1996 semiannual report
IDS Federal Income Fund
(icon of) shield with eagle head
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.
Distributed by American Express Financial Advisors Inc.
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. Contents From the president 3 From the portfolio manager
3 Financial statements (Fund) 5 Notes to financial statements (Fund) 8 Financial
statements (Portfolio) 16 Notes to financial statements (Portfolio) 19
Investments in securities 24 Board members and officers 27 IDS mutual funds 28
To our shareholders
(picture of) William Pearce
William R. Pearce
President of the Fund
(picture of) James Snyder
James Snyder
Portfolio manager
From the president
If you're an experienced investor, you know that the past two years have been
unusually strong ones in many worldwide financial markets. Perhaps just as
important, you also know that history shows that bull markets don't last
forever. Though they're often unpredictable, declines -- whether they're brief
or long-lasting, moderate or substantial -- are always a possibility. That fact
reinforces the need for investors to periodically review their long-term goals
and examine whether their investment program remains on track to achieving them.
Your quarterly investment statements are one part of that monitoring process.
The other is a meeting with your American Express financial advisor. That
becomes even more important if there's a major change in your financial
situation or in the financial markets. On June 10, 1996, the Fund began
investing its assets in Government Income Portfolio instead of directly in
securities of individual companies. Following the Portfolio Manager's letter are
the financial statements of both the Fund and Portfolio. The notes to the
financials go into more detail of how the new structure works.
William R. Pearce
From the portfolio manager
IDS Federal Income Fund took advantage of a generally positive environment for
bonds during the first half of its fiscal year, posting a 5.4% total return (net
asset value change and dividends) on Class A shares in the June through November
1996 period. The volatility that has characterized the bond market in recent
years continued during the past six months, as shifting views on economic growth
and inflation resulted in substantial swings in interest rates and, thus, bond
values. The period began with the bond market in a wait-and-see position after a
sharp rise in long-term interest rates early in 1996 had sent it into rapid
retreat. A conservative beginning Given the uncertainty in the market at that
time, I kept a higher-than-average level of cash reserves (about 14% of assets)
in the Portfolio to cushion performance in the event of another substantial rate
move. (The performance of mortgage-backed bonds, which form the core of the
Portfolio, tend to lag when interest rates swing strongly in either direction.)
As the outlook became clearer, I put the cash to work in bonds, maintaining an
essentially "fully invested" position for most of the period. After a largely
uneventful summer, the mood of the market began turning optimistic in September,
as data indicating a moderating economy and still tame inflation began to
trickle in. At that point, interest rates started heading lower, establishing a
trend that stayed in place through November. Bond prices, which move in the
opposite direction of interest rates, responded by rising steadily through the
fall. A shift toward Treasurys Although the Portfolio enjoyed relatively good
performance from its mortgage-backed securities earlier in 1996, I gradually
scaled back that exposure (from about 87% to 70% of assets) as the period
progressed. This strategy was based on the fact that those issues appeared
over-valued and therefore offered comparatively little price appreciation
potential. Most of the money went into intermediate-maturity Treasury bonds,
which proved to be an enhancement to performance over the final months of the
period. At this writing (mid-December), the bond market seems to be back to
wrestling with the outlook for the economy and inflation, causing long-term
interest rates to bob up and down. Until the fundamentals become clearer, I plan
to stay with a relatively conservative investment approach, concentrating on
maintaining the Portfolio's yield rather than on potential price appreciation
from its bond holdings.
James W. Snyder
Class A
6-month performance
(All figures per share)
Net asset value (NAV)
Nov. 30, 1996 $ 5.02
- ----------------------------------------
May 31, 1996 $ 4.92
- ----------------------------------------
Increase $ 0.10
- ----------------------------------------
Distributions
June 1, 1996 - Nov. 30, 1996
From income $ 0.16
From capital gains $ --
Total distributions $ 0.16
Total return* + 5.4%**
Class B
6-month performance
(All figures per share)
Net asset value (NAV)
Nov. 30, 1996 $ 5.02
- ----------------------------------------
May 31, 1996 $ 4.92
- ----------------------------------------
Increase $ 0.10
- ----------------------------------------
Distributions
June 1, 1996 - Nov. 30, 1996
From income $ 0.14
From capital gains $ --
Total distributions $ 0.14
Total return* + 5.0%**
Class Y
6-month performance
(All figures per share)
Net asset value (NAV)
Nov. 30, 1996 $ 5.02
- ----------------------------------------
May 31, 1996 $ 4.92
- ----------------------------------------
Increase $ 0.10
- ----------------------------------------
Distributions
June 1, 1996 - Nov. 30, 1996
From income $ 0.16
From capital gains $ --
Total distributions $ 0.16
Total return* + 5.5%**
*The prospectus discusses the effect of sales charges, if any, on the various
classes.
**The total return is a hypothetical investment in the Fund with all
distributions reinvested.
<PAGE>
Quality Income Portfolio
The Portfolio's ten largest holdings
(Pie chart)
The ten holdings listed here make up 10.56% of the Portfolio's net assets
Percent Value
(of Portfolio's net assets)(as of Nov. 30, 1996)
Japan Finance 1.58% $27,416,694
9.25% 1998
Republic of Italy 1.31 22,792,840
6.875% 2023
Southern California Edison 1.26 21,875,910
8.875% 2023
Dayton Hudson 1.08 18,673,187
7.875% 2023
PDV America .95 16,458,420
7.875% 2003
Pacific Bell .95 16,442,250
8.50% 2031
Texas Utilities Electric .88 15,202,590
9.75% 2021
Schering-Plough .86 15,000,000
7.31% Zero Coupon 1996
Daimler-Benz North America .85 14,791,420
7.375% Medium-term Nts 2006
General Motors Acceptance .84 14,646,203
7.00% 2000
Excludes U.S. Treasury and government agencies holdings that total 46% of the
Portfolio's net assets.
