-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NqgwEPm/V6H6X1eXimI2RLhHrBXfGv7FZHFLywrgKMyXiwAaav3ZrbhSq/l63HfS h8j01CxaXxmzqkSXzfQOIw== 0000820027-98-000313.txt : 19980430 0000820027-98-000313.hdr.sgml : 19980430 ACCESSION NUMBER: 0000820027-98-000313 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980228 FILED AS OF DATE: 19980428 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IDS BOND FUND INC CENTRAL INDEX KEY: 0000049697 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 411237361 STATE OF INCORPORATION: MN FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-02503 FILM NUMBER: 98602196 BUSINESS ADDRESS: STREET 1: IDS TOWER 10 STREET 2: T33/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55440 BUSINESS PHONE: 6126712772 MAIL ADDRESS: STREET 1: 80 SOUTH 8TH STREET STREET 2: T33/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55440 N-30D 1 1998 SEMIANNUAL REPORT IDS Bond Fund The goal of IDS Bond Fund, Inc. is to provide shareholders with a high level of current income while attempting to conserve the value of the investment. The Fund invests primarily in corporate bonds and other debt securities. American Express financial Advisors Distributed by American Express Financial Advisors Inc. (icon of) Greek column Striking a balance among bonds A bond is like an I.O.U. But with a bond, it's a corporation or the government -- the bond issuer -- that promises to pay the money back. In return for lending money to the issuer, bond investors get paid interest. IDS Bond Fund invests mainly in bonds issued by U.S. corporations, but it also holds some U.S. government bonds, as well as foreign bonds. The portfolio manager shifts this mix as investment conditions dictate. In doing so, the Fund seeks to provide long-term return potential for investors. Contents From the chairman 3 From the portfolio manager 3 The Fund's ten largest holdings 5 Financial statements 6 Notes to financial statements 9 Investments in securities 21 Board members and officers 43 IDS mutual funds 44 To our shareholders From the chairman If you're an experienced investor, you know that the past few years have been unusually strong in many financial markets. Perhaps just as important, 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. We saw evidence of that last October, when declines in Asian markets spawned a sharp drop in several financial markets worldwide, including the U.S. The potential for such volatility reinforces the need for investors to review periodically 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. William R. Pearce (picture of) William R. Pearce William R. Pearce Chairman of the board From the portfolio manager A decline in long-term interest rates provided strong support for U.S. bonds during the past six months. IDS Bond Fund's performance reflected the positive trend, as its Class A shares generated a total return of 5.6% for the first half of the fiscal year -- September 1997 through February 1998. Despite relatively robust economic growth, the inflation rate remained remarkably low during the past period. Against that backdrop, long-term interest rates followed a generally declining path through mid-January. Using the yield on the 30-year Treasury bond as a measuring stick, long rates went from about 6.7% in early September to about 5.8% in mid-January. Because bond prices move in the opposite direction of interest rates, the U.S. bond market and the Fund's net asset value benefited accordingly. Also enhancing the Fund's performance was the slightly long duration of the portfolio, a strategy that increases its sensitivity to interest rate changes - the longer the duration, the greater the sensitivity. Therefore, when rates came down, the Fund's value rose more than it would have with a neutral duration. A mix of assets I kept the portfolio well-diversified during the period. The majority of investments were in investment-grade, or high-quality bonds, including those issued by U.S. corporations and the federal government and its agencies. To boost the Fund's yield, I maintained a moderate exposure to high-yield corporate bonds and emerging market bonds (those issued by governments of developing foreign countries). While the high-yield bonds performed quite well, financial turmoil in Asia took a toll on the emerging market bonds last fall. Changes to the portfolio were minor. I lengthened the duration somewhat last September, while adding a bit to corporate bonds and mortgage-backed bonds issued by government agencies. I also upgraded the overall quality of the portfolio slightly as the period progressed. Given the substantial decline in long-term interest rates in 1997, I think it's unlikely that we'll see a repeat of that trend this year. More likely, I think, is moderate fluctuation, with no sustained moves either way. Therefore, at this point (mid-March), I plan to keep a basically neutral duration in the portfolio and concentrate instead on enhancing the Fund's dividend. Frederick Quirsfeld (picture of) Frederick Quirsfeld Frederick Quirsfeld Portfolio Manager To our shareholders Class A 6-month performance (All figures per share) Net asset value (NAV) Feb. 28, 1998 $5.24 Aug. 31, 1997 $5.22 Increase $0.02 Distributions Sept. 1, 1997 - Feb. 28, 1998 From income $0.20 From capital gains $0.06 Total distributions $0.26 Total return* +5.6%** Class B 6-month performance (All figures per share) Net asset value (NAV) Feb. 28, 1998 $5.24 Aug. 31, 1997 $5.22 Increase $0.02 Distributions Sept. 1, 1997 - Feb. 28, 1998 From income $0.18 From capital gains $0.06 Total distributions $0.24 Total return* +5.2%** Class Y 6-month performance (All figures per share) Net asset value (NAV) Feb. 28, 1998 $5.25 Aug. 31, 1997 $5.22 Increase $0.03 Distributions Sept. 1, 1997 - Feb. 28, 1998 From income $0.21 From capital gains $0.06 Total distributions $0.27 Total return* +5.6%** * 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. The Fund's ten largest holdings Percent Value (of Fund's net assets) (as of Feb. 28, 1998) Virgina Electric & Power .92% $35,866,949 6.75% 2007 Bell Atlantic .80 30,963,936 9.375% 2031 Viacom .80 30,828,375 8.00% 2006 Connecticut Light & Power .76 29,251,400 7.75% 2002 Tenet Healthcare .62 24,200,000 10.125% 2005 Scotland Bank .59 22,815,065 8.80% 2004 Bistro Trust .59 22,793,224 9.50% 2002 Ford Capital .59 22,697,482 9.50% 2010 USX-Marathon Group .57 22,019,200 9.375% 2022 Salomon .55 21,226,799 7.00% 1999 Excludes U.S. Treasury and government agency holdings. (icon of) pie chart The ten holdings listed here make up 6.79% of the Fund's net assets
Financial statements Statement of assets and liabilities IDS Bond Fund, Inc. Feb. 28, 1998 Assets (Unaudited) Investments in securities, at value (Note 1) (identified cost $3,675,244,503) $3,844,477,231 Dividends and accrued interest receivable 55,887,588 Unrealized appreciation on foreign currency contracts held, at value (Notes 1 and 6) 46,590 Receivable for investment securities sold 19,272,348 U.S. government securities held as collateral (Note 4) 26,138,000 ---------- Total assets 3,945,821,757 ------------- Liabilities Payable for investment securities purchased 42,831,145 Payable upon return of securities loaned (Note 4) 33,043,120 Disbursements in excess of cash on demand deposit 109,680 Dividends payable to shareholders 1,743,399 Accrued investment management services fee 51,021 Accrued distribution fee 20,508 Accrued service fee 18,128 Accrued transfer agency fee 10,782 Accrued administrative services fee 4,512 Other accrued expenses 414,126 ------- Total liabilities 78,246,421 ---------- Net assets applicable to outstanding capital stock $3,867,575,336 ============== Represented by Capital stock-- $.01 par value (Note 1) $ 7,373,862 Additional paid-in capital 3,667,632,423 Undistributed net investment income 1,885,684 Accumulated net realized gain (loss) 21,452,536 Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 169,230,831 ----------- Total-- representing net assets applicable to outstanding capital stock $3,867,575,336 ============== Net assets applicable to outstanding shares: Class A $2,713,612,884 Class B $1,003,690,036 Class Y $ 150,272,416 Net asset value per share of outstanding capital stock: Class A shares 517,376,159 $ 5.24 Class B shares 191,362,043 $ 5.24 Class Y shares 28,647,967 $ 5.25 See accompanying notes to financial statements.
