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IDS Federal Income Fund
1995 annual report
(prospectus enclosed)
(graphic of the Capitol dome)
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.
(This annual report includes a prospectus that describes in detail
the fund's objective, investment policies, risks, sales charges,
fees and other matters of interest. Please read the prospectus
carefully before you invest or send money.)
Distributed by American Express Financial Advisors Inc.
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PAGE 2
(graphic of the Capitol dome)
A comfortable compromise
Balancing risk and reward is something all investors must consider.
In the fixed-income area, intermediate-term securities issued by
the federal government and its agencies offer a good middle ground.
These securities, which form the core of Federal Income Fund,
normally provide greater investment stability than long-term bonds,
while still offering a yield higher than that of guaranteed
investments such as bank CDs. For a conservative investor, that
can be a rewarding combination.
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PAGE 3
Contents
(graphic of two nested, open booklets)
The purpose of this annual report is to tell investors how the fund
performed.
The prospectus, which is bound into the middle of this annual
report, describes the fund in detail.
1995 annual report
From the president 4
From the portfolio manager 4
Making the most of your fund 6
Long-term performance 7
Independent auditors' report 8
Financial statements 9
Notes to financial statements 12
Investments in securities 20
IDS mutual funds 24
Federal income tax information 27
1995 prospectus
The Fund in brief 3p
Goals 3p
Types of Fund investments and their risks 3p
Proposed conversion to master/feeder structure 3p
Manager and distributor 4p
Portfolio manager 4p
Alternative purchase arrangements 4p
Sales charge and Fund expenses 5p
Performance 7p
Financial highlights 7p
Total returns 9p
Yield 11p
Investment policies and risks 12p
Facts about investments and their risks 12p
Valuing Fund shares 16p
How to purchase, exchange or redeem shares 17p
Alternative purchase arrangements 17p
How to purchase shares 19p
How to exchange shares 22p
How to redeem shares 22p
Reductions and waivers of the sales charge 27p
Special shareholder services 32p
Services 32p
Quick telephone reference 32p
Distributions and taxes 33p
Dividend and capital gain distributions 33p
Reinvestments 34p
Taxes 34p
How to determine the correct TIN 36p
How the Fund is organized 37p
Shares 37p
Voting rights 37p
Shareholder meetings 37p
Special considerations regarding
master/feeder structure 38p
Board members and officers 40p
Investment manager and transfer agent 42p
Distributor 43p
About American Express Financial Corporation 45p
General information 45p
Appendix 46p
Descriptions of derivative instruments 46p
(This annual report is not part of the prospectus.)
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PAGE 4
To our shareholders
[photo of William Pearce]
William R. Pearce
President of the fund
[photo of James Snyder]
James W. Snyder
Portfolio manager
From the president
This annual report and prospectus are reprints of those you
received last fall. We've reprinted them to make you aware of our
plans, approved by shareholders last year, to change the Fund's
structure and to change its fiscal year (from June 30 to May 31).
The new structure, called "master/feeder," will enable the Fund to
invest its assets in the Government Income portfolio of the Income
Trust, which is also managed by American Express Financial
Corporation. Because that portfolio's investment objectives are
identical to those of Federal Income Fund, this structure change
will have no effect on your investment. Be assured your money will
be managed in the same way.
The reason for the new structure is that we believe it will provide
opportunities for us to share certain operating costs with other
funds that have the same investment objectives. For more details,
please consult the "Special considerations regarding master/feeder
structure" in the prospectus.
[signature]
William R. Pearce
From the portfolio manager
IDS Federal Income Fund capitalized on a recovering bond market to
post a solid total return -- including regular dividends and
capital gains -- for the past fiscal year (July 1994 through June
1995).
The period was characterized by distinct contrast. Much of the
first half of the fiscal year was dominated by higher interest
rates prompted by the Federal Reserve's desire to temper economic
growth and thereby curb inflation. Because rising rates depress
bond prices, fixed-income funds such as this one suffered eroding
net asset values.
Defensive strategies
Still, we were able to temper the decline by: reducing the average
maturity level of the portfolio; increasing our holdings of short-
term Treasury notes (one- to two-year maturities) and direct-agency
securities, which are bonds issued by government agencies such as
GNMA (Ginnie Mae) and FNMA (Fannie Mae); and also reducing our
positions in derivative instruments to provide us with the
flexibility to buy when opportunities arose.
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PAGE 5
(The fund uses small amounts of derivatives, which have proved to
be beneficial to the fund by providing an attractive total return
with minimal fluctuations in net asset value. As of this writing,
less than 4% of the portfolio was invested in interest-only and
principal-only instruments. Approximately 4% was invested in
derivatives known as inverse floaters. We plan to continue to use
these instruments only when we feel we can benefit the fund without
taking undue risk. Because of this cautious approach, which
centers on using derivatives to hedge risk, this fund was not
greatly affected by the derivative problems that drove down the
values of similar types of funds last year.)
New year, new environment
By the time 1995 rolled around, the investment environment had
changed markedly. With the Federal Reserve taking a hands-off
approach, interest rates were falling and the bond market was
enjoying a strong rally.
We were able to take full advantage of the advance thanks to our
longer-than-average portfolio maturity. (The longer the maturity,
the greater the gain from an interest-rate decline. We lengthened
our maturity structure in late 1994 and early 1995.) Beyond that,
we shifted our emphasis among derivatives, reducing our exposure to
interest-only securities while adding to our holdings of inverse
floaters. Lastly, we lessened our exposure to mortgage-backed
securities, which were relatively weak performers, in favor of
intermediate- and short-term Treasurys. All of these strategies
benefitted fund performance.