Class A
6-month performance
(All figures per share)
Net asset value (NAV)
- ---------------------------------------------
Nov. 30, 1996 $ 9.37
- ---------------------------------------------
May 31, 1996 $ 9.00
- ---------------------------------------------
Increase $ 0.37
- ---------------------------------------------
Distributions
June 1, 1996 - Nov. 30, 1996
From income $ 0.29
- ---------------------------------------------
From capital gains $ --
- ---------------------------------------------
Total distributions $ 0.29
- ---------------------------------------------
Total return* +7.6**
- ---------------------------------------------
Class B
6-month performance
(All figures per share)
Net asset value (NAV)
- ---------------------------------------------
Nov. 30, 1996 $ 9.37
- ---------------------------------------------
May 31, 1996 $ 9.00
- ---------------------------------------------
Increase $ 0.37
- ---------------------------------------------
Distributions
June 1, 1996 - Nov. 30, 1996
From income $ 0.26
- ---------------------------------------------
From capital gains $ --
- ---------------------------------------------
Total distributions $ 0.26
- ---------------------------------------------
Total return* +7.1**
- ---------------------------------------------
Class Y
6-month performance
(All figures per share)
Net asset value (NAV)
- ---------------------------------------------
Nov. 30, 1996 $ 9.37
- ---------------------------------------------
May 31, 1996 $ 9.00
- ---------------------------------------------
Increase $ 0.37
- ---------------------------------------------
Distributions
June 1, 1996 - Nov. 30, 1996
From income $ 0.30
- ---------------------------------------------
From capital gains $ --
- ---------------------------------------------
Total distributions $ 0.30
- ---------------------------------------------
Total return* +7.7**
- ---------------------------------------------
*The prospectus discusses the effect of sales charges, if any, on the various
classes.
**The total return is a hypothetical investment in the Fund with all
distributions reinvested.
<PAGE>
Financial statements
Statement of assets and liabilities
IDS Federal Income Fund, Inc.
Nov. 30, 1996
Assets
(Unaudited)
Investment in Government Income Portfolio (Note 1) $1,851,476,766
--------------
Total assets 1,851,476,766
-------------
Liabilities
Dividends payable to shareholders 920,500
Accrued distribution fee 25,159
Accrued service fee 16,635
Accrued transfer agency fee 24,259
Accrued administrative services fee 4,810
Other accrued expenses 256,434
-------
Total liabilities 1,247,797
Net assets applicable to outstanding capital stock $1,850,228,969
==============
Represented by
Capital stock -- authorized 10,000,000,000
shares of $.01 par value $ 3,683,316
---------------
Additional paid-in-capital 1,863,111,083
Undistributed net investment income 1,183,389
Accumulated net realized loss (Note 1) (72,531,635)
Unrealized appreciation 54,782,816
----------
Total - representing net assets applicable to
outstanding capital stock $1,850,228,969
Net assets applicable to outstanding shares:
Class A $1,127,547,009
Class B $ 616,665,446
Class Y $ 106,016,514
Net asset value per share of outstanding capital stock:
Class A shares 224,461,962 $ 5.02
Class B shares 122,764,887 $ 5.02
Class Y shares 21,104,798 $ 5.02
See accompanying notes to financial statements.
<PAGE>
<TABLE>
Statement of operations
IDS Federal Income Fund, Inc.
Six months ended Nov. 30, 1996 (Unaudited)
Investment income
<CAPTION>
June 1, 1996 to June 10, 1996 to Total
June 9, 1996 Nov. 30, 1996
(Notes 1 and 4)
Income:
<S> <C> <C> <C>
Interest $ 2,419,132 $ 61,708,637 $ 64,127,769
------------- --------------- -------------
Expenses (Note 2):
Investment management services fee 168,039 -- 168,039
Distribution fee -- Class B 75,115 1,948,549 2,023,664
Transfer agency fee 36,689 879,794 916,483
Incremental transfer agency fee -- Class B 657 16,860 17,517
Service fee
Class A 36,848 905,108 941,956
Class B 17,527 450,562 468,089
Administrative services fee 15,798 398,520 414,318
Compensation of board members -- 1,519 1,519
Compensation of officers -- 6,867 6,867
Custodian fees 2,595 -- 2,595
Postage 13,182 142,218 155,400
Registration fees 5,334 136,981 142,315
Reports to shareholders 153 10,322 10,475
Audit fees -- 17,135 17,135
Administrative -- 3,893 3,893
Other -- 818 818
-- --- ---
Total expenses 371,937 4,919,146 5,291,083
Expenses, including investment management services fee,
allocated from Government Income Portfolio -- 4,348,666 4,348,666
-- --------- ---------
Total net expenses 371,937 9,267,812 9,639,749
------- --------- ---------
Investment income -- net 2,047,195 52,440,825 54,488,020
--------- ---------- ----------
Realized and unrealized gain (loss) -- net
Net realized loss on security transactions (2,431,855) (263,088) (2,694,943)
Net realized loss on financial future contracts (1,791,165) (31,380,065) (33,171,230)
Net realized gain on option contracts written (Note 5) 333,934 10,209,238 10,543,172
------- ---------- ----------
Net realized loss on investments (3,889,086) (21,433,915) (25,323,001)
Net change in unrealized appreciation or
depreciation 97,370 60,808,998 60,906,368
------ ---------- ----------
Net gain (loss) on investments (3,791,716) 39,375,083 35,583,367
----------- ---------- ----------
Net increase (decrease) in net assets
resulting from operations $(1,744,521) $91,815,908 $90,071,387
============ =========== ===========
</TABLE>
<PAGE>
<TABLE>
Statements of changes in net assets
IDS Federal Income Fund, Inc.