Statement of operations IDS Bond Fund, Inc. Six months ended Feb. 28, 1998 Investment income (Unaudited) Income: Dividends $ 1,512,750 Interest 139,726,602 ----------- Total income 141,239,352 ----------- Expenses (Note 2): Investment management services fee 9,095,053 Distribution fee -- Class B 3,570,437 Transfer agency fee 1,859,688 Incremental transfer agency fee-- Class B 36,786 Service fee Class A 2,299,757 Class B 826,189 Class Y 63,745 Administrative services fees and expenses 826,851 Compensation of board members 15,536 Custodian fees 152,890 Postage 264,026 Registration fees 116,754 Reports to shareholders 25,298 Audit fees 20,000 Other 19,218 ------ Total expenses 19,192,228 Earnings credits on cash balances (Note 2) (388,212) -------- Total net expenses 18,804,016 ---------- Investment income (loss) -- net 122,435,336 ----------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) 28,018,752 Foreign currency transactions 494,956 Financial futures contracts (5,484,969) ---------- Net realized gain (loss) on investments 23,028,739 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 54,524,857 ---------- Net gain (loss) on investments and foreign currencies 77,553,596 ---------- Net increase (decrease) in net assets resulting from operations $199,988,932 ============ See accompanying notes to financial statements.
Financial statements Statements of changes in net assets IDS Bond Fund, Inc. Operations and distributions Feb. 28, 1998 Aug. 31, 1997 Six months ended Year ended (Unaudited) Investment income (loss)-- net $ 122,435,336 $ 240,172,449 Net realized gain (loss) on investments 23,028,739 64,347,497 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 54,524,857 98,764,325 ---------- ---------- Net increase (decrease) in net assets resulting from operations 199,988,932 403,284,271 ----------- ----------- Distributions to shareholders from: Net investment income Class A (92,000,908) (177,119,796) Class B (29,178,633) (53,865,341) Class Y (4,439,540) (6,665,317) Net realized gain Class A (41,282,498) -- Class B (14,848,739) -- Class Y (1,901,326) -- ---------- ----------- Total distributions (183,651,644) (237,650,454) Capital share transactions (Note 5) Proceeds from sales Class A shares (Note 2) 200,229,066 365,266,875 Class B shares 152,599,581 255,566,189 Class Y shares 54,061,186 58,488,053 Reinvestment of distributions at net asset value Class A shares 96,424,999 120,214,339 Class B shares 39,278,548 47,142,116 Class Y shares 6,340,866 6,665,317 Payments for redemptions Class A shares (241,124,424) (523,078,485) Class B shares (Note 2) (104,909,055) (278,467,674) Class Y shares (26,294,387) (41,490,635) ----------- ----------- Increase (decrease) in net assets from capital share transactions 176,606,380 10,306,095 ----------- ---------- Total increase (decrease) in net assets 192,943,668 175,939,912 Net assets at beginning of period 3,674,631,668 3,498,691,756 ------------- ------------- Net assets at end of period $3,867,575,336 $3,674,631,668 ============== ============== Undistributed net investment income $ 1,885,684 $ 5,069,429 -------------- -------------- See accompanying notes to financial statements.
Notes to financial statements IDS Bond Fund, Inc. (Unaudited as to Feb. 28, 1998) 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 invests primarily in corporate bonds and other debt securities. The Fund offers Class A, Class B and Class Y shares. Class A shares are sold with a front-end sales charge. Class B shares may be subject to a contingent deferred sales charge and such shares automatically convert to Class A shares during the ninth calendar year of ownership. Class Y shares have no sales charge and are offered only to qualifying institutional investors. All classes of shares have identical voting, dividend, liquidation and other rights, and the same terms and conditions, except that the level of distribution fee, transfer agency fee and service fee (class specific expenses) differs among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. Significant accounting policies followed by the Fund are summarized below: Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increase and decrease in net assets from operations during the period. Actual results could differ from those estimates. Valuation of securities All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price deemed best to reflect fair value as quoted by dealers who make markets in these securities or by an independent pricing service. Securities for which market quotations are not readily available are valued at fair value according to methods selected in good faith by the board. 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. 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 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 Fund also may buy and 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 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. 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 financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and 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 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. Foreign currency translations and foreign currency contracts Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars at the closing rate of exchange. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement dates on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Fund may enter into forward foreign currency exchange contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation and/or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the other party will not complete the obligations of the contract. Illiquid securities At Feb. 28, 1998, investments in securities included issues that are illiquid. The Fund currently limits investments in illiquid securities to 10% of net assets, at market value, at the time of purchase. The aggregate value of such securities at Feb. 28, 1998 was $6,949,747 representing 0.2% of net assets. Pursuant to guidelines adopted by the Fund's board, certain unregistered securities are determined to be liquid and are not included in the 10% limitation specified above. Federal taxes Since the Fund's policy is to comply with all sections of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to shareholders, no provision for income or excise taxes is required. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of the deferral of losses on certain futures contracts, the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes, and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. Dividends to shareholders Dividends from net investment income, declared daily and payable monthly, are reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the last income dividend of the calendar year. Other Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date. For U.S. dollar denominated bonds, interest income includes level-yield amortization of premium and discount. For foreign bonds, except for original issue discount, the Fund does not amortize premium and discount. Interest income, including level-yield amortization of premium and discount, is accrued daily. Effective March 20, 1995, the Fund entered into agreements with American Express Financial Corporation (AEFC) for managing its portfolio, providing administrative services and serving as transfer agent. 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 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. Additional administrative service expenses paid by the Fund are office expenses, consultants' fees and compensation of officers and employees. Under this agreement, the Fund also pays taxes, audit and certain legal fees, registration fees for shares, compensation of board members, corporate filing fees, organizational expenses and any other expenses properly payable by the Fund and approved by the board. Under a separate Transfer Agency Agreement, American Express Client Service Corporation (AECSC) maintains shareholder accounts and records. The Fund pays AECSC an annual fee per shareholder account for this service as follows: oClass A $15.50 oClass B $16.50 oClass 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. 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 and commencing on May 9, 1997, the fee is calculated at a rate of 0.10% of the Fund's average daily net assets attributable to Class Y shares. Sales charges received by American Express Financial Advisors Inc. for distributing Fund shares were $4,423,281 for Class A and $334,882 for Class B for the six months ended Feb. 28, 1998. During the six months ended Feb. 28, 1998, the Fund's custodian and transfer agency fees were reduced by $388,212 as a result of earnings credits from overnight cash balances. 3 Securities transactions Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $1,100,683,808 and $746,800,307, respectively, for the six months ended Feb. 28, 1998. Realized gains and losses are determined on an identified cost basis. 4 Lending of portfolio securities At Feb. 28, 1998, securities valued at $32,354,649 were on loan to brokers. For collateral, the Fund received $6,905,120 in cash and U.S. government securities valued at $26,138,000. Income from securities lending amounted to $94,654 for the six months ended Feb. 28, 1998. 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 Capital share transactions Transactions in shares of capital stock for the periods indicated are as follows: Six months ended Feb. 28, 1998 Class A Class B Class Y Sold 38,001,634 28,966,803 10,263,408 Issued for reinvested 18,408,518 7,500,594 1,214,049 distributions Redeemed (45,763,246) (19,912,956) (4,982,781) ----------- ----------- ---------- Net increase (decrease) 10,646,906 16,554,441 6,494,676 ---------- ---------- --------- Year ended Aug. 31, 1997 Class A Class B Class Y Sold 70,920,637 49,648,273 11,312,033 Issued for reinvested 23,385,736 9,173,422 1,302,408 distributions Redeemed (101,710,017) (54,072,632) (8,062,196) ------------ ----------- ---------- Net increase (decrease) (7,403,644) 4,749,063 4,552,245 ---------- --------- --------- 6 Foreign currency contracts At Feb. 28, 1998, the Fund had entered into a foreign currency exchange contract that obligates the Fund to deliver currency at a specified future date. The unrealized appreciation and/or depreciation on this contract is included in the accompanying financial statements. See Summary of significant accounting policies. The terms of the open contract are as follows: Exchange date Currency to Currency to Unrealized Unrealized be delivered be received appreciation depreciation March 16, 1998 8,988,481 1,140,000,000 $46,590 $-- U.S. Dollar Japanese Yen
Notes to financial statements IDS Bond Fund, Inc. 7 Financial highlights The tables below show certain important financial information for evaluating the Fund's results. Fiscal period ended Aug. 31, Per share income and capital changes(a) Class A 1998(b) 1997 1996 1995 1994 1993 1992 1991 1990 1989 Net asset value, $5.22 $4.99 $5.05 $4.91 $5.48 $5.11 $4.74 $4.39 $4.74 $4.60 beginning of period Income from investment operations: Net investment income .18 .35 .36 .38 .41 .40 .40 .41 .40 .42 (loss) Net gains (losses) .10 .23 (.07) .23 (.51) .38 .37 .33 (.36) .15 (both realized and unrealized) Total from investment .28 .58 .29 .61 (.10) .78 .77 .74 .04 .57 operations Less distributions: Dividends from net (.18) (.35) (.35) (.37) (.41) (.41) (.40) (.39) (.39) (.43) investment income Distributions from (.08) -- -- (.10) (.06) -- -- -- -- -- realized gains Total distributions (.26) (.35) (.35) (.47) (.47) (.41) (.40) (.39) (.39) (.43) Net asset value, $5.24 $5.22 $4.99 $5.05 $4.91 $5.48 $5.11 $4.74 $4.39 $4.74 end of period Ratios/supplemental data Class A 1998(b) 1997 1996 1995 1994 1993 1992 1991 1990 1989 Net assets, end of $2,714 $2,646 $2,563 $2,363 $2,249 $2,490 $2,174 $1,902 $1,730 $1,811 period (in millions) Ratio of expenses to .83%c .84% .84% .78% .68% .70% .72% .77% .77% .75% average daily net assets(d) Ratio of net income 6.72%c 6.86% 7.01% 7.84% 7.71% 7.78% 8.29% 9.03% 8.83% 9.04% (loss) to average daily net assets Portfolio turnover rate 21% 50% 45% 43% 40% 60% 64% 74% 81% 97% (excluding short-term securities) Total return(e) 5.6% 12.1% 5.8% 13.7% (2.0%) 15.8% 16.9% 17.6% .9% 13.0% a For a share outstanding throughout the period. Rounded to the nearest cent. b Six months ended Feb. 28, 1998 (Unaudited). c Adjusted to an annual basis. d Effective fiscal year 1996, expense ratio is based on total expenses of the Fund before the reduction of earnings credits on cash balances. e Total return does not reflect payment of a sales charge.