Our outlook for the new fiscal year remains positive, as we expect
interest rates to decline further. Given that forecast, we are
holding to a longer-than-average maturity, maintaining a relatively
high level of Treasury securities and increasing our exposure to
intermediate-term bonds. If our expectations prove accurate, we
think we can look forward to another productive period in the
months ahead.
[signature]
James W. Snyder
(Information as of Aug. 1995)
Class A
6-month performance
(All figures per share)
Net asset value (NAV)
Dec. 31, 1995 $5.09
June 30, 1995 $4.97
Increase $0.12
Distributions
July 1, 1995 - Dec. 31, 1995
From income $0.16
From capital gains $ --
Total distributions $0.16
Total return* +5.8%**
Class B
6-month performance
(All figures per share)
Net asset value (NAV)
Dec. 31, 1995 $5.09
June 30, 1995 $4.96
Increase $0.13
Distributions
July 1, 1995 - Dec. 31, 1995
From income $0.14
From capital gains $ --
Total distributions $0.14
Total return* +5.5%**
Class Y
6-month performance
(All figures per share)
Net asset value (NAV)
Dec. 31, 1995 $5.09
June 30, 1995 $4.97
Increase $0.12
Distributions
July 1, 1995 - Dec. 31, 1995
From income $0.17
From capital gains $ --
Total distributions $0.17
Total return* +5.9%**
*The prospectus discusses the effects of sales charge, if any, on
the various classes.
**The total return is a hypothetical investment in the Fund with
all distributions reinvested.
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PAGE 6
Making the most of your fund
Average annual total return
(as of June 30, 1995)
Class A
1 year 5 years Since inception*
+3.79% +6.31% +7.58%
*Aug. 19, 1985
Total returns for Class A, Class B and Class Y for the period from
March 20, 1995 to June 30, 1995 were -0.7%, -0.9% and +4.5%,
respectively. March 20, 1995 was the inception date for Class B
and Class Y. Total return for Class A is shown for comparative
purposes. The performance of Class B and Class Y will vary from
the performance of Class A based on differences in sales charges
and fees.
Your investment and return values fluctuate so that your shares,
when redeemed, may be worth more or less than the original cost.
Figures for Class A reflect the deduction of the maximum 5% sales
charge. This was a period of widely fluctuating security prices.
Past performance is no guarantee of future results.
Build your assets systematically
One of the best ways to invest in the fund is by dollar-cost
averaging -- a time-tested strategy that can make market
fluctuations work for you. To dollar-cost average, simply invest a
fixed amount of money regularly. You'll automatically buy more
shares when the fund's share price is low, fewer shares when it is
high.
This does not ensure a profit or avoid a loss if the market
declines. But, if you can continue to invest regularly through
changing market conditions, it can be an effective way to
accumulate shares to meet your long-term goals.
How dollar-cost averaging works
Month Amount Per-share Number of shares purchased
invested market price
Jan $100 $20 5.00 XXXXX
Feb 100 18 5.56 XXXXXx
Mar 100 17 5.88 XXXXXx
Apr 100 15 6.67 XXXXXXx
May 100 16 6.25 XXXXXXx
June 100 18 5.56 XXXXXx
July 100 17 5.88 XXXXXx
Aug 100 19 5.26 XXXXXx
Sept 100 21 4.76 XXXXx
Oct 100 20 5.00 XXXXX
[3-part caption in margin:]
By investing an equal number of dollars each month...
you automatically buy more shares when the per share market price
is low... [arrow pointing to "Apr" line in table above]
and fewer shares when the per share market price is high. [arrow
pointing to "Sept" line in table above]
You have paid an average price of only $17.91 per share over the 10
months, while the average market price actually was $18.10.
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PAGE 7
Your fund's long-term performance
Three ways to benefit from a mutual fund:
o your shares increase in value when the fund's investments do
well
o you receive capital gains when the gains on investments sold by
the fund exceed losses
o you receive income when the fund's dividends, interest and
short-term gains exceed its expenses.
All three make up your total return. And you potentially can
increase your investment if, like most investors, you reinvest your
dividends and capital gain distributions to buy additional shares
of the fund or another fund.
Class A*
How your $10,000 has grown in IDS Federal Income Fund
Average annual total return
(as of June 30, 1995)
1 year 5 years Since 8/19/85
+3.79% +6.31% +7.58%
$20,000 [graph consisting of three lines plotting the
growth of a $10,000 investment in Lehman
Aggregate Bond Index, Lehman Treasury Index
and Federal Income Fund, with each investment
$9,500 generally out-performing those which follow
it in the list above.]
'85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95
* The graph above is for Class A only. Class B and Class Y are not
shown. Total returns for Class A, Class B and Class Y for the
period form march 20, 1995 to June 30, 1995 were -0.7%, -0.9%,
+4.5% respectively. March 20, 1995 was the inception date for
Class B and Class Y. Total return for Class A is shown for
comparative purposes. The performance of Class B and Class Y will
vary from the performance of Class A based on differences in sales
charges and fees.
[the following three paragraphs appear in the margin next to the
graph:]
Assumes: -Holding period from 9/1/85 to 6/30/95. -Returns do not
reflect taxes payable on distributions. -Also see "Performance" in
the fund's current prospectus. -Reinvestment of all income and
capital gain distributions for the fund, with a value of $11,178.
Lehman Aggregate Bond Index is made up of a representative list of
government and corporate bonds as well as asset-backed securities
and mortgage-backed securities. The index is frequently used as a
general measure of bond market performance. However, the
securities used to create the index may not be representative of
the bonds held in the fund.
Lehman Treasury Bond Index is made up of a representative list of
government bonds that includes all publicly issued obligations of
the U.S. Treasury. The index is frequently used as a general
measure of bond market performance. However, the securities used
to create the index may not be representative of the debt
securities held in the fund.
