-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HdIrb79SKQVYzVE9lc6zYeInxxa4lAq/daANK84jcM4d5uKUgSM/f1zXUzGMyw3v Ff+1/YlpvNNbMINNQ615uw== 0000820027-98-000014.txt : 19980126 0000820027-98-000014.hdr.sgml : 19980126 ACCESSION NUMBER: 0000820027-98-000014 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971130 FILED AS OF DATE: 19980123 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: N-30D SEC ACT: SEC FILE NUMBER: 811-04260 FILM NUMBER: 98511514 BUSINESS ADDRESS: STREET 1: 80 SOUTH 8TH STREET CITY: MINNEAPOLIS STATE: MN ZIP: 55440 BUSINESS PHONE: 6123722772 N-30D 1 1997 SEMIANNUAL REPORT IDS Federal Income Fund (icon of) shield with eagle head The goals of IDS Federal Income Fund, Inc. are to provide shareholders with a high level of current income and safety of principal consistent with investment in U.S. government and government agency securities. AMERICAN EXPRESS Financial Advisors Distributed by American Express Financial Advisors Inc. (icon of) shield with eagle head A comfortable compromise Balancing risk and reward is something all investors must consider. In the fixed-income area, intermediate-term securities issued by the federal government and its agencies offer a good middle ground. These securities, which form the core of Federal Income Fund, normally provide greater investment stability than long-term bonds, while still offering a yield higher than that of guaranteed investments such as bank CDs. For a conservative investor, that can be a rewarding combination. Contents From the chairman 3 From the portfolio manager 3 Financial statements (Fund) 5 Notes to financial statements (Fund) 8 Financial statements (Portfolio) 20 Notes to financial statements (Portfolio) 23 Investments in securities 30 Board members and officers 35 IDS mutual funds 36 To our shareholders From the chairman If you're an experienced investor, you know that the past few years have been unusually strong in many financial markets. Perhaps just as important, history shows that bull markets don't last forever. Though they're often unpredictable, declines -- whether they're brief or long-lasting, moderate or substantial -- are always a possibility. We saw evidence of that in late October, when declines in certain Asian markets spawned a sharp drop in several financial markets worldwide, including the U.S. That fact reinforces the need for investors to periodically review their long-term goals and examine whether their investment program remains on track to achieving them. Your quarterly investment statements are one part of that monitoring process. The other is a meeting with your American Express financial advisor. That becomes even more important if there's a major change in your financial situation or in the financial markets. William R. Pearce (picture of) William R. Pearce William R. Pearce Chairman of the board From the portfolio manager A remarkably low inflation rate paved the way for an overall decline in interest rates and, in turn, higher bond prices during the past six months. Taking advantage of the positive trend, IDS Federal Income Fund's Class A shares generated a total return (net asset value change and dividends) of 4.3% for the first half of its fiscal year -- June through November 1997. Despite considerable worry on the part of some observers that ongoing economic growth would soon send consumer prices higher, inflation remained wonderfully well-behaved throughout the six months. The result was that, aside from a temporary run-up in August, interest rates worked their way gradually lower. As is their nature, bond prices responded by moving higher. A safe haven The bond market also benefited from an unexpected factor at work in the last several weeks of the period, when several foreign markets were in turmoil. Seeking a safe haven for their investments, they poured money into U.S. bonds, which provided further support for prices. The Fund's assets were largely divided between short- and intermediate-term U.S. Treasury bonds and mortgage-backed bonds issued by agencies of the federal government. Although both sectors provided the Fund with positive performance, the prices of the Treasury investments benefited most from the decline in interest rates. (Conversely, when rates are stable or rising slightly, mortgage-backed bonds perform better because homeowners are less likely to refinance their mortgages.) The only notable negative for the Fund was its investments in interest-rate futures contracts, which produced a loss during the period. Less emphasis on `mortgages' Usually, 70% or more