0000820027-95-000418.txt : 19950829 0000820027-95-000418.hdr.sgml : 19950829 ACCESSION NUMBER: 0000820027-95-000418 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19950828 EFFECTIVENESS DATE: 19950828 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IDS FEDERAL INCOME FUND INC CENTRAL INDEX KEY: 0000764802 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-96512 FILM NUMBER: 95567466 BUSINESS ADDRESS: STREET 1: 80 SOUTH 8TH STREET CITY: MINNEAPOLIS STATE: MN ZIP: 55440 BUSINESS PHONE: 6123722772 485BPOS 1 IDS FEDERAL INCOME FUND, INC. PAGE 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment No. ____ (File No. 2-96512) Post-Effective Amendment No. 21 X and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 24 (File No. 811-4260) X IDS FEDERAL INCOME FUND, INC. IDS Tower 10, Minneapolis, Minnesota 55440-0010 Leslie L. Ogg - 901 S. Marquette Avenue, Suite 2810, Minneapolis, MN 55402-3268 (612) 330-9283 Approximate Date of Proposed Public Offering: It is proposed that this filing will become effective: immediately upon filing pursuant to paragraph (b) X on August 29, 1995 pursuant to paragraph (b) 60 days after filing pursuant to paragraph (a)(i) on (date) pursuant to paragraph (a)(i) 75 days after filing pursuant to paragraph (a)(ii) on (date) pursuant to paragraph (a)(ii) of rule 485. If appropriate, check the following box: this post-effective amendment designates a new effective date for a previously filed post-effective amendment. The Registrant has registered an indefinite number or amount of securities under the Securities Act of 1933 pursuant to Section 24-f of the Investment Company Act of 1940. Registrant's Rule 24f-2 Notice for its most recent fiscal year ended June 30, 1994, will be filed on or about Aug. 29, 1995. PAGE 2 Cross reference sheet showing location in the prospectus and the statement of additional information of the information called for by the items enumerated in Part A and B of Form N-1A. Negative answers omitted from prospectus are so indicated.
PART A PART B Section Section in Item No. in Prospectus Item No. Statement of Additional Information 1 Cover page of prospectus 10 Cover page of SAI 2(a) Sales charge and fund expenses 11 Table of Contents (b) The fund in brief (c) The fund in brief 12 NA 3(a) Financial highlights 13(a) Additional Investment Policies; all (b) NA appendices except Dollar-Cost Averaging (c) Performance (b) Additional Investment Policies (d) Financial highlights (c) Additional Investment Policies (d) Portfolio Transactions 4(a) The fund in brief; Investment policies and risks; How the fund is organized 14(a) Directors and officers of the fund;** (b) Investment policies and risks Directors and officers (c) Investment policies and risks (b) Directors and Officers (c) Directors and Officers 5(a) Directors and officers; Directors and officers of the fund (listing) 15(a) NA 5(b)(i) Investment manager and transfer agent; (b) NA About American Express Financial (c) Directors and Officers Corporation -- General Information (b)(ii) Investment manager and transfer agent 16(a)(i) How the fund is organized; About American (b)(iii) Investment manager and transfer agent Express Financial Corporation** (c) Portfolio manager (a)(ii) Agreements: Investment Management Services (d) Investment manager and transfer agent Agreement, Plan and Supplemental (e) Investment manager and transfer agent Agreement of Distribution (f) Distributor (a)(iii) Agreements: Investment Management Services Agreement (g) Investment manager and transfer agent; (b) Agreements: Investment Management Services Agreement About American Express Financial (c) NA Corporation -- General Information (d) Agreements: Administrative Services Agreement, Shareholder Service Agreement 5A(a) * (e) NA (b) * (f) Agreements: Distribution Agreement (g) NA 6(a) Shares; Voting rights (h) Custodian; Independent Auditors (b) NA (i) Agreements: Transfer Agency Agreement; Custodian (c) NA (d) Voting rights 17(a) Portfolio Transactions (e) Cover page; Special shareholder services (b) Brokerage Commissions Paid to Brokers Affiliated (f) Dividends and capital gains distributions; with American Express Financial Corporation Reinvestments (c) Portfolio Transactions (g) Taxes (d) Portfolio Transactions (h) Alternative sales arrangements (e) Portfolio Transactions 7(a) Distributor 18(a) Shares; Voting rights** (b) Key terms; Valuing assets (b) NA (c) How to buy, exchange or sell shares (d) How to buy shares 19(a) Investing in the Fund (e) NA (b) Valuing Fund Shares; Investing in the Fund (f) Distributor (c) NA 8(a) How to sell shares 20 Taxes (b) NA (c) How to buy shares: Three ways to invest 21(a) Agreements: Distribution Agreement (d) How to buy, exchange or sell shares: (b) Agreements: Distribution Agreement Redemption policies -- "Important..." (c) NA 9 None 22(a) Performance Information (for money market funds only) (b) Performance Information (for all funds except money market funds) 23 Financial Statements *Designates information is located in annual report. **Designates location in prospectus./TABLE PAGE 3 IDS Federal Income Fund Prospectus August 29, 1995 The goals of IDS Federal Income Fund, Inc. are to provide shareholders with a high level of current income and safety of principal consistent with investment in U.S. government and government agency securities. This prospectus contains facts that can help you decide if the fund is the right investment for you. Read it before you invest and keep it for future reference. Additional facts about the fund are in a Statement of Additional Information (SAI), filed with the Securities and Exchange Commission. The SAI, dated Aug. 29, 1995, is incorporated here by reference. For a free copy, contact American Express Shareholder Service. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. SHARES IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. INVESTMENTS IN THE FUND INVOLVE INVESTMENT RISK INCLUDING POSSIBLE LOSS OF PRINCIPAL. American Express Shareholder Service P.O. Box 534 Minneapolis, MN 55440-0534 612-671-3733 TTY: 800-846-4852 PAGE 4 Table of contents The fund in brief Goals Types of fund investments and their risks Manager and distributor Portfolio manager Alternative sales arrangements Sales charge and fund expenses Performance Financial highlights Total returns Yield Key terms Investment policies and risks Facts about investments and their risks Alternative investment option Valuing assets How to buy, exchange or sell shares Alternative sales arrangements How to buy shares How to exchange shares How to sell shares Reductions and waivers of the sales charge Special shareholder services Services Quick telephone reference Distributions and taxes Dividend and capital gain distributions Reinvestments Taxes How the fund is organized Shares Voting rights Shareholder meetings Directors and officers Investment manager and transfer agent Distributor About American Express Financial Corporation General information Appendix Descriptions of derivative instruments PAGE 5 The fund in brief Goals IDS Federal Income Fund seeks to provide shareholders with a high level of current income and safety of principal consistent with investment in U.S. government and government agency securities. Because any investment involves risk, achieving these goals cannot be guaranteed. Only shareholders can change the goals. Types of fund investments and their risks The fund is a diversified mutual fund that invests at least 65% of its total assets in securities issued or guaranteed as to principal and interest by the U.S. government and its agencies. Most investments are in pools of mortgage loans. The fund also may invest in non-governmental debt securities, derivative instruments and money market instruments. Some of the fund's investments may be considered speculative and involve additional investment risks. Manager and distributor The fund is managed by American Express Financial Corporation (AEFC), a provider of financial services since 1894. AEFC currently manages more than $41 billion in assets for the IDS MUTUAL FUND GROUP. Shares of the fund are sold through American Express Financial Advisors Inc., a wholly owned subsidiary of AEFC. Portfolio manager Jim Snyder joined AEFC in 1989 as an investment analyst and currently serves as portfolio manager. He was appointed portfolio manager of this fund in 1993 after having served as associate portfolio manager of this fund from 1992 to 1993. He also serves as portfolio manager for the Government Securities Portfolio of IDS Life Series Fund. Prior to joining AEFC, he had been a Quantitative Investment Analyst at Harris Trust. Alternative sales arrangements The fund offers its shares in three classes. Class A shares are subject to a sales charge at the time of purchase. Class B shares are subject to a contingent deferred sales charge (CDSC) on redemptions made within six years of purchase and an annual distribution (12b-1) fee. Class Y shares are sold without a sales charge to qualifying institutional investors. Other differences between the classes include the fees paid by each class. The fund offers these alternatives so you may choose the method of purchasing shares that is most beneficial given the amount of purchase, length of time you expect to hold the shares and other circumstances. PAGE 6 Sales charge and fund expenses When you buy Class A shares, you pay a maximum sales charge of 5% of the public offering price. This charge can be reduced, depending on your total investments in IDS funds. See "Reductions of the sales charge." No sales charge applies at the time of purchase of Class B shares, although Class B shares may be subject to a CDSC on redemptions made within six years and are subject to annual distribution (12b-1) fees. Class Y shares are sold without a sales charge to qualifying institutional investors. Shareholder transaction expenses are incurred directly by an investor on the purchase or redemption of fund shares. Fund operating expenses are paid out of fund assets for each class of shares. Operating expenses are reflected in the fund's daily share price and dividends, and are not charged directly to shareholder accounts. Shareholder transaction expenses Class A Class B Class Y Maximum sales charge on purchases (as a percentage of offering price).......5% 0% 0% Maximum deferred sales charge imposed on redemptions (as a percentage of original purchase price)....0% 5% 0% Annual fund operating expenses* (% of average daily net assets): Class A Class B Class Y Management fee 0.51% 0.51% 0.51% 12b-1 fee 0.00% 0.75% 0.00% Other expenses** 0.39% 0.40% 0.22% Total 0.90% 1.66% 0.73% *Expenses for Class A are based on actual expenses for the last fiscal year, restated to reflect current fees. Expenses for Class B and Class Y are estimated based on the restated expenses for Class A, except that the 12b-1 fee and transfer agency fee (under other expenses) for Class B are based on agreements for that class and that Class Y does not have a service fee. **Other expenses include an administrative services fee, a shareholder services fee for Class A and Class B, a transfer agency fee, and other non-advisory expenses. Example: Suppose for each year for the next 10 years, fund expenses are as above and annual return is 5%. If you sold your shares at the end of the following years, for each $1,000 invested, you would pay total expenses of: 1 year 3 years 5 years 10 years Class A $59 $77 $ 97 $156 Class B $67 $92 $110 $177 Class B* $17 $52 $ 90 $177 Class Y $ 7 $23 $ 41 $ 91 PAGE 7 *Assuming Class B shares are not redeemed at the end of the period. **Based on conversion of Class B shares to Class A shares after eight years. This example does not represent actual expenses, past or future. Actual expenses may be higher or lower than those shown. Expense information in this table has been restated to reflect estimates on fund expenses from changes in fees approved by shareholders in November 1994. Because Class B pays annual distribution (12b-1) fees, long-term shareholders of Class B may indirectly pay an equivalent of more than a 6.25% sales charge, the maximum permitted by the National Association of Securities Dealers.
Performance Financial highlights Fiscal period ended June 30, Per share income and capital changes* 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986** Classes A B*** Y*** Net asset value, $4.85 $4.87 $4.87 $5.30 $5.19 $5.10 $5.00 $5.02 $5.02 $5.01 $5.07 $5.00 beginning of period Income from investment operations: Net investment income .32 .11 .07 .29 .32 .36 .42 .42 .40 .41 .40 .41 Net gains (losses) .11 .09 .15 (.31) .13 .09 .09 (.02) -- .01 (.03) .10 (both realized and unrealized) Total from investment .43 .20 .22 (.02) .45 .45 .51 .40 .40 .42 .37 .51 operations Less distributions: Dividends from net (.31) (.11) (.12) (.29) (.32) (.36) (.41) (.42) (.40) (.41) (.40) (.41) investment income Distributions from -- -- -- (.14) (.02) -- -- -- -- -- (.03) (.03) realized gains Total distributions (.31) (.11) (.12) (.43) (.34) (.36) (.41) (.42) (.40) (.41) (.43) (.44) Net asset value, $4.97 $4.96 $4.97 $4.85 $5.30 $5.19 $5.10 $5.00 $5.02 $5.02 $5.01 $5.07 end of period Ratios/supplemental data 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986** Classes A B*** Y*** Net assets, end of period $977 $292 $85 $1,025 $1,025 $834 $397 $234 $183 $183 $181 $202 (in millions) Ratio of expenses .79% 1.74%+ .75%+ .76% .77% .79% .80% .82% .79% .80% .86% .73% to average daily net assets Ratio of net income 6.59% 6.21%+ 7.20%+ 5.64% 6.03% 6.93% 8.20% 8.53% 8.15% 8.24% 7.81% 9.09%+ to average daily net assets Portfolio turnover rate (excluding 213% 213% 213% 304% 227% 104% 52% 104% 81% 143% 36% 108% short-term securities) Total return+++ 9.3% 4.1% 4.5% (0.5%) 9.0% 9.0% 10.8% 8.3% 8.4% 8.8% 7.4% 10.5%++ PAGE 8 *For a share outstanding throughout the period. Rounded to the nearest cent. **Inception date. Period from Aug. 19, 1985 to June 30, 1986. ***Inception date was March 20, 1995 for Class B and Y. +Adjusted to an annual basis. ++For the fiscal period ended June 30, 1986, the annualized total return is 12.2% +++Total return does not reflect payment of a sales charge.
The information in this table has been audited by KPMG Peat Marwick LLP, independent auditors. The independent auditors' report and additional information about the performance of the fund are contained in the fund's annual report which, if not included with this prospectus, may be obtained without charge. Total returns Average annual total returns as of June 30, 1995 Purchase 1 year 5 years Since made ago ago inception* Federal Income: Class A 3.79% 6.31% 7.58% Lehman Aggregate Bond Index 12.89% 9.46% 10.06% Lehman Treasury Bond Index 11.54% 8.94% 9.31% *Aug. 19, 1985 Cumulative total returns as of June 30, 1995 Purchase 1 year 5 years Since made ago ago inception* Federal Income: Class A 3.79% 35.79% 105.66% Lehman Aggregate Bond Index 12.89% 57.20% 156.55% Lehman Treasury Bond Index 11.54% 53.42% 140.70% *Aug. 19, 1985 These examples show total returns from hypothetical investments in Class A shares of the fund. These returns are compared to those of popular indexes for the same periods. Total returns for Class A, Class B and Class Y for the period from March 20, 1995 to June 30, 1995 were -0.7%, -0.9%, +4.5% respectively. March 20, 1995 was the inception date for Class B and Class Y. Total return for Class A is shown for comparative purposes. The performance of Class B and Class Y will vary from the performance of Class A based on differences in sales charges and fees. Past performance for Class Y for the periods prior to March 20, 1995 may be calculated based on the performance of Class A, adjusted to reflect differences in sales charges although not other differences in expenses. PAGE 9 For purposes of calculation, information about the fund assumes: o a sales charge of 5% for Class A shares o redemption at the end of each period and deduction of the applicable contingent deferred sales charge for Class B shares o no sales charge for Class Y shares o no adjustments for taxes an investor may have paid on the reinvested income and capital gains o a period of widely fluctuating securities prices. Returns shown should not be considered a representation of the fund's future performance. The fund invests primarily in debt securities that may be different from those in the indexes. The indexes reflect reinvestment of all distributions and changes in market prices, but exclude brokerage commissions or other fees. Lehman Aggregate Bond Index is made up of a representative list of government and corporate bonds as well as asset-backed securities and mortgage-backed securities. The index is frequently used as a general measure of bond market performance. However, the securities used to create the index may not be representative of the bonds held in the fund. Lehman Treasury Bond Index is made up of a representative list of government bonds which include all publicly issued obligations of the U.S. Treasury. The index is frequently used as a general measure of bond market performance. However, the securities used to create the index may not be representative of the debt securities held in the fund. Yield The fund's annualized yield for the 30-day period ended June 30, 1995, was 6.14% for Class A, 5.73% for Class B and 6.67% for Class Y. The fund calculates this 30-day annualized yield by dividing: o net investment income per share deemed earned during a 30-day period by o the public offering price per share on the last day of the period, and o converting the result to a yearly equivalent figure. This yield calculation does not include any contingent deferred sales charge, ranging from 5% to 0% on Class B shares, which would reduce the yield quoted. The fund's yield varies from day to day, mainly because share values and offering prices (which are calculated daily) vary in response to changes in interest rates. Net investment income normally changes much less in the short run. Thus, when interest rates rise and share values fall, yield tends to rise. When interest rates fall, yield tends to follow. Past yields should not be considered an indicator of future yields. PAGE 10 Key terms Net asset value (NAV) Value of a single fund share. For each class, it is the total market value of all of a fund's investments and other assets attributable to that class, less any liabilities attributable to that class, divided by the number of shares of that class outstanding. When you buy shares, you pay the NAV plus any applicable sales charge. When you sell shares, the price you receive is the NAV minus any applicable sales charge. The NAV usually changes daily, and is calculated at the close of business, normally 3 p.m. Central time, each business day (any day the New York Stock Exchange is open). NAV generally declines as interest rates increase and rises as interest rates decline. Public offering price Price at which you buy shares. It is the NAV plus the sales charge for Class A. It is the NAV for Class B and Class Y. NAVs and public offering prices of IDS funds are listed each day in major newspapers and financial publications for classes of funds large enough to be listed. Investment income Dividends and interest earned on securities held by the fund. Capital gains or losses Increase or decrease in value of the securities the fund holds. Gains or losses are realized when securities that have increased or decreased in value are sold. A fund also may have unrealized gains or losses when securities increase or decrease in value but are not sold. Distributions Payments to shareholders of two types: investment income (dividends) and realized net long-term capital gains (capital gains distributions). Total return Sum of all of your returns for a given period, assuming you reinvest all distributions. Calculated by taking the total value of shares you own at the end of the period (including shares acquired by reinvestment), less the price of shares you purchased at the beginning of the period. Average annual total return The annually compounded rate of return over a given time period (usually two or more years) -- total return for the period converted to an equivalent annual figure. Yield Net investment income earned per share for a specified time period, divided by the offering price at the end of the period. PAGE 11 Investment policies and risks The fund invests primarily in securities issued or guaranteed as to principal and interest by the U.S. government, its agencies and instrumentalities. Under normal market conditions, at least 65% of the fund's total assets will be invested in such securities. Although the fund may invest in any U.S. government securities, it is anticipated that most of the portfolio will consist of U.S. government securities representing part ownership of pools of mortgage loans. The various types of investments the portfolio manager uses to achieve investment performance are described in more detail in the next section and in the SAI. Facts about investments and their risks Government securities: U.S. Treasury bonds, notes and bills, and securities including mortgage pass through certificates of the Government National Mortgage Association (GNMA) are guaranteed by the U.S. Government. Other U.S. Government securities are issued or guaranteed by federal agencies or government-sponsored enterprises but are not direct obligations of the U.S. government. These include securities supported by the right of the issuer to borrow from the Treasury, such as obligations of Federal Home Loan Mortgage Corporation (FHLMC) and Federal National Mortgage Association (FNMA) bonds. Because the U.S. government is not obligated to provide financial support to its instrumentalities, the fund will invest only in securities issued by those instrumentalities where the investment manager is satisfied the credit risk is minimal. Mortgage-backed securities: A mortgage-backed pass through certificate is one that represents an interest in a pool, or group, of mortgage loans assembled by GNMA, FNMA, or FHLMC or non- governmental entities. In pass-through certificates, both principal and interest payments are passed through to the holder of the certificate. Prepayments on underlying mortgages result in a loss of anticipated interest, and actual yield (or total return) to the fund, which is influenced by both stated interest rates and market conditions, may be different than the quoted yield on the certificates. The fund also may invest in non-governmental mortgage-related securities and debt securities, such as bonds, debentures and collateralized mortgage obligations secured by mortgages on commercial real estate or residential rental properties, provided such securities are rated A or better by Moody's Investors Service, Inc. or Standard & Poor's Corporation or, if not rated, are of equivalent investment quality as determined by the fund's investment manager. Some U.S. Government securities may be purchased on a "when-issued" basis, which means that it may take as long as 45 days after the purchase before the securities are delivered to the fund. The fund may invest in stripped mortgage-backed securities. Generally, there are two classes of stripped mortgage-backed securities: Interest Only (IO) and Principal Only (PO). IOs entitle the holder to receive distributions consisting of all or a PAGE 12 portion of the interest on the underlying pool of mortgage loans or mortgage-backed securities. POs entitle the holder to receive distributions consisting of all or a portion of the principal of the underlying pool of mortgage loans or mortgage-backed securities. The cash flows and yields on IOs and POs are extremely sensitive to the rate of principal payments (including prepayments) on the underlying mortgage loans or mortgage-backed securities. A rapid rate of principal payments may adversely affect the yield to maturity of IOs. A slow rate of principal payments may adversely affect the yield to maturity of POs. If prepayments of principal are greater than anticipated, an investor may incur substantial losses. If prepayments of principal are slower than anticipated, the yield on a PO will be affected more severely than would be the case with a traditional mortgage-backed security. The fund may purchase mortgage-backed security (MBS) put spread options and write covered MBS call spread options. MBS spread options are based upon the changes in the price spread between a specified mortgage-backed security and a like-duration Treasury security. MBS spread options are traded in the OTC market and are of short duration, typically one to two months. The fund would buy or sell covered MBS call spread options in situations where mortgage-backed securities are expected to under perform like- duration Treasury securities. Debt securities: The price of an investment-grade bond fluctuates as interest rates change or if its credit rating is upgraded or downgraded. Securities that are subsequently downgraded in quality may continue to be held by the fund and will be sold only if the fund's portfolio manager believes it is advantageous to do so. Derivative instruments: The portfolio manager may use derivative instruments in addition to securities to achieve investment performance. Derivative instruments include futures, options and forward contracts, structured products, indexed-based instruments, and would include mortgage-backed securities and CMO's discussed above. Such instruments may be used to maintain cash reserves while remaining fully invested, to offset anticipated declines in values of investments, to facilitate trading, to reduce transaction costs, or to pursue higher investment returns. Derivative instruments are characterized by requiring little or no initial payment and a daily change in price based on or derived from a security, a currency, a group of securities or currencies, or an index. A number of strategies or combination of instruments can be used to achieve the desired investment performance characteristics. A small change in the value of the underlying security, currency or index will cause a sizable gain or loss in the price of the derivative instrument. Derivative instruments allow the portfolio manager to change the investment performance characteristics very quickly and at lower costs. Risks include losses of premiums, rapid changes in prices, defaults by other parties, and inability to close such instruments. The fund will use derivative instruments only to achieve the same investment performance characteristics it could achieve by directly holding those securities and currencies permitted under the investment policies. The fund will designate cash or appropriate liquid assets to cover PAGE 13 its portfolio obligations. No more than 5% of the fund's net assets can be used at any one time for good faith deposits on futures and premiums for options on futures that do not offset existing investment positions. For descriptions of derivative instruments, see the Appendix to this prospectus. Securities and derivative instruments that are illiquid: A security or derivative instrument is illiquid if it cannot be sold quickly in the normal course of business. Some investments cannot be resold to the U.S. public because of their terms or government regulations. All securities and derivative instruments, however, can be sold in private sales, and many may be sold to other institutions and qualified buyers or on foreign markets. The portfolio manager will follow guidelines established by the board of directors and consider relevant factors such as the nature of the security and the number of likely buyers when determining whether a security is illiquid. No more than 10% of the fund's net assets will be held in securities and derivative instruments that are illiquid. Money market instruments: Short-term debt securities rated in the top two grades are used to meet daily cash needs and at various times to hold assets until better investment opportunities arise. Generally less than 25% of the fund's total assets are in these money market instruments. However, for temporary defensive purposes these investments could exceed that amount for a limited period of time. The investment policies described above may be changed by the board of directors. Lending portfolio securities: The fund may lend its securities to earn income so long as borrowers provide collateral equal to the market value of the loans. The risks are that borrowers will not provide collateral when required or return securities when due. Unless shareholders approve otherwise, loans may not exceed 30% of the fund's net assets. Alternative investment option In the future, the board of the fund may determine for operating efficiencies to use a master/feeder structure. Under that structure, the fund's investment portfolio would be managed by another investment company with the same goal as the fund, rather than investing directly in a portfolio of securities. Valuing assets o Securities (except bonds) and assets with available market values are valued on that basis. o Securities maturing in 60 days or less are valued at amortized cost. o Bonds and assets without readily available market values are valued according to methods selected in good faith by the board of directors. PAGE 14 How to buy, exchange or sell shares Alternative sales arrangements The fund offers three different classes of shares - Class A, Class B and Class Y. The primary differences among the classes are in the sales charge structures and in their ongoing expenses. These differences are summarized in the table below. You may choose the class that best suits your circumstances and objectives.