Your investment and return values fluctuate so that your shares,
when redeemed, may be worth more or less than the original cost.
Average annual total return figures reflect the deduction of the
maximum 5% sales charge. This was a period of widely fluctuating
security prices. Past performance is no guarantee of future
results.
On the chart above you can see how the fund's total return compared
to two widely cited performance indexes, Lehman Treasury Index and
Lehman Aggregate Bond Index. In comparing Federal Income Fund to
the two indexes, you should take into account the fact that the
fund's performance reflects the maximum sales charge of 5%, while
such charges are not reflected in the performance of the indexes.
If you were actually to buy either individual stocks or growth
mutual funds, any sales charges that you pay would reduce your
total return as well.
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PAGE 8
Independent auditors' report
The board of directors and shareholders
IDS Federal Income Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments in securities,
of IDS Federal Income Fund, Inc. as of June 30, 1995, and the
related statement of operations for the year then ended and the
statements of changes in net assets for each of the years in the
two-year period ended June 30, 1995, and the financial highlights
for each of the years in the nine-year period ended June 30, 1995,
and for the period from August 19, 1985 (commencement of
operations), to June 30, 1986. These financial statements and the
financial highlights are the responsibility of fund management. Our
responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements and the financial highlights are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Investment securities held in custody are
confirmed to us by the custodian. As to securities purchased and
sold but not received or delivered and securities on loan, we
request confirmations from brokers, and where replies are not
received, we carry out other appropriate auditing procedures. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of IDS
Federal Income Fund, Inc. at June 30, 1995, and the results of its
operations for the year then ended and the changes in its net
assets for each of the years in the two-year period ended June 30,
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
August 4, 1995
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PAGE 9
<TABLE>
<CAPTION>
Financial statements
Statement of assets and liabilities
IDS Federal Income Fund, Inc.
Dec. 31, 1995
_____________________________________________________________________________________________________________
Assets
_____________________________________________________________________________________________________________
(Unaudited)
<S> <C>
Investments in securities, at value (Note 1)
(identified cost $1,595,293,306) $1,674,417,854
Cash in bank on demand deposit 35,918,739
Accrued interest receivable 11,387,783
Receivable for investment securities sold 20,752,965
U.S. government securities held as collateral (Note 4) 22,247,109
_____________________________________________________________________________________________________________
Total assets 1,764,724,450
_____________________________________________________________________________________________________________
Liabilities
_____________________________________________________________________________________________________________
Dividends payable to shareholders 1,562,909
Payable for investment securities purchased 82,544,363
Payable upon return of securities loaned (Note 4) 22,247,109
Accrued investment management services fee 45,729
Accrued distribution fee 19,060
Accrued service fee 14,775
Accrued transfer agency fee 10,490
Accrued administrative services fee 4,307
Other accrued expenses 233,124
Open option contracts written, at value
(premium received $6,669,599)(Note 6) 10,103,462
_____________________________________________________________________________________________________________
Total liabilities 116,785,328
_____________________________________________________________________________________________________________
Net assets applicable to outstanding capital stock $1,647,939,122
_____________________________________________________________________________________________________________
Represented by
_____________________________________________________________________________________________________________
Capital stock -- authorized 10,000,000,000 shares of $.01 par value $ 3,237,474
Additional paid-in capital 1,640,527,046
Undistributed net investment income 708,960
Accumulated net realized loss (Notes 1 and 8) (69,508,945)
Unrealized appreciation (Note 5) 72,974,587
_____________________________________________________________________________________________________________
Total -- representing net assets applicable to outstanding capital stock $1,647,939,122
_____________________________________________________________________________________________________________
Net assets applicable to outstanding shares: Class A $1,083,349,492
Class B $ 469,571,434
Class Y $ 95,018,196
Net asset value per share of outstanding capital stock: Class A shares 212,791,088 $ 5.09
Class B shares 92,291,684 $ 5.09
Class Y shares 18,664,603 $ 5.09
See accompanying notes to financial statements.
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PAGE 10
Financial statements
Statement of operations
IDS Federal Income Fund, Inc.
Six months ended Dec. 31, 1995
_____________________________________________________________________________________________________________
Investment income
_____________________________________________________________________________________________________________
(Unaudited)
Income:
Interest $ 54,755,781
_____________________________________________________________________________________________________________
Expenses (Note 2):
Investment management services fee 3,800,838
Distribution fee -- Class B 1,414,084
Transfer agency fee 835,901
Incremental transfer agency fee -- Class B 14,161
Service fee
Class A 887,982
Class B 329,257
Administrative services fee 359,141
Compensation of board members 15,431
Compensation of officers 6,355
Custodian fees 51,406
Postage 118,035
Registration fees 186,628
Reports to shareholders 18,607
Audit fees 17,500
Administrative 5,844
Other 13,175
_____________________________________________________________________________________________________________
Total expenses 8,074,345
Earnings credits on cash balances (Note 2) (1,289)
_____________________________________________________________________________________________________________
Total net expenses 8,073,056
_____________________________________________________________________________________________________________
Investment income -- net 46,682,725
_____________________________________________________________________________________________________________
Realized and unrealized gain (loss) -- net
_____________________________________________________________________________________________________________
Net realized gain on security transactions (Note 3) 9,539,616
Net realized loss on closed interest rate futures contracts (23,832,954)
Net realized gain on closed, exercised or expired option
contracts written (Note 6) 2,429,200
_____________________________________________________________________________________________________________
Net realized loss on investments (11,864,138)
Net change in unrealized appreciation or depreciation 50,134,147
_____________________________________________________________________________________________________________
Net gain on investments 38,270,009
_____________________________________________________________________________________________________________
Net increase in net assets resulting from operations $ 84,952,734
_____________________________________________________________________________________________________________
See accompanying notes to financial statements.