Notes to financial statements IDS Bond Fund, Inc. Fiscal period ended Aug. 31, Per share income and capital changes(a) Class B Class Y 1998(b) 1997 1996 1995(c) 1998(b) 1997 1996 1995(c) Net asset value, $5.22 $4.99 $5.05 $4.79 $5.22 $4.99 $5.05 $4.79 beginning of period Income from investment operations: Net investment income .16 .31 .32 .17 .18 .36 .37 .19 (loss) Net gains (both realized .10 .23 (.07) .26 .12 .23 (.07) .26 and unrealized) Total from investment .26 .54 .25 .43 .30 .59 .30 .45 operations Less distributions: Dividends from net (.16) (.31) (.31) (.17) (.19) (.36) (.36) (.19) investment income Distributions from (.08) -- -- -- (.08) -- -- -- realized gains Total distributions (.24) (.31) (.31) (.17) (.27) (.36) (.36) (.19) Net asset value, $5.24 $5.22 $4.99 $5.05 $5.25 $5.22 $4.99 $5.05 end of period Ratios/supplemental data Class B Class Y 1998(b) 1997 1996 1995(c) 1998(b) 1997 1996 1995(c) Net assets, end of $1,004 $913 $848 $782 $150 $116 $88 $64 period (in millions) Ratio of expenses to 1.59%d 1.60% 1.60% 1.63%d .76%d .70% .67% .67%d average daily net assets(e) Ratio of net income 5.96%d 6.10% 6.24% 6.81%d 6.81%d 7.01% 7.19% 8.44%d (loss) to average daily net assets Portfolio turnover rate 21% 50% 45% 43% 21% 50% 45% 43% (excluding short-term securities) Total return(f) 5.2% 11.2% 5.0% 9.0% 5.6% 12.2% 5.9% 9.4% a For a share outstanding throughout the period. Rounded to the nearest cent. b Six months ended Feb. 28, 1998 (Unaudited). c Inception date was March 20, 1995. d Adjusted to an annual basis. e Effective fiscal year 1996, expense ratio is based on total expenses of the Fund before the reduction of earnings credits on cash balances. f Total return does not reflect payment of a sales charge.
Investments in securities IDS Bond Fund, Inc. Feb. 28, 1998 (Unaudited) (Percentages represent value of investments compared to net assets) Bonds -- 96.4% Issuer Coupon Principal Value(a) rate amount U.S. government obligations - 6.2% U.S. Treasury 01-15-99 6.375% $2,000,000 $2,014,660 09-30-99 7.125 26,500,000 27,116,390 11-15-01 7.50 29,900,000(g) 31,762,172 08-15-02 6.375 17,300,000 17,807,582 05-15-04 7.25 36,450,000 39,481,182 11-15-04 7.875 16,000,000 17,933,120 07-15-06 7.00 5,300,000 5,742,073 11-15-16 7.50 8,100,000 9,463,716 08-15-17 8.875 42,750,000 56,805,345 11-15-21 8.00 5,150,000 6,435,440 U.S. Treasury Tips 01-15-07 3.375 5,900,000(k) 5,863,593 Govt Trust Certs Israel 11-15-01 9.25 8,278,413 8,587,281 Resolution Funding Corp Zero Coupon 04-15-99 7.42 11,500,000(e) 10,808,160 Total 239,820,714 Mortgage-backed securities - 16.9% Federal Home Loan Mtge Corp 07-01-07 6.50 502,174 506,594 03-01-10 5.50 11,900,000 11,490,938 11-01-10 6.00 12,054,801 11,973,431 04-01-17 8.00 681,836 709,116 08-01-24 8.00 12,801,379 13,319,195 10-01-26 8.50 16,719,806 17,478,217 12-01-27 6.00 10,786,750 10,452,360 Federal Home Loan Mtge Corp Collateralized Mtge Obligation 03-15-22 7.00 10,000,000 10,292,700 04-15-22 8.50 17,000,000 18,829,030 07-15-22 7.00 12,000,000 12,253,200 Trust Series Z 04-25-24 8.25 11,707,432(c) 12,808,165 Federal Natl Mtge Assn 02-15-08 5.75 22,365,000 22,247,136 07-01-08 6.50 11,506,916 11,605,415 01-01-09 5.50 9,078,922 8,865,567 11-01-09 9.00 2,687 2,879 06-01-10 6.50 24,302,177 24,472,292 08-01-11 8.50 43,208,930 45,396,382 04-01-23 8.50 12,168,648 12,853,743 05-01-23 6.50 37,135,144 37,113,977 08-01-23 6.50 3,492,910 3,490,919 09-01-23 6.50 2,261,650 2,257,534 09-01-23 6.50 1,733,197 1,730,043 11-01-23 6.50 8,552,490 8,536,924 01-01-24 6.50 46,025,300 45,941,533 01-01-24 6.50 3,300,737 3,294,730 01-01-24 6.50 7,690,951 7,676,953 02-01-24 6.50 8,284,916 8,204,635 05-01-24 6.00 57,508,498 56,201,906 06-01-24 9.00 10,006,312 10,754,184 07-01-24 8.50 5,662,175 5,949,135 02-01-25 8.00 7,609,777 7,911,429 09-01-25 6.50 26,070,566 25,966,023 09-01-25 8.00 11,721,700 12,186,348 01-01-26 6.00 23,306,294 22,587,528 02-01-26 7.00 21,790,050 22,087,049 02-01-26 7.00 20,719,230 21,001,633 02-01-26 7.00 4,006,822 4,061,435 Federal Natl Mtge Collateralized Mtge Obligation 01-25-24 5.00 9,281,012 9,043,232 05-18-26 5.00 15,000,000 13,575,000 Trust Series Z 02-25-24 6.00 6,352,446(c) 5,661,490 Govt Natl Mtge Assn 12-01-08 7.00 34,674,237 35,475,905 02-15-24 8.00 3,425,163 3,569,671 02-15-25 9.00 2,245,325 2,427,061 06-15-26 8.00 7,057,763 7,333,509 08-15-26 8.00 8,670,159 9,008,903 08-15-26 8.00 4,518,566 4,695,106 Merrill Lynch Mtge Investors 06-15-21 8.17 5,048,888 5,050,465 Prudential Bache Collateralized Mtge Obligation 04-01-19 7.97 7,324,699 7,569,549 Total 655,920,169 Aerospace & defense - 2.7% BE Aerospace Sr Sub Nts Series B 02-01-06 9.875 7,000,000 7,428,750 Boeing 09-15-31 8.75 15,000,000 19,183,200 Goodrich (BF) 07-01-01 9.625 10,000,000 10,975,300 L-3 Communications Sr Sub Nts Series B 05-01-07 10.375 9,260,000 10,209,150 McDonnell Douglas Finance Medium-term Sr Nts 01-27-10 7.22 10,000,000 10,623,300 Newport News Shipbuilding Sr Nts 12-01-06 8.625 7,500,000 8,006,250 Northrop-Grumman 03-01-06 7.00 8,000,000 8,311,760 Sequa 10-15-99 9.625 10,000,000 10,325,000 United Defense Inds Sr Sub Nts 11-15-07 8.75 6,000,000(d) 6,150,000 United Techonologies 11-15-19 8.875 10,000,000 12,374,200 Total 103,586,910 Airlines - 1.2% Atlantic Express Company Guaranty 02-01-04 10.75 4,000,000(d) 4,310,000 Continental Airlines Series 1996A 04-15-15 6.94 14,416,446 14,764,026 Series 1996B 04-15-15 7.82 4,805,482 5,180,934 Delta Air Lines 05-15-10 10.125 10,000,000 12,533,300 Northwest Airlines Company Guaranty 1st Series 1991 01-02-15 8.07 4,917,931 5,350,118 01-02-15 8.97 2,931,156 3,205,689 Total 45,344,067 Automotive & related - 0.8% Arvin Capital Company Guaranty 02-01-27 9.50 10,000,000 11,151,100 Ford Motor Credit 06-15-07 7.20 5,500,000 5,863,000 Hayes Lemmerz Intl Company Guaranty Series B 07-15-07 9.125 10,000,000 10,625,000 Tower Automotive 08-01-04 5.00 2,000,000(d) 2,200,000 Total 29,839,100 Banks and savings & loans - 2.4% BankAmerica Series B 12-31-26 7.70 10,000,000(d) 10,281,100 Central Fidelity Capital Company Guaranty Series A 04-15-27 6.75 16,500,000 16,888,245 First Nationwide Holdings Sr Sub Nts 10-01-03 10.625 5,890,000 6,596,800 Firstar Capital Company Guaranty Series B 12-15-26 8.32 10,000,000 10,809,900 Fleet Financial Group Sub Deb 01-15-28 6.875 7,000,000 7,012,460 Greenpoint Capital Company Guaranty 06-01-27 9.10 5,000,000 5,531,350 Mellon Capital Company Guaranty Series A 12-01-26 7.72 3,850,000 4,014,049 Meridian Bancorp Sub Deb 07-15-02 7.875 10,400,000 11,039,600 Society Sub Nts 06-15-02 8.125 3,000,000 3,207,960 Union Planters Capital Company Guaranty 12-15-26 8.20 10,000,000 10,670,800 Washington Mutual Capital Company Guaranty 06-01-27 8.375 5,800,000(d) 6,330,816 Total 92,383,080 Building materials & construction - 0.6% AAF-McQuay Sr Nts 02-15-03 8.875 6,100,000 6,039,000 Owens-Corning Fiberglass 06-01-12 9.375 6,900,000 8,146,554 Pulte Sr Nts 12-15-03 7.00 7,700,000 7,793,401 Total 21,978,955 Chemicals - 0.9% Grace (WR) 08-15-04 8.00 10,420,000 11,288,820 USA Waste Services Cv Sub Nts 02-01-02 4.00 5,300,000 6,061,875 Sr Nts 10-01-07 7.125 15,000,000 15,626,850 Total 32,977,545 Communications equipment & services - 1.2% BellSouth Telecommunications 06-15-05 6.50 7,200,000 7,400,448 12-01-95 