of the assets are invested in mortgage-backed securities. However, because of their already-high prices, I reduced those holdings considerably early in the period and shifted more money into Treasury securities, some of it in the form of options. In addition, I gradually lowered the level of cash reserves in the portfolio from about 11% to about 4%, putting that money to work in longer-term securities that earned a better return. Looking to the rest of the fiscal year, my biggest concern is that the ongoing strength of the economy may put upward pressure on inflation and, thus, on interest rates. Apart from that, some favorable factors remain at work: At this point, inflation is still subdued; the federal deficit is still shrinking; and the U.S. bond market continues to attract substantial investment capital, both domestic and foreign. As long as those fundamentals are intact, I would expect bonds to perform well. James W. Snyder (picture of) James W. Snyder James W. Snyder Portfolio manager Class A 6-month performance (All figures per share) Net asset value (NAV) Nov. 30, 1997 $ 5.04 May 31, 1997 $ 4.98 Increase $ 0.06 Distributions June 1, 1997 - Nov. 30, 1997 From income $ 0.15 From capital gains $ -- Total distributions $ 0.15 Total return* + 4.3%** Class B 6-month performance (All figures per share) Net asset value (NAV) Nov. 30, 1997 $ 5.04 May 31, 1997 $ 4.98 Increase $ 0.06 Distributions June 1, 1997 - Nov. 30, 1997 From income $ 0.13 From capital gains $ -- Total distributions $ 0.13 Total return* + 3.9%** Class Y 6-month performance (All figures per share) Net asset value (NAV) Nov. 30, 1997 $ 5.04 May 31, 1997 $ 4.97 Increase $ 0.07 Distributions June 1, 1997 - Nov. 30, 1997 From income $ 0.15 From capital gains $ -- Total distributions $ 0.15 Total return* + 4.3%** *The prospectus discusses the effect of sales charges, if any, on the various classes. **The total return is a hypothetical investment in the Fund with all distributions reinvested.
Financial statements Statement of assets and liabilities IDS Federal Income Fund, Inc. Nov. 30, 1997 Assets (Unaudited) Investment in Government Income Portfolio (Note 1) $2,375,382,715 -------------- Total assets 2,375,382,715 ------------- Liabilities Dividends payable to shareholders 1,118,302 Accrued distribution fee 38,029 Accrued service fee 22,213 Accrued transfer agency fee 6,379 Accrued administrative services fee 6,009 Other accrued expenses 646,846 ------- Total liabilities 1,837,778 --------- Net assets applicable to outstanding capital stock $2,373,544,937 ============== Represented by Capital stock-- of $.01 par value (Note 1) $ 4,711,094 Additional paid-in capital 2,374,470,671 Undistributed net investment income 1,432,189 Accumulated net realized gain (loss) (Note 4) (72,118,590) Unrealized appreciation (depreciation) on investments 65,049,573 ---------- Total-- representing net assets applicable to outstanding capital stock $2,373,544,937 ============== Net assets applicable to outstanding shares: Class A $1,326,488,963 Class B $ 929,939,445 Class Y $ 117,116,529 Net asset value per share of outstanding capital stock: Class A shares 263,282,241 $ 5.04 Class B shares 184,582,824 $ 5.04 Class Y shares 23,244,364 $ 5.04 See accompanying notes to financial statements.
Financial statements Statement of operations IDS Federal Income Fund, Inc. Six months ended Nov. 30, 1997 Investment income (Unaudited) Income: Interest $78,944,600 ----------- Expenses (Note 2): Expenses allocated from Government Income Portfolio 5,928,402 Distribution fee-- Class B 3,317,773 Transfer agency fee 1,090,827 Incremental transfer agency fee-- Class B 24,163 Service fee Class A 1,134,776 Class B 768,779 Class Y 56,988 Administrative services fees and expenses 540,803 Compensation of board members 5,102 Postage 175,802 Registration fees 300,434 Reports to shareholders 1,135 Audit fees 5,250 Other 130 --- Total expenses 13,350,364 Earnings credits on cash balances (Note 2) (184,063) -------- Total net expenses 13,166,301 ---------- Investment income (loss) -- net 65,778,299 ---------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions 22,454,705 Financial futures contracts (39,605,741) Options contracts written (3,645,619) ---------- Net realized gain (loss) on investments (20,796,655) Net change in unrealized appreciation (depreciation) on investments 48,666,966 ---------- Net gain (loss) on investments 27,870,311 ---------- Net increase (decrease) in net assets resulting from operations $93,648,610 =========== See accompanying notes to financial statements.