</TABLE>
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PAGE 11
<TABLE>
<CAPTION>
Financial statements
Statements of changes in net assets
IDS Federal Income Fund, Inc.
_____________________________________________________________________________________________________________
Operations and distributions Dec. 31 1995 June 30, 1995
_____________________________________________________________________________________________________________
Six months ended Year ended
(Unaudited)
<S> <C> <C>
Investment income -- net $ 46,682,725 $ 71,607,308
Net realized loss on investments (11,864,138) (23,666,307)
Net change in unrealized appreciation or depreciation 50,134,147 52,857,972
_____________________________________________________________________________________________________________
Net increase in net assets resulting from operations 84,952,734 100,798,973
_____________________________________________________________________________________________________________
Distributions to shareholders from:
Net investment income
Class A (32,840,474) (64,225,838)
Class B (10,852,629) (4,334,929)
Class Y (2,949,122) (1,938,661)
_____________________________________________________________________________________________________________
Total distributions (46,642,225) (70,499,428)
_____________________________________________________________________________________________________________
Capital share transactions (Note 7)
_____________________________________________________________________________________________________________
Proceeds from sales
Class A shares (Note 2) 374,660,367 641,569,225
Class B shares 311,060,410 138,024,110
Class Y shares 16,911,097 89,538,242
Fund merger (Note 9)
Class A shares -- 3,521,950
Class B shares -- 213,190,532
Reinvestment of distributions at net asset value
Class A shares 28,250,428 54,545,686
Class B shares 10,499,112 4,222,182
Class Y shares 2,949,122 1,657,604
Payments for redemptions
Class A shares (322,538,483) (771,657,740)
Class B shares (Note 2) (154,323,960) (68,176,074)
Class Y shares (12,596,122) (7,300,426)
_____________________________________________________________________________________________________________
Increase in net assets from capital share transactions 254,871,971 299,135,291
_____________________________________________________________________________________________________________
Total increase in net assets 293,182,480 329,434,836
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
$708,960 and $668,460) $1,647,939,122 $1,354,756,642
_____________________________________________________________________________________________________________
See accompanying notes to financial statements.
</TABLE>
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PAGE 12
IDS Federal Income Fund, Inc.
Notes to financial statements
(Unaudited as to Dec. 31, 1995)
___________________________________________________________________
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, which the Fund
began offering on March 20, 1995, may be subject to a contingent
deferred sales charge. Class B shares automatically convert to
Class A shares after eight years. Class Y shares, which the Fund
also began offering on March 20, 1995, 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.
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PAGE 13
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.
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.
<PAGE>
PAGE 14
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, when the Fund began offering multiple
classes of shares, the Fund entered into agreements with 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.
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.
<PAGE>
PAGE 15
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 $13,493,127 for Class A and
$110,402 for Class B for the six months ended Dec. 31, 1995. The
Fund also pays custodian fees to American Express Trust Company, an
affiliate of AEFC.
During the six months ended Dec. 31, 1995, the Fund's custodian and
transfer agency fees were reduced by $1,289 as a result of earnings
credits from overnight cash balances.
The Fund has a retirement plan for its independent board members.
Upon retirement, board members receive monthly payments equal to
one-half of the retainer fee for as many months as they served as
board members up to 120 months. There are no death benefits. The
plan is not funded, but the Fund recognizes the cost of payments
during the time the board members serve on the board. The
retirement plan expense amounted to $4,982 for the six months ended
Dec. 31, 1995.
___________________________________________________________________
3. Securities transactions
Cost of purchases and proceeds from sales of securities (other than
short-term obligations) aggregated $1,183,096,761 and $899,008,183,
respectively, for the six months ended Dec. 31, 1995. Realized
gains and losses are determined on an identified cost basis.
___________________________________________________________________
4. Lending of portfolio securities
At Dec. 31, 1995, securities valued at $21,726,155 were on loan to
brokers. For collateral, the Fund received U.S. government
securities valued at $22,247,109. Income from securities lending
amounted to $59,308 for the six months ended Dec. 31, 1995. 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.
___________________________________________________________________
5. Interest rate futures contracts
At Dec. 31, 1995, investments in securities included securities
valued at $48,655,500 that were pledged as collateral to cover
initial margin deposit on 400 open purchase contracts and 1,605
open sale contracts. The market value of the open contracts at Dec.
31, 1995 was $235,001,719 with a net unrealized loss of $2,716,098.
<PAGE>
PAGE 16
___________________________________________________________________
6. Options contracts written
The number of contracts and premium amounts associated with options
contracts written is as follows:
<TABLE>
<CAPTION>
Six months ended Dec. 31, 1995
__________________________________________________________________________
Puts Calls MBS Puts and Calls
__________________________________________________________________________
Contracts Premium Contracts Premium Notional Premium
_________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Balance June 30, 1995 1,325 $ 1,198,457 1,016 $ 1,902,171 $ -- $ --
Opened 8,077 9,889,483 10,263 13,844,434 34,500,000 1,988,437
Closed (7,083) (8,730,730) (6,198) (7,503,245) (30,700,000) (1,802,656)
Exercised (1,237) (1,128,428) (1,519) (1,804,846) -- --
Expired (209) (67,408) (1,412) (1,116,070) -- --
_________________________________________________________________________________________________
Balance Dec. 31, 1995 873 $ 1,161,374 2,150 $ 5,322,444 $ 3,800,000 $ 185,781
_________________________________________________________________________________________________
</TABLE>
___________________________________________________________________
7. Capital share transactions
Transactions in shares of capital stock for the periods indicated
are as follows:
Six months ended Dec. 31, 1995
Class A Class B Class Y
_____________________________________________________________
Sold 74,894,798 62,202,838 3,383,556
Issued for reinvested 5,636,715 2,094,234 593,028
distributions
Redeemed (64,476,383) (30,829,592) (2,522,244)
_____________________________________________________________
Net increase 16,055,130 33,467,480 1,454,340
_____________________________________________________________
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 17
___________________________________________________________________
8. Capital loss carryover
For federal income tax purposes, the Fund had a capital loss
carryover of approximately $59,505,000 at Dec. 31, 1995, that if
not offset by subsequent capital gains, will expire in 2002 and
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.