7.00 10,000,000 10,430,000 Comcast Cellular Holdings Sr Nts Series B 05-01-07 9.50 8,500,000 8,967,500 GTE California 09-01-09 6.70 10,000,000 10,233,200 Interamericas Communications 10-27-07 14.00 1,250,000(d) 1,262,500 Jordan Telecommunications Products Sr Nts Series B 08-01-07 9.875 4,400,000 4,664,000 PhoneTel Technologies Sr Nts 12-15-06 12.00 4,000,000 4,210,000 Total 47,167,648 Computers & office equipment - 0.8% Cooperative Computing Sr Sub Nts 02-01-08 9.00 7,000,000(d) 6,912,500 Hewlett-Packard Zero Coupon Cv Sub Nts 10-15-17 3.12 12,500,000(d,e) 6,734,375 Learning Cv Sr Nts 11-01-00 5.50 12,000,000 10,770,000 Read-Rite Sub Nts 09-01-04 6.50 4,725,000 3,898,125 Solectron Cv Sub Nts 03-01-06 6.00 2,300,000 3,567,875 Total 31,882,875 Consumer finance -- personal loans - 0.2% Yale University 04-15-96 7.375 6,000,000 6,486,900 Electronics - 0.4% Reliance Electric 04-15-03 6.80 6,000,000 6,216,180 Thomas & Betts 01-15-06 6.50 9,200,000 9,210,212 Total 15,426,392 Energy - 2.3% Enron Oil & Gas 11-15-06 6.70 5,000,000 5,131,700 Ocean Energy Company Guaranty Series B 07-15-07 8.875 4,000,000 4,230,000 Oryx Energy 04-01-01 10.00 9,650,000 10,602,069 Parker & Parsley Petroleum Sr Nts 08-15-07 8.25 9,500,000 10,659,380 PDV America Sr Nts 08-01-03 7.875 15,000,000 15,582,300 Snyder Oil Company Guaranty 06-15-07 8.75 6,000,000(d) 6,135,000 Texaco Capital 04-01-32 8.625 10,000,000 12,584,200 03-01-43 7.50 3,000,000 3,266,370 USX-Marathon Group 05-15-22 9.375 17,500,000 22,019,200 Total 90,210,219 Energy equipment & services - 0.9% DI Inds Sr Nts 07-01-07 8.875 6,750,000 7,104,375 Diamond Offshore Drilling Cv Sr Sub Nts 09-15-07 3.125 8,000,000 7,830,000 Foster Wheeler 11-15-05 6.75 11,000,000 11,216,370 Global Marine 09-01-07 7.125 10,000,000(d) 10,358,700 Total 36,509,445 Financial services - 3.5% Barclays North America Capital 05-15-21 9.75 13,600,000 15,540,992 Bat-Crave-800 08-12-00 6.68 10,100,000(d) 10,196,253 08-12-00 6.86 7,000,000 7,066,500 First Union- Lehman Brothers Cl A3 Series 1997-C2 11-18-29 6.65 20,000,000 20,425,000 GenAmerica Capital Company Guaranty 06-30-27 8.53 8,000,000 8,405,176 GMAC Medium-term Nts 03-09-98 7.625 10,000,000 10,002,400 Merrill Lynch & Co 02-12-03 6.00 4,150,000 4,114,933 Merrill Lynch Mtge Investors Cl D Series 1996-C2 12-21-28 6.96 7,515,000 7,482,122 Ohio Savings Capital Company Guaranty 06-03-27 9.50 9,500,000 10,618,245 Salomon Medium-term Nts 11-30-00 6.625 6,700,000 6,791,656 Sr Nts 05-15-99 7.00 21,000,000 21,226,799 Salomon Smith Barney Holdings 01-15-03 6.125 15,000,000 14,883,900 Total 136,753,976 Food - 0.4% Ameriserve Food Distributions Company Guaranty 10-15-06 8.875 7,500,000 7,762,500 Chiquita Brands Intl Sr Nts 11-01-06 10.25 7,000,000 7,665,000 Fine Host Cv Sub Nts 11-01-04 5.00 3,000,000(d) 1,965,000 Total 17,392,500 Foreign - 14.5%(i) ABN-Amro Bank (U.S. Dollar) 05-15-23 7.75 9,000,000 9,895,050 Airplanes GPA Cl D (U.S. Dollar) Series 1 03-15-19 10.875 6,000,000 6,709,860 APP Finance VI Mauritius (U.S. Dollar) Zero Coupon Cv 11-18-12 10.50 16,650,000(f) 3,829,500 Banca Commercial Italian (U.S. Dollar) 07-15-07 8.25 9,200,000 10,237,024 Banco General (U.S. Dollar) 08-01-02 7.70 7,500,000(d) 7,446,675 Bank of China (U.S. Dollar) 03-15-14 8.25 10,000,000 9,466,200 Canadian Forest Oil (U.S. Dollar) Company Guaranty 09-15-07 8.75 5,500,000 5,596,250 Carter Holt Harvey (U.S. Dollar) 12-01-04 8.875 10,500,000 11,779,320 Celcaribe (U.S. Dollar) Zero Coupon Sr Nts 03-15-04 16.23 3,250,000(d,f) 3,347,500 (U.S. Dollar) Zero Coupon Units 03-15-04 5.83 2,870,000(d,f) 5,309,500 Centaur Mining & Exploration (U.S. Dollar) Company Guaranty 12-01-07 11.00 5,500,000(d) 5,596,250 China Power & Light (U.S. Dollar) Sr Nts 04-15-06 7.50 8,000,000 7,812,720 City of Moscow (Russian Ruble) Zero Coupon 07-01-98 22.80 5,576,575(f) 5,188,445 12-31-98 21.80 3,691,890(f) 3,115,955 City of Moscow (U.S. Dollar) 05-31-00 9.50 6,000,000(d) 5,782,500 Comp Paranaense De Energ (U.S. Dollar) 05-02-05 9.75 4,000,000(d) 3,955,000 Dao Heng Bank (U.S. Dollar) Sub Nts 01-24-07 7.75 12,000,000(d) 9,909,600 Daya Guna (U.S. Dollar) Company Guaranty 06-01-07 10.00 4,575,000(d) 3,797,250 Delphes 2 (U.S. Dollar) 05-05-09 7.75 8,500,000 8,489,375 Doman Inds (U.S. Dollar) 03-15-04 8.75 4,000,000 3,930,000 Doman Inds (U.S. Dollar) Sr Nts 11-15-07 9.25 3,500,000(d) 3,465,000 Espirito Santo Centrais (U.S. Dollar) Sr Nts 07-15-07 10.00 6,000,000(d) 5,595,000 Ford Capital (U.S. Dollar) 05-01-98 9.125 4,000,000 4,020,880 06-01-10 9.50 18,350,000 22,697,482 Govt of Algeria (U.S. Dollar) 09-04-06 7.06 6,000,000 4,980,000 Govt of Algeria Zero Coupon (U.S. Dollar) 12-31-20 1.27 4,000,000(f) 2,405,000 Govt of Russia (Russian Ruble) 09-27-00 2.31 19,002,914 2,285,000 (U.S. Dollar) 07-28-00 10.375 10,000,000 8,600,000 Greater Beijing (U.S. Dollar) Sr Nts 06-15-04 9.25 3,500,000(d) 2,821,245 06-15-07 9.50 5,000,000(d) 3,994,100 Gruma Sa De Cv (U.S. Dollar) 10-15-07 7.625 6,000,000(d) 5,989,560 Grupo Iusacell (U.S. Dollar) 07-15-04 10.00 3,000,000 3,127,500 Grupo Televisa (U.S. Dollar) Sr Nts Series A 05-15-03 11.375 6,000,000 6,645,000 Honam Oil Refinery (U.S. Dollar) 10-15-05 7.125% $9,000,000(d) $7,425,000 Hutchison Whampo Finance (U.S. Dollar) Company Guaranty 08-01-17 7.45 2,600,000(d) 2,339,168 08-01-27 7.50 8,000,000(d) 7,003,840 Hyder PLC (U.S. Dollar) 12-15-17 7.25 8,000,000(d) 8,074,240 Hyundai Semiconductor (U.S. Dollar) Sr Nts 05-15-07 8.625 10,000,000(d) 7,862,900 Imexsa Export Trust (U.S. Dollar) 05-31-03 10.125 7,500,000(d) 7,837,500 Israel Electric (U.S. Dollar) Sr Nts 12-15-06 7.25 10,000,000 10,210,400 Korea Electric Power (U.S. Dollar) 07-01-02 8.00 2,800,000 2,647,568 12-01-03 6.375 5,000,000 4,303,750 MacMillan Bloe Delaware (U.S. Dollar) 01-15-04 8.50 3,000,000 3,189,330 Mexican Cetes (Mexican Peso) Zero Coupon 06-04-98 19.05 42,580,000(e) 5,035,085 07-02-98 20.59 48,250,000(e) 5,277,103 MGM Grand (U.S. Dollar) 02-01-05 6.95 10,000,000 9,843,500 Ministry Finance Russia (U.S. Dollar) 11-27-01 9.25 4,000,000(d) 3,860,000 06-26-07 10.00 8,000,000(d) 7,390,000 Morgan (JP) (U.S. Dollar) Sr Sub Nts Series A 02-15-12 4.00 13,000,000(l) 12,079,600 Nationwide CSN Trust (U.S. Dollar) 02-15-25 9.875 11,500,000(d) 13,809,890 People's Republic of China (U.S. Dollar) 07-03-01 7.375 3,500,000 3,565,625 01-15-96 9.00 10,000,000 11,081,500 Petronas (U.S. Dollar) 08-15-15 7.75 10,000,000 9,392,200 Petrozuata Finance (U.S. Dollar) 04-01-09 7.63 3,000,000(d) 3,072,090 04-01-17 8.22 7,000,000(d) 7,315,210 Philippine Long Distance Telephone (U.S. Dollar) 03-06-07 7.85 4,000,000(d) 3,606,600 (U.S. Dollar) Medium-term Nts Series E 03-06-17 8.35 