<PAGE>
PAGE 1
Semi-annual Supplement - Feb. 15, 1996
Supplementing the IDS Federal Income Fund, Inc. Prospectus
(August 29, 1995)
Form No. S-6042 J (8/95)
The prospectus for the Fund is modified by adding the following
information:
Proposed conversion to master/feeder structure
Subject to certain contingencies, the Fund intends to invest all of
its assets in the Government Income Portfolio (the Portfolio) of
Income Trust (the Trust), a separate investment company also
managed by American Express Financial Corporation (AEFC), rather
than directly investing in and managing its own portfolio of
securities. The Fund anticipates this conversion will occur in
early 1996.
The Portfolio has the same investment objectives, policies and
restrictions as the Fund. The board of the Fund believes that by
investing all of its assets in the Portfolio, the Fund will be in a
position to realize directly or indirectly certain economies of
scale inherent in managing a larger asset base. When the Fund
converts to the master/feeder structure, the policies described in
its prospectus will apply to both the Fund and the Portfolio.
Special considerations regarding master/feeder structure
This arrangement -- a fund investing its assets in a Portfolio with
an identical investment objective -- is commonly known as a
master/feeder structure. The Trust is a separate investment
company. Therefore, the Fund's interest in securities owned by the
Portfolio will be indirect. The board has considered the
advantages and disadvantages of investing the assets of the Fund in
the Portfolio. The board believes that this approach offers
opportunities for economies of scale. In determining to convert to
a master/feeder structure, the board considered whether the
aggregate of the fees of the Fund and the Portfolio will be more or
less than if the Fund invested directly in the securities to be
held by the Portfolio. The board negotiated certain expense
reimbursement arrangements with AEFC to mitigate the impact of
increases in aggregate costs, and believes that any additional
costs not covered by such arrangements will be outweighed by the
anticipated benefits to the Fund and its shareholders of conversion
to a master/feeder structure.
The investment objective, policies and restrictions of the
Portfolio are the same as those described in the Fund's prospectus
under the captions "Investment policies and risks" and "Facts about
investments and their risks."
To date, AEFC has sponsored and advised only traditionally
structured funds that invest directly in a portfolio of securities
and retain their own investment manager. Funds that invest all
their assets in interests in a separate investment company are a
relatively new development in the mutual fund industry and may be
subject to additional regulations and risks as described in the
next paragraphs.<PAGE>
PAGE 2
In addition to selling units to the Fund, the Portfolio may sell
units to other affiliated and non-affiliated mutual funds and to
institutional investors. Such investors will invest in the
Portfolio on the same terms and conditions and will pay a
proportionate share of the Portfolio's expenses. However, the
other investors investing in the Portfolio are not required to sell
their shares at the same price as the Fund due to variations in
sales commissions and other operating expenses. Therefore,
investors in the Fund should be aware that these differences may
result in differences in returns experienced by investors in the
different funds that invest in the same Portfolio.
The Fund may withdraw (completely redeem) all its assets from the
Portfolio at any time if the board determines that it is in the
best interest of the Fund to do so. In the event the Fund
withdraws all of its assets from the Portfolio, the board would
consider what action might be taken, including investing all assets
of the Fund in another pooled investment entity or retaining an
investment advisor to manage the Fund's assets in accordance with
its investment objective. The investment objective of the Fund and
its Portfolio can only be changed with shareholder approval. If
the objective of the Portfolio changes and shareholders of the Fund
do not approve a parallel change in the Fund's investment
objective, the Fund would seek an alternative investment vehicle
for the Fund or retain an investment advisor on its behalf.
Investors in the Fund should be aware that smaller funds investing
in the Portfolio may be adversely affected by the actions of larger
funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may experience
higher prorated operating expenses, thereby producing lower
returns. Additionally, the Portfolio may become less diverse,
resulting in increased portfolio risk, and experience decreasing
economies of scale. Institutional investors in the Portfolio that
have a greater pro rata ownership than the Fund could have
effective voting control over the operation of the Portfolio.
Certain changes in the Portfolio's fundamental objectives, policies
and restrictions could require the Fund to redeem its interest in
the Portfolio. Any such withdrawal could result in a distribution
of in-kind portfolio securities (as opposed to cash distribution).
If securities are distributed, the Fund could incur brokerage, tax
or other charges in converting the securities to cash. In
addition, a distribution in kind may result in a less diversified
portfolio of investments or adversely affect the liquidity of the
Fund.
Wherever the Fund, as an investor in the Portfolio, is requested to
vote on matters pertaining to the Portfolio, the Fund will hold a
meeting of Fund shareholders. The Fund will vote its units in the
Portfolio for or against such matters proportionately to the
instructions to vote for or against such matters received from Fund
shareholders. The Fund will vote shares for which it receives no
voting instructions in the same proportion as the shares for which
it receives voting instructions. Upon the implementation of the
new fund structure, AEFC will provide investment management
services to the Portfolio at the same annual rate currently paid by
the Fund. See the prospectus section "Investment manager and <PAGE>
PAGE 3
transfer agent" for a complete description of the management and
other expenses associated with the Fund's investment in the
Portfolio.
Form No. S-6442
*Destroy July 29, 1996