<CAPTION>
Operations and distributions Nov. 30, 1996 May 31,1996
Six months ended Eleven months
(Unaudited) ended
<S> <C> <C>
Investment income -- net $ 54,488,020 $ 89,392,073
Net realized gain (loss) on investments (25,323,001) 10,436,173
Net change in unrealized appreciation or depreciation 60,906,368 (28,963,992)
---------- ------------
Net increase in net assets resulting from operations 90,071,387 70,864,254
---------- ----------
Distributions to shareholders from:
Net investment income
Class A (35,380,554) (61,393,266)
Class B (15,464,691) (22,254,823)
Class Y (3,332,409) (5,539,421)
----------- -----------
Total distributions (54,177,654) (89,187,510)
------------ ------------
Capital share transactions (Note 3)
Proceeds from sales
Class A shares (Note 2) 392,070,557 747,243,121
Class B shares 340,964,854 594,129,348
Class Y shares 15,495,595 39,504,359
Reinvestment of distributions at net asset value
Class A shares 30,464,427 52,527,243
Class B shares 14,787,797 21,396,595
Class Y shares 3,330,638 5,539,139
Payments for redemptions
Class A shares (412,464,190) (670,726,520)
Class B shares (Note 2) (270,479,349) (381,443,715)
Class Y shares (13,803,190) (30,634,859)
Increase in net assets from capital share transactions 100,367,139 377,534,711
----------- -----------
Total increase in net assets 136,260,872 359,211,455
----------- -----------
Net assets at beginning of period 1,713,968,097 1,354,756,642
------------- -------------
Net assets at end of period $1,850,228,969 $1,713,968,097
============== ==============
(including undistributed net investment
income of $1,183,389 and $873,023)
See accompanying notes to financial statements.
</TABLE>
Notes to financial statements
IDS Federal Income Fund, Inc.
(Unaudited as to Nov. 30, 1996)
______________________________________________________________________
1. Summary of significant accounting policies
The Fund is registered under the Investment Company Act of 1940 (as amended) as
a diversified, open-end management investment company. The Fund 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 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.
Investment in Government Income Portfolio
Effective June 10, 1996, the Fund began investing all of its assets in
Government Income Portfolio (the Portfolio), a series of Income Trust, an
open-end investment company that has the same objectives as the Fund. This was
accomplished by transferring the Fund's assets to the Portfolio in return for a
proportionate ownership interest in the Portfolio. The Portfolio invests
primarily in U.S. government and government agency securities.
The Fund records daily its share of the Portfolio's income, expenses and
realized and unrealized gains and losses. The financial statements of the
Portfolio are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The Fund records its investment in the Portfolio at value that is equal to the
Fund's proportionate ownership interest in the net assets of the Portfolio. The
percentage of the Portfolio owned by the Fund at Nov. 30, 1996 was 99.97%.
Valuation of securities held by the Portfolio is discussed in Note 1 of the
Portfolio's "Notes to financial statements", which are included elsewhere in
this report.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increase and decrease in net assets from operations
during the period. Actual results could differ from those estimates.
<PAGE>
Federal taxes
Since the Fund's policy is to comply with all sections of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to the shareholders, no provision for income or excise taxes is
required.
Net investment income (loss) and net realized gains (losses) allocated from the
Portfolio may differ for financial statement and tax purposes primarily because
of the deferral of losses on certain futures contracts, the recognition of
certain foreign currency gains (losses) as ordinary income (loss) for tax
purposes, and losses deferred due to "wash sale" transactions. The character of
distributions made during the year from net investment income or net realized
gains may differ from their ultimate characterization for federal income tax
purposes. Also, due to the timing of dividend distributions, the fiscal year in
which amounts are distributed may differ from the year that the income or
realized gains (losses) were recorded by the Fund.
Dividends to shareholders
Dividends from net investment income, declared daily and 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.
_______________________________________________________________________
2. Expenses and sales charges
In addition to the expenses allocated from the Portfolio, the Fund accrues its
own expenses as follows:
Effective March 20, 1995, the Fund entered into agreements with American Express
Financial Corporation (AEFC) for providing administrative services and serving
as transfer agent. Under its Administrative Services Agreement, the Fund pays
AEFC for administration and accounting services at a percentage of the Fund's
average daily net assets in reducing percentages from 0.05% to 0.025% annually.
Under this agreement, the Fund also pays taxes; audit and certain legal fees;
registration fees for shares; office expenses; consultant's fees; compensation
of board members, officers and employees; corporate filing fees; organizational
expenses; and any other expenses properly payable by the Fund approved by the
board.
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
<PAGE>
Also effective March 20, 1995, the Fund entered into agreements with American
Express Financial Advisors Inc. for distribution and shareholder
servicing-related services. Under a Plan and Agreement of Distribution, the Fund
pays a distribution fee at an annual rate of 0.75% of the Fund's average daily
net assets attributable to Class B shares for distribution-related services.
Under a Shareholder Service Agreement, the Fund pays a fee for service provided
to shareholders by financial advisors and other servicing agents. The fee is
calculated at a rate of 0.175% of the Fund's average daily net assets
attributable to Class A and Class B shares.
Sales charges received by American Express Financial Advisors, Inc. for
distributing Fund shares were $4,530,187 for Class A and $222,719 for Class B
for the period ended Nov. 30, 1996. The Fund also pays custodian fees to
American Express Trust Company, an affiliate of AEFC.
Prior to April 30, 1996, the Fund had a retirement plan for its independent
board members. The plan was terminated April 30, 1996. The total liability for
the plan is $33,625, which will be paid out at some future date.
_______________________________________________________________________
3. Capital share transactions
Transactions in shares of capital stock for the periods indicated are as
follows:
Six months ended Nov. 30, 1996
Class A Class B Class Y
_______________________________________________________________________
Sold 79,255,715 68,823,940 3,131,927
Issued for reinvested 6,154,566 2,986,723 672,772
distributions
Redeemed (83,394,801 (54,672,471) (2,791,431)
_______________________________________________________________________
Net increase 2,015,480 17,138,192 1,013,268
- -----------------------------------------------------------------------
Eleven months ended May 31, 1996
Class A Class B Class Y
_______________________________________________________________________
Sold1 49,105,568 118,610,090 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
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
4. Capital loss carryover
For federal income tax purposes, the Fund had a capital loss carryover of
approximately $24,034,000 at Nov. 30, 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.
- -----------------------------------------------------------------------
5. Pre-conversion to Master
Prior to transferring its securities to Government Income Portfolio on June 10,
1996, various transactions took place as stated below.