3,000,000(d) 2,662,020 Phoenix Shannon (U.S. Dollar) Cv Sr Sub Nts 11-01-00 9.50 1,089,480(b,d) 599,214 Plitt Theatres (U.S. Dollar) Sr Sub Nts 06-15-04 10.875 4,000,000 4,380,000 Province of Mendoza (U.S. Dollar) 09-04-07 10.00 4,000,000(d) 3,880,000 Quno Corp (U.S. Dollar) Sr Nts 05-15-05 9.125 7,000,000 7,332,500 Repap New Brunswick (U.S. Dollar) Sr Nts 07-15-00 9.875 14,250,000 14,570,625 Republic of Argentina (Argentine Peso) 07-10-02 8.75 2,750,000(d) 2,516,250 02-12-07 11.75 2,500,000 2,643,750 (U.S. Dollar) 07-10-02 8.75 5,000,000(d) 4,575,000 Republic of Austria (U.S. Dollar) 07-01-98 10.00 3,150,000 3,191,344 Republic of Brazil (U.S. Dollar) 04-15-14 8.00 5,701,300 4,607,363 05-15-27 10.125 8,000,000(g) 7,670,000 Republic of Panama (U.S. Dollar) 02-13-02 7.875 3,000,000(d) 3,010,470 Rogers Cablesystems (Canadian Dollar) 01-15-14 6.78 3,700,000 2,756,837 Rogers Cantel (U.S. Dollar) 06-01-08 9.375 9,300,000 9,927,750 Scotland Bank (U.S. Dollar) 01-27-04 8.80 20,500,000(d) 22,815,065 Tarkett Intl (U.S. Dollar) Sr Sub Nts 03-01-02 9.00 11,000,000 11,165,000 Tatneft Finance (U.S. Dollar) Company Guaranty 10-29-02 9.00 4,000,000(d) 3,470,000 Telecom NewZeal Finance (U.S. Dollar) 02-10-08 6.50 10,000,000(d) 9,870,219 Telekom Malaysia (U.S. Dollar) 08-01-25 7.875 15,000,000(d) 12,508,800 Texas Utilities Electric (U.S. Dollar) 08-01-07 7.17 13,900,000 14,516,743 TU Electric Capital (U.S. Dollar) Company Guaranty 01-30-37 8.175 10,000,000 10,534,500 United Mexican States (U.S. Dollar) 05-15-26 11.50 8,000,000(g) 9,785,000 WMC Finance USA (U.S. Dollar) 11-15-13 7.25 10,000,000 10,587,700 Zhuhai Highway (U.S. Dollar) Sub Nts 07-01-08 11.50 10,000,000(d) 9,115,400 Zurich Capital Trust (U.S. Dollar) Company Guaranty 06-01-37 8.38 7,500,000(d) 8,264,025 Total 560,997,415 Furniture & appliances - 0.2% Interface Sr Sub Nts Series B 11-15-05 9.50 7,500,000 8,053,125 Health care - 0.5% Alaris Medical Systems Company Guaranty 12-01-06 9.75 6,250,000 6,640,625 Dura Pharmaceuticals Cv Sub Nts 07-15-02 3.50 3,300,000 2,904,000 Lilly (Eli) 01-01-36 6.77 7,950,000 8,192,714 Total 17,737,339 Health care services - 2.2% La Petite Holdings Sr Nts 08-01-01 9.625 9,425,000 9,849,125 Magellan Health Services Sr Sub Nts 02-15-08 9.00 10,000,000(d) 10,150,000 Novacare Cv Sub Deb 01-15-00 5.50 7,000,000 6,702,500 Owens & Minor Company Guaranty 06-01-06 10.875 4,000,000 4,480,000 Paracelsus Healthcare Sr Sub Nts 08-15-06 10.00 8,500,000 8,903,750 Physician Sales & Service Company Guaranty 10-01-07 8.50 8,400,000 8,673,000 Tenet Healthcare Sr Nts 12-01-03 8.625 3,850,000 4,061,750 Sr Sub Nts 03-01-05 10.125 22,000,000 24,200,000 Vencor Sr Sub Nts 07-15-07 8.625 8,250,000 9,157,500 Total 86,177,625 Household products - 0.3% Revlon Consumer Products Sr Nts 02-01-06 8.125 13,500,000(d) 13,500,000 Industrial equipment & services - 0.3% AGCO Sr Sub Nts 03-15-06 8.50 5,200,000 5,414,500 Thermo Electron Cv Sub Deb 01-01-03 4.25 2,600,000(d) 3,084,250 Tyco Intl Cv Sub Nts 07-06-10 6.50 2,650,000(e) 3,557,625 Total 12,056,375 Insurance - 2.6% Americo Life Sr Sub Nts 06-01-05 9.25 9,400,000 9,658,500 Arkwright CSN Trust 08-15-26 9.625 5,000,000(d) 6,043,400 Conseco Financing Trust Company Guaranty 11-15-26 8.70 9,300,000 10,379,451 Equitable Cos Sr Nts 12-15-04 9.00 4,250,000 4,851,970 Equitable Life Assurance Society US Cl B1 Series 174 05-15-09 7.33 5,500,000 5,838,250 Executive Risk Capital Company Guaranty Series B 02-01-27 8.675 11,500,000 12,776,269 Leucadia Natl Sr Sub Nts 10-15-06 7.875 10,850,000 11,369,390 Lincoln Natl 05-15-05 7.25 6,000,000 6,264,192 New York Life Insurance (U.S. Dollar) 12-15-23 7.50 6,000,000(d) 6,259,200 Orion Capital Company Guaranty 04-15-28 7.70 4,250,000(d) 4,230,195 Principal Mutual 03-01-44 8.00 10,000,000(d) 10,795,900 SAFECO Capital Company Guaranty 07-15-37 8.07 10,000,000 10,560,400 Total 99,027,117 Leisure time & entertainment - 2.4% Caesars World Sr Sub Nts 08-15-02 8.875 6,000,000 6,195,000 Hammons (JQ) Hotels 1st Mtge 02-15-04 8.875 7,000,000 7,192,500 IHF Holdings Zero Coupon Sr Disc Nts Series B 11-15-04 9.44 7,500,000(e) 6,450,000 Lodgenet Entertainment Sr Nts 12-15-06 10.25 5,500,000 5,692,500 Mirage Resorts 02-01-08 6.75 11,850,000 11,703,297 Time Warner 02-01-24 7.57 11,875,000 12,618,850 01-15-28 6.95 17,000,000 16,642,150 Trump Atlantic City Assn/Funding Company Guaranty 05-01-06 11.25 4,000,000 4,145,000 United Artists Theatres Series 1995A 07-01-15 9.30 13,264,477 13,662,411 Venetian Casino/LV Sands Mtge 11-15-04 12.25 7,680,000(d) 7,814,400 Total 92,116,108 Media - 4.5% Ackerly Communications Sr Nts Series B 10-01-03 10.75 11,000,000 11,742,500 Adelphia Communications Sr Nts 02-01-08 8.375 5,000,000 5,000,000 Cablevision Systems Sr Sub Nts 11-01-05 9.25 6,000,000 6,435,000 Cox Communications 06-15-25 7.625 7,000,000 7,582,330 EchoStar Communications Zero Coupon Sr Sec Disc Nts 06-01-04 6.73 6,000,000(e) 5,670,000 Jacor Communications Zero Coupon Cv 02-09-18 17.57 9,000,000(e) 3,926,250 Sr Sub Nts 02-15-10 8.00 6,300,000(d) 6,331,500 Lamar Advertising Company Guaranty 09-15-07 8.625 12,000,000 12,510,000 Marcus Cable Operating Zero Coupon Sr Disc Nts 08-01-04 6.59 10,000,000(f) 9,475,000 News Corp 06-24-10 10.15 3,701,757(d) 4,037,158 Outdoor Systems Company Guaranty 06-15-07 8.875 13,700,000 14,436,375 Time Warner Entertainment Sr Nts 07-15-33 8.375 17,500,000 20,271,125 Turner Broadcasting 07-01-13 8.375 10,000,000 11,207,700 02-01-24 8.40 19,500,000 20,693,595 Viacom Sub Deb 07-07-06 8.00 30,150,000 30,828,375 Viacom Intl 07-01-03 7.00 3,000,000 2,933,400 07-01-03 7.00 2,000,000 1,959,880 Total 175,040,188 Metals - 0.2% EnviroSource Sr Nts 06-15-03 9.75 4,200,000 4,278,750 06-15-03 9.75 1,800,000 1,833,750 Total 6,112,500 Miscellaneous - 3.6% Adams Outdoor Advertising Sr Nts 03-15-06 10.75 7,500,000 8,343,750 American General Institute Capital Company Guaranty Series A 12-01-45 7.57 10,000,000(d) 10,369,800 Bistro Trust 12-31-02 9.50 22,750,000(d) 22,793,224 California Infrastructure Series 1997-1 12-26-09 6.42 5,500,000 5,573,906 Comforce Operating Sr Nts 12-01-07 12.00 4,500,000(d) 4,815,000 ECM Funding LP 06-10-02 11.92 1,661,847(d,h) 1,661,847 ESI Tractebel Acquisitions 12-30-11 7.99 1,750,000 1,756,563 First Empire Capital Company Guaranty 02-01-27 8.23 10,450,000 11,258,412 M & I Capital Company Guaranty 12-01-26 7.65 10,000,000 10,392,000 MSX Intl Sr Sub Nts 01-15-08 11.375 5,700,000 5,899,500 Norcal Waste Systems Company Guaranty Series B 11-15-05 13.50 7,500,000 8,728,125 Omnipoint Communications Sr Nts 02-17-06 8.875 10,000,000(d) 9,990,000 Penn-American Water 1st Mtge Medium-term Nts 11-01-17 7.08 13,000,000 