___________________________________________________________________
9. 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.
Total net Capital stock Unrealized Accumulated net
assets depreciation realized loss
___________________________________________________________________
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)
<PAGE>
PAGE 18
___________________________________________________________________
10. Financial highlights
The table below shows certain important financial information for
evaluating the Fund's results.
<TABLE>
<CAPTION>
Fiscal period ended June 30,
Per share income and capital changes*
Class A
1995** 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Net asset value, $4.97 $4.85 $5.30 $5.19 $5.10 $5.00
beginning of period
Income from investment operations:
Net investment income .16 .32 .29 .32 .36 .42
Net gains (losses) .12 .11 (.31) .13 .09 .09
(both realized
and unrealized)
Total from investment .28 .43 (.02) .45 .45 .51
operations
Less distributions:
Dividends from net (.16) (.31) (.29) (.32) (.36) (.41)
investment income
Distributions from -- -- (.14) (.02) -- --
realized gains
Total distributions (.16) (.31) (.43) (.34) (.36) (.41)
Net asset value, $5.09 $4.97 $4.85 $5.30 $5.19 $5.10
end of period
Ratios/supplemental data
1995** 1995 1994 1993 1992 1991
Net assets, end of $1,083 $977 $1,025 $1,025 $834 $397
period (in millions)
Ratio of expenses to .91%*** .79% .76% .77% .79% .80%
average daily net assets
Ratio of net income to 6.47%*** 6.59% 5.64% 6.03% 6.93% 8.20%
average daily net assets
Portfolio turnover rate 61% 213% 304% 227% 104% 52%
(excluding short-term
securities)
Total return+ 5.8% 9.3% (0.5%) 9.0% 9.0% 10.8%
*For a share outstanding throughout the period. Rounded to the nearest cent.
**Six months ended Dec. 31, 1995 (Unaudited).
***Adjusted to an annual basis.
+Total return does not reflect payment of a sales charge.
<PAGE>
PAGE 19
Fiscal period ended June 30,
Per share income and capital changes*
Class B Class Y
1995*** 1995** 1995*** 1995**
Net asset value, $4.96 $4.87 $4.97 $4.87
beginning of period
Income from investment operations:
Net investment income .14 .06 .17 .07
Net gains (both realized .13 .14 .12 .15
and unrealized)
Total from investment .27 .20 .29 .22
operations
Less distributions:
Dividends from net (.14) (.11) (.17) (.12)
investment income
Net asset value, $5.09 $4.96 $5.09 $4.97
end of period
Ratios/supplemental data
1995*** 1995** 1995*** 1995**
Net assets, end of $470 $292 $95 $85
period (in millions)
Ratio of expenses to 1.67%+ 1.74%+ .73%+ .75%+
average daily net assets
Ratio of net income to 5.73%+ 6.21%+ 6.66%+ 7.20%+
average daily net assets
Portfolio turnover rate 61% 213% 61% 213%
(excluding short-term
securities)
Total return++ 5.5% 4.1% 5.9% 4.5%
*For a share outstanding throughout the period. Rounded to the nearest cent.
**Inception date was March 20, 1995 for Class B and Y.
***Six months ended Dec. 31, 1995 (Unaudited).
+Adjusted to an annual basis.
++Total return does not reflect payment of a sales charge.
</TABLE>
<PAGE>
PAGE 20
<TABLE>
<CAPTION>
Investments in securities
IDS Federal Income Fund, Inc. (Percentages represent value of
Dec. 31, 1995 (Unaudited) investments compared to net assets)
_____________________________________________________________________________________________________________________________
Bonds (99.5%)
_____________________________________________________________________________________________________________________________
Issuer Coupon Maturity Principal Value(a)
rate year amount
_____________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
U.S. government obligations (26.4%)
U.S. Treasury 5.625% 2000 $ 17,275,000 $ 17,447,059
6.25 2000-23 35,200,000 36,368,042
6.50 2005 5,000,000 5,330,750
6.75 2000 15,400,000 (h) 16,215,430
6.875 2000 48,700,000 (h) 51,501,711
7.25 2016 4,000,000 4,567,560
7.50 2024 3,490,000 4,192,781
7.875 1996 5,000,000 5,015,950
8.125 2019 16,000,000 20,119,360
Zero Coupon 6.50 1999 37,500,000 (b) 31,440,000
Resolution Funding Corp 8.125 2019 8,000,000 9,912,960
Zero Coupon 6.06 2001 20,863,000 (b) 15,968,332
6.19 2002 18,050,000 (b,e,f) 12,818,027
6.20 2008 9,800,000 (b) 4,711,840
6.26 2006 22,500,000 (b) 12,359,250
6.28 2006 6,000,000 (b) 3,201,180
6.39 2003 16,000,000 (b,h) 10,360,640
6.39 2007 49,653,000 (b) 25,562,357
6.70 1999 43,335,000 (b,e,f) 36,443,868
7.02 2010 19,000,000 (b) 7,791,900
7.08 2007 38,120,000 (b) 19,316,929
7.17 2018 38,250,000 (b) 9,227,812
7.18 2009 16,000,000 (b) 6,969,280
7.87 2018-19 24,000,000 (b) 5,638,065
7.94 2012 89,150,000 (b) 32,669,018
8.04 2012 8,400,000 (b) 2,979,900
8.09 2012 74,200,000 (b) 26,775,070
______________
Total 434,905,071
_____________________________________________________________________________________________________________________________
Mortgage-backed securities (73.1%)
Federal Home Loan Mortgage Corporation (20.0%)
6.50 2003-10 30,436,959 30,612,676
7.00 2010 23,604,819 24,047,409
7.50 2024 9,380,655 9,629,805
8.00 2023-25 102,088,822 105,838,758
11.50 2024 5,323,528 5,897,457
Collateralized Mtge Obligation 6.75 2022 22,000,000 22,172,040
7.00 2021 10,000,000 10,180,800
8.25 2024 28,475,775 30,802,815
8.50 2022 9,150,000 10,168,395
Interest Only 10.00 2020 725,773 (c) 113,962
See accompanying notes to investments in securities.