Statements of changes in net assets IDS Federal Income Fund, Inc. Operations and distributions Six months ended Year ended Nov. 30, 1997 May 31, 1997 (Unaudited) Investment income (loss)-- net $ 65,778,299 $ 115,437,006 Net realized gain (loss) on investments (20,796,655) (4,113,301) Net change in unrealized appreciation (depreciation) on investments 48,666,966 22,506,159 ---------- ---------- Net increase (decrease) in net assets resulting from operations 93,648,610 133,829,864 ---------- ----------- Distributions to shareholders from: Net investment income Class A (38,972,796) (72,954,437) Class B (22,968,698) (35,396,650) Class Y (3,434,106) (6,929,452) ---------- ---------- Total distributions (65,375,600) (115,280,539) ----------- ------------ Capital share transactions (Note 3) Proceeds from sales Class A shares (Note 2) 545,427,073 985,973,729 Class B shares 556,475,622 900,211,049 Class Y shares 23,450,011 45,145,082 Reinvestment of distributions at net asset value Class A shares 32,941,116 62,856,887 Class B shares 21,833,325 33,971,242 Class Y shares 3,411,721 6,929,452 Payments for redemptions Class A shares (535,323,244) (888,331,026) Class B shares (Note 2) (479,209,671) (639,794,803) Class Y shares (25,851,264) (37,361,796) ----------- ----------- Increase (decrease) in net assets from capital share transactions 143,154,689 469,599,816 ----------- ----------- Total increase (decrease) in net assets 171,427,699 488,149,141 Net assets at beginning of period 2,202,117,238 1,713,968,097 ------------- ------------- Net assets at end of period $2,373,544,937 $2,202,117,238 ============== ============== Undistributed net investment income $ 1,432,189 $ 1,029,490 -------------- -------------- See accompanying notes to financial statements.
Notes to financial statements IDS Federal Income Fund, Inc. (Unaudited as to Nov. 30, 1997) 1 Summary of significant accounting policies The IDS Federal Income Fund, Inc. is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. The Fund has 10 billion authorized shares of capital stock. The Fund offers Class A, Class B and Class Y shares. Class A shares are sold with a front-end sales charge. Class B shares may be subject to a contingent deferred sales charge and such shares automatically convert to Class A shares during the ninth calendar year of ownership. Class Y shares have no sales charge and are offered only to qualifying institutional investors. All classes of shares have identical voting, dividend, liquidation and other rights, and the same terms and conditions, except that the level of distribution fee, transfer agency fee and service fee (class specific expenses) differs among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. Investment in Government Income Portfolio Effective June 10, 1996, the Fund began investing all of its assets in Government Income Portfolio (the Portfolio), a series of Income Trust, an open-end investment company that has the same objectives as the Fund. This was accomplished by transferring the Fund's assets to the Portfolio in return for a proportionate ownership interest in the Portfolio. The Portfolio invests primarily in U.S. government and government agency securities. The Fund records daily its share of the Portfolio's income, expenses and realized and unrealized gains and losses. The financial statements of the Portfolio are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. The Fund records its investment in the Portfolio at value that is equal to the Fund's proportionate ownership interest in the net assets of the Portfolio. The percentage of the Portfolio owned by the Fund at May 31, 1997 was 99.97%. Valuation of securities held by the Portfolio is discussed in Note 1 of the Portfolio's "Notes to financial statements", which are included elsewhere in this report. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increase and decrease in net assets from operations during the period. Actual results could differ from those estimates. Federal taxes Since the Fund's policy is to comply with all sections of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to the shareholders, no provision for income or excise taxes is required. Net investment income (loss) and net realized gains (losses) allocated from the Portfolio may differ for financial statement and tax purposes primarily because of the deferral of losses on certain futures contracts, and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. Dividends to shareholders Dividends from net investment income, declared daily and payable monthly, are reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the last income dividend of the calendar year. 2 Expenses and sales charges In addition to the expenses allocated from the Portfolio, the Fund accrues its own expenses as follows: Effective March 20, 1995, the Fund entered into agreements with American Express Financial Corporation (AEFC) for providing administrative services and serving as transfer agent. Under