13,094,510 Roche Holdings Zero Coupon 05-16-12 4.95 6,700,000(e) 3,391,875 SC Intl 09-01-07 9.25 11,500,000 12,075,000 Stellex Inds Sr Sub Nts 11-01-07 9.50 8,800,000(d) 9,042,000 Total 139,185,512 Multi-industry conglomerates - 1.2% Corestaff Cv Sub Nts 08-15-04 2.94 3,900,000 3,558,750 Employee Solutions Sr Nts 10-15-04 10.00 7,250,000 7,041,563 Pierce Leahy Sr Sub Nts 07-15-06 11.125 4,723,000(d) 5,419,643 Prime Succession Sr Sub Nts 08-15-04 10.75 4,240,000 4,674,600 Tenneco 06-15-07 7.625 5,000,000 5,393,650 USI American Holdings Sr Nts Series B 12-01-06 7.25 10,920,000 11,066,109 Westinghouse Electric 06-01-01 8.875 10,000,000 10,643,500 Total 47,797,815 Municipal bonds - 0.3%(m) Denver Colorado City & County School District 1 Taxable-Pension-School Facilities Lease (AMBAC Insured) 12-15-12 6.94 7,700,000 7,927,766 New Jersey Economic Development Authority State Pension Funding Revenue Bonds (MBIA Insured) 02-15-29 7.43 4,600,000 5,036,540 Total 12,964,306 Paper & packaging - 1.4% Fort Howard Series 1991 01-02-02 11.00 8,426,173 8,805,351 Gaylord Container Sr Nts 06-15-07 9.375 7,500,000(d) 7,406,250 06-15-07 9.75 8,500,000 8,585,000 Intl Paper 11-15-12 5.125 9,000,000 7,815,780 Scotia Pacific Holding Collateralized Mtge Obligation 07-20-15 7.95 4,015,481 4,224,808 Tenneco 11-15-12 9.20 9,000,000 10,957,409 Warren (SD) Sr Sub Nts Series B 12-15-04 12.00 5,000,000 5,593,750 Total 53,388,348 Real estate investment trust - 0.7% First Union RE Eq SBI Sr Nts 10-01-03 8.875 10,000,000 10,325,000 Property Trust of America 02-15-14 7.50 15,000,000 15,479,250 Total 25,804,250 Restaurants & lodging - 0.3% La Quinta Inns Sr Sub Nts 05-15-03 9.25 10,000,000 10,412,500 Retail - 1.4% Costco Zero Coupon Cv Sub Nts 08-01-17 3.50 5,025,000(d,e) 3,203,438 Dairy Mart Convenience Stores Sr Sub Nts 03-15-04 10.25 6,250,000 6,203,125 Kroger Sr Nts 07-15-06 8.15 13,000,000 14,170,000 Office Depot Zero Coupon Cv Nt 11-01-08 4.00 8,600,000(e) 6,170,500 Rite Aid Cv Sub Nts 09-15-02 5.25 3,100,000 3,572,750 Wal-Mart CRAVE Trust 07-17-06 7.00 16,130,710(d) 16,585,434 Wal-Mart Stores 06-29-11 8.875 3,500,000 3,640,385 Total 53,545,632 Textiles & apparel - 0.2% WestPoint Stevens 12-15-01 8.75 7,500,000 7,875,000 Transportation - 1.3% Atlas Air 01-02-10 8.01 15,000,000 15,004,200 CSX 05-01-27 7.25 9,700,000 10,378,612 Enterprise Rent-A-Car USA Finance 02-15-08 6.80 10,000,000 9,949,000 Norfolk Southern Corp 05-15-07 7.35 10,000,000 10,687,200 Union Pacific 02-01-08 6.625 6,000,000 5,967,300 Total 51,986,312 Utilities -- electric - 10.7% AEP Generating Series F 12-07-22 9.82 4,968,844 5,991,681 AES Sr Sub Nts 11-01-07 8.50 9,375,000 9,679,688 Appalachian Power 12-01-22 8.50 5,000,000 5,461,900 Arizona Public Service 12-30-15 8.00 12,556,000 13,860,694 Cajun Electric Power 03-15-19 8.92 5,000,000 5,392,850 California Energy Zero Coupon Disc Nts 01-15-04 6.08 10,000,000(f) 10,800,000 Cleveland Electric Illuminating 07-01-00 7.19 8,000,000 8,143,840 07-01-04 7.67 20,500,000 21,115,000 1st Mtge 12-01-11 8.375 8,115,000 8,336,945 1st Mtge Series B 05-15-05 9.50 15,100,000 16,895,541 CMS Energy Sr Nts 05-15-02 8.125 10,000,000 10,306,400 11-15-04 7.625 12,000,000 12,126,000 Connecticut Light & Power 1st Mtge Series A 06-01-01 7.875 3,500,000 3,625,720 1st Mtge Series C 06-01-02 7.75 28,750,000 29,251,400 Consumers Energy 1st Mtge 09-15-23 7.375 10,000,000 10,155,700 EIP Funding-PNM 10-01-12 10.25 6,701,000 7,855,917 First PV Funding Series 1986A 01-15-14 10.30 3,082,000 3,266,920 Series 1986B 01-15-16 10.15 5,003,000 5,303,180 Indiana & Michigan Power Sale Lease-backed Obligation Series F 12-07-22 9.82 4,968,839 5,991,674 Long Island Lighting Gen Ref Mtge 04-15-04 8.625 8,500,000 9,128,490 05-01-21 9.75 15,500,000 15,776,055 07-01-24 9.625 20,188,000 20,549,567 Midland Cogeneration Series 1991-C 07-23-02 10.33 5,692,503 6,126,556 Midland Funding I Series 1994-C 07-23-02 10.33 3,064,795 3,298,486 Midland Funding II Series A 07-23-05 11.75 14,900,000 17,563,375 Niagara Mohawk Power 1st Mtge 05-15-06 7.75 19,600,000 20,765,024 Ohio Edison 1st Mtge 04-01-23 7.875 6,000,000 6,142,260 Public Services Electric & Gas 1st & Ref Mtge 03-01-06 6.75 5,500,000 5,716,370 Salton Sea Funding Series C 05-30-10 7.84 10,000,000 10,632,100 Sithe Independence Funding Series A 06-30-07 8.50 7,500,000 8,259,600 12-30-13 9.00 4,700,000 5,528,140 Texas Utilities Electric 01-01-05 9.45 3,999,000 4,276,611 07-01-25 7.625 10,000,000 10,308,500 10-01-25 7.375 3,000,000 3,040,590 Texas-New Mexico Power 09-15-03 10.75 5,000,000 5,425,000 1st Mtge Series U 09-15-00 9.25 6,000,000 6,300,000 Tucson Electric Power 10-01-09 8.50 7,000,000 6,746,250 Virginia Electric & Power 02-01-07 6.75 35,000,000 35,866,949 Western Massachusetts Electric 1st Mtge Series B 07-01-01 7.375 12,000,000 12,083,880 Wisconsin Electric Power 12-01-95 6.875 8,000,000 8,134,720 Total 415,229,573 Utilities -- gas - 1.1% Coastal Sr Deb 02-15-37 7.42 6,000,000 6,368,580 Columbia Gas System Series C 11-28-05 6.80 7,700,000 7,912,828 Equitable Resources 07-01-99 7.50 5,000,000 5,099,350 Questar Pipeline 06-01-21 9.375 8,000,000 9,003,600 Southern California Gas 1st Mtge Series BB 03-01-23 7.375 6,900,000 7,030,893 Southwest Gas Series F 06-15-02 9.75 7,900,000 8,726,814 Total 44,142,065 Utilities -- telephone - 5.1% 360 Communications 03-01-06 7.50 17,470,000 18,478,543 Ameritech Capital Funding 06-01-16 9.10 16,000,000 19,927,360 AT&T 01-15-25 8.35 17,500,000 19,271,350 Bell Atlantic 07-15-31 9.375 27,200,000 30,963,936 Geotek Communications Cv Sr Sub Nts 02-15-01 12.00 4,135,000(d,h) 2,894,500 GTE 11-01-20 10.25 7,000,000 7,856,940 GTE Florida 02-01-28 6.86 7,000,000 7,017,080 Intermedia Communications Sr Nts 11-01-07 8.875 3,200,000(d) 3,384,000 Intermedia Communications Zero Coupon Sr Disc Nts Series B 07-15-07 9.52 15,000,000(f) 10,987,500 ITC Deltacom Sr Nts 03-01-08 8.875 6,500,000(d) 6,532,500 Metrocall Sr Sub Nts 11-01-07 9.75 7,000,000(d) 7,070,000 Pacific Bell 07-15-43 7.375 10,000,000 10,425,700 SBC Communications 03-15-26 7.125 10,200,000 10,798,230 10-15-34 6.625 10,000,000 9,646,500 U S WEST Communications 11-10-26 7.20 14,000,000 14,151,200 Worldcom 04-01-07 7.75 15,000,000 16,215,600 Total 195,620,939 Total bonds (Cost: $3,566,933,432) $3,732,450,539 Common stock - 0.1% Issuer Shares Value(a) Celcaribe 528,450(b,d) $2,113,800 Total common stock (Cost: $628,856) $2,113,800 Preferred stocks & other - 2.0% Issuer Shares Value(a) Airtouch Communications 87,000 $5,850,750 Cv Series C Asia Pulp & Paper 5,405 4,134,825 12.00% Cendant 120,000 6,015,000 Cv PRIDES Cooper Inds 214,100 3,760,131 Cv Dairy Mart 51,666(d) 