Sales charge and distribution (12b-1) fee Service fee Other information Class A Maximum initial 0.175% of average Initial sales charge sales charge of daily net assets waived or reduced 5%; no 12b-1 fee for certain purchases Class B No initial sales 0.175% of average Shares convert to charge; maximum CDSC daily net assets Class A after eight of 5% declines to 0% years; CDSC waived in after six years; 12b-1 certain circumstances fee of 0.75% of average daily net assets Class Y None None Available only to certain qualifying institutional investors
Conversion of Class B shares to Class A shares - Eight calendar years after Class B shares are purchased, Class B shares will convert to Class A shares and will no longer be subject to a distribution fee. Current holdings of Class B shares will convert beginning in 1996. The conversion will be on the basis of relative net asset values of the two classes, without the imposition of any sales charge. Class B shares purchased through reinvested dividends and distributions will convert to Class A shares in a pro-rata portion as the Class B shares purchased other than through reinvestment. Considerations in determining whether to purchase Class A or Class B shares - You should consider the information below in determining whether to purchase Class A or Class B shares. The sales charges and distribution fee (included in "Ongoing expenses") are structured so that you will have approximately the same total return at the end of eight years regardless of which class you chose. Sales charges on purchase or redemption If you purchase Class A If you purchase Class B shares shares o You will not have all o All of your money is of your purchase price invested in shares of invested. Part of your stock. However, you will purchase price will go pay a sales charge if you PAGE 15 to pay the sales charge. redeem your shares within You will not pay a sales six years of purchase. charge when you redeem your shares. o You will be able to o No reductions of the take advantage of sales charge are reductions in the sales available for large charge. purchases. If your investments in IDS funds total $250,000 or more, you are better off paying the reduced sales charge in Class A than paying the higher fees in Class B. If you qualify for a waiver of the sales charge, you should purchase Class A shares. Ongoing expenses If you purchase Class A If you purchase Class B shares shares o Your shares will have o The distribution and a lower expense ratio transfer agency fees for than Class B shares Class B will cause your because Class A does not shares to have a higher pay a distribution fee expense ratio and to pay and the transfer agency lower dividends than fee for Class A is lower Class A shares. After than the fee for Class B. eight years, Class B As a result, Class A shares shares will convert to will pay higher dividends Class A shares and will than Class B shares. no longer be subject to higher fees. You should consider how long you plan to hold your shares and whether the accumulated higher fees and CDSC on Class B shares prior to conversion would be less than the initial sales charge on Class A shares. Also consider to what extent the difference would be offset by the lower expenses on Class A shares. To help you in this analysis, the example in the "Sales charge and fund expenses" section of the prospectus illustrates the charges applicable to each class of shares. Class Y shares - Class Y shares are offered to certain institutional investors. Class Y shares are sold without a front- end sales charge or a CDSC and are not subject to either a service fee or a distribution fee. The following investors are eligible to purchase Class Y shares: o Qualified employee benefit plans* if the plan: - uses a daily transfer recordkeeping service offering participants daily access to IDS funds and has - at least $10 million in plan assets or - 500 or more participants; or - does not use daily transfer recordkeeping and has - at least $3 million invested in funds of the IDS MUTUAL FUND GROUP or - 500 or more participants. PAGE 16 o Trust companies or similar institutions, and charitable organizations that meet the definition in Section 501(c)(3) of the Internal Revenue Code.* These must have at least $10 million invested in funds of the IDS MUTUAL FUND GROUP. o Nonqualified deferred compensation plans* whose participants are included in a qualified employee benefit plan described above. * Eligibility must be determined in advance by American Express Financial Advisors. To do so, contact your financial advisor. Financial advisors may receive different compensation for selling Class A, Class B and Class Y shares. How to buy shares If you're investing in this fund for the first time, you'll need to set up an account. Your financial advisor will help you fill out and submit an application. Once your account is set up, you can choose among several convenient ways to invest. Important: When opening an account, you must provide AEFC with your correct Taxpayer Identification Number (Social Security or Employer Identification number). See "Distributions and taxes." When you buy shares for a new or existing account, the price you pay per share is determined at the close of business on the day your investment is received and accepted at the Minneapolis headquarters. Purchase policies: o Investments must be received and accepted in the Minneapolis headquarters on a business day before 3 p.m. Central time to be included in your account that day and to receive that day's share price. Otherwise your purchase will be processed the next business day and you will pay the next day's share price. o The minimums allowed for investment may change from time to time. o Wire orders can be accepted only on days when your bank, AEFC, the fund and Norwest Bank Minneapolis are open for business. o Wire purchases are completed when wired payment is received and the fund accepts the purchase. o AEFC and the fund are not responsible for any delays that occur in wiring funds, including delays in processing by the bank. o You must pay any fee the bank charges for wiring. o The fund reserves the right to reject any application for any reason. PAGE 17 o If your application does not specify which class of shares you are purchasing, it will be assumed that you are investing in Class A shares.
Three ways to invest 1 By regular account Send your check and application Minimum amounts (or your name and account number Initial investment: $2,000 if you have an established account) Additional to: investments: $ 100 American Express Financial Advisors Inc. Account balances: $ 300* P.O. Box 74 Qualified retirement Minneapolis, MN 55440-0074 accounts: none Your financial advisor will help you with this process. 2 By scheduled Contact your financial advisor Minimum amounts investment plan to set up one of the following Initial investment: $100 scheduled plans: Additional investments: $100/mo. o automatic payroll deduction Account balances: none (on active plans of o bank authorization monthly payments) o direct deposit of Social Security check o other plan approved by the fund 3 By wire If you have an established account, If this information is not you may wire money to: included, the order may be rejected and all money Norwest Bank Minneapolis received by the fund, less Routing No. 091000019 any costs the fund or AEFC Minneapolis, MN incurs, will be returned Attn: Domestic Wire Dept. promptly. Give these instructions: Minimum amounts Credit IDS Account #00-30-015 Each wire investment: $1,000 for personal account # (your account number) for (your name).
*If your account balance falls below $300, you will be asked in writing to bring it up to $300 or establish a scheduled investment plan. If you don't do so within 30 days, your shares can be redeemed and the proceeds mailed to you. How to exchange shares You can exchange your shares of the fund at no charge for shares of the same class of any other publicly offered fund in the IDS MUTUAL FUND GROUP available in your state. Exchanges into IDS Tax-Free Money Fund must be made from Class A shares. For complete information, including fees and expenses, read the prospectus carefully before exchanging into a new fund. If your exchange request arrives at the Minneapolis headquarters before the close of business, your shares will be redeemed at the net asset value set for that day. The proceeds will be used to purchase new fund shares the same day. Otherwise, your exchange will take place the next business day at that day's net asset value. PAGE 18 For tax purposes, an exchange represents a sale and purchase and may result in a gain or loss. However, you cannot create a tax loss (or reduce a taxable gain) by exchanging from the fund within 91 days of your purchase. For further explanation, see the SAI. How to sell shares You can sell (redeem) your shares at any time. American Express Shareholder Service will mail payment within seven days after receiving your request. When you sell shares, the amount you receive may be more or less than the amount you invested. Your shares will be redeemed at net asset value, minus any applicable sales charge, at the close of business on the day your request is accepted at the Minneapolis headquarters. If your request arrives after the close of business, the price per share will be the net asset value, minus any applicable sales charge, at the close of business on the next business day. A redemption is a taxable transaction. If the fund's net asset value when you sell shares is more or less than the cost of your shares, you will have a gain or loss, which can affect your tax liability. Redeeming shares held in an IRA or qualified retirement account may subject you to certain federal taxes, penalties and reporting requirements. Consult your tax advisor.
Two ways to request an exchange or sale of shares 1 By letter Include in your letter: o the name of the fund(s) o the class of shares to be exchanged or redeemed o your account number(s) (for exchanges, both funds must be registered in the same ownership) o your Taxpayer Identification Number (TIN) o the dollar amount or number of shares you want to exchange or sell o signature of all registered account owners o for redemptions, indicate how you want your sales proceeds delivered to you o any paper certificates of shares you hold Regular mail: American Express Shareholder Service Attn: Redemptions P.O. Box 534 Minneapolis, MN 55440-0534 Express mail: American Express Shareholder Service Attn: Redemptions 733 Marquette Ave. Minneapolis, MN 55402 2 By phone American Express Telephone o The fund and AEFC will honor any telephone exchange or redemption request believed to be Transaction Service: authentic and will use reasonable procedures to confirm that they are. This includes 800-437-3133 or asking identifying questions and tape recording calls. If reasonable 612-671-3800 procedures are not followed, the fund or AEFC will be liable for any loss resulting from fraudulent requests. o Phone exchange and redemption privileges automatically apply to all accounts except custodial, corporate or qualified retirement accounts unless you request these privileges NOT apply by writing American Express Shareholder Service. Each registered owner must sign the request. o AEFC answers phone requests promptly, but you may experience delays when call volume is high. If you are unable to get through, use mail procedure as an alternative. o Acting on your instructions, your financial advisor may conduct telephone transactions on your behalf. o Phone privileges may be modified or discontinued at any time. PAGE 19 Minimum amount Redemption: $100 Maximum amount Redemption: $50,000
Exchange policies: o You may make up to three exchanges within any 30-day period, with each limited to $300,000. These limits do not apply to scheduled exchange programs and certain employee benefit plans or other arrangements through which one shareholder represents the interests of several. Exceptions may be allowed with pre-approval of the fund. o Exchanges must be made into the same class of shares of the new fund. o If your exchange creates a new account, it must satisfy the minimum investment amount for new purchases. o Once we receive your exchange request, you cannot cancel it. o Shares of the new fund may not be used on the same day for another exchange. o If your shares are pledged as collateral, the exchange will be delayed until written approval is obtained from the secured party. o AEFC and the fund reserve the right to reject any exchange, limit the amount, or modify or discontinue the exchange privilege, to prevent abuse or adverse effects on the fund and its shareholders. For example, if exchanges are too numerous or too large, they may disrupt the fund's investment strategies or increase its costs. Redemption policies: o A "change of mind" option allows you to change your mind after requesting a redemption and to use all or part of the proceeds to buy new shares in the same class from which you redeemed. If you reinvest in Class A, you will purchase the new shares at net asset value rather than the offering price on the date of a new purchase. If you reinvest in Class B, any CDSC you paid on the amount you are reinvesting also will be reinvested. To take advantage of this option, send a written request within 30 days of the date your redemption request was received. Include your account number and mention this option. This privilege may be limited or withdrawn at any time, and it may have tax consequences. o A telephone redemption request will not be allowed within 30 days of a phoned-in address change. Important: If you request a redemption of shares you recently purchased by a check or money order that is not guaranteed, the fund will wait for your check to clear. Please expect a minimum of 10 days from the date of purchase before a check is mailed to you. (A check may be mailed earlier if your bank provides evidence satisfactory to the fund and AEFC that your check has cleared.) PAGE 20 Three ways to receive payment when you sell shares
1 By regular or express mail o Mailed to the address on record. o Payable to names listed on the account. NOTE: The express mail delivery charges you pay will vary depending on the courier you select. 2 By wire o Minimum wire redemption: $1,000. o Request that money be wired to your bank. o Bank account must be in the same ownership as the IDS fund account. NOTE: Pre-authorization required. For instructions, contact your financial advisor or American Express Shareholder Service. 3 By scheduled payout plan o Minimum payment: $50. o Contact your financial advisor or American Express Shareholder Service to set up regular payments to you on a monthly, bimonthly, quarterly, semiannual or annual basis. o Buying new shares while under a payout plan may be disadvantageous because of the sales charges.
Reductions and waivers of the sales charge Class A - initial sales charge alternative On purchases of Class A shares, you pay a 5% sales charge on the first $50,000 of your total investment and less on investments after the first $50,000: Total investment Sales charge as a percent of:* Public Net offering amount price invested Up to $50,000 5.0% 5.26% Next $50,000 4.5 4.71 Next $400,000 3.8 3.95 Next $500,000 2.0 2.04 $1,000,000 or more 0.0 0.00 * To calculate the actual sales charge on an investment greater than $50,000, amounts for each applicable increment must be totaled. See the SAI. Reductions of the sales charge on Class A shares Your sales charge may be reduced, depending on the totals of: o the amount you are investing in this fund now, o the amount of your existing investment in this fund, if any, and o the amount you and your immediate family (spouse or unmarried children under 21) are investing or have in other funds in the IDS MUTUAL FUND GROUP that carry a sales charge. PAGE 21 Other policies that affect your sales charge: o IDS Tax-Free Money Fund and Class A shares of IDS Cash Management Fund do not carry sales charges. However, you may count investments in these funds if you acquired shares in them by exchanging shares from IDS funds that carry sales charges. o IRA purchases or other employee benefit plan purchases made through a payroll deduction plan or through a plan sponsored by an employer, association of employers, employee organization or other similar entity, may be added together to reduce sales charges for all shares purchased through that plan. For more details, see the SAI. Waivers of the sales charge for Class A shares Sales charges do not apply to: o Current or retired trustees, directors, officers or employees of the fund or AEFC or its subsidiaries, their spouses and unmarried children under 21. o Current or retired American Express financial advisors, their spouses and unmarried children under 21. o Qualified employee benefit plans* using a daily transfer recordkeeping system offering participants daily access to IDS funds. (Participants in certain qualified plans for which the initial sales charge is waived may be subject to a deferred sales charge of up to 4% on certain redemptions. For more information, see the SAI.) o Shareholders who have at least $1 million invested in funds of the IDS MUTUAL FUND GROUP. If the investment is redeemed in the first year after purchase, a CDSC of 1% will be charged on the redemption. o Purchases made within 30 days after a redemption of shares (up to the amount redeemed): - of a product distributed by American Express Financial Advisors in a qualified plan subject to a deferred sales charge or - in a qualified plan where American Express Trust Company has a recordkeeping, trustee, investment management or investment servicing relationship. Send the fund a written request along with your payment, indicating the amount of the redemption and the date on which it occurred. o Purchases made with dividend or capital gain distributions from another fund in the IDS MUTUAL FUND GROUP that has a sales charge. o Purchases made through American Express Strategic Portfolio Service (total amount of all investments made in the Strategic Portfolio Service must be at least $50,000). PAGE 22 *Eligibility must be determined in advance by American Express Financial Advisors. To do so, contact your financial advisor. Class B - contingent deferred sales charge alternative Where a CDSC is imposed on a redemption, it is based on the amount of the redemption and the number of calendar years, including the year of purchase, between purchase and redemption. The following table shows the declining scale of percentages that apply to redemptions during each year after a purchase: If a redemption is The percentage rate made during the for the CDSC is: First year 5% Second year 4% Third year 4% Fourth year 3% Fifth year 2% Sixth year 1% Seventh year 0% If the amount you are redeeming reduces the current net asset value of your investment in Class B shares below the total dollar amount of all your purchase payments during the last six years (including the year in which your redemption is made), the CDSC is based on the lower of the redeemed purchase payments or market value. The following example illustrates how the CDSC is applied. Assume you had invested $10,000 in Class B shares and that your investment had appreciated in value to $12,000 after 15 months, including reinvested dividend and capital gain distributions. You could redeem any amount up to $2,000 without paying a CDSC ($12,000 current value less $10,000 purchase amount). If you redeemed $2,500, the CDSC would apply only to the $500 that represented part of your original purchase price. The CDSC rate would be 4% because a redemption after 15 months would take place during the second year after purchase. Because the CDSC is imposed only on redemptions that reduce the total of your purchase payments, you never have to pay a CDSC on any amount you redeem that represents appreciation in the value of your shares, income earned by your shares or capital gains. In addition, when determining the rate of any CDSC, your redemption will be made from the oldest purchase payment you made. Of course, once a purchase payment is considered to have been redeemed, the next amount redeemed is the next oldest purchase payment. By redeeming the oldest purchase payments first, lower CDSCs are imposed than would otherwise be the case. Waivers of the sales charge for Class B shares The CDSC on Class B shares will be waived on redemptions of shares: o In the event of the shareholder's death, o Purchased by any trustee, director, officer or employee of a fund or AEFC or its subsidiaries, o Purchased by any American Express financial advisor, o Held in a trusteed employee benefit plan, PAGE 23 o Held in IRAs or certain qualified plans for which American Express Trust Company acts as custodian, such as Keogh plans, tax- sheltered custodial accounts or corporate pension plans, provided that the shareholder is: - at least 59-1/2 years old, and - taking a retirement distribution (if the redemption is part of a transfer to an IRA or qualified plan in a product distributed by American Express Financial Advisors, or a custodian-to-custodian transfer to a product not distributed by American Express Financial Advisors, the CDSC will not be waived), or - redeeming under an approved substantially equal periodic payment arrangement. Special shareholder services Services To help you track and evaluate the performance of your investments, AEFC provides these services: Quarterly statements listing all of your holdings and transactions during the previous three months. Yearly tax statements featuring average-cost-basis reporting of capital gains or losses if you redeem your shares along with distribution information - which simplifies tax calculations. A personalized mutual fund progress report detailing returns on your initial investment and cash-flow activity in your account. It calculates a total return to reflect your individual history in owning fund shares. This report is available from your financial advisor. Quick telephone reference American Express Telephone Transaction Service Redemptions and exchanges, dividend payments or reinvestments and automatic payment arrangements National/Minnesota: 800-437-3133 Mpls./St. Paul area: 671-3800 American Express Shareholder Service Fund performance, objectives and account inquiries 612-671-3733 TTY Service For the hearing impaired 800-846-4852 American Express Infoline Automated account information (TouchToneR phones only), including current fund prices and performance, account values and recent account transactions National/Minnesota: 800-272-4445 Mpls./St. Paul area: 671-1630 PAGE 24 Distributions and taxes The fund distributes to shareholders investment income and net capital gains. It does so to qualify as a regulated investment company and to avoid paying corporate income and excise taxes. Dividend and capital gains distributions will have tax consequences you should know about. Dividend and capital gain distributions The fund distributes its net investment income (dividends and interest earned on securities held by the fund, less operating expenses) to shareholders of record monthly. Net realized capital gains, if any, from selling securities are distributed at the end of the calendar year. Before they're distributed, net capital gains are included in the value of each share. After they're distributed, the value of each share drops by the per-share amount of the distribution. (If your distributions are reinvested, the total value of your holdings will not change.) Short-term capital gains earned by the fund are paid to shareholders as part of their ordinary income dividend and are taxable as ordinary income. Dividends paid by each class will be calculated at the same time, in the same manner and in the same amount, except the expenses attributable solely to Class A, Class B and Class Y will be paid exclusively by that class. Class B shareholders will receive lower per share dividends than Class A and Class Y shareholders because expenses for Class B are higher than for Class A or Class Y. Class A shareholders will receive lower per share dividends than Class Y shareholders because expenses for Class A are higher than for Class Y. Reinvestments Dividends and capital gain distributions are automatically reinvested in additional shares in the same class of the fund, unless: o you request the fund in writing or by phone to pay distributions to you in cash, or o you direct the fund to invest your distributions in any publicly available IDS fund for which you've previously opened an account. You pay no sales charge on shares purchased through reinvestment from this fund into any IDS fund. The reinvestment price is the net asset value at close of business on the day the distribution is paid. (Your quarterly statement will confirm the amount invested and the number of shares purchased.) If you choose cash distributions, you will receive only those declared after your request has been processed. PAGE 25 If the U.S. Postal Service cannot deliver the checks for the cash distributions, we will reinvest the checks into your account at the then-current net asset value and make future distributions in the form of additional shares. Taxes Distributions are subject to federal income tax. In certain states, fund distributions, to the extent they consist of interest from securities of the U.S. government and certain of its agencies or instrumentalities, may be exempt from state and local taxes. Interest from obligations which are merely guaranteed by the U.S. government or one of its agencies, such as GNMA certificates, is generally not entitled to this exemption. Distributions are taxable in the year the fund pays them regardless of whether you take them in cash or reinvest them. Each January, you will receive a tax statement showing the kinds and total amount of all distributions you received during the previous year. You must report distributions on your tax returns, even if they are reinvested in additional shares. "Buying a dividend" creates a tax liability. This means buying shares shortly before a capital gain distribution. You pay the full pre-distribution price for the shares, then receive a portion of your investment back as a distribution, which is taxable. Redemptions and exchanges subject you to a tax on any capital gain. If you sell shares for more than their cost, the difference is a capital gain. Your gain may be either short term (for shares held for one year or less) or long term (for shares held for more than one year). Your Taxpayer Identification Number (TIN) is important. As with any financial account you open, you must list your current and correct Taxpayer Identification Number (TIN) -- either your Social Security or Employer Identification number. The TIN must be certified under penalties of perjury on your application when you open an account at AEFC. If you don't provide the TIN, or the TIN you report is incorrect, you could be subject to backup withholding of 31% of taxable distributions and proceeds from certain sales and exchanges. You also could be subject to further penalties, such as: o a $50 penalty for each failure to supply your correct TIN o a civil penalty of $500 if you make a false statement that results in no backup withholding o criminal penalties for falsifying information You also could be subject to backup withholding because you failed to report interest or dividends on your tax return as required. PAGE 26 How to determine the correct TIN Use the Social Security or For this type of account: Employer Identification number of: Individual or joint account The individual or individuals listed on the account Custodian account of a minor The minor (Uniform Gifts/Transfers to Minors Act) A living trust The grantor-trustee (the person who puts the money into the trust) An irrevocable trust, pension The legal entity (not the trust or estate personal representative or trustee, unless no legal entity is designated in the account title) Sole proprietorship or The owner or partnership partnership Corporate The corporation Association, club or The organization tax-exempt organization For details on TIN requirements, ask your financial advisor or local American Express Financial Advisors office for Federal Form W-9, "Request for Taxpayer Identification Number and Certification." Important: This information is a brief and selective summary of certain federal tax rules that apply to this fund. Tax matters are highly individual and complex, and you should consult a qualified tax advisor about your personal situation. How the fund is organized The fund is a diversified, open-end management investment company, as defined in the Investment Company Act of 1940. It was incorporated on March 12, 1985 in Minnesota. The fund headquarters are at 901 S. Marquette Ave., Suite 2810, Minneapolis, MN 55402- 3268. PAGE 27 Shares The fund is owned by its shareholders. The fund issues shares in three classes - Class A, Class B and Class Y. Each class has different sales arrangements and bears different expenses. Each class represents interests in the assets of the fund. Par value is 1 cent per share. Both full and fractional shares can be issued. The fund no longer issues stock certificates. Voting rights As a shareholder, you have voting rights over the fund's management and fundamental policies. You are entitled to one vote for each share you own. Each class has exclusive voting rights with respect to the provisions of the fund's distribution plan that pertain to a particular class and other matters for which separate class voting is appropriate under applicable law. Shareholder meetings The fund does not hold annual shareholder meetings. However, the directors may call meetings at their discretion, or on demand by holders of 10% or more of the outstanding shares, to elect or remove directors. Directors and officers Shareholders elect a board of directors that oversees the operations of the fund and chooses its officers. Its officers are responsible for day-to-day business decisions based on policies set by the board. The board has named an executive committee that has authority to act on its behalf between meetings. The directors also serve on the boards of all of the other funds in the IDS MUTUAL FUND GROUP, except for Mr. Dudley, who is a director of all publicly offered funds. Directors and officers of the fund President and interested director William R. Pearce President of all funds in the IDS MUTUAL FUND GROUP. Independent directors 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. PAGE 28 Anne P. Jones Attorney and telecommunications consultant. Donald M. Kendall Former chairman and chief executive officer, PepsiCo, Inc. Melvin R. Laird Senior counsellor for national and international affairs, The Reader's Digest Association, Inc. Lewis W. Lehr Former chairman and chief executive officer, Minnesota Mining and Manufacturing Company (3M). Edson W. Spencer Former chairman and chief executive officer, Honeywell, Inc. Wheelock Whitney Chairman, Whitney Management Company. C. Angus Wurtele Chairman of the board and chief executive officer, The Valspar Corporation. Interested directors who are officers and/or employees of AEFC William H. Dudley Executive vice president, AEFC. David R. Hubers President and chief executive officer, AEFC. John R. Thomas Senior vice president, AEFC. Officers who also are officers and/or employees of AEFC Peter J. Anderson Vice president of all funds in the IDS MUTUAL FUND GROUP. Melinda S. Urion Treasurer of all funds in the IDS MUTUAL FUND GROUP. Other officer Leslie L. Ogg Vice president, general counsel and secretary of all funds in the IDS MUTUAL FUND GROUP. Refer to the SAI for the directors' and officers' biographies. Investment manager and transfer agent The fund pays AEFC for managing its portfolio, providing administrative services and serving as transfer agent (handling shareholder accounts). PAGE 29 Under its Investment Management Services Agreement, AEFC determines which securities will be purchased, held or sold (subject to the direction and control of the fund's board of directors). Under the current agreement, effective March 20, 1995, the fund pays AEFC a fee for these services based on the average daily net assets of the fund, as follows: Assets Annual rate (billions) at each asset level First $1.0 0.520% Next 1.0 0.495 Next 1.0 0.470 Next 3.0 0.445 Next 3.0 0.420 Over 9.0 0.395 For the fiscal year ended June 30, 1995, under the current and prior agreements, the fund paid AEFC a total investment management fee of 0.52% of its average daily net assets. Under the Agreement, the fund also pays taxes, brokerage commissions and nonadvisory expenses. Under an Administrative Services Agreement, the fund pays AEFC for administration and accounting services at an annual rate of 0.05% decreasing in gradual percentages to 0.025% as assets increase. In addition, 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 Distributor The fund sells shares through American Express Financial Advisors, a wholly owned subsidiary of AEFC, under a Distribution Agreement. Financial advisors representing American Express Financial Advisors provide information to investors about individual investment programs, the fund and its operations, new account applications, exchange and redemption requests. The cost of these services is paid partially by the fund's sales charge. Portions of sales charges may be paid to securities dealers who have sold the fund's shares, or to banks and other financial institutions. The proceeds paid to others range from 0.8% to 4% of the fund's offering price depending on the monthly sales volume. For Class B shares, to help defray costs not covered by sales charges, including costs for marketing, sales