Expenses and sales charges
Prior to the conversion on June 10, 1996, the Fund paid an investment management
fee to AEFC. Subsequent to the conversion, the investment management fee is
assessed at the Portfolio level. (See the notes to the Portfolio financial
statements for the terms of the investment management agreement, which remain
unchanged.)
Securities transactions
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $112,903,816 and $63,396,520, respectively, for the
period from June 1, 1996 to June 9, 1996. Realized gains and losses were
determined on an identified cost basis.
Interest rate futures contracts
At June 9, 1996, investments in securities included securities valued at
$41,693,020 that were pledged as collateral to cover initial margin deposits on
546 open purchase contracts and 3,219 open sale contracts. The market value of
the open purchase contracts at June 9, 1996 was $56,961,486 with a net
unrealized loss of $784,000. The market value of the open sale contracts at June
9, 1996 was $342,037,298 with a net unrealized gain of $6,643,750.
Option contracts written
The number of contracts and premium amounts associated with option contracts
written is as follows:
<TABLE>
Period ended June 9,1996
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
Puts Calls MBS Puts and Calls
- ---------------------------------------------------------------------------------------------------------------
Contracts Premium Contracts Premium Contracts Premiums
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance May 31, 1996 -- $ -- 3,003 $ 3,644,648 14,875 $ 754,209
Opened -- -- 1,539 2,092,762 7,225 541,211
Closed -- -- (446) (486,646) (5,525) (292,030)
Exercised -- -- -- -- -- --
Expired -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Balance June 9, 1996 -- -- 4,096 5,250,764 6,575 1,003,390
- --------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------------------------------------------------
6. Financial highlights
The table below shows certain important financial information for evaluating the
Fund's results.
<PAGE>
<TABLE>
IDS Federal Income Fund
Performance
Financial highlights
Fiscal period ended Nov. 30,
Per share income and capital changes*
Class A
<CAPTION>
1996*** 1996** 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $4.92 $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 .16 .28 .32 .29 .32 .36 .42 .42 .40 .41 .40
Net gains (losses) .10 (.04) .11 (.31) .13 .09 .09 (.02) -- .01 (.03)
(both realized
and unrealized)
Total from investment .26 .24 .43 (.02) .45 .45 .51 .40 .40 .42 .37
operations
Less distributions:
Dividends from net (.16) (.29) (.31) (.29) (.32) (.36) (.41) (.42) (.40) (.41) (.40)
investment income
Distributions from -- -- -- (.14) (.02) -- -- -- -- -- (.03)
realized gains
Total distributions (.16) (.29) (.31) (.43) (.34) (.36) (.41) (.42) (.40) (.41) (.43)
Net asset value, $5.02 $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*** 1996** 1995 1994 1993 1992 1991 1990 1989 1988 1987
Net assets, end of period $1,128 $1,095 $977 $1,025 $1,025 $834 $397 $234 $183 $183 $181
(in millions)
Ratio of expenses to .89%+ .91%+ .79% .76% .77% .79% .80% .82% .79% .80% .86%
average daily net assets
Ratio of net income 6.50%+ 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 60% 115% 213% 304% 227% 104% 52% 104% 81% 143% 36%
(excluding short-term
securities) for the
underlying Portfolio
Total return++ 5.4% 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.
***Six month ended Nov. 30, 1996 (Unaudited).
+Adjusted to an annual basis.
++Total return does not reflect payment of a sales charge.
</TABLE>
<PAGE>
<TABLE>
IDS Federal Income Fund, Inc.
Performance
Financial highlights
Fiscal period ended Nov. 30,
Per share income and capital changes*
Class B Class Y
<CAPTION>
1996# 1996*** 1995** 1996# 1996*** 1995**
<S> <C> <C> <C> <C> <C> <C>
Net asset value, $4.92 $4.96 $4.87 $4.92 $4.97 $4.87
beginning of period
Income from investment operations:
Net investment income .14 .26 .06 .16 .29 .07
Net gains (losses) both .10 (.04) .14 .10 (.04) .15
realized and unrealized)
Total from investment .24 .22 .20 .26 .25 .22
operations
Less distributions:
Dividends from net (.14) (.26) (.11) (.16) (.30) (.12)
investment income
Net asset value, $5.02 $4.92 $4.96 $5.02 $4.92 $4.97
end of period
Ratios/supplemental data
1996# 1996*** 1995** 1996# 1996*** 1995**
Class B Class Y
Net assets, end of period $617 $520 $292 $106 $99 $85
(in millions)
Ratio of expenses to 1.64%+ 1.67%+ 1.74%+ .71%+ .74%+ .75%+
average daily net assets
Ratio of net income 5.75%+ 5.59%+ 6.21%+ 6.68%+ 6.53%+ 7.20%+
to average daily net assets
Portfolio turnover rate 60% 115% 213% 60% 115% 213%
(excluding short-term
securities) for the
underlying Portfolio
Total return++ 5.0% 4.3% 4.1% 5.5% 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.
#Six months ended Nov. 30, 1996 (Unaudited).
</TABLE>
<PAGE>
Statement of assets and liabilities
Government Income Portfolio
Nov. 30, 1996
Assets
(Unaudited)
Investments in securities, at value (Note 1)
(identified cost $1,814,207,684) $1,868,737,176
Dividends and accrued interest receivable 15,994,484
Receivable for investment securities sold 917,314
U.S. government securities held as collateral (Note 4) 20,522,098
---------------------
Total assets 1,906,171,072
---------------------
Liabilities
Disbursements in excess of cash on demand deposit 8,070,547
Payable for investment securities purchased 22,905,816
Payable upon return of securities loaned (Note 4) 20,522,098
Accrued investment management services fee 51,553
Other accrued expenses 38,782
Open option contracts written, at value
(premium received $2,362,367)(Note 5) 2,566,445
---------------------
Total liabilities 54,155,241
---------------------
=====================
Net assets $1,852,015,831
=====================
See accompany notes to financial statements.