<PAGE>
PAGE 21
Inverse Floater 2.836 2008 2,322,561 (d) 1,894,444
5.04 2008 6,436,099 (d) 5,740,100
5.606 2023 3,956,343 (d) 3,117,994
5.845 2023 10,514,507 (d) 8,133,076
5.85 2024 10,642,081 (d) 9,146,975
7.84 2022 11,779,586 (d) 10,749,932
8.05 2023 29,877,229 (d) 26,747,043
8.60 2008 6,331,388 (d) 6,073,511
13.317 2021 8,460,735 (d) 9,129,810
______________
Total 330,197,002
_____________________________________________________________________________________________________________________________
Federal National Mortgage Association (52.0%)
6.00 2009-23 45,496,182 44,763,012
6.50 2023-25 268,019,621 (e,f) 265,152,688
7.00 2023-25 169,177,588 170,645,832
7.50 2025 24,503,574 25,108,567
8.00 2021 5,746,623 5,958,558
8.50 2007-25 129,782,200 135,590,794
9.00 2023-24 19,186,199 20,229,545
12.00 2016 5,855,990 6,637,414
Collateralized Mtge Obligation 3.00 2019 11,250,000 9,767,700
4.50 2010 8,204,208 7,430,469
4.70 2022 12,732,716 12,628,435
5.00 2024 6,663,083 6,526,423
5.50 2008 12,985,885 12,756,424
6.00 2008 8,610,012 8,574,797
6.50 2017 2,965,318 2,962,323
7.00 2012 7,658,672 7,755,248
8.50 2021 12,350,000 13,206,226
9.515 2023 9,203,533 8,621,962
Interest Only 9.50 2018-23 19,586,586 (c) 15,592,857
10.00 2018-23 39,545,441 (c) 38,223,504
10.50 2021 5,671,001 (c) 5,060,829
Inverse Floater 5.673 2023 2,172,391 (d) 2,039,028
6.126 2023 6,052,314 (d) 5,221,573
7.17 2024 5,497,886 (d) 5,012,258
7.577 2023 3,456,299 (d) 2,736,317
8.406 2022 6,501,858 (d) 6,391,977
11.20 2021 10,856,119 (d) 11,205,578
Principal Only 12.568 2021 1,044,779 (g) 825,939
______________
Total 856,626,277
_____________________________________________________________________________________________________________________________
Government National Mortgage Association (1.1%)
9.00 2022 202,403 214,610
11.00 2010-19 16,435,386 18,528,439
______________
Total 18,743,049
_____________________________________________________________________________________________________________________________
Other mortgage-backed securities (--%)
Daiwa Securities
Collateralized Mtge Obligation
Inverse Floater 12.37 2009 42,780 (d) 42,780
_____________________________________________________________________________________________________________________________
Total bonds
(Cost: $1,561,372,122) $1,640,514,179
_____________________________________________________________________________________________________________________________
<PAGE>
PAGE 22
Options purchased (--%)
_____________________________________________________________________________________________________________________________
Issuer Number of Exercise Expiration Value (a)
contracts price date
_____________________________________________________________________________________________________________________________
Put
March T-bond Futures 58 $116 March 1996 $ 13,593
_____________________________________________________________________________________________________________________________
Total options purchased
(Cost: $31,102) $ 13,593
_____________________________________________________________________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
Short-term securities (2.1%)
_____________________________________________________________________________________________________________________________
Issuer Annualized Amount Value(a)
yield on payable
date of at
purchase maturity
_____________________________________________________________________________________________________________________________
<S> <C> <C> <C>
U.S. government agencies (1.8%)
Federal Home Loan Bank
Disc Note
01-16-96 5.70% $ 900,000 $ 897,590
Federal Home Loan
Mtge Corp Disc Notes
01-16-96 5.69 7,500,000 7,479,954
01-18-96 5.68 5,800,000 5,782,705
01-22-96 5.70 3,100,000 3,088,770
Federal Natl Mtge Assn
Disc Notes
01-04-96 5.70 3,300,000 3,297,397
01-16-96 5.70 4,400,000 4,388,219
01-17-96 5.47 4,400,000 4,388,010
Total 29,322,645
_____________________________________________________________________________________________________________________________
Commercial paper (0.3%)
Southwestern Bell Telephone
02-14-96 5.59 4,600,000 4,567,437
_____________________________________________________________________________________________________________________________
Total short-term securities
(Cost: $33,890,082) $ 33,890,082
_____________________________________________________________________________________________________________________________
Total investments in securities
(Cost: $1,595,293,306)(i) $1,674,417,854
_____________________________________________________________________________________________________________________________
Notes to investments in securities
_____________________________________________________________________________________________________________________________
</TABLE>
<PAGE>
PAGE 23
(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.