administration, training, overhead, direct marketing programs, advertising and related functions, the fund pays American Express Financial Advisors a distribution fee, also known as a 12b-1 fee. This fee PAGE 30 is paid under a Plan and Agreement of Distribution that follows the terms of Rule 12b-1 of the Investment Company Act of 1940. Under this Agreement, 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. The total 12b-1 fee paid by the fund under the current agreement for the fiscal year ended June 30, 1995 was 0.75% of its average daily net assets. This fee will not cover all of the costs incurred by American Express Financial Advisors. For Class A shares, the total 12b-1 fee paid by the fund under the prior agreement for the fiscal year ended June 30, 1995 was 0.03% of its average daily net assets. Under a Shareholder Service Agreement, the fund also pays a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.175% of the fund's average daily net assets attributable to Class A and Class B shares. Total annualized expenses paid by the fund in the fiscal year ended June 30, 1995 were 0.90% of its average daily net assets for Class A shares, 1.66% for Class B and 0.73% for Class Y. Total fees and expenses (excluding taxes and brokerage commissions) cannot exceed the most restrictive applicable state expense limitation. About American Express Financial Corporation General information The AEFC family of companies offers not only mutual funds but also insurance, annuities, investment certificates and a broad range of financial management services. Besides managing investments for all publicly offered funds in the IDS MUTUAL FUND GROUP, AEFC also manages investments for itself and its subsidiaries, IDS Certificate Company and IDS Life Insurance Company. Total assets under management on May 31, 1995 were more than $118 billion. American Express Financial Advisors serves individuals and businesses through its nationwide network of more than 175 offices and more than 7,900 advisors. Other AEFC subsidiaries provide investment management and related services for pension, profit sharing, employee savings and endowment funds of businesses and institutions. AEFC is located at IDS Tower 10, Minneapolis, MN 55440-0010. It is a wholly owned subsidiary of American Express Company, a financial services company with headquarters at American Express Tower, World Financial Center, New York, NY 10285. The fund may pay brokerage commissions to broker-dealer affiliates of American Express and AEFC. PAGE 31 Appendix Descriptions of derivative instruments What follows are brief descriptions of derivative instruments the fund may use. At various times the fund may use some or all of these instruments and is not limited to these instruments. It may use other similar types of instruments if they are consistent with the fund's investment goal and policies. For more information on these instruments, see the Statement of Additional Information. Options and futures contracts. An option is an agreement to buy or sell an instrument at a set price during a certain period of time. A futures contract is an agreement to buy and sell an instrument for a set price on a future date. The fund may buy and sell options and futures contracts to manage its exposure to changing interest rates, security prices and currency exchange rates. Options and futures may be used to hedge the fund's investments against price fluctuations or to increase market exposure. Asset-backed and mortgage-backed securities. Asset-backed and mortgage-backed securities include interests in pools of consumer loans or mortgages, such as collateralized mortgage obligations and stripped mortgage-backed securities. Interest and principal payments depend on payment of the underlying loans or mortgages. The value of these securities may also be affected by changes in interest rates, the market's perception of the issuers and the creditworthiness of the parties involved. Stripped mortgage-backed securities include interest only (IO) and principal only (PO) securities. Cash flows and yields on IOs and POs are extremely sensitive to the rate of principal payments on the underlying mortgage loans or mortgage-backed securities. Indexed securities. The value of indexed securities is linked to currencies, interest rates, commodities, indexes or other financial indicators. Most indexed securities are short- to intermediate- term fixed income securities whose values at maturity or interest rates rise or fall according to the change in one or more specified underlying instruments. Indexed securities may be more volatile than the underlying instrument itself. Inverse floaters. Inverse floaters are created using the interest payment on securities. A portion of the interest received is paid to holders of instruments based on current interest rates for short-term securities. The remainder, minus a servicing fee, is paid to holders of inverse floaters. Inverse floaters are extremely sensitive to changes in interest rates. Structured products. Structured products are over-the-counter financial instruments created specifically to meet the needs of one or a small number of investors. The instrument may consist of a warrant, an option or a forward contract embedded in a note or any of a wide variety of debt, equity and/or currency combinations. PAGE 32 Risks of structured products include the inability to close such instruments, rapid changes in the market and defaults by other parties. PAGE 33 STATEMENT OF ADDITIONAL INFORMATION FOR IDS FEDERAL INCOME FUND August 29, 1995 This Statement of Additional Information (SAI) is not a prospectus. It should be read together with the prospectus and the financial statements contained in the Annual Report which may be obtained from your American Express financial advisor or by writing to American Express Shareholder Service, P.O. Box 534, Minneapolis, MN 55440-0534. This SAI is dated Aug. 29, 1995, and it is to be used with the prospectus dated Aug. 29, 1995, and the Annual Report for the fiscal year ended June 30, 1995. PAGE 34 TABLE OF CONTENTS Goal and Investment Policies.........................See Prospectus Additional Investment Policies................................p. 3 Portfolio Transactions........................................p. 6 Brokerage Commissions Paid to Brokers Affiliated with American Express Financial Corporation........................p. 8 Performance Information.......................................p. 9 Valuing Fund Shares...........................................p. 11 Investing in the Fund.........................................p. 12 Redeeming Shares..............................................p. 16 Pay-out Plans.................................................p. 17 Exchanges.....................................................p. 18 Capital Loss Carryover........................................p. 19 Taxes.........................................................p. 19 Agreements....................................................p. 20 Directors and Officers........................................p. 23 Custodian.....................................................p. 28 Independent Auditors..........................................p. 28 Financial Statements..............................See Annual Report Prospectus....................................................p. 28 Appendix A: Description of Commercial Paper Ratings..........p. 29 Appendix B: Mortgage-Backed Securities.......................p. 30 Appendix C: Options and Interest Rate Futures Contracts......p. 31 Appendix D: Dollar-Cost Averaging............................p. 38 PAGE 35 ADDITIONAL INVESTMENT POLICIES These are investment policies in addition to those presented in the prospectus. Unless holders of a majority of the outstanding shares agree to make the change the fund will not: 'Act as an underwriter (sell securities for others). However, under the securities laws, the fund may be deemed to be an underwriter when it purchases securities directly from the issuer and later resells them. 'Borrow money or property, except as a temporary measure for extraordinary or emergency purposes, in an amount not exceeding one-third of the market value of its total assets (including borrowings) less liabilities (other than borrowings) immediately after the borrowing. The fund has not borrowed in the past and has no present intention to borrow. 'Make cash loans if the total commitment amount exceeds 5% of the fund's total assets. 'Purchase more than 10% of the outstanding voting securities of an issuer. 'Invest more than 5% of its total assets in securities of any one company, government or political subdivision thereof, except the limitation will not apply to investments in securities issued by the U.S. government, its agencies or instrumentalities, and except that up to 25% of the fund's total assets may be invested without regard to this limitation. 'Buy or sell real estate, unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business or real estate investment trusts. For purposes of this policy, real estate includes real estate limited partnerships. 'Buy or sell physical commodities unless acquired as a result of ownership of securities or other instruments, except this shall not prevent the fund from buying or selling options and futures contracts or from investing in securities or other instruments backed by, or whose value is derived from, physical commodities. 'Make a loan of any part of its assets to American Express Financial Corporation (AEFC), to the directors and officers of AEFC or to its own directors and officers. 'Purchase securities of an issuer if the directors and officers of the fund and of AEFC hold more than a certain percentage of the issuer's outstanding securities. If the holdings of all directors and officers of the fund and of AEFC who own more than 0.5% of an issuer's securities are added together, and if in total they own more than 5%, the fund will not purchase securities of that issuer. PAGE 36 'Lend fund securities in excess of 30% of its net assets. The current policy of the fund's board of directors (the "board") is to make these loans, either long- or short-term, to broker-dealers. In making such loans the fund gets the market price in cash, U.S. government securities, letters of credit or such other collateral as may be permitted by regulatory agencies and approved by the board. If the market price of the loaned securities goes up, the fund will get additional collateral on a daily basis. The risks are that the borrower may not provide additional collateral when required or return the securities when due. During the existence of the loan, the fund receives cash payments equivalent to all interest or other distributions paid on the loaned securities. A loan will not be made unless the investment manager believes the opportunity for additional income outweighs the risks. 'Issue senior securities, except this restriction shall not be deemed to prohibit the fund from borrowing from banks, using options or futures contracts, lending its securities or entering into repurchase agreements. 'Buy any property or security (other than securities issued by the fund) from any director or officer of AEFC or the fund, nor will the fund sell any property or security to them. 'Concentrate in any one industry. According to the present interpretation by the Securities and Exchange Commission (SEC), this means no more than 25% of the fund's total assets, based on current market value at the time of purchase, can be invested in any one industry. Unless changed by the board, the fund will not: 'Buy on margin or sell short, except it may enter into interest rate futures contracts. 'Pledge or mortgage its assets beyond 15% of total assets. If the fund were ever to do so, valuation of the pledged or mortgaged assets would be based on market values. For purposes of this restriction, collateral arrangements for margin deposits on futures contracts are not deemed to be a pledge of assets. 'Invest more than 5% of its total assets in securities of companies, including any predecessors, that have a record of less than three years continuous operations. 'Invest more than 5% of its net assets in warrants. Under one state's law no more than 2% of the fund's net assets may be invested in warrants not listed on the New York or American Stock Exchange. 'Invest more than 10% of its total assets in securities of investment companies. 'Invest in a company to control or manage it. PAGE 37 'Invest in exploration or development programs, such as oil, gas or mineral leases. 'Invest in a company if the fund's investments would result in the total holdings of all the funds in the IDS MUTUAL FUND GROUP being in excess of 15% of that company's issued shares. 'Invest more than 10% of its net assets in securities and derivative instruments that are illiquid. For purposes of this policy illiquid securities include some privately placed securities, public securities and Rule 144A securities that for one reason or another may no longer have a readily available market, repurchase agreements with maturities greater than seven days, non- negotiable fixed-time deposits and over-the-counter options. For purposes of complying with Ohio law, the fund will not invest more than 15% of its total assets in a combination of illiquid securities, 144A securities and securities of companies, including any predecessor, that have a record of less than three years continuous operations. In determining the liquidity of Rule 144A securities, which are unregistered securities offered to qualified institutional buyers, the investment manager, under guidelines established by the board, will consider any relevant factors including the frequency of trades, the number of dealers willing to purchase or sell the security and the nature of marketplace trades. In determining the liquidity of commercial paper issued in transactions not involving a public offering under Section 4(2) of the Securities Act of 1933, the investment manager, under guidelines established by the board, will evaluate relevant factors such as the issuer and the size and nature of its commercial paper programs, the willingness and ability of the issuer or dealer to repurchase the paper, and the nature of the clearance and settlement procedures for the paper. The fund may maintain a portion of its assets in cash and cash- equivalent investments. The cash-equivalent investments the fund may use are short-term U.S. and Canadian government securities and negotiable certificates of deposit, non-negotiable fixed-time deposits, bankers' acceptances and letters of credit of banks or savings and loan associations having capital, surplus and undivided profits (as of the date of its most recently published annual financial statements) in excess of $100 million (or the equivalent in the instance of a foreign branch of a U.S. bank) at the date of investment. The fund also may purchase short-term commercial paper rated P-2 or better by Moody's or A-2 or better by S&P or the equivalent and may use repurchase agreements with broker-dealers registered under the Securities Exchange Act of 1934 and with commercial banks. A risk of a repurchase agreement is that if the seller seeks the protection of the bankruptcy laws, the fund's ability to liquidate the security involved could be impaired. PAGE 38 Notwithstanding any of the fund's other investment policies, the fund may invest its assets in an open-end management investment company having substantially the same investment objectives, policies and restrictions as the fund for the purpose of having those assets managed as part of a combined pool. For a description of commercial paper ratings, see Appendix A. For a discussion on mortgage-backed securities, see Appendix B. For a discussion on options and interest rate futures contracts, see Appendix C. PORTFOLIO TRANSACTIONS Subject to policies set by the board, AEFC is authorized to determine, consistent with the fund's investment goal and policies, which securities will be purchased, held or sold. In determining where the buy and sell orders are to be placed, AEFC has been directed to use its best efforts to obtain the best available price and most favorable execution except where otherwise authorized by the board. AEFC has a strict Code of Ethics that prohibits its affiliated personnel from engaging in personal investment activities that compete with or attempt to take advantage of planned portfolio transactions for any fund in the IDS MUTUAL FUND GROUP. AEFC carefully monitors compliance with its Code of Ethics. Normally, the fund's securities are traded on a principal rather than an agency basis. In other words, AEFC will trade directly with the issuer or with a dealer who buys or sells for its own account, rather than acting on behalf of another client. AEFC does not pay the dealer commissions. Instead, the dealer's profit, if any, is the difference, or spread, between the dealer's purchase and sale price for the security. On occasion, it may be desirable to compensate a broker for research services or for brokerage services by paying a commission that might not otherwise be charged or a commission in excess of the amount another broker might charge. The board has adopted a policy authorizing AEFC to do so to the extent authorized by law, if AEFC determines, in good faith, that such commission is reasonable in relation to the value of the brokerage or research services provided by a broker or dealer, viewed either in the light of that transaction or AEFC's overall responsibilities to the funds in the IDS MUTUAL FUND GROUP and other funds for which it acts as investment advisor. PAGE 39 Research provided by brokers supplements AEFC's own research activities. Such services include economic data on, and analysis of, U.S. and foreign economies; information on specific industries; information about specific companies, including earnings estimates; purchase recommendations for stocks and bonds; portfolio strategy services; political, economic, business and industry trend assessments; historical statistical information; market data services providing information on specific issues and prices; and technical analysis of various aspects of the securities markets, including technical charts. Research services may take the form of written reports, computer software or personal contact by telephone or at seminars or other meetings. AEFC has obtained, and in the future may obtain, computer hardware from brokers, including but not limited to personal computers that will be used exclusively for investment decision-making purposes, which include the research, portfolio management and trading functions and other services to the extent permitted under an interpretation by the Securities and Exchange Commission. When paying a commission that might not otherwise be charged or a commission in excess of the amount another broker might charge, AEFC must follow procedures authorized by the board. To date, three procedures have been authorized. One procedure permits AEFC to direct an order to buy or sell a security traded on a national securities exchange to a specific broker for research services it has provided. The second procedure permits AEFC, in order to obtain research, to direct an order on an agency basis to buy or sell a security traded in the over-the-counter market to a firm that does not make a market in that security. The commission paid generally includes compensation for research services. The third procedure permits AEFC, in order to obtain research and brokerage services, to cause the fund to pay a commission in excess of the amount another broker might have charged. AEFC has advised the fund it is necessary to do business with a number of brokerage firms on a continuing basis to obtain such services as the handling of large orders, the willingness of a broker to risk its own money by taking a position in a security, and the specialized handling of a particular group of securities that only certain brokers may be able to offer. As a result of this arrangement, some portfolio transactions may not be effected at the lowest commission, but AEFC believes it may obtain better overall execution. AEFC has assured the fund that under all three procedures the amount of commission paid will be reasonable and competitive in relation to the value of the brokerage services performed or research provided. All other transactions shall be placed on the basis of obtaining the best available price and the most favorable execution. In so doing, if in the professional opinion of the person responsible for selecting the broker or dealer, several firms can execute the transaction on the same basis, consideration will be given by such person to those firms offering research services. Such services may be used by AEFC in providing advice to all the funds in the IDS MUTUAL FUND GROUP even though it is not possible to relate the benefits to any particular fund or account. PAGE 40 Each investment decision made for the fund is made independently from any decision made for another fund in the IDS MUTUAL FUND GROUP or other account advised by AEFC or any of its subsidiaries. When the fund buys or sells the same security as another fund or account, AEFC carries out the purchase or sale in a way the fund agrees in advance is fair. Although sharing in large transactions may adversely affect the price or volume purchased or sold by the fund, the fund hopes to gain an overall advantage in execution. AEFC has assured the fund it will continue to seek ways to reduce brokerage costs. On a periodic basis, AEFC makes a comprehensive review of the broker-dealers and the overall reasonableness of their commissions. The review evaluates execution, operational efficiency and research services. The fund paid total brokerage commissions of $535,844 for the fiscal year ended June 30, 1995, $119,413 for fiscal year 1994, and $187,642 for fiscal year 1993. Substantially all firms through whom transactions were executed provide research services. No transactions were directed to brokers because of research services they provided to the fund. The fund acquired no securities of its regular brokers or dealers or of the parents of those brokers or dealers that derived more than 15% of gross revenue from securities-related activities during the fiscal year ended June 30, 1995. The portfolio turnover rate was 222% in the fiscal year ended June 30, 1995, and 304% in fiscal year 1994. Higher turnover rates may result in higher brokerage expenses. BROKERAGE COMMISSIONS PAID TO BROKERS AFFILIATED WITH AMERICAN EXPRESS FINANCIAL CORPORATION Affiliates of American Express Company (American Express) (of which AEFC is a wholly owned subsidiary) may engage in brokerage and other securities transactions on behalf of the fund according to procedures adopted by the fund's board and to the extent consistent with applicable provisions of the federal securities laws. AEFC will use an American Express affiliate only if (i) AEFC determines that the fund will receive prices and executions at least as favorable as those offered by qualified independent brokers performing similar brokerage and other services for the fund and (ii) the affiliate charges the fund commission rates consistent with those the affiliate charges comparable unaffiliated customers in similar transactions and if such use is consistent with terms of the Investment Management Services Agreement. AEFC may direct brokerage to compensate an affiliate. AEFC will receive research on South Africa from New Africa Advisors, a wholly-owned subsidiary of Sloan Financial Group. AEFC owns 100% of IDS Capital Holdings Inc. which in turn owns 40% of Sloan PAGE 41 Financial Group. New Africa Advisors will send research to AEFC and in turn AEFC will direct trades to a particular broker. The broker will have an agreement to pay New Africa Advisors. All transactions will be on a best execution basis. Compensation received will be reasonable for the services rendered. No brokerage commissions were paid to brokers affiliated with AEFC for the three most recent fiscal years. PERFORMANCE INFORMATION The fund may quote various performance figures to illustrate past performance. Average annual total return and current yield quotations used by the fund are based on standardized methods of computing performance as required by the SEC. An explanation of these and any other methods used by the fund to compute performance follows below. Average annual total return The fund may calculate average annual total return for a class for certain periods by finding the average annual compounded rates of return over the period that would equate the initial amount invested to the ending redeemable value, according to the following formula: P(1+T)n = ERV where: P = a hypothetical initial payment of $1,000 T = average annual total return n = number of years ERV = ending redeemable value of a hypothetical $1,000 payment, made at the beginning of a period, at the end of the period (or fractional portion thereof) Aggregate total return The fund may calculate aggregate total return for a class for certain periods representing the cumulative change in the value of an investment in the fund over a specified period of time according to the following formula: ERV - P P where: P = a hypothetical initial payment of $1,000 ERV = ending redeemable value of a hypothetical $1,000 payment, made at the beginning of a period, at the end of the period (or fractional portion thereof) PAGE 42 Annualized yield The fund may calculate an annualized yield for a class by dividing the net investment income per share deemed earned during a period by the net asset value per share on the last day of the period and annualizing the results. Yield is calculated according to the following formula: Yield = 2[(a-b + 1)6 - 1] cd where: a = dividends and interest earned during the period b = expenses accrued for the period (net of reimbursements) c = the average daily number of shares outstanding during the period that were entitled to receive dividends d = the maximum offering price per share on the last day of the period The fund's annualized yield was 6.14% for Class A, 5.73% for Class B and 6.67% for Class Y for the 30-day period ended June 30, 1995. The fund's yield, calculated as described above according to the formula prescribed by the SEC, is a hypothetical return based on market value yield to maturity for the fund's securities. It is not necessarily indicative of the amount which was or may be paid to the fund's shareholders. Actual amounts paid to fund shareholders are reflected in the distribution yield. Distribution yield Distribution yield is calculated according to the following formula: D divided by POP F equals DY 30 30 where: D = sum of dividends for 30-day period POP = sum of public offering price for 30-day period F = annualizing factor DY = distribution yield The fund's distribution yield was 6.03% for Class A, 5.63% for Class B and 6.55% for Class Y for the 30-day period ended June 30, 1995. In its sales material and other communications, the fund may quote, compare or refer to rankings, yields or returns as published by independent statistical services or publishers and publications such as The Bank Rate Monitor National Index, Barron's, Business Week, Donoghue's Money Market Fund Report, Financial Services Week, Financial Times, Financial World, Forbes, Fortune, Global Investor, PAGE 43 Institutional Investor, Investor's Daily, Kiplinger's Personal Finance, Lipper Analytical Services, Money, Mutual Fund Forecaster, Newsweek, The New York Times, Personal Investor, Stanger Report, Sylvia Porter's Personal Finance, USA Today, U.S. News and World Report, The Wall Street Journal and Wiesenberger Investment Companies Service. VALUING FUND SHARES The value of an individual share for each class is determined by using the net asset value before shareholder transactions for the day. On July 3, 1995, the first business day following the end of the fiscal year, the computation looked like this:
Net assets before Shares outstanding Net asset value shareholder transactions at end of previous day of one share Class A $977,777,711 divided by 196,735,958 equals $ 4.97 Class B 292,356,294 58,824,204 4.97 Class Y 85,535,007 17,210,263 4.97
In determining net assets before shareholder transactions, the fund's portfolio securities are valued as follows as of the close of business of the New York Stock Exchange: 'Securities, except bonds other than convertibles, traded on a securities exchange for which a last-quoted sales price is readily available are valued at the last-quoted sales price on the exchange where such security is primarily traded. 'Securities traded on a securities exchange for which a last-quoted sales price is not readily available are valued at the mean of the closing bid and asked prices, looking first to the bid and asked prices on the exchange where the security is primarily traded and, if none exist, to the over-the-counter market. 'Securities included in the NASDAQ National Market System are valued at the last-quoted sales price in this market. 'Securities included in the NASDAQ National Market System for which a last-quoted sales price is not readily available, and other securities traded over-the-counter but not included in the NASDAQ National Market System are valued at the mean of the closing bid and asked prices. 'Futures and options traded on major exchanges are valued at the last-quoted sales price on their primary exchange. 'Foreign securities traded outside the United States are generally valued as of the time their trading is complete, which is usually different from the close of the New York Stock Exchange (the "Exchange"). Foreign securities quoted in foreign currencies are translated into U.S. dollars at the current rate of exchange. Occasionally, events affecting the value of such securities may occur between such times and the close of the Exchange that will not be reflected in the computation of the fund's net asset value. If events materially affecting the value of such securities occur PAGE 44 during such period, these securities will be valued at their fair value according to procedures decided upon in good faith by the fund's board. 'Short-term securities maturing more than 60 days from the valuation date are valued at the readily available market price or approximate market value based on current interest rates. Short- term securities maturing in 60 days or less that originally had maturities of more than 60 days at acquisition date are valued at amortized cost using the market value on the 61st day before maturity. Short-term securities maturing in 60 days or less at acquisition date are valued at amortized cost. Amortized cost is an approximation of market value determined by systematically increasing the carrying value of a security if acquired at a discount, or reducing the carrying value if acquired at a premium, so that the carrying value is equal to maturity value on the maturity date. 'Securities without a readily available market price, bonds other than convertibles and other assets are valued at fair value as determined in good faith by the board. The board is responsible for selecting methods it believes provide fair value. When possible, bonds are valued by a pricing service independent from the fund. If a valuation of a bond is not available from a pricing service, the bond will be valued by a dealer knowledgeable about the bond if such a dealer is available. The New York Stock Exchange, AEFC and the fund will be closed on the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. INVESTING IN THE FUND Sales Charge Shares of the fund are sold at the public offering price determined at the close of business on the day an application is accepted. The public offering price is the net asset value of one share plus a sales charge, if applicable. For Class B and Class Y, there is no initial sales charge so the public offering price is the same as the net asset value. For a Class A, the public offering price for an investment of less than $50,000, made July 3, 1995, was determined by dividing the net asset value of one share, $4.97, by 0.95 (1.00-0.05 for a maximum 5% sales charge) for a public offering price of $5.23. The sales charge is paid to American Express Financial Advisors by the person buying the shares. PAGE 45 Class A - Calculation of the Sales Charge Sales charges are determined as follows: Within each increment, sales charge as a percentage of: Public Net Amount of Investment Offering Price Amount Invested First $ 50,000 5.0% 5.26% Next 50,000 4.5 4.71 Next 400,000 3.8 3.95 Next 500,000 2.0 2.04 $1,000,000 or more 0.0 0.00 Sales charges on an investment greater than $50,000 are calculated for each increment separately and then totaled. The resulting total sales charge, expressed as a percentage of the public offering price and of the net amount invested, will vary depending on the proportion of the investment at different sales charge levels. For example, compare an investment of $60,000 with an investment of $85,000. The $60,000 investment is composed of $50,000 that incurs a sales charge of $2,500 (5.0% x $50,000) and $10,000 that incurs a sales charge of $450 (4.5% x $10,000). The total sales charge of $2,950 is 4.92% of the public offering price and 5.17% of the net amount invested. In the case of the $85,000 investment, the first $50,000 also incurs a sales charge of $2,500 (5.0% x $50,000) and $35,000 incurs a sales charge of $1,575 (4.5% x $35,000). The total sales charge of $4,075 is 4.79% of the public offering price and 5.04% of the net amount invested. The following table shows the range of a sales charges as a percentage of the public offering price and of the net amount invested on total investments at each applicable level.