its Administrative Services Agreement, the Fund pays AEFC a fee for administration and accounting services at a percentage of the Fund's average daily net assets in reducing percentages from 0.05% to 0.025% annually. Additional administrative service expenses paid by the Fund are office expenses, consultants' fees and compensation of officers and employees. Under this agreement, the Fund also pays taxes, audit and certain legal fees, registration fees for shares, compensation of board members, corporate filing fees, and any other expenses properly payable by the Fund and approved by the board. Under a separate Transfer Agency Agreement, American Express Client Service Corporation (AECSC) maintains shareholder accounts and records. The Fund pays AECSC an annual fee per shareholder account for this service as follows: oClass A $15.50 oClass B $16.50 oClass Y $15.50 Also effective March 20, 1995, the Fund entered into agreements with American Express Financial Advisors Inc. for distribution and shareholder servicing-related services. Under a Plan and Agreement of Distribution, the Fund pays a distribution fee at an annual rate of 0.75% of the Fund's average daily net assets attributable to Class B shares for distribution-related services. Under a Shareholder Service Agreement, the Fund pays a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.175% of the Fund's average daily net assets attributable to Class A and Class B shares and commencing on May 9, 1997, the fee is calculated at a rate of 0.10% of the Fund's average daily net assets attributable to Class Y shares. Sales charges received by American Express Financial Advisors, Inc. for distributing Fund shares were $18,308,105 for Class A and $400,142 for Class B for the six months ended Nov. 30, 1997. For the six months ended Nov. 30, 1997, the Fund's transfer agency fees were reduced by $184,063 as a result of earnings credits from overnight cash balances. 3 Capital share transactions Transactions in shares of capital stock for the periods indicated are as follows: Six months ended Nov. 30, 1997 Class A Class B Class Y Sold 108,664,381 110,875,237 4,662,873 Issued for reinvested 6,554,881 4,344,257 678,942 distributions Redeemed (106,620,186) (95,450,673) (5,150,809) Net increase (decrease) 8,599,076 19,768,821 191,006 Year ended May 31, 1997 Class A Class B Class Y Sold 198,719,225 181,331,273 9,099,651 Issued for reinvested 12,674,720 6,850,794 1,399,915 distributions Redeemed (179,157,262) (128,994,759) (7,537,738) Net increase (decrease) 32,236,683 59,187,308 2,961,828 4 Capital loss carryover For federal income tax purposes, the Fund had a capital loss carryover of $8,714,523 at May 31, 1997, that if not offset by subsequent capital gains, will expire in 2002 through 2006. It is unlikely the board will authorize a distribution of any net realized gains until the available capital loss carryover has been offset or expires.
Notes to financial statements IDS Federal Income Fund 5 Financial highlights The tables below show certain important financial information for evaluating the Fund's results. Fiscal period ended May 31, Per share income and capital changesa Class A 1997c 1997 1996b 1995 1994 1993 1992 1991 1990 1989 1988 Net asset value, $4.98 $4.92 $4.97 $4.85 $5.30 $5.19 $5.10 $5.00 $5.02 $5.02 $5.01 beginning of period Income from investment operations: Net investment .15 .32 .28 .32 .29 .32 .36 .42 .42 .40 .41 income (loss) Net gains (losses) .06 .06 (.04) .11 (.31) .13 .09 .09 (.02) -- .01 (both realized and unrealized) Total from investment .21 .38 .24 .43 (.02) .45 .45 .51 .40 .40 .42 operations Less distributions: Dividends from net (.15) (.32) (.29) (.31) (.29) (.32) (.36) (.41) (.42) (.40) (.41) investment income Distributions from -- -- -- -- (.14) (.02) -- -- -- -- -- realized gains Total distributions (.15) (.32) (.29) (.31) (.43) (.34) (.36) (.41) (.42) (.40) (.41) Net asset value, $5.04 $4.98 $4.92 $4.97 $4.85 $5.30 $5.19 $5.10 $5.00 $5.02 $5.02 end of period Ratios/supplemental data Class A 1997c 1997 1996b 1995 1994 1993 1992 1991 1990 1989 1988 Net assets, end of period $1,326 $1,267 $1,095 $977 $1,025 $1,025 $834 $397 $234 $183 $183 (in millions) Ratio of expenses to .87%e .90% .91%e .79% .76% .77% .79% .80% .82% .79% .80% average daily net assetsd Ratio of net income (loss) 5.98%e 6.37% 6.34%e 6.59% 5.64% 6.03% 6.93% 8.20% 8.53% 8.15% 8.24% to average daily net assets Portfolio turnover rate 89% 146% 115% 213% 304% 227% 104% 52% 104% 81% 143% (excluding short-term securities) Total returnf 4.3% 7.7% 5.0% 9.3% (.5%) 9.0% 9.0% 10.8% 8.3% 8.4% 8.8% a For a share outstanding throughout the period. Rounded to the nearest cent. b The Fund's fiscal year-end was changed from June 30 to May 31, effective 1996. c Six months ended Nov. 30, 1997. (Unaudited). d Effective fiscal year 1996, the expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. e Adjusted to an annual basis. f Total return does not reflect payment of a sales charge.