<PAGE>
Statement of Operations
Government Income Portfolio
For the period from May 13, 1996 (commencement of operations)
to Nov. 30, 1996
Investment income
(Unaudited)
Income:
Interest $61,724,838
-
Expenses (Note 2):
Investment management services fee 4,254,050
Compensation of board members 7,218
Custodian fees 77,682
Audit fees 6,941
Administrative 1,858
Other 2,934
---------------------
Total expenses 4,350,683
Earning credits on cash balances (Note 2 ) (930)
Total net expenses 4,349,753
---------------------
Investment income -- net 57,375,085
---------------------
Realized and unrealized loss -- net
Net realized gain on security transactions (Note 3) (260,862)
Net realized loss on closed futures contracts (31,389,709)
Net realized gain on closed ,exercised or expired 10,212,947
---------------------
written contracts (Note 5) (21,437,624)
Net realized loss on investments
Net change in unrealized appreciation or
depreciation of investments 60,825,122
Net gain on investments 39,387,498
=====================
Net increase in net assets resulting from operations $96,762,583
=====================
See accompanying notes to financial statements.
<PAGE>
Statement of changes in net assets
Government Income Portfolio
For the period from May 13, 1996 to Nov. 30, 1996
Operations and distributions
(Unaudited)
Investment income - net $57,375,085
Net realized gain on investments (21,437,624)
Net change in unrealized appreciation or
depreciation of investments 60,825,122
------------------------
Net increase in net assets resulting from operations 96,762,583
Net contributions 1,755,213,248
------------------------
Total increase in net assets 1,851,975,831
Net assets at beginning of period (Note 1) 40,000
========================
Net assets at end of period $1,852,015,831
========================
See accompanying notes to financial statements.
<PAGE>
Notes to financial statements
Government Income Portfolio
(Unaudited as to Nov. 30, 1996)
- ------------------------------------------------------------------
1. Summary of significant accounting policies
Government Income Portfolio (the Portfolio) is a series of Income Trust (the
Trust) and is registered under the Investment Company Act of 1940 (as amended)
as a diversified, open-end management investment company. Government Income
Portfolio seeks to provide a high level of current income and safety of
principal consistent with investment in U.S. government and government agency
securities. The Declaration of Trust permits the Trustees to issue
non-transferable interests in the Portfolio. On April 15, 1996, AEFC contributed
$40,000 to the Portfolio. Operations did not formally commence until June 10,
1996, at which time an existing fund transferred its assets to the Portfolio in
return for an ownership percentage of the Portfolio.
Significant accounting polices followed by the Portfolio are summarized below:
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increase and decrease in net assets from operations
during the period. Actual results could differ from those estimates.
Valuation of securities
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price; 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>
Option transactions
In order to produce incremental earnings, protect gains and facilitate buying
and selling of securities for investment purposes, the Portfolio may buy or
write options traded on any U.S. or foreign exchange or in the over-the-counter
market where the completion of the obligation is dependent upon the credit
standing of the other party. The Portfolio also may buy or sell put and call
options and write covered call options on portfolio securities and may write
cash-secured put options. The risk in writing a call option is that the
Portfolio gives up the opportunity of profit if the market price of the security
increases. The risk in writing a put option is that the Portfolio may incur a
loss if the market price of the security decreases and the option is exercised.
The risk in buying an option is that the Portfolio pays a premium whether or not
the option is exercised. The Portfolio also has the additional risk of not being
able to enter into a closing transaction if a liquid secondary market does not
exist.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Portfolio
will realize a gain or loss upon expiration or closing of the option
transaction. When an option is exercised, the proceeds on sales for a written
call option, the purchase cost for a written put option or the cost of a
security for a purchased put or call option is adjusted by the amount of premium
received or paid.
Futures transactions
In order to gain exposure to or protect itself from changes in the market, the
Portfolio may buy and sell financial futures contracts traded on any U.S. or
foreign exchange. The Portfolio also may buy or write put and call options on
these futures contracts. Risks of entering into futures contracts and related
options include the possibility that there may be an illiquid market and that a
change in the value of the contract or option may not correlate with changes in
the value of the underlying securities.
Upon entering into a futures contract, the Portfolio is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Portfolio each day. The variation margin payments are
equal to the daily changes in the contract value and are recorded as unrealized
gains and losses. The Portfolio recognizes a realized gain or loss when the
contract is closed or expires.
Federal taxes
For federal income tax purposes the Portfolio qualifies as a partnership and
each investor in the Portfolio is treated as the owner of its proportionate
share of the net assets, income, expenses and realized and unrealized gains and
losses of the Portfolio. Accordingly, as a "pass-through" entity, the Portfolio
does not pay any income dividends or capital gain distributions.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Interest income, including level-yield amortization of premium and
discount, is accrued daily.
___________________________________________________________________
2. Fees and expenses
The Trust, on behalf of the Portfolio, has entered into an Investment Management
Services Agreement with American Express Financial Corporation (AEFC) for
managing its portfolio. Under this agreement, AEFC determines which securities
will be purchased, held or sold. The management fee is a percentage of the
Portfolio's average daily net assets in reducing percentages from 0.52% to
0.395% annually.
Under the agreement, the Trust also pays taxes and nonadvisory expenses, which
include custodian fees to be paid to an affiliate of AEFC; audit and certain
legal fees; fidelity bond premiums; registration fees for units; office
expenses; consultants' fees; compensation of trustees; corporate filing fees;
expenses incurred in connection with lending securities of the Portfolio: and
any other expenses properly payable by the Trust or Portfolio, approved by the
board.
For the period from June 10, 1996 to Nov. 30, 1996, the Portfolio's custodian
fees were reduced by $930 as a result of earnings credits from overnight cash
balances.
Pursuant to a Placement Agency Agreement, American Express Financial Advisors
Inc. acts as placement agent of the units of the Trust.
- -------------------------------------------------------------------
3. Securities transactions
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $1,162,604,762 and $1,050,966,073 respectively, for the
period from June 10, 1996 to Nov. 30, 1996. For the same period, the portfolio
turnover rate was 60%. Realized gains and losses are determined on an identified
cost basis.