On total investment, sales charge as a percentage of Public Net Offering Price Amount Invested Amount of Investment ranges from: First $ 50,000 5.00% 5.26% More than 50,000 to 100,000 5.00-4.50 5.26-4.71 More than 100,000 to 500,000 4.50-3.80 4.71-3.95 More than 500,000 to 999,999 3.80-2.00 3.95-2.04 $1,000,000 or more 0.00 0.00
PAGE 46 The initial sales charge is waived for certain qualified plans that meet the requirements described in the prospectus. Participants in these qualified plans may be subject to a deferred sales charge on certain redemptions. The deferred sales charge on certain redemptions will be waived if the redemption is a result of a participant's death, disability, retirement, attaining age 59 1/2, loans or hardship withdrawals. The deferred sales charge varies depending on the number of participants in the qualified plan and total plan assets as follows: Deferred Sales Charge Number of Participants Total Plan Assets 1-99 100 or more Less than $1 million 4% 0% $1 million or more 0% 0% _________________________________________________________ Class A - Reducing the Sales Charge Sales charges are based on the total amount of your investments in the fund. The amount of all prior investments plus any new purchase is referred to as your "total amount invested." For example, suppose you have made an investment of $20,000 and later decide to invest $40,000 more. Your total amount invested would be $60,000. As a result, $10,000 of your $40,000 investment qualifies for the lower 4.5% sales charge that applies to investments of more than $50,000 to $100,000. The total amount invested includes any shares held in the fund in the name of a member of your immediate family (spouse and unmarried children under 21). For instance, if your spouse already has invested $20,000 and you want to invest $40,000, your total amount invested will be $60,000 and therefore you will pay the lower charge of 4.5% on $10,000 of the $40,000. Until a spouse remarries, the sales charge is waived for spouses and unmarried children under 21 of deceased trustees, directors, officers or employees of the fund or AEFC or its subsidiaries and deceased advisors. The total amount invested also includes any investment you or your immediate family already have in the other publicly offered funds in the IDS MUTUAL FUND GROUP where the investment is subject to a sales charge. For example, suppose you already have an investment of $25,000 in IDS Growth Fund and $5,000 in this fund. If you invest $40,000 more in this fund, your total amount invested in the funds will be $70,000 and therefore $20,000 of your $40,000 investment will incur a 4.5% sales charge. PAGE 47 Finally, Individual Retirement Account (IRA) purchases, or other employee benefit plan purchases made through a payroll deduction plan or through a plan sponsored by an employer, association of employers, employee organization or other similar entity, may be added together to reduce sales charges for shares purchased through that plan. Class A - Letter of Intent (LOI) If you intend to invest $1 million over a period of 13 months, you can reduce the sales charges in Class A by filing a LOI. The agreement can start at any time and will remain in effect for 13 months. Your investment will be charged normal sales charges until you have invested $1 million. At that time, your account will be credited with the sales charges previously paid. If you do not invest $1 million by the end of 13 months, there is no penalty, you'll just miss out on the sales charge adjustment. A LOI is not an option (absolute right) to buy shares. Here's an example. You file a LOI to invest $1 million and make an investment of $100,000 at that time. You pay the normal 5% sales charge on the first $50,000 and 4.5% sales charge on the next $50,000 of this investment. Let's say you make a second investment of $900,000 (bringing the total up to $1 million) one month before the 13-month period is up. AEFC makes an adjustment at the point that you reach $1 million. The adjustment is made by crediting your account with sales charges previously paid. The net effect is that there's no sales charge on the total $1 million investment. Systematic Investment Programs After you make your initial investment of $2,000 or more, you can arrange to make additional payments of $100 or more on a regular basis. These minimums do not apply to all systematic investment programs. You decide how often to make payments - monthly, quarterly or semiannually. You are not obligated to make any payments. You can omit payments or discontinue the investment program altogether. The fund also can change the program or end it at any time. If there is no obligation, why do it? Putting money aside is an important part of financial planning. With a systematic investment program, you have a goal to work for. How does this work? Your regular investment amount will purchase more shares when the net asset value per share decreases, and fewer shares when the net asset value per share increases. Each purchase is a separate transaction. After each purchase your new shares will be added to your account. Shares bought through these programs are exactly the same as any other fund shares. They can be bought and sold at any time. A systematic investment program is not an option or an absolute right to buy shares. The systematic investment program itself cannot ensure a profit, nor can it protect against a loss in a declining market. If you PAGE 48 decide to discontinue the program and redeem your shares when their net asset value is less than what you paid for them, you will incur a loss. For a discussion on dollar-cost averaging, see Appendix D. Automatic Directed Dividends Dividends, including capital gain distributions, paid by another fund in the IDS MUTUAL FUND GROUP subject to a sales charge, may be used to automatically purchase shares in the same class of this fund without paying a sales charge. Dividends may be directed to existing accounts only. Dividends declared by a fund are exchanged to this fund the following day. Dividends can be exchanged into one fund but cannot be split to make purchases in two or more funds. Automatic directed dividends are available between accounts of any ownership except: Between a non-custodial account and an IRA, or 401(k) plan account or other qualified retirement account of which American Express Trust Company acts as custodian; Between two American Express Trust Company custodial accounts with different owners (for example, you may not exchange dividends from your IRA to the IRA of your spouse); Between different kinds of custodial accounts with the same ownership (for example, you may not exchange dividends from your IRA to your 401(k) plan account, although you may exchange dividends from one IRA to another IRA). Dividends may be directed from accounts established under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) only into other UGMA or UTMA accounts with identical ownership. The fund's investment goal is described in its prospectus along with other information, including fees and expense ratios. Before exchanging dividends into another fund, you should read its prospectus. You will receive a confirmation that the automatic directed dividend service has been set up for your account. REDEEMING SHARES You have a right to redeem your shares at any time. For an explanation of redemption procedures, please see the prospectus. During an emergency, the board can suspend the computation of net asset value, stop accepting payments for purchase of shares or suspend the duty of the fund to redeem shares for more than seven days. Such emergency situations would occur if: PAGE 49 'The New York Stock Exchange closes for reasons other than the usual weekend and holiday closings or trading on the Exchange is restricted, or 'Disposal of the fund's securities is not reasonably practicable or it is not reasonably practicable for the fund to determine the fair value of its net assets, or 'The SEC, under the provisions of the Investment Company Act of 1940, as amended, declares a period of emergency to exist. Should the fund stop selling shares, the board may make a deduction from the value of the assets held by the fund to cover the cost of future liquidations of the assets so as to distribute fairly these costs among all shareholders. PAY-OUT PLANS You can use any of several pay-out plans to redeem your investment in regular installments. If you redeem Class B shares you may be subject to a contingent deferred sales charge as discussed in the prospectus. While the plans differ on how the pay-out is figured, they all are based on the redemption of your investment. Net investment income dividends and any capital gain distributions will automatically be reinvested, unless you elect to receive them in cash. If you are redeeming a tax-qualified plan account for which American Express Trust Company acts as custodian, you can elect to receive your dividends and other distributions in cash when permitted by law. If you redeem an IRA or a qualified retirement account, certain restrictions, federal tax penalties and special federal income tax reporting requirements may apply. You should consult your tax advisor about this complex area of the tax law. Applications for a systematic investment in a class of the fund subject to a sales charge normally will not be accepted while a pay-out plan for any of those funds is in effect. Occasional investments, however, may be accepted. To start any of these plans, please write or call American Express Shareholder Service, P.O. Box 534, Minneapolis, MN 55440-0534, 612- 671-3733. Your authorization must be received in the Minneapolis headquarters at least five days before the date you want your payments to begin. The initial payment must be at least $50. Payments will be made on a monthly, bimonthly, quarterly, semiannual or annual basis. Your choice is effective until you change or cancel it. The following pay-out plans are designed to take care of the needs of most shareholders in a way AEFC can handle efficiently and at a reasonable cost. If you need a more irregular schedule of payments, it may be necessary for you to make a series of individual redemptions, in which case you'll have to send in a separate redemption request for each pay-out. The fund reserves the right to change or stop any pay-out plan and to stop making such plans available. PAGE 50 Plan #1: Pay-out for a fixed period of time If you choose this plan, a varying number of shares will be redeemed at regular intervals during the time period you choose. This plan is designed to end in complete redemption of all shares in your account by the end of the fixed period. Plan #2: Redemption of a fixed number of shares If you choose this plan, a fixed number of shares will be redeemed for each payment and that amount will be sent to you. The length of time these payments continue is based on the number of shares in your account. Plan #3: Redemption of a fixed dollar amount If you decide on a fixed dollar amount, whatever number of shares is necessary to make the payment will be redeemed in regular installments until the account is closed. Plan #4: Redemption of a percentage of net asset value Payments are made based on a fixed percentage of the net asset value of the shares in the account computed on the day of each payment. Percentages range from 0.25% to 0.75%. For example, if you are on this plan and arrange to take 0.5% each month, you will get $50 if the value of your account is $10,000 on the payment date. EXCHANGES If you buy shares in the fund and then exchange into another fund, it is considered a sale and subsequent purchase of shares. Under the tax laws, if this exchange is done within 91 days, any sales charge waived on Class A shares on a subsequent purchase of shares applies to the new shares acquired in the exchange. Therefore, you cannot create a tax loss or reduce a tax gain attributable to the sales charge when exchanging shares within 91 days. Retirement Accounts If you have a nonqualified investment in the fund and you wish to move part or all of those shares to an IRA or qualified retirement account in the fund, you can do so without paying a sales charge. However, this type of exchange is considered a sale of shares and may result in a gain or loss for tax purposes. In addition, this type of exchange may result in an excess contribution under IRA or qualified plan regulations if the amount exchanged plus the amount of the initial sales charge applied to the amount exchanged exceeds annual contribution limitations. For example: If you were to exchange $2,000 in Class A shares from a nonqualified account to an IRA without considering the 5% ($100) initial sales charge applicable to that $2,000, you may be deemed to have exceeded current IRA annual contribution limitations. You should consult your tax advisor for further details about this complex subject. PAGE 51 CAPITAL LOSS CARRYOVER For federal income tax purposes, the fund had capital loss carryover of $47,903,664 at June 30, 1995, that will expire as follows: 2002 2003 $32,363,757 $15,539,907 It is unlikely that the board of directors will authorize a distribution of any net realized capital gains until the available capital loss carryover has been offset or has expired except as required by Internal Revenue Service rules. TAXES Net investment income dividends received should be treated as dividend income for federal income tax purposes. Corporate shareholders are generally entitled to a deduction equal to 70% of that portion of the fund's dividend that is attributable to dividends the fund received from domestic (U.S.) securities. For the fiscal year ended June 30, 1995, none of the fund's net investment income dividends qualified for the corporate deduction for Class A, Class B and Class Y. Capital gain distributions received by individual and corporate shareholders, if any, should be treated as long-term capital gains regardless of how long they owned their shares. Short-term capital gains earned by the fund are paid to shareholders as part of their ordinary income dividend and are taxable. Under federal tax law, by the end of a calendar year the fund must declare and pay dividends representing 98% of ordinary income for that calendar year and 98% of net capital gains (both long-term and short-term) for the 12-month period ending Oct. 31 of that calendar year. The fund is subject to an excise tax equal to 4% of the excess, if any, of the amount required to be distributed over the amount actually distributed. The fund intends to comply with federal tax law and avoid any excise tax. This is a brief summary that relates to federal income taxation only. Shareholders should consult their tax advisor as to the application of federal, state and local income tax laws to fund distributions. PAGE 52 AGREEMENTS Investment Management Services Agreement The fund has an Investment Management Services Agreement with AEFC. For its services, AEFC is paid a fee based on the following schedule: Assets Annual rate at (billions) each asset level First $1.0 0.520% Next 1.0 0.495 Next 1.0 0.470 Next 3.0 0.445 Next 3.0 0.420 Over 9.0 0.395 On June 30, 1995, the daily rate applied to the fund's net assets was equal to 0.51% on an annual basis. The fee is calculated for each calendar day on the basis of net assets as of the close of business two business days prior to the day for which the calculation is made. The management fee is paid monthly. Under the prior and current agreements, the total amount paid was $5,683,320 for the fiscal year ended June 30, 1995, $5,369,312 for fiscal year 1994, and $5,135,288 for fiscal year 1993. Under the current Agreement, the fund also pays taxes, brokerage commissions and nonadvisory expenses, that include custodian fees; audit and certain legal fees; fidelity bond premiums; registration fees for shares; fund office expenses; consultants' fees; compensation of directors, officers and employees; corporate filing fees; organizational expenses; expenses incurred in connection with lending portfolio securities of the fund; and expenses properly payable by the fund, approved by the board. Under the prior and current agreements, the fund paid nonadvisory expenses of $594,896 for the fiscal year ended June 30, 1995, $687,292 for fiscal year 1994, and $728,659 for fiscal year 1993. PAGE 53 Administrative Services Agreement The fund has an Administrative Services Agreement with AEFC. Under this agreement, the fund pays AEFC for providing administration and accounting services. The fee is calculated as follows: Assets Annual rate (billions) each asset level First $1 0.050% Next 1 0.045 Next 1 0.040 Next 3 0.035 Next 3 0.030 Over 9 0.025 On June 30, 1995, the daily rate applied to the fund's net assets was equal to 0.05% on an annual basis. The fee is calculated for each calendar day on the basis of net assets as of the close of business two business days prior to the day for which the calculation is made. Transfer Agency Agreement The fund has a Transfer Agency Agreement with AEFC. This agreement governs AEFC's responsibility for administering and/or performing transfer agent functions, for acting as service agent in connection with dividend and distribution functions and for performing shareholder account administration agent functions in connection with the issuance, exchange and redemption or repurchase of the fund's shares. Under the agreement, AEFC will earn a fee from the fund determined by multiplying the number of shareholder accounts at the end of the day by a rate determined for each class per year and dividing by the number of days in the year. The rate for Class A and Class Y is $15.50 per year and for Class B is $16.50 per year. The fees paid to AEFC may be changed from time to time upon agreement of the parties without shareholder approval. The fund paid fees of $1,329,368 for the fiscal year ended June 30, 1995. Distribution Agreement Under a Distribution Agreement, sales charges deducted for distributing fund shares are paid to American Express Financial Advisors daily. These charges amounted to $22,590,635 for Class A and $86,206 for Class B for the fiscal year ended June 30, 1995. After paying commissions to personal financial advisors, and other expenses, the amount retained was $7,895,638 for Class A and $2,970,157 for Class B. The amounts were $23,989,780 and $8,314,808 for fiscal year 1994, and $22,570,176 and $7,958,181 for fiscal year 1993. PAGE 54 Additional information about commissions and compensation for the fiscal year ended June 30, 1995, is contained in the following table:
(1) (2) (3) (4) (5) Net Compensation Name of Underwriting on Redemption Principal Discounts and and Brokerage Other Underwriter Commissions Repurchases Commissions Compensation AEFC None $23,042 None $874,129* American Express Financial Advisors $22,676,841 None None None
*Distribution fees paid pursuant to the Plan and Supplemental Agreement of Distribution. Shareholder Service Agreement The fund pays a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.175% of the fund's average daily net assets attributable to Class A and Class B shares. Plan and Agreement of Distribution For Class B shares, to help American Express Financial Advisors defray the cost of distribution and servicing, not covered by the sales charges received under the Distribution Agreement, the fund and American Express Financial Advisors entered into a Plan and Agreement of Distribution (Plan). These costs cover almost all aspects of distributing the fund's shares except compensation to the sales force. A substantial portion of the costs are not specifically identified to any one fund in the IDS MUTUAL FUND GROUP. Under the Plan, American Express Financial Advisors is paid a fee at an annual rate of 0.75% of the fund's average daily net assets attributable to Class B shares. The Plan must be approved annually by the board, including a majority of the disinterested directors, if it is to continue for more than a year. At least quarterly, the board must review written reports concerning the amounts expended under the Plan and the purposes for which such expenditures were made. The Plan and any agreement related to it may be terminated at any time by vote of a majority of directors who are not interested persons of the fund and have no direct or indirect financial interest in the operation of the Plan or in any agreement related to the Plan, or by vote of a majority of the outstanding voting securities of the fund or by American Express Financial Advisors. The Plan (or any agreement related to it) will terminate in the event of its PAGE 55 assignment, as that term is defined in the Investment Company Act of 1940, as amended. The Plan may not be amended to increase the amount to be spent for distribution without shareholder approval, and all material amendments to the Plan must be approved by a majority of the directors, including a majority of the directors who are not interested persons of the fund and who do not have a financial interest in the operation of the Plan or any agreement related to it. The selection and nomination of disinterested directors is the responsibility of the other disinterested directors. No interested person of the fund, and no director who is not an interested person, has any direct or indirect financial interest in the operation of the Plan or any related agreement. Total fees and nonadvisory expenses cannot exceed the most restrictive applicable state limitation. Currently, the most restrictive applicable state expense limitation, subject to exclusion of certain expenses, is 2.5% of the first $30 million of the fund's average daily net assets, 2% of the next $70 million and 1.5% of average daily net assets over $100 million, on an annual basis. At the end of each month, if the fees and expenses of the fund exceed this limitation for the fund's fiscal year in progress, AEFC will assume all expenses in excess of the limitation. AEFC then may bill the fund for such expenses in subsequent months up to the end of that fiscal year, but not after that date. No interest charges are assessed by AEFC for expenses it assumes. DIRECTORS AND OFFICERS The following is a list of the fund's directors who, except for Mr. Dudley, also are directors of all other funds in the IDS MUTUAL FUND GROUP. Mr. Dudley is a director of all publicly offered funds. All shares have cumulative voting rights when voting on the election of directors. Lynne V. Cheney+' Born in 1941. American Enterprise Institute for Public Policy Research (AEI) 1150 17th St., N.W. Washington, D.C. Distinguished Fellow AEI. Former Chair of National Endowment of the Humanities. Director, The Reader's Digest Association Inc., Lockheed-Martin, and Interpublic Group of Companies, Inc. (advertising), and FPL Group, Inc. (holding company for Florida Power and Light). William H. Dudley+** Born in 1932. 2900 IDS Tower Minneapolis, MN Executive vice president and director of AEFC. PAGE 56 Robert F. Froehlke+ Born in 1922. 1201 Yale Place Minneapolis, MN Former president of all funds in the IDS MUTUAL FUND GROUP. Director, the ICI Mutual Insurance Co., Institute for Defense Analyses, Marshall Erdman and Associates, Inc. (architectural engineering) and Public Oversight Board of the American Institute of Certified Public Accountants. David R. Hubers** Born in 1943. 2900 IDS Tower Minneapolis, MN President, chief executive officer and director of AEFC. Previously, senior vice president, finance and chief financial officer of AEFC. Heinz F. Hutter+ Born in 1929. P.O. Box 5724 Minneapolis, MN President and chief operating officer, Cargill, Incorporated (commodity merchants and processors) from February 1991 to September 1994. Executive vice president from 1981 to February 1991. Anne P. Jones+ Born in 1935. 5716 Bent Branch Rd. Bethesda, MD Attorney and telecommunications consultant. Former partner, law firm of Sutherland, Asbill & Brennan. Director, Motorola, Inc. and C-Cor Electronics, Inc. Donald M. Kendall' Born in 1921. PepsiCo, Inc. Purchase, NY Former chairman and chief executive officer, PepsiCo, Inc. PAGE 57 Melvin R. Laird+ Born in 1922. Reader's Digest Association, Inc. 1730 Rhode Island Ave., N.W. Washington, D.C. Senior counsellor for national and international affairs, The Reader's Digest Association, Inc. Chairman of the board, COMSAT Corporation, former nine-term congressman, secretary of defense and presidential counsellor. Director, Martin Marietta Corp., Metropolitan Life Insurance Co., The Reader's Digest Association, Inc., Science Applications International Corp., Wallace Reader's Digest Funds and Public Oversight Board (SEC Practice Section, American Institute of Certified Public Accountants). Lewis W. Lehr' Born in 1921. 3050 Minnesota World Trade Center 30 E. Seventh St. St. Paul, MN Former chairman of the board and chief executive officer, Minnesota Mining and Manufacturing Company (3M). Director, Jack Eckerd Corporation (drugstores). Advisory Director, Peregrine Inc. (microelectronics). William R. Pearce+* Born in 1927. 901 S. Marquette Ave. Minneapolis, MN President of all funds in the IDS MUTUAL FUND GROUP since June 1993. Former vice chairman of the board, Cargill, Incorporated (commodity merchants and processors). Edson W. Spencer Born in 1926. 4900 IDS Center 80 S. 8th St. Minneapolis, MN President, Spencer Associates Inc. (consulting). Chairman of the board, Mayo Foundation (healthcare). Former chairman of the board and chief executive officer, Honeywell Inc. Director, Boise Cascade Corporation (forest products) and CBS Inc. Member of International Advisory Councils, Robert Bosch (Germany) and NEC (Japan). John R. Thomas** Born in 1937. 2900 IDS Tower Minneapolis, MN Senior vice president and director of AEFC. PAGE 58 Wheelock Whitney+ Born in 1926. 1900 Foshay Tower 821 Marquette Ave. Minneapolis, MN Chairman, Whitney Management Company (manages family assets). C. Angus Wurtele Born in 1934. 1101 S. 3rd St. Minneapolis, MN Chairman of the board and chief executive officer, The Valspar Corporation (paints). Director, Bemis Corporation (packaging), Donaldson Company (air cleaners & mufflers) and General Mills, Inc. (consumer foods). + Member of executive committee. ' Member of joint audit committee. * Interested person by reason of being an officer and employee of the fund. **Interested person by reason of being an officer, director, employee and/or shareholder of AEFC or American Express. The board also has appointed officers who are responsible for day- to-day business decisions based on policies it has established. Besides Mr. Pearce, who is president, the fund's other officers are: Peter J. Anderson*** Born in 1942. IDS Tower 10 Minneapolis, MN Vice president-investments of all funds in the IDS MUTUAL FUND GROUP. Director and senior vice president-investments of AEFC. Leslie L. Ogg Born in 1938. 901 S. Marquette Ave. Minneapolis, MN Vice president of all funds in the IDS MUTUAL FUND GROUP and general counsel and secretary of the publicly offered funds. PAGE 59 Melinda S. Urion*** Born in 1953. IDS Tower 10 Minneapolis, MN Treasurer of all funds in the IDS MUTUAL FUND GROUP. Vice president and corporate controller of AEFC. Director and executive vice president and controller of IDS Life Insurance Company. ***Officers and/or employees of AEFC. Members who are not officers of the fund or directors of AEFC receive an annual fee and retirement benefits from the fund. They also receive attendance and other fees, the cost of which the fund shares with the other funds in the IDS MUTUAL FUND GROUP. Members of this fund's board receive an annual fee of $1,500 and upon retirement at age 70, or earlier if for health reasons, such members also receive monthly payments equal to 1/2 of the annual fee divided by 12 for as many months as the member served on the board up to 120 months or until the date of death. There are no death benefits and the plan is not funded. The fees shared with other funds are those for attendance at meetings of the Contracts Committee, $750; meetings of the Audit, Board, Executive or Investment Review Committees, $500; meetings of the Personnel Committee, $300; out-of-state, $500; and Chair of the Contracts Committee, $5,000. Expenses also are reimbursed. During the fiscal year that ended June 30, 1995, the members of the board, for attending up to 31 meetings, received the following compensation, in total, from all funds in the IDS MUTUAL FUND GROUP.