Fiscal period ended May 31, Per share income and capital changesa Class B Class Y 1997d 1997 1996c 1995b 1997d 1997 1996c 1995b Net asset value, $4.98 $4.92 $4.96 $4.87 $4.97 $4.92 $4.97 $4.87 beginning of period Income from investment operations: Net investment .13 .28 .26 .06 .15 .32 .29 .07 income (loss) Net gains (losses) .06 .06 (.04) .14 .07 .05 (.04) .15 both realized and unrealized) Total from investment .19 .34 .22 .20 .22 .37 .25 .22 operations Less distributions: Dividends from net (.13) (.28) (.26) (.11) (.15) (.32) (.30) (.12) investment income Net asset value, $5.04 $4.98 $4.92 $4.96 $5.04 $4.97 $4.92 $4.97 end of period Ratios/supplemental data Class B Class Y 1997d 1997 1996c 1995b 1997d 1997 1996c 1995b Net assets, end $930 $820 $520 $292 $117 $115 $99 $85 of period (in millions) Ratio of expenses 1.63%f 1.66% 1.67%f 1.74%f .80%f .73% .74%f .75%f to average daily net assetse Ratio of net income 5.23%f 5.60% 5.59%f 6.21%f 6.06%f 6.54% 6.53%f 7.20%f (loss) to average daily net assets Portfolio turnover 89% 146% 115% 213% 89% 146% 115% 213% rate (excluding short-term securities) Total returng 3.9% 6.9% 4.3% 4.1% 4.3% 7.9% 5.2% 4.5% a For a share outstanding throughout the period. Rounded to the nearest cent. b Inception date was March 20, 1995. c The Fund's fiscal year-end was changed from June 30 to May 31, effective 1996. d Six months ended Nov. 30, 1997. (Unaudited). e Effective fiscal year 1996, the expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. f Adjusted to an annual basis. g Total return does not reflect payment of a sales charge.
Financial statements Statement of assets and liabilities Government Income Portfolio Nov. 30, 1997 Assets (Unaudited) Investments in securities, at value (Note 1) (identified cost $ 2,916,716,941) $2,982,973,037 Cash in bank on demand deposit 29,079,723 Accrued interest receivable 28,273,625 Receivable for investment securities sold 148,052,355 U.S. government securities held as collateral (Note 5) 48,924,229 ---------- Total assets 3,237,302,969 ------------- Liabilities Payable for investment securities purchased 271,327,816 Payable upon return of securities loaned (Note 5) 522,438,916 Accrued investment management services fee 65,401 Other accrued expenses 25,568 Option contracts written, at value (premium received $68,470,442) (Note 6) 67,402,593 ---------- Total liabilities 861,260,294 ----------- Net assets $2,376,042,675 ============== See accompanying notes to financial statements.
Statement of operations Government Income Portfolio Six months ended Nov. 30, 1997 Investment income (Unaudited) Income: Interest $ 79,006,597 ------------- Expenses (Note 2): Investment management services fee 5,819,399 Compensation of board members 8,105 Custodian fees 64,291 Audit fees 15,750 Other 22,475 ------ Total expenses 5,930,020 --------- Investment income-- net 73,076,577 ---------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) 22,460,870 Financial futures contracts (39,616,512) Option contracts written (Note 6) (3,646,628) ---------- Net realized gain (loss) on investments (20,802,270) Net change in unrealized appreciation (depreciation) on investments 48,680,255 ---------- Net gain (loss) on investments 27,877,985 ---------- Net increase (decrease) in net assets resulting from operations $100,954,562 ============ See accompanying notes to financial statements.