- -------------------------------------------------------------------
4. Interest rate futures contracts
At Nov. 30, 1996, investments in securities included securities valued at
$39,674,340 that were pledged as collateral to cover initial margin deposits on
2,566 open purchase contracts and 4,200 open sale contracts. The market value
of the open purchase contracts at Nov. 30, 1996 was $277,756,252 with a net
unrealized gain of $6,798,668. The market value of the open sale contracts at
Nov. 30, 1996 was $476,310,469 with a net unrealized loss of $6,326,156. See
summary of significant accounting policies.
- --------------------------------------------------------------------
5. Lending of portfolio securities
At Nov. 30, 1996, securities valued at $20,659,600 were on loan to brokers. For
collateral, the Portfolio received U.S. government securities valued at
$20,522,098. Income from securities lending amounted to $35,042 for the period
ended Nov. 30, 1996. The risks to the Portfolio of securities lending are that
the borrower may not provide additional collateral when required or return the
securities when due.
- ---------------------------------------------------------------------
6. Options contracts written
The number of contracts and premium amounts associated with options contracts
written (see summary of significant accounting policies) is as follows:
<TABLE>
Period ended Nov. 30, 1996
- ----------------------------------------------------------------------------------------------------
Puts Calls MBS Puts andCalls
- ----------------------------------------------------------------------------------------------------
<CAPTION>
Contracts Premium Contracts Premium Contracts Premiums
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance June 10, 1996 -- $ -- 4,096 $ 5,250,764 16,575 $1,003,390
Opened 3,993 4,012,437 4,981 5,805,196 46,325 3,682,216
Closed (2,484) (2,627,008) (3,729) (4,314,033) (44,200) (2,962,367)
Exercised -- -- (4,413) (5,535,992) (3,400) (154,062)
Expired (433) (408,774) (765) (840,223) (7,650) (549,177)
- ---------------------------------------------------------------------------------------------------------------------
Balance Nov. 30, 1996 1,076 $976,655 170 $ 365,712 7,650 $1,020,000
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
Investments in securities
Government Income Portfolio (Percentages represent value of
Nov. 30, 1996 (Unaudited) investments compared to net assets)
- --------------------------------------------------------------------------------
Bonds (100.3%)
- --------------------------------------------------------------------------------
<CAPTION>
Issuer Coupon Maturity Principal Value (a)
rate year amount
- -----------------------------------------------------------------------------------------------------------------
U.S. government obligations (25.2%)
<S> <C> <C> <C> <C>
U.S. Treasury 5.00% 1998 $ 8,000,000 $ 7,959,280
5.63 1997 13,000,000 13,018,980
5.88 1998 18,750,000 18,850,470
6.00 1997-99 57,000,000 57,417,110
6.25 2001 2,100,000 2,136,183
6.50 2005-06 45,850,000 (e,f) 47,303,693
6.75 2000 45,000,000 (e,f) 46,386,900
6.88 1999-206 81,800,000 85,426,176
7.00 2006 5,000,000 5,330,850
7.75 2000 45,000,000 47,617,650
8.125 2019 38,500,000 45,969,770
Collateralized Mtge Securities Corp 14.18 2020 3,750,000 4,153,125
Resolution Funding Corp 8.125 2019 8,000,000 9,439,360
Zero Coupon 6.06 2001 20,863,000 (b) 16,445,260
6.36 2003 16,000,000 (b) 10,624,320
6.39 2007 40,153,000 (b) 20,914,493
7.08 2007 25,120,000 (b) 12,866,966
7.18 2009 16,000,000 (b) 7,032,960
7.87 2018-19 24,000,000 (b) 5,446,485
8.04 2012 8,400,000 (b) 2,960,832
------------------
Total 467,300,863
- -----------------------------------------------------------------------------------------------------------------
Mortgage-backed securities (75.1%)
Federal Home Loan Mortgage Corporation (21.1%)
6.00 2026 21,000,000 19,977,930
6.50 2009 8,905,823 8,888,100
6.50 2003 429,261 430,737
6.75 2006 46,535,000 48,047,387
7.00 2010 21,172,130 21,415,821
7.50 2024 8,589,114 8,739,939
8.00 2023-25 74,959,146 77,484,667
8.50 2025 17,364,506 18,136,185
8.63 2023 3,456,299 2,892,542
9.00 2025-26 51,300,042 54,326,207
Collateralized Mtge Obligation 4.00 2023 13,629,045 12,756,786
6.75 2022 22,000,000 21,912,220
8.25 2024 30,704,830 32,487,245
8.50 2022 9,150,000 10,120,266
Interest Only 10.00 2020 342,713 (c) 101,704
Inverse Floater 7.10 2023 3,956,343 (d) 3,176,825
7.31 2024 11,609,678 (d) 9,998,603
7.77 2023 10,514,507 (d) 7,982,088
9.36 2022 5,798,581 (d) 5,459,654
9.42 2022 21,356,119 (d) 19,554,944
14.91 2021 6,545,617 (d) 7,148,076
Total
------------------
391,037,926
- -----------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association (53.1%)
3.00 2019 11,250,000 9,980,437
4.50 2010 8,204,208 7,053,322
5.88 2006 29,925,000 29,107,150
6.00 2008-23 41,724,034 40,551,898
6.50 2023-25 134,401,247 (e,f) 131,189,626
7.00 2003-25 129,750,210 129,497,443
7.50 2025-26 49,866,827 50,505,630
8.00 2021-26 50,715,980 52,236,275
8.50 2007-26 333,063,791 348,525,464
9.00 2023-26 78,397,309 83,150,721
Collateralized Mtge Obligation 4.70 2022 11,156,552 10,978,270
5.00 2024 6,663,083 6,008,568
5.50 2008 12,039,867 11,695,046
6.00 2008 7,628,038 7,578,837
6.50 2017 1,670,718 1,670,868
7.00 2012 7,178,509 7,249,923
Interest Only 9.50 2018-22 17,679,360 (c) 5,428,240
10.00 2018-22 59,260,990 (c) 18,432,641
10.50 2021 14,561,111 (c) 4,616,182
Inverse Floater 7.26 2023 6,052,314 (d) 5,150,701
8.59 2024 5,174,338 (d) 4,336,819
Principal Only 7.59 2021 804,373 (g) 596,471
8.31 2020 12,044,539 (g) 11,247,087
10.52 2023 8,265,432 (g) 7,251,098
Total
------------------
984,038,717
- -----------------------------------------------------------------------------------------------------------------
Government National Mortgage Association (0.9%)
7.50 2025 15,100,344 15,360,070
11.00 2019 378,317 424,025
------------------
Total 15,784,095
- -----------------------------------------------------------------------------------------------------------------