Board compensation Aggregate Retirement Estimated Total Cash compensation benefits annual compensation from the accrued as benefit on from the IDS Board member fund fund expenses retirement MUTUAL FUND GROUP Lynne V. Cheney $2,034 $ 387 $875 $69,000 Robert F. Froehlke 2,132 1,523 875 73,000 Heinz F. Hutter 1,444 366 423 50,300 (Part of Year) Anne P. Jones 2,073 378 875 70,500 Donald M. Kendall 1,972 2,764 875 66,500 Melvin R. Laird 2,071 1,318 875 70,500 Lewis W. Lehr 2,041 1,919 184 69,200 Edson W. Spencer 2,162 918 467 74,200 Wheelock Whitney 2,084 743 875 71,000 C. Angus Wurtele 1,451 357 868 50,500 (Part of Year)
On June 30, 1995, the fund's directors and officers as a group owned less than 1% of the outstanding shares. During the fiscal year ended June 30, 1995, no director or officer earned more than $60,000 from this fund. All directors and officers as a group earned $36,658, including $10,673 of retirement plan expense, from this fund. PAGE 60 CUSTODIAN The fund's securities and cash are held by American Express Trust Company, 1200 Northstar Center West, 625 Marquette Ave., Minneapolis, MN 55402-2307, through a custodian agreement. The custodian is permitted to deposit some or all of its securities in central depository systems as allowed by federal law. INDEPENDENT AUDITORS The financial statements contained in the Annual Report to shareholders, for the fiscal year ended June 30, 1995, were audited by independent auditors, KPMG Peat Marwick LLP, 4200 Norwest Center, 90 S. Seventh St., Minneapolis, MN 55402-3900. The independent auditors also provide other accounting and tax-related services as requested by the fund. FINANCIAL STATEMENTS The Independent Auditors' Report and the Financial Statements, including Notes to the Financial Statements and the Schedule of Investments in Securities, contained in the 1995 Annual Report to shareholders, pursuant to Section 30(d) of the Investment Company Act of 1940, as amended, are hereby incorporated in this SAI by reference. No other portion of the Annual Report however, is incorporated by reference. PROSPECTUS The prospectus for IDS Federal Income Fund dated Aug. 29, 1995, is hereby incorporated in this SAI by reference. PAGE 61 APPENDIX A DESCRIPTION OF COMMERCIAL PAPER RATINGS Commercial paper rated Prime-1 (P-1) by Moody's or A-1 by S&P indicates that the degree of safety regarding timely repayment is either overwhelming or very strong. Commercial paper rated P-2 or A-2 indicates that capacity for timely payment on issues with this designation is strong. PAGE 62 APPENDIX B MORTGAGE-BACKED SECURITIES A mortgage pass through certificate is one that represents an interest in a pool, or group, of mortgage loans assembled by the Government National Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA) or non-governmental entities. In pass-through certificates, both principal and interest payments, including prepayments, are passed through to the holder of the certificate. Prepayments on underlying mortgages result in a loss of anticipated interest, and the actual yield (or total return) to the fund, which is influenced by both stated interest rates and market conditions, may be different than the quoted yield on certificates. Some U.S. government securities may be purchased on a "when-issued" basis, which means that it may take as long as 45 days after the purchase before the securities are delivered to the fund. Stripped Mortgage-Backed Securities. The fund may invest in stripped mortgage-backed securities. Generally, there are two classes of stripped mortgage-backed securities: Interest Only (IO) and Principal Only (PO). IOs entitle the holder to receive distributions consisting of all or a portion of the interest on the underlying pool of mortgage loans or mortgage-backed securities. POs entitle the holder to receive distributions consisting of all or a portion of the principal of the underlying pool of mortgage loans or mortgage-backed securities. The cash flows and yields on IOs and POs are extremely sensitive to the rate of principal payments (including prepayments) on the underlying mortgage loans or mortgage-backed securities. A rapid rate of principal payments may adversely affect the yield to maturity of IOs. A slow rate of principal payments may adversely affect the yield to maturity of POs. If prepayments of principal are greater than anticipated, an investor may incur substantial losses. If prepayments of principal are slower than anticipated, the yield on a PO will be affected more severely than would be the case with a traditional mortgage- backed security. Mortgage-Backed Security Spread Options. The fund may purchase mortgage-backed security (MBS) put spread options and write covered MBS call spread options. MBS spread options are based upon the changes in the price spread between a specified mortgage-backed security and a like-duration Treasury security. MBS spread options are traded in the OTC market and are of short duration, typically one to two months. The fund would buy or sell covered MBS call spread options in situations where mortgage-backed securities are expected to under perform like-duration Treasury securities. PAGE 63 APPENDIX C OPTIONS AND INTEREST RATE FUTURES CONTRACTS The fund may buy or write options traded on any U.S. exchange or in the over-the-counter market. The fund may enter into interest rate futures contracts traded on any U.S. exchange. The fund also may buy or write put and call options on these futures. Options in the over-the-counter market will be purchased only when the investment manager believes a liquid secondary market exists for the options and only from dealers and institutions the investment manager believes present a minimal credit risk. Some options are exercisable only on a specific date. In that case, or if a liquid secondary market does not exist, the fund could be required to buy or sell securities at disadvantageous prices, thereby incurring losses. OPTIONS. An option is a contract. A person who buys a call option for a security has the right to buy the security at a set price for the length of the contract. A person who sells a call option is called a writer. The writer of a call option agrees to sell the security at the set price when the buyer wants to exercise the option, no matter what the market price of the security is at that time. A person who buys a put option has the right to sell a security at a set price for the length of the contract. A person who writes a put option agrees to buy the security at the set price if the purchaser wants to exercise the option, no matter what the market price of the security is at that time. An option is covered if the writer owns the security (in the case of a call) or sets aside the cash (in the case of a put) that would be required upon exercise. The price paid by the buyer for an option is called a premium. In addition the buyer generally pays a broker a commission. The writer receives a premium, less a commission, at the time the option is written. The cash received is retained by the writer whether or not the option is exercised. A writer of a call option may have to sell the security for a below-market price if the PAGE 64 market price rises above the exercise price. A writer of a put option may have to pay an above-market price for the security if its market price decreases below the exercise price. Options can be used to produce incremental earnings, protect gains and facilitate buying and selling securities for investment purposes. The use of options and futures contracts may benefit the fund and its shareholders by improving the fund's liquidity and by helping to stabilize the value of its net assets. Buying options. Put and call options may be used as a trading technique to facilitate buying and selling securities for investment reasons. They also may be used for investment. Options are used as a trading technique to take advantage of any disparity between the price of the underlying security in the securities market and its price on the options market. It is anticipated the trading technique will be utilized only to effect a transaction when the price of the security plus the option price will be as good or better than the price at which the security could be bought or sold directly. When the option is purchased, the fund pays a premium and a commission. It then pays a second commission on the purchase or sale of the underlying security when the option is exercised. For record keeping and tax purposes, the price obtained on the purchase of the underlying security will be the combination of the exercise price, the premium and both commissions. When using options as a trading technique, commissions on the option will be set as if only the underlying securities were traded. Put and call options also may be held by the fund for investment purposes. Options permit the fund to experience the change in the value of a security with a relatively small initial cash investment. The risk the fund assumes when it buys an option is the loss of the premium. To be beneficial to the fund, the price of the underlying security must change within the time set by the option contract. Furthermore, the change must be sufficient to cover the premium paid, the commissions paid both in the acquisition of the option and in a closing transaction or in the exercise of the option and subsequent sale (in the case of a call) or purchase (in the case of a put) of the underlying security. Even then the price change in the underlying security does not ensure a profit since prices in the option market may not reflect such a change. Writing covered options. The fund will write covered options when it feels it is appropriate and will follow these guidelines: 'Underlying securities will continue to be bought or sold solely on the basis of investment considerations consistent with the fund's goal. 'All options written by the fund will be covered. For covered call options if a decision is made to sell the security, the fund will attempt to terminate the option contract through a closing purchase transaction. PAGE 65 'The fund will write options only as permitted under federal or state laws or regulations, such as those that limit the amount of total assets subject to the options. While no limit has been set by the fund, it will conform to the requirements of those states. For example, California limits the writing of options to 50% of the assets of a fund. Net premiums on call options closed or premiums on expired call options are treated as short-term capital gains. Since the fund is taxed as a regulated investment company under the Internal Revenue Code, any gains on options and other securities held less than three months must be limited to less than 30% of its annual gross income. If a covered call option is exercised, the security is sold by the fund. The fund will recognize a capital gain or loss based upon the difference between the proceeds and the security's basis. Options on many securities are listed on options exchanges. If the fund writes listed options, it will follow the rules of the options exchange. Options are valued at the close of the New York Stock Exchange. An option listed on a national exchange, CBOE or NASDAQ will be valued at the last quoted sales price or, if such a price is not readily available, at the mean of the last bid and asked prices. Options on Government National Mortgage Association (GNMA) certificates and certain other securities are not actively traded on any exchange, but may be entered into directly with a dealer. When the fund writes such an option, the Custodian will segregate assets as appropriate to cover the option. However, since the remaining principal balance of GNMA certificates declines each month as a result of mortgage payments, the fund may find that the GNMA certificates it holds as "cover" no longer have a sufficient remaining principal balance for this purpose. A GNMA certificate held by the fund also may cease to represent cover for the option if the GNMA coupon rate at which new pools are originated under the FHA/VA loan ceiling in effect at any given time is reduced. If either event should occur, the fund will either enter into a closing purchase transaction or replace certificates with certificates that represent cover. When the fund closes its position or replaces certificates, it may realize an unanticipated loss and incur transaction costs. FUTURES CONTRACTS. A futures contract is an agreement between two parties to buy and sell a security for a set price on a future date. They have been established by boards of trade which have been designated contracts markets by the Commodity Futures Trading Commission (CFTC). Futures contracts trade on these markets in a manner similar to the way a stock trades on a stock exchange, and the boards of trade, through their clearing corporations, guarantee performance of the contracts. Currently, there are futures contracts based on such debt securities as long-term U.S. Treasury bonds, Treasury notes, GNMA modified pass-through mortgage-backed securities, three-month U.S. Treasury bills and bank certificates PAGE 66 of deposit. While futures contracts based on debt securities do provide for the delivery and acceptance of securities, such deliveries and acceptances are very seldom made. Generally, the futures contract is terminated by entering into an offsetting transaction. An offsetting transaction for a futures contract sale is effected by the fund entering into a futures contract purchase for the same aggregate amount of the specific type of financial instrument and same delivery date. If the price in the sale exceeds the price in the offsetting purchase, the fund immediately is paid the difference and realizes a gain. If the offsetting purchase price exceeds the sale price, the fund pays the difference and realizes a loss. Similarly, closing out a futures contract purchase is effected by the fund entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, the fund realizes a gain, and if the offsetting sale price is less than the purchase price, the fund realizes a loss. At the time a futures contract is made, a good-faith deposit called initial margin is set up within a segregated account at the fund's custodian bank. The initial margin deposit is approximately 1.5% of a contract's face value. Daily thereafter, the futures contract is valued and the payment of variation margin is required so that each day the fund would pay out cash in an amount equal to any decline in the contract's value or receive cash equal to any increase. At the time a futures contract is closed out, a nominal commission is paid, which is generally lower than the commission on a comparable transaction in the cash markets. The purpose of a futures contract, in the case of a portfolio holding long-term debt securities, is to gain the benefit of changes in interest rates without actually buying or selling long- term debt securities. For example, if the fund owned long-term bonds and interest rates were expected to increase, it might enter into futures contracts to sell securities which would have much the same effect as selling some of the long-term bonds it owned. Futures contracts are based on types of debt securities referred to above, which have historically reacted to an increase or decline in interest rates in a fashion similar to the debt securities the fund owns. If interest rates did increase, the value of the debt securities in the portfolio would decline, but the value of the fund's futures contracts would increase at approximately the same rate, thereby keeping the net asset value of the fund from declining as much as it otherwise would have. If, on the other hand, the fund held cash reserves and interest rates were expected to decline, the fund might enter into interest rate futures contracts for the purchase of securities. If short-term rates were higher than long-term rates, the ability to continue holding these cash reserves would have a very beneficial impact on the fund's earnings. Even if short-term rates were not higher, the fund would still benefit from the income earned by holding these short-term investments. At the same time, by entering into futures contracts for the purchase of securities, the fund could take advantage of the anticipated rise in the value of long-term bonds without actually buying them until the market had stabilized. At that time, the futures contracts could be liquidated and the fund's cash PAGE 67 reserves could then be used to buy long-term bonds on the cash market. The fund could accomplish similar results by selling bonds with long maturities and investing in bonds with short maturities when interest rates are expected to increase or by buying bonds with long maturities and selling bonds with short maturities when interest rates are expected to decline. But by using futures contracts as an investment tool, given the greater liquidity in the futures market than in the cash market, it might be possible to accomplish the same result more easily and more quickly. Successful use of futures contracts depends on the investment manager's ability to predict the future direction of interest rates. If the investment manager's prediction is incorrect, the fund would have been better off had it not entered into futures contracts. OPTIONS ON FUTURES CONTRACTS. Options give the holder a right to buy or sell futures contracts in the future. Unlike a futures contract, which requires the parties to the contract to buy and sell a security on a set date, an option on a futures contract merely entitles its holder to decide on or before a future date (within nine months of the date of issue) whether to enter into such a contract. If the holder decides not to enter into the contract, all that is lost is the amount (premium) paid for the option. Furthermore, because the value of the option is fixed at the point of sale, there are no daily payments of cash to reflect the change in the value of the underlying contract. However, since an option gives the buyer the right to enter into a contract at a set price for a fixed period of time, its value does change daily and that change is reflected in the net asset value of the fund. RISKS. There are risks in engaging in each of the management tools described above. The risk the fund assumes when it buys an option is the loss of the premium paid for the option. Purchasing options also limits the use of monies that might otherwise be available for long-term investments. The risk involved in writing options on futures contracts the fund owns, or on securities held in its portfolio, is that there could be an increase in the market value of such contracts or securities. If that occurred, the option would be exercised and the asset sold at a lower price than the cash market price. To some extent, the risk of not realizing a gain could be reduced by entering into a closing transaction. The fund could enter into a closing transaction by purchasing an option with the same terms as the one it had previously sold. The cost to close the option and terminate the fund's obligation, however, might be more or less than the premium received when it originally wrote the option. Furthermore, the fund might not be able to close the option because of insufficient activity in the options market. A risk in employing futures contracts to protect against the price volatility of portfolio securities is that the prices of securities subject to futures contracts may not correlate perfectly with the behavior of the cash prices of the fund's portfolio securities. The correlation may be distorted because the futures market is PAGE 68 dominated by short-term traders seeking to profit from the difference between a contract or security price and their cost of borrowed funds. Such distortions are generally minor and would diminish as the contract approached maturity. Another risk is that the fund's investment manager could be incorrect in anticipating as to the direction or extent of various interest rate movements or the time span within which the movements take place. For example, if the fund sold futures contracts for the sale of securities in anticipation of an increase in interest rates, and interest rates declined instead, the fund would lose money on the sale. TAX TREATMENT. As permitted under federal income tax laws, the fund intends to identify futures contracts as mixed straddles and not mark them to market, that is, not treat them as having been sold at the end of the year at market value. Such an election may result in the fund being required to defer recognizing losses incurred by entering into futures contracts and losses on underlying securities identified as being hedged against. Federal income tax treatment of gains or losses from transactions in options on futures contracts and indexes will depend on whether such option is a section 1256 contract. If the option is a non- equity option, the fund will either make a 1256(d) election and treat the option as a mixed straddle or mark to market the option at fiscal year end and treat the gain/loss as 40% short-term and 60% long-term. Certain provisions of the Internal Revenue Code may also limit the fund's ability to engage in futures contracts and related options transactions. For example, at the close of each quarter of the fund's taxable year, at least 50% of the value of its assets must consist of cash, government securities and other securities, subject to certain diversification requirements. Less than 30% of its gross income must be derived from sales of securities held less than three months. The IRS has ruled publicly that an exchange-traded call option is a security for purposes of the 50%-of-assets test and that its issuer is the issuer of the underlying security, not the writer of the option, for purposes of the diversification requirements. In order to avoid realizing a gain within the three-month period, the fund may be required to defer closing out a contract beyond the time when it might otherwise be advantageous to do so. The fund also may be restricted in purchasing put options for the purpose of hedging underlying securities because of applying the short sale holding period rules with respect to such underlying securities. Accounting for futures contracts will be according to generally accepted accounting principles. Initial margin deposits will be recognized as assets due from a broker (the fund's agent in acquiring the futures position). During the period the futures contract is open, changes in value of the contract will be recognized as unrealized gains or losses by marking to market on a PAGE 69 daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments will be made or received depending upon whether gains or losses are incurred. All contracts and options will be valued at the last-quoted sales price on their primary exchange. PAGE 70 APPENDIX D DOLLAR-COST AVERAGING A technique that works well for many investors is one that eliminates random buy and sell decisions. One such system is dollar-cost averaging. Dollar-cost averaging involves building a portfolio through the investment of fixed amounts of money on a regular basis regardless of the price or market condition. This may enable an investor to smooth out the effects of the volatility of the financial markets. By using this strategy, more shares will be purchased when the price is low and less when the price is high. As the accompanying chart illustrates, dollar-cost averaging tends to keep the average price paid for the shares lower than the average market price of shares purchased, although there is no guarantee. While this does not ensure a profit and does not protect against a loss if the market declines, it is an effective way for many shareholders who can continue investing through changing market conditions to accumulate shares in a fund to meet long term goals. Dollar-cost averaging Regular Market Price Shares Investment of a Share Acquired $100 $ 6.00 16.7 100 4.00 25.0 100 4.00 25.0 100 6.00 16.7 100 5.00 20.0 $500 $25.00 103.4 Average market price of a share over 5 periods: $5.00 ($25.00 divided by 5). The average price you paid for each share: $4.84 ($500 divided by 103.4). PAGE 71 Independent auditors' report The board of directors and shareholders IDS Federal Income Fund, Inc.: We have audited the accompanying statement of assets and liabilities, including the schedule of investments in securities, of IDS Federal Income Fund, Inc. as of June 30, 1995, and the related statement of operations for the year then ended and the statements of changes in net assets for each of the years in the two-year period ended June 30, 1995, and the financial highlights for each of the years in the nine-year period ended June 30, 1995, and for the period from August 19, 1985 (commencement of operations), to June 30, 1986. These financial statements and the financial highlights are the responsibility of fund management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Investment securities held in custody are confirmed to us by the custodian. As to securities purchased and sold but not received or delivered and securities on loan, we request confirmations from brokers, and where replies are not received, we carry out other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of IDS Federal Income Fund, Inc. at June 30, 1995, and the results of its operations for the year then ended and the changes in its net assets for each of the years in the two-year period ended June 30, 1995, and the financial highlights for the periods stated in the first paragraph above, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Minneapolis, Minnesota August 4, 1995 PAGE 72
Financial statements Statement of assets and liabilities IDS Federal Income Fund, Inc. June 30, 1995 ________________________________________________________________________________________________ Assets ________________________________________________________________________________________________ Investments in securities, at value (Note 1) (identified cost $1,281,797,084) $1,312,311,439 Accrued interest receivable 11,254,923 Receivable for investment securities sold 154,067,961 U.S. government securities held as collateral (Note 4) 31,368,435 ________________________________________________________________________________________________ Total assets 1,509,002,758 ________________________________________________________________________________________________ Liabilities ________________________________________________________________________________________________ Disbursements in excess of cash on demand deposit 5,744,516 Dividends payable to shareholders 858,890 Payable for investment securities purchased 107,580,812 Payable upon return of securities loaned (Note 4) 31,368,435 Accrued investment management services fee 436,773 Accrued distribution fee 133,354 Accrued service fee 162,695 Accrued transfer agency fee 102,258 Accrued administrative services fee 41,429 Other accrued expenses 188,506 Open option contracts written, at value (premium received $3,100,628)(Note 6) 7,628,448 ________________________________________________________________________________________________ Total liabilities 154,246,116 ________________________________________________________________________________________________ Net assets applicable to outstanding capital stock $1,354,756,642 ________________________________________________________________________________________________ Represented by ________________________________________________________________________________________________ Capital stock -- authorized 10,000,000,000 shares of $.01 par value; $ 2,727,705 Additional paid-in capital 1,386,164,844 Undistributed net investment income 668,460 Accumulated net realized loss (Notes 1 and 9) (57,644,807) Unrealized appreciation (Note 5) 22,840,440 ________________________________________________________________________________________________ Total -- representing net assets applicable to outstanding capital stock $1,354,756,642 ________________________________________________________________________________________________ Net assets applicable to outstanding shares: Class A $ 977,243,350 Class B $ 292,031,307 Class Y $ 85,481,985 Net asset value per share of outstanding capital stock: Class A shares 196,735,958 $ 4.97 Class B shares 58,824,204 $ 4.96 Class Y shares 17,210,263 $ 4.97 ________________________________________________________________________________________________ See accompanying notes to financial statements. PAGE 73 Financial statements Statement of operations IDS Federal Income Fund, Inc. Year ended June 30, 1995 ________________________________________________________________________________________________ Investment income ________________________________________________________________________________________________ Income: Interest $ 80,861,516 ________________________________________________________________________________________________ Expenses (Note 2): Investment management services fee 5,683,320 Distribution fee Class A 340,515 Class B 533,614 Transfer agency fee 1,322,478 Incremental transfer agency fee -- Class B 6,890 Service fee Class A 471,523 Class B 123,631 Administrative services fee 177,341 Compensation of directors 24,265 Compensation of officers 12,393 Custodian fees 91,165 Postage 204,881 Registration fees 169,016 Reports to shareholders 28,463 Audit fees 35,000 Administrative 11,125 Other 18,588 ________________________________________________________________________________________________ Total expenses 9,254,208 ________________________________________________________________________________________________ Investment income -- net 71,607,308 ________________________________________________________________________________________________ Realized and unrealized gain (loss) -- net ________________________________________________________________________________________________ Net realized loss on security transactions (4,572,250) Net realized loss on closed interest rate futures contracts (22,114,909) Net realized gain on closed, exercised or expired option contracts written (Note 6) 3,020,852 ________________________________________________________________________________________________ Net realized loss on investments (23,666,307) Net change in unrealized appreciation or depreciation 52,857,972 ________________________________________________________________________________________________ Net gain on investments 29,191,665 ________________________________________________________________________________________________ Net increase in net assets resulting from operations $ 100,798,973 ________________________________________________________________________________________________ See accompanying notes to financial statements. /TABLE PAGE 74
Financial statements Statements of changes in net assets IDS Federal Income Fund, Inc. Year ended June 30, ________________________________________________________________________________________________ Operations and distributions 1995 1994 ________________________________________________________________________________________________ Investment income -- net $ 71,607,308 $ 57,385,576 Net realized loss on investments (23,666,307) (24,752,055) Net change in unrealized appreciation or depreciation 52,857,972 (38,009,969) ________________________________________________________________________________________________ Net increase (decrease) in net assets resulting from operations 100,798,973 (5,376,448) ________________________________________________________________________________________________ Distributions to shareholders from: Net investment income Class A (64,225,838) (57,139,239) Class B (4,334,929) -- Class Y (1,938,661) -- Net realized gain Class A -- (28,095,757) ________________________________________________________________________________________________ Total distributions (70,499,428) (85,234,996) ________________________________________________________________________________________________ Capital share transactions (Note 7) ________________________________________________________________________________________________ Proceeds from sales Class A shares (Note 2) 641,569,225 671,874,642 Class B shares 138,024,110 -- Class Y shares 89,538,242 -- Fund merger (Note 8) Class A shares 3,521,950 -- Class B shares 213,190,532 -- Reinvestment of distributions at net asset value Class A shares 54,545,686 73,532,781 Class B shares 4,222,182 -- Class Y shares 1,657,604 -- Payments for redemptions Class A shares (771,657,740) (654,662,328) Class B shares (Note 2) (68,176,074) -- Class Y shares (7,300,426) -- ________________________________________________________________________________________________ Increase in net assets from capital share transactions 299,135,291 90,745,095 ________________________________________________________________________________________________ Total increase in net assets 329,434,836 133,651 Net assets at beginning of year 1,025,321,806 1,025,188,155 ________________________________________________________________________________________________ Net assets at end of year (including undistributed net investment income of $668,460 and $(439,420) $1,354,756,642 $1,025,321,806 ________________________________________________________________________________________________ See accompanying notes to financial statements.
PAGE 75 IDS Federal Income Fund, Inc. Notes to financial statements ___________________________________________________________________ 1. Summary of significant accounting policies The fund is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. The fund offers Class A, Class B and Class Y shares. Class A shares are sold with a front-end sales charge. Class B shares, which the fund began offering on March 20, 1995, may be subject to a contingent deferred sales charge. Class B shares automatically convert to Class A shares after eight years. Class Y shares, which the fund also began offering on March 20, 1995, have no sales charge and are offered only to qualifying institutional investors. All classes of shares have identical voting, dividend, liquidation and other rights, and the same terms and conditions, except that the level of distribution fee, transfer agency fee and service fee (class specific expenses) differ 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: 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 of directors. 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. Options transactions In order to produce incremental earnings, protect gains, and facilitate buying and selling of securities for investment purposes, the fund may buy and sell put and call options and write covered call options on portfolio securities and may write cash-secured put options on U.S. government securities. The fund also may purchase mortgage-backed security (MBS) put spread options and write covered MBS call spread options. MBS spread options are based upon the changes in the price spread between a specified mortgage-backed security and a like-duration Treasury security. The risk in writing a call option is that the fund gives up the opportunity of profit if the market price of the security PAGE 76 increases. The risk in writing a put option is that the fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the fund pays a premium whether or not the option is exercised. The fund also has the additional risk of not being able to enter into a closing transaction if a liquid secondary market does not exist. The fund also may write over-the-counter options where the completion of the obligation is dependent upon the credit standing of the other party. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The fund will realize a gain or loss upon expiration or closing of the option transaction. When options on debt securities or futures are exercised, the fund will realize a gain or loss. When other options are exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. Futures transactions In order to gain exposure to or protect itself from changes in the market, the fund may buy and sell interest rate futures contracts. Risks of entering into futures contracts and related options include the possibility that there may be an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The fund recognizes a realized gain or loss when the contract is closed or expires. Federal taxes Since the fund's policy is to comply with all sections of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to shareholders, no provision for income or excise taxes is required. 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. PAGE 77 On the statement of assets and liabilities, as a result of permanent book-to-tax differences, accumulated net realized loss has been decreased by $1,294 resulting in a reclassification adjustment to decrease paid in capital by $1,294. Dividends to shareholders Dividends from net investment income, declared daily and payable monthly, are reinvested in additional shares of the fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the last income dividend of the calendar year. Other Security transactions are accounted for on the date securities are purchased or sold. Interest income, including level-yield amortization of premium and discount is accrued daily. ___________________________________________________________________ 2. Expenses and sales charges Under terms of a prior agreement that ended March 19, 1995, the fund paid American Express Financial Corporation (AEFC) a fee for managing its investments, recordkeeping and other specified services. The fee was a percentage of the fund's average daily net assets consisting of a group asset charge in reducing percentages from 0.46% to 0.32% annually on the combined net assets of all non-money market funds in the IDS MUTUAL FUND GROUP and an individual annual asset charge of 0.13% of average daily net assets. Also under the terms of a prior agreement, the fund paid AEFC a distribution fee at an annual rate of $6 per shareholder account and a transfer agency fee at an annual rate of $15.50 per shareholder account. The transfer agency fee was reduced by earnings on monies pending shareholder redemptions. Effective March 20, 1995, when the fund began offering multiple classes of shares, the fund entered into agreements with AEFC for managing its portfolio, providing administrative services and serving as transfer agent as follows: Under its Investment Management Services Agreement, AEFC determines which securities will be purchased, held or sold. The management fee is a percentage of the fund's average daily net assets in reducing percentages from 0.52% to 0.395% annually. Under an Administrative Services Agreement, the fund pays AEFC for administration and accounting services at a percentage of the fund's average daily net assets in reducing percentages from 0.05% to 0.025% annually. Under a separate Transfer Agency Agreement, AEFC maintains shareholder accounts and records. The fund pays AEFC an annual fee per shareholder account for this service as follows: o Class A $15.50 o Class B $16.50 o Class Y $15.50 PAGE 78 Also effective March 20, 1995, the fund entered into agreements with American Express Financial Advisors Inc. for distribution and shareholder servicing- related services as follows: Under the Distribution Agreement, the fund pays a distribution fee at an annual rate of 0.75% of the fund's average daily net assets attributable to Class B shares for distribution-related services. Under a Shareholder Service Agreement, the fund pays a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.175% of the fund's average daily net assets attributable to Class A and Class B shares. AEFC will assume and pay any expenses (except taxes and brokerage commissions) that exceed the most restrictive applicable state expense limitation. Sales charges deducted by American Express Financial Advisors Inc. for distributing fund shares were $22,590,635 for Class A and $86,206 for Class B for the year ended June 30, 1995. The fund also pays custodian fees to American Express Trust Company, an affiliate of AEFC. The fund has a retirement plan for its independent directors. Upon retirement, directors receive monthly payments equal to one-half of the retainer fee for as many months as they served as directors up to 120 months. There are no death benefits. The plan is not funded but the fund recognizes the cost of payments during the time the directors serve on the board. The retirement plan expense amounted to $10,673 for the year ended June 30, 1995. ___________________________________________________________________ 3. Securities transactions Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $2,661,670,903 (including $164,420,370 that was acquired in the fund merger as described in Note 8) and $2,427,083,375, respectively, for the year ended June 30, 1995. Realized gains and losses are determined on an identified cost basis. ___________________________________________________________________ 4. Lending of portfolio securities At June 30, 1995, securities valued at $29,440,000 were on loan to brokers. For collateral, the fund received U.S. government securities valued at $31,368,435. Income from securities lending amounted to $66,317 for the year ended June 30, 1995. The risks to the fund of securities lending are that the borrower may not provide additional collateral when required or return the securities when due. ___________________________________________________________________ 5. Interest rate futures contracts At June 30, 1995, investments in securities included securities valued at $33,083,900 that were pledged as collateral to cover PAGE 79 initial margin deposit on 979 open sale contracts. The market value of the open contracts at June 30, 1995, was $111,147,094 with a net unrealized loss of $3,146,094. ___________________________________________________________________ 6. Options contracts written The number of contracts and premium amounts associated with options contracts written is as follows:
Year ended June 30, 1995 __________________________________________________________________________ Puts Calls MBS Calls __________________________________________________________________________ Contracts Premium Contracts Premium Notional Premium __________________________________________________________________________________________________ Balance June 30, 1994 200 $ 89,226 -- $ -- $ 31,000,000 $ 145,313 Opened 15,284 11,140,779 20,168 14,241,862 67,500,000 305,859 Closed (9,945) (8,282,626) (14,591) (8,870,700) (98,500,000) (451,172) Exercised (1,207) (482,963) (2,251) (2,351,400) -- -- Expired (3,007) (1,265,959) (2,310) (1,117,591) -- -- __________________________________________________________________________________________________ Balance June 30, 1995 1,325 $ 1,198,457 1,016 $ 1,902,171 $ -- $ -- __________________________________________________________________________________________________
___________________________________________________________________ 7. Capital share transactions Transactions in shares of capital stock for the periods indicated are as follows:
Period ended June 30, 1995 Year ended 06/30/94 Class A Class B* Class Y* Class A _____________________________________________________________________________ Sold 132,313,514 28,069,540 18,364,074 132,557,506 Fund Merger 723,045 43,767,303 -- -- Issued for reinvested distributions 11,239,784 856,748 336,591 14,452,759 Redeemed (159,116,207) (13,869,387) (1,490,402) (128,743,048) _____________________________________________________________________________ Net increase (decrease) (14,839,864) 58,824,204 17,210,263 18,267,217 _____________________________________________________________________________ *Commencement of operations was March 20, 1995.