25,833 Warrants Finova Finance Trust 3,150 243,338 5.50% Cv Glenborough Realty Trust 112,505 2,981,383 Cv Series A Houston Inds 54,300 3,359,813 7% Cv ACES Intermedia Communication 100,000 3,487,500 Cv Series E Occidental Petroleum 42,300 3,130,200 Cv Pinto Totta Intl Finance 100,000(d,l) 9,692,559 7.77% Sanwa Bank 380,000(c,d) 9,213,187 (Japanese Yen) SI Financing Trust 400,000 10,949,999 9.50% Sinclair Broadcast Group 3,300 221,513 Cv Sprint 31,575 $1,736,625 Cv TCI Communications 50,000 3,412,500 Cv Series A Transdigm 3,989(d,h) 2,393,400 Warrants WBK Strypes Trust 168,000 5,691,000 Cv Total preferred stocks & other (Cost: $74,068,879) $76,299,556 Short-term securities - 0.9% Issuer Annualized Amount Value(a) yield on payable at date of maturity purchase U.S. government agencies - 0.4% Federal Home Loan Bank Disc Nt 03-18-98 5.41% $10,700,000 $10,671,163 Federal Home Loan Mtge Corp Disc Nt 03-27-98 5.44 2,900,000 2,888,212 Total 13,559,375 Commercial paper - 0.5% A.I. Credit 03-02-98 5.68 1,000,000 999,684 Fleet Funding 03-13-98 5.53 3,200,000(j) 3,193,644 Morgan Stanley, Dean Witter, Discover & Co 03-06-98 5.50 7,000,000 6,993,618 Natl Australia Funding (Delaware) 04-01-98 5.53 4,300,000 4,278,940 Novartis Financial 03-17-98 5.52 4,600,000 4,588,075 Total 20,053,961 Total short-term securities (Cost: $33,613,336) $33,613,336 Total investments in securities (Cost: $3,675,244,503)(n) $3,844,477,231 See accompanying notes to investments in securities.
Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Non-income producing. For long term debt securities, item identified is in default as to payment of interest and/or principal. (c) This security is a collateralized mortgage obligation that pays no interest or principal during its initial accrual period until payment of a previous series within the trust have been paid off. Interest is accrued at an effective yield. (d) Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security has been determined to be liquid under guidelines established by the board. (e) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (f) For those zero coupon bonds that become coupon paying at a future date, the interest rate disclosed represents the annualized effective yield from the date of acquisition to interest reset date disclosed. (g) Security is partially or fully on loan. See Note 5 to the financial statements. (h) Identifies issues considered to be illiquid as to their marketability (see Note 1 to the financial statements). Information concerning such security holdings at Feb. 28, 1998, is as follows: Security Acquisition Cost date ECM Funding LP 11.92% 06-10-02 04-13-92 $1,661,847 Geotek Communications 12% Cv Sr Sub Nts 02-15-01 03-04-96 4,135,000 Transdigm Warrants 12-06-95 274,974 (i) Foreign security values are stated in U.S. dollars. For debt securities, principal amounts are denominated in the currency indicated. (j) Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This security has been determined to be liquid under guidelines established by the board. (k) U.S. Treasury inflation-protection securities (TIPS) are securities in which the principal amount is adjusted for inflation and the semi-annual interest payments equal a fixed percentage of the inflation-adjusted principal amount. (l) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Feb. 28, 1998. (m) The following abbreviations are used in portfolio descriptions to identify the insurer of the issue: AMBAC -- American Municipal Bond Association Corporation MBIA -- Municipal Bond Investors Assurance (n) At Feb. 28, 1998, the cost of securities for federal income tax purposes was approximately $3,670,319,000 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation......................................$202,820,000 Unrealized depreciation...................................... (28,662,000) Net unrealized appreciation..................................$174,158,000 Board members and officers Independent board members and officers Chairman William R. Pearce* of the board Chairman of the board, Board Services Corporation (provides administrative services to boards including the boards of the IDS and IDSLife funds and Master Trust portfolios). 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. Heinz F. Hutter Former president and chief operating officer, Cargill, Inc. Anne P. Jones Attorney and telecommunications consultant. Alan K. Simpson Former United States senator for Wyoming. 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. Officer Vice president, Leslie L. Ogg* general counsel President, treasurer and corporate secretary of Board Services and secretary Corporation. Board members and officers associated with AEFC President John R. Thomas* Senior vice president, AEFC. William H. Dudley* Senior advisor to the chief executive officer, AEFC. David R. Hubers* President and chief executive officer, AEFC. Officers associated with AEFC Vice president Peter J. Anderson* Senior vice president, AEFC Treasurer Matthew N. Karstetter* Vice president, AEFC * Interested person as defined by the Investment Company Act of 1940. 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 with countries 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 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. (icon of) trees 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 & 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. Foreign investments may be subject to currency fluctuations and political and economic risks of the countries in which the investments are made. 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) gyroscope IDS Stock Fund Invests in a Portfolio comprised primarily of 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 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 of 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 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 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 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. Quick telephone reference American Express Redemptions and exchanges, National/Minnesota Financial Advisors dividend payments or 800-437-3133 Telephone Transaction reinvestments and automatic Service payment arrangements Mpls./St. Paul area: 671-3800 TTY Service For the hearing impaired 800-846-4852 American Express Automated account information 800-862-7919 Financial Advisors (TouchTone(R) phones only), Easy Access Line including current fund prices and performance, account values and recent account transactions AMERICAN EXPRESS Financial Advisors IDS Bond Fund IDS Tower 10 Minneapolis, MN 55440-0010 -----END PRIVACY-ENHANCED MESSAGE-----