Total bonds
(Cost: $1,803,632,109) 1,858,161,601
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Short-term securities (0.6%)
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
Issuer Annualized Amount Value (a)
yield on payable at
date of maturity
purchase
- -----------------------------------------------------------------------------------------------------------------
U.S. government agency (0.4%)
Federal Home Loan Mtge Corp Disc Nts
<S> <C> <C> <C>
12-12-96 5.23% $1,400,000 $ 1,397,564
12-20-96 5.22 5,000,000 4,985,556
Total 6,383,120
- -----------------------------------------------------------------------------------------------------------------
Letter of credit (0.1%)
Federal Home Loan Bank
12-19-96 5.27 2,600,000 2,592,796
- -----------------------------------------------------------------------------------------------------------------
Commercial paper (0.1%)
Fleet Funding
12-10-96 5.29 1,602,000 1,599,659
- ------------------------------------------------------------------------------------------------------------------
Total short-term securities
(Cost: $10,575,575) $10,575,575
- -----------------------------------------------------------------------------------------------------------------
Total investment in securities
(Cost: $1,814,207,684) (h) $1,868,737,176
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 Nov. 30, 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 Dec. 96 5-year notes $195,800,000
U.S. Treasury Note March 97 5-year notes 8,500,000
U.S. Treasury Note March 97 2-year notes 26,800,000
U.S. Treasury Note Dec. 96 10-year notes 25,500,000
Sale contracts
U.S. Treasury Note March 97 10-year notes 221,000,000
U.S. Treasury Note Dec. 96 10-year notes 18,700,000
U.S. Treasury Bonds March 97 164,800,000
U.S. Treasury Bonds Dec. 96 15,500,000
(f) At Nov. 30, 1996, securities valued at $39,674,340 were held to cover open
call options written as follows:
Issuer Number of Exercise Expiration Value (a)
contracts price date
U.S. Treasury Bonds March 97 170 $112 Feb. 1997 $ 786,250
Mortgage-Backed Security
(MBS) Spread 2,550 100 Feb. 1997 414,380
Mortgage-Backed Security
(MBS) Spread 5,100 94 Jan. 1997 1,099,690
At Nov. 30, 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
U.S. Treasury Bonds March 97 212 $112 Feb. 1997 $ 172,250
U.S. Treasury Bonds March 97 226 104 Feb. 1997 14,125
U.S. Treasury Bonds March 97 638 106 Feb. 1997 79,750
(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 the
future cash flows.
(h) At Nov. 30, 1996, the cost of securities for federal income tax purposes was
approximately $1,814,208,000 and the approximate aggregate gross unrealized
appreciation and depreciation based on the cost was:
Unrealized appreciation $60,195,000
Unrealized depreciation (5,666,000)
- --------------------------------------------------------------------------------
Net unrealized appreciation $54,529,000
- --------------------------------------------------------------------------------
<PAGE>
Board members and officers
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
H. Brewster Atwater Jr.
Former chairman and chief executive officer, General Mills, Inc.
Lynne V. Cheney
Distinguished fellow, American Enterprise Institute for
Public Policy Research.
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 Readers'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.
<PAGE>
PAGE
IDS mutual funds
Global/International funds
Funds in this group seek capital growth and/or income by investing primarily in
foreign securities. Foreign investments may be subject to currency fluctuations
and political and economic risks of the countries in which the investments are
made. They are high risk mutual funds with a potential for high reward.
IDS Emerging Markets Fund
Invests in a Portfolio comprised primarily of stocks of companies in developing
countries throughout the world that are believed to offer growth potential.
Seeks to provide long-term growth of capital.
(icon of) world globe
IDS Global Growth Fund
Invests in a Portfolio comprised primarily of stocks of companies throughout the
world that are positioned to meet market needs in a changing world economy.
These companies offer above-average potential for long-term growth.
(icon of) world
IDS International Fund
Invests primarily in common stocks of foreign companies that offer potential for
superior growth. The Fund may invest up to 20% of its assets in the U.S. market.
(icon of) three flags
IDS Global Balanced Fund
Invests in stocks-and bonds in, for the most part, major markets throughout the
world, including the U.S. Seeks to provide a balance of growth of capital and
current income.
(icon of) scale of globes
IDS Global Bond Fund
Invests in a Portfolio comprised primarily of debt securities of U.S. and
foreign issuers to seek high total return through income and growth of capital.
(icon of) globe
Growth funds
<PAGE>
Funds in this group seek capital growth, primarily from common stocks. They are
high risk mutual funds with a potential for high reward.
IDS Precious Metals Fund
Invests primarily in the securities of foreign or domestic companies that
explore for, mine and process or distribute gold and other precious metals. A
highly aggressive and speculative fund that seeks long-term growth of capital.
(icon of) cart of precious gems
IDS Discovery Fund
Invests in small- and medium-size, growth-oriented companies emphasizing
technological innovation and productivity enhancement.
Buys and holds larger growth-oriented stocks.
(icon of) ship
IDS Small Company Index Fund
Invests in all or a representative group of the equity securities comprising the
S&P SmallCap 600 Index, as it strives to provide long-term capital appreciation.
(icon of) building
IDS Strategy Aggressive Fund
Invests primarily in common stocks of companies that are selected for their
potential for above-average growth. Above-average means that their growth
potential is better, in the opinion of the portfolio's investment manager, than
the Standard & Poor's Corporation (S&P) 500 Stock Index.