___________________________________________________________________ 8. Fund merger On March 17, 1995, IDS Federal Income Fund acquired the assets and assumed the identified liabilities of IDS Strategy - Short-Term Income Fund. PAGE 80 The aggregate net assets of IDS Federal Income Fund immediately before the aquisition was $1,015,587,336. The merger was accomplished by a tax-free exchange of 219,863,326 shares of IDS Strategy - Short-Term Income Fund valued at $216,712,482. In exchange for the IDS Strategy - Short-Term Income Fund shares and assets, IDS Federal Income Fund issued the following number of shares: Class A 723,045 Class B 43,767,303 IDS Strategy - Short-Term Income Fund's net assets at that date were as follows, which include the following amounts of capital stock, unrealized depreciation, and accumulated net realized loss that was combined with IDS Federal Income Fund. Total net Capital stock Unrealized Accumulated assets depreciation net realized loss ___________________________________________________________________ Class A 3,521,950 3,580,826 (31,076) (27,800) Class B 213,190,532 216,754,432 (1,881,087) (1,682,813) ___________________________________________________________________ 9. Capital loss carryover For federal income tax purposes, the fund had a capital loss carryover of $47,903,664 at June 30, 1995, that if not offset by subsequent capital gains, will expire in 2002 and 2003. The carryover includes $1,992,072 acquired in connection with the IDS Strategy - Short-Term Income Fund merger (Note 8). There is no limitation on the ability to utilize these losses, however, if not offset by subsequent capital gains, they will expire in 2002. It is unlikely the board of directors will authorize a distribution of any net realized gains until the available capital loss carryover has been offset or expired. ___________________________________________________________________ 10. Financial highlights "Financial highlights" showing per share data and selected information is presented on page 6 of the prospectus. PAGE 81
Investments in securities IDS Federal Income Fund, Inc. (Percentages represent value of June 30, 1995 investments compared to net assets) _______________________________________________________________________________________________________________________ Bonds (95.8%) _______________________________________________________________________________________________________________________ Issuer Coupon Maturity Principal Value(a) rate year amount _______________________________________________________________________________________________________________________ U.S. government obligations (28.6%) U.S. Treasury 4.00 % 1996 $ 25,000,000 $ 24,763,500 5.25 1998 60,160,000 59,054,259 5.625 1997 19,000,000 18,945,090 5.75 1997 20,000,000 19,955,000 6.25 2000 16,200,000 16,368,966 6.875 2000 22,900,000 23,704,248 7.25 2016 4,000,000 4,249,520 7.50 2005-24 23,490,000 (h) 25,841,054 7.875 1996 5,000,000 5,063,550 8.125 2019 16,000,000 18,642,400 Zero Coupon 6.50 1999 25,500,000 (b) 20,334,975 Resolution Funding Corp 8.125 2019 8,000,000 9,218,560 Zero Coupon 6.06 2001 20,863,000 (b) 14,969,620 Zero Coupon 6.70 1999 20,000,000 (b) 15,991,600 Zero Coupon 7.17 2018 38,250,000 (b) 7,702,785 Zero Coupon 7.18 2009 16,000,000 (b) 6,147,680 Zero Coupon 7.34 2007 83,120,000 (b) 37,784,690 Zero Coupon 7.87 2018 7,500,000 (b) 1,480,950 Zero Coupon 7.87 2019 16,500,000 (b) 3,201,825 Zero Coupon 7.94 2012 89,150,000 (b) 28,231,130 Zero Coupon 8.04 2012 8,400,000 (b) 2,557,632 Zero Coupon 8.09 2012 74,200,000 (b) 23,097,718 ______________ Total 387,306,752 _______________________________________________________________________________________________________________________ Mortgage-backed securities (67.1%) Federal Home Loan Bank Note (0.8%) 7.32 1997 10,490,000 10,778,370 _______________________________________________________________________________________________________________________ Federal Home Loan Mortgage Corporation (18.7%) 6.50 2003-10 32,455,733 32,016,004 7.50 2024 9,712,194 9,757,744 8.00 2023-24 53,712,902 54,803,811 8.50 2025 14,639,534 15,124,542 10.00 2009 17,723,852 18,704,158 11.50 2024 6,088,961 6,761,182 12.00 2016 5,584,386 6,270,205 Collateralized Mtge Obligation 7.00 2021 10,000,000 9,937,500 7.612 2023 24,078,648 19,503,705 8.25 2023 27,516,793 27,898,175 8.50 2022 9,150,000 9,808,251 8.60 2008 6,331,388 5,698,249 Interest Only 10.00 2020 778,845 (c) 131,220 Inverse Floater 4.74 2008 6,373,780 (d) 5,002,015 5.525 2024 10,642,081 (d) 7,738,123 5.601 2023 3,956,343 (d) 2,729,877 7.758 2022 5,798,581 (d) 4,731,280 12.962 2021 9,375,769 (d) 9,513,476 13.895 2023 10,514,507 (d) 6,676,712 ______________ Total 252,806,229 _______________________________________________________________________________________________________________________ Federal National Mortgage Association (43.1%) 6.00 2023 14,252,370 13,392,810 6.50 2010-24 172,255,830 (e,f) 167,914,798 7.00 2023 22,928,418 22,577,384 8.00 2021 6,128,681 6,253,154 8.50 2007-23 159,382,476 (e,f) 164,736,584 9.00 2023-24 21,245,624 22,168,534 12.00 2016 6,572,389 7,490,617 PAGE 82 Collateralized Mtge Obligation 9.515 2023 9,266,931 7,332,459 3.00 2019 11,250,000 9,221,963 4.50 2010 8,204,208 6,860,769 4.70 2022 12,732,716 12,565,026 5.50 2008 13,306,859 12,665,735 6.00 2008 10,166,690 9,901,136 6.50 2017 3,554,593 3,544,001 6.367 2024 6,376,908 5,340,660 7.00 2012 7,658,672 7,678,814 8.50 2021 12,350,000 13,007,020 11.20 2021 11,661,558 11,851,058 Interest Only 8.00 2024 5,913,635 (c) 4,357,796 9.50 2018-22 9,727,932 (c) 6,706,345 10.00 2018-23 37,076,017 (c) 35,454,386 10.50 2021 6,240,492 (c) 5,470,438 Inverse Floater .971 2021 8,972,902 (d) 5,899,683 5.107 2023 2,282,734 (d) 1,793,373 5.476 2023 4,728,370 (d) 3,447,277 5.736 2023 2,144,513 (d) 1,590,960 6.877 2023 3,456,299 (d) 2,361,084 8.156 2022 6,800,000 (d) 6,532,216 8.82 2022 5,000,000 (d) 4,050,000 14.00 2023 1,855,845 (d) 1,482,356 Principal Only 12.568 2021 1,196,215 (g) 915,476 ______________ Total 584,563,912 _______________________________________________________________________________________________________________________ Government National Mortgage Association (4.5%) 6.00 2025 29,400,002 29,454,882 9.00 2022 10,238,270 10,766,155 11.00 2010-19 18,268,967 20,319,223 ______________ Total 60,540,260 _______________________________________________________________________________________________________________________ Other mortgage-backed securities (--%) Daiwa Securities Collateralized Mtge Obligation Inverse Floater 12.00 2009 161,697 (d) 161,801 _______________________________________________________________________________________________________________________ Financial services (0.1%) Beneficial 9.35 1995 1,900,000 1,902,318 _______________________________________________________________________________________________________________________ Total bonds (Cost: $1,267,551,600) $ 1,298,059,642 _______________________________________________________________________________________________________________________
Short-term securities (1.0%) __________________________________________________________________________________ Issuer Annualized Amount Value(a) yield on payable date of at purchase maturity __________________________________________________________________________________ U.S. government agency (0.3%) Federal Home Loan Mtge Corp Disc Note 07-17-95 5.91% $ 4,400,000 $ 4,388,502 __________________________________________________________________________________ Commercial paper (0.7%) Commerzbank US Finance 11-20-95 6.39 10,100,000 9,863,295 __________________________________________________________________________________ Total short-term securities (Cost: $14,245,484) $ 14,251,797 __________________________________________________________________________________ Total investments in securities (Cost: $1,281,797,084)(i) $1,312,311,439 __________________________________________________________________________________
PAGE 83 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. (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 June 30, 1995. (e) Partially pledged as initial deposit on the following open interest rate futures contracts (see Note 5 to the financial statements): Type of security Notional amount ________________________________________________________________ Sale contracts U.S. Treasury Bonds Sept. 95 $97,900,000 ________________________________________________________________ (f) At June 30, 1995, securities valued at $36,499,060 were held to cover open call options written as follows:
Issuer Number of Exercise Expiration Value(a) contracts price date _____________________________________________________________________________________ U.S. Treasury Bonds Sept. 95 576 $104 Aug. 1995 $5,498,997 U.S. Treasury Bonds Sept. 95 240 114 Aug. 1995 371,249 U.S. Treasury Bonds Sept. 95 200 115 July 1995 118,750
At June 30, 1995, cash or short-term securities were designated to cover open put options written as follows:
Issuer Number of Exercise Expiration Value(a) contracts price date _____________________________________________________________________________________ U.S. Treasury Bonds Sept. 95 900 $112 Aug. 1995 $1,012,500 U.S. Treasury Bonds Sept. 95 225 113 July 1995 214,452 U.S. Treasury Bonds Sept. 95 200 115 July 1995 412,500
(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 PAGE 84 represents current yield based upon the current cost basis and estimated timing of future cash flows. (h) Security is partially or fully on loan. See Note 4 to the financial statements. (i) At June 30, 1995, the cost of securities for federal income tax purposes was $1,281,725,449 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 45,534,851 Unrealized depreciation (14,948,861) ____________________________________________ Net unrealized appreciation $(30,585,990) ____________________________________________ PAGE 85 PART C. OTHER INFORMATION Item 24. Financial Statements and Exhibits (a) FINANCIAL STATEMENTS: These financial statements are filed electronically herewith as Item 24(a) to Registrant's Post-Effective Amendment No. 21 to Registration No. 2-96512. - Independent Auditors' Report dated August 4, 1995 - Statement of Assets and Liabilities, June 30, 1995 - Statement of Operations, Year ended June 30, 1995 - Statement of Changes in Net Assets, for the two-year period ended June 30, 1994 and June 30, 1995 - Notes to Financial Statements - Investments in Securities, June 30, 1995 - Notes to Investments in Securities (b) EXHIBITS: 1. Articles of Incorporation, as amended October 17, 1988, filed as Exhibit 1 to Post-Effective Amendment No. 7 to Registration Statement No. 2-96512, is incorporated herein by reference. 2. By-laws, as amended Jan. 12, 1989, filed as Exhibit 2 to Post- Effective Amendment No. 7 to Registration Statement No. 2-96512, is incorporated herein by reference. 3. Not Applicable. 4. Form of Stock Certificate for common stock, filed as Exhibit No. 4 to Registration Statement No. 2-96512, is incorporated herein by reference. 5. Form of Investment Management and Services Agreement between Registrant and American Express Financial Corporation, dated March 20, 1995, filed electronically as Exhibit 5 to Registrant's Post- Effective Amendment No. 19 to Registration Statement No. 2-96512 is incorporated herein by reference. 6. Form of Distribution Agreement between Registrant and American Express Financial Advisors Inc., dated March 20, 1995, filed electronically as Exhibit 6 to Registrant's Post-Effective Amendment No. 19 to Registration Statement No. 2-96512 is incorporated herein by reference. 7. All employees are eligible to participate in a profit sharing plan. Entry into the plan is Jan. 1 or July 1. The Registrant contributes each year an amount up to 15 percent of their annual salaries, the maximum deductible amount permitted under Section 404(a) of the Internal Revenue Code. 8(a). Form of Custodian Agreement between Registrant and American Express Trust Company, dated March 20, 1995, filed electronically as Exhibit 8 to Registrant's Post-Effective Amendment No. 19 to Registration Statement No. 2-96512 is incorporated herein by reference. PAGE 86 8(b). Form of Custody Agreement between Morgan Stanley Trust Company and IDS Bank and Trust dated May, 1993 filed electronically as Exhibit 8(b) to Registrant's Post-Effective Amendment No. 20 to Registration Statement No. 2-96512 is incorporated herein by reference. 9(a). Form of Transfer Agency Agreement between Registrant and American Express Trust Company, dated March 20, 1995, filed electronically as Exhibit 9(a) to Registrant's Post-Effective Amendment No. 19 to Registration Statement No. 2-96512 is incorporated herein by reference. 9(b). Copy of License Agreement dated Jan. 25, 1988, between IDS and Registrant filed as Exhibit 9(b) to Post-Effective Amendment No. 7 to Registration Statement No. 2-96512, is incorporated herein by reference. 9(c). Form of Shareholder Service Agreement between Registrant and American Express Financial Advisors Inc., dated March 20, 1995, filed electronically as Exhibit 9(c) to Registrant's Post-Effective Amendment No. 19 to Registration Statement No. 2-96512 is incorporated herein by reference. 9(d). Form of Administrative Services Agreement between Registrant and American Express Financial Corporation, dated March 20, 1995, filed electronically as Exhibit 9(d) to Registrant's Post-Effective Amendment No. 19 to Registration Statement No. 2-96512 is incorporated herein by reference. 9(e). Copy of Agreement and Plan of Reorganization, dated Sept. 8, 1994, between IDS Strategy Fund, Inc, and IDS Federal Income Fund, Inc., filed electronically as Exhibit 4 to Registrant's Pre- Effective Amendment No. 1, on Form N-14, is incorporated herein by reference. 10. Opinion and consent of counsel as to the legality of the securities being registered is filed with Registrant's most recent 24f-2 Notice. 11. Independent Auditors' Consent is filed electronically herewith as Exhibit 11 to Registrant's Post-Effective Amendment No. 21 to Registration Statement No. 2-96512. 12. None. 13. Copy of letter of IDS Financial Services Inc. as sole shareholder, filed as Exhibit No. 13 to Pre-Effective Amendment No. 2 to Registration Statement No. 2-96512, is incorporated herein by reference. 14. Forms of Keogh, IRA and other retirement plans, filed as Exhibits 14(a) through 14(g) to IDS Government Securities Money Fund, Inc., Post-Effective Amendment No. 1 to Registration Statement No. 2-75165 on August 26, 1982, are incorporated herein by reference. PAGE 87 15. Form of Plan and Agreement of Distribution between Registrant and American Express Financial Advisors Inc., dated March 20, 1995, filed electronically as Exhibit 15 to Registrant's Post-Effective Amendment No. 19 to Registration Statement No. 2-96512 is incorporated herein by reference. 16. Copy of schedule for computation of each performance quotation, filed concurrently on Form SE as Exhibit 16(b) to Registrant's Post-Effective Amendment No. 13 to Registration Statement No. 2-96512 is incorporated herein by reference. 17. Financial Data Schedule is filed electronically herewith as Exhibit 17 to Registrant's Post-Effective Amendment No. 21 to Registration Statement No. 2-96512. 18. Copy of Plan pursuant to Rule 18f-3 under the 1940 Act filed electronically as Exhibit 18 to Registrant's Post-Effective Amendment No. 20 to Registration Statement No. 2-96512 is incorporated herein by reference. 19(a). Directors' Power of Attorney, dated Nov. 10, 1994, to sign amendments to this Registration Statement, filed electronically as Exhibit 18(a) to Registrant's Post-Effective Amendment No. 18, is incorporated herein by reference. 19(b). Officers' Power of Attorney, dated June 1, 1993, to sign amendments to this Registration Statement filed as Exhibit 17(b) on June 24, 1993 to Registrant's Post-Effective Amendment No. 14 to Registration Statement No. 2-96512 is incorporated herein by reference. Item 25. Persons Controlled by or Under Common Control with Registrant None. Item 26. Number of Holders of Securities (1) (2) Number of Record Holders as of Title of Class August 15, 1995 Common Stock 86,567 $.01 par value Item 27. Indemnification The Articles of Incorporation of the registrant provide that the Fund shall indemnify any person who was or is a party or is threatened to be made a party, by reason of the fact that she or he is or was a director, officer, employee or agent of the Fund, or is or was serving at the request of the Fund as a director, officer, employee or agent of another company, partnership, joint venture, trust or other enterprise, to any threatened, pending or completed action, suit or proceeding, wherever brought, and the Fund may purchase liability insurance and advance legal expenses, all to the fullest extent permitted by the laws of the State of Minnesota, as PAGE 88 now existing or hereafter amended. The By-laws of the registrant provide that present or former directors or officers of the Fund made or threatened to be made a party to or involved (including as a witness) in an actual or threatened action, suit or proceeding shall be indemnified by the Fund to the full extent authorized by the Minnesota Business Corporation Act, all as more fully set forth in the By-laws filed as an exhibit to this registration statement. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Any indemnification hereunder shall not be exclusive of any other rights of indemnification to which the directors, officers, employees or agents might otherwise be entitled. No indemnification shall be made in violation of the Investment Company Act of 1940. PAGE 89 PAGE 1
Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation) Directors and officers of American Express Financial Corporation who are directors and/or officers of one or more other companies: Ronald G. Abrahamson, Vice President--Service Quality and Reengineering American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Service Quality and Reengineering American Express Service Corporation Vice President Douglas A. Alger, Vice President--Total Compensation American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Total Compensation Jerome R. Amundson, Vice President--Investment Accounting American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Investment Accounting Peter J. Anderson, Director and Senior Vice President--Investments American Express Financial Advisors IDS Tower 10 Senior Vice President- Minneapolis, MN 55440 Investments IDS Advisory Group Inc. Director and Chairman of the Board IDS Capital Holdings Inc. Director and President IDS International, Inc. Director, Chairman of the Board and Executive Vice President IDS Securities Corporation Executive Vice President- Investments NCM Capital Management Group, Inc. 2 Mutual Plaza Director 501 Willard Street Durham, NC 27701 Ward D. Armstrong, Vice President-Sales and Marketing, American Express Institutional Services American Express Financial Advisors IDS Tower 10 Vice President-Sales and Minneapolis, MN 55440 Marketing, American Express Institutional Services PAGE 2 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Joseph M. Barsky III, Vice President--Senior Portfolio Manager American Express Financial Advisors IDS Tower 10 Vice President-Senior Minneapolis, MN 55440 Portfolio Manager IDS Advisory Group Inc. Vice President Robert C. Basten, Vice President--Tax and Business Services American Express Financial Advisors IDS Tower 10 Vice President-Tax Minneapolis, MN 55440 and Business Services American Express Tax & Business Director, President and Services Inc. Chief Executive Officer Timothy V. Bechtold, Vice President--Risk Management Products American Express Financial Advisors IDS Tower 10 Vice President-Risk Minneapolis, MN 55440 Management Products IDS Life Insurance Company Vice President-Risk Management Products Carl E. Beihl, Vice President--Strategic Technology Planning American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Strategic Technology Planning Alan F. Bignall, Vice President--Financial Planning Systems American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Financial Planning Systems American Express Service Corporation Vice President John C. Boeder, Vice President--Mature Market Group American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Mature Market Group IDS Life Insurance Company of New York Box 5144 Director Albany, NY 12205 Karl J. Breyer, Director and Senior Vice President--Corporate Affairs and General Counsel American Express Financial Advisors IDS Tower 10 Senior Vice President- Minneapolis, MN 55440 Corporate Affairs and Special Counsel American Express Minnesota Foundation Director IDS Aircraft Services Corporation Director and President PAGE 3 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Harold E. Burke, Vice President and Assistant General Counsel American Express Financial Advisors IDS Tower 10 Vice President and Minneapolis, MN 55440 Assistant General Counsel American Express Service Corporation Vice President Daniel J. Candura, Vice President--Marketing Support American Express Financial Advisors IDS Tower 10 Vice President-Marketing Minneapolis, MN 55440 Support Cynthia M. Carlson, Vice President--American Express Securities Services American Enterprise Investment IDS Tower 10 Director, President and Services Inc. Minneapolis, MN 55440 Chief Executive Officer American Express Financial Advisors Vice President-American Express Securities Services Orison Y. Chaffee III, Vice President--Field Real Estate American Express Financial Advisors IDS Tower 10 Vice President-Field Minneapolis, MN 55440 Real Estate James E. Choat, Director and Senior Vice President--Field Management American Express Financial Advisors IDS Tower 10 Senior Vice President- Minneapolis, MN 55440 Field Management American Express Minnesota Foundation Director American Express Service Corporation Vice President IDS Insurance Agency of Alabama Inc. Vice President--North Central Region IDS Insurance Agency of Arkansas Inc. Vice President--North Central Region IDS Insurance Agency of Massachusetts Inc. Vice President--North Central Region IDS Insurance Agency of Nevada Inc. Vice President--North Central Region IDS Insurance Agency of New Mexico Inc. Vice President--North Central Region IDS Insurance Agency of North Carolina Inc. Vice President--North Central Region IDS Insurance Agency of Ohio Inc. Vice President--North Central Region IDS Insurance Agency of Wyoming Inc. Vice President-- North Central Region IDS Property Casualty Insurance Co. Director PAGE 4 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Kenneth J. Ciak, Vice President and General Manager--IDS Property Casualty American Express Financial Advisors IDS Tower 10 Vice President and General Minneapolis, MN 55440 Manager-IDS Property Casualty IDS Property Casualty Insurance Co. I WEG Blvd. Director and President DePere, Wisconsin 54115 Alan R. Dakay, Vice President--Institutional Products Group American Enterprise Life Insurance Co. IDS Tower 10 Director and President Minneapolis, MN 55440 American Express Financial Advisors Vice President - Institutional Products Group American Partners Life Insurance Co. Director and President IDS Life Insurance Company Vice President - Institutional Insurance Marketing Regenia David, Vice President--Systems Services American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Systems Services William H. Dudley, Director and Executive Vice President--Investment Operations American Express Financial Advisors IDS Tower 10 Director and Executive Minneapolis, MN 55440 Vice President- Investment Operations IDS Advisory Group Inc. Director IDS Capital Holdings Inc. Director IDS Futures Corporation Director IDS Futures III Corporation Director IDS International, Inc. Director IDS Securities Corporation Director, Chairman of the Board, President and Chief Executive Officer Roger S. Edgar, Director, Senior Vice President and Technology Advisor American Express Financial Advisors IDS Tower 10 Senior Vice President and Minneapolis, MN 55440 Technology Advisor PAGE 5 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Gordon L. Eid, Director, Senior Vice President and Deputy General Counsel American Express Financial Advisors IDS Tower 10 Senior Vice President and Minneapolis, MN 55440 General Counsel IDS Insurance Agency of Alabama Inc. Director and Vice President IDS Insurance Agency of Arkansas Inc. Director and Vice President IDS Insurance Agency of Massachusetts Inc. Director and Vice President IDS Insurance Agency of Nevada Inc. Director and Vice President IDS Insurance Agency of New Mexico Inc. Director and Vice President IDS Insurance Agency of North Carolina Inc. Director and Vice President IDS Insurance Agency of Ohio Inc. Director and Vice President IDS Insurance Agency of Wyoming Inc. Director and Vice President IDS Real Estate Services, Inc. Vice President Investors Syndicate Development Corp. Director Robert M. Elconin, Vice President--Government Relations American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Government Relations IDS Life Insurance Company Vice President Mark A. Ernst, Vice President--Retail Services American Enterprise Investment IDS Tower 10 Director Services Inc. Minneapolis, MN 55440 American Express Financial Advisors Vice President- Retail Services American Express Tax & Business Director and Chairman of Services Inc. the Board Gordon M. Fines, Vice President--Mutual Fund Equity Investments