the best interests of the Fund
to do so. In such event, the Fund would consider what action
should be taken, including whether to retain an investment advisor
to manage the Fund's assets directly or to reinvest all of the
Fund's assets in another pooled investment entity.
Structure of the Fund
This Fund uses what is commonly known as a master/feeder structure.
This means that it is a feeder fund that invests all of its assets
in the Portfolio which is its master fund. The Portfolio actually
invests in and manages the securities and has the same goal and
investment policies as the Fund. This structure is described in
more detail in the section captioned Special considerations
regarding master/feeder structure. Here is an illustration of the
structure:
Investors
buy shares in
the Fund
The Fund
invests in
the Portfolio
The Portfolio
invests in
securities, such as
stocks or bonds
<PAGE>
PAGE 6
Manager and distributor
The Portfolio is managed by American Express Financial Corporation
(AEFC), a provider of financial services since 1894. AEFC
currently manages more than $52 billion in assets. Shares of the
Funds are sold through American Express Financial Advisors Inc., a
wholly owned subsidiary of AEFC.
Portfolio manager
Jim Snyder joined the Advisor in 1989 as an investment analyst and
currently serves as senior portfolio manager. He has managed the
assets of this Fund since 1993 and serves as portfolio manager of
the Portfolio. He was associate portfolio manager of this Fund
from 1992 to 1993. He also manages the assets of World Income
Portfolio, IDS Life Global Yield Fund and IDS Life Series Fund,
Government Securities Portfolio.
Alternative purchase arrangements
The Fund offers its shares in three classes. Class A shares are
subject to a sales charge at the time of purchase. Class B shares
are subject to a contingent deferred sales charge (CDSC) on
redemptions made within six years of purchase and an annual
distribution (12b-1) fee. Class Y shares are sold without a sales
charge to qualifying institutional investors.
Sales charge and Fund expenses
Shareholder transaction expenses are incurred directly by an
investor on the purchase or redemption of Fund shares. Fund
operating expenses are paid out of Fund assets for each class of
shares and include expenses charged by both the Fund and the
Portfolio. Operating expenses are reflected in the Fund's daily
share price and dividends, and are not charged directly to
shareholder accounts.
Shareholder transaction expenses
Class A Class B Class Y
Maximum sales charge on purchases*
(as a percentage of offering price).......5% 0% 0%
Maximum deferred sales charge
imposed on redemptions (as a
percentage of original purchase price)....0% 5% 0%
Annual Fund and allocated Portfolio operating expenses+
(% of average daily net assets):
Class A Class B Class Y
Management fee** 0.51% 0.51% 0.51%
12b-1 fee 0.00% 0.75% 0.00%
Other expenses*** 0.40% 0.41% 0.23%
Total**** 0.91% 1.67% 0.74%
* This charge may be reduced depending on your total investments in
IDS funds. See "Reductions of the sales charge."
** The management fee is paid by the Trust on behalf of the
Portfolio.
<PAGE>
PAGE 7
*** Other expenses include an administrative services fee, a
shareholder services fee for Class A and Class B, a transfer agency
fee and other non-advisory expenses.
**** The Fund changed to a master/feeder structure on June 10,
1996. The board considered whether the aggregate expenses of the
Fund and the Portfolio would be more or less than if the Fund
invested directly in the type of securities being held by the
Portfolio. American Express Financial Corporation has agreed to
pay the small additional costs required to use a master/feeder
structure to manage the investment portfolio during the first year
of its operation and half of such costs in the second year. These
additional costs may be more than offset in subsequent years if the
assets being managed increase.
+ Expenses are based on actual annualized expenses for the period
from July 1, 1995 to May 31, 1996.
Example: Suppose for each year for the next 10 years, Fund
expenses are as above and annual return is 5%. If you sold your
shares at the end of the following years, for each $1,000 invested,
you would pay total expenses of:
1 year 3 years 5 years 10 years
Class A $59 $78 $ 98 $157
Class B $67 $93 $111 $178**
Class B* $17 $53 $ 91 $178**
Class Y $ 8 $24 $ 41 $ 92
*Assuming Class B shares are not redeemed at the end of the period.
**Based on conversion of Class B shares to Class A shares after
eight years.
This example does not represent actual expenses, past or future.
Actual expenses may be higher or lower than those shown. Because
Class B pays annual distribution (12b-1) fees, long-term
shareholders of Class B may indirectly pay an equivalent of more
than a 6.25% sales charge, the maximum permitted by the National
Association of Securities Dealers.
<PAGE>
PAGE 8
Performance
Financial highlights
<TABLE>
<CAPTION>
IDS Federal Income Fund
Performance
Financial highlights
Fiscal period ended May 31,
Per share income and capital changes*
Class A
1996** 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $4.97 $4.85 $5.30 $5.19 $5.10 $5.00 $5.02 $5.02 $5.01 $5.07
beginning of period
Income from investment operations:
Net investment income .28 .32 .29 .32 .36 .42 .42 .40 .41 .40
Net gains (losses) (.04) .11 (.31) .13 .09 .09 (.02) -- .01 (.03)
(both realized
and unrealized)
Total from investment .24 .43 (.02) .45 .45 .51 .40 .40 .42 .37
operations
Less distributions:
Dividends from net (.29) (.31) (.29) (.32) (.36) (.41) (.42) (.40) (.41) (.40)
investment income
Distributions from -- -- (.14) (.02) -- -- -- -- -- (.03)
realized gains
Total distributions (.29) (.31) )(.43) (.34) (.36) (.41) (.42) (.40) (.41) (.43)
Net asset value, $4.92 $4.97 $4.85 $5.30 $5.19 $5.10 $5.00 $5.02 $5.02 $5.01
end of period
Ratios/supplemental data
Class A
1996** 1995 1994 1993 1992 1991 1990 1989 1988 1987
Net assets, end of period $1,095 $977 $1,025 $1,025 $834 $397 $234 $183 $183 $181
(in millions)
Ratio of expenses to .91%+ .79% .76% .77% .79% .80% .82% .79% .80% .86%
average daily net assets
Ratio of net income 6.34% 6.59% 5.64% 6.03% 6.93% 8.20% 8.53% 8.15% 8.24% 7.81%
to average daily net assets
Portfolio turnover rate 115% 213% 304% 227% 104% 52% 104% 81% 143% 36%
(excluding short-term
securities)
Total return++ 5.0% 9.3% (0.5%) 9.0% 9.0% 10.8% 8.3% 8.4% 8.8% 7.4%
*For a share outstanding throughout the period. Rounded to the nearest cent.
**The Fund's fiscal year-end was changed from June 30, to May 31, effective 1996.
+Adjusted to an annual basis.
++Total return does not reflect payment of a sales charge.
<PAGE>
PAGE 9
IDS Federal Income Fund, Inc.
Performance
Financial highlights
Fiscal period ended May 31,
Per share income and capital changes*
Class B Class Y
1996*** 1995** 1996*** 1995**
Net asset value, $4.96 $4.87 $4.97 $4.87
beginning of period
Income from investment operations:
Net investment income .26 .11 .29 .07
Net gains (losses) both (.04) .09 (.04) .15
realized and unrealized)
Total from investment .22 .20 .25 .22
operations
Less distributions:
Dividends from net (.26) (.11) (.32) (.12)
investment income
Net asset value, $4.92 $4.96 $4.92 $4.97
end of period
Ratios/supplemental data
1996*** 1995** 1996*** 1995**
Class B Class Y
Net assets, end of period $520 $292 $99 $85
(in millions)
Ratio of expenses to 1.674%+ 1.74%+ .74%+ .75%+
average daily net assets
Ratio of net income 5.59%+ 6.21%+ 6.53%+ 7.20%+
to average daily net assets
Portfolio turnover rate 115% 213% 115% 213%
(excluding short-term
securities)
Total return++ 4.3% 4.1% 5.2% 4.5%
*For a share outstanding throughout the period. Rounded to the nearest cent.
**Inception date was March 20, 1995 for Class B and Class Y.
***The Fund's fiscal year-end was changed from June 30, to May 31, effective 1996.
+Adjusted to an annual basis.
++Total return does not reflect payment of a sales charge.
The information in these tables has been audited by KPMG Peat Marwick LLP, independent
auditors. The independent auditors' report and additional information about the performance of
the Fund are contained in the Fund's annual report which, if not included with this
prospectus, may be obtained without charge.
</TABLE>
Total returns
Total return is the sum of all of your returns for a given period,
assuming you reinvest all distributions. It is calculated by
taking the total value of shares you own at the end of the period
(including shares acquired by reinvestment), less the price of
shares you purchased at the beginning of the period.
Average annual total return is the annually compounded rate of
return over a given time period (usually two or more years). It is
the total return for the period converted to an equivalent annual
figure.
<PAGE>
PAGE 10
Average annual total returns as of May 31, 1996
Purchase 1 year 5 years 10 years ago or
made ago ago since inception
Federal Income:
Class A +0.55% +5.31% +7.11%
Class B* +0.82% --% +2.39%
Class Y* +6.01% --% +8.07%
Lehman Aggregate
Bond Index +3.76% +7.89% +8.65%
Lehman Treasury Bond
Index +3.98% +7.91% +8.31%
Merrill Lynch 1 to 5
Year Government Index +4.93% +6.76% +7.68%
*Inception date was March 20, 1995.
Cumulative total returns as of May 31, 1996
Purchase 1 year 5 years 10 years ago or
made ago ago since inception
Federal Income:
Class A +0.55% +29.52% + 98.75%
Class B* +0.82% --% + 2.88%
Class Y* +6.01% --% + 9.49%
Lehman Aggregate
Bond Index +3.76% +46.25% +129.42%
Lehman Treasury Bond
Index +3.98% +46.34% +122.25%
Merrill Lynch 1 to 5
Year Government Index +4.93% +38.68% +109.56%
*Inception date was March 20, 1995.
These examples show total returns from hypothetical investments in
Class A, Class B and Class Y shares of the Fund. These returns are
compared to those of popular indexes for the same periods. The
performance of Class B and Class Y will vary from the performance
of Class A based on differences in sales charges and fees. March
20, 1995 was the inception date for Class B and Class Y. Past
performance for Class Y for the periods prior to March 20, 1995 may
be calculated based on the performance of Class A, adjusted to
reflect differences in sales charges although not for other
differences in expenses.
For purposes of calculation, information about the Fund assumes:
o a sales charge of 5% for Class A shares
o redemption at the end of the period and deduction of the
applicable contingent deferred sales charge for Class B
shares
o no sales charge for Class Y shares<PAGE>
PAGE 11
o no adjustments for taxes an investor may have paid on the
reinvested income and capital gains
o a period of widely fluctuating securities prices. Returns
shown should not be considered a representation of the Fund's
future performance.
Lehman Aggregate Bond Index is made up of an unmanaged
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 an unmanaged
representative list of government bonds that include all publicly
issued obligations of the U.S. Treasury. The index is frequently
used as a general measure of government bond performance. However,
the securities used to create the index may not be representative
of the debt securities held in the Fund.
Merrill Lynch 1 to 5 Year Government Index is made up of an
unmanaged representative list of government bonds. The index is
frequently used as a general measure of government bond
performance. However, the securities used to create the index may
not be representative of the bonds held in the Fund.
The indexes reflect reinvestment of all distributions and changes
in market prices, but exclude brokerage commissions or other fees.
Yield
Yield is the net investment income earned per share for a specified
time period, divided by the offering price at the end of the
period. The Fund's annualized yield for the 30-day period ended May
31, 1996, was 6.15% for Class A, 5.71% for Class B and 6.65% for
Class Y. The Fund calculates this 30-day annualized yield by
dividing:
o net investment income per share deemed earned during a 30-day
period by
o the public offering price per share on the last day of the
period, and
o converting the result to a yearly equivalent figure.
This yield calculation does not include any contingent deferred
sales charge, ranging from 5% to 0% on Class B shares, which would
reduce the yield quoted.
The Fund's yield varies from day to day, mainly because share
values and offering prices (which are calculated daily) vary in
response to changes in interest rates. Net investment income
normally changes much less in the short run. Thus, when interest
rates rise and share values fall, yield tends to rise. When
interest rates fall, yield tends to follow.
<PAGE>
PAGE 12
Past yields should not be considered an indicator of future yields.
Investment policies and risks
The Fund and the Portfolio have the same investment policies.
These policies may be changed by the boards. The Portfolio invests
primarily in securities issued or guaranteed as to principal and
interest by the U.S. government, its agencies and
instrumentalities. Under normal market conditions, at least 65% of
the Portfolio's total assets will be invested in such securities.
Although the Portfolio may invest in any U.S. government
securities, it is anticipated that most of the portfolio will
consist of U.S. government securities representing part ownership
of pools of mortgage loans.
The various types of investments the portfolio manager uses to
achieve investment performance are described in more detail in the
next section and in the SAI.
Facts about investments and their risks
Government securities: U.S. Treasury bonds, notes and bills, and
securities including mortgage pass through certificates of the
Government National Mortgage Association (GNMA), are guaranteed by
the U.S. government. Other U.S. government securities are issued
or guaranteed by federal agencies or government-sponsored
enterprises but are not direct obligations of the U.S. government.
These include securities supported by the right of the issuer to
borrow from the Treasury, such as obligations of Federal Home Loan
Mortgage Corporation (FHLMC) and Federal National Mortgage
Association (FNMA) bonds. Because the U.S. government is not
obligated to provide financial support to its instrumentalities,
the Portfolio will invest only in securities issued by those
instrumentalities where the investment manager is satisfied the
credit risk is minimal.
Mortgage-backed securities: A mortgage pass-through certificate
represents an interest in a pool, or group, of mortgage loans
assembled by GNMA, FNMA, or FHLMC or non-governmental entities. In
pass-through certificates, both principal and interest payments,
including prepayments, are passed through to the holder of the
certificate. Prepayments on underlying mortgages result in a loss
of anticipated interest, and the actual yield (or total return) to
the Portfolio, which is influenced by both stated interest rates
and market conditions, may be different than the quoted yield on
the certificates. The Portfolio also may invest in non-
governmental mortgage-related securities and debt securities, such
as bonds, debentures and collateralized mortgage obligations
secured by mortgages on commercial real estate or residential
rental properties, provided such securities are rated A or better
by Moody's Investors Service, Inc. or Standard & Poor's Corporation
or, if not rated, are of equivalent investment quality as
determined by the Portfolio's investment manager. Some U.S.
government securities may be purchased on a when-issued basis,
which means that it may take as long as 45 days after the purchase
before the securities are delivered to the Fund.
<PAGE>
PAGE 13
The Portfolio may invest in stripped mortgage-backed securities.
Generally, there are two classes of stripped mortgage-backed
securities: Interest Only (IO) and Principal Only (PO). IOs
entitle the holder to receive distributions consisting of all or a
portion of the interest on the underlying pool of mortgage loans or
mortgage-backed securities. POs entitle the holder to receive
distributions consisting of all or a portion of the principal of
the underlying pool of mortgage loans or mortgage-backed
securities. The cash flows and yields on IOs and POs are extremely
sensitive to the rate of principal payments (including prepayments)
on the underlying mortgage loans or mortgage-backed securities. A
rapid rate of principal payments may adversely affect the yield to
maturity of IOs. A slow rate of principal payments may adversely
affect the yield to maturity of POs. If prepayments of principal
are greater than anticipated, an investor in IOs may incur
substantial losses. If prepayments of principal are slower than
anticipated, the yield on a PO will be affected more severely than
would be the case with a traditional mortgage-backed security.
The Portfolio 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. MBS spread options are traded in the OTC market
and are of short duration, typically one to two months. The
Portfolio would buy or sell covered MBS call spread options in
situations where mortgage-backed securities are expected to under
perform like-duration Treasury securities.
Debt securities: The price of bonds generally falls as interest
rates increase, and rises as interest rates decrease. The price of
bonds also fluctuates if the credit rating is upgraded or
downgraded. Securities that are subsequently downgraded in quality
may continue to be held by the Portfolio and will be sold only when
the Portfolio's investment manager believes it is advantageous to
do so.
Derivative instruments: The portfolio manager may use derivative
instruments in addition to securities to achieve investment
performance. Derivative instruments include futures, options and
forward contracts. Such instruments may be used to maintain cash
reserves while remaining fully invested, to offset anticipated
declines in values of investments, to facilitate trading, to reduce
transaction costs or to pursue higher investment returns.
Derivative instruments are characterized by requiring little or no
initial payment and a daily change in price based on or derived
from a security, a currency, a group of securities or currencies,
or an index. A number of strategies or combination of instruments
can be used to achieve the desired investment performance
characteristics. A small change in the value of the underlying
security, currency or index will cause a sizable gain or loss in
the price of the derivative instrument. Derivative instruments
allow the portfolio manager to change the investment performance
characteristics very quickly and at lower costs. Risks include
losses of premiums, rapid changes in prices, defaults by other
parties and inability to close such instruments. The Portfolio
will use derivative instruments only to achieve the same investment<PAGE>
PAGE 14
performance characteristics it could achieve by directly holding
those securities and currencies permitted under the investment
policies. The Portfolio will designate cash or appropriate liquid
assets to cover its portfolio obligations. No more than 5% of the
Portfolio's net assets can be used at any one time for good faith
deposits on futures and premiums for options on futures that do not
offset existing investment positions. This does not, however,
limit the portion of the Portfolio's assets at risk to 5%. Certain
of the investments previously discussed, including mortgage-backed
securities, are also generally regarded as derivatives. The
Portfolio is not limited as to the percentage of its assets that
may be invested in permissible investments, including derivatives,
except as otherwise explicitly provided in this prospectus or the
SAI. For descriptions of these and other types of derivative
instruments, see the Appendix to this prospectus and the SAI.
Securities and other instruments that are illiquid: A security or
derivative instrument is illiquid if it cannot be sold quickly in
the normal course of business. Some investments cannot be resold
to the U.S. public because of their terms or government
regulations. All securities and derivative instruments, however,
can be sold in private sales, and many may be sold to other
institutions and qualified buyers or on foreign markets. The
portfolio manager will follow guidelines established by the board
and consider relevant factors such as the nature of the security
and the number of likely buyers when determining whether a security
is illiquid. No more than 10% of the Portfolio's net assets will
be held in securities and derivative instruments that are illiquid.
Money market instruments: Short-term debt securities rated in the
top two grades or the equivalent are used to meet daily cash needs
and at various times to hold assets until better investment
opportunities arise. Generally less than 25% of the Portfolio's
total assets are in these money market instruments. However, for
temporary defensive purposes these investments could exceed that
amount for a limited period of time.
Lending portfolio securities: The Portfolio may lend its
securities to earn income so long as borrowers provide collateral
equal to the market value of the loans. The risks are that
borrowers will not provide collateral when required or return
securities when due. Unless a majority of the outstanding voting
securities approve otherwise, loans may not exceed 30% of the
Portfolio's net assets.
Valuing Fund shares
The public offering price is the net asset value (NAV) adjusted for
the sales charge for Class A. It is the NAV for Class B and Class
Y.
The NAV is the value of a single Fund share. The NAV usually
changes daily, and is calculated at the close of business, normally
3 p.m. Central time, each business day (any day the New York Stock
Exchange is open). NAV generally declines as interest rates
increase and rises as interest rates decline.
<PAGE>
PAGE 15
To establish the net assets, all securities held by the Portfolio
are valued as of the close of each business day. In valuing
assets:
o Securities (except bonds) and assets with available market
values are valued on that basis.
o Securities maturing in 60 days or less are valued at
amortized cost.
o Bonds and assets without readily available market values are
valued according to methods selected in good faith by the
board.
How to purchase, exchange or redeem shares
Alternative purchase arrangements
The Fund offers three different classes of shares - Class A, Class
B and Class Y. The primary differences among the classes are in
the sales charge structures and in their ongoing expenses. These
differences are summarized in the table below. You may choose the
class that best suits your circumstances and objectives.
<TABLE>
<CAPTION>
Sales charge and
distribution
(12b-1) fee Service fee Other information
<S> <C> <C> <C>
Class A Maximum initial 0.175% of average Initial sales charge
sales charge of daily net assets waived or reduced
5%; no 12b-1 fee for certain purchases
Class B No initial sales 0.175% of average Shares convert to
charge; maximum CDSC daily net assets Class A after eight
of 5% declines to 0% years; CDSC waived in
after six years; 12b-1 certain circumstances
fee of 0.75% of average
daily net assets
Class Y None None Available only to
certain qualifying
institutional
investors
</TABLE>
Conversion of Class B shares to Class A shares - Eight calendar
years after Class B shares are purchased, Class B shares will
convert to Class A shares and will no longer be subject to a
distribution fee. Current holdings of Class B shares will convert
beginning in 1996. The conversion will be on the basis of relative
net asset values of the two classes, without the imposition of any
sales charge. Class B shares purchased through reinvested
dividends and distributions will convert to Class A shares in a pro
rata portion as the Class B shares purchased other than through
reinvestment.
<PAGE>
PAGE 16
Considerations in determining whether to purchase Class A or Class
B shares - You should consider the information below in determining
whether to purchase Class A or Class B shares. The sales charges
and distribution fee (included in "Ongoing expenses") are
structured so that you will have approximately the same total
return at the end of eight years regardless of which class you
chose.
Sales charges on purchase or redemption
If you purchase Class A If you purchase Class B
shares shares
o You will not have all o All of your money is
of your purchase price invested in shares of
invested. Part of your stock. However, you will
purchase price will go pay a sales charge if you
to pay the sales charge. redeem your shares within
You will not pay a sales six years of purchase.
charge when you redeem
your shares.
o You will be able to o No reductions of the
take advantage of sales charge are
reductions in the sales available for large
charge. purchases.
If your investments in IDS funds that are subject to a sales charge
total $250,000 or more, you are better off paying the reduced sales
charge in Class A than paying the higher fees in Class B. If you
qualify for a waiver of the sales charge, you should purchase Class
A shares.
Ongoing expenses
If you purchase Class A If you purchase Class B
shares shares
o Your shares will have o The distribution and
a lower expense ratio transfer agency fees for
than Class B shares Class B will cause your
because Class A does not shares to have a higher
pay a distribution fee expense ratio and to pay
and the transfer agency lower dividends than
fee for Class A is lower Class A shares. After
than the fee for Class B. eight years, Class B
As a result, Class A shares shares will convert to
will pay higher dividends Class A shares and will
than Class B shares. no longer be subject to
higher fees.
You should consider how long you plan to hold your shares and
whether the accumulated higher fees and CDSC on Class B shares
prior to conversion would be less than the initial sales charge on
Class A shares. Also consider to what extent the difference would
be offset by the lower expenses on Class A shares. To help you in
<PAGE>
PAGE 17
this analysis, the example in the "Sales charge and Fund expenses"
section of the prospectus illustrates the charges applicable to
each class of shares.
Class Y shares - Class Y shares are offered to certain
institutional investors. Class Y shares are sold without a front-
end sales charge or a CDSC and are not subject to either a service
fee or a distribution fee. The following investors are eligible to
purchase Class Y shares:
o Qualified employee benefit plans* if the plan:
- uses a daily transfer recordkeeping service offering
participants daily access to IDS funds and has
- at least $10 million in plan assets or
- 500 or more participants; or
- does not use daily transfer recordkeeping and has
- at least $3 million invested in funds of the IDS MUTUAL
FUND GROUP or
- 500 or more participants.
o Trust companies or similar institutions, and charitable
organizations that meet the definition in Section 501(c)(3)
of the Internal Revenue Code.* These must have at least $10
million invested in funds of the IDS MUTUAL FUND GROUP.
o Nonqualified deferred compensation plans* whose
participants are included in a qualified employee benefit
plan described above.
* Eligibility must be determined in advance by American Express
Financial Advisors. To do so, contact your financial advisor.
How to purchase shares
If you're investing in this Fund for the first time, you'll need to
set up an account. Your financial advisor will help you fill out
and submit an application. Once your account is set up, you can
choose among several convenient ways to invest.
Important: When opening an account, you must provide AEFC with
your correct Taxpayer Identification Number (Social Security or
Employer Identification number). See "Distributions and taxes."
When you purchase shares for a new or existing account, the price
you pay per share is determined at the close of business on the day
your investment is received and accepted at the Minneapolis
headquarters.
Purchase policies:
o Investments must be received and accepted in the Minneapolis
headquarters on a business day before 3 p.m. Central time to
be included in your account that day and to receive that
day's share price. Otherwise, your purchase will be
processed the next business day and you will pay the next
day's share price.
<PAGE>
PAGE 18
o The minimums allowed for investment may change from time to
time.
o Wire orders can be accepted only on days when your bank,
AEFC, the Fund and Norwest Bank Minneapolis are open for
business.
o Wire purchases are completed when wired payment is received
and the Fund accepts the purchase.
o AEFC and the Fund are not responsible for any delays that
occur in wiring funds, including delays in processing by the
bank.
o You must pay any fee the bank charges for wiring.
o The Fund reserves the right to reject any application for any
reason.
o If your application does not specify which class of shares
you are purchasing, it will be assumed that you are investing
in Class A shares.
Three ways to invest
<TABLE>
<CAPTION>
<S> <C> <C>
1
By regular account Send your check and application Minimum amounts
(or your name and account number Initial investment: $2,000
if you have an established account) Additional
to: investments: $ 100
American Express Financial Advisors Inc. Account balances: $ 300*
P.O. Box 74 Qualified retirement
Minneapolis, MN 55440-0074 accounts: none
Your financial advisor will help
you with this process.
2
By scheduled Contact your financial advisor Minimum amounts
investment plan to set up one of the following Initial investment: $100
scheduled plans: Additional
investments: $100/mo.
o automatic payroll deduction Account balances: none
(on active plans of
o bank authorization monthly payments)
o direct deposit of
Social Security check
o other plan approved by the Fund
3
By wire If you have an established account, If this information is not
you may wire money to: included, the order may be
rejected and all money
Norwest Bank Minneapolis received by the Fund, less
Routing No. 091000019 any costs the Fund or AEFC
Minneapolis, MN incurs, will be returned
Attn: Domestic Wire Dept. promptly.
Give these instructions: Minimum amounts
Credit IDS Account #00-30-015 Each wire investment: $1,000
for personal account # (your
account number) for (your name).
*If your account balance falls below $300, you will be asked in writing to bring it up to $300 or establish a scheduled
investment plan. If you don't do so within 30 days, your shares can be redeemed and the proceeds mailed to you.
/TABLE
<PAGE>
PAGE 19
How to exchange shares
You can exchange your shares of the Fund at no charge for shares of
the same class of any other publicly offered fund in the IDS MUTUAL
FUND GROUP available in your state. Exchanges into IDS Tax-Free
Money Fund must be made from Class A shares. For complete
information, including fees and expenses, read the prospectus
carefully before exchanging into a new fund.
If your exchange request arrives at the Minneapolis headquarters
before the close of business, your shares will be redeemed at the
net asset value set for that day. The proceeds will be used to
purchase new fund shares the same day. Otherwise, your exchange
will take place the next business day at that day's net asset
value.
For tax purposes, an exchange represents a redemption and purchase
and may result in a gain or loss. However, you cannot create a tax
loss (or reduce a taxable gain) by exchanging from the Fund within
91 days of your purchase. For further explanation, see the SAI.
How to redeem shares
You can redeem your shares at any time. American Express
Shareholder Service will mail payment within seven days after
receiving your request.
When you redeem shares, the amount you receive may be more or less
than the amount you invested. Your shares will be redeemed at net
asset value, minus any applicable sales charge, at the close of
business on the day your request is accepted at the Minneapolis
headquarters. If your request arrives after the close of business,
the price per share will be the net asset value, minus any
applicable sales charge, at the close of business on the next
business day.
A redemption is a taxable transaction. If your proceeds from your
redemption are more or less than the cost of your shares, you will
have a gain or loss, which can affect your tax liability.
Redeeming shares held in an IRA or qualified retirement account may
subject you to certain federal taxes, penalties and reporting
requirements. Consult your tax advisor.
Two ways to request an exchange or redemption of shares
<TABLE>
<CAPTION>
<S> <C>
1
By letter Include in your letter:
o the name of the fund(s)
o the class of shares to be exchanged or redeemed
o your account number(s) (for exchanges, both funds must be registered in the same
ownership)
o your Taxpayer Identification Number (TIN)
o the dollar amount or number of shares you want to exchange or redeem
o signature of all registered account owners
o for redemptions, indicate how you want your money delivered to you
o any paper certificates of shares you hold
Regular mail:
American Express Shareholder Service
Attn: Redemptions
P.O. Box 534
Minneapolis, MN 55440-0534
<PAGE>
PAGE 20
Express mail:
American Express Shareholder Service
Attn: Redemptions
733 Marquette Ave.
Minneapolis, MN 55402
2
By phone
American Express Telephone o The Fund and AEFC will honor any telephone exchange or redemption request believed to be
Transaction Service: authentic and will use reasonable procedures to confirm that they are. This includes
800-437-3133 or asking identifying questions and tape recording calls. If reasonable
612-671-3800 procedures are not followed, the Fund or AEFC will be liable for any loss resulting from
fraudulent requests.
o Phone exchange and redemption privileges automatically apply to all accounts except
custodial, corporate or qualified retirement accounts unless you request these privileges
NOT apply by writing American Express Shareholder Service. Each registered owner must sign
the request.
o AEFC answers phone requests promptly, but you may experience delays when call volume is
high. If you are unable to get through, use mail procedure as an alternative.
o Acting on your instructions, your financial advisor may conduct telephone transactions
on your behalf.
o Phone privileges may be modified or discontinued at any time.
Minimum amount
Redemption: $100
Maximum amount
Redemption: $50,000
</TABLE>
Exchange policies:
o You may make up to three exchanges within any 30-day period,
with each limited to $300,000. These limits do not apply to
scheduled exchange programs and certain employee benefit plans or
other arrangements through which one shareholder represents the
interests of several. Exceptions may be allowed with pre-approval
of the Fund.
o Exchanges must be made into the same class of shares of the new
fund.
o If your exchange creates a new account, it must satisfy the
minimum investment amount for new purchases.
o Once we receive your exchange request, you cannot cancel it.
o Shares of the new fund may not be used on the same day for
another exchange.
o If your shares are pledged as collateral, the exchange will be
delayed until written approval is obtained from the secured party.
o AEFC and the Fund reserve the right to reject any exchange,
limit the amount, or modify or discontinue the exchange privilege,
to prevent abuse or adverse effects on the Fund and its
shareholders. For example, if exchanges are too numerous or too
large, they may disrupt the Fund's investment strategies or
increase its costs.