(icon of) chess piece
IDS Research Opportunities Fund
Invests in a Portfolio comprised primarily of equity securities of companies
included in the S&P 500 Index that are believed to have strong growth potential.
The Portfolio is managed using a research methodology by the Research Department
of AEFC. Goal is long-term appreciation.
(icon of) magnifying glass
IDS Growth Fund
Invests in a Portfolio comprised primarily of companies that have above-average
potential for long-term growth as a result of new management, marketing
opportunities or technological superiority.
<PAGE>
(icon of) flower
IDS New Dimensions Fund
Invests in a Portfolio comprised primarily of companies with significant growth
potential due to superiority in technology, marketing or management. The Fund
frequently changes its industry mix.
(icon of) dimension
IDS Progressive Fund
Invests primarily in undervalued common stocks. The Fund holds stocks for the
long term with the goal of capital growth.
(icon of) shooting star
Growth and income funds
These funds focus on securities of medium to large, well-established companies
that offer long-term growth of capital and reasonable income from dividends and
interest.
IDS Equity Select Fund
Invests primarily in a combination of moderate growth stocks, higher-yielding
equities and bonds. Seeks growth of capital and income.
(icon of) three pine trees
IDS Blue Chip Advantage Fund
Invests in selected stocks from a major market index. Securities purchased are
those recommended by our research analysts as the best from each industry
represented on the index. Offers potential for long-term growth as well as
dividend income.
(icon of) ribbon
IDS Managed Allocation Fund
Invests in a Portfolio comprised primarily of U.S. equity securities, U.S. and
foreign debt securities, foreign equity securities and money market instruments.
The Fund provides diversification among these major investment categories and
has a target mix that represents the way the Fund's investments will be
allocated over the long term. Seeks maximum total return.
(icon of) spinning toy
IDS Stock Fund
<PAGE>
Invests in a Portfolio comprised primarily of common stocks of companies
representing many sectors of the economy. Seeks current income and growth of
capital.
(icon of) building with columns
IDS Equity Value Fund
Invests primarily in undervalued common stocks that offer potential for growth
of capital and income.
(icon of) three growing flowers
IDS Utilities Income Fund
Invests primarily in the stocks of public utility companies to seek high current
income and growth of income and capital with reduced volatility.
(icon of) light bulb
IDS Diversified Equity Income Fund
Invests in a Portfolio comprised primarily in high-yielding common stocks to
seek high current income and, secondarily, to benefit from the growth potential
offered by stock investments.
(icon of) two puzzle pieces
IDS Mutual
Invests in a Portfolio which seeks to balance between common stocks and senior
securities (preferred stocks and bonds). Seeks a balance of growth of capital
and current income.
(icon of) scale of justice
Income funds
The funds in this group invest their assets primarily in corporate bonds or
government securities to seek interest income. Secondary objective is capital
growth. Risk varies by bond quality.
IDS Extra Income Fund
Invests in a Portfolio comprised mainly 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) two coins
IDS Bond Fund
<PAGE>
Invests mainly in corporate bonds, at least 50% in the higher rated, lower risk
bond categories, or the equivalent, and in government bonds.
(icon of) Greek column
IDS Selective Fund
Invests in a Portfolio comprised primarily of high-quality corporate bonds and
other highly rated debt instruments including government securities and
short-term investments. Seeks current income and preservation of capital.
(icon of) skyline
IDS Federal Income Fund
Invests in a Portfolio comprised primarily of securities issued or guaranteed as
to the timely payment of principal and interest by the U.S. government, its
agencies and instrumentalities. Seeks a high level of current income and safety
of principal consistent with its type of investments.
(icon of) shield with eagle head
Tax-exempt income funds
These funds provide tax-free income by investing in municipal bonds. The income
is generally free from federal income tax, but a portion of the income may be
subject to state and local taxes. Risk varies by bond quality.
IDS Tax-Exempt Bond Fund
Invests mainly in bonds and notes of state or local government units, with at
least 75% in the four highest rated, lowest risk bond categories.
(icon of) shield with Greek column
IDS Insured Tax-Exempt Fund
Invests primarily in municipal securities that are insured as to the timely
payment of principal and interest. The insurance feature minimizes credit risk
of the Fund but does not guarantee the market value of the Fund's shares.
(icon of) shield with star
IDS State Tax-Exempt Funds
(CA, MA, MI, MN, NY, OH)
Invests primarily in high- and medium-grade municipal securities to provide
income to residents of each respective state that is
<PAGE>
exempt from federal, state and local income taxes. (New York is the only state
that is exempt at the local level.)
(icon of) shield with U.S. enclosed
IDS High Yield Tax-Exempt Fund
Invests in a Portfolio comprised primarily of medium- and lower-quality
municipal bonds and notes. Lower-quality securities generally involve greater
risk of principal and income.
(icon of) shield with basket of apples enclosed
IDS Intermediate Tax-Exempt Fund
Invests in mainly investment-grade bonds and other debt securities with
intermediate-term maturities issued by state and local government units. Goal is
to seek a high level of current income exempt from federal taxes.
(icon of) shield with tree enclosed
Money market funds
These money market funds have three main goals: conservation of capital,
constant liquidity and the highest possible current income consistent with these
objectives. An investment in these funds is neither insured nor guaranteed by
the U.S. government, and there can be no assurance that these funds will be able
to maintain a stable net asset value of $1.00 per share. Very limited risk.
IDS Cash Management Fund
Invests in such money market securities as high quality commercial paper,
bankers' acceptances, certificates of deposit (CDs) and other bank securities.
(icon of) piggy bank
IDS Tax-Free Money Fund
Invests primarily in short-term bonds and notes issued by state and local
governments to seek high current income exempt from federal income taxes.
(icon of) shield with piggy bank enclosed
Quick telephone reference
American Express Telephone Transaction Service
Redemptions and exchanges, dividend payments or reinvestments and
automatic payment arrangements
<PAGE>
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 (TouchTone(R) 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
<PAGE>
AMERICAN EXPRESS FINANCIAL ADVISORS
IDS Federal Income Fund
IDS Tower 10
Minneapolis, MN 55440-0010
<PAGE>