American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Mutual Fund Equity Investments IDS Advisory Group Inc. Executive Vice President IDS International, Inc. Vice President and Portfolio Manager PAGE 6 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Louis C. Fornetti, Director, Senior Vice President and Chief Financial Officer American Enterprise Investment IDS Tower 10 Vice President Services Inc. Minneapolis, MN 55440 American Express Financial Advisors Senior Vice President and Chief Financial Officer American Express Tax & Business Director Services Inc. American Express Trust Company Director IDS Cable Corporation Director IDS Cable II Corporation Director IDS Capital Holdings Inc. Senior Vice President IDS Certificate Company Vice President IDS Insurance Agency of Alabama Inc. Vice President IDS Insurance Agency of Arkansas Inc. Vice President IDS Insurance Agency of Massachusetts Inc. Vice President IDS Insurance Agency of Nevada Inc. Vice President IDS Insurance Agency of New Mexico Inc. Vice President IDS Insurance Agency of North Carolina Inc. Vice President IDS Insurance Agency of Ohio Inc. Vice President IDS Insurance Agency of Wyoming Inc. Vice President IDS Life Insurance Company Director IDS Life Series Fund, Inc. Vice President IDS Life Variable Annuity Funds A&B Vice President IDS Property Casualty Insurance Co. Director and Vice President IDS Real Estate Services, Inc. Vice President IDS Sales Support Inc. Director IDS Securities Corporation Vice President Investors Syndicate Development Corp. Vice President Robert G. Gilbert, Vice President--Real Estate American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Real Estate John J. Golden, Vice President--Field Compensation Development American Express Financial Advisors IDS Tower 10 Vice President-Field Minneapolis, MN 55440 Compensation Development Harvey Golub, Director American Express Company American Express Tower Chairman and Chief World Financial Center Executive Officer New York, New York 10285 American Express Travel Chairman and Chief Related Services Company, Inc. Executive Officer National Computer Systems, Inc. 11000 Prairie Lakes Drive Director Minneapolis, MN 55440 PAGE 7 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Morris Goodwin Jr., Vice President and Corporate Treasurer American Enterprise Investment IDS Tower 10 Vice President and Services Inc. Minneapolis, MN 55440 Treasurer American Enterprise Life Insurance Vice President and Company Treasurer American Express Financial Advisors Vice President and Corporate Treasurer American Express Minnesota Foundation Director, Vice President and Treasurer American Express Service Corporation Vice President and Treasurer American Express Tax & Business Vice President and Services Inc. Treasurer IDS Advisory Group Inc. Vice President and Treasurer IDS Aircraft Services Corporation Vice President and Treasurer IDS Cable Corporation Director, Vice President and Treasurer IDS Cable II Corporation Director, Vice President and Treasurer IDS Capital Holdings Inc. Vice President and Treasurer IDS Certificate Company Vice President and Treasurer IDS Deposit Corp. Director, President and Treasurer IDS Insurance Agency of Alabama Inc. Vice President and Treasurer IDS Insurance Agency of Arkansas Inc. Vice President and Treasurer IDS Insurance Agency of Massachusetts Inc. Vice President and Treasurer IDS Insurance Agency of Nevada Inc. Vice President and Treasurer IDS Insurance Agency of New Mexico Inc. Vice President and Treasurer IDS Insurance Agency of North Carolina Inc. Vice President and Treasurer IDS Insurance Agency of Ohio Inc. Vice President and Treasurer IDS Insurance Agency of Wyoming Inc. Vice President and Treasurer IDS International, Inc. Vice President and Treasurer IDS Life Insurance Company Vice President and Treasurer IDS Life Series Fund, Inc. Vice President and Treasurer PAGE 8 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) IDS Life Variable Annuity Funds A&B Vice President and Treasurer IDS Management Corporation Director, Vice President and Treasurer IDS Partnership Services Corporation Director, Vice President and Treasurer IDS Plan Services of California, Inc. Vice President and Treasurer IDS Property Casualty Insurance Co. Vice President and Treasurer IDS Real Estate Services, Inc Vice President and Treasurer IDS Realty Corporation Director, Vice President and Treasurer IDS Sales Support Inc. Director, Vice President and Treasurer IDS Securities Corporation Vice President and Treasurer Investors Syndicate Development Corp. Vice President and Treasurer NCM Capital Management Group, Inc. 2 Mutual Plaza Director 501 Willard Street Durham, NC 27701 Sloan Financial Group, Inc. Director Suzanne Graf, Vice President--Systems Services American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Systems Services David A. Hammer, Vice President and Marketing Controller American Express Financial Advisors IDS Tower 10 Vice President and Minneapolis, MN 55440 Marketing Controller IDS Plan Services of California, Inc. Director and Vice President Lorraine R. Hart, Vice President--Insurance Investments American Enterprise Life IDS Tower 10 Vice President-Investments Insurance Company Minneapolis, MN 55440 American Express Financial Advisors Vice President-Insurance Investments American Partners Life Insurance Co. Director and Vice President-Investments IDS Certificate Company Vice President-Investments IDS Life Insurance Company Vice President-Investments IDS Life Series Fund, Inc. Vice President-Investments IDS Life Variable Annuity Funds A and B Vice President-Investments IDS Property Casualty Insurance Company Vice President-Investment Officer Investors Syndicate Development Corp. Vice President-Investments PAGE 9 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Scott A. Hawkinson, Vice President--Assured Assets Product Development and Management American Express Financial Advisors IDS Tower 10 Vice President-Assured Minneapolis, MN 55440 Assets Product Development & Management Raymond E. Hirsch, Vice President--Senior Portfolio Manager American Express Financial Advisors IDS Tower 10 Vice President-Senior Minneapolis, MN 55440 Portfolio Manager James G. Hirsh, Vice President and Assistant General Counsel American Express Financial Advisors IDS Tower 10 Vice President and Minneapolis, MN 55440 Assistant General Counsel IDS Securities Corporation Director, Vice President and General Counsel Darryl G. Horsman, Vice President--Product Development and Technology, American Express Institutional Services American Express Trust Company IDS Tower 10 Director and President Minneapolis, MN 55440 Kevin P. Howe, Vice President--Government and Customer Relations and Chief Compliance Officer American Enterprise Investment IDS Tower 10 Vice President and Services Inc. Minneapolis, MN 55440 Compliance Officer American Express Financial Advisors Vice President- Government and Customer Relations American Express Service Corporation Vice President IDS Securities Corporation Vice President and Chief Compliance Officer David R. Hubers, Director, President and Chief Executive Officer American Express Financial Advisors IDS Tower 10 Chairman, Chief Executive Minneapolis, MN 55440 Officer and President American Express Service Corporation Director and President IDS Aircraft Services Corporation Director IDS Certificate Company Director IDS Life Insurance Company Director IDS Plan Services of California, Inc. Director and President IDS Property Casualty Insurance Co. Director Marietta L. Johns, Director and Senior Vice President--Field Management American Express Financial Advisors IDS Tower 10 Senior Vice President- Minneapolis, MN 55440 Field Management PAGE 10 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Douglas R. Jordal, Vice President--Taxes American Express Financial Advisors IDS Tower 10 Vice President-Taxes Minneapolis, MN 55440 IDS Aircraft Services Corporation Vice President James E. Kaarre, Vice President--Marketing Information American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Marketing Information Linda B. Keene, Vice President--Market Development American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Market Development G. Michael Kennedy, Vice President--Investment Services and Investment Research American Express Financial Advisors IDS Tower 10 Vice President-Investment Minneapolis, MN 55440 Services and Investment Research Susan D. Kinder, Director and Senior Vice President--Human Resources American Express Financial Advisors IDS Tower 10 Senior Vice President- Minneapolis, MN 55440 Human Resources American Express Minnesota Foundation Director American Express Service Corporation Vice President PAGE 11 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Richard W. Kling, Director and Senior Vice President--Risk Management Products American Enterprise Life Insurance Co. IDS Tower 10 Director and Chairman of Minneapolis, MN 55440 the Board American Express Financial Advisors Senior Vice President- Risk Management Products American Partners Life Insurance Co. Director and Chairman of the Board IDS Insurance Agency of Alabama Inc. Director and President IDS Insurance Agency of Arkansas Inc. Director and President IDS Insurance Agency of Massachusetts Inc. Director and President IDS Insurance Agency of Nevada Inc. Director and President IDS Insurance Agency of New Mexico Inc. Director and President IDS Insurance Agency of North Carolina Inc. Director and President IDS Insurance Agency of Ohio Inc. Director and President IDS Insurance Agency of Wyoming Inc. Director and President IDS Life Insurance Company Director and President IDS Life Series Fund, Inc. Director and President IDS Life Variable Annuity Funds A and B Chairman of the Board of Managers and President IDS Property Casualty Insurance Co. Director and Chairman of the Board IDS Life Insurance Company P.O. Box 5144 Director, Chairman of the of New York Albany, NY 12205 Board and President Paul F. Kolkman, Vice President--Actuarial Finance American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Actuarial Finance IDS Life Insurance Company Director and Executive Vice President IDS Life Series Fund, Inc. Vice President and Chief Actuary Claire Kolmodin, Vice President--Service Quality American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Service Quality Steven C. Kumagai, Director and Senior Vice President--Field Management and Business Systems American Express Financial Advisors IDS Tower 10 Director and Senior Vice Minneapolis, MN 55440 President-Field Management and Business Systems American Express Service Corporation Vice President PAGE 12 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Edward Labenski, Vice President--Senior Portfolio Manager American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Senior Portfolio Manager IDS Advisory Group Inc. Senior Vice President Kurt A. Larson, Vice President--Senior Portfolio Manager American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Senior Portfolio Manager Lori J. Larson, Vice President--Variable Assets Product Development American Express Financial Advisors IDS Tower 10 Vice President-Variable Minneapolis, MN 55440 Assets Product Development IDS Cable Corporation Director and Vice President IDS Cable II Corporation Director and Vice President IDS Futures Brokerage Group Assistant Vice President- General Manager/Director IDS Futures Corporation Director and Vice President IDS Futures III Corporation Director and Vice President IDS Management Corporation Director and Vice President IDS Partnership Services Corporation Director and Vice President IDS Realty Corporation Director and Vice President Ryan R. Larson, Vice President--IPG Product Development American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 IPG Product Development IDS Life Insurance Company Vice President- Annuity Product Development Daniel E. Laufenberg, Vice President and Chief U.S. Economist American Express Financial Advisors IDS Tower 10 Vice President and Minneapolis, MN 55440 Chief U.S. Economist Richard J. Lazarchic, Vice President--Senior Portfolio Manager American Express Financial Advisors IDS Tower 10 Vice President-Senior Minneapolis, MN 55440 Portfolio Manager PAGE 13 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Peter A. Lefferts, Director and Senior Vice President--Corporate Strategy and Development American Express Financial Advisors IDS Tower 10 Senior Vice President- Minneapolis, MN 55440 Corporate Strategy and Development American Express Service Corporation Director American Express Trust Company Director IDS Life Insurance Company Director and Executive Vice President-Marketing IDS Plan Services of California, Inc. Director Investors Syndicate Development Corp. Director Douglas A. Lennick, Director and Executive Vice President--Private Client Group American Express Financial Advisors IDS Tower 10 Director and Executive Minneapolis, MN 55440 Vice President-Private Client Group American Express Service Corporation Vice President Mary J. Malevich, Vice President--Senior Portfolio Manager American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Senior Portfolio Manager IDS International, Inc. Vice President and Portfolio Manager Fred A. Mandell, Vice President--Field Marketing Readiness American Express Financial Advisors IDS Tower 10 Vice President-Field Minneapolis, MN 55440 Marketing Readiness William J. McKinney, Vice President--Field Management Support American Express Financial Advisors IDS Tower 10 Vice President-Field Minneapolis, MN 55440 Management Support Thomas W. Medcalf, Vice President--Senior Portfolio Manager American Express Financial Advisors IDS Tower 10 Vice President-Senior Minneapolis, MN 55440 Portfolio Manager William C. Melton, Vice President-International Research and Chief International Economist American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 International Research and Chief International Economist PAGE 14 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Janis E. Miller, Vice President--Variable Assets American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Variable Assets IDS Cable Corporation Director and President IDS Cable II Corporation Director and President IDS Futures Corporation Director and President IDS Futures III Corporation Director and President IDS Life Insurance Company Director and Executive Vice President-Variable Assets IDS Life Series Fund, Inc. Director IDS Life Variable Annuity Funds A&B Director IDS Management Corporation Director and President IDS Partnership Services Corporation Director and President IDS Realty Corporation Director and President IDS Life Insurance Company of New York Box 5144 Executive Vice President Albany, NY 12205 James A. Mitchell, Director and Executive Vice President--Marketing and Products American Enterprise Investment IDS Tower 10 Director Services Inc. Minneapolis, MN 55440 American Express Financial Advisors Executive Vice President- Marketing and Products American Express Tax and Business Director Services Inc. IDS Certificate Company Director and Chairman of the Board IDS Life Insurance Company Director, Chairman of the Board and Chief Executive Officer IDS Plan Services of California, Inc. Director IDS Property Casualty Insurance Co. Director Pamela J. Moret, Vice President--Corporate Communications American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Corporate Communications American Express Minnesota Foundation Director and President Barry J. Murphy, Director and Senior Vice President--Client Service American Express Financial Advisors IDS Tower 10 Senior Vice President- Minneapolis, MN 55440 Client Service IDS Life Insurance Company Director and Executive Vice President-Client Service PAGE 15 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Robert J. Neis, Vice President--Information Systems Operations American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Information Systems Operations James R. Palmer, Vice President--Insurance Operations American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Insurance Operations IDS Life Insurance Company Vice President-Taxes Carla P. Pavone, Vice President--Specialty Service Teams and Emerging Business American Express Financial Advisors IDS Tower 10 Vice President-Specialty Minneapolis, MN 55440 Service Teams and Emerging Business George M. Perry, Vice President--Corporate Strategy and Development American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Corporate Strategy and Development IDS Property Casualty Insurance Co. Director Susan B. Plimpton, Vice President--Segmentation Development and Support American Express Financial Advisors IDS Tower 10 Vice President-- Minneapolis, MN 55440 Segmentation Development and Support Ronald W. Powell, Vice President and Assistant General Counsel American Express Financial Advisors IDS Tower 10 Vice President and Minneapolis, MN 55440 Assistant General Counsel IDS Cable Corporation Vice President and Assistant Secretary IDS Cable II Corporation Vice President and Assistant Secretary IDS Management Corporation Vice President and Assistant Secretary IDS Partnership Services Corporation Vice President and Assistant Secretary IDS Plan Services of California, Inc. Vice President and Assistant Secretary IDS Realty Corporation Vice President and Assistant Secretary PAGE 16 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) James M. Punch, Vice President--TransAction Services American Express Financial Advisors IDS Tower 10 Vice President-Trans Minneapolis, MN 55440 Action Services Frederick C. Quirsfeld, Vice President--Taxable Mutual Fund Investments American Express Financial Advisors IDS Tower 10 Vice President-- Minneapolis, MN 55440 Taxable Mutual Fund Investments IDS Advisory Group Inc. Vice President ReBecca K. Roloff, Vice President--1994 Program Director American Express Financial Advisors IDS Tower 10 Vice President-1994 Minneapolis, MN 55440 Program Director Stephen W. Roszell, Vice President--Advisory Institutional Marketing American Express Financial Advisors IDS Tower 10 Vice President-Advisory Minneapolis, MN 55440 Institutional Marketing IDS Advisory Group Inc. President and Chief Executive Officer Robert A. Rudell, Vice President--American Express Institutional Services American Express Financial Advisors IDS Tower 10 Vice President-American Minneapolis, MN 55440 Express Institutional Services American Express Trust Company Director and Chairman of the Board IDS Sales Support Inc. Director and President John P. Ryan, Vice President and General Auditor American Express Financial Advisors IDS Tower 10 Vice President and General Minneapolis, MN 55440 Auditor PAGE 17 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Erven A. Samsel, Director and Senior Vice President--Field Management American Express Financial Advisors IDS Tower 10 Senior Vice President- Minneapolis, MN 55440 Field Management American Express Service Corporation Vice President IDS Insurance Agency of Alabama Inc. Vice President- New England Region IDS Insurance Agency of Arkansas Inc. Vice President- New England Region IDS Insurance Agency of Massachusetts Inc. Vice President- New England Region IDS Insurance Agency of Nevada Inc. Vice President- New England Region IDS Insurance Agency of New Mexico Inc. Vice President- New England Region IDS Insurance Agency of North Carolina Inc. Vice President- New England Region IDS Insurance Agency of Ohio Inc. Vice President- New England Region IDS Insurance Agency of Wyoming Inc. Vice President- New England Region Stuart A. Sedlacek, Vice President--Assured Assets American Enterprise Life Insurance Co. IDS Tower 10 Director and Executive Minneapolis, MN 55440 Vice President, Assured Assets American Express Financial Advisors Vice President- Assured Assets IDS Certificate Company Director and President IDS Life Insurance Company Director and Executive Vice President, Assured Assets Investors Syndicate Development Corp. Chairman of the Board and President Donald K. Shanks, Vice President--Property Casualty American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Property Casualty IDS Property Casualty Insurance Co. Senior Vice President PAGE 18 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) F. Dale Simmons, Vice President--Senior Portfolio Manager, Insurance Investments American Enterprise Life Insurance Co. IDS Tower 10 Vice President-Real Minneapolis, MN 55440 Estate Loan Management American Express Financial Advisors Vice President-Senior Portfolio Manager, Insurance Investments American Partners Life Insurance Co. Vice President-Real Estate Loan Management IDS Certificate Company Vice President-Real Estate Loan Management IDS Life Insurance Company Vice President-Real Estate Loan Management IDS Partnership Services Corporation Vice President IDS Real Estate Services Inc. Director and Vice President IDS Realty Corporation Vice President IDS Life Insurance Company of New York Box 5144 Vice President and Albany, NY 12205 Assistant Treasurer Judy P. Skoglund, Vice President--Human Resources and Organization Development American Express Financial Advisors IDS Tower 10 Vice President-Human Minneapolis, MN 55440 Resources and Organization Development Ben C. Smith, Vice President--Workplace Marketing American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Workplace Marketing William A. Smith, Vice President and Controller--Private Client Group American Express Financial Advisors IDS Tower 10 Vice President and Minneapolis, MN 55440 Controller-Private Client Group Bridget Sperl, Vice President--Human Resources Management Services American Express Financial Advisors IDS Tower 10 Vice President-Human Minneapolis, MN 55440 Resources Management Services Jeffrey E. Stiefler, Director American Express Company American Express Tower Director and President World Financial Center New York, NY 10285 PAGE 19 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) William A. Stoltzmann, Vice President and Assistant General Counsel American Express Financial Advisors IDS Tower 10 Vice President and Minneapolis, MN 55440 Assistant General Counsel American Partners Life Insurance Co. Director, Vice President, General Counsel and Secretary IDS Life Insurance Company Vice President, General Counsel and Secretary American Enterprise Life Insurance P.O. Box 534 Director, Vice President, Company Minneapolis, MN 55440 General Counsel and Secretary James J. Strauss, Vice President--Corporate Planning and Analysis American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Corporate Planning and Analysis Jeffrey J. Stremcha, Vice President--Information Resource Management/ISD American Express Financial Advisors IDS Tower 10 Vice President-Information Minneapolis, MN 55440 Resource Management/ISD Fenton R. Talbott, Director ACUMA Ltd. ACUMA House President and Chief The Glanty, Egham Executive Officer Surrey TW 20 9 AT UK PAGE 20 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) John R. Thomas, Director and Senior Vice President--Information and Technology American Express Financial Advisors IDS Tower 10 Senior Vice President- Minneapolis, MN 55440 Information and Technology IDS Bond Fund, Inc. Director IDS California Tax-Exempt Trust Trustee IDS Discovery Fund, Inc. Director IDS Equity Select Fund, Inc. Director IDS Extra Income Fund, Inc. Director IDS Federal Income Fund, Inc. Director IDS Global Series, Inc. Director IDS Growth Fund, Inc. Director IDS High Yield Tax-Exempt Fund, Inc. Director IDS Investment Series, Inc. Director IDS Managed Retirement Fund, Inc. Director IDS Market Advantage Series, Inc. Director IDS Money Market Series, Inc. Director IDS New Dimensions Fund, Inc. Director IDS Precious Metals Fund, Inc. Director IDS Progressive Fund, Inc. Director IDS Selective Fund, Inc. Director IDS Special Tax-Exempt Series Trust Trustee IDS Stock Fund, Inc. Director IDS Strategy Fund, Inc. Director IDS Tax-Exempt Bond Fund, Inc. Director IDS Tax-Free Money Fund, Inc. Director IDS Utilities Income Fund, Inc. Director Melinda S. Urion, Vice President and Corporate Controller American Enterprise Life IDS Tower 10 Vice President and Insurance Company Minneapolis, MN 55440 Controller American Express Financial Advisors Vice President and Corporate Controller American Partners Life Insurance Co. Director, Vice President, Controller and Treasurer IDS Life Insurance Company Director, Executive Vice President and Controller IDS Life Series Fund, Inc. Vice President and Controller Wesley W. Wadman, Vice President--Senior Portfolio Manager American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Senior Portfolio Manager IDS Advisory Group Inc. Executive Vice President IDS Fund Management Limited Director and Vice Chairman IDS International, Inc. Senior Vice President PAGE 21 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Michael L. Weiner, Vice President--Corporate Tax Operations American Express Financial Advisors IDS Tower 10 Vice President-Corporate Minneapolis, MN 55440 Tax Operations IDS Capital Holdings Inc. Vice President IDS Futures Brokerage Group Vice President IDS Futures Corporation Vice President, Treasurer and Secretary IDS Futures III Corporation Vice President, Treasurer and Secretary Lawrence J. Welte, Vice President--Investment Administration American Express Financial Advisors IDS Tower 10 Vice President- Minneapolis, MN 55440 Investment Administration IDS Securities Corporation Director, Executive Vice President and Chief Operating Officer Jeffry F. Welter, Vice President--Equity and Fixed Income Trading American Express Financial Advisors IDS Tower 10 Vice President-Equity Minneapolis, MN 55440 and Fixed Income Trading William N. Westhoff, Director, Senior Vice President and Global Chief Investment Officer American Enterprise Life Insurance IDS Tower 10 Director Company Minneapolis, MN 55440 American Express Financial Advisors Senior Vice President and Global Chief Investment Officer IDS Fund Management Limited Director IDS International, Inc. Director IDS Partnership Services Corporation Director and Vice President IDS Real Estate Services Inc. Director, Chairman of the Board and President IDS Realty Corporation Director and Vice President Investors Syndicate Development Corp. Director PAGE 22 Item 28. Business and Other Connections of Investment Adviser (American Express Financial Corporation)(cont'd) Edwin M. Wistrand, Vice President and Assistant General Counsel American Express Financial Advisors IDS Tower 10 Vice President and Minneapolis, MN 55440 Assistant General Counsel Michael R. Woodward, Director and Senior Vice President--Field Management American Express Financial Advisors IDS Tower 10 Senior Vice President- Minneapolis, MN 55440 Field Management American Express Service Corporation Vice President IDS Insurance Agency of Alabama Inc. Vice President- North Region IDS Insurance Agency of Arkansas Inc. Vice President- North Region IDS Insurance Agency of Massachusetts Inc. Vice President- North Region IDS Insurance Agency of Nevada Inc. Vice President- North Region IDS Insurance Agency of New Mexico Inc. Vice President- North Region IDS Insurance Agency of North Carolina Inc. Vice President- North Region IDS Insurance Agency of Ohio Inc. Vice President- North Region IDS Insurance Agency of Wyoming Inc. Vice President- North Region IDS Life Insurance Company Box 5144 Director of New York Albany, NY 12205