Redemption policies:
o A "change of mind" option allows you to change your mind after
requesting a redemption and to use all or part of the proceeds to
purchase new shares in the same class from which you redeemed. If
you reinvest in Class A, you will purchase the new shares at net
asset value rather than the offering price on the date of a new
<PAGE>
PAGE 21
purchase. If you reinvest in Class B, any CDSC you paid on the
amount you are reinvesting also will be reinvested. To take
advantage of this option, send a written request within 30 days of
the date your redemption request was received. Include your
account number and mention this option. This privilege may be
limited or withdrawn at any time, and it may have tax consequences.
o A telephone redemption request will not be allowed within 30
days of a phoned-in address change.
Important: If you request a redemption of shares you recently
purchased by a check or money order that is not guaranteed, the
Fund will wait for your check to clear. It may take up to 10 days
from the date of purchase before a check is mailed to you. (A
check may be mailed earlier if your bank provides evidence
satisfactory to the Fund and AEFC that your check has cleared.)
Three ways to receive payment when you redeem shares
<TABLE>
<CAPTION>
<S> <C>
1
By regular or express mail o Mailed to the address on record.
o Payable to names listed on the account.
NOTE: The express mail delivery charges
you pay will vary depending on the
courier you select.
2
By wire o Minimum wire redemption: $1,000.
o Request that money be wired to your bank.
o Bank account must be in the same
ownership as the IDS fund account.
NOTE: Pre-authorization required. For
instructions, contact your financial
advisor or American Express Shareholder Service.
3
By scheduled payout plan o Minimum payment: $50.
o Contact your financial advisor or American Express
Shareholder Service to set up regular
payments to you on a monthly, bimonthly,
quarterly, semiannual or annual basis.
o Purchasing new shares while under a payout
plan may be disadvantageous because of
the sales charges.
</TABLE>
Reductions and waivers of the sales charge
Class A - initial sales charge alternative
On purchases of Class A shares, you pay a 5% sales charge on the
first $50,000 of your total investment and less on investments
after the first $50,000:
<PAGE>
PAGE 22
Total investment Sales charge as a
percent of:*
Public Net
offering amount
price invested
Up to $50,000 5.0% 5.26%
Next $50,000 4.5 4.71
Next $400,000 3.8 3.95
Next $500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
* To calculate the actual sales charge on an investment greater
than $50,000 and less than $1,000,000, amounts for each applicable
increment must be totaled. See the SAI.
Reductions of the sales charge on Class A shares
Your sales charge may be reduced, depending on the totals of:
o the amount you are investing in this Fund now,
o the amount of your existing investment in this Fund, if any, and
o the amount you and your primary household group are investing or
have in other funds in the IDS MUTUAL FUND GROUP that carry a sales
charge. (The primary household group consists of accounts in any
ownership for spouses or domestic partners and their unmarried
children under 21. Domestic partners are individuals who maintain
a shared primary residence and have joint property or other
insurable interests.)
Other policies that affect your sales charge:
o IDS Tax-Free Money Fund and Class A shares of IDS Cash
Management Fund do not carry sales charges. However, you may count
investments in these funds if you acquired shares in them by
exchanging shares from IDS funds that carry sales charges.
o IRA purchases or other employee benefit plan purchases made
through a payroll deduction plan or through a plan sponsored by an
employer, association of employers, employee organization or other
similar entity, may be added together to reduce sales charges for
all shares purchased through that plan.
o If you intend to invest $1 million over a period of 13 months,
you can reduce the sales charges in Class A by filing a letter of
intent.
For more details, see the SAI.
Waivers of the sales charge for Class A shares
Sales charges do not apply to:
<PAGE>
PAGE 23
o Current or retired board members, officers or employees of the
Fund or AEFC or its subsidiaries, their spouses and unmarried
children under 21.
o Current or retired American Express financial advisors, their
spouses and unmarried children under 21.
o Qualified employee benefit plans* using a daily transfer
recordkeeping system offering participants daily access to IDS
funds.
(Participants in certain qualified plans for which the initial
sales charge is waived may be subject to a deferred sales charge of
up to 4% on certain redemptions. For more information, see the
SAI.)
o Shareholders who have at least $1 million invested in funds of
the IDS MUTUAL FUND GROUP. If the investment is redeemed in the
first year after purchase, a CDSC of 1% will be charged on the
redemption.
o Purchases made within 30 days after a redemption of shares (up
to the amount redeemed):
- of a product distributed by American Express Financial
Advisors in a qualified plan subject to a deferred sales
charge or
- in a qualified plan where American Express Trust Company has
a recordkeeping, trustee, investment management or investment
servicing relationship.
Send the Fund a written request along with your payment, indicating
the amount of the redemption and the date on which it occurred.
o Purchases made with dividend or capital gain distributions from
another fund in the IDS MUTUAL FUND GROUP that has a sales charge.
o Purchases made through American Express Strategic Portfolio
Service (total amount of all investments made in the Strategic
Portfolio Service must be at least $50,000).
o Purchases made under the University of Texas System ORP.
*Eligibility must be determined in advance by American Express
Financial Advisors. To do so, contact your financial advisor.
Class B - contingent deferred sales charge alternative
Where a CDSC is imposed on a redemption, it is based on the amount
of the redemption and the number of calendar years, including the
year of purchase, between purchase and redemption. The following
table shows the declining scale of percentages that apply to
redemptions during each year after a purchase:
<PAGE>
PAGE 24
If a redemption is The percentage rate
made during the for the CDSC is:
First year 5%
Second year 4%
Third year 4%
Fourth year 3%
Fifth year 2%
Sixth year 1%
Seventh year 0%
If the amount you are redeeming reduces the current net asset value
of your investment in Class B shares below the total dollar amount
of all your purchase payments during the last six years (including
the year in which your redemption is made), the CDSC is based on
the lower of the redeemed purchase payments or market value.
The following example illustrates how the CDSC is applied. Assume
you had invested $10,000 in Class B shares and that your investment
had appreciated in value to $12,000 after 15 months, including
reinvested dividend and capital gain distributions. You could
redeem any amount up to $2,000 without paying a CDSC ($12,000
current value less $10,000 purchase amount). If you redeemed
$2,500, the CDSC would apply only to the $500 that represented part
of your original purchase price. The CDSC rate would be 4% because
a redemption after 15 months would take place during the second
year after purchase.
Because the CDSC is imposed only on redemptions that reduce the
total of your purchase payments, you never have to pay a CDSC on
any amount you redeem that represents appreciation in the value of
your shares, income earned by your shares or capital gains. In
addition, when determining the rate of any CDSC, your redemption
will be made from the oldest purchase payment you made. Of course,
once a purchase payment is considered to have been redeemed, the
next amount redeemed is the next oldest purchase payment. By
redeeming the oldest purchase payments first, lower CDSCs are
imposed than would otherwise be the case.
Waivers of the contingent deferred sales charge
The CDSC on Class B shares will be waived on redemptions of shares:
o In the event of the shareholder's death,
o Purchased by any board member, officer or employee of a fund or
AEFC or its subsidiaries,
o Held in a trusteed employee benefit plan,
o Held in IRAs or certain qualified plans for which American
Express Trust Company acts as custodian, such as Keogh plans, tax-
sheltered custodial accounts or corporate pension plans, provided
that the shareholder is:
- at least 59-1/2 years old, and
- taking a retirement distribution (if the redemption is part
of a transfer to an IRA or qualified plan in a product
distributed by American Express Financial Advisors, or a
custodian-to-custodian transfer to a product not distributed
<PAGE>
PAGE 25
by American Express Financial Advisors, the CDSC will not be
waived), or
- redeeming under an approved substantially equal periodic
payment arrangement.
For investors in Class A shares who have over $1 million invested
in one year, the 1% CDSC on redemption of those shares will be
waived in the same circumstances described for Class B.
Special shareholder services
Services
To help you track and evaluate the performance of your investments,
AEFC provides these services:
Quarterly statements listing all of your holdings and transactions
during the previous three months.
Yearly tax statements featuring average-cost-basis reporting of
capital gains or losses if you redeem your shares along with
distribution information - which simplifies tax calculations.
A personalized mutual fund progress report detailing returns on
your initial investment and cash-flow activity in your account. It
calculates a total return to reflect your individual history in
owning Fund shares. This report is available from your financial
advisor.
Quick telephone reference
American Express 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
American Express Shareholder Service
Fund performance, objectives and account inquiries
612-671-3733
TTY Service
For the hearing impaired
800-846-4852
American Express Infoline
Automated account information (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
Distributions and taxes
As a shareholder you are entitled to your share of the Fund's net
income and any net gains realized on its investments. The Fund
distributes dividends and capital gain distributions to qualify as
<PAGE>
PAGE 26
a regulated investment company and to avoid paying corporate income
and excise taxes. Dividend and capital gain distributions will
have tax consequences you should know about.
Dividend and capital gain distributions
Investment income is allocated to the Fund by the Portfolio, less
direct and allocated expenses. The Fund's net realized capital
gains or losses, if any, consist of the net realized capital gains
or losses allocated to the Fund from the Portfolio. The Fund's net
investment income from dividends and interest is distributed to you
monthly as dividends. Short-term capital gains are distributed at
the end of the calendar year and are included in net investment
income. Long-term capital gains are realized whenever a security
held for more than one year is sold for a higher price than was
paid for it. Net realized long-term capital gains, if any, are
distributed at the end of the calendar year as capital gain
distributions. Before they're distributed, net long-term capital
gains are included in the value of each share. After they're
distributed, the value of each share drops by the per-share amount
of the distribution. (If your distributions are reinvested, the
total value of your holdings will not change.)
Dividends for each class will be calculated at the same time, in
the same manner and will be the same amount prior to deduction of
expenses. Expenses attributable solely to a class of shares will
be paid exclusively by that class. Class B shareholders will
receive lower per share dividends than Class A and Class Y
shareholders because expenses for Class B are higher than for Class
A or Class Y. Class A shareholders will receive lower per share
dividends than Class Y shareholders because expenses for Class A
are higher than for Class Y.
Reinvestments
Dividends and capital gain distributions are automatically
reinvested in additional shares in the same class of the Fund,
unless:
o you request the Fund in writing or by phone to pay
distributions to you in cash, or
o you direct the Fund to invest your distributions in any
publicly available IDS fund for which you've previously
opened an account. You pay no sales charge on shares
purchased through reinvestment from this Fund into any IDS
fund.
The reinvestment price is the net asset value at close of business
on the day the distribution is paid. (Your quarterly statement
will confirm the amount invested and the number of shares
purchased.)
If you choose cash distributions, you will receive only those
declared after your request has been processed.
<PAGE>
PAGE 27
If the U.S. Postal Service cannot deliver the checks for the cash
distributions, we will reinvest the checks into your account at the
then-current net asset value and make future distributions in the
form of additional shares.
Taxes
The Fund has received a Private Letter Ruling from the Internal
Revenue Service stating that, for purposes of the Internal Revenue
code, the Fund will be regarded as directly holding its allocable
share of the income and gain realized by the Portfolio.
Distributions are subject to federal income tax. In certain
states, Fund distributions, to the extent they consist of interest
from securities of the U.S. government and certain of its agencies
or instrumentalities, may be exempt from state and local taxes.
Interest from obligations which are merely guaranteed by the U.S.
government or one of its agencies, such as GNMA certificates, is
generally not entitled to this exemption. Distributions are
taxable in the year the Fund declares them regardless of whether
you take them in cash or reinvest them.
Each January, you will receive a tax statement showing the kinds
and total amount of all distributions you received during the
previous year. You must report distributions on your tax returns,
even if they are reinvested in additional shares.
Buying a dividend creates a tax liability. This means buying
shares shortly before a capital gain distribution. You pay the
full pre-distribution price for the shares, then receive a portion
of your investment back as a distribution, which is taxable.
Redemptions and exchanges subject you to a tax on any capital gain.
If you sell shares for more than their cost, the difference is a
capital gain. Your gain may be either short term (for shares held
for one year or less) or long term (for shares held for more than
one year).
Your Taxpayer Identification Number (TIN) is important. As with
any financial account you open, you must list your current and
correct Taxpayer Identification Number (TIN) -- either your Social
Security or Employer Identification number. The TIN must be
certified under penalties of perjury on your application when you
open an account at AEFC.
If you don't provide the TIN, or the TIN you report is incorrect,
you could be subject to backup withholding of 31% of taxable
distributions and proceeds from certain sales and exchanges. You
also could be subject to further penalties, such as:
o a $50 penalty for each failure to supply your correct TIN
o a civil penalty of $500 if you make a false statement that
results in no backup withholding
o criminal penalties for falsifying information
<PAGE>
PAGE 28
You also could be subject to backup withholding because you failed
to report interest or dividends on your tax return as required.
How to determine the correct TIN
Use the Social Security or
For this type of account: Employer Identification number
of:
Individual or joint account The individual or individuals
listed on the account
Custodian account of a minor The minor
(Uniform Gifts/Transfers to
Minors Act)
A living trust The grantor-trustee (the person
who puts the money into the
trust)
An irrevocable trust, pension The legal entity (not the
trust or estate personal representative or
trustee, unless no legal entity
is designated in the account
title)
Sole proprietorship The owner
Partnership The partnership
Corporate The corporation
Association, club or The organization
tax-exempt organization
For details on TIN requirements, ask your financial advisor or
local American Express Financial Advisors office for federal Form
W-9, "Request for Taxpayer Identification Number and
Certification."
Important: This information is a brief and selective summary of
certain federal tax rules that apply to this Fund. Tax matters are
highly individual and complex, and you should consult a qualified
tax advisor about your personal situation.
How the Fund is organized
The Fund is a diversified, open-end management investment company,
as defined in the Investment Company Act of 1940. It was
incorporated on March 12, 1985 in Minnesota. The Fund headquarters
are at 901 S. Marquette Ave., Suite 2810, Minneapolis, MN 55402-
3268.
<PAGE>
PAGE 29
Shares
The Fund is owned by its shareholders. The Fund issues shares in
three classes - Class A, Class B and Class Y. Each class has
different sales arrangements and bears different expenses. Each
class represents interests in the assets of the Fund. Par value is
one cent per share. Both full and fractional shares can be issued.
The Fund no longer issues stock certificates.
Voting rights
As a shareholder, you have voting rights over the Fund's management
and fundamental policies. You are entitled to one vote for each
share you own. Shares of the Fund have cumulative voting rights.
Each class has exclusive voting rights with respect to the
provisions of the Fund's distribution plan that pertain to a
particular class and other matters for which separate class voting
is appropriate under applicable law.
Shareholder meetings
The Fund does not hold annual shareholder meetings. However, the
board members may call meetings at their discretion, or on demand
by holders of 10% or more of the outstanding shares, to elect or
remove board members.
Special considerations regarding master/feeder structure
The Fund pursues its goals by investing its assets in a master fund
called the Portfolio. This means that the Fund does not invest
directly in securities; rather the Portfolio invests in and manages
its portfolio of securities. The Portfolio is a separate
investment company, but it has the same goals and investment
policies as the Fund. The goals and investment policies of the
Portfolio are described under the captions "Investment policies and
risks" and "Facts about investments and their risks." Additional
information on investment policies may be found in the SAI.
Board considerations: The board considered the advantages and
disadvantages of investing the Fund's assets in the Portfolio. The
board believes that the master/feeder structure can be in the best
interest of the Fund and its shareholders since it offers the
opportunity for economies of scale. The Fund may redeem all of its
assets from the Portfolio at any time. Should the board determine
that it is in the best interest of the Fund and its shareholders to
terminate its investment in the Portfolio, it would consider hiring
an investment advisor to manage the Fund's assets, or other
appropriate options. The Fund would terminate its investment if
the Portfolio changes its goals, investment policies or
restrictions without the same change being approved by the Fund.
Other feeders: The Portfolio sells securities to other affiliated
mutual funds and may sell securities to non-affiliated investment
companies and institutional accounts (known as feeders). These
feeders buy the Portfolio's securities on the same terms and
<PAGE>
PAGE 30
conditions as the Fund and pay their proportionate share of the
Portfolio's expenses. However, their operating costs and sales
charges are different from those of the Fund. Therefore, the
investment returns for other feeders are different from the returns
of the Fund. Information about other feeders may be obtained by
calling American Express Financial Advisors at 1-800-AXP-SERV.
Each feeder that invests in the Portfolio is different and
activities of its investors may adversely affect all other feeders,
including the Fund. For example, if one feeder decides to
terminate its investment in the Portfolio, the Portfolio may elect
to redeem in cash or in kind. If cash is used, the Portfolio will
incur brokerage, taxes and other costs in selling securities to
raise the cash. This may result in less investment diversification
if entire investment positions are sold, and it also may result in
less liquidity among the remaining assets. If in-kind distribution
is made, a smaller pool of assets remains that may affect brokerage
rates and investment options. In both cases, expenses may rise
since there are fewer assets to cover the costs of managing those
assets.
Shareholder meetings: Whenever the Portfolio proposes to change a
fundamental investment policy or to take any other action requiring
approval of its security holders, the Fund must hold a shareholder
meeting. The Fund will vote for or against the Portfolio's
proposals in proportion to the vote it receives for or against the
same proposals from its shareholders.
Board members and officers
Shareholders elect a board that oversees the operations of the Fund
and chooses its officers. Its officers are responsible for day-to-
day business decisions based on policies set by the board. The
board has named an executive committee that has authority to act on
its behalf between meetings. The board members serve on the boards
of all 41 of the funds in the IDS MUTUAL FUND GROUP, except for Mr.
Dudley, who is a board member of all 32 publicly offered funds.
The members of the Board also serve as members of the Board of the
Income Trust which manages the investments of the Fund and other
accounts. Should any conflict of interest arise between the
interests of the shareholders of the Fund and those of the other
accounts, the Board will follow written procedures to address the
conflict.
Board members and officers of the Fund
President and interested board member
William R. Pearce
President of all funds in the IDS MUTUAL FUND GROUP.
Independent board members
Lynne V. Cheney
Distinguished fellow, American Enterprise Institute for Public
Policy Research.
<PAGE>
PAGE 31
Robert F. Froehlke
Former president of all funds in the IDS MUTUAL FUND GROUP.
Heinz F. Hutter
Former president and chief operating officer, Cargill, Inc.
Anne P. Jones
Attorney and telecommunications consultant.
Melvin R. Laird
Senior counsellor for national and international affairs, The
Reader's Digest Association, Inc.
Edson W. Spencer
Former chairman and chief executive officer, Honeywell, Inc.
Wheelock Whitney
Chairman, Whitney Management Company.
C. Angus Wurtele
Chairman of the board, The Valspar Corporation.
Interested board members who are officers and/or employees of AEFC
William H. Dudley
Executive vice president, AEFC.
David R. Hubers
President and chief executive officer, AEFC.
John R. Thomas
Senior vice president, AEFC.
Officers who also are officers and/or employees of AEFC
Peter J. Anderson
Vice president of all funds in the IDS MUTUAL FUND GROUP.
Melinda S. Urion
Treasurer of all funds in the IDS MUTUAL FUND GROUP.
Other officer
Leslie L. Ogg
Vice president, general counsel and secretary of all funds in the
IDS MUTUAL FUND GROUP.
Refer to the SAI for the board members' and officers' biographies.
Investment manager
The Portfolio pays AEFC for managing its assets and providing
administrative services. The Fund pays its proportionate share of
the fees. Under the Investment Management Services Agreement that
became effective March 20, 1995 and assumed by the Portfolio June
10, 1996, AEFC is paid a fee for these services based on the
average daily net assets of the Portfolio, as follows:
<PAGE>
PAGE 32
Assets Annual rate
(billions) at each asset level
First $1.0 0.520%
Next 1.0 0.495
Next 1.0 0.470
Next 3.0 0.445
Next 3.0 0.420
Over 9.0 0.395
For the fiscal period ended May 31, 1996, the Fund paid AEFC a
total investment management fee of 0.51% of its average daily net
assets. Under the Agreement, the Fund also pays taxes, brokerage
commissions and nonadvisory expenses.
Administrator and Transfer Agent
The Fund pays AEFC for shareholder accounting and transfer agent
services under two agreements. The first, Administrative Service
Agreement, has a declining annual rate beginning at 0.05% and
decreasing to 0.025% as assets increase. The second, Transfer
Agency Agreement, has an annual fee per shareholder account as
follows:
o Class A $15.50
o Class B $16.50
o Class Y $15.50
Distributor
The Fund has an exclusive distribution agreement with American
Express Financial Advisors, a wholly owned subsidiary of AEFC.
Financial advisors representing American Express Financial Advisors
provide information to investors about individual investment
programs, the Fund and its operations, new account applications,
and exchange and redemption requests. The cost of these services
is paid partially by the Fund's sales charges.
Persons who buy Class A shares pay a sales charge at the time of
purchase. Persons who buy Class B shares are subject to a
contingent deferred sales charge on a redemption in the first six
years and pay an asset-based sales charge (also known as a 12b-1
plan) of 0.75% of the Fund's average daily net assets. Class Y
shares are sold without a sales charge and without an asset-based
sales charge.
Financial advisors may receive different compensation for selling
Class A, Class B and Class Y shares. Portions of the sales charge
also may be paid to securities dealers who have sold the Fund's
shares or to banks and other financial institutions. The amounts
of those payments range from 0.8% to 4% of the Fund's offering
price depending on the monthly sales volume.
Under a Shareholder Service Agreement, the Fund also 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.
<PAGE>
PAGE 33
Total expenses paid by the Fund's Class A shares for the fiscal
period ended May 31, 1996, were 0.91% of its average daily net
assets. Expenses for Class B and Class Y were 1.67% and .74%,
respectively.
Total fees and expenses (excluding taxes and brokerage commissions)
cannot exceed the most restrictive applicable state expense
limitation.
About American Express Financial Corporation
General information
The AEFC family of companies offers not only mutual funds but also
insurance, annuities, investment certificates and a broad range of
financial management services.
Besides managing investments for all publicly offered funds in the
IDS MUTUAL FUND GROUP, AEFC also manages investments for itself and
its subsidiaries, IDS Certificate Company and IDS Life Insurance
Company. Total assets under management on May 31, 1996 were more
than $137 billion.
American Express Financial Advisors serves individuals and
businesses through its nationwide network of more than 175 offices
and more than 7,800 advisors.
Other AEFC subsidiaries provide investment management and related
services for pension, profit sharing, employee savings and
endowment funds of businesses and institutions.
AEFC is located at IDS Tower 10, Minneapolis, MN 55440-0010. It is
a wholly owned subsidiary of American Express Company (American
Express), a financial services company with headquarters at
American Express Tower, World Financial Center, New York, NY 10285.
The Fund may pay brokerage commissions to broker-dealer affiliates
of American Express and AEFC.
<PAGE>
PAGE 34
Appendix
Descriptions of derivative instruments
What follows are brief descriptions of derivative instruments the
Portfolio may use. At various times the Portfolio may use some or
all of these instruments and is not limited to these instruments.
It may use other similar types of instruments if they are
consistent with the Portfolio's investment goal and policies. For
more information on these instruments, see the SAI.
Options and futures contracts. An option is an agreement to buy or
sell an instrument at a set price during a certain period of time.
A futures contract is an agreement to buy and sell an instrument
for a set price on a future date. The Portfolio may buy and sell
options and futures contracts to manage its exposure to changing
interest rates, security prices and currency exchange rates.
Options and futures may be used to hedge the Portfolio's
investments against price fluctuations or to increase market
exposure.
Asset-backed and mortgage-backed securities. Asset-backed
securities include interests in pools of assets such as motor
vehicle installment sale contracts, installment loan contracts,
leases on various types of real and personal property, receivables
from revolving credit (credit card) agreements or other categories
of receivables. Mortgage-backed securities include collateralized
mortgage obligations and stripped mortgage-backed securities.
Interest and principal payments depend on payment of the underlying
loans or mortgages. The value of these securities may also be
affected by changes in interest rates, the market's perception of
the issuers and the creditworthiness of the parties involved. The
non-mortgage related asset-backed securities do not have the
benefit of a security interest in the related collateral. Stripped
mortgage-backed securities include interest only (IO) and principal
only (PO) securities. Cash flows and yields on IOs and POs are
extremely sensitive to the rate of principal payments on the
underlying mortgage loans or mortgage-backed securities.
Indexed securities. The value of indexed securities is linked to
currencies, interest rates, commodities, indexes or other financial
indicators. Most indexed securities are short- to intermediate-
term fixed income securities whose values at maturity or interest
rates rise or fall according to the change in one or more specified
underlying instruments. Indexed securities may be more volatile
than the underlying instrument itself.
Inverse floaters. Inverse floaters are created by underwriters
using the interest payment on securities. A portion of the
interest received is paid to holders of instruments based on
current interest rates for short-term securities. The remainder,
minus a servicing fee, is paid to holders of inverse floaters. As
interest rates go down, the holders of the inverse floaters receive
more income and an increase in the price for the inverse floaters.
As interest rates go up, the holders of the inverse floaters
receive less income and a decrease in the price for the inverse
floaters.
<PAGE>
PAGE 35
Structured products. Structured products are over-the-counter
financial instruments created specifically to meet the needs of one
or a small number of investors. The instrument may consist of a
warrant, an option or a forward contract embedded in a note or any
of a wide variety of debt, equity and/or currency combinations.
Risks of structured products include the inability to close such
instruments, rapid changes in the market and defaults by other
parties.
<PAGE>
PAGE 36
STATEMENT OF ADDITIONAL INFORMATION
FOR
IDS FEDERAL INCOME FUND
July 30, 1996
This Statement of Additional Information (SAI) is not a prospectus.
It should be read together with the prospectus and the financial
statements contained in the Annual Report which may be obtained
from your American Express financial advisor or by writing to
American Express Shareholder Service, P.O. Box 534, Minneapolis, MN
55440-0534.
This SAI is dated July 30, 1996, and it is to be used with the
prospectus dated July 30, 1996, and the Annual Report for the
fiscal period ended May 31, 1996.
<PAGE>
PAGE 37
TABLE OF CONTENTS
Goal and Investment Policies......................See Prospectus
Additional Investment Policies................................p. 3
Security Transactions.........................................p. 6
Brokerage Commissions Paid to Brokers Affiliated with
American Express Financial Corporation........................p. 9
Performance Information.......................................p. 9
Valuing Fund Shares...........................................p. 11
Investing in the Fund.........................................p. 13
Redeeming Shares..............................................p. 17
Pay-out Plans.................................................p. 17
Capital Loss Carryover........................................p. 19
Taxes.........................................................p. 19
Agreements....................................................p. 20
Board Members and Officers....................................p. 23
Custodian.....................................................p. 27
Independent Auditors..........................................p. 27
Financial Statements..............................See Annual Report
Prospectus....................................................p. 28
Appendix A: Description of Commercial Paper Ratings..........p. 29
Appendix B: Options and Interest Rate Futures Contracts......p. 30
Appendix C: Mortgage pass-through Certificates...............p. 36
Appendix D: Dollar-Cost Averaging............................p. 39
<PAGE>
PAGE 38
ADDITIONAL INVESTMENT POLICIES
The Fund pursues its goals by investing all of its assets in
Government Income Portfolio (the "Portfolio") of the Income Trust
(the "Trust"), a separate investment company, rather than by
directly investing in and managing its own portfolio of securities.
The Portfolio has the same investment objectives, policies and
restrictions as the Fund.
Fundamental investment restrictions adopted by the Fund or
Portfolio cannot be changed without the approval of a majority of
the outstanding voting securities of the Fund or Portfolio, as
defined in the Investment Company Act of 1940. Whenever the Fund
is requested to vote on a change in the investment restrictions of
the corresponding Portfolio, the Fund will hold a meeting of Fund
shareholders and will cast the Fund's vote as instructed by the
shareholders.
These are investment policies in addition to those presented in the
prospectus. The policies below are fundamental policies of the
Fund and the Portfolio and may be changed only with shareholder
approval. Unless holders of a majority of the outstanding voting
securities agree to make the change, the Fund and Portfolio will
not:
'Act as an underwriter (sell securities for others). However,
under the securities laws, the Portfolio may be deemed to be an
underwriter when it purchases securities directly from the issuer
and later resells them.
'Borrow money or property, except as a temporary measure for
extraordinary or emergency purposes, in an amount not exceeding
one-third of the market value of its total assets (including
borrowings) less liabilities (other than borrowings) immediately
after the borrowing. The Portfolio has not borrowed in the past
and has no present intention to borrow.
'Make cash loans if the total commitment amount exceeds 5% of the
Portfolio's total assets.
'Purchase more than 10% of the outstanding voting securities of an
issuer.
'Invest more than 5% of its total assets in securities of any one
company, government or political subdivision thereof, except the
limitation will not apply to investments in securities issued by
the U.S. government, its agencies or instrumentalities, and except
that up to 25% of the Portfolio's total assets may be invested
without regard to this 5% limitation.
'Buy or sell real estate, unless acquired as a result of ownership
of securities or other instruments, except this shall not prevent
the Portfolio from investing in securities or other instruments
backed by real estate or securities of companies engaged in the
<PAGE>
PAGE 39
real estate business or real estate investment trusts. For
purposes of this policy, real estate includes real estate limited
partnerships.
'Buy or sell physical commodities unless acquired as a result of
ownership of securities or other instruments, except this shall not
prevent the Portfolio from buying or selling options and futures
contracts or from investing in securities or other instruments
backed by, or whose value is derived from, physical commodities.
'Make a loan of any part of its assets to American Express
Financial Corporation (AEFC), to the board members and officers of
AEFC or to its own board members and officers.
'Purchase securities of an issuer if the board members and officers
of the Portfolio and of AEFC hold more than a certain percentage of
the issuer's outstanding securities. If the holdings of all board
members and officers of the Fund, the Portfolio and of AEFC who own
more than 0.5% of an issuer's securities are added together, and if
in total they own more than 5%, the Portfolio will not purchase
securities of that issuer.
'Lend Portfolio securities in excess of 30% of its net assets. The
current policy of the Portfolio's board is to make these loans,
either long- or short-term, to broker-dealers. In making loans,
the Portfolio gets the market price in cash, U.S. government
securities, letters of credit or such other collateral as may be
permitted by regulatory agencies and approved by the board. If the
market price of the loaned securities goes up, the Portfolio will
get additional collateral on a daily basis. The risks are that the
borrower may not provide additional collateral when required or
return the securities when due. During the existence of the loan,
the Portfolio receives cash payments equivalent to all interest or
other distributions paid on the loaned securities. A loan will not
be made unless the investment manager believes the opportunity for
additional income outweighs the risks.