Financial statements Statements of changes in net assets Government Income Portfolio Operations Six months ended For the period from Nov. 30, 1997 June 10, 1996* to (Unaudited) May 31, 1997 Investment income (loss)-- net $ 73,076,577 $ 124,973,996 Net realized gain (loss) on investments (20,802,270) (221,211) Net change in unrealized appreciation (depreciation) on investments 48,680,255 22,413,297 ---------- ---------- Net increase (decrease) in net assets resulting from operations 100,954,562 147,166,082 Net contributions (withdrawals) from partners 71,105,143 2,056,776,888 ---------- ------------- Total increase (decrease) in net assets 172,059,705 2,203,942,970 Net assets at beginning of period (Note 1) 2,203,982,970 40,000 ------------- ------ Net assets at end of period $2,376,042,675 $2,203,982,970 ============== ============== *Commencement of operations See accompanying notes to financial statements.
Notes to financial statements Government Income Portfolio (Unaudited as to Nov. 30, 1997) 1 Summary of significant accounting policies Government Income Portfolio (the Portfolio) is a series of Income Trust (the Trust) and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. Government Income Portfolio seeks to provide a high level of current income and safety of principal consistent with investment in U.S. government and government agency securities. The Declaration of Trust permits the Trustees to issue non-transferable interests in the Portfolio. On April 15, 1996, American Express Financial Corporation (AEFC) contributed $40,000 to the Portfolio. Operations did not formally commence until June 10, 1996, at which time an existing fund transferred its assets to the Portfolio in return for an ownership percentage of the Portfolio. Significant accounting polices followed by the Portfolio are summarized below: Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increase and decrease in net assets from operations during the period. Actual results could differ from those estimates. Valuation of securities All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price deemed best to reflect fair value as quoted by dealers who make markets in these securities or by an independant pricing service. Securities for which market quotations are not readily available are valued at fair value according to methods selected in good faith by the board. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost. Option transactions In order to produce incremental earnings, protect gains and facilitate buying and selling of securities for investment purposes, the Fund may buy and sell put and call options and write covered call options on portfolio securities and may write cash-secured put and call options on U.S. government securities. The Fund also may purchase mortgage-backed security (MBS) put spread options and write covered MBS call spread options. MBS spread options are based upon the changes in the price spread between a specified mortgage-backed security and a like-duration Treasury security. The risk in writing a call option is that the Fund gives up the opportunity of profit if the market price of the security increases. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of not being able to enter into a closing transaction if a liquid secondary market does not exist. The Fund also may write over-the-counter options where the completion of the obligation is dependent upon the credit standing of the other party. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Fund will realize a gain or loss upon expiration or closing of the option transaction. When options on debt securities or futures are exercised, the Fund will realize a gain or loss. When other options are exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. Futures transactions In order to gain exposure to or protect itself from changes in the market, the Portfolio may buy and sell financial futures contracts. Risks of entering into futures contracts and related options include the possibility that there may be an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Portfolio is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Portfolio each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Portfolio recognizes a realized gain or loss when the contract is closed or expires. Securities purchased on a when-issued basis Delivery and payment for securities that have been purchased by the Portfolio on a forward-commitment or when-issued basis can take place one month or more after the transaction date. During this period, such securities are subject to market fluctuations, and they may affect the Portfolio's gross assets the same as owned securities. The Portfolio designates cash or liquid high-grade short-term debt securities at least equal to the amount of its commitment. As of Nov. 30, 1997, the Portfolio had entered into outstanding when-issued or forward commitments of $150,340,573. Federal taxes For federal income tax purposes the Portfolio qualifies as a partnership and each investor in the Portfolio is treated as the owner of its proportionate share of the net assets, income, expenses and realized and unrealized gains and losses of the Portfolio. Accordingly, as a "pass-through" entity, the Portfolio does not pay any income dividends or capital gain distributions. Other Security transactions are accounted for on the date securities are purchased or sold. Interest income, including level-yield amortization of premium and discount, is accrued daily. 2 Fees and expenses The Trust, on behalf of the Portfolio, has entered into an Investment Management Services Agreement with (AEFC) for managing its portfolio. Under this agreement, AEFC determines which securities will be purchased, held or sold. The management fee is a percentage of the Portfolio's average daily net assets in reducing percentages from 0.52% to 0.395% annually. Under the agreement, the Trust also pays taxes, brokerage commissions and nonadvisory expenses, which include custodian fees to be paid to an affiliate of AEFC, audit and certain legal fees, fidelity bond premiums, registration fees for units, office expenses, consultants' fees, compensation of trustees, corporate filing fees, expenses incurred in connection with lending securities of the Portfolio, and any other expenses properly payable by the Trust or Portfolio and approved by the board. Pursuant to a Placement Agency Agreement, American Express Financial Advisors Inc. acts as placement agent of the units of the Trust. 3 Securities transactions Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $2,484,312,386 and $2,323,839,728 respectively, for the period from June 1, 1997 to Nov. 30, 1997. For the same period, the portfolio turnover rate was 89%. Realized gains and losses are determined on an identified cost basis. 4 Interest rate futures contracts At Nov. 30, 1997, investments in securities included securities valued at $46,237,690 that were pledged as collateral to cover initial margin deposits on 4,208 open purchase contracts and 5,597 open sale contracts. The market value of the open purchase contracts at Nov. 30, 1997 was $452,952,970 with a net unrealized gain of $1,377,395. The market value of the open sale contracts at Nov. 30, 1997 was $645,244,375 with a net unrealized loss of $3,633,969. See Summary of significant accounting policies. 5 Lending of portfolio securities At Nov. 30, 1997, securities valued at $508,045,552 were on loan to brokers. For collateral, the Portfolio received $473,514,687 in cash and U.S. government securities valued at $48,924,229. Income from securities lending amounted to $791,225 for the period ended Nov. 30, 1997. The risks to the Portfolio of securities lending are that the borrower may not provide additional collateral when required or return the securities when due.