(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 Dec. 31, 1995.
(e) Partially pledged as initial deposit on the following open
interest rate futures contracts (see Note 5 to the financial
statements):
Type of security Notional amount
________________________________________________________________
Purchase contracts
U.S. Treasury Note March 96, 5-year notes $ 40,000,000
Sale contracts
U.S. Treasury Bonds March 96 100,600,000
U.S. Treasury Note March 96, 10-year notes 59,900,000
________________________________________________________________
(f) At Dec. 31, 1995, securities valued at $48,655,500 were held to
cover open call options written as follows:
<TABLE>
<CAPTION>
Issuer Number of Exercise Expiration Value(a)
contracts price date
___________________________________________________________________________________
<S> <C> <C> <C> <C>
U.S. Treasury Bonds March 96 1,165 $116 Feb. 1996 $6,589,531
U.S. Treasury Bonds March 96 473 118 Feb. 1996 1,869,826
U.S. Treasury Bonds March 96 332 120 Feb. 1996 845,561
U.S. Treasury Bonds March 96 180 122 Feb. 1996 261,562
Mortgage-Backed Security (MBS) Spread 1,300 98 Jan. 1998 82,266
___________________________________________________________________________________
At Dec. 31, 1995, 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
__________________________________________________________________________________
U.S. Treasury Bonds March 96 300 $116 Feb. 1996 $ 70,311
U.S. Treasury Bonds March 96 473 118 Feb. 1996 251,281
U.S. Treasury Bonds March 96 100 120 Feb. 1996 107,812
Mortgage-Backed Security (MBS) Spread 1,300 98 Jan. 1998 12,187
Mortgage-Backed Security (MBS) Spread 1,200 98 Jan. 1998 13,125
__________________________________________________________________________________
</TABLE>
<PAGE>
PAGE 24
(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) Security is partially or fully on loan. See Note 4 to the
financial statements.
(i) At Dec. 31, 1995, the cost of securities for federal income tax
purposes was approximately $1,595,289,000 and the approximate
aggregate gross unrealized appreciation and depreciation based on
that cost was:
Unrealized appreciation $89,014,000
Unrealized depreciation (9,885,000)
____________________________________________________________
Net unrealized appreciation $79,129,000
____________________________________________________________
<PAGE>
PAGE 25
IDS mutual funds
Cash equivalent investments
These money market funds have three main goals: conservation of
capital, constant liquidity and the highest possible current income
consistent with these objectives. Very limited risk.
IDS Cash Management Fund
Invests in such money market securities as high quality commercial
paper, bankers' acceptances, certificates of deposits (CDs) and
other bank securities.
(icon of) piggy bank
IDS Tax-Free Money Fund
Invests primarily in short-term bonds and notes issued by state and
local governments to seek high current income exempt from federal
income taxes.
(icon of) shield with piggy bank enclosed
Income investments
The funds in this group invest their assets primarily in corporate
bonds or government securities to seek interest income. Secondary
objective is capital growth. Risk varies by bond quality.
IDS Global Bond Fund
Invests primarily in debt securities of U.S. and foreign issuers to
seek high total return through income and growth of capital.
(icon of) globe
IDS Extra Income Fund
Invests mainly in long-term, high-yielding corporate fixed-income
securities in the lower rated, higher risk bond categories to seek
high current income. Secondary objective is capital growth.
(icon of) cornucopia
IDS Bond Fund
Invests mainly in corporate bonds, at least 50% in the higher
rated, lower risk bond categories, or the equivalent, and in
government bonds.
(icon of) greek column
<PAGE>
PAGE 26
IDS Selective Fund
Invests in high-quality corporate bonds and other highly rated debt
instruments including government securities and short-term
investments. Seeks current income and preservation of capital.
(icon of) skyline
IDS Federal Income Fund
Invests primarily in securities issued or guaranteed as to the
timely payment of principal and interest by the U.S. government,
its agencies and instrumentalities. Seeks a high level of current
income and safety of principal consistent with its type of
investments.
(icon of) federal building
Tax-exempt income investments
These funds provide tax-free income by investing in municipal
bonds. The income is generally free from federal income tax. Risk
varies by bond quality.
IDS High Yield Tax-Exempt Fund
Invests primarily in medium- and lower-quality municipal bonds and
notes. Lower-quality securities generally involve greater risk of
principal and income.
(icon of) shield with basket of apples enclosed
IDS State Tax-Exempt Funds
(CA, MA, MI, MN, NY, OH)
Invests primarily in high- and medium-grade municipal securities to
provide income to residents of each respective state that is exempt
from federal, state and local income taxes. (New York is the only
state that is exempt at the local level.)
(icon of) shield with U.S. enclosed
IDS Tax-Exempt Bond Fund
Invests mainly in bonds and notes of state or local government
units, with at least 75% in the four highest rated, lowest risk
bond categories.
(icon of) shield with Greek column
IDS Insured Tax-Exempt Fund
Invests primarily in municipal securities that are insured as to
the timely payment of principal and interest. The insurance
feature minimizes credit risk of the fund but does not guarantee
the market value of the fund's shares.
(icon of) shield with eagle head
<PAGE>
PAGE 27
Growth and income investments
These funds focus on securities of medium to large, well-
established companies that offer long-term growth of capital and
reasonable income from dividends and interest. Moderate risk.
IDS International Fund
Invests primarily in common stocks of foreign companies that offer
potential for superior growth. The fund may invest up to 20% of
its assets in the U.S. market.
(icon of) three flags
IDS Managed Retirement Fund
Invests in a combination of common stocks, fixed-income investments
and money market securities to seek a maximum total return through
a combination of growth of capital and current income.
(icon of) bird in a nest
IDS Equity Select Fund
Invests primarily in a combination of moderate growth stocks,
higher-yielding equities and bonds. Seeks growth of capital and
income.
(icon of) three apple trees
IDS Blue Chip Advantage Fund
Invests in selected stocks from a major market index. Securities
purchased are those recommended by our research analysts as the
best from each industry represented on the index. Offers potential
for long-term growth as well as dividend income.
(icon of) ribbon
IDS Stock Fund
Invests in common stock of companies representing many sectors of
the economy. Seeks current income and growth of capital.
(icon of) building with columns
IDS Equity Value Fund
Invests primarily in undervalued common stocks that offer potential
for growth of capital and income.
(icon of) three growing flowers
<PAGE>
PAGE 28
IDS Utilities Income Fund
Invests primarily in the stocks of public utility companies to seek
high current income and growth of income and capital with reduced
volatility.
(icon of) electrical cord
IDS Diversified Equity Income Fund
Invests primarily in high-yielding common stocks to seek high
current income and, secondarily, to benefit from the growth
potential offered by stock investments.
(icon of) four puzzle pieces
IDS Mutual
Invests in a balance between common stocks and senior securities
(preferred stocks and bonds). Seeks a balance of growth of capital
and current income.
(icon of) scale of justice
Growth investments
Funds in this group seek capital growth, primarily from common
stocks. They are high risk mutual funds with a potential for high
reward.
IDS Discovery Fund
Invests in small- and medium-size, growth-oriented companies
emphasizing technological innovation and productivity enhancement.
Buys and holds larger growth-oriented stocks.
(icon of) ship
IDS Strategy Aggressive Fund
Invests primarily in common stocks of companies that are selected
for their potential for above-average growth. Above-average means
that their growth potential is better, in the opinion of the
portfolio's investment manager, than the Standard & Poor's
Corporation (S&P) 500 Stock Index.
(icon of) chess piece
IDS Growth Fund
Invests primarily in companies that have above-average potential
for long-term growth as a result of new management, marketing
opportunities or technological superiority.
(icon of) flower
<PAGE>
PAGE 29
IDS Global Growth Fund
Invests in stocks of companies throughout the world that are
positioned to meet market needs in a changing world economy. These
companies offer above-average potential for long-term growth.
(icon of) world
IDS New Dimensions Fund
Invests primarily in companies with significant growth potential
due to superiority in technology, marketing or management. The
fund frequently changes its industry mix.
(icon of) dimension
IDS Progressive Fund
Invests primarily in undervalued common stocks. The fund holds
stocks for the long term with the goal of capital growth.
(icon of) shooting star
Specialty growth investment
This fund aggressively seeks capital growth as a hedge against
inflation.
IDS Precious Metals Fund
Invests primarily in the securities of foreign or domestic
companies that explore for, mine and process or distribute gold and
other precious metals. This is the most aggressive and most
speculative IDS mutual fund.
(icon of) cart of precious gems
For more complete information about any of these funds, including
charges and expenses, you can obtain a prospectus by contacting
your financial advisor or writing to American Express Shareholder
Service, P.O. Box 534, Minneapolis, MN 55440-0534. Read it
carefully before you invest or send money.
<PAGE>
PAGE 30
Federal income tax information
IDS Federal Income Fund, Inc.
___________________________________________________________________
The fund is required by the Internal Revenue Code of
1986 to tell its shareholders about the tax treatment
of the dividends it pays during its fiscal year.
Some of the dividends listed below were reported to
you on Form 1099-DIV, Dividends and Distributions, last
January. Dividends paid to you since the end of last year
will be reported to you on a tax statement sent next January.
Shareholders should consult a tax advisor on how to report
distributions for state and local purposes.
IDS Federal Income Fund, Inc.
Fiscal year ended June 30, 1995
Class A
Income distributions -- taxable as dividend income,
none qualifying for deductions by corporations.
Payable date Per share
July 27, 1994 $0.02050
Aug. 29, 1994 0.02410
Sept. 28, 1994 0.02490
Oct. 27, 1994 0.02260
Nov. 29, 1994 0.02667
Dec. 29, 1994 0.02579
Jan. 26, 1995 0.02356
Feb. 24, 1995 0.02487
March 29, 1995 0.03050
April 27, 1995 0.02997
May 26, 1995 0.02847
June 27, 1995 0.02875
Total distributions $0.31068
Class B
Income distributions -- taxable as dividend income,
none qualifying for deductions by corporations.
March 29, 1995 0.02960
April 27, 1995 0.02699
May 26, 1995 0.02545
June 27, 1995 0.02541
Total distributions $0.10745
<PAGE>
PAGE 31
Class Y
Income distributions -- taxable as dividend income,
none qualifying for deductions by corporations.
March 29, 1995 0.03071
April 27, 1995 0.03060
May 26, 1995 0.02909
June 27, 1995 0.02947
Total distributions $0.11987
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PAGE 32
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
AMERICAN
EXPRESS
FINANCIAL
ADVISORS
IDS Federal Income Fund
IDS Tower 10
Minneapolis, MN 55440-0010
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PAGE 33
STATEMENT OF DIFFERENCES
Difference Description
1) The layout is different 1) Some of the layout in the
throughout the annual report. annual report to
shareholders is in two
columns.
2) Headings. 2) The headings in the
annual report and
prospectus are placed
in blue strip at the top
of the page.
3) There are pictures, icons 3) Each picture, icon and
and graphs throughout the graph is described in
annual report and prospectus. parentheses.
4) Footnotes for charts and 4) The footnotes for each
graphs are described at chart or graph are typed
the left margin. below the description of
the chart or graph.