'Issue senior securities, except this restriction shall not be
deemed to prohibit the Portfolio from borrowing from banks, using
options or futures contracts, lending its securities or entering
into repurchase agreements.
'Buy any property or security (other than securities issued by the
Portfolio) from any board member or officer of AEFC, the Fund or
the Portfolio, nor will the Portfolio sell any property or security
to them.
'Concentrate in any one industry. According to the present
interpretation by the Securities and Exchange Commission (SEC),
this means no more than 25% of the Portfolio's total assets, based
on current market value at the time of purchase, can be invested in
any one industry.
Unless changed by the board, the Fund and Portfolio will not:
<PAGE>
PAGE 40
'Buy on margin or sell short, except it may enter into interest
rate futures contracts.
'Pledge or mortgage its assets beyond 15% of total assets. If the
Portfolio were ever to do so, valuation of the pledged or mortgaged
assets would be based on market values. For purposes of this
restriction, collateral arrangements for margin deposits on futures
contracts are not deemed to be a pledge of assets.
'Invest more than 5% of its total assets in securities of
companies, including any predecessors, that have a record of less
than three years continuous operations.
'Invest more than 5% of its net assets in warrants. Under one
state's law no more than 2% of the Portfolio's net assets may be
invested in warrants not listed on the New York or American Stock
Exchange.
'Invest more than 10% of its total assets in securities of
investment companies. Under one state's law, the Portfolio is
limited to investments in the open market where no commission or
profit to a sponsor or dealer results from the purchase other than
the customary broker's commission, or when the purchase is part of
a plan or merger, consolidation, reorganization or acquisition.
The Portfolio has no current intention to invest in securities of
other investment companies.
'Invest in a company to control or manage it.
'Invest in exploration or development programs, such as oil, gas or
mineral leases.
'Invest more than 10% of its net assets in securities and
derivative instruments that are illiquid. For purposes of this
policy, illiquid securities include some privately placed
securities, public securities and Rule 144A securities that for one
reason or another may no longer have a readily available market,
repurchase agreements with maturities greater than seven days, non-
negotiable fixed-time deposits and over-the-counter options.
In determining the liquidity of Rule 144A securities, which are
unregistered securities offered to qualified institutional buyers,
and interest-only and principal-only fixed mortgage-backed
securities (IOs and POs) issued by the U.S. government or its
agencies and instrumentalities, the investment manager, under
guidelines established by the board, will consider any relevant
factors including the frequency of trades, the number of dealers
willing to purchase or sell the security and the nature of
marketplace trades.
In determining the liquidity of commercial paper issued in
transactions not involving a public offering under Section 4(2) of
the Securities Act of 1933, the investment manager, under
guidelines established by the board, will evaluate relevant factors
such as the issuer and the size and nature of its commercial paper
<PAGE>
PAGE 41
programs, the willingness and ability of the issuer or dealer to
repurchase the paper, and the nature of the clearance and
settlement procedures for the paper.
The Portfolio may make contracts to purchase securities for a fixed
price at a future date beyond normal settlement time (when-issued
securities or forward commitments). The Portfolio does not pay for
the securities or receive dividends or interest on them until the
contractual settlement date. The Portfolio will designate cash or
liquid high-grade debt securities at least equal in value to its
commitments to purchase the securities. When-issued securities or
forward commitments are subject to market fluctuations and they may
affect the Portfolio's total assets the same as owned securities.
The Portfolio may maintain a portion of its assets in cash and
cash-equivalent investments. The cash-equivalent investments the
Portfolio may use are short-term U.S. and Canadian government
securities and negotiable certificates of deposit, non-negotiable
fixed-time deposits, bankers' acceptances and letters of credit of
banks or savings and loan associations having capital, surplus and
undivided profits (as of the date of its most recently published
annual financial statements) in excess of $100 million (or the
equivalent in the instance of a foreign branch of a U.S. bank) at
the date of investment. The Portfolio also may purchase short-term
commercial paper rated P-2 or better by Moody's Investors Service,
Inc. (Moody's) or A-2 or better by Standard & Poor's Corporation
(S&P) or the equivalent and may use repurchase agreements with
broker-dealers registered under the Securities Exchange Act of 1934
and with commercial banks. A risk of a repurchase agreement is
that if the seller seeks the protection of the bankruptcy laws, the
Portfolio's ability to liquidate the security involved could be
impaired.
Notwithstanding any of the Fund's other investment policies, the
Fund may invest its assets in an open-end management investment
company having substantially the same investment objectives,
policies and restrictions as the Fund for the purpose of having
those assets managed as part of a combined pool.
For a description of commercial paper ratings, see Appendix A. For
a discussion on options and interest rate futures contracts, see
Appendix B. For a discussion on mortgage pass-through
certificates, see Appendix C.
SECURITY TRANSACTIONS
Subject to policies set by the board, AEFC is authorized to
determine, consistent with the Portfolio's investment goal and
policies, which securities will be purchased, held or sold. In
determining where the buy and sell orders are to be placed, AEFC
has been directed to use its best efforts to obtain the best
available price and most favorable execution except where otherwise
authorized by the board.
<PAGE>
PAGE 42
AEFC has a strict Code of Ethics that prohibits its affiliated
personnel from engaging in personal investment activities that
compete with or attempt to take advantage of planned portfolio
transactions for any fund or trust for which it acts as investment
manager in the IDS MUTUAL FUND GROUP. AEFC carefully monitors
compliance with its Code of Ethics.
Normally, the Portfolio's securities are traded on a principal
rather than an agency basis. In other words, AEFC will trade
directly with the issuer or with a dealer who buys or sells for its
own account, rather than acting on behalf of another client. AEFC
does not pay the dealer commissions. Instead, the dealer's profit,
if any, is the difference, or spread, between the dealer's purchase
and sale price for the security.
On occasion, it may be desirable to compensate a broker for
research services or for brokerage services by paying a commission
that might not otherwise be charged or a commission in excess of
the amount another broker might charge. The board has adopted a
policy authorizing AEFC to do so to the extent authorized by law,
if AEFC determines, in good faith, that such commission is
reasonable in relation to the value of the brokerage or research
services provided by a broker or dealer, viewed either in the light
of that transaction or AEFC's overall responsibilities to the funds
in the IDS MUTUAL FUND GROUP and other funds for which it acts as
investment advisor.
Research provided by brokers supplements AEFC's own research
activities. Such services include economic data on, and analysis
of, U.S. and foreign economies; information on specific industries;
information about specific companies, including earnings estimates;
purchase recommendations for stocks and bonds; portfolio strategy
services; political, economic, business and industry trend
assessments; historical statistical information; market data
services providing information on specific issues and prices; and
technical analysis of various aspects of the securities markets,
including technical charts. Research services may take the form of
written reports, computer software or personal contact by telephone
or at seminars or other meetings. AEFC has obtained, and in the
future may obtain, computer hardware from brokers, including but
not limited to personal computers that will be used exclusively for
investment decision-making purposes, which include the research,
portfolio management and trading functions and other services to
the extent permitted under an interpretation by the SEC.
When paying a commission that might not otherwise be charged or a
commission in excess of the amount another broker might charge,
AEFC must follow procedures authorized by the board. To date,
three procedures have been authorized. One procedure permits AEFC
to direct an order to buy or sell a security traded on a national
securities exchange to a specific broker for research services it
has provided. The second procedure permits AEFC, in order to
obtain research, to direct an order on an agency basis to buy or
sell a security traded in the over-the-counter market to a firm
that does not make a market in that security. The commission paid
<PAGE>
PAGE 43
generally includes compensation for research services. The third
procedure permits AEFC, in order to obtain research and brokerage
services, to cause the Portfolio to pay a commission in excess of
the amount another broker might have charged. AEFC has advised the
Portfolio it is necessary to do business with a number of brokerage
firms on a continuing basis to obtain such services as the handling
of large orders, the willingness of a broker to risk its own money
by taking a position in a security, and the specialized handling of
a particular group of securities that only certain brokers may be
able to offer. As a result of this arrangement, some portfolio
transactions may not be effected at the lowest commission, but AEFC
believes it may obtain better overall execution. AEFC has assured
the Portfolio that under all three procedures the amount of
commission paid will be reasonable and competitive in relation to
the value of the brokerage services performed or research provided.
All other transactions shall be placed on the basis of obtaining
the best available price and the most favorable execution. In so
doing, if in the professional opinion of the person responsible for
selecting the broker or dealer, several firms can execute the
transaction on the same basis, consideration will be given by such
person to those firms offering research services. Such services
may be used by AEFC in providing advice to all the funds in the IDS
MUTUAL FUND GROUP even though it is not possible to relate the
benefits to any particular fund or account.
Each investment decision made for the Portfolio is made
independently from any decision made for another portfolio, fund or
other account advised by AEFC or any of its subsidiaries.
When the Portfolio buys or sells the same security as another
portfolio, fund or account, AEFC carries out the purchase or sale
in a way the Fund agrees in advance is fair. Although sharing in
large transactions may adversely affect the price or volume
purchased or sold by the Portfolio, the Portfolio hopes to gain an
overall advantage in execution. AEFC has assured the Portfolio it
will continue to seek ways to reduce brokerage costs.
On a periodic basis, AEFC makes a comprehensive review of the
broker-dealers and the overall reasonableness of their commissions.
The review evaluates execution, operational efficiency and research
services.
The Fund paid total brokerage commissions of $666,582 for the
fiscal period ended May 31, 1996, $535,844 for fiscal year ended
June 30, 1995, and $119,413 for fiscal year ended June 30, 1994.
Substantially all firms through whom transactions were executed
provide research services.
No transactions were directed to brokers because of research
services they provided to the Fund.
As of the fiscal period ended May 31, 1996, the Fund held no
securities of its regular brokers or dealers or of the parents of
those brokers or dealers that derived more than 15% of gross
revenue from securities-related activities.
<PAGE>
PAGE 44
The portfolio turnover rate was 115% in the fiscal period ended May
31, 1996, and 222% in fiscal year ended June 30, 1995. Higher
turnover rates may result in higher brokerage expenses.
BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH AMERICAN
EXPRESS FINANCIAL CORPORATION
Affiliates of American Express Company (American Express) (of which
AEFC is a wholly owned subsidiary) may engage in brokerage and
other securities transactions on behalf of the Portfolio according
to procedures adopted by the Fund's board and to the extent
consistent with applicable provisions of the federal securities
laws. AEFC will use an American Express affiliate only if (i) AEFC
determines that the Portfolio will receive prices and executions at
least as favorable as those offered by qualified independent
brokers performing similar brokerage and other services for the
Portfolio and (ii) the affiliate charges the Portfolio commission
rates consistent with those the affiliate charges comparable
unaffiliated customers in similar transactions and if such use is
consistent with terms of the Investment Management Services
Agreement.
AEFC may direct brokerage to compensate an affiliate. AEFC will
receive research on South Africa from New Africa Advisors, a
wholly-owned subsidiary of Sloan Financial Group. AEFC owns 100%
of IDS Capital Holdings Inc. which in turn owns 40% of Sloan
Financial Group. New Africa Advisors will send research to AEFC
and in turn AEFC will direct trades to a particular broker. The
broker will have an agreement to pay New Africa Advisors. All
transactions will be on a best execution basis. Compensation
received will be reasonable for the services rendered.
No brokerage commissions were paid to brokers affiliated with AEFC
for the three most recent fiscal years.
PERFORMANCE INFORMATION
The Fund may quote various performance figures to illustrate past
performance. Average annual total return and current yield
quotations used by the Fund are based on standardized methods of
computing performance as required by the SEC. An explanation of
the methods used by the Fund to compute performance follows below.
Average annual total return
The Fund may calculate average annual total return for a class for
certain periods by finding the average annual compounded rates of
return over the period that would equate the initial amount
invested to the ending redeemable value, according to the following
formula:
P(1+T)n = ERV
<PAGE>
PAGE 45
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of a period, at the
end of the period (or fractional portion thereof)
Aggregate total return
The Fund may calculate aggregate total return for a class for
certain periods representing the cumulative change in the value of
an investment in the Fund over a specified period of time according
to the following formula:
ERV - P
P
where: P = a hypothetical initial payment of $1,000
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of a period, at the
end of the period (or fractional portion thereof)
Annualized yield
The Fund may calculate an annualized yield for a class by dividing
the net investment income per share deemed earned during a period
by the net asset value per share on the last day of the period and
annualizing the results.
Yield is calculated according to the following formula:
Yield = 2[(a-b + 1)6 - 1]
cd
where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of
reimbursements
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = the maximum offering price per share on the last
day of the period
The Fund's annualized yield was 6.15% for Class A, 5.71% for Class
B and 6.65% for Class Y for the 30-day period ended May 31, 1996.
The Fund's yield, calculated as described above according to the
formula prescribed by the SEC, is a hypothetical return based on
market value yield to maturity for the Portfolio's securities. It
is not necessarily indicative of the amount which was or may be
paid to the Fund's shareholders. Actual amounts paid to Fund
shareholders are reflected in the distribution yield.
<PAGE>
PAGE 46
Distribution yield
Distribution yield is calculated according to the following
formula:
D divided by POP F equals DY
30 30
where: D = sum of dividends for 30-day period
POP = sum of public offering price for 30-day period
F = annualizing factor
DY = distribution yield
The Fund's distribution yield was 6.35% for Class A, 5.92% for
Class B and 6.86% for Class Y for the 30-day period ended May 31,
1996.
In its sales material and other communications, the Fund may quote,
compare or refer to rankings, yields or returns as published by
independent statistical services or publishers and publications
such as The Bank Rate Monitor National Index, Barron's, Business
Week, Donoghue's Money Market Fund Report, Financial Services Week,
Financial Times, Financial World, Forbes, Fortune, Global Investor,
Institutional Investor, Investor's Daily, Kiplinger's Personal
Finance, Lipper Analytical Services, Money, Mutual Fund Forecaster,
Newsweek, The New York Times, Personal Investor, Stanger Report,
Sylvia Porter's Personal Finance, USA Today, U.S. News and World
Report, The Wall Street Journal and Wiesenberger Investment
Companies Service.
VALUING FUND SHARES
The value of an individual share for each class is determined by
using the net asset value before shareholder transactions for the
day. On June 3, 1996, the first business day following the end of
the fiscal period, the computation looked like this:
<TABLE>
<CAPTION>
Net assets before Shares outstanding Net asset value
shareholder transactions at end of previous day of one share
<S> <C> <C> <C> <C> <C>
Class A $1,094,436,691 divided by 222,446,482 equals $4.92
Class B 519,683,339 105,626,695 4.92
Class Y 98,850,328 20,091,530 4.92
</TABLE>
In determining net assets before shareholder transactions, the
Portfolio's securities are valued as follows as of the close of
business of the New York Stock Exchange (the Exchange):
'Securities, except bonds other than convertibles, traded on a
securities exchange for which a last-quoted sales price is readily
available are valued at the last-quoted sales price on the exchange
where such security is primarily traded.
'Securities traded on a securities exchange for which a last-quoted
sales price is not readily available are valued at the mean of the
closing bid and asked prices, looking first to the bid and asked
prices on the exchange where the security is primarily traded and,
if none exist, to the over-the-counter market.
<PAGE>
PAGE 47
'Securities included in the NASDAQ National Market System are
valued at the last-quoted sales price in this market.
'Securities included in the NASDAQ National Market System for which
a last-quoted sales price is not readily available, and other
securities traded over-the-counter but not included in the NASDAQ
National Market System are valued at the mean of the closing bid
and asked prices.
'Futures and options traded on major exchanges are valued at the
last-quoted sales price on their primary exchange.
'Foreign securities traded outside the United States are generally
valued as of the time their trading is complete, which is usually
different from the close of the Exchange. Foreign securities
quoted in foreign currencies are translated into U.S. dollars at
the current rate of exchange. Occasionally, events affecting the
value of such securities may occur between such times and the close
of the Exchange that will not be reflected in the computation of
the Fund's net asset value. If events materially affecting the
value of such securities occur during such period, these securities
will be valued at their fair value according to procedures decided
upon in good faith by the board.
'Short-term securities maturing more than 60 days from the
valuation date are valued at the readily available market price or
approximate market value based on current interest rates. Short-
term securities maturing in 60 days or less that originally had
maturities of more than 60 days at acquisition date are valued at
amortized cost using the market value on the 61st day before
maturity. Short-term securities maturing in 60 days or less at
acquisition date are valued at amortized cost. Amortized cost is
an approximation of market value determined by systematically
increasing the carrying value of a security if acquired at a
discount, or reducing the carrying value if acquired at a premium,
so that the carrying value is equal to maturity value on the
maturity date.
'Securities without a readily available market price, bonds other
than convertibles and other assets are valued at fair value as
determined in good faith by the board. The board is responsible
for selecting methods it believes provide fair value. When
possible, bonds are valued by a pricing service independent from
the Portfolio. If a valuation of a bond is not available from a
pricing service, the bond will be valued by a dealer knowledgeable
about the bond if such a dealer is available.
The New York Stock Exchange, AEFC and the Fund will be closed on
the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
<PAGE>
PAGE 48
INVESTING IN THE FUND
Sales Charge
Shares of the Fund are sold at the public offering price determined
at the close of business on the day an application is accepted.
The public offering price is the net asset value of one share
adjusted for a sales charge, if applicable. For Class B and Class
Y, there is no initial sales charge so the public offering price is
the same as the net asset value. For Class A, the public offering
price for an investment of less than $50,000, made June 3, 1996,
was determined by dividing the net asset value of one share, $4.92,
by 0.95 (1.00-0.05 for a maximum 5% sales charge) for a public
offering price of $5.18. The sales charge is paid to American
Express Financial Advisors by the person buying the shares.
Class A - Calculation of the Sales Charge
Sales charges are determined as follows:
Within each increment,
sales charge as a
percentage of:
Public Net
Amount of Investment Offering Price Amount Invested
First $ 50,000 5.0% 5.26%
Next 50,000 4.5 4.71
Next 400,000 3.8 3.95
Next 500,000 2.0 2.04
$1,000,000 or more 0.0 0.00
Sales charges on an investment greater than $50,000 and less than
$1,000,000 are calculated for each increment separately and then
totaled. The resulting total sales charge, expressed as a
percentage of the public offering price and of the net amount
invested, will vary depending on the proportion of the investment
at different sales charge levels.
For example, compare an investment of $60,000 with an investment of
$85,000. The $60,000 investment is composed of $50,000 that incurs
a sales charge of $2,500 (5.0% x $50,000) and $10,000 that incurs a
sales charge of $450 (4.5% x $10,000). The total sales charge of
$2,950 is 4.92% of the public offering price and 5.17% of the net
amount invested.
In the case of the $85,000 investment, the first $50,000 also
incurs a sales charge of $2,500 (5.0% x $50,000) and $35,000 incurs
a sales charge of $1,575 (4.5% x $35,000). The total sales charge
of $4,075 is 4.79% of the public offering price and 5.04% of the
net amount invested.
<PAGE>
PAGE 49
The following table shows the range of sales charges as a
percentage of the public offering price and of the net amount
invested on total investments at each applicable level.
<TABLE>
<CAPTION>
On total investment, sales
charge as a percentage of
Public Net
Offering Price Amount Invested
Amount of Investment ranges from:
<S> <C> <C>
First $ 50,000 5.00% 5.26%
More than 50,000 to 100,000 5.00-4.50 5.26-4.71
More than 100,000 to 500,000 4.50-3.80 4.71-3.95
More than 500,000 to 999,999 3.80-2.00 3.95-2.04
$1,000,000 or more 0.00 0.00
</TABLE>
The initial sales charge is waived for certain qualified plans that
meet the requirements described in the prospectus. Participants in
these qualified plans may be subject to a deferred sales charge on
certain redemptions. The deferred sales charge on certain
redemptions will be waived if the redemption is a result of a
participant's death, disability, retirement, attaining age 59 1/2,
loans or hardship withdrawals. The deferred sales charge varies
depending on the number of participants in the qualified plan and
total plan assets as follows:
Deferred Sales Charge
Number of Participants
Total Plan Assets 1-99 100 or more
Less than $1 million 4% 0%
$1 million or more 0% 0%
_________________________________________________________
Class A - Reducing the Sales Charge
Sales charges are based on the total amount of your investments in
the Fund. The amount of all prior investments plus any new
purchase is referred to as your "total amount invested." For
example, suppose you have made an investment of $20,000 and later
decide to invest $40,000 more. Your total amount invested would be
$60,000. As a result, $10,000 of your $40,000 investment qualifies
for the lower 4.5% sales charge that applies to investments of more
than $50,000 and up to $100,000.
The total amount invested includes any shares held in the Fund in
the name of a member of your primary household group. The primary
household group consists of accounts in any ownership for spouses
or domestic partners and their unmarried children under 21.
Domestic partners are individuals who maintain a shared primary
residence and have joint property or other insurable interests.
For instance, if your spouse already has invested $20,000 and you
<PAGE>
PAGE 50
want to invest $40,000, your total amount invested will be $60,000
and therefore you will pay the lower charge of 4.5% on $10,000 of
the $40,000.
Until a spouse remarries, the sales charge is waived for spouses
and unmarried children under 21 of deceased board members, officers
or employees of the Fund or AEFC or its subsidiaries and deceased
advisors.
The total amount invested also includes any investment you or your
immediate family already have in the other publicly offered funds
in the IDS MUTUAL FUND GROUP where the investment is subject to a
sales charge. For example, suppose you already have an investment
of $30,000 in another IDS Fund. If you invest $40,000 more in this
Fund, your total amount invested in the funds will be $70,000 and
therefore $20,000 of your $40,000 investment will incur a 4.5%
sales charge.
Finally, Individual Retirement Account (IRA) purchases, or other
employee benefit plan purchases made through a payroll deduction
plan or through a plan sponsored by an employer, association of
employers, employee organization or other similar entity, may be
added together to reduce sales charges for shares purchased through
that plan.
Class A - Letter of Intent (LOI)
If you intend to invest $1 million over a period of 13 months, you
can reduce the sales charges in Class A by filing a LOI. The
agreement can start at any time and will remain in effect for 13
months. Your investment will be charged normal sales charges until
you have invested $1 million. At that time, your account will be
credited with the sales charges previously paid. Class A
investments made prior to signing an LOI may be used to reach the
$1 million total, excluding Cash Management Fund and Tax-Free Money
Fund. However, we will not adjust for sales charges on investments
made prior to the signing of the LOI. If you do not invest $1
million by the end of 13 months, there is no penalty, you'll just
miss out on the sales charge adjustment. A LOI is not an option
(absolute right) to buy shares.
Here's an example. You file a LOI to invest $1 million and make an
investment of $100,000 at that time. You pay the normal 5% sales
charge on the first $50,000 and 4.5% sales charge on the next
$50,000 of this investment. Let's say you make a second investment
of $900,000 (bringing the total up to $1 million) one month before
the 13-month period is up. On the date that you bring your total
to $1 million, AEFC makes an adjustment to your account. The
adjustment is made by crediting your account with additional
shares, in an amount equivalent to the sales charge previously
paid.
<PAGE>
PAGE 51
Systematic Investment Programs
After you make your initial investment of $2,000 or more, you can
arrange to make additional payments of $100 or more on a regular
basis. These minimums do not apply to all systematic investment
programs. You decide how often to make payments - monthly,
quarterly, or semiannually. You are not obligated to make any
payments. You can omit payments or discontinue the investment
program altogether. The Fund also can change the program or end it
at any time. If there is no obligation, why do it? Putting money
aside is an important part of financial planning. With a
systematic investment program, you have a goal to work for.
How does this work? Your regular investment amount will purchase
more shares when the net asset value per share decreases, and fewer
shares when the net asset value per share increases. Each purchase
is a separate transaction. After each purchase your new shares
will be added to your account. Shares bought through these
programs are exactly the same as any other fund shares. They can
be bought and sold at any time. A systematic investment program is
not an option or an absolute right to buy shares.
The systematic investment program itself cannot ensure a profit,
nor can it protect against a loss in a declining market. If you
decide to discontinue the program and redeem your shares when their
net asset value is less than what you paid for them, you will incur
a loss.
For a discussion on dollar-cost averaging, see Appendix D.
Automatic Directed Dividends
Dividends, including capital gain distributions, paid by another
fund in the IDS MUTUAL FUND GROUP subject to a sales charge, may be
used to automatically purchase shares in the same class of this
Fund without paying a sales charge. Dividends may be directed to
existing accounts only. Dividends declared by a fund are exchanged
to this Fund the following day. Dividends can be exchanged into
one fund but cannot be split to make purchases in two or more
funds. Automatic directed dividends are available between accounts
of any ownership except:
Between a non-custodial account and an IRA, or 401(k) plan account
or other qualified retirement account of which American Express
Trust Company acts as custodian;
Between two American Express Trust Company custodial accounts with
different owners (for example, you may not exchange dividends from
your IRA to the IRA of your spouse);
Between different kinds of custodial accounts with the same
ownership (for example, you may not exchange dividends from your
IRA to your 401(k) plan account, although you may exchange
dividends from one IRA to another IRA).
<PAGE>
PAGE 52
Dividends may be directed from accounts established under the
Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors
Act (UTMA) only into other UGMA or UTMA accounts with identical
ownership.
The Fund's investment goal is described in its prospectus along
with other information, including fees and expense ratios. Before
exchanging dividends into another fund, you should read its
prospectus. You will receive a confirmation that the automatic
directed dividend service has been set up for your account.
REDEEMING SHARES
You have a right to redeem your shares at any time. For an
explanation of redemption procedures, please see the prospectus.
During an emergency, the board can suspend the computation of net
asset value, stop accepting payments for purchase of shares or
suspend the duty of the Fund to redeem shares for more than seven
days. Such emergency situations would occur if:
'The Exchange closes for reasons other than the usual weekend and
holiday closings or trading on the Exchange is restricted, or
'Disposal of the Portfolio's securities is not reasonably
practicable or it is not reasonably practicable for the Fund to
determine the fair value of its net assets, or
'The SEC, under the provisions of the Investment Company Act of
1940 (the 1940 Act), as amended, declares a period of emergency to
exist.
Should the Fund stop selling shares, the board may make a deduction
from the value of the assets held by the Fund to cover the cost of
future liquidations of the assets so as to distribute fairly these
costs among all shareholders.
The Fund has elected to be governed by Rule 18f-1 under the 1940
Act, which obligates the Fund to redeem shares in cash, with
respect to any one shareholder during any 90-day period, up to
lesser of $250,000 or 1% of the net assets of the Fund at the
beginning of the period. Although redemptions in excess of this
limitation would normally be paid in cash, the Fund reserves the
right to make these payments in whole or in part in securities or
other assets in case of an emergency, or if the payment of a
redemption in cash would be detrimental to the existing
shareholders of the Fund as determined by the board. In these
circumstances, the securities distributed would be valued as set
forth in the prospectus. Should the Fund distribute securities, a
shareholder may incur brokerage fees or other transaction costs in
converting the securities to cash.
<PAGE>
PAGE 53
PAY-OUT PLANS
You can use any of several pay-out plans to redeem your investment
in regular installments. If you redeem Class B shares you may be
subject to a contingent deferred sales charge as discussed in the
prospectus. While the plans differ on how the pay-out is figured,
they all are based on the redemption of your investment. Net
investment income dividends and any capital gain distributions will
automatically be reinvested, unless you elect to receive them in
cash. If you are redeeming a tax-qualified plan account for which
American Express Trust Company acts as custodian, you can elect to
receive your dividends and other distributions in cash when
permitted by law. If you redeem an IRA or a qualified retirement
account, certain restrictions, federal tax penalties and special
federal income tax reporting requirements may apply. You should
consult your tax advisor about this complex area of the tax law.
Applications for a systematic investment in a class of the Fund
subject to a sales charge normally will not be accepted while a
pay-out plan for any of those funds is in effect. Occasional
investments, however, may be accepted.
To start any of these plans, please write or call American Express
Shareholder Service, P.O. Box 534, Minneapolis, MN 55440-0534,
612-671-3733. Your authorization must be received in the
Minneapolis headquarters at least five days before the date you
want your payments to begin. The initial payment must be at least
$50. Payments will be made on a monthly, bimonthly, quarterly,
semiannual or annual basis. Your choice is effective until you
change or cancel it.
The following pay-out plans are designed to take care of the needs
of most shareholders in a way AEFC can handle efficiently and at a
reasonable cost. If you need a more irregular schedule of
payments, it may be necessary for you to make a series of
individual redemptions, in which case you'll have to send in a
separate redemption request for each pay-out. The Fund reserves
the right to change or stop any pay-out plan and to stop making
such plans available.
Plan #1: Pay-out for a fixed period of time
If you choose this plan, a varying number of shares will be
redeemed at regular intervals during the time period you choose.
This plan is designed to end in complete redemption of all shares
in your account by the end of the fixed period.
Plan #2: Redemption of a fixed number of shares
If you choose this plan, a fixed number of shares will be redeemed
for each payment and that amount will be sent to you. The length
of time these payments continue is based on the number of shares in
your account.
<PAGE>
PAGE 54
Plan #3: Redemption of a fixed dollar amount
If you decide on a fixed dollar amount, whatever number of shares
is necessary to make the payment will be redeemed in regular
installments until the account is closed.
Plan #4: Redemption of a percentage of net asset value
Payments are made based on a fixed percentage of the net asset
value of the shares in the account computed on the day of each
payment. Percentages range from 0.25% to 0.75%. For example, if
you are on this plan and arrange to take 0.5% each month, you will
get $50 if the value of your account is $10,000 on the payment
date.
CAPITAL LOSS CARRYOVER
For federal income tax purposes, the Portfolio had capital loss
carryover of $24,453,239 at May 31, 1996, that will expire in 2003.
It is unlikely that the board will authorize a distribution of any
net realized capital gains until the available capital loss
carryover has been offset or has expired.
TAXES
If you buy shares in the Fund and then exchange into another fund,
it is considered a sale and subsequent purchase of shares. Under
the tax laws, if this exchange is done within 91 days, any sales
charge waived on Class A shares on a subsequent purchase of shares
applies to the new shares acquired in the exchange. Therefore, you
cannot create a tax loss or reduce a tax gain attributable to the
sales charge when exchanging shares within 91 days.
Retirement Accounts
If you have a nonqualified investment in the Fund and you wish to
move part or all of those shares to an IRA or qualified retirement
account in the Fund, you can do so without paying a sales charge.
However, this type of exchange is considered a sale of shares and
may result in a gain or loss for tax purposes. In addition, this
type of exchange may result in an excess contribution under IRA or
qualified plan regulations if the amount exchanged plus the amount
of the initial sales charge applied to the amount exchanged exceeds
annual contribution limitations. For example: If you were to
exchange $2,000 in Class A shares from a nonqualified account to an
IRA without considering the 5% ($100) initial sales charge
applicable to that $2,000, you may be deemed to have exceeded
current IRA annual contribution limitations. You should consult
your tax advisor for further details about this complex subject.
Net investment income dividends received should be treated as
dividend income for federal income tax purposes. Corporate
shareholders are generally entitled to a deduction equal to 70% of
that portion of the Fund's dividend that is attributable to
<PAGE>
PAGE 55
dividends the Fund received from domestic (U.S.) securities. For
the fiscal period ended May 31, 1996, none of the Fund's net
investment income dividends qualified for the corporate deduction.
Capital gain distributions received by individual and corporate
shareholders, if any, should be treated as long-term capital gains
regardless of how long they owned their shares. Short-term capital
gains earned by the Fund are paid to shareholders as part of their
ordinary income dividend and are taxable.
Under federal tax law, by the end of a calendar year the Fund must
declare and pay dividends representing 98% of ordinary income for
that calendar year and 98% of net capital gains (both long-term and
short-term) for the 12-month period ending Oct. 31 of that calendar
year. The Fund is subject to an excise tax equal to 4% of the
excess, if any, of the amount required to be distributed over the
amount actually distributed. The Fund intends to comply with
federal tax law and avoid any excise tax.
This is a brief summary that relates to federal income taxation
only. Shareholders should consult their tax advisor as to the
application of federal, state and local income tax laws to Fund
distributions.
AGREEMENTS
Investment Management Services Agreement
The Trust, on behalf of the Portfolio has an Investment Management
Services Agreement with AEFC. For its services, AEFC is paid a fee
based on the following schedule:
Assets Annual rate at
(billions) each asset level
First $1.0 0.520%
Next 1.0 0.495
Next 1.0 0.470
Next 3.0 0.445
Next 3.0 0.420
Over 9.0 0.395
On May 31, 1996, the daily rate applied to the Portfolio's net
assets was equal to 0.510% on an annual basis. The fee is
calculated for each calendar day on the basis of net assets as of
the close of business two business days prior to the day for which
the calculation is made.
The management fee is paid monthly. The total amount paid was
$7,421,829 for the fiscal period ended May 31, 1996, $5,683,320 for
fiscal year ended June 30, 1995, and $5,369,312 for fiscal year
ended June 30, 1994.
The Portfolio also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees; audit and
certain legal fees; fidelity bond premiums; registration fees for
<PAGE>
PAGE 56
units; office expenses; consultants' fees; compensation of board
members, officers and employees; corporate filing fees;
organizational expenses; expenses incurred in connection with
lending securities of the Portfolio; and expenses properly payable
by the Portfolio, approved by the board. The Portfolio paid
nonadvisory expenses of $1,027,003 for the fiscal period ended May
31, 1996, $594,896 for fiscal year ended June 30, 1995, and
$687,292 for fiscal year ended June 30, 1994.
Administrative Services Agreement
The Fund has an Administrative Services Agreement with AEFC. Under
this agreement, the Fund pays AEFC for providing administration and
accounting services. The fee is calculated as follows:
Assets Annual rate
(billions) each asset level
First $1.0 0.050%
Next 1.0 0.045
Next 1.0 0.040
Next 3.0 0.035
Next 3.0 0.030
Over 9.0 0.025
On May 31, 1996, the daily rate applied to the Fund's net assets
was equal to 0.048% on an annual basis. The fee is calculated for
each calendar day on the basis of net assets as of the close of
business two business days prior to the day for which the
calculation is made. Under the agreement, the Fund paid fees of
$699,798 for the fiscal period ended May 31, 1996.
Transfer Agency Agreement
The Fund has a Transfer Agency Agreement with AEFC. This agreement
governs AEFC's responsibility for administering and/or performing
transfer agent functions, for acting as service agent in connection
with dividend and distribution functions and for performing
shareholder account administration agent functions in connection
with the issuance, exchange and redemption or repurchase of the
Fund's shares. Under the agreement, AEFC will earn a fee from the
Fund determined by multiplying the number of shareholder accounts
at the end of the day by a rate determined for each class per year
and dividing by the number of days in the year. The rate for Class
A and Class Y is $15.50 per year and for Class B is $16.50 per
year. The fees paid to AEFC may be changed from time to time upon
agreement of the parties without shareholder approval. Under the
agreement, the Fund paid fees of $1,636,799 for the fiscal period
ended May 31, 1996.
Distribution Agreement
Under a Distribution Agreement, sales charges deducted for
distributing Fund shares are paid to American Express Financial
Advisors daily. These charges amounted to $26,569,611 for the
<PAGE>
PAGE 57
fiscal period ended May 31, 1996. Commissions paid to personal
financial advisors, totaled $30,434,041. The amounts were
$22,676,841 and $11,811,046 for fiscal year ended June 30, 1995,
and $23,989,780 and $15,674,972 for fiscal year ended June 30,
1994.
Additional information about commissions and compensation for the
fiscal period ended May 31, 1996, is contained in the following
table:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Compensation
Name of Underwriting on Redemption
Principal Discounts and and Brokerage Other
Underwriter Commissions Repurchases Commissions Compensation
<S> <C> <C> <C> <C>
AEFC None None None $2,982,481*
American
Express
Financial
Advisors $26,569,611 None None None
</TABLE>
*Distribution fees paid pursuant to the Plan and Agreement of
Distribution.
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.
Plan and Agreement of Distribution
For Class B shares, to help American Express Financial Advisors
defray the cost of distribution and servicing, not covered by the
sales charges received under the Distribution Agreement, the Fund
and American Express Financial Advisors entered into a Plan and
Agreement of Distribution (Plan). These costs cover almost all
aspects of distributing the Fund's shares except compensation to
the sales force. A substantial portion of the costs are not
specifically identified to any one fund in the IDS MUTUAL FUND
GROUP. Under the Plan, American Express Financial Advisors is paid
a fee at an annual rate of 0.75% of the Fund's average daily net
assets attributable to Class B shares.
The Plan must be approved annually by the board, including a
majority of the disinterested board members, if it is to continue
for more than a year. At least quarterly, the board must review
written reports concerning the amounts expended under the Plan and
the purposes for which such expenditures were made. The Plan and
any agreement related to it may be terminated at any time by vote
of a majority of board members who are not interested persons of
the Fund and have no direct or indirect financial interest in the
<PAGE>
PAGE 58
operation of the Plan or in any agreement related to the Plan, or
by vote of a majority of the outstanding voting securities of the
Fund's Class B shares or by American Express Financial Advisors.
The Plan (or any agreement related to it) will terminate in the
event of its assignment, as that term is defined in the 1940 Act,
as amended. The Plan may not be amended to increase the amount to
be spent for distribution without shareholder approval, and all
material amendments to the Plan must be approved by a majority of
the board members, including a majority of the board members who
are not interested persons of the Fund and who do not have a
financial interest in the operation of the Plan or any agreement
related to it. The selection and nomination of disinterested board
members is the responsibility of the other disinterested board
members. No board member who is not an interested person, has any
direct or indirect financial interest in the operation of the Plan
or any related agreement. For the fiscal period ended May 31,
1996, the Fund paid fees of $2,982,481.
Total fees and expenses
Total combined fees and nonadvisory expenses of both the Fund and
the Portfolio cannot exceed the most restrictive applicable state
limitation. Currently, the most restrictive applicable state
expense limitation, subject to exclusion of certain expenses, is
2.5% of the first $30 million of the Fund's average daily net
assets, 2% of the next $70 million and 1.5% of average daily net
assets over $100 million, on an annual basis. At the end of each
month, if the fees and expenses of the Fund exceed this limitation
for the Fund's fiscal year in progress, AEFC will assume all
expenses in excess of the limitation. AEFC then may bill the Fund
for such expenses in subsequent months up to the end of that fiscal
year, but not after that date. No interest charges are assessed by
AEFC for expenses it assumes. The Fund paid total fees and
nonadvisory expenses of $16,141,318 for the fiscal period ended May
31, 1996.
BOARD MEMBERS AND OFFICERS
The following is a list of the Fund's board members and officers
who, except for Mr. Dudley, are also board members and officers of
all other funds in the IDS MUTUAL FUND GROUP. Mr. Dudley is a
board member of the 32 publicly offered funds. The board members
and officers are also board members and officers of all five trusts
in the Preferred Master Trust Group. All shares have cumulative
voting rights with respect to the election of board members.
<PAGE>
PAGE 59
Lynne V. Cheney'
Born in 1941.
American Enterprise Institute
for Public Policy Research (AEI)
1150 17th St., N.W.
Washington, D.C.
Distinguished Fellow AEI. Former Chair of National Endowment of
the Humanities. Director, The Reader's Digest Association Inc.,
Lockheed-Martin, the Interpublic Group of Companies, Inc.
(advertising), and FPL Group, Inc. (holding company for Florida
Power and Light).
William H. Dudley**
Born in 1932.
2900 IDS Tower
Minneapolis, MN
Executive vice president and director of AEFC.
Robert F. Froehlke+
Born in 1922.
1201 Yale Place
Minneapolis, MN
Former president of all funds in the IDS MUTUAL FUND GROUP.
Director, the ICI Mutual Insurance Co., Institute for Defense
Analyses, Marshall Erdman and Associates, Inc. (architectural
engineering) and Public Oversight Board of the American Institute
of Certified Public Accountants.
David R. Hubers+**
Born in 1943.
2900 IDS Tower
Minneapolis, MN
President, chief executive officer and director of AEFC.
Previously, senior vice president, finance and chief financial
officer of AEFC.
Heinz F. Hutter+'
Born in 1929.
P.O. Box 5724
Minneapolis, MN
President and chief operating officer, Cargill, Incorporated
(commodity merchants and processors) from February 1991 to
September 1994. Executive vice president from 1981 to February
1991.
<PAGE>
PAGE 60
Anne P. Jones
Born in 1935.
5716 Bent Branch Rd.
Bethesda, MD
Attorney and telecommunications consultant. Former partner, law
firm of Sutherland, Asbill & Brennan. Director, Motorola, Inc. and
C-Cor Electronics, Inc.
Melvin R. Laird
Born in 1922.
Reader's Digest Association, Inc.
1730 Rhode Island Ave., N.W.
Washington, D.C.
Senior counsellor for national and international affairs, The
Reader's Digest Association, Inc. Chairman of the board, COMSAT
Corporation, former nine-term congressman, secretary of defense and
presidential counsellor. Director, Martin Marietta Corp.,
Metropolitan Life Insurance Co., The Reader's Digest Association,
Inc., Science Applications International Corp., Wallace Reader's
Digest Funds and Public Oversight Board (SEC Practice Section,
American Institute of Certified Public Accountants).
William R. Pearce+*
Born in 1927.
901 S. Marquette Ave.
Minneapolis, MN
President of all funds in the IDS MUTUAL FUND GROUP since June
1993. Former vice chairman of the board, Cargill, Incorporated
(commodity merchants and processors).
Edson W. Spencer+
Born in 1926.
4900 IDS Center
80 S. 8th St.
Minneapolis, MN
President, Spencer Associates Inc. (consulting). Chairman of the
board, Mayo Foundation (healthcare). Former chairman of the board
and chief executive officer, Honeywell Inc. Director, Boise
Cascade Corporation (forest products) and CBS Inc. Member of
International Advisory Councils, Robert Bosch (Germany) and NEC
(Japan).
John R. Thomas**
Born in 1937.
2900 IDS Tower
Minneapolis, MN
Senior vice president and director of AEFC.
<PAGE>
PAGE 61
Wheelock Whitney+
Born in 1926.
1900 Foshay Tower
821 Marquette Ave.
Minneapolis, MN
Chairman, Whitney Management Company (manages family assets).
C. Angus Wurtele'
Born in 1934.
Valspar Corporation
Suite 1700
Foshay Tower
Minneapolis, MN
Chairman of the board, The Valspar Corporation (paints). Director,
Bemis Corporation (packaging), Donaldson Company (air cleaners &
mufflers) and General Mills, Inc. (consumer foods).
+ Member of executive committee.
' Member of joint audit committee.
* Interested person by reason of being an officer and employee of
the Fund.
**Interested person by reason of being an officer, board member,
employee and/or shareholder of AEFC or American Express.
The board also has appointed officers who are responsible for day-
to-day business decisions based on policies it has established.
In addition to Mr. Pearce, who is president, the Fund's other
officers are:
Leslie L. Ogg
Born in 1938.
901 S. Marquette Ave.
Minneapolis, MN
Vice president, general counsel and secretary of all funds in the
IDS MUTUAL FUND GROUP.
Officers who also are officers and/or employees of AEFC
Peter J. Anderson
Born in 1942.
IDS Tower 10
Minneapolis, MN
Vice president-investments of all funds in the IDS MUTUAL FUND
GROUP. Director and senior vice president-investments of AEFC.
<PAGE>
PAGE 62
Melinda S. Urion
Born in 1953.
IDS Tower 10
Minneapolis, MN
Treasurer of all funds in the IDS MUTUAL FUND GROUP. Director,
senior vice president and chief financial officer of AEFC.
Director and executive vice president and controller of IDS Life
Insurance Company.
Members of the board who are not officers of the Fund or of AEFC
receive an annual fee of $1,800. They also receive attendance and
other fees, the cost of which the Fund shares with the other funds
in the IDS MUTUAL FUND GROUP. These fees include attendance of
meetings of the Board, $1,000; meetings of the Contracts Committee,
$750; meetings of the Audit, Executive or Investment Review
Committees, $500; meetings of the Personnel Committee, $300; out-
of-state, $500; and Chair of the Contracts Committee, $5,000.
Expenses for attending those meetings are also reimbursed.
During the fiscal period ended May 31, 1996, the members of the
board, for attending up to 24 meetings, received the following
compensation:
<TABLE>
<CAPTION>
Compensation Table
Pension or Estimated
Aggregate Retirement annual Total cash
compensation benefits benefit compensation
from the accrued as upon from the IDS
Board member Fund Fund expenses* retirement MUTUAL FUND GROUP
<S> <C> <C> <C> <C>
Lynne V. Cheney $2,027 $ 766 $900 $69,800
Robert F. Froehlke 2,014 2,599 900 69,300
Heinz F. Hutter 2,041 1,235 435 70,300
Anne P. Jones 2,054 758 900 70,800
Donald M. Kendall 1,818 3,365 900 62,500
(Part of Year)
Melvin R. Laird 2,101 1,999 900 72,600
Lewis W. Lehr 1,877 957 878 64,800
(Part of Year)
Edson W. Spencer 2,146 495 480 74,300
Wheelock Whitney 2,034 1,390 900 70,000
C. Angus Wurtele 1,962 1,317 893 67,300
</TABLE>
On May 31, 1996, the Fund's board members and officers as a group
owned less than 1% of the outstanding shares. During the fiscal
period ended May 31, 1996, no board member or officer earned more
than $60,000 from this Fund. All board members and officers as a
group earned $48,863, including $14,881 of retirement plan
benefits, from this Fund.
*The Fund had a retirement plan for its independent board members.
The plan was terminated April 30, 1996.
CUSTODIAN
The Trust's securities and cash are held by American Express Trust
Company, 1200 Northstar Center West, 625 Marquette Ave.,
Minneapolis, MN 55402-2307, through a custodian agreement. The
Fund also retains the custodian pursuant to a custodian agreement.
<PAGE>
PAGE 63
The custodian is permitted to deposit some or all of its securities
in central depository systems as allowed by federal law. For its
services, the Portfolio pays the custodian a maintenance charge per
portfolio and a charge per transaction in addition to reimbursing
the custodian's out-of-pocket expenses.
INDEPENDENT AUDITORS
The financial statements contained in the Annual Report to
shareholders for the fiscal period ended May 31, 1996, were audited
by independent auditors, KPMG Peat Marwick LLP, 4200 Norwest
Center, 90 S. Seventh St., Minneapolis, MN 55402-3900. The
independent auditors also provide other accounting and tax-related
services as requested by the Fund.
FINANCIAL STATEMENTS
The Independent Auditors' Report and the Financial Statements,
including Notes to the Financial Statements and the Schedule of
Investments in Securities, contained in the 1996 Annual Report to
shareholders, pursuant to Section 30(d) of the Investment Company
Act of 1940, as amended, are hereby incorporated in this SAI by
reference. No other portion of the Annual Report, however, is
incorporated by reference.
PROSPECTUS
The prospectus for IDS Federal Income Fund dated July 30, 1996, is
hereby incorporated in this SAI by reference.
<PAGE>
PAGE 64
APPENDIX A
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Commercial paper rated Prime-1 (P-1) by Moody's or A-1 by S&P
indicates that the degree of safety regarding timely repayment is
either overwhelming or very strong.
Commercial paper rated P-2 or A-2 indicates that capacity for
timely payment on issues with this designation is strong.
<PAGE>
PAGE 65
APPENDIX B
OPTIONS AND INTEREST RATE FUTURES CONTRACTS
The Portfolio may buy or write options traded on any U.S. exchange
or in the over-the-counter market. The Portfolio may enter into
interest rate futures contracts traded on any U.S. exchange. The
Portfolio also may buy or write put and call options on these
futures. Options in the over-the-counter market will be purchased
only when the investment manager believes a liquid secondary market
exists for the options and only from dealers and institutions the
investment manager believes present a minimal credit risk. Some
options are exercisable only on a specific date. In that case, or
if a liquid secondary market does not exist, the Portfolio could be
required to buy or sell securities at disadvantageous prices,
thereby incurring losses.
OPTIONS. An option is a contract. A person who buys a call option
for a security has the right to buy the security at a set price for
the length of the contract. A person who sells a call option is
called a writer. The writer of a call option agrees to sell the
security at the set price when the buyer wants to exercise the
option, no matter what the market price of the security is at that
time. A person who buys a put option has the right to sell a
security at a set price for the length of the contract. A person
who writes a put option agrees to buy the security at the set price
if the purchaser wants to exercise the option, no matter what the
market price of the security is at that time. An option is covered
if the writer owns the security (in the case of a call) or sets
aside the cash (in the case of a put) that would be required upon
exercise.
The price paid by the buyer for an option is called a premium. In
addition the buyer generally pays a broker a commission. The
writer receives a premium, less a commission, at the time the
option is written. The cash received is retained by the writer
whether or not the option is exercised. A writer of a call option
may have to sell the security for a below-market price if the
market price rises above the exercise price. A writer of a put
option may have to pay an above-market price for the security if
its market price decreases below the exercise price.
Options can be used to produce incremental earnings, protect gains
and facilitate buying and selling securities for investment
purposes. The use of options and futures contracts may benefit the
Portfolio and its shareholders by improving the Portfolio's
liquidity and by helping to stabilize the value of its net assets.
Buying options. Put and call options may be used as a trading
technique to facilitate buying and selling securities for
investment reasons. Options are used as a trading technique to
take advantage of any disparity between the price of the underlying
security in the securities market and its price on the options
market. It is anticipated the trading technique will be utilized
only to effect a transaction when the price of the security plus
<PAGE>
PAGE 66
the option price will be as good or better than the price at which
the security could be bought or sold directly. When the option is
purchased, the Portfolio pays a premium and a commission. It then
pays a second commission on the purchase or sale of the underlying
security when the option is exercised. For record keeping and tax
purposes, the price obtained on the purchase of the underlying
security will be the combination of the exercise price, the premium
and both commissions. When using options as a trading technique,
commissions on the option will be set as if only the underlying
securities were traded.
Put and call options also may be held by the Portfolio for
investment purposes. Options permit the Portfolio to experience
the change in the value of a security with a relatively small
initial cash investment. The risk the Portfolio assumes when it
buys an option is the loss of the premium. To be beneficial to the
Portfolio, the price of the underlying security must change within
the time set by the option contract. Furthermore, the change must
be sufficient to cover the premium paid, the commissions paid both
in the acquisition of the option and in a closing transaction or in
the exercise of the option and subsequent sale (in the case of a
call) or purchase (in the case of a put) of the underlying
security. Even then the price change in the underlying security
does not ensure a profit since prices in the option market may not
reflect such a change.
Writing covered options. The Portfolio will write covered options
when it feels it is appropriate and will follow these guidelines:
'Underlying securities will continue to be bought or sold solely on
the basis of investment considerations consistent with the
Portfolio's goals.
'All options written by the Portfolio will be covered. For covered
call options if a decision is made to sell the security, the
Portfolio will attempt to terminate the option contract through a
closing purchase transaction.
'The Portfolio will write options only as permitted under federal
or state laws or regulations, such as those that limit the amount
of total assets subject to the options. While no limit has been
set by the Portfolio, it will conform to the requirements of those
states. For example, California limits the writing of options to
50% of the assets of a fund.
Net premiums on call options closed or premiums on expired call
options are treated as short-term capital gains. Since the
Portfolio is taxed as a regulated investment company under the
Internal Revenue Code, any gains on options and other securities
held less than three months must be limited to less than 30% of its
annual gross income.
If a covered call option is exercised, the security is sold by the
Portfolio. The Portfolio will recognize a capital gain or loss
based upon the difference between the proceeds and the security's
basis.
<PAGE>
PAGE 67
Options on many securities are listed on options exchanges. If the
Portfolio writes listed options, it will follow the rules of the
options exchange. Options are valued at the close of the New York
Stock Exchange. An option listed on a national exchange, Chicago
Board Options Exchange (CBOE) or NASDAQ will be valued at the last-
quoted sales price or, if such a price is not readily available, at
the mean of the last bid and asked prices.
Options on Government National Mortgage Association (GNMA)
certificates and certain other securities are not actively traded
on any exchange, but may be entered into directly with a dealer.
When the Portfolio writes such an option, the Custodian will
segregate assets as appropriate to cover the option. However,
since the remaining principal balance of GNMA certificates declines
each month as a result of mortgage payments, the Portfolio may find
that the GNMA certificates it holds as "cover" no longer have a
sufficient remaining principal balance for this purpose. A GNMA
certificate held by the Portfolio also may cease to represent cover
for the option if the GNMA coupon rate at which new pools are
originated under the FHA/VA loan ceiling in effect at any given
time is reduced. If either event should occur, the Portfolio will
either enter into a closing purchase transaction or replace
certificates with certificates that represent cover. When the
Portfolio closes its position or replaces certificates, it may
realize an unanticipated loss and incur transaction costs.
FUTURES CONTRACTS. A futures contract is an agreement between two
parties to buy and sell a security for a set price on a future
date. They have been established by boards of trade which have
been designated contracts markets by the Commodity Futures Trading
Commission (CFTC). Futures contracts trade on these markets in a
manner similar to the way a stock trades on a stock exchange, and
the boards of trade, through their clearing corporations, guarantee
performance of the contracts. Currently, there are futures
contracts based on such debt securities as long-term U.S. Treasury
bonds, Treasury notes, GNMA modified pass-through mortgage-backed
securities, three-month U.S. Treasury bills and bank certificates
of deposit. While futures contracts based on debt securities do
provide for the delivery and acceptance of securities, such
deliveries and acceptances are very seldom made. Generally, the
futures contract is terminated by entering into an offsetting
transaction. An offsetting transaction for a futures contract sale
is effected by the Portfolio entering into a futures contract
purchase for the same aggregate amount of the specific type of
financial instrument and same delivery date. If the price in the
sale exceeds the price in the offsetting purchase, the Portfolio
immediately is paid the difference and realizes a gain. If the
offsetting purchase price exceeds the sale price, the Portfolio
pays the difference and realizes a loss. Similarly, closing out a
futures contract purchase is effected by the Portfolio entering
into a futures contract sale. If the offsetting sale price exceeds
the purchase price, the Portfolio realizes a gain, and if the
offsetting sale price is less than the purchase price, the
Portfolio realizes a loss. At the time a futures contract is made,
a good-faith deposit called initial margin is set up within a
<PAGE>
PAGE 68
segregated account at the Portfolio's custodian bank. The initial
margin deposit is approximately 1.5% of a contract's face value.
Daily thereafter, the futures contract is valued and the payment of
variation margin is required so that each day the Portfolio would
pay out cash in an amount equal to any decline in the contract's
value or receive cash equal to any increase. At the time a futures
contract is closed out, a nominal commission is paid, which is
generally lower than the commission on a comparable transaction in
the cash markets.
The purpose of a futures contract, in the case of a portfolio
holding long-term debt securities, is to gain the benefit of
changes in interest rates without actually buying or selling long-
term debt securities. For example, if the Portfolio owned long-
term bonds and interest rates were expected to increase, it might
enter into futures contracts to sell securities which would have
much the same effect as selling some of the long-term bonds it
owned. Futures contracts are based on types of debt securities
referred to above, which have historically reacted to an increase
or decline in interest rates in a fashion similar to the debt
securities the Portfolio owns. If interest rates did increase, the
value of the debt securities in the portfolio would decline, but
the value of the Portfolio's futures contracts would increase at
approximately the same rate, thereby keeping the net asset value of
the Portfolio from declining as much as it otherwise would have.
If, on the other hand, the Portfolio held cash reserves and
interest rates were expected to decline, the Portfolio might enter
into interest rate futures contracts for the purchase of
securities. If short-term rates were higher than long-term rates,
the ability to continue holding these cash reserves would have a
very beneficial impact on the Portfolio's earnings. Even if short-
term rates were not higher, the Portfolio would still benefit from
the income earned by holding these short-term investments. At the
same time, by entering into futures contracts for the purchase of
securities, the Portfolio could take advantage of the anticipated
rise in the value of long-term bonds without actually buying them
until the market had stabilized. At that time, the futures
contracts could be liquidated and the Portfolio's cash reserves
could then be used to buy long-term bonds on the cash market. The
Portfolio could accomplish similar results by selling bonds with
long maturities and investing in bonds with short maturities when
interest rates are expected to increase or by buying bonds with
long maturities and selling bonds with short maturities when
interest rates are expected to decline. But by using futures
contracts as an investment tool, given the greater liquidity in the
futures market than in the cash market, it might be possible to
accomplish the same result more easily and more quickly.
Successful use of futures contracts depends on the investment
manager's ability to predict the future direction of interest
rates. If the investment manager's prediction is incorrect, the
Portfolio would have been better off had it not entered into
futures contracts.
<PAGE>
PAGE 69
OPTIONS ON FUTURES CONTRACTS. Options on futures contracts give
the holder a right to buy or sell futures contracts in the future.
Unlike a futures contract, which requires the parties to the
contract to buy and sell a security on a set date, an option on a
futures contract merely entitles its holder to decide on or before
a future date (within nine months of the date of issue) whether to
enter into such a contract. If the holder decides not to enter
into the contract, all that is lost is the amount (premium) paid
for the option. Furthermore, because the value of the option is
fixed at the point of sale, there are no daily payments of cash to
reflect the change in the value of the underlying contract.
However, since an option gives the buyer the right to enter into a
contract at a set price for a fixed period of time, its value does
change daily and that change is reflected in the net asset value of
the Portfolio.
RISKS. There are risks in engaging in each of the management tools
described above. The risk the Portfolio assumes when it buys an
option is the loss of the premium paid for the option. Purchasing
options also limits the use of monies that might otherwise be
available for long-term investments.
The risk involved in writing options on futures contracts the
Portfolio owns, or on securities held in its portfolio, is that
there could be an increase in the market value of such contracts or
securities. If that occurred, the option would be exercised and
the asset sold at a lower price than the cash market price. To
some extent, the risk of not realizing a gain could be reduced by
entering into a closing transaction. The Portfolio could enter
into a closing transaction by purchasing an option with the same
terms as the one it had previously sold. The cost to close the
option and terminate the Portfolio's obligation, however, might be
more or less than the premium received when it originally wrote the
option. Furthermore, the Portfolio might not be able to close the
option because of insufficient activity in the options market.
A risk in employing futures contracts to protect against the price
volatility of securities is that the prices of securities subject
to futures contracts may not correlate perfectly with the behavior
of the cash prices of the Portfolio's securities. The correlation
may be distorted because the futures market is dominated by short-
term traders seeking to profit from the difference between a
contract or security price and their cost of borrowed funds. Such
distortions are generally minor and would diminish as the contract
approached maturity.
Another risk is that the Portfolio's investment manager could be
incorrect in anticipating as to the direction or extent of various
interest rate movements or the time span within which the movements
take place. For example, if the Portfolio sold futures contracts
for the sale of securities in anticipation of an increase in
interest rates, and interest rates declined instead, the Portfolio
would lose money on the sale.
<PAGE>
PAGE 70
TAX TREATMENT. As permitted under federal income tax laws, the
Portfolio intends to identify futures contracts as mixed straddles
and not mark them to market, that is, not treat them as having been
sold at the end of the year at market value. Such an election may
result in the Portfolio being required to defer recognizing losses
incurred by entering into futures contracts and losses on
underlying securities identified as being hedged against.
Federal income tax treatment of gains or losses from transactions
in options on futures contracts and indexes will depend on whether
such option is a section 1256 contract. If the option is a non-
equity option, the Portfolio will either make a 1256(d) election
and treat the option as a mixed straddle or mark to market the
option at fiscal year end and treat the gain/loss as 40% short-term
and 60% long-term. Certain provisions of the Internal Revenue Code
may also limit the Portfolio's ability to engage in futures
contracts and related options transactions. For example, at the
close of each quarter of the Portfolio's taxable year, at least 50%
of the value of its assets must consist of cash, government
securities and other securities, subject to certain diversification
requirements. Less than 30% of its gross income must be derived
from sales of securities held less than three months.
The IRS has ruled publicly that an exchange-traded call option is a
security for purposes of the 50%-of-assets test and that its issuer
is the issuer of the underlying security, not the writer of the
option, for purposes of the diversification requirements. In order
to avoid realizing a gain within the three-month period, the
Portfolio may be required to defer closing out a contract beyond
the time when it might otherwise be advantageous to do so. The
Portfolio also may be restricted in purchasing put options for the
purpose of hedging underlying securities because of applying the
short sale holding period rules with respect to such underlying
securities.
Accounting for futures contracts will be according to generally
accepted accounting principles. Initial margin deposits will be
recognized as assets due from a broker (the Portfolio's agent in
acquiring the futures position). During the period the futures
contract is open, changes in value of the contract will be
recognized as unrealized gains or losses by marking to market on a
daily basis to reflect the market value of the contract at the end
of each day's trading. Variation margin payments will be made or
received depending upon whether gains or losses are incurred. All
contracts and options will be valued at the last-quoted sales price
on their primary exchange.
<PAGE>
PAGE 71
APPENDIX C
MORTGAGE PASS-THROUGH CERTIFICATES
A mortgage pass-through certificate is one that represents an
interest in a pool, or group, of mortgage loans assembled by the
Government National Mortgage Association (GNMA), Federal Home Loan
Mortgage Corporation (FHLMC), Federal National Mortgage Association
(FNMA) or non-governmental entities. In pass-through certificates,
both principal and interest payments, including prepayments, are
passed through to the holder of the certificate on a monthly basis.
Prepayments on underlying mortgages result in a loss of anticipated
interest, and the actual yield (or total return) to the fund, which
is influenced by both stated interest rates and market conditions,
but may be different than the quoted yield on certificates.
GNMA, a wholly owned U.S. government corporation within the
Department of Housing and Urban Development (HUD). GNMA pass-
though certificates are guaranteed by the full faith and credit of
the United States as to the timely payment of principal and
interest. FHLMC and FNMA are government-sponsored entities. These
government-sponsored entities are not backed by the full faith and
credit of the United States for repayment of mortgage-backed
securities, but do have the right to borrow from the Treasury.
While GNMA and FNMA guarantee the timely payment of both interest
and principal, FHLMC only guarantees the timely payment of interest
and the eventual payment of principal. Each certificate issued by
GNMA or FNMA evidences an interest in a specific pool of mortgage
loans insured by the Farmers Home Administration (FHA) or
guaranteed by the Veterans Administration (VA). GNMA and FNMA were
developed to support the FHA and VA mortgage market while FHLMC was
created by Congress to provide additional support for conventional
mortgages not insured by the FHA or VA.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market
issuers also create pass-through pools of mortgage loans. Pools
created by such non-governmental issuers generally offer a higher
rate of interest than U.S. government and government-related pools
because there are no direct or indirect U.S. government guarantees
of payments. Timely payment of interest and principal of these
pools is supported by various forms of insurance or guarantees,
including individual loan, title, pool and hazard insurance. The
insurance and guarantees are issued by U.S. government entities,
private insurers and the mortgage poolers.
Underlying Mortgages of the Pool. Pools consist of whole mortgage
loans or participations in loans. The majority of these loans are
made to purchasers of 1-4 family homes. The terms and
characteristics of the mortgage instruments generally are uniform
within a pool but may vary among pools. For example, in addition
to fixed-rate fixed-term mortgages, the Portfolio may purchase
pools of variable rate mortgages, growing equity mortgages,
graduated payment mortgages and other types.
<PAGE>
PAGE 72
All servicers apply standards for qualification to local lending
institutions which originate mortgages for the pools. Servicers
also establish credit standards and underwriting criteria for
individual mortgages included in the pools. In addition, many
mortgages included in pools are insured through private mortgage
insurance companies.
Average Life of Certificates. The average life of certificates
varies with the maturities of the underlying mortgage instruments
which have maximum maturities of 30 years. The average life is
likely to be substantially less than the original maturity of the
mortgage pools underlying the securities as the result of
prepayments or refinancing of such mortgages. Such prepayments are
passed through to the registered holder with the regular monthly
payments of principal and interest.
As prepayment rates vary widely, it is not possible to accurately
predict the average life of a particular pool. It is customary in
the mortgage industry in quoting yields on a pool of 30-year
mortgages to compute the yield as if the pool were a single loan
that is amortized according to a 30-year schedule and that is
prepaid in full at the end of the 12th year. For this reason, it
is standard practice to treat GNMA certificates as 30-year
mortgage-backed securities which prepay fully in the 12th year.
In contrast to mortgage loans backing GNMA pass-throughs, which can
be assumed by the buyer, conventional loans backing FHLMC and FNMA
pass-through certificates are due on sale. The prepayment rate is
higher for these types of conventional loans because of the non-
assumability of FHLMC and FNMA mortgages.
Calculation of Yields. Yields on pass-through securities are
typically quoted based on the maturity of the underlying
instruments and the associated average life assumption.
Actual pre-payment experience may cause the yield to differ from
the assumed average life yield. When mortgage rates drop, pre-
payments will increase, thus reducing the yield. Reinvestment of
pre-payments may occur at higher or lower interest rates than the
original investment, thus affecting the yield of the Portfolio.
The compounding effect from reinvestments of monthly payments
received by the Portfolio will increase the yield to shareholders
compared to bonds that pay interest semi-annually. The yield also
may be affected if the certificate was issued at a premium or
discount, rather than at par. This also applies after issuance to
certificates trading in the secondary market at a premium or
discount.
"When-Issued" Certificates. Some U.S. government securities may be
purchased on a "when-issued" basis, which means that it may take as
long as 45 days after the purchase before the securities are
delivered to the Portfolio. Payment and interest terms, however,
are fixed at the time the purchaser enters into the commitment.
However, the yield on a comparable certificate when the transaction
<PAGE>
PAGE 73
is consummated may vary from the yield on the certificate at the
time that the when-issued transaction was made. The Portfolio does
not pay for the securities or start earning interest on them until
the contractual settlement date. When-issued securities are
subject to market fluctuations and they may affect the Portfolio's
gross assets the same as owned securities.
Market for Certificates. Since the inception of the mortgage
market in the 1970's, the amount of certificates outstanding has
grown rapidly. The size of the market and the active participation
in the secondary market by securities dealers and many types of
investors make the certificates a highly liquid instrument. Prices
of certificates are readily available from securities dealers and
depend on, among other things, the level of market interest rates,
the certificate's coupon rate and the prepayment experience of the
pool of mortgages underlying each certificate.
<PAGE>
PAGE 74
APPENDIX D
DOLLAR-COST AVERAGING
A technique that works well for many investors is one that
eliminates random buy and sell decisions. One such system is
dollar-cost averaging. Dollar-cost averaging involves building a
portfolio through the investment of fixed amounts of money on a
regular basis regardless of the price or market condition. This
may enable an investor to smooth out the effects of the volatility
of the financial markets. By using this strategy, more shares will
be purchased when the price is low and less when the price is high.
As the accompanying chart illustrates, dollar-cost averaging tends
to keep the average price paid for the shares lower than the
average market price of shares purchased, although there is no
guarantee.
While this does not ensure a profit and does not protect against a
loss if the market declines, it is an effective way for many
shareholders who can continue investing through changing market
conditions to accumulate shares in a fund to meet long-term goals.
Dollar-cost averaging
___________________________________________________________________
Regular Market Price Shares
Investment of a Share Acquired
$100 $6.00 16.7
100 4.00 25.0
100 4.00 25.0
100 6.00 16.7
100 5.00 20.0
$500 $25.00 103.4
Average market price of a share over 5 periods:
$5.00 ($25.00 divided by 5).
The average price you paid for each share:
$4.84 ($500 divided by 103.4).
<PAGE>
PAGE 75
Independent auditors' report
The board 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 May 31, 1996, and the
related statements of operations and changes in net assets, and the
financial highlights for the eleven months then ended and the
statement of changes in net assets for the year ended June 30, 1995
and the financial highlights for each of the years in the nine-year
period ended June 30, 1995. 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 May 31, 1996, and the results of its
operations and changes in its net assets for the eleven months then
ended and the changes in its net assets for the year ended June 30,
1995, and the financial highlights for the periods stated in the
first paragraph above, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
July 5, 1996
<PAGE>
PAGE 76
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
IDS Federal Income Fund, Inc.
May 31, 1996
_____________________________________________________________________________________________________________
Assets
_____________________________________________________________________________________________________________
<S> <C>
Investments in securities, at value (Note 1)
(identified cost $1,751,340,289) $1,741,569,276
Accrued interest receivable 9,895,703
Receivable for investment securities sold 257,702,808
_____________________________________________________________________________________________________________
Total assets 2,009,167,787
_____________________________________________________________________________________________________________
Liabilities
_____________________________________________________________________________________________________________
Disbursements in excess of cash on demand deposit 11,836,711
Dividends payable to shareholders 898,226
Payable for investment securities purchased 278,109,499
Accrued investment management services fee 24,117
Accrued distribution fee 10,774
Accrued service fee 7,801
Accrued transfer agency fee 5,250
Accrued administrative services fee 2,267
Other accrued expenses 440,007
Open option contracts written, at value
(premium received $4,398,857)(Note 5) 3,865,038
_____________________________________________________________________________________________________________
Total liabilities 295,199,690
_____________________________________________________________________________________________________________
Net assets applicable to outstanding capital stock $1,713,968,097
_____________________________________________________________________________________________________________
Represented by
_____________________________________________________________________________________________________________
Capital stock -- authorized 10,000,000,000 shares of $.01 par value $ 3,481,647
Additional paid-in capital 1,762,945,613
Undistributed net investment income 873,023
Accumulated net realized loss (Notes 1 and 7) (47,208,634)
Unrealized depreciation (Note 4) (6,123,552)
_____________________________________________________________________________________________________________
Total -- representing net assets applicable to outstanding capital stock $1,713,968,097
_____________________________________________________________________________________________________________
Net assets applicable to outstanding shares: Class A $1,095,222,866
Class B $ 519,857,677
Class Y $ 98,887,554
Net asset value per share of outstanding capital stock: Class A shares 222,446,482 $ 4.92
Class B shares 105,626,695 $ 4.92
Class Y shares 20,091,530 $ 4.92
See accompanying notes to financial statements.
<PAGE>
PAGE 77
Financial statements
Statement of operations
IDS Federal Income Fund, Inc.
Eleven months ended May 31, 1996
_____________________________________________________________________________________________________________
Investment income
_____________________________________________________________________________________________________________
Income:
Interest $ 105,533,391
_____________________________________________________________________________________________________________
Expenses (Note 2):
Investment management services fee 7,421,829
Distribution fee -- Class B 2,982,481
Transfer agency fee 1,608,801
Incremental transfer agency fee -- Class B 27,978
Service fee
Class A 1,681,522
Class B 691,906
Administrative services fee 699,798
Compensation of board members 34,588
Compensation of officers 12,275
Custodian fees 126,580
Postage 270,324
Registration fees 468,038
Reports to shareholders 57,109
Audit fees 35,000
Administrative 12,524
Other 20,440
_____________________________________________________________________________________________________________
Total expenses 16,151,193
Earnings credits on cash balances (Note 2) (9,875)
_____________________________________________________________________________________________________________
Total net expenses 16,141,318
_____________________________________________________________________________________________________________
Investment income -- net 89,392,073
_____________________________________________________________________________________________________________
Realized and unrealized gain (loss) -- net
_____________________________________________________________________________________________________________
Net realized gain on security transactions (Note 3) 13,465,253
Net realized loss on closed interest rate futures contracts (14,075,204)
Net realized gain on closed, exercised or expired option
contracts written (Note 5) 11,046,124
_____________________________________________________________________________________________________________
Net realized gain on investments 13,465,253
Net change in unrealized appreciation or depreciation (28,963,992)
_____________________________________________________________________________________________________________
Net loss on investments (18,527,819)
_____________________________________________________________________________________________________________
Net increase in net assets resulting from operations $ 70,864,254
_____________________________________________________________________________________________________________
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 78
<TABLE>
<CAPTION>
Financial statements
Statements of changes in net assets
IDS Federal Income Fund, Inc.
_____________________________________________________________________________________________________________
Operations and distributions May 31, 1996 June 30, 1995
_____________________________________________________________________________________________________________
Eleven months ended Year ended
<S> <C> <C>
Investment income -- net $ 89,322,121 $ 71,607,308
Net realized gain/(loss) on investments 10,436,173 (23,666,307)
Net change in unrealized appreciation or depreciation (28,963,992) 52,857,972
_____________________________________________________________________________________________________________
Net increase in net assets resulting from operations 70,864,254 100,798,973
_____________________________________________________________________________________________________________
Distributions to shareholders from:
Net investment income
Class A (61,393,266) (64,225,838)
Class B (22,254,823) (4,334,929)
Class Y (5,539,421) (1,938,661)
_____________________________________________________________________________________________________________
Total distributions (89,187,510) (70,499,428)
_____________________________________________________________________________________________________________
Capital share transactions (Note 6)
_____________________________________________________________________________________________________________
Proceeds from sales
Class A shares (Note 2) 747,243,121 641,569,225
Class B shares 594,129,348 138,024,110
Class Y shares 39,504,359 89,538,242
Fund merger (Note 8)
Class A shares -- 3,521,950
Class B shares -- 213,190,532
Reinvestment of distributions at net asset value
Class A shares 52,527,243 54,545,686
Class B shares 21,396,595 4,222,182
Class Y shares 5,539,139 1,657,604
Payments for redemptions
Class A shares (670,726,520) (771,657,740)
Class B shares (Note 2) (381,443,715) (68,176,074)
Class Y shares (30,634,859) (7,300,426)
_____________________________________________________________________________________________________________
Increase in net assets from capital share transactions 377,534,711 299,135,291
_____________________________________________________________________________________________________________
Total increase in net assets 359,211,455 329,434,836
Net assets at beginning of period 1,354,756,642 1,025,321,806
_____________________________________________________________________________________________________________
Net assets at end of period
(including undistributed net investment income of
$873,023 and $668,460) $1,713,968,097 $1,354,756,642
_____________________________________________________________________________________________________________
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PAGE 79
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.
The goal of the Fund is 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. 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 after eight years. Class Y shares have no
sales charge and are offered only to qualifying institutional
investors.
All classes of shares have identical voting, dividend, liquidation
and other rights, and the same terms and conditions, except that
the level of distribution fee, transfer agency fee and service fee
(class specific expenses) differs among classes. Income, expenses
(other than class specific expenses) and realized and unrealized
gains or losses on investments are allocated to each class of
shares based upon its relative net assets.
Significant accounting policies followed by the Fund are summarized
below:
Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of increase and decrease in net assets from
operations during the period. Actual results could differ from
those estimates.
Valuation of securities
All securities are valued at the close of each business day.
Securities traded on national securities exchanges or included in
national market systems are valued at the last quoted sales price;
securities for which market quotations are not readily available
are valued at fair value according to methods selected in good
faith by the board. Determination of fair value involves, among
other things, reference to market indexes, matrixes and data from
independent brokers. Short-term securities maturing in more than 60
days from the valuation date are valued at the market price or
approximate market value based on current interest rates; those
maturing in 60 days or less are valued at amortized cost.
<PAGE>
PAGE 80
Option 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 and call 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.
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 transactioin date. During this period,
such securitites are subject to market fluctuations, and they may
<PAGE>
PAGE 81
affect the Fund's net assets the same as owned securities. The fund
designates cash or liquid high-grade short-term debt securities at
least equal to the amount of its commitment. As of May 31, 1996,
the Fund had entered into outstanding when-issued or forward
commitments of $250,159,288.
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
fiscal year in which amounts are distributed may differ from the
year that the income or realized gains (losses) were recorded by
the Fund.
Dividends to shareholders
Dividends from net investment income, declared daily and payable
monthly, are reinvested in additional shares of the Fund at net
asset value or payable in cash. Capital gains, when available, are
distributed along with the last income dividend of the calendar
year.
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
Effective March 20, 1995, the Fund entered into agreements with
American Express Financial Corporation (AEFC) for managing its
portfolio, providing administrative services and serving as
transfer agent as follows: Under its Investment Management Services
Agreement, AEFC determines which securities will be purchased, held
or sold. The management fee is a percentage of the Fund's average
daily net assets in reducing percentages from 0.52% to 0.395%
annually.
Under an 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.
<PAGE>
PAGE 82
Under a separate Transfer Agency Agreement, AEFC maintains
shareholder accounts and records. The Fund pays AEFC an annual fee
per shareholder account for this service as follows:
o Class A $15.50
o Class B $16.50
o Class Y $15.50
Also effective March 20, 1995, the Fund entered into agreements
with American Express Financial Advisors Inc. for distribution and
shareholder servicing- related services as follows: 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.
AEFC will assume and pay any expenses (except taxes and brokerage
commissions) that exceed the most restrictive applicable state
expense limitation.
Sales charges received by American Express Financial Advisors Inc.
for distributing Fund shares were $26,301,380 for Class A and
$268,231 for Class B for the fiscal period ended May 31, 1996. The
Fund also pays custodian fees to American Express Trust Company, an
affiliate of AEFC.
During the fiscal period ended May 31, 1996, the Fund's custodian
and transfer agency fees were reduced by $9,875 as a result of
earnings credits from overnight cash balances.
Prior to April 30, 1996, the Fund had a retirement plan for its
independent board members. The plan was terminated April 30, 1996.
The retirement plan expense amounted to $14,881 for the period
ended May 31, 1996. The total liability for the plan is $61,505
which will be paid out at some future date.
___________________________________________________________________
3. Securities transactions
Cost of purchases and proceeds from sales of securities (other than
short-term obligations) aggregated $2,203,791,501 and
$1,794,838,755, respectively, for the fiscal period ended May 31,
1996. Realized gains and losses are determined on an identified
cost basis. Income from securities lending amounted to $64,299 for
the fiscal period ended May 31, 1996. The risks to the Fund of
securities lending are that the borrower may not provide additional
collateral when required or return the securities when due.
<PAGE>
PAGE 83
___________________________________________________________________
4. Interest rate futures contracts
At May 31, 1996, investments in securities included securities
valued at $45,085,832 that were pledged as collateral to cover
initial margin deposits on 1,401 open purchase contracts and 2,611
open sale contracts. The market value of the open contracts at May
31, 1996 was $428,651,661 with a net unrealized gain of $3,113,642.
___________________________________________________________________
5. Options contracts written
The number of contracts and premium amounts associated with options
contracts written is as follows:
<TABLE><CAPTION>
Period ended May 31, 1996
__________________________________________________________________________
Puts Calls MBS Puts and Calls
__________________________________________________________________________
Contracts Premium Contracts Premium Contracts Premium
<S> <C> <C> <C> <C> <C> <C>
_________________________________________________________________________________________________
Balance June 30, 1995 1,325 $ 1,198,457 1,016 $ 1,902,171 -- $ --
Opened 11,302 12,521,721 24,312 28,298,803 91,175 4,771,904
Closed (8,584) (10,411,886) (16,450) (21,370,797) (65,300) (3,550,278)
Exercised (2,542) (2,753,498) (3,187) (2,863,151) (7,600) (308,042)
Expired (1,501) (554,794) (2,688) (2,322,380) (3,400) (159,375)
_________________________________________________________________________________________________
Balance May 31, 1996 -- $ -- 3,003 $ 3,644,648 14,875 $ 754,209
_________________________________________________________________________________________________
</TABLE>
___________________________________________________________________
6. Capital share transactions
Transactions in shares of capital stock for the periods indicated
are as follows:
Eleven months ended May 31, 1996
Class A Class B Class Y
_____________________________________________________________
Sold 149,105,568 118,610,090 7,980,462
Issued for reinvested 10,494,421 4,273,427 1,106,730
distributions
Redeemed (133,889,465) (76,081,026) (6,205,925)
_____________________________________________________________
Net increase 25,710,524 46,802,491 2,881,267
_____________________________________________________________
Year ended June 30, 1995
Class A Class B* Class Y*
____________________________________________________________
Sold 132,313,514 28,069,540 18,364,074
Fund Merger 723,045 43,767,303 --
Issued for reinvested 11,239,784 856,748 336,591
distributions
Redeemed (159,116,207) (13,869,387) (1,490,402)
_____________________________________________________________
Net increase (decrease) (14,839,864) 58,824,204 17,210,263
_____________________________________________________________
*Inception date was March 20, 1995.
<PAGE>
PAGE 84
___________________________________________________________________
7. Capital loss carryover
For federal income tax purposes, the Fund had a capital loss
carryover of $24,453,239 at May 31, 1996, that if not offset by
subsequent capital gains, will expire in 2003. 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.
___________________________________________________________________
8. Fund merger
On March 17, 1995, IDS Federal Income Fund acquired the assets and
assumed the identified liabilities of IDS Strategy -- Short-Term
Income Fund.
The aggregate net assets of IDS Federal Income Fund immediately
before the acquisition was $1,015,587,336.
The merger was accomplished by a tax-free exchange of 219,863,326
shares of IDS Strategy -- Short-Term Income Fund valued at
$216,712,482.
In exchange for the IDS Strategy -- Short-Term Income Fund shares
and assets, IDS Federal Income Fund issued the following number of
shares:
Class A 723,045
Class B 43,767,303
IDS Strategy -- Short-Term Income Fund's net assets at that date
were as follows, which include the following amounts of capital
stock, unrealized depreciation and accumulated net realized loss
that was combined with IDS Federal Income Fund.
<TABLE>
<CAPTION>
Total net Capital stock Unrealized Accumulated net
assets depreciation realized loss
____________________________________________________________________________
<S> <C> <C> <C> <C>
Class A $ 3,521,950 $ 3,580,826 $ (31,076) $ (27,800)
Class B 213,190,532 216,754,432 (1,881,087) (1,682,813)
</TABLE>
___________________________________________________________________
9. Change of Fund's fiscal year
The by-laws of the Fund were amended on Jan. 10-11, 1996, changing
its fiscal year-end from June 30 to May 31, effective 1996.
___________________________________________________________________
10. Subsequent event
The Fund invested its assets in a master portfolio, called the
Government Income Portfolio, on June 10, 1996. The Portfolio is a
separate investment company, but has the same goals and investment
policies as the Fund. Additional information on investment policies
may be found in the prospectus and Statement of Additional
Information (SAI).<PAGE>
PAGE 85
___________________________________________________________________
11. Financial highlights
"Financial highlights" showing per share data and selected
information is presented on pages 7 and 8 of the prospectus.
<PAGE>
PAGE 86
<TABLE>
<CAPTION>
Investments in securities
IDS Federal Income Fund, Inc. (Percentages represent value of
May 31, 1996 investments compared to net assets)
_____________________________________________________________________________________________________________________________
Bonds (98.2%)
_____________________________________________________________________________________________________________________________
Issuer Coupon Maturity Principal Value(a)
rate year amount
_____________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
U.S. government obligations (15.3%)
U.S. Treasury and agency 7.25 % 2016 $ 4,000,000 (e) $ 4,037,680
7.50 2024 3,490,000 3,646,212
8.125 2019 16,000,000 17,693,120
Zero Coupon 5.52 1999 97,225,000 (b,f) 80,643,276
Federal National Mortgage Association
Medium Term Nts 5.41 2001 10,000,000 9,432,800
Resolution Funding Corp 8.125 2019 8,000,000 8,714,640
Zero Coupon 6.06 2001 20,863,000 (b) 15,459,066
6.19 2002 32,850,000 (b,e) 22,152,398
6.36 2003 16,000,000 (b) 9,672,480
6.39 2007 32,653,000 (b) 15,075,564
6.70 1999 52,753,000 (b,e) 43,914,762
7.02 2010 19,000,000 (b,h) 6,642,970
7.08 2007 25,120,000 (b) 11,381,118
7.18 2009 16,000,000 (b) 6,104,640
7.87 2018 7,500,000 (b) 1,451,175
7.87 2019 16,500,000 (b) 3,134,505
8.04 2012 8,400,000 (b) 2,557,296
______________
Total 261,713,702
_____________________________________________________________________________________________________________________________
Mortgage-backed securities (82.9%)
Federal Home Loan Mortgage Corporation (17.5%)
6.50 2003-09 10,360,716 9,983,047
7.00 2010 22,384,500 21,964,791
7.50 2024 9,026,153 8,851,316
8.00 2023-25 80,024,919 80,398,970
8.50 2025 18,692,418 19,118,792
Collateralized Mtge Obligation 4.00 2023 14,821,976 13,544,618
6.75 2022 22,000,000 22,104,720
7.00 2021 10,000,000 9,557,100
8.25 2024 29,670,778 29,108,220
8.50 2022 9,150,000 9,452,865
Interest Only 10.00 2020 382,554 (c) 122,658
Inverse Floater 6.39 2007 11,739,040 (d) 9,800,455
6.825 2023 3,956,343 (d) 2,510,418
7.31 2024 10,642,081 (d) 7,676,665
7.42 2023 10,514,507 (d) 6,162,973
9.36 2022 5,798,581 (d) 4,731,932
9.415 2022 21,356,119 (d) 17,403,742
10.02 2023 24,078,648 (d,f) 18,483,974
14.91 2021 7,644,500 (d) 7,980,476
See accompanying notes to investments in securities.
<PAGE>
PAGE 87
______________
Total 298,957,732
_____________________________________________________________________________________________________________________________
Federal National Mortgage Association (63.6%)
6.00 2008-23 43,934,783 40,720,931
6.50 2023-25 217,196,638 (e,f) 201,654,047
7.00 2023-26 215,903,994 (f,h) 206,081,182
7.50 2025 44,000,000 (f,h) 43,120,000
8.00 2021-26 143,501,522 (h) 143,907,392
8.50 2007-25 235,897,073 (f,h) 241,164,692
9.00 2023-24 16,995,673 17,702,013
12.00 2016 5,409,243 6,110,767
Collateralized Mtge Obligation 3.00 2019 11,250,000 9,495,900
4.50 2010 8,204,208 7,127,160
4.70 2022 12,732,716 12,548,728
5.00 2024 6,663,083 5,976,186
5.50 2008 12,985,885 12,272,830
6.00 2008 8,563,461 8,387,140
6.50 2017 2,259,657 2,252,720
7.00 2012 7,552,058 7,450,180
8.50 2021 12,350,000 12,578,598
Interest Only 9.50 2018-23 56,496,300 (c) 17,903,733
10.00 2018-23 127,044,808 (c) 40,701,831
10.50 2021 17,030,626 (c) 5,460,528
Inverse Floater 7.18 2023 6,052,314 (d) 4,273,660
8.49 2024 5,277,963 (d) 4,169,749
8.715 2023 3,456,299 (d) 2,646,315
8.78 2022 5,723,329 (d) 5,439,337
11.20 2021 10,009,687 (d) 10,029,806
Principal Only 6.12 2020 14,500,000 (g) 13,105,678
9.52 2023 9,203,533 (g) 7,635,711
12.57 2021 927,265 (f,g) 670,747
______________
Total 1,090,587,561
_____________________________________________________________________________________________________________________________
Government National Mortgage Association (1.8%)
7.50 2025 15,477,770 15,168,214
11.00 2010-19 14,613,048 16,409,946
______________
Total 31,578,160
_____________________________________________________________________________________________________________________________
Total bonds
(Cost: $1,692,841,753) $1,682,837,155
_____________________________________________________________________________________________________________________________
Options purchased (0.2%)
Issuer Number Exercise Expiration Value(a)
of contracts price date
Call
MBS 3,400 $ 98 June 1996 $ 65,280
Put
U.S. Treasury Bonds Sept. 96 212 106 Aug. 1996 304,750
U.S. Treasury Bonds Sept. 96 220 112 Aug. 1996 1,106,875
U.S. Treasury Bonds Sept. 96 620 110 Aug. 1996 2,208,750
U.S. Treasury Bonds Sept. 96 416 106 Aug. 1996 604,498
MBS 6,800 97 June 1996 36,040
Total options purchased ______________
(Cost: $4,092,608) $ 4,326,193
_____________________________________________________________________________________________________________________________
Short-term securities (3.2%)
_____________________________________________________________________________________________________________________________
Issuer Annualized Amount Value(a)
yield on payable
date of at
purchase maturity
_____________________________________________________________________________________________________________________________
U.S. government agencies (3.2%)
Federal Home Loan Bank Disc Note
06-13-96 5.20% $27,100,000 $ 27,053,117
Federal Home Loan Mtge Corp Disc Notes
06-05-96 5.22 1,700,000 1,699,016
06-12-96 5.20 3,700,000 3,694,132
06-12-96 5.21 3,600,000 3,594,280
06-13-96 5.19 1,300,000 1,297,755
Federal Natl Mtge Assn Disc Note
06-13-96 5.20 12,300,000 12,278,721
06-17-96 5.21 4,800,000 4,788,907
<PAGE>
PAGE 88
Total 54,405,928
_____________________________________________________________________________________________________________________________
Total short-term securities
(Cost: $54,405,928) $ 54,405,928
_____________________________________________________________________________________________________________________________
Total investments in securities
(Cost: $1,751,340,289)(i) $1,682,837,155
_____________________________________________________________________________________________________________________________
Notes to investments in securities
_____________________________________________________________________________________________________________________________
(a) Securities are valued by procedures described in Note 1 to the
financial statements.
(b) For zero coupon bonds, the interest rate disclosed represents the
annualized effective yield on the date of acquisition.
(c) Interest-only represents securities that entitle holders to receive
only interest payments on the underlying mortgages. The yield to
maturity of an interest-only is extremely sensitive to the rate of
principal payments on the underlying mortgage assets. A rapid (slow)
rate of principal repayments may have an adverse (positive) effect
on yield to maturity. The principal amount shown is the notional
amount of the underlying mortgages.
(d) Inverse floaters represent securities that pay interest at a rate
that increases (decreases) in the same magnitude as, or in a multiple of,
a decline (increase) in the LIBOR (London InterBank Offering Rate) Index.
Interest rate disclosed is the rate in effect on May 31, 1996.
(e) Partially pledged as initial deposit on the following open interest
rate futures contracts (see Note 4 to the financial statements):
Type of security Notional amount
______________________________________________________________________
Purchase contracts
U.S. Treasury Note Sept. 96 $ 800,000
U.S. Treasury Note June 96, 5-year notes 75,700,000
U.S. Treasury Note Sept. 96, 2-year notes 24,600,000
U.S. Treasury Note Sept. 96 27,000,000
U.S. Treasury Bonds June 96 12,000,000
Sale contracts
U.S. Treasury Bonds June 96 173,900,000
U.S. Treasury Note June 96, 10-year notes 26,500,000
U.S. Treasury Bonds Sept. 96 60,700,000
(f) At May 31, 1996, securities valued at $416,409,494 were held to cover
open call options written as follows:
</TABLE>
<TABLE>
<CAPTION>
Issuer Number of Exercise Expiration Value(a)
contracts price date
___________________________________________________________________________________
<S> <C> <C> <C> <C>
U.S. Treasury Note Sept. 96 1,020 $107 Aug. 1996 $1,051,875
U.S. Treasury Bonds Sept. 96 1 110 June 1996 281
U.S. Treasury Bonds Sept. 96 446 112 Aug. 1996 271,779
U.S. Treasury Bonds Sept. 96 855 110 Aug. 1996 961,875
U.S. Treasury Bonds Sept. 96 425 107 Aug. 1996 438,281
U.S. Treasury Bonds Sept. 96 256 108 Aug. 1996 176,000
Mortgage-Backed Security (MBS) Spread 6,800 98 June 1996 130,560
At May 31, 1996, cash or short-term securities were designated to
cover open put options written as follows:
Issuer Number of Exercise Expiration Value(a)
contracts price date
___________________________________________________________________________________
Mortgage-Backed Security (MBS) Spread 2,125 93 June 1996 282,227
Mortgage-Backed Security (MBS) Spread 5,950 98 June 1996 552,160
(g) Principal only represents securities that entitle holders to receive
only principal payments on the underlying mortgages. The yield to
maturity of a principal only is sensitive to the rate of principal
payments on the underlying mortgage assets. A slow (rapid) rate of
principal repayments may have an adverse (positive) effect on yield
to maturity. Interest rate disclosed represents current yield based
upon the current cost basis and estimated timing of future cash flows.
(h) At May 31, 1996, the cost of securities purchased on a when-issued
basis was $250,159,288.
<PAGE>
PAGE 89
(i) At May 31, 1996, the cost of securities for federal income tax
purposes was $1,751,506,522 and the aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation $ 26,490,988.93
Unrealized depreciation (36,428,234.62)
____________________________________________________________
Net unrealized depreciation $ (9,937,245.69)
____________________________________________________________
</TABLE>
<PAGE>
PAGE 90
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
FINANCIAL STATEMENTS
- - Independent Auditors' Report dated July 5, 1996
- - Statement of Assets and Liabilities, May 31, 1996
- - Statement of Operations, period ended May 31, 1996
- - Statement of Changes in Net Assets for the two year period ended
May 31, 1996 and June 30, 1995
- - Notes to Financial Statements
- - Investments in Securities, May 31, 1996
- - Notes to Investments in Securities
(b) EXHIBITS:
1. Articles of Incorporation, as amended October 17, 1988, filed
as Exhibit 1 to Post-Effective Amendment No. 7 to Registration
Statement No. 2-96512, is incorporated herein by reference.
2. By-laws, as amended Jan. 10, 1996, filed electronically
herewith.
3. Not Applicable.
4. Form of Stock Certificate for common stock, filed as Exhibit
No. 4 to Registration Statement No. 2-96512, is incorporated herein
by reference.
5. Form of Investment Management and Services Agreement between
Registrant and American Express Financial Corporation, dated March
20, 1995, filed electronically as Exhibit 5 to Registrant's Post-
Effective Amendment No. 19 to Registration Statement No. 2-96512 is
incorporated herein by reference. The agreement was assumed by the
Portfolio when the Fund adopted the master/feeder structure.
6. Form of Distribution Agreement between Registrant and
American Express Financial Advisors Inc., dated March 20, 1995,
filed electronically as Exhibit 6 to Registrant's Post-Effective
Amendment No. 19 to Registration Statement No. 2-96512 is
incorporated herein by reference.
7. All employees are eligible to participate in a profit sharing
plan. Entry into the plan is Jan. 1 or July 1. The Registrant
contributes each year an amount up to 15 percent of their annual
salaries, the maximum deductible amount permitted under Section
404(a) of the Internal Revenue Code.
8(a). Form of Custodian Agreement between Registrant and
American Express Trust Company, dated March 20, 1995, filed
electronically as Exhibit 8 to Registrant's Post-Effective
Amendment No. 19 to Registration Statement No. 2-96512 is
incorporated herein by reference.
<PAGE>
PAGE 91
8(b). Form of Custody Agreement between Morgan Stanley Trust
Company and IDS Bank and Trust dated May, 1993 filed electronically
as Exhibit 8(b) to Registrant's Post-Effective Amendment No. 20 to
Registration Statement No. 2-96512 is incorporated herein by
reference.
8(c). Copy of Addendum to Custodian Agreement between IDS
Federal Income Fund, Inc., American Express Trust Company and
American Express Financial Corporation dated June 10, 1996, filed
electronically herewith.
9(a). Form of Transfer Agency Agreement between Registrant and
American Express Trust Company, dated March 20, 1995, filed
electronically as Exhibit 9(a) to Registrant's Post-Effective
Amendment No. 19 to Registration Statement No. 2-96512 is
incorporated herein by reference.
9(b). Copy of License Agreement dated Jan. 25, 1988, between
IDS and Registrant filed as Exhibit 9(b) to Post-Effective
Amendment No. 7 to Registration Statement No. 2-96512, is
incorporated herein by reference.
9(c). Form of Shareholder Service Agreement between Registrant
and American Express Financial Advisors Inc., dated March 20, 1995,
filed electronically as Exhibit 9(c) to Registrant's Post-Effective
Amendment No. 19 to Registration Statement No. 2-96512 is
incorporated herein by reference.
9(d). Form of Administrative Services Agreement between
Registrant and American Express Financial Corporation, dated March
20, 1995, filed electronically as Exhibit 9(d) to Registrant's
Post-Effective Amendment No. 19 to Registration Statement No. 2-
96512 is incorporated herein by reference.
9(e). Copy of Agreement and Plan of Reorganization, dated
Sept. 8, 1994, between IDS Strategy Fund, Inc, and IDS Federal
Income Fund, Inc., filed electronically as Exhibit 4 to
Registrant's Pre-Effective Amendment No. 1, on Form N-14, is
incorporated herein by reference.
9(f). Copy of Agreement and Declaration of Unitholders between
IDS Federal Income Fund, Inc. and Strategist Income Fund, Inc.
dated June 10, 1996, filed electronically herewith.
10. Opinion and consent of counsel as to the legality of the
securities being registered is filed with Registrant's most recent
24f-2 Notice.
11. Independent Auditors' Consent, is filed electronically
herewith.
12. None.
13. Copy of letter of IDS Financial Services Inc. as sole
shareholder, filed as Exhibit No. 13 to Pre-Effective Amendment No.
2 to Registration Statement No. 2-96512, is incorporated herein by
reference.
<PAGE>
PAGE 92
14. Forms of Keogh, IRA and other retirement plans, filed as
Exhibits 14(a) through 14(g) to IDS Government Securities Money
Fund, Inc., Post-Effective Amendment No. 1 to Registration
Statement No. 2-75165 on August 26, 1982, are incorporated herein
by reference.
15. Form of Plan and Agreement of Distribution between Registrant
and American Express Financial Advisors Inc., dated March 20, 1995,
filed electronically as Exhibit 15 to Registrant's Post-Effective
Amendment No. 19 to Registration Statement No. 2-96512 is
incorporated herein by reference.
16. Copy of schedule for computation of each performance
quotation, filed concurrently on Form SE as Exhibit 16(b) to
Registrant's Post-Effective Amendment No. 13 to Registration
Statement No. 2-96512 is incorporated herein by reference.
17. Financial Data Schedule, is filed electronically herewith.
18. Copy of Plan pursuant to Rule 18f-3 under the 1940 Act filed
electronically as Exhibit 18 to Registrant's Post-Effective
Amendment No. 20 to Registration Statement No. 2-96512 is
incorporated herein by reference.
19(a). Directors' Power of Attorney, dated Nov. 10, 1994, to sign
amendments to this Registration Statement, filed electronically as
Exhibit 18(a) to Registrant's Post-Effective Amendment No. 18, is
incorporated herein by reference.
19(b). Officers' Power of Attorney, dated November 1, 1995, to sign
amendments to this Registration Statement, filed electronically as
Exhibit 19(b) to Registrant's Post-Effective Amendment No. 22, is
incorporated herein by reference.
19(c). Trustees Power of Attorney, dated April 11, 1996, is filed
electronically herewith.
19(d). Officers' Power of Attorney, dated April 11, 1996, is filed
electronically herewith.
Item 25. Persons Controlled by or Under Common Control with
Registrant
None.
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Holders as of
Title of Class July 19, 1996
Common Stock 99,730
$.01 par value
<PAGE>
PAGE 93
Item 27. Indemnification
The Articles of Incorporation of the registrant provide that the
Fund shall indemnify any person who was or is a party or is
threatened to be made a party, by reason of the fact that she or he
is or was a director, officer, employee or agent of the Fund, or is
or was serving at the request of the Fund as a director, officer,
employee or agent of another company, partnership, joint venture,
trust or other enterprise, to any threatened, pending or completed
action, suit or proceeding, wherever brought, and the Fund may
purchase liability insurance and advance legal expenses, all to the
fullest extent permitted by the laws of the State of Minnesota, as
now existing or hereafter amended. The By-laws of the registrant
provide that present or former directors or officers of the Fund
made or threatened to be made a party to or involved (including as
a witness) in an actual or threatened action, suit or proceeding
shall be indemnified by the Fund to the full extent authorized by
the Minnesota Business Corporation Act, all as more fully set forth
in the By-laws filed as an exhibit to this registration statement.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
Any indemnification hereunder shall not be exclusive of any other
rights of indemnification to which the directors, officers,
employees or agents might otherwise be entitled. No
indemnification shall be made in violation of the Investment
Company Act of 1940.
<PAGE>
PAGE 94
<PAGE>
PAGE 1
<TABLE><CAPTION>
Item 28. Business and Other Connections of Investment Adviser (American Express Financial
Corporation)
Directors and officers of American Express Financial Corporation who are directors and/or
officers of one or more other companies:
Ronald G. Abrahamson, Vice President--Service Quality and Reengineering
<S> <C> <C>
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Service Quality
and Reengineering
Douglas A. Alger, Vice President--Total Compensation
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Total Compensation
Peter J. Anderson, Director and Senior Vice President--Investments
American Express Financial Advisors IDS Tower 10 Senior Vice President-
Minneapolis, MN 55440 Investments
IDS Advisory Group Inc. Director and Chairman
of the Board
IDS Capital Holdings Inc. Director and President
IDS International, Inc. Director, Chairman of the
Board and Executive Vice
President
IDS Securities Corporation Executive Vice President-
Investments
NCM Capital Management Group, Inc. 2 Mutual Plaza Director
501 Willard Street
Durham, NC 27701
Ward D. Armstrong, Vice President-Sales and Marketing, American Express Institutional Services
American Express Financial Advisors IDS Tower 10 Vice President-Sales and
Minneapolis, MN 55440 Marketing, American
Express Institutional
Services
Joseph M. Barsky III, Vice President--Senior Portfolio Manager
American Express Financial Advisors IDS Tower 10 Vice President-Senior
Minneapolis, MN 55440 Portfolio Manager
IDS Advisory Group Inc. Vice President
Robert C. Basten, Vice President--Tax and Business Services
American Express Financial Advisors IDS Tower 10 Vice President-Tax
Minneapolis, MN 55440 and Business Services
American Express Tax & Business Director, President and
Services Inc. Chief Executive Officer
<PAGE>
PAGE 2
Item 28. Business and Other Connections of Investment Adviser (American Express Financial
Corporation)(cont'd)
Timothy V. Bechtold, Vice President--Risk Management Products
American Express Financial Advisors IDS Tower 10 Vice President-Risk
Minneapolis, MN 55440 Management Products
IDS Life Insurance Company Vice President-Risk
Management Products
Carl E. Beihl, Vice President--Strategic Technology Planning
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Strategic Technology
Planning
Alan F. Bignall, Vice President--Technology and Development
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Technology and
Development
John C. Boeder, Vice President--Mature Market Group
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Mature Market Group
IDS Life Insurance Company of New York Box 5144 Director
Albany, NY 12205
Karl J. Breyer, Director, Senior Vice President--Corporate Affairs and General Counsel
American Express Financial Advisors IDS Tower 10 Senior Vice President-
Minneapolis, MN 55440 Corporate Affairs and
Special Counsel
American Express Minnesota Foundation Director
IDS Aircraft Services Corporation Director and President
Daniel J. Candura, Vice President--Marketing Support
American Express Financial Advisors IDS Tower 10 Vice President-Marketing
Minneapolis, MN 55440 Support
Cynthia M. Carlson, Vice President--American Express Securities Services
American Enterprise Investment IDS Tower 10 Director, President and
Services Inc. Minneapolis, MN 55440 Chief Executive Officer
American Express Financial Advisors Vice President-American
Express Securities Services
Orison Y. Chaffee III, Vice President--Field Real Estate
American Express Financial Advisors IDS Tower 10 Vice President-Field
Minneapolis, MN 55440 Real Estate
<PAGE>
PAGE 3
Item 28. Business and Other Connections of Investment Adviser (American Express Financial
Corporation)(cont'd)
James E. Choat, Director and Senior Vice President--Field Management
American Express Financial Advisors IDS Tower 10 Senior Vice President-
Minneapolis, MN 55440 Field Management
American Express Insurance Agency of Nevada Inc. Vice President--North
Central Region
American Express Minnesota Foundation Director
IDS Insurance Agency of Alabama Inc. Vice President--North
Central Region
IDS Insurance Agency of Arkansas Inc. Vice President--North
Central Region
IDS Insurance Agency of Massachusetts Inc. Vice President--North
Central Region
IDS Insurance Agency of New Mexico Inc. Vice President--North
Central Region
IDS Insurance Agency of North Carolina Inc. Vice President--North
Central Region
IDS Insurance Agency of Ohio Inc. Vice President--North
Central Region
IDS Insurance Agency of Wyoming Inc. Vice President-- North
Central Region
Kenneth J. Ciak, Vice President and General Manager--IDS Property Casualty
AMEX Assurance Co. Director and President
American Express Financial Advisors IDS Tower 10 Vice President and General
Minneapolis, MN 55440 Manager-IDS Property
Casualty
IDS Property Casualty Insurance Co. I WEG Blvd. Director and President
DePere, Wisconsin 54115
Colleen Curran, Vice President and Assistant General Counsel
American Express Financial Advisors IDS Tower 10 Vice President and
Minneapolis, MN 55440 Assistant General Counsel
American Express Service Corporation Vice President and Chief
Legal Counsel
Alan R. Dakay, Vice President--Institutional Products Group
American Centurion Life Assurance Co. IDS Tower 10 Director and Vice Chairman
Minneapolis, MN 55440 and President, Financial
Institutions Division
American Enterprise Life Insurance Co. Director and President
IDS Life Insurance Company Vice President -
Institutional Insurance
Marketing
American Express Financial Advisors Vice President -
Institutional Products
Group
Regenia David, Vice President--Systems Services
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Systems Services
<PAGE>
PAGE 4
Item 28. Business and Other Connections of Investment Adviser (American Express Financial
Corporation)(cont'd)
William H. Dudley, Director and Executive Vice President--Investment Operations
American Express Financial Advisors IDS Tower 10 Director and Executive
Minneapolis, MN 55440 Vice President-
Investment Operations
IDS Advisory Group Inc. Director
IDS Capital Holdings Inc. Director
IDS Futures Corporation Director
IDS Futures III Corporation Director
IDS International, Inc. Director
IDS Securities Corporation Director, Chairman of the
Board, President and
Chief Executive Officer
Gordon L. Eid, Director, Senior Vice President and Deputy General Counsel
American Express Financial Advisors IDS Tower 10 Senior Vice President and
Minneapolis, MN 55440 General Counsel
American Express Insurance Agency of Nevada Inc. Director and Vice President
IDS Insurance Agency of Alabama Inc. Director and Vice President
IDS Insurance Agency of Arkansas Inc. Director and Vice President
IDS Insurance Agency of Massachusetts Inc. Director and Vice President
IDS Insurance Agency of New Mexico Inc. Director and Vice President
IDS Insurance Agency of North Carolina Inc. Director and Vice President
IDS Insurance Agency of Ohio Inc. Director and Vice President
IDS Insurance Agency of Wyoming Inc. Director and Vice President
IDS Real Estate Services, Inc. Vice President
Investors Syndicate Development Corp. Director
Robert M. Elconin, Vice President--Government Relations
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Government Relations
IDS Life Insurance Company Vice President
Mark A. Ernst, Vice President--Retail Services
American Enterprise Investment IDS Tower 10 Director
Services Inc. Minneapolis, MN 55440
American Express Financial Advisors Vice President-
Retail Services
American Express Tax & Business Director and Chairman of
Services Inc. the Board
Gordon M. Fines, Vice President--Mutual Fund Equity Investments
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Mutual Fund Equity
Investments
IDS Advisory Group Inc. Executive Vice President
Robert G. Gilbert, Vice President--Real Estate
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Real Estate
<PAGE>
PAGE 5
Item 28. Business and Other Connections of Investment Adviser (American Express Financial
Corporation)(cont'd)
John J. Golden, Vice President--Field Compensation Development
American Express Financial Advisors IDS Tower 10 Vice President-Field
Minneapolis, MN 55440 Compensation Development
Harvey Golub, Director
American Express Company American Express Tower Chairman and Chief
World Financial Center Executive Officer
New York, New York 10285
American Express Travel Chairman and Chief
Related Services Company, Inc. Executive Officer
Morris Goodwin Jr., Vice President and Corporate Treasurer
American Centurion Life Assurance Co. Vice President and
Treasurer
American Enterprise Investment IDS Tower 10 Vice President and
Services Inc. Minneapolis, MN 55440 Treasurer
American Enterprise Life Insurance Vice President and
Company Treasurer
American Express Financial Advisors Vice President and
Corporate Treasurer
American Express Insurance Agency of Nevada Inc. Vice President and
Treasurer
American Express Minnesota Foundation Vice President and
Treasurer
American Express Tax & Business Vice President and
Services Inc. Treasurer
American Partners Life Insurance Co. Vice President and
Treasurer
AMEX Assurance Co. Vice President and
Treasurer
IDS Advisory Group Inc. Vice President and
Treasurer
IDS Aircraft Services Corporation Vice President and
Treasurer
IDS Cable Corporation Director, Vice President
and Treasurer
IDS Cable II Corporation Director, Vice President
and Treasurer
IDS Capital Holdings Inc. Vice President and
Treasurer
IDS Certificate Company Vice President and
Treasurer
IDS Deposit Corp. Director, President
and Treasurer
IDS Futures Corp. Director
IDS Futures III Corp. Director
IDS Insurance Agency of Alabama Inc. Vice President and
Treasurer
IDS Insurance Agency of Arkansas Inc. Vice President and
Treasurer
IDS Insurance Agency of Massachusetts Inc. Vice President and
Treasurer
<PAGE>
PAGE 6
Item 28. Business and Other Connections of Investment Adviser (American Express Financial
Corporation)(cont'd)
IDS Insurance Agency of New Mexico Inc. Vice President and
Treasurer
IDS Insurance Agency of North Carolina Inc. Vice President and
Treasurer
IDS Insurance Agency of Ohio Inc. Vice President and
Treasurer
IDS Insurance Agency of Wyoming Inc. Vice President and
Treasurer
IDS International, Inc. Vice President and
Treasurer
IDS Life Insurance Company Vice President and
Treasurer
IDS Life Series Fund, Inc. Vice President and
Treasurer
IDS Life Variable Annuity Funds A&B Vice President and
Treasurer
IDS Management Corporation Director, Vice President
and Treasurer
IDS Partnership Services Corporation Director, Vice President
and Treasurer
IDS Plan Services of California, Inc. Vice President and
Treasurer
IDS Property Casualty Insurance Co. Vice President and
Treasurer
IDS Real Estate Services, Inc Vice President and
Treasurer
IDS Realty Corporation Director, Vice President
and Treasurer
IDS Sales Support Inc. Director, Vice President
and Treasurer
IDS Securities Corporation Vice President and
Treasurer
Investors Syndicate Development Corp. Vice President and
Treasurer
National Computer Systems, Inc. 11000 Prairie Lakes Drive Director
Minneapolis, MN 55440
NCM Capital Management Group, Inc. 2 Mutual Plaza Director
501 Willard Street
Durham, NC 27701
Sloan Financial Group, Inc. Director
Suzanne Graf, Vice President--Systems Services
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Systems Services
David A. Hammer, Vice President and Marketing Controller
American Express Financial Advisors IDS Tower 10 Vice President and
Minneapolis, MN 55440 Marketing Controller
IDS Plan Services of California, Inc. Director and Vice President
<PAGE>
PAGE 7
Item 28. Business and Other Connections of Investment Adviser (American Express Financial
Corporation)(cont'd)
Lorraine R. Hart, Vice President--Insurance Investments
American Enterprise Life IDS Tower 10 Vice President-Investments
Insurance Company Minneapolis, MN 55440
American Express Financial Advisors Vice President-Insurance
Investments
American Partners Life Insurance Co. Director and Vice
President-Investments
AMEX Assurance Co. Vice President-Investments
IDS Certificate Company Vice President-Investments
IDS Life Insurance Company Vice President-Investments
IDS Life Series Fund, Inc. Vice President-Investments
IDS Life Variable Annuity Funds A and B Vice President-Investments
IDS Property Casualty Insurance Company Vice President-Investment
Officer
Investors Syndicate Development Corp. Director and Vice
President-Investments
Scott A. Hawkinson, Vice President--Assured Assets Product Development and Management
American Express Financial Advisors IDS Tower 10 Vice President-Assured
Minneapolis, MN 55440 Assets Product
Development & Management
James G. Hirsh, Vice President and Assistant General Counsel
American Express Financial Advisors IDS Tower 10 Vice President and
Minneapolis, MN 55440 Assistant General Counsel
IDS Securities Corporation Director, Vice President
and General Counsel
Darryl G. Horsman, Vice President--Product Development and Technology, American Express
Institutional Retirement Services
American Express Trust Company IDS Tower 10 Director and President
Minneapolis, MN 55440
Kevin P. Howe, Vice President--Government and Customer Relations and Chief Compliance Officer
American Enterprise Investment IDS Tower 10 Vice President and Chief
Services Inc. Minneapolis, MN 55440 Compliance Officer
American Express Financial Advisors Vice President-
Government and
Customer Relations
American Express Service Corporation Vice President and Chief
Compliance Officer
IDS Securities Corporation Vice President and Chief
Compliance Officer
David R. Hubers, Director, President and Chief Executive Officer
American Express Financial Advisors IDS Tower 10 Chairman, Chief Executive
Minneapolis, MN 55440 Officer and President
American Express Service Corporation Director and Executive Vice
President
<PAGE>
PAGE 8
Item 28. Business and Other Connections of Investment Adviser (American Express Financial
Corporation)(cont'd)
AMEX Assurance Co. Director
IDS Aircraft Services Corporation Director
IDS Certificate Company Director
IDS Life Insurance Company Director
IDS Plan Services of California, Inc. Director and President
IDS Property Casualty Insurance Co. Director
Marietta L. Johns, Director and Senior Vice President--Field Management
American Express Financial Advisors IDS Tower 10 Senior Vice President-
Minneapolis, MN 55440 Field Management
James E. Kaare, Vice President--Marketing Promotions
American Express Financial Advisors IDS Tower 10 Vice President-Marketing
Minneapolis, MN 55440 Promotions
Linda B. Keene, Vice President--Market Development
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Market Development
G. Michael Kennedy, Vice President--Investment Services and Investment Research
American Express Financial Advisors IDS Tower 10 Vice President-Investment
Minneapolis, MN 55440 Services and Investment
Research
Susan D. Kinder, Director and Senior Vice President--Human Resources
American Express Financial Advisors IDS Tower 10 Senior Vice President-
Minneapolis, MN 55440 Human Resources
American Express Minnesota Foundation Director
Richard W. Kling, Director and Senior Vice President--Risk Management Products
American Centurion Life Assurance Co. Director
American Enterprise Life Insurance Co. IDS Tower 10 Director and Chairman of
Minneapolis, MN 55440 the Board
American Express Financial Advisors Senior Vice President-
Risk Management Products
American Express Insurance Agency of Nevada Inc. Director and President
American Express Service Corporation Vice President
American Partners Life Insurance Co. Director and Chairman of
the Board
AMEX Assurance Co. Director and Chairman of
the Board
IDS Certificate Company Director and Chairman of
the Board
IDS Insurance Agency of Alabama Inc. Director and President
IDS Insurance Agency of Arkansas Inc. Director and President
IDS Insurance Agency of Massachusetts Inc. Director and President
IDS Insurance Agency of New Mexico Inc. Director and President
IDS Insurance Agency of North Carolina Inc. Director and President
IDS Insurance Agency of Ohio Inc. Director and President<PAGE>
PAGE 9
Item 28. Business and Other Connections of Investment Adviser (American Express Financial
Corporation)(cont'd)
IDS Insurance Agency of Wyoming Inc. Director and President
IDS Life Insurance Company Director and President
IDS Life Series Fund, Inc. Director and President
IDS Life Variable Annuity Funds A and B Director and Chairman of
the Board and President
IDS Property Casualty Insurance Co. Director and Chairman of
the Board
IDS Life Insurance Company P.O. Box 5144 Director, Chairman of the
of New York Albany, NY 12205 Board and President
Paul F. Kolkman, Vice President--Actuarial Finance
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Actuarial Finance
IDS Life Insurance Company Director and Executive
Vice President
IDS Life Series Fund, Inc. Vice President and Chief
Actuary
IDS Property Casualty Insurance Company Director
Claire Kolmodin, Vice President--Service Quality
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Service Quality
Steven C. Kumagai, Director and Senior Vice President--Field Management and Business Systems
American Express Financial Advisors IDS Tower 10 Director and Senior Vice
Minneapolis, MN 55440 President-Field
Management and Business
Systems
Edward Labenski, Jr., Vice President--Senior Portfolio Manager
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Senior Portfolio
Manager
IDS Advisory Group Inc. Senior Vice President
Kurt A. Larson, Vice President--Senior Portfolio Manager
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Senior Portfolio Manager
Lori J. Larson, Vice President--Variable Assets Product Development
American Express Financial Advisors IDS Tower 10 Vice President-Variable
Minneapolis, MN 55440 Assets Product
Development
IDS Cable Corporation Director and Vice President
IDS Cable II Corporation Director and Vice President
IDS Futures Brokerage Group Assistant Vice President-
General Manager/Director
IDS Futures Corporation Director and Vice President
IDS Futures III Corporation Director and Vice President
IDS Management Corporation Director and Vice President<PAGE>
PAGE 10
Item 28. Business and Other Connections of Investment Adviser (American Express Financial
Corporation)(cont'd)
IDS Partnership Services Corporation Director and Vice President
IDS Realty Corporation Director and Vice President
Ryan R. Larson, Vice President--IPG Product Development
American Centurion Life Assurance Co. Director and
Vice President-Product
Development
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 IPG Product Development
IDS Life Insurance Company Vice President-
Annuity Product
Development
Daniel E. Laufenberg, Vice President and Chief U.S. Economist
American Express Financial Advisors IDS Tower 10 Vice President and
Minneapolis, MN 55440 Chief U.S. Economist
Richard J. Lazarchic, Vice President--Senior Portfolio Manager
American Express Financial Advisors IDS Tower 10 Vice President-Senior
Minneapolis, MN 55440 Portfolio Manager
Peter A. Lefferts, Director and Senior Vice President--Corporate Strategy and Development
American Express Financial Advisors IDS Tower 10 Senior Vice President-
Minneapolis, MN 55440 Corporate Strategy and
Development
American Express Trust Company Director
IDS Plan Services of California, Inc. Director
Investors Syndicate Development Corp. Director
Douglas A. Lennick, Director and Executive Vice President--Private Client Group
American Express Financial Advisors IDS Tower 10 Director and Executive
Minneapolis, MN 55440 Vice President-Private
Client Group
Jonathan S. Linen, Director
Mary J. Malevich, Vice President--Senior Portfolio Manager
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Senior Portfolio
Manager
Fred A. Mandell, Vice President--Field Marketing Readiness
American Express Financial Advisors IDS Tower 10 Vice President-Field
Minneapolis, MN 55440 Marketing Readiness
<PAGE>
PAGE 11
Item 28. Business and Other Connections of Investment Adviser (American Express Financial
Corporation)(cont'd)
William J. McKinney, Vice President--Field Management Support
American Express Financial Advisors IDS Tower 10 Vice President-Field
Minneapolis, MN 55440 Management Support
Thomas W. Medcalf, Vice President--Senior Portfolio Manager
American Express Financial Advisors IDS Tower 10 Vice President-Senior
Minneapolis, MN 55440 Portfolio Manager
William C. Melton, Vice President-International Research and Chief International Economist
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 International Research
and Chief International
Economist
Janis E. Miller, Vice President--Variable Assets
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Variable Assets
IDS Cable Corporation Director and President
IDS Cable II Corporation Director and President
IDS Futures Corporation Director and President
IDS Futures III Corporation Director and President
IDS Life Insurance Company Director and Executive
Vice President-Variable
Assets
IDS Life Series Fund, Inc. Director
IDS Life Variable Annuity Funds A&B Director
IDS Management Corporation Director and President
IDS Partnership Services Corporation Director and President
IDS Realty Corporation Director and President
IDS Life Insurance Company of New York Box 5144 Executive Vice President
Albany, NY 12205
James A. Mitchell, Director and Executive Vice President--Marketing and Products
American Enterprise Investment IDS Tower 10 Director
Services Inc. Minneapolis, MN 55440
American Express Financial Advisors Executive Vice President-
Marketing and Products
American Express Service Corporation Senior Vice President
American Express Tax and Business Director
Services Inc.
AMEX Assurance Co. Director
IDS Certificate Company Director
IDS Life Insurance Company Director, Chairman of
the Board and Chief
Executive Officer
IDS Plan Services of California, Inc. Director
IDS Property Casualty Insurance Co. Director
<PAGE>
PAGE 12
Item 28. Business and Other Connections of Investment Adviser (American Express Financial
Corporation)(cont'd)
Pamela J. Moret, Vice President--Services
American Express Financial Advisors IDS Tower 10 Vice President-Services
Minneapolis, MN 55440
American Express Minnesota Foundation Director and President
Barry J. Murphy, Director and Senior Vice President--Client Service
American Express Financial Advisors IDS Tower 10 Senior Vice President-
Minneapolis, MN 55440 Client Service
IDS Life Insurance Company Director and Executive
Vice President-Client
Service
Mary Owens Neal, Vice President--Mature Market Segment
American Express Financial Advisors Inc. IDS Tower 10 Vice President-
Minneapolis, MN 55440 Mature Market Segment
Robert J. Neis, Vice President--Technology Services
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Technology Services
James R. Palmer, Vice President--Taxes
American Express Financial Advisors IDS Tower 10 Vice President-Taxes
Minneapolis, MN 55440
IDS Aircraft Services Corp. Vice President
IDS Life Insurance Company Vice President-Taxes
Carla P. Pavone, Vice President--Specialty Service Teams and Emerging Business
American Express Financial Advisors IDS Tower 10 Vice President-Specialty
Minneapolis, MN 55440 Service Teams and
Emerging Business
Susan B. Plimpton, Vice President--Segmentation Development and Support
American Express Financial Advisors IDS Tower 10 Vice President--
Minneapolis, MN 55440 Segmentation Development
and Support
Ronald W. Powell, Vice President and Assistant General Counsel
American Express Financial Advisors IDS Tower 10 Vice President and
Minneapolis, MN 55440 Assistant General Counsel
IDS Cable Corporation Vice President and
Assistant Secretary
IDS Cable II Corporation Vice President and
Assistant Secretary
IDS Management Corporation Vice President and
Assistant Secretary
IDS Partnership Services Corporation Vice President and
Assistant Secretary<PAGE>
PAGE 13
Item 28. Business and Other Connections of Investment Adviser (American Express Financial
Corporation)(cont'd)
IDS Plan Services of California, Inc. Vice President and
Assistant Secretary
IDS Realty Corporation Vice President and
Assistant Secretary
James M. Punch, Vice President--Geographic Service Teams
American Express Financial Advisors IDS Tower 10 Vice President-Geographic
Minneapolis, MN 55440 Services Teams
Frederick C. Quirsfeld, Vice President--Taxable Mutual Fund Investments
American Express Financial Advisors IDS Tower 10 Vice President--
Minneapolis, MN 55440 Taxable Mutual Fund
Investments
IDS Advisory Group Inc. Vice President
ReBecca K. Roloff, Vice President--Private Client Group
American Express Financial Advisors IDS Tower 10 Vice President-Private
Minneapolis, MN 55440 Client Group
Stephen W. Roszell, Vice President--Advisory Institutional Marketing
American Express Financial Advisors IDS Tower 10 Vice President-Advisory
Minneapolis, MN 55440 Institutional Marketing
IDS Advisory Group Inc. President and Chief
Executive Officer
IDS International, Inc. Director
IDS Fund Management Limited Director
Robert A. Rudell, Vice President--American Express Institutional Retirement Services
American Express Financial Advisors IDS Tower 10 Vice President-American
Minneapolis, MN 55440 Express Institutional
Services
American Express Trust Company Director and Chairman of
the Board
IDS Sales Support Inc. Director and President
John P. Ryan, Vice President and General Auditor
American Express Financial Advisors IDS Tower 10 Vice President and General
Minneapolis, MN 55440 Auditor
Erven A. Samsel, Director and Senior Vice President--Field Management
American Express Financial Advisors IDS Tower 10 Senior Vice President-
Minneapolis, MN 55440 Field Management
American Express Insurance Agency of Nevada Inc. Vice President-
New England Region
IDS Insurance Agency of Alabama Inc. Vice President-
New England Region
IDS Insurance Agency of Arkansas Inc. Vice President-
New England Region
<PAGE>
PAGE 14
Item 28. Business and Other Connections of Investment Adviser (American Express Financial
Corporation)(cont'd)
IDS Insurance Agency of Massachusetts Inc. Vice President-
New England Region
IDS Insurance Agency of New Mexico Inc. Vice President-
New England Region
IDS Insurance Agency of North Carolina Inc. Vice President-
New England Region
IDS Insurance Agency of Ohio Inc. Vice President-
New England Region
IDS Insurance Agency of Wyoming Inc. Vice President-
New England Region
Stuart A. Sedlacek, Vice President--Assured Assets
American Centurion Life Assurance Co. Director and Chairman
and President
American Enterprise Life Insurance Co. IDS Tower 10 Director and Executive
Minneapolis, MN 55440 Vice President, Assured
Assets
American Express Financial Advisors Vice President-
Assured Assets
American Partners Life Insurance Co. Director and President
IDS Certificate Company Director and President
IDS Life Insurance Company Director and Executive
Vice President, Assured
Assets
Investors Syndicate Development Corp. Director and Chairman of
the Board and President
Donald K. Shanks, Vice President--Property Casualty
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Property Casualty
IDS Property Casualty Insurance Co. Senior Vice President
F. Dale Simmons, Vice President--Senior Portfolio Manager, Insurance Investments
American Enterprise Life Insurance Co. IDS Tower 10 Vice President-Real
Minneapolis, MN 55440 Estate Loan Management
American Express Financial Advisors Vice President-Senior
Portfolio Manager,
Insurance Investments
American Partners Life Insurance Co. Vice President-Real
Estate Loan Management
AMEX Assurance Co. Vice President
IDS Certificate Company Vice President-Real
Estate Loan Management
IDS Life Insurance Company Vice President-Real
Estate Loan Management
IDS Partnership Services Corporation Vice President
IDS Real Estate Services Inc. Director and Vice President
IDS Realty Corporation Vice President
IDS Life Insurance Company of New York Box 5144 Vice President and
Albany, NY 12205 Assistant Treasurer
<PAGE>
PAGE 15
Item 28. Business and Other Connections of Investment Adviser (American Express Financial
Corporation)(cont'd)
Judy P. Skoglund, Vice President--Human Resources and Organization Development
American Express Financial Advisors IDS Tower 10 Vice President-Human
Minneapolis, MN 55440 Resources and
Organization Development
Ben C. Smith, Vice President--Workplace Marketing
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Workplace Marketing
William A. Smith, Vice President and Controller--Private Client Group
American Express Financial Advisors IDS Tower 10 Vice President and
Minneapolis, MN 55440 Controller-Private
Client Group
Bridget Sperl, Vice President--Human Resources Management Services
American Express Financial Advisors IDS Tower 10 Vice President-Human
Minneapolis, MN 55440 Resources Management
Services
William A. Stoltzmann, Vice President and Assistant General Counsel
American Express Financial Advisors IDS Tower 10 Vice President and
Minneapolis, MN 55440 Assistant General Counsel
American Partners Life Insurance Co. Director, Vice President,
General Counsel and
Secretary
IDS Life Insurance Company Vice President, General
Counsel and Secretary
American Enterprise Life Insurance P.O. Box 534 Director, Vice President,
Company Minneapolis, MN 55440 General Counsel
and Secretary
James J. Strauss, Vice President--Corporate Planning and Analysis
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Corporate Planning and
Analysis
Jeffrey J. Stremcha, Vice President--Information Resource Management/ISD
American Express Financial Advisors IDS Tower 10 Vice President-Information
Minneapolis, MN 55440 Resource Management/ISD
John R. Thomas, Director and Senior Vice President--Information and Technology
American Express Financial Advisors IDS Tower 10 Senior Vice President-
Minneapolis, MN 55440 Information and
Technology
<PAGE>
PAGE 16
Item 28. Business and Other Connections of Investment Adviser (American Express Financial
Corporation)(cont'd)
Melinda S. Urion, Director, Senior Vice President and Chief Financial Officer
American Enterprise Life IDS Tower 10 Vice President and
Insurance Company Minneapolis, MN 55440 Controller
American Express Financial Advisors Senior Vice President and
Chief Financial Officer
American Express Trust Company Director
American Partners Life Insurance Co. Director and Vice President
IDS Life Insurance Company Director, Executive Vice
President and Controller
IDS Life Series Fund, Inc. Vice President and
Controller
Wesley W. Wadman, Vice President--Senior Portfolio Manager
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Senior Portfolio Manager
IDS Advisory Group Inc. Executive Vice President
IDS Fund Management Limited Director and Vice Chairman
IDS International, Inc. Senior Vice President
Norman Weaver Jr., Director and Senior Vice President--Field Management
American Express Financial Advisors IDS Tower 10 Senior Vice President--
Minneapolis, MN 55440 Field Management
American Express Insurance Agency of Nevada Inc. Vice President-Southeast
Region
IDS Insurance Agency of Alabama Inc. Vice President-Pacific
Region
IDS Insurance Agency of Arkansas Inc. Vice President-Pacific
Region
IDS Insurance Agency of Massachusetts Inc. Vice President-Pacific
Region
IDS Insurance Agency of New Mexico Inc. Vice President-Pacific
Region
IDS Insurance Agency of North Carolina Inc. Vice President-Pacific
Region
IDS Insurance Agency of Ohio Inc. Vice President-Pacific
Region
IDS Insurance Agency of Wyoming Inc. Vice President-Pacific
Region
Michael L. Weiner, Vice President--Tax Research and Audit
American Express Financial Advisors IDS Tower 10 Vice President-Tax Research
Minneapolis, MN 55440 and Audit
American Express Service Corporation Assistant Treasurer
IDS Capital Holdings Inc. Vice President
IDS Futures Brokerage Group Vice President
IDS Futures Corporation Vice President, Treasurer
and Secretary
IDS Futures III Corporation Vice President, Treasurer
and Secretary
<PAGE>
PAGE 17
Item 28. Business and Other Connections of Investment Adviser (American Express Financial
Corporation)(cont'd)
Lawrence J. Welte, Vice President--Investment Administration
American Express Financial Advisors IDS Tower 10 Vice President-
Minneapolis, MN 55440 Investment Administration
IDS Securities Corporation Director, Executive Vice
President and Chief
Operating Officer
Jeffry F. Welter, Vice President--Equity and Fixed Income Trading
American Express Financial Advisors IDS Tower 10 Vice President-Equity
Minneapolis, MN 55440 and Fixed Income Trading
William N. Westhoff, Director, Senior Vice President and Global Chief Investment Officer
American Enterprise Life Insurance IDS Tower 10 Director
Company Minneapolis, MN 55440
American Express Financial Advisors Senior Vice President and
Global Chief Investment
Officer
IDS Fund Management Limited Director
IDS International, Inc. Director
IDS Partnership Services Corporation Director and Vice President
IDS Real Estate Services Inc. Director, Chairman of the
Board and President
IDS Realty Corporation Director and Vice President
Investors Syndicate Development Corp. Director
Edwin M. Wistrand, Vice President and Assistant General Counsel
American Express Financial Advisors IDS Tower 10 Vice President and
Minneapolis, MN 55440 Assistant General Counsel
Michael R. Woodward, Director and Senior Vice President--Field Management
American Express Financial Advisors IDS Tower 10 Senior Vice President-
Minneapolis, MN 55440 Field Management
American Express Insurance Agency of Nevada Inc. Vice President-
North Region
IDS Insurance Agency of Alabama Inc. Vice President-
North Region
IDS Insurance Agency of Arkansas Inc. Vice President-
North Region
IDS Insurance Agency of Massachusetts Inc. Vice President-
North Region
IDS Insurance Agency of New Mexico Inc. Vice President-
North Region
IDS Insurance Agency of North Carolina Inc. Vice President-
North Region
IDS Insurance Agency of Ohio Inc. Vice President-
North Region
IDS Insurance Agency of Wyoming Inc. Vice President-
North Region
IDS Life Insurance Company Box 5144 Director
of New York Albany, NY 12205
/TABLE
<PAGE>
PAGE 18
Item 29. Principal Underwriters.
(a) American Express Financial Advisors acts as principal
underwriter for the following investment companies:
IDS Bond Fund, Inc.; IDS California Tax-Exempt Trust; IDS
Discovery Fund, Inc.; IDS Equity Select Fund, Inc.; IDS Extra
Income Fund, Inc.; IDS Federal Income Fund, Inc.; IDS Global
Series, Inc.; IDS Growth Fund, Inc.; IDS High Yield Tax-
Exempt Fund, Inc.; IDS International Fund, Inc.; IDS
Investment Series, Inc.; IDS Managed Retirement Fund, Inc.;
IDS Market Advantage Series, Inc.; IDS Money Market Series,
Inc.; IDS New Dimensions Fund, Inc.; IDS Precious Metals
Fund, Inc.; IDS Progressive Fund, Inc.; IDS Selective Fund,
Inc.; IDS Special Tax-Exempt Series Trust; IDS Stock Fund,
Inc.; IDS Strategy Fund, Inc.; IDS Tax-Exempt Bond Fund,
Inc.; IDS Tax-Free Money Fund, Inc.; IDS Utilities Income
Fund, Inc. and IDS Certificate Company.
(b) As to each director, officer or partner of the principal
underwriter:
Positions and
Name and Principal Position and Offices Offices with
Business Address with Underwriter Registrant
Ronald G. Abrahamson Vice President- None
IDS Tower 10 Service Quality and
Minneapolis, MN 55440 Reengineering
Douglas A. Alger Vice President-Total None
IDS Tower 10 Compensation
Minneapolis, MN 55440
Peter J. Anderson Senior Vice President- Vice
IDS Tower 10 Investments President--
Minneapolis, MN 55440 Investments
Ward D. Armstrong Vice President- None
IDS Tower 10 Sales and Marketing,
Minneapolis, MN 55440 IDS Institutional
Retirement Services
Joseph M. Barsky III Vice President-Senior None
IDS Tower 10 Portfolio Manager
Minneapolis, MN 55440
Robert C. Basten Vice President-Tax None
IDS Tower 10 and Business Services
Minneapolis, MN 55440
Timothy V. Bechtold Vice President-Risk None
IDS Tower 10 Management Products
Minneapolis, MN 55440
John D. Begley Group Vice President- None
Suite 100 Ohio/Indiana
7760 Olentangy River Rd.
Columbus, OH 43235<PAGE>
PAGE 19
Item 29(b). As to each director, officer or partner of the
principal underwriter (American Express Financial Advisors):
(cont'd)
Positions and
Name and Principal Position and Offices Offices with
Business Address with Underwriter Registrant
Carl E. Beihl Vice President- None
IDS Tower 10 Strategic Technology
Minneapolis, MN 55440 Planning
Jack A. Benjamin Group Vice President- None
Suite 200 Greater Pennsylvania
3500 Market Street
Camp Hill, PA 17011
Alan F. Bignall Vice President- None
IDS Tower 10 Technology and
Minneapolis, MN 55440 Development
Brent L. Bisson Group Vice President- None
Ste 900 E. Westside Twr Los Angeles Metro
11835 West Olympic Blvd.
Los Angeles, CA 90064
John C. Boeder Vice President- None
IDS Tower 10 Mature Market Group
Minneapolis, MN 55440
Walter K. Booker Group Vice President- None
Suite 200 New Jersey
3500 Market Street
Camp Hill, NJ 17011
Bruce J. Bordelon Group Vice President- None
Galleria One Suite 1900 Gulf States
Galleria Blvd.
Metairie, LA 70001
Charles R. Branch Group Vice President- None
Suite 200 Northwest
West 111 North River Dr
Spokane, WA 99201
Karl J. Breyer Senior Vice President- None
IDS Tower 10 Corporate Affairs and
Minneapolis, MN 55440 Special Counsel
Daniel J. Candura Vice President- None
IDS Tower 10 Marketing Support
Minneapolis, MN 55440
Cynthia M. Carlson Vice President- None
IDS Tower 10 American Express
Minneapolis, MN 55440 Securities Services<PAGE>
PAGE 20
Item 29(b). As to each director, officer or partner of the
principal underwriter (American Express Financial Advisors):
(cont'd)
Positions and
Name and Principal Position and Offices Offices with
Business Address with Underwriter Registrant
Orison Y. Chaffee III Vice President-Field None
IDS Tower 10 Real Estate
Minneapolis, MN 55440
James E. Choat Senior Vice President- None
IDS Tower 10 Field Management
Minneapolis, MN 55440
Kenneth J. Ciak Vice President and None
IDS Property Casualty General Manager-
1400 Lombardi Avenue IDS Property Casualty
Green Bay, WI 54304
Roger C. Corea Group Vice President- None
290 Woodcliff Drive Upstate New York
Fairport, NY 14450
Henry J. Cormier Group Vice President- None
Commerce Center One Connecticut
333 East River Drive
East Hartford, CT 06108
John M. Crawford Group Vice President- None
Suite 200 Arkansas/Springfield/Memphis
10800 Financial Ctr Pkwy
Little Rock, AR 72211
Kevin F. Crowe Group Vice President- None
Suite 312 Carolinas/Eastern Georgia
7300 Carmel Executive Pk
Charlotte, NC 28226
Colleen Curran Vice President and None
IDS Tower 10 Assistant General Counsel
Minneapolis, MN 55440
Alan R. Dakay Vice President- None
IDS Tower 10 Institutional Products
Minneapolis, MN 55440 Group
Regenia David Vice President- None
IDS Tower 10 Systems Services
Minneapolis, MN 55440
Scott M. DiGiammarino Group Vice President- None
Suite 500 Washington/Baltimore
8045 Leesburg Pike
Vienna, VA 22182
<PAGE>
PAGE 21
Item 29(b). As to each director, officer or partner of the
principal underwriter (American Express Financial Advisors):
(cont'd)
Positions and
Name and Principal Position and Offices Offices with
Business Address with Underwriter Registrant
Bradford L. Drew Group Vice President- None
Two Datran Center Eastern Florida
Penthouse One B
9130 S. Dadeland Blvd.
Miami, FL 33156
William H. Dudley Director and Executive Board member
IDS Tower 10 Vice President-
Minneapolis MN 55440 Investment Operations
Gordon L. Eid Senior Vice President None
IDS Tower 10 and General Counsel
Minneapolis, MN 55440
Robert M. Elconin Vice President- None
IDS Tower 10 Government Relations
Minneapolis, MN 55440
Mark A. Ernst Vice President- None
IDS Tower 10 Retail Services
Minneapolis, MN 55440
Joseph Evanovich Jr. Group Vice President- None
One Old Mill Nebraska/Iowa/Dakotas
101 South 108th Avenue
Omaha, NE 68154
Louise P. Evenson Group Vice President- None
Suite 200 San Francisco Bay Area
1333 N. California Blvd.
Walnut Creek, CA 94596
Gordon M. Fines Vice President- None
IDS Tower 10 Mutual Fund Equity
Minneapolis MN 55440 Investments
Douglas L. Forsberg Group Vice President- None
Suite 100 Portland/Eugene
7931 N. E. Halsey
Portland, OR 97213
William P. Fritz Group Vice President- None
Suite 160 Northern Missouri
12855 Flushing Meadows Dr
St. Louis, MO 63131
Carl W. Gans Group Vice President- None
8500 Tower Suite 1770 Twin City Metro
8500 Normandale Lake Blvd.
Bloomington, MN 55437
<PAGE>
PAGE 22
Item 29(b). As to each director, officer or partner of the
principal underwriter (American Express Financial Advisors):
(cont'd)
Positions and
Name and Principal Position and Offices Offices with
Business Address with Underwriter Registrant
Robert G. Gilbert Vice President- None
IDS Tower 10 Real Estate
Minneapolis, MN 55440
John J. Golden Vice President- None
IDS Tower 10 Field Compensation
Minneapolis, MN 55440 Development
Morris Goodwin Jr. Vice President and None
IDS Tower 10 Corporate Treasurer
Minneapolis, MN 55440
Suzanne Graf Vice President- None
IDS Tower 10 Systems Services
Minneapolis, MN 55440
Bruce M. Guarino Group Vice President- None
Suite 1736 Hawaii
1585 Kapiolani Blvd.
Honolulu, HI 96814
David A. Hammer Vice President None
IDS Tower 10 and Marketing
Minneapolis, MN 55440 Controller
Teresa A. Hanratty Group Vice President- None
Suites 6&7 Northern New England
169 South River Road
Bedford, NH 03110
John R. Hantz Group Vice President- None
Suite 107 Detroit Metro
17177 N. Laurel Park
Livonia, MI 48154
Robert L. Harden Group Vice President- None
Two Constitution Plaza Boston Metro
Boston, MA 02129
Lorraine R. Hart Vice President- None
IDS Tower 10 Insurance Investments
Minneapolis, MN 55440
Scott A. Hawkinson Vice President-Assured None
IDS Tower 10 Assets Product Development
Minneapolis, MN 55440 and Management
Brian M. Heath Group Vice President- None
Suite 150 North Texas
801 E. Campbell Road
Richardson, TX 75081<PAGE>
PAGE 23
Item 29(b). As to each director, officer or partner of the
principal underwriter (American Express Financial Advisors):
(cont'd)
Positions and
Name and Principal Position and Offices Offices with
Business Address with Underwriter Registrant
James G. Hirsh Vice President and None
IDS Tower 10 Assistant General
Minneapolis, MN 55440 Counsel
David J. Hockenberry Group Vice President- None
30 Burton Hills Blvd. Eastern Tennessee
Suite 175
Nashville, TN 37215
Kevin P. Howe Vice President- None
IDS Tower 10 Government and
Minneapolis, MN 55440 Customer Relations and
Chief Compliance Officer
David R. Hubers Chairman, Chief Board member
IDS Tower 10 Executive Officer and
Minneapolis, MN 55440 President
Marietta L. Johns Senior Vice President- None
IDS Tower 10 Field Management
Minneapolis, MN 55440
James E. Kaarre Vice President- None
IDS Tower 10 Marketing Promotions
Minneapolis, MN 55440
Linda B. Keene Vice President- None
IDS Tower 10 Market Development
Minneapolis, MN 55440
G. Michael Kennedy Vice President-Investment None
IDS Tower 10 Services and Investment
Minneapolis, MN 55440 Research
Susan D. Kinder Senior Vice President- None
IDS Tower 10 Human Resources
Minneapolis, MN 55440
Richard W. Kling Senior Vice President- None
IDS Tower 10 Risk Management Products
Minneapolis, MN 55440
Paul F. Kolkman Vice President- None
IDS Tower 10 Actuarial Finance
Minneapolis, MN 55440
Claire Kolmodin Vice President- None
IDS Tower 10 Service Quality
Minneapolis, MN 55440
<PAGE>
PAGE 24
Item 29(b). As to each director, officer or partner of the
principal underwriter (American Express Financial Advisors):
(cont'd)
Positions and
Name and Principal Position and Offices Offices with
Business Address with Underwriter Registrant
David S. Kreager Group Vice President- None
Ste 108 Trestle Bridge V Greater Michigan
5136 Lovers Lane
Kalamazoo, MI 49002
Steven C. Kumagai Director and Senior None
IDS Tower 10 Vice President-Field
Minneapolis, MN 55440 Management and Business
Systems
Mitre Kutanovski Group Vice President- None
Suite 680 Chicago Metro
8585 Broadway
Merrillville, IN 48410
Edward Labenski Jr. Vice President- None
IDS Tower 10 Senior Portfolio
Minneapolis, MN 55440 Manager
Kurt A. Larson Vice President- None
IDS Tower 10 Senior Portfolio
Minneapolis, MN 55440 Manager
Lori J. Larson Vice President- None
IDS Tower 10 Variable Assets Product
Minneapolis, MN 55440 Development
Ryan R. Larson Vice President- None
IDS Tower 10 IPG Product Development
Minneapolis, MN 55440
Daniel E. Laufenberg Vice President and None
IDS Tower 10 Chief U.S. Economist
Minneapolis, MN 55440
Richard J. Lazarchic Vice President- None
IDS Tower 10 Senior Portfolio
Minneapolis, MN 55440 Manager
Peter A. Lefferts Senior Vice President- None
IDS Tower 10 Corporate Strategy and
Minneapolis, MN 55440 Development
Douglas A. Lennick Director and Executive None
IDS Tower 10 Vice President-Private
Minneapolis, MN 55440 Client Group
Mary J. Malevich Vice President- None
IDS Tower 10 Senior Portfolio
Minneapolis, MN 55440 Manager
<PAGE>
PAGE 25
Item 29(b). As to each director, officer or partner of the
principal underwriter (American Express Financial Advisors):
(cont'd)
Positions and
Name and Principal Position and Offices Offices with
Business Address with Underwriter Registrant
Fred A. Mandell Vice President- None
IDS Tower 10 Field Marketing Readiness
Minneapolis, MN 55440
Daniel E. Martin Group Vice President- None
Suite 650 Pittsburgh Metro
5700 Corporate Drive
Pittsburgh, PA 15237
William J. McKinney Vice President- None
IDS Tower 10 Field Management
Minneapolis, MN 55440 Support
Thomas W. Medcalf Vice President- None
IDS Tower 10 Senior Portfolio Manager
Minneapolis, MN 55440
William C. Melton Vice President- None
IDS Tower 10 International Research
Minneapolis, MN 55440 and Chief International
Economist
Janis E. Miller Vice President- None
IDS Tower 10 Variable Assets
Minneapolis, MN 55440
James A. Mitchell Executive Vice President- None
IDS Tower 10 Marketing and Products
Minneapolis, MN 55440
John P. Moraites Group Vice President- None
Union Plaza Suite 900 Kansas/Oklahoma
3030 Northwest Expressway
Oklahoma City, OK 73112
Pamela J. Moret Vice President-Services None
IDS Tower 10
Minneapolis, MN 55440
Alan D. Morgenstern Group Vice President- None
Suite 200 Central California/
3500 Market Street Western Nevada
Camp Hill, NJ 17011
Barry J. Murphy Senior Vice President- None
IDS Tower 10 Client Service
Minneapolis, MN 55440
Mary Owens Neal Vice President- None
IDS Tower 10 Mature Market Segment
Minneapolis, MN 55440
<PAGE>
PAGE 26
Item 29(b). As to each director, officer or partner of the
principal underwriter (American Express Financial Advisors):
(cont'd)
Positions and
Name and Principal Position and Offices Offices with
Business Address with Underwriter Registrant
Robert J. Neis Vice President- None
IDS Tower 10 Technology Services
Minneapolis, MN 55440 Operations
Ronald E. Newton Group Vice President- None
319 Southbridge St. Rhode Island/Central
Auburn, MA 01501 Massachusetts
Thomas V. Nicolosi Group Vice President- None
Suite 220 New York Metro Area
500 Mamaroneck Avenue
Harrison, NY 10528
James R. Palmer Vice President- None
IDS Tower 10 Taxes
Minneapolis, MN 55440
Carla P. Pavone Vice President- None
IDS Tower 10 Specialty Service Teams
Minneapolis, MN 55440 and Emerging Business
Susan B. Plimpton Vice President- None
IDS Tower 10 Segmentation Development
Minneapolis, MN 55440 and Support
Larry M. Post Group Vice President- None
One Tower Bridge Philadelphia Metro
100 Front Street 8th Fl
West Conshohocken, PA 19428
Ronald W. Powell Vice President and None
IDS Tower 10 Assistant General
Minneapolis, MN 55440 Counsel
James M. Punch Vice President- None
IDS Tower 10 Geographical Service
Minneapolis, MN 55440 Teams
Frederick C. Quirsfeld Vice President-Taxable None
IDS Tower 10 Mutual Fund Investments
Minneapolis, MN 55440
R. Daniel Richardson Group Vice President- None
Suite 800 Southern Texas
Arboretum Plaza One
9442 Capital of Texas Hwy N.
Austin, TX 78759
<PAGE>
PAGE 27
Item 29(b). As to each director, officer or partner of the
principal underwriter (American Express Financial Advisors):
(cont'd)
Positions and
Name and Principal Position and Offices Offices with
Business Address with Underwriter Registrant
Roger B. Rogos Group Vice President- None
One Sarasota Tower Western Florida
Suite 700
Two N. Tamiami Trail
Sarasota, FL 34236
ReBecca K. Roloff Vice President-Private None
IDS Tower 10 Client Group
Minneapolis, MN 55440
Stephen W. Roszell Vice President- None
IDS Tower 10 Advisory Institutional
Minneapolis, MN 55440 Marketing
Max G. Roth Group Vice President- None
Suite 201 S IDS Ctr Wisconsin/Upper Michigan
1400 Lombardi Avenue
Green Bay, WI 54304
Robert A. Rudell Vice President- None
IDS Tower 10 American Express
Minneapolis, MN 55440 Institutional Retirement
Services
John P. Ryan Vice President and None
IDS Tower 10 General Auditor
Minneapolis, MN 55440
Erven Samsel Senior Vice President- None
45 Braintree Hill Park Field Management
Suite 402
Braintree, MA 02184
Russell L. Scalfano Group Vice President- None
Suite 201 Illinois/Indiana/Kentucky
101 Plaza East Blvd.
Evansville, IN 47715
William G. Scholz Group Vice President- None
Suite 205 Arizona/Las Vegas
7333 E Doubletree Ranch Rd
Scottsdale, AZ 85258
Stuart A. Sedlacek Vice President- None
IDS Tower 10 Assured Assets
Minneapolis, MN 55440
Donald K. Shanks Vice President- None
IDS Tower 10 Property Casualty
Minneapolis, MN 55440
<PAGE>
PAGE 28
Item 29(b). As to each director, officer or partner of the
principal underwriter (American Express Financial Advisors):
(cont'd)
Positions and
Name and Principal Position and Offices Offices with
Business Address with Underwriter Registrant
F. Dale Simmons Vice President-Senior None
IDS Tower 10 Portfolio Manager,
Minneapolis, MN 55440 Insurance Investments
Judy P. Skoglund Vice President- None
IDS Tower 10 Human Resources and
Minneapolis, MN 55440 Organization Development
Julian W. Sloter Group Vice President- None
Ste 1700 Orlando FinCtr Orlando/Jacksonville
800 North Magnolia Ave.
Orlando, FL 32803
Ben C. Smith Vice President- None
IDS Tower 10 Workplace Marketing
Minneapolis, MN 55440
William A. Smith Vice President and None
IDS Tower 10 Controller-Private
Minneapolis, MN 55440 Client Group
James B. Solberg Group Vice President- None
466 Westdale Mall Eastern Iowa Area
Cedar Rapids, IA 52404
Bridget Sperl Vice President- None
IDS Tower 10 Human Resources
Minneapolis, MN 55440 Management Services
Paul J. Stanislaw Group Vice President- None
Suite 1100 Southern California
Two Park Plaza
Irvine, CA 92714
Lois A. Stilwell Group Vice President- None
Suite 433 Outstate Minnesota Area/
9900 East Bren Road North Dakota/Western Wisconsin
Minnetonka, MN 55343
William A. Stoltzmann Vice President and None
IDS Tower 10 Assistant General
Minneapolis, MN 55440 Counsel
James J. Strauss Vice President- None
IDS Tower 10 Corporate Planning
Minneapolis, MN 55440 and Analysis
Jeffrey J. Stremcha Vice President-Information None
IDS Tower 10 Resource Management/ISD
Minneapolis, MN 55440
<PAGE>
PAGE 29
Item 29(b). As to each director, officer or partner of the
principal underwriter (American Express Financial Advisors):
(cont'd)
Positions and
Name and Principal Position and Offices Offices with
Business Address with Underwriter Registrant
Neil G. Taylor Group Vice President- None
Suite 425 Seattle/Tacoma
101 Elliott Avenue West
Seattle, WA 98119
John R. Thomas Senior Vice President- Board member
IDS Tower 10 Information and
Minneapolis, MN 55440 Technology
Melinda S. Urion Senior Vice President Treasurer
IDS Tower 10 and Chief Financial
Minneapolis, MN 55440 Officer
Peter S. Velardi Group Vice President- None
Suite 180 Atlanta/Birmingham
1200 Ashwood Parkway
Atlanta, GA 30338
Charles F. Wachendorfer Group Vice President- None
Suite 100 Denver/Salt Lake City/
Stanford Plaza II Albuquerque
7979 East Tufts Ave Pkwy
Denver, CO 80237
Wesley W. Wadman Vice President- None
IDS Tower 10 Senior Portfolio
Minneapolis, MN 55440 Manager
Norman Weaver Jr. Senior Vice President- None
1010 Main St Suite 2B Field Management
Huntington Beach, CA 92648
Michael L. Weiner Vice President- None
IDS Tower 10 Tax Research and Audit
Minneapolis, MN 55440
Lawrence J. Welte Vice President- None
IDS Tower 10 Investment Administration
Minneapolis, MN 55440
Jeffry M. Welter Vice President- None
IDS Tower 10 Equity and Fixed Income
Minneapolis, MN 55440 Trading
William N. Westhoff Senior Vice President and None
IDS Tower 10 Global Chief Investment
Minneapolis, MN 55440 Officer
<PAGE>
PAGE 30
Item 29(b). As to each director, officer or partner of the
principal underwriter (American Express Financial Advisors):
(cont'd)
Positions and
Name and Principal Position and Offices Offices with
Business Address with Underwriter Registrant
Thomas L. White Group Vice President- None
Suite 200 Cleveland Metro
28601 Chagrin Blvd.
Woodmere, OH 44122
Eric S. Williams Group Vice President- None
Suite 250 Virginia
3951 Westerre Parkway
Richmond, VA 23233
Edwin M. Wistrand Vice President and None
IDS Tower 10 Assistant General
Minneapolis, MN 55440 Counsel
Michael R. Woodward Senior Vice President- None
32 Ellicott St Ste 100 Field Management
Batavia, NY 14020
Item 29(c). Not applicable.
Item 30. Location of Accounts and Records
American Express Financial Corporation
IDS Tower 10
Minneapolis, MN 55440
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) Not Applicable.
(b) Not Applicable.
(c) The Registrant undertakes to furnish each person
to whom a prospectus is delivered with a copy of
the Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE>
PAGE 95
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, IDS Federal Income
Fund, Inc., certifies that it meets all of the requirements for
effectiveness of this Amendment to its Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Minneapolis and the State of Minnesota on the 26th
day of July, 1996.
IDS FEDERAL INCOME FUND, INC.
By
Melinda S. Urion, Treasurer
By /s/ William R. Pearce**
William R. Pearce, President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by
the following persons in the capacities indicated on the 26th day
of July, 1996.
Signature Capacity
/s/ William R. Pearce** President, Principal
William R. Pearce Executive Officer and
Director
/s/ Lynne V. Cheney* Director
Lynne V. Cheney
/s/ William H. Dudley* Director
William H. Dudley
/s/ Robert F. Froehlke* Director
Robert F. Froehlke
/s/ David R. Hubers* Director
David R. Hubers
/s/ Heinz F. Hutter* Director
Heinz F. Hutter
/s/ Anne P. Jones* Director
Anne P. Jones
/s/ Melvin R. Laird* Director
Melvin R. Laird
<PAGE>
PAGE 96
Signature Capacity
/s/ Edson W. Spencer* Director
Edson W. Spencer
/s/ John R. Thomas* Director
John R. Thomas
/s/ Wheelock Whitney* Director
Wheelock Whitney
/s/ C. Angus Wurtele* Director
C. Angus Wurtele
*Signed pursuant to Directors' Power of Attorney dated November 10,
1994, filed electronically as Exhibit 18(a) to Registrant's Post-
Effective Amendment No. 18, by:
___________________________
William R. Pearce
**Signed pursuant to Officers' Power of Attorney dated November 1,
1995, filed electronically as Exhibit 19(b) to Registrant's Post-
Effective Amendment No. 22 to Registration Statement No. 2-96512
by:
___________________________
William R. Pearce
<PAGE>
PAGE 97
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, INCOME TRUST consents to the filing
of this Amendment to the Registration Statement signed on its
behalf by the undersigned, thereunto duly authorized, in the City
of Minneapolis and the State of Minnesota on the 26th day of July,
1996.
INCOME TRUST
By
Melinda S. Urion, Treasurer
By /s/ William R. Pearce**
William R. Pearce, President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by
the following persons in the capacities indicated on the 26th day
of July, 1996.
Signature Capacity
/s/ William R. Pearce* Trustee
William R. Pearce
/s/ Lynne V. Cheney* Trustee
Lynne V. Cheney
/s/ William H. Dudley* Trustee
William H. Dudley
/s/ Robert F. Froehlke* Trustee
Robert F. Froehlke
/s/ David R. Hubers* Trustee
David R. Hubers
/s/ Heinz F. Hutter* Trustee
Heinz F. Hutter
/s/ Anne P. Jones* Trustee
Anne P. Jones
/s/ Melvin R. Laird* Trustee
Melvin R. Laird
<PAGE>
PAGE 98
Signature Capacity
Trustee
Edson W. Spencer
/s/ John R. Thomas* Trustee
John R. Thomas
Trustee
Wheelock Whitney
/s/ C. Angus Wurtele* Trustee
C. Angus Wurtele
*Signed pursuant to Trustees Power of Attorney dated April 11,
1996, filed electronically herewith as Exhibit 19(c) by:
___________________________
Leslie L. Ogg
*Signed pursuant to Officers' Power of Attorney dated April 11,
1996, filed electronically herewith as Exhibit 19(d) by:
___________________________
Leslie L. Ogg
<PAGE>
PAGE 99
CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 24
TO REGISTRATION STATEMENT NO. 2-96512
This Post-Effective Amendment comprises the following papers and
documents:
The facing sheet.
Cross reference sheet.
Part A.
The prospectus.
Part B.
Statement of Additional Information.
Financial Statements.
Part C.
Other information.
Exhibits.
The signatures.
<PAGE>
PAGE 1
IDS Federal Income Fund, Inc.
File No. 2-96512/811-4260
EXHIBIT INDEX
Exhibit 2: By-Laws as amended Jan. 10, 1996.
Exhibit 8(c): Copy of Addendum to Custodian Agreement.
Exhibit 9(f): Copy of Agreement and Declaration of Unitholders.
Exhibit 11: Independent Auditors' Consent.
Exhibit 17: Financial Data Schedule.
Exhibit 19(c): Trustees Power of Attorney dated April 11, 1996.
Exhibit 19(d): Officers' Power of Attorney dated April 11, 1996.
<PAGE>
PAGE 1
Effective: June 12, 1986
Amended: 5/14/87, 1/12/89, 1/10/96
BY-LAWS
OF
IDS FEDERAL INCOME FUND, INC.
ARTICLE I
Corporate Seal
The corporate seal shall bear the inscription "IDS Federal
Income Fund, Inc., Minnesota, Incorporated 1985".
ARTICLE II
Meeting of Shareholders
Section 1. No regular meeting of shareholders need be held,
however, a majority of directors present at a duly held meeting may
call a regular meeting of shareholders by fixing the date, time and
place for a meeting. A regular meeting of the shareholders shall
include an election of directors. No meeting shall be considered a
regular meeting unless specifically designated as such in the
notice of meeting. Regular meetings may be held no more frequently
than once per year. If a regular meeting of shareholders has not
been held during the immediately preceding 15 months, a shareholder
or shareholders holding three percent or more of the voting power
of all shares entitled to vote may demand a regular meeting of
shareholders by written notice of demand given to the chief
executive officer or chief financial officer of the Fund. Within
30 days after receipt of the demand by one of those officers, the
Board of Directors shall cause a regular meeting of shareholders to
be called and held on notice no later than 90 days after receipt of
the demand, all at the expense of the Fund. If the Board fails to
cause a regular meeting to be called, the shareholder or
shareholders making the demand may call the regular meeting by
giving notice as required by the laws of Minnesota at the expense
of the Fund.
Section 2. The holders of at least ten percent (10%) of the
shares outstanding and entitled to vote, present in person or by
proxy, shall constitute a quorum, but the holders of a smaller
amount may adjourn from time to time without further notice, other
than by notice at the time, until a quorum is secured at any such
adjourned meeting. In case a quorum is not present, the meeting
may be adjourned from time to time without notice other than by
notice at the meeting. At any adjourned meeting at which a quorum
may be present, any business may be transacted which might have
been transacted at the meeting as originally called.
<PAGE>
PAGE 2
Section 3. At each meeting of the shareholders, the polls
may be opened and closed, the proxies and ballots may be received
and taken in charge, and all questions touching the qualification
of voters, the validity of proxies, and acceptances or rejections
of votes may be decided by two (2) inspectors of election.
Inspectors may be appointed by the Board of Directors before or at
the meeting. If no such appointment shall have been made or if any
inspector be absent or fails to act, the presiding officer at the
meeting shall appoint a person or persons to fill such vacancy.
Inspectors shall take charge of the polls and, when the vote is
completed, shall make a certificate of the result of the vote taken
and of such other facts as may be required by law.
Section 4. Special meetings of the shareholders may be
called at any time as provided for by the laws of the State of
Minnesota.
Section 5. Shareholders shall take action by the affirmative
vote of the holders of a majority of the voting power of the shares
present and entitled to vote except where a larger portion is
otherwise required.
ARTICLE III
Directors
Section 1. An organizational meeting of the Board of
Directors shall be held as soon as convenient to a majority of the
directors, after the final adjournment of each regular meeting of
the shareholders, and no notice shall be required. Other meetings
of the Board of Directors may be previously scheduled or called by
the President or any two directors. Notice of specially called
meetings shall be sufficient if given to each director at least
five days prior thereto by mail or one day prior thereto by
telephone, telegraph or in person, unless such notice period is
waived by each director.
Section 2. The Board of Directors shall fix and change, as
it may from time to time determine, by majority vote, the
compensation to be paid the directors, officers and all employees
appointed by the Board of Directors.
Section 3. A director may give advance written consent or
opposition to a proposal to be acted on at a Board meeting. If the
director is not present at the meeting, consent or opposition to a
proposal does not constitute presence for purposes of determining
the existence of a quorum, but consent or opposition shall be
counted as a vote in favor of or against the proposal and shall be
entered in the minutes of the meeting, if the proposal acted on at
the meeting is substantially the same or has substantially the same
effect as the proposal to which the director has consented or
objected.
Section 4. A majority of the directors shall constitute a
quorum, but a smaller number may adjourn from time to time without
notice, other than by announcement at the meeting, until a quorum
is secured; and, likewise, in case a quorum is present, the meeting
may be adjourned from time to time without notice other than by
<PAGE>
PAGE 3
announcement at the meeting. At any adjourned meeting at which a
quorum may be present, any business may be transacted which might
have been transacted at the meeting as originally called.
Section 5. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate an Executive Committee
of two or more directors, which may meet at stated times or on
notice to all by any of their number during intervals between
meetings of the Board. The Executive Committee shall advise with
and aid the officers of the Fund in all matters concerning its
interests and the management of its business, and generally perform
such duties and exercise such powers as may be delegated to it from
time to time by the Board of Directors. Vacancies in the
membership of such Executive Committee shall be filled by the Board
of Directors.
Section 6. From time to time the Board of Directors may, by
resolution passed by a majority of the whole Board, appoint any
other committee or committees for any purpose or purposes, which
committee or committees shall have such powers as shall be
specified in the resolution of appointment.
Section 7. The quorum for such committee established by the
Board of Directors is two members regardless of the number of
members serving on the committee.
Section 8. Any action required or permitted to be taken at
any meeting of the Board of Directors or of a duly appointed
committee of the Board of Directors may be taken in any manner
permitted by law.
ARTICLE IV
Officers
Section 1. The Fund shall have a President who shall serve
as the chief executive officer, a Treasurer who shall serve as the
chief financial officer, and may have such other officers as the
Board of Directors may choose from time to time.
Section 2. The Treasurer shall be the chief financial
officer of the Fund, shall keep or cause to be kept full and
accurate accounts of receipts and disbursements in books belonging
to the Fund, and shall perform such other duties as the Board of
Directors may from time to time prescribe or require.
Section 3. Any person designated by the Board of Directors
as a Vice President shall be vested with all the powers and
required to perform all the duties of the President in the
President's absence or disability, shall at all times be vested
with the same power as the President to sign and deliver in the
name of the Fund any deeds, mortgages, bonds, contracts or other
instruments pertaining to the business of the Fund, and shall
perform such other duties as may be prescribed by the Board of
Directors.
<PAGE>
PAGE 4
Section 4. Any person designated by the Board of Directors
as Secretary shall attend all meetings of the shareholders of the
Fund, the Board of Directors, and such other meetings as may be
designated by the Board of Directors. The Secretary shall record
all of the proceedings of such meetings in a book or books to be
kept for that purpose; shall have custody of the seal, stock
certificate books and minute books of the Fund; may affix the seal
of the Fund to any instrument and perform such additional duties as
shall be assigned by the Board of Directors.
Section 5. The officers of the Fund shall hold office until
their successors are chosen and qualify in their stead. Any
officer chosen and appointed by the Board of Directors may be
removed either with or without cause at any time by the Board of
Directors.
ARTICLE V
Capital Stock
1/12/89
Shares of capital stock shall be uncertificated.
ARTICLE VI
Transfers
1/12/89
Section 1. Shares of stock of the Fund shall be transferred
on the books of the Fund at the request of the holder thereof in
person or of her or his duly authorized attorney upon surrender of
the certificate or certificates therefor, if any, or in their
absence by a request for transfer in a form acceptable to the Fund
that may include the request be in writing, and be signed by the
registered holder or by his duly authorized attorney in the manner
specified by the Fund. No transfer or assignment of shares shall
affect the right of the Fund to pay any dividend due upon the
shares, or to treat the holder of record as the holder in fact,
until such transfer or assignment is registered on the books of the
Fund and the Fund shall be entitled to treat the holder of record
of any of its shares as the holder in fact thereof and accordingly
shall not be bound to recognize any equitable or other claim to, or
interest in, such shares on the part of any person whether or not
it shall have express or other notice thereof, save as may be
expressly provided by law.
Section 2. The Board of Directors shall have power and
authority from time to time to appoint one or more transfer agents
and/or clerks and registrars for the securities issued by the Fund
and to make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of such securities.
Section 3. If any security issued by the Fund be lost,
stolen, mutilated or destroyed, the security may be transferred
upon giving of a satisfactory bond of indemnity in an amount which,
in the judgment of the Board of Directors, is sufficient to
indemnify the Fund against any claim that may result therefrom.
<PAGE>
PAGE 5
ARTICLE VII
Definitions
For all purposes of the Articles of Incorporation and these
By-Laws, the term "business day" shall be defined as a day with
respect to which the New York Stock Exchange is open for business.
ARTICLE VIII
Custodian or Trustee Agreements
The Fund shall enter into a custodian or trustee agreement
with a bank or trust company having aggregate capital, surplus and
undivided profits of not less than $2,000,000 for the custody of
the Fund's securities and other assets. All securities and cash
assets owned or acquired by the Fund shall be held by such
custodian or trustee pursuant to the terms of such agreement and
the Fund shall deposit or cause to be deposited with such custodian
or trustee all such securities and cash assets. The agreement
between the Fund and the custodian or trustee may be terminated at
any time by a vote of a majority of the outstanding shares of the
Fund.
ARTICLE IX
Miscellaneous
1/10/96
Section 1. The fiscal year of the Fund shall begin on the
first day of June in each year and end on the thirty-first day of
May following.
Section 2. If the sale of shares issued by the Fund shall at
any time be discontinued, the Board of Directors may in its
discretion, pursuant to resolution, deduct from the value of the
assets an amount equal to the brokerage commissions, transfer
taxes, and charges, if any, which would be payable on the sale of
such securities if they were then being sold.
ARTICLE X
Indemnification
5/14/87
Section 1. Each person made or threatened to be made a party
to or is involved (including, without limitation, as a witness) in
any actual or threatened action, suit or proceeding whether civil,
criminal, administrative, arbitration, or investigative, including
a proceeding by or in the right of the Fund by reason of the former
or present capacity as a director or officer of the Fund or who,
while a director or officer of the Fund, is or was serving at the
request of the Fund or whose duties as a director or officer
involve or involved service as a director, officer, partner,
trustee or agent of another organization or employee benefit plan,
whether the basis of any proceeding is alleged action in an
official capacity or in any capacity while serving as a director,
officer, partner, trustee or agent, shall be indemnified and held
harmless by the Fund to the full extent authorized by the
<PAGE>
PAGE 6
Minnesota Business Corporation Act, as the same or may hereafter be
amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Fund to provide broader
indemnification rights than the law permitted the Fund to provide
prior to such amendment, or by any other applicable law as then in
effect, against judgments, penalties, fines including, without
limitation, excise taxes assessed against the person with respect
to an employee benefit plan, settlements and reasonable expenses,
including attorneys' fees and disbursements, incurred in connection
therewith and such indemnification shall continue as to any person
who has ceased to be a director or officer and shall inure to the
benefit of the person's heirs, executors and administrators
provided, however, in an action brought against the Fund to enforce
rights to indemnification, the director or officer shall be
indemnified only if the action was authorized by the Board of
Directors of the Fund. The right to indemnification conferred by
this Section shall be a contract right and shall include the right
to be paid by the Fund in advance of the final disposition of a
proceeding for expenses incurred in connection therewith provided,
however, such payment of expenses shall be made only upon receipt
of a written undertaking by the director or officer to repay all
amounts so paid if it is ultimately determined that the director or
officer is not entitled to indemnification.
Section 2. Each person who upon written request to the Fund
has not received payment within thirty days may at any time
thereafter bring suit against the Fund to recover any unpaid amount
and, to the extent successful, in whole or in part, shall be
entitled to be paid the expenses of prosecuting such suit. Each
person shall be presumed to be entitled to indemnification upon
filing a written request for payment and the Fund shall have the
burden of proof to overcome the presumption that the director or
officer is not so entitled. Neither the determination by the Fund,
whether by the Board of Directors, special legal counsel or by
shareholder, nor the failure of the Fund to have made any
determination shall be a defense or create the presumption that the
director or officer is not entitled to indemnification.
Section 3. The right to indemnification and to the payment
of expenses prior to any final determination shall not be exclusive
of any other right which any person may have or hereinafter acquire
under any statute, provision of the Articles of Incorporation, by-
law, agreement, vote of shareholders or otherwise and notwith-
standing any provisions in this Article X, the Fund is not
obligated to make any payment with respect to any claim for which
payment is required to be made to or on behalf of the director or
officer under any insurance policy, except with respect to any
excess beyond the amount of required payment under such insurance
and no indemnification will be made in violation of the provisions
of the Investment Company Act of 1940.
<PAGE>
PAGE 1
ADDENDUM TO THE CUSTODIAN AGREEMENT
THIS ADDENDUM TO THE CUSTODIAN AGREEMENT dated March 20, 1995
between IDS Federal Income Fund, Inc. (the Corporation) and
American Express Trust Company (the Custodian) is made pursuant to
Section 12 of the Agreement to reflect the Corporation's
arrangement of investing all of its assets in a master trust.
American Express Financial Corporation (AEFC) serves as
administrator for the Corporation and for the master trust in which
the Corporation invests.
The Corporation, the Custodian and AEFC agree as follows:
The parties to this Agreement acknowledge that, so long as the
Corporation invests all of its assets in a master trust, the only
assets held by the Corporation will be units of the master trust.
The parties agree that the Custodian is entitled to rely upon AEFC
for an accounting of the number of units held, purchased or
redeemed by the Corporation and to delegate to AEFC responsibility
for all reporting to the Corporation. AEFC agrees to indemnify and
hold harmless the Custodian from all claims and liabilities
incurred or assessed against the Custodian in connection with the
accounting for and reporting to the Corporation by AEFC.
IN WITNESS WHEREOF, the Corporation, the Custodian and AEFC have
caused this addendum to the Custodian Agreement to be executed on
June 10, 1996 which shall remain in effect until terminated by one
of the parties on written notice to the other parties to this
Addendum.
IDS FEDERAL INCOME FUND, INC.
By /s/ Leslie L. Ogg
Leslie L. Ogg
Vice President
AMERICAN EXPRESS TRUST COMPANY
By /s/ Chandrakant A. Patel
Chandrakant A. Patel
Vice President
AMERICAN EXPRESS FINANCIAL CORPORATION
By /s/ Richard W. Kling
Richard W. Kling
Senior Vice President
<PAGE>
PAGE 1
GOVERNMENT INCOME PORTFOLIO
AGREEMENT AND DECLARATION OF UNITHOLDERS
This AGREEMENT AND DECLARATION OF UNITHOLDERS is made at
Minneapolis, Minnesota, as of this 10th day of June, 1996 by the
holders of beneficial interest of Government Income Portfolio, a
separate series of Income Trust.
WITNESS that
WHEREAS, the Declaration of Trust for Income Trust provides
for no restrictions on the transfer of units therein; and
WHEREAS, the holders of units in Government Income Portfolio
desire to restrict the transfer of their units in Government Income
Portfolio;
NOW, THEREFORE, the undersigned hereby declare that they will
not transfer any units in Government Income Portfolio held by them
without the prior written consent of the other unitholders holding
at least two thirds of the Government Income Portfolio's units
outstanding (excluding the units of the holder seeking to effect
the transfer) and that any attempted transfer in violation of this
agreement shall be null and void. This agreement shall not affect
the rights of any unitholder to redeem units in Government Income
Portfolio as provided for in the Declaration of Trust. The
undersigned also acknowledge that the remedy of damages for the
violation of this agreement would be inadequate and therefore
further agree that this agreement shall be enforceable solely by
the remedy of specific performance.
IDS FEDERAL INCOME FUND, INC.
/s/ Leslie L. Ogg
Leslie L. Ogg
Vice President and General Counsel
STRATEGIST INCOME FUND, INC.
Strategist Government Income Fund
/s/ James A. Mitchell
James A. Mitchell
President
<PAGE>
PAGE 1
INDEPENDENT AUDITORS' CONSENT
___________________________________________________________________
The Board and Shareholders
IDS Federal Income Fund, Inc.:
We consent to the use of our report incorporated herein by
reference and to the references to our Firm under the headings
"Financial Highlights" in Part A and "INDEPENDENT AUDITORS" in Part
B of the Registration Statement.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
July 26, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> IDS FEDERAL INCOME FUND CLASS A
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 1751340289
<INVESTMENTS-AT-VALUE> 1741569276
<RECEIVABLES> 269188511
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2010757787
<PAYABLE-FOR-SECURITIES> 278109499
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 17090191
<TOTAL-LIABILITIES> 295199690
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 180427260
<SHARES-COMMON-STOCK> 222446482
<SHARES-COMMON-PRIOR> 196735958
<ACCUMULATED-NII-CURRENT> 873023
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (45618634)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (6123552)
<NET-ASSETS> 1715558097
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 105533391
<OTHER-INCOME> 0
<EXPENSES-NET> (16141318)
<NET-INVESTMENT-INCOME> 89392073
<REALIZED-GAINS-CURRENT> 12026173
<APPREC-INCREASE-CURRENT> (28963992)
<NET-CHANGE-FROM-OPS> 72454254
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (61393266)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 149105568
<NUMBER-OF-SHARES-REDEEMED> (133889465)
<SHARES-REINVESTED> 10494421
<NET-CHANGE-IN-ASSETS> 360801455
<ACCUMULATED-NII-PRIOR> 71607308
<ACCUMULATED-GAINS-PRIOR> (23666307)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7421829
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16141318
<AVERAGE-NET-ASSETS> 1054871815
<PER-SHARE-NAV-BEGIN> 4.97
<PER-SHARE-NII> .29
<PER-SHARE-GAIN-APPREC> (.04)
<PER-SHARE-DIVIDEND> (.29)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 4.93
<EXPENSE-RATIO> .91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0<PAGE>
<ARTICLE> 6
<SERIES>
[NUMBER] 2
<NAME> IDS FEDERAL INCOME FUND CLASS B
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
[INVESTMENTS-AT-COST] 1751340289
[INVESTMENTS-AT-VALUE] 1741569276
[RECEIVABLES] 269188511
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 2010757787
[PAYABLE-FOR-SECURITIES] 278109499
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 17090191
[TOTAL-LIABILITIES] 295199690
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 180427260
[SHARES-COMMON-STOCK] 105626695
[SHARES-COMMON-PRIOR] 58824204
[ACCUMULATED-NII-CURRENT] 873023
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (45618634)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (6123552)
[NET-ASSETS] 1715558097
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 105533391
[OTHER-INCOME] 0
[EXPENSES-NET] (16141318)
[NET-INVESTMENT-INCOME] 89392073
[REALIZED-GAINS-CURRENT] 12026173
[APPREC-INCREASE-CURRENT] (28963992)
[NET-CHANGE-FROM-OPS] 72454254
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (22254823)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 118610090
[NUMBER-OF-SHARES-REDEEMED] (76081026)
[SHARES-REINVESTED] 4273427
[NET-CHANGE-IN-ASSETS] 360801455
[ACCUMULATED-NII-PRIOR] 71607308
[ACCUMULATED-GAINS-PRIOR] (23666307)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 7421829
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 16141318
[AVERAGE-NET-ASSETS] 432518335
[PER-SHARE-NAV-BEGIN] 4.96
[PER-SHARE-NII] .27
[PER-SHARE-GAIN-APPREC] (.04)
[PER-SHARE-DIVIDEND] (.26)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 4.93
[EXPENSE-RATIO] 1.67
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0<PAGE>
<ARTICLE> 6
<SERIES>
[NUMBER] 3
<NAME> IDS FEDERAL INCOME FUND CLASS Y
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
[INVESTMENTS-AT-COST] 1751340289
[INVESTMENTS-AT-VALUE] 1741569276
[RECEIVABLES] 269188511
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 2010757787
[PAYABLE-FOR-SECURITIES] 278109499
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 17090191
[TOTAL-LIABILITIES] 295199690
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 180427260
[SHARES-COMMON-STOCK] 20091530
[SHARES-COMMON-PRIOR] 17210263
[ACCUMULATED-NII-CURRENT] 873023
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (45618634)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (6123552)
[NET-ASSETS] 1715558097
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 105533391
[OTHER-INCOME] 0
[EXPENSES-NET] (16141318)
[NET-INVESTMENT-INCOME] 89392073
[REALIZED-GAINS-CURRENT] 12026173
[APPREC-INCREASE-CURRENT] (28963992)
[NET-CHANGE-FROM-OPS] 72454254
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (5539421)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 7980462
[NUMBER-OF-SHARES-REDEEMED] (6205925)
[SHARES-REINVESTED] 1106730
[NET-CHANGE-IN-ASSETS] 360801455
[ACCUMULATED-NII-PRIOR] 71607308
[ACCUMULATED-GAINS-PRIOR] (23666307)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 7421829
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 16141318
[AVERAGE-NET-ASSETS] 92422214
[PER-SHARE-NAV-BEGIN] 4.97
[PER-SHARE-NII] .30
[PER-SHARE-GAIN-APPREC] (.04)
[PER-SHARE-DIVIDEND] (.30)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 4.93
[EXPENSE-RATIO] .74
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
PAGE 1
TRUSTEES POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as trustees of the below listed
open-end, diversified investment companies that previously have
filed registration statements and amendments thereto pursuant to
the requirements of the Investment Company Act of 1940 with the
Securities and Exchange Commission:
Growth Trust
Growth and Income Trust
Income Trust
Tax-Free Income Trust
World Trust
hereby constitutes and appoints William R. Pearce and Leslie L. Ogg
or either one of them, as her or his attorney-in-fact and agent, to
sign for her or him in her or his name, place and stead any and all
further amendments to said registration statements filed pursuant
to said Act and any rules and regulations thereunder, and to file
such amendments with all exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission,
granting to either of them the full power and authority to do and
perform each and every act required and necessary to be done in
connection therewith.
Dated the 11th day of April, 1996.
/s/ Lynne V. Cheney /s/ Melvin R. Laird
Lynne V. Cheney Melvin R. Laird
/s/ William H. Dudley /s/ William R. Pearce
William H. Dudley William R. Pearce
/s/ Robert F. Froehlke
Robert F. Froehlke Edson W. Spencer
/s/ David R. Hubers /s/ John R. Thomas
David R. Hubers John R. Thomas
/s/ Heinz F. Hutter
Heinz F. Hutter Wheelock Whitney
/s/ Anne P. Jones /s/ C. Angus Wurtele
Anne P. Jones C. Angus Wurtele
<PAGE>
PAGE 1
OFFICERS' POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as officers of the below listed
open-end, diversified investment companies that previously have
filed registration statements and amendments thereto pursuant to
the requirements of the Investment Company Act of 1940 with the
Securities and Exchange Commission:
Growth Trust
Growth and Income Trust
Income Trust
Tax-Free Income Trust
World Trust
hereby constitutes and appoints William R. Pearce and Leslie L. Ogg
or either one of them, as her or his attorney-in-fact and agent, to
sign for her or him in her or his name, place and stead, as an
officer, any and all further amendments to said registration
statements filed pursuant to said Act and any rules and regulations
thereunder, and to file such amendments with all exhibits thereto
and other documents in connection therewith with the Securities and
Exchange Commission, granting to either of them the full power and
authority to do and perform each and every act required and
necessary to be done in connection therewith.
Dated the 11th day of April, 1996.
/s/ William R. Pearce
William R. Pearce
/s/ Melinda S. Urion
Melinda S. Urion