6 Options contracts written The number of contracts and premium amounts associated with option contracts written is as follows: Period ended Nov. 30, 1997 Puts Calls MBS Puts and Calls Contracts Premium Contracts Premium Contracts Premiums Balance May 31, 1997 2,209 $ 2,598,052 4,067 $ 6,810,256 13,000 $ 757,616 Opened 8,907 11,819,477 11,941 18,536,024 46,150 109,104,140 Closed (8,261) (10,084,501) (8,397) (12,936,837) (20,700) (52,279,257) Exercised (42) (35,228) (1,686) (2,710,856) (18,700) (441,483) Expired (148) (180,885) (1,876) (2,419,670) (4,250) (66,406) ---- -------- ------ ---------- ------ ------- Balance Nov. 30, 1997 2,665 $ 4,116,915 4,049 $ 7,278,917 15,500 $57,074,610 See Summary of significant accounting policies.
Investments in securities Government Income Portfolio Nov. 30, 1997 (Unaudited) (Percentages represent value of investments compared to net assets) Bonds (110.9%) Issuer Coupon Maturity Principal Value(a) rate year amount U.S. government obligations (55.1%) U.S. Treasury 5.125% 1998 $ 78,000,000 $ 77,592,840 5.375 1998 10,000,000 9,990,500 5.625 1998 55,000,000 54,954,900 5.750 2003 18,500,000 18,418,230 5.875 1999-05 47,600,000(h) 47,624,487 6.00 1999-00 147,750,000(h) 148,391,820 6.25 2000-21 12,100,000(e,f,h) 12,239,147 6.375 2000-27 302,850,000(h) 310,683,815 6.50 2005 5,000,000(e,f) 5,183,050 6.625 2002 48,500,000 49,747,850 6.75 2000 100,750,000(h) 102,915,117 7.00 2006 8,500,000(h) 9,118,035 7.125 2000 32,000,000 32,889,600 7.75 2000-01 118,250,000(e,f,h) 123,402,070 8.125 2019 31,000,000(h) 38,363,430 8.50 2000 22,000,000 23,224,080 10.75 2003-05 19,750,000(e,f) 24,403,215 11.875 2003 66,000,000 85,635,660 12.375 2004 7,000,000 9,412,690 TIPS 3.625 2002 500,000(i) 504,083 Collateralized Mtge Securities Corp 13.45 2020 3,750,000 4,003,125 Resolution Funding Corp 8.125 2019 8,000,000 9,807,440 Zero Coupon 6.13 2008 48,500,000(b) 25,750,105 6.15 2002 11,170,000(b) 8,695,622 6.36 2003 16,000,000(b) 11,404,160 7.20 2018 8,000,000(b) 2,265,120 7.28 2017 44,350,000(b) 13,132,220 7.37 2017 79,350,000(b) 22,824,228 7.43 2019 84,500,000(b) 22,395,027 7.87 2018 7,500,000(b) 2,026,608 8.04 2012 8,400,000(b) 3,363,360 Total 1,310,361,634 Mortgage-backed securities (55.8%) Federal Home Loan Mortgage Corporation (20.0%) 6