PAGE 23 Item 29. Principal Underwriters. (a) American Express Financial Advisors acts as principal underwriter for the following investment companies: IDS Bond Fund, Inc.; IDS California Tax-Exempt Trust; IDS Discovery Fund, Inc.; IDS Equity Select Fund, Inc.; IDS Extra Income Fund, Inc.; IDS Federal Income Fund, Inc.; IDS Global Series, Inc.; IDS Growth Fund, Inc.; IDS High Yield Tax-Exempt Fund, Inc.; IDS International Fund, Inc.; IDS Investment Series, Inc.; IDS Managed Retirement Fund, Inc.; IDS Market Advantage Series, Inc.; IDS Money Market Series, Inc.; IDS New Dimensions Fund, Inc.; IDS Precious Metals Fund, Inc.; IDS Progressive Fund, Inc.; IDS Selective Fund, Inc.; IDS Special Tax-Exempt Series Trust; IDS Stock Fund, Inc.; IDS Strategy Fund, Inc.; IDS Tax-Exempt Bond Fund, Inc.; IDS Tax-Free Money Fund, Inc.; IDS Utilities Income Fund, Inc. and IDS Certificate Company. (b) As to each director, officer or partner of the principal underwriter: Positions and Name and Principal Position and Offices Offices with Business Address with Underwriter Registrant Ronald G. Abrahamson Vice President- None IDS Tower 10 Service Quality and Minneapolis, MN 55440 Reengineering Douglas A. Alger Vice President-Total None IDS Tower 10 Compensation Minneapolis, MN 55440 Peter J. Anderson Senior Vice President- Vice IDS Tower 10 Investments President Minneapolis, MN 55440 Ward D. Armstrong Vice President- None IDS Tower 10 Sales and Marketing, Minneapolis, MN 55440 American Express Institutional Services Alvan D. Arthur Group Vice President- None IDS Tower 10 Central California/ Minneapolis, MN 55440 Western Nevada Joseph M. Barsky III Vice President-Senior None IDS Tower 10 Portfolio Manager Minneapolis, MN 55440 Robert C. Basten Vice President-Tax None IDS Tower 10 and Business Services Minneapolis, MN 55440 PAGE 24 Item 29(b). As to each director, officer or partner of the principal underwriter (American Express Financial Advisors): (cont'd) Positions and Name and Principal Position and Offices Offices with Business Address with Underwriter Registrant Timothy V. Bechtold Vice President-Risk None IDS Tower 10 Management Products Minneapolis, MN 55440 John D. Begley Group Vice President- None Suite 100 Ohio/Indiana 7760 Olentangy River Rd. Columbus, OH 43235 Carl E. Beihl Vice President- None IDS Tower 10 Strategic Technology Minneapolis, MN 55440 Planning Jack A. Benjamin Group Vice President- None Suite 200 Greater Pennsylvania 3500 Market Street Camp Hill, PA 17011 Alan F. Bignall Vice President- None IDS Tower 10 Financial Planning Minneapolis, MN 55440 Systems Brent L. Bisson Group Vice President- None Ste 900 e Westside Tower Los Angeles Metro 11835 West Olympic Blvd. Los Angeles, CA 90064 John C. Boeder Vice President- None IDS Tower 10 Mature Market Group Minneapolis, MN 55440 Bruce J. Bordelon Group Vice President- None Galleria One Suite 1900 Gulf States Galleria Blvd. Metairie, LA 70001 Charles R. Branch Group Vice President- None Suite 200 Northwest West 111 North River Dr Spokane, WA 99201 Karl J. Breyer Senior Vice President- None IDS Tower 10 Corporate Affairs and Minneapolis, MN 55440 Special Counsel Harold E. Burke Vice President None IDS Tower 10 and Assistant Minneapolis, MN 55440 General Counsel PAGE 25 Item 29(b). As to each director, officer or partner of the principal underwriter (American Express Financial Advisors): (cont'd) Positions and Name and Principal Position and Offices Offices with Business Address with Underwriter Registrant Daniel J. Candura Vice President- None IDS Tower 10 Marketing Support Minneapolis, MN 55440 Cynthia M. Carlson Vice President- None IDS Tower 10 American Express Minneapolis, MN 55440 Securities Services Orison Y. Chaffee III Vice President-Field None IDS Tower 10 Real Estate Minneapolis, MN 55440 James E. Choat Senior Vice President- None IDS Tower 10 Field Management Minneapolis, MN 55440 Kenneth J. Ciak Vice President and None IDS Property Casualty General Manager- 1400 Lombardi Avenue IDS Property Casualty Green Bay, WI 54304 Roger C. Corea Group Vice President- None 290 Woodcliff Drive Upstate New York Fairport, NY 14450 Henry J. Cormier Group Vice President- None Commerce Center One Connecticut 333 East River Drive East Hartford, CT 06108 John M. Crawford Group Vice President- None Suite 200 Arkansas/Springfield/Memphis 10800 Financial Ctr Pkwy Little Rock, AR 72211 Kevin F. Crowe Group Vice President- None Suite 312 Carolinas/Eastern Georgia 7300 Carmel Executive Pk Charlotte, NC 28226 Alan R. Dakay Vice President- None IDS Tower 10 Institutional Products Minneapolis, MN 55440 Group Regenia David Vice President- None IDS Tower 10 Systems Services Minneapolis, MN 55440 PAGE 26 Item 29(b). As to each director, officer or partner of the principal underwriter (American Express Financial Advisors): (cont'd) Positions and Name and Principal Position and Offices Offices with Business Address with Underwriter Registrant Scott M. Digiammarino Group Vice President- None Suite 500 Washington/Baltimore 8045 Leesburg Pike Vienna, VA 22182 Bradford L. Drew Group Vice President- None Two Datran Center Eastern Florida Penthouse One B 9130 S. Dadeland Blvd. Miami, FL 33156 William H. Dudley Director and Executive Director IDS Tower 10 Vice President- Minneapolis MN 55440 Investment Operations Roger S. Edgar Senior Vice President None IDS Tower 10 and Technology Advisor Minneapolis, MN 55440 Gordon L. Eid Senior Vice President None IDS Tower 10 and General Counsel Minneapolis, MN 55440 Robert M. Elconin Vice President- None IDS Tower 10 Government Relations Minneapolis, MN 55440 Mark A. Ernst Vice President- None IDS Tower 10 Retail Services Minneapolis, MN 55440 Joseph Evanovich Jr. Group Vice President- None One Old Mill Nebraska/Iowa/Dakotas 101 South 108th Avenue Omaha, NE 68154 Louise P. Evenson Group Vice President- None Suite 200 San Francisco Bay Area 1333 N. California Blvd. Walnut Creek, CA 94596 Gordon M. Fines Vice President- None IDS Tower 10 Mutual Fund Equity Minneapolis MN 55440 Investments Louis C. Fornetti Senior Vice President None IDS Tower 10 and Chief Financial Minneapolis, MN 55440 Officer PAGE 27 Item 29(b). As to each director, officer or partner of the principal underwriter (American Express Financial Advisors): (cont'd) Positions and Name and Principal Position and Offices Offices with Business Address with Underwriter Registrant Douglas L. Forsberg Group Vice President- None Suite 100 Portland/Eugene 7931 N. E. Halsey Portland, OR 97213 William P. Fritz Group Vice President- None Suite 160 Northern Missouri 12855 Flushing Meadows Dr St. Louis, MO 63131 Carl W. Gans Group Vice President- None 8500 Tower Suite 1770 Twin City Metro 8500 Normandale Lake Blvd. Bloomington, MN 55437 Robert G. Gilbert Vice President- None IDS Tower 10 Real Estate Minneapolis, MN 55440 John J. Golden Vice President- None IDS Tower 10 Field Compensation Minneapolis, MN 55440 Development Morris Goodwin Jr. Vice President and None IDS Tower 10 Corporate Treasurer Minneapolis, MN 55440 Suzanne Graf Vice President- None IDS Tower 10 Systems Services Minneapolis, MN 55440 Bruce M. Guarino Group Vice President- None Suite 1736 Hawaii 1585 Kapiolani Blvd. Honolulu, HI 96814 David A. Hammer Vice President None IDS Tower 10 and Marketing Minneapolis, MN 55440 Controller Teresa A. Hanratty Group Vice President- None Suites 6&7 Northern New England 169 South River Road Bedford, NH 03110 John R. Hantz Group Vice President- None Suite 107 Detroit Metro 17177 N. Laurel Park Livonia, MI 48154 PAGE 28 Item 29(b). As to each director, officer or partner of the principal underwriter (American Express Financial Advisors): (cont'd) Positions and Name and Principal Position and Offices Offices with Business Address with Underwriter Registrant Robert L. Harden Group Vice President- None Two Constitution Plaza Boston Metro Boston, MA 02129 Lorraine R. Hart Vice President- None IDS Tower 10 Insurance Investments Minneapolis, MN 55440 Scott A. Hawkinson Vice President-Assured None IDS Tower 10 Assets Product Development Minneapolis, MN 55440 and Management Brian M. Heath Group Vice President- None Suite 250 North Texas 801 E. Campbell Road Richardson, TX 75081 Raymond E. Hirsch Vice President-Senior None IDS Tower 10 Portfolio Manager Minneapolis, MN 55440 James G. Hirsh Vice President and None IDS Tower 10 Assistant General Minneapolis, MN 55440 Counsel David J. Hockenberry Group Vice President- None 30 Burton Hills Blvd. Eastern Tennessee Suite 175 Nashville, TN 37215 Kevin P. Howe Vice President- None IDS Tower 10 Government and Minneapolis, MN 55440 Customer Relations David R. Hubers Chairman, Chief Director IDS Tower 10 Executive Officer and Minneapolis, MN 55440 President Marietta L. Johns Senior Vice President- None IDS Tower 10 Field Management Minneapolis, MN 55440 James E. Kaarre Vice President- None IDS Tower 10 Marketing Information Minneapolis, MN 55440 PAGE 29 Item 29(b). As to each director, officer or partner of the principal underwriter (American Express Financial Advisors): (cont'd) Positions and Name and Principal Position and Offices Offices with Business Address with Underwriter Registrant Linda B. Keene Vice President- None IDS Tower 10 Market Development Minneapolis, MN 55440 G. Michael Kennedy Vice President-Investment None IDS Tower 10 Services and Investment Minneapolis, MN 55440 Research Susan D. Kinder Senior Vice President- None IDS Tower 10 Human Resources Minneapolis, MN 55440 Richard W. Kling Senior Vice President- None IDS Tower 10 Risk Management Products Minneapolis, MN 55440 Paul F. Kolkman Vice President- None IDS Tower 10 Actuarial Finance Minneapolis, MN 55440 Claire Kolmodin Vice President- None IDS Tower 10 Service Quality Minneapolis, MN 55440 David S. Kreager Group Vice President- None Ste 108 Trestle Bridge V Greater Michigan 5136 Lovers Lane Kalamazoo, MI 49002 Steven C. Kumagai Director and Senior None IDS Tower 10 Vice President-Field Minneapolis, MN 55440 Management and Business Systems Mitre Kutanovski Group Vice President- None Suite 680 Chicago Metro 8585 Broadway Merrillville, IN 48410 Edward Labenski Vice President- None IDS Tower 10 Senior Portfolio Minneapolis, MN 55440 Manager Kurt A. Larson Vice President- None IDS Tower 10 Senior Portfolio Minneapolis, MN 55440 Manager Lori J. Larson Vice President- None IDS Tower 10 Variable Assets Product Minneapolis, MN 55440 Development PAGE 30 Item 29(b). As to each director, officer or partner of the principal underwriter (American Express Financial Advisors): (cont'd) Positions and Name and Principal Position and Offices Offices with Business Address with Underwriter Registrant Ryan R. Larson Vice President- None IDS Tower 10 IPG Product Development Minneapolis, MN 55440 Daniel E. Laufenberg Vice President and None IDS Tower 10 Chief U.S. Economist Minneapolis, MN 55440 Richard J. Lazarchic Vice President- None IDS Tower 10 Senior Portfolio MInneapolis, MN 55440 Manager Peter A. Lefferts Senior Vice President- None IDS Tower 10 Corporate Strategy and Minneapolis, MN 55440 Development Douglas A. Lennick Director and Executive None IDS Tower 10 Vice President-Private Minneapolis, MN 55440 Client Group Mary J. Malevich Vice President- None IDS Tower 10 Senior Portfolio Minneapolis, MN 55440 Manager Fred A. Mandell Vice President- None IDS Tower 10 Field Marketing Readiness Minneapolis, MN 55440 Daniel E. Martin Group Vice President- None Suite 650 Pittsburgh Metro 5700 Corporate Drive Pittsburgh, PA 15237 William J. McKinney Vice President- None IDS Tower 10 Field Management Minneapolis, MN 55440 Support Thomas W. Medcalf Vice President- None IDS Tower 10 Senior Portfolio Manager Minneapolis, MN 55440 William C. Melton Vice President- None IDS Tower 10 International Research Minneapolis, MN 55440 and Chief International Economist Janis E. Miller Vice President- None IDS Tower 10 Variable Assets Minneapolis, MN 55440 PAGE 31 Item 29(b). As to each director, officer or partner of the principal underwriter (American Express Financial Advisors): (cont'd) Positions and Name and Principal Position and Offices Offices with Business Address with Underwriter Registrant James A. Mitchell Executive Vice President- None IDS Tower 10 Marketing and Products Minneapolis, MN 55440 John P. Moraites Group Vice President- None Union Plaza Suite 900 Kansas/Oklahoma 3030 Northwest Expressway Oklahoma City, OK 73112 Pamela J. Moret Vice President- None IDS Tower 10 Corporate Communications Minneapolis, MN 55440 Barry J. Murphy Senior Vice President- None IDS Tower 10 Client Service Minneapolis, MN 55440 Robert J. Neis Vice President- None IDS Tower 10 Information Systems Minneapolis, MN 55440 Operations Ronald E. Newton Group Vice President- None 319 Southbridge St. Rhode Island/Central Auburn, MA 01501 Massachusetts Thomas V. Nicolosi Group Vice President- None Suite 220 New York Metro Area 500 Mamaronick Avenue Harrison, NY 10528 James R. Palmer Vice President- None IDS Tower 10 Taxes Minneapolis, MN 55440 Carla P. Pavone Vice President- None IDS Tower 10 Specialty Service Teams Minneapolis, MN 55440 and Emerging Business Susan B. Plimpton Vice President- None IDS Tower 10 Segmentation Development Minneapolis, MN 55440 and Support Larry M. Post Group Vice President- None One Tower Bridge Philadelphia Metro 100 Front Street 8th Fl West Conshohocken, PA 19428 PAGE 32 Item 29(b). As to each director, officer or partner of the principal underwriter (American Express Financial Advisors): (cont'd) Positions and Name and Principal Position and Offices Offices with Business Address with Underwriter Registrant Ronald W. Powell Vice President and None IDS Tower 10 Assistant General Minneapolis, MN 55440 Counsel James M. Punch Vice President- None IDS Tower 10 Geographical Service Minneapolis, MN 55440 Teams Frederick C. Quirsfeld Vice President-Taxable None IDS Tower 10 Mutual Fund Investments Minneapolis, MN 55440 R. Daniel Richardson Group Vice President- None Suite 800 Southern Texas Arboretum Plaza One 9442 Capital of Texas Hwy N. Austin, TX 78759 Roger B. Rogos Group Vice President- None One Sarasota Tower Western Florida Suite 700 Two N. Tamiami Trail Sarasota, FL 34236 ReBecca K. Roloff Vice President-1994 None IDS Tower 10 Program Director Minneapolis, MN 55440 Stephen W. Roszell Vice President- None IDS Tower 10 Advisory Institutional Minneapolis, MN 55440 Marketing Max G. Roth Group Vice President- None Suite 201 S IDS Ctr Wisconsin/Upper Michigan 1400 Lombardi Avenue Green Bay, WI 54304 Robert A. Rudell Vice President- None IDS Tower 10 American Express Minneapolis, MN 55440 Institutional Services John P. Ryan Vice President and None IDS Tower 10 General Auditor Minneapolis, MN 55440 PAGE 33 Item 29(b). As to each director, officer or partner of the principal underwriter (American Express Financial Advisors): (cont'd) Positions and Name and Principal Position and Offices Offices with Business Address with Underwriter Registrant Russell L. Scalfano Group Vice President- None Suite 201 Exec Pk East Illinois/Indiana/Kentucky 101 Plaza East Blvd. Evansville, IN 47715 William G. Scholz Group Vice President- None Suite 205 Arizona/Las Vegas 7333 E Doubletree Ranch Rd Scottsdale, AZ 85258 Stuart A. Sedlacek Vice President- None IDS Tower 10 Assured Assets Minneapolis, MN 55440 Donald K. Shanks Vice President- None IDS Tower 10 Property Casualty Minneapolis, MN 55440 F. Dale Simmons Vice President-Senior None IDS Tower 10 Portfolio Manager, Minneapolis, MN 55440 Insurance Investments Judy P. Skoglund Vice President- None IDS Tower 10 Human Resources and Minneapolis, MN 55440 Organization Development Julian W. Sloter Group Vice Presidnet- None Ste 1700 Orlando FinCtr Orlando/Jacksonville 800 North Magnolia Ave. Orlando, FL 32803 Ben C. Smith Vice President- None IDS Tower 10 Workplace Marketing Minneapolis, MN 55440 William A. Smith Vice President and None IDS Tower 10 Controller-Private Minneapolis, MN 55440 Client Group James B. Solberg Group Vice President- None IDS Tower 10 Eastern Iowa Area Minneapolis, MN 55440 Bridget Sperl Vice President- None IDS Tower 10 Human Resources Minneapolis, MN 55440 Management Services PAGE 34 Item 29(b). As to each director, officer or partner of the principal underwriter (American Express Financial Advisors): (cont'd) Positions and Name and Principal Position and Offices Offices with Business Address with Underwriter Registrant Paul J. Stanislaw Group Vice President- None Suite 1100 Southern California Two Park Plaza Irvine, CA 92714 Lois A. Stilwell Group Vice President- None Suite 433 Outstate Minnesota Area/ 9900 East Brn Road North Dakota/Western Wisconsin Minnetonka, MN 55343 William A. Stoltzmann Vice President and None IDS Tower 10 Assistant General Minneapolis, MN 55440 Counsel James J. Strauss Vice President- None IDS Tower 10 Corporate Planning Minneapolis, MN 55440 and Analysis Jeffrey J. Stremcha Vice President-Information None IDS Tower 10 Resource Management/ISD Minneapolis, MN 55440 Neil G. Taylor Group Vice President- None Suite 425 Seattle/Tacoma 101 Elliott Avenue West Seattle, WA 98119 John R. Thomas Senior Vice President- Director IDS Tower 10 Information and Minneapolis, MN 55440 Technology Melinda S. Urion Vice President and Treasurer IDS Tower 10 Corporate Controller Minneapolis, MN 55440 Peter S. Velardi Group Vice President- None Suite 180 Atlanta/Birmingham 1200 Ashwood Parkway Atlanta, GA 30338 Charles F. Wachendorfer Group Vice President- None Suite 100 Denver/Salt Lake City/ Stanford Plaza II Albuquerque 7979 East Tufts Ave Pkwy Denver, CO 80237 Wesley W. Wadman Vice President- None IDS Tower 10 Senior Portfolio Minneapolis, MN 55440 Manager PAGE 35 Item 29(b). As to each director, officer or partner of the principal underwriter (American Express Financial Advisors): (cont'd) Positions and Name and Principal Position and Offices Offices with Business Address with Underwriter Registrant Norman Weaver Jr. Senior Vice President- None 1010 Main St Suite 2B Field Management Huntington Beach, CA 92648 Michael L. Weiner Vice President- None IDS Tower 10 Corporate Tax Minneapolis, MN 55440 Operations Lawrence J. Welte Vice President- None IDS Tower 10 Investment Administration Minneapolis, MN 55440 Jeffry M. Welter Vice President- None IDS Tower 10 Equity and Fixed Income Minneapolis, MN 55440 Trading William N. Westhoff Senior Vice President and None IDS Tower 10 Global Chief Investment Minneapolis, MN 55440 Officer Thomas L. White Group Vice President- None Suite 200 Cambridge Ct Cleveland Metro 28601 Chagrin Blvd. Woodmere, OH 44122 Eric S. Williams Group Vice President- None Suite 250 Virginia 3951 Westerre Parkway Richmond, VA 23233 Edwin M. Wistrand Vice President and None IDS Tower 10 Assistant General Minneapolis, MN 55440 Counsel Michael R. Woodward Senior Vice President- None 32 Ellicott St Ste 100 Field Management Batavia, NY 14020 Item 29(c). Not applicable. Item 30. Location of Accounts and Records IDS Financial Corporation IDS Tower 10 Minneapolis, MN 55440 Item 31. Management Services Not Applicable. PAGE 36 Item 32. Undertakings (a) Not Applicable. (b) Not Applicable. (c) The Registrant undertakes to furnish each person to whom a prospectus is delivered with a copy of the Registrant's latest annual report to shareholders, upon request and without charge. PAGE 90 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, IDS Federal Income Fund, Inc. certifies that it meets the requirements for the effectiveness of this Amendment to its Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Minneapolis and the State of Minnesota on the 28th day of August, 1995. IDS FEDERAL INCOME FUND, INC. By Melinda S. Urion, Treasurer By /s/ William R. Pearce** William R. Pearce, President Pursuant to the requirements of the Securities Act of 1933, this Amendment to its Registration Statement has been signed below by the following persons in the capacities indicated on the 28th day of August, 1995. Signature Capacity /s/ William R. Pearce** President, Principal William R. Pearce Executive Officer and Director /s/ Leslie L. Ogg** Vice President, Leslie L. Ogg General Counsel and Secretary /s/ Lynne V. Cheney* Director Lynne V. Cheney /s/ William H. Dudley* Director William H. Dudley /s/ Robert F. Froehlke* Director Robert F. Froehlke /s/ David R. Hubers* Director David R. Hubers /s/ Heinz F. Hutter* Director Heinz F. Hutter /s/ Anne P. Jones* Director Anne P. Jones /s/ Donald M. Kendall* Director Donald M. Kendall PAGE 91 /s/ Melvin R. Laird* Director Melvin R. Laird /s/ Lewis W. Lehr* Director Lewis W. Lehr /s/ Edson W. Spencer* Director Edson W. Spencer /s/ John R. Thomas* Director John R. Thomas /s/ Wheelock Whitney* Director Wheelock Whitney /s/ C. Angus Wurtele* Director C. Angus Wurtele *Signed pursuant to Directors' Power of Attorney dated November 10, 1994, filed electronically as Exhibit 18(a) to Registrant's Post- Effective Amendment No. 18, by: Leslie L. Ogg **Signed pursuant to Officers' Power of Attorney dated June 1, 1993, filed electronically as Exhibit 17(b) to Registrant's Post- Effective Amendment No. 14 to Registration Statement No. 2-96512 by: Leslie L. Ogg PAGE 92 CONTENTS OF THIS POST-EFFECTIVE AMENDMENT NO. 21 TO REGISTRATION STATEMENT NO. 2-96512 This Post-Effective Amendment comprises the following papers and documents: The facing sheet. Cross reference sheet. Part A. The prospectus. Part B. Statement of Additional Information. Financial Statements. Part C. Other information. Exhibits. The signatures. EX-99 2 EXHIBIT INDEX PAGE 1 EXHIBIT INDEX B(11) Independent Auditor's Report B(17) Financial Data Schedule EX-99.11B-AUD-REPORT 3 11(B) INDEPENDENT AUDITOR'S REPORT PAGE 1 INDEPENDENT AUDITORS' CONSENT ___________________________________________________________________ The Board of Directors and Shareholders IDS Federal Income Fund, Inc.: We consent to the use of our report incorporated herein by reference and to the references to our Firm under the headings "Financial Highlights" in Part A and "INDEPENDENT AUDITORS" in Part B of the Registration Statement. KPMG Peat Marwick LLP Minneapolis, Minnesota August 25, 1995 EX-99.17B-FIN-SCHED 4 FINANCIAL DATA SCHEDULE PAGE 1 [ARTICLE] 6 [SERIES][NUMBER] 1 [NAME] IDS FEDERAL INCOME FUND CLASS A [PERIOD-TYPE] YEAR [FISCAL-YEAR-END] JUN-30-1995 [PERIOD-END] JUN-30-1995 [INVESTMENTS-AT-COST] 1281797084 [INVESTMENTS-AT-VALUE] 1312311439 [RECEIVABLES] 165322884 [ASSETS-OTHER] 31368435 [OTHER-ITEMS-ASSETS] 0 [TOTAL-ASSETS] 1509002758 [PAYABLE-FOR-SECURITIES] 107580812 [SENIOR-LONG-TERM-DEBT] 0 [OTHER-ITEMS-LIABILITIES] 46665304 [TOTAL-LIABILITIES] 154246116 [SENIOR-EQUITY] 0 [PAID-IN-CAPITAL-COMMON] 1388892549 [SHARES-COMMON-STOCK] 196735958 [SHARES-COMMON-PRIOR] 211642136 [ACCUMULATED-NII-CURRENT] 668460 [OVERDISTRIBUTION-NII] 0 [ACCUMULATED-NET-GAINS] (57644807) [OVERDISTRIBUTION-GAINS] 0 [ACCUM-APPREC-OR-DEPREC] 22840440 [NET-ASSETS] 1354756642 [DIVIDEND-INCOME] 0 [INTEREST-INCOME] 80861516 [OTHER-INCOME] 0 [EXPENSES-NET] (9254208) [NET-INVESTMENT-INCOME] 71607308 [REALIZED-GAINS-CURRENT] (23666307) [APPREC-INCREASE-CURRENT] 52857972 [NET-CHANGE-FROM-OPS] 100798973 [EQUALIZATION] 0 [DISTRIBUTIONS-OF-INCOME] (64225838) [DISTRIBUTIONS-OF-GAINS] 0 [DISTRIBUTIONS-OTHER] 0 [NUMBER-OF-SHARES-SOLD] 133036559 [NUMBER-OF-SHARES-REDEEMED] (159116207) [SHARES-REINVESTED] 11239784 [NET-CHANGE-IN-ASSETS] 329434836 [ACCUMULATED-NII-PRIOR] 57385576 [ACCUMULATED-GAINS-PRIOR] (24752055) [OVERDISTRIB-NII-PRIOR] 0 [OVERDIST-NET-GAINS-PRIOR] 0 [GROSS-ADVISORY-FEES] 5683320 [INTEREST-EXPENSE] 0 [GROSS-EXPENSE] 9254208 [AVERAGE-NET-ASSETS] 998099371 [PER-SHARE-NAV-BEGIN] 4.85 [PER-SHARE-NII] .32 [PER-SHARE-GAIN-APPREC] .11 [PER-SHARE-DIVIDEND] (.31) [PER-SHARE-DISTRIBUTIONS] 0 [RETURNS-OF-CAPITAL] 0 [PER-SHARE-NAV-END] 4.97 [EXPENSE-RATIO] .79 [AVG-DEBT-OUTSTANDING] 0 [AVG-DEBT-PER-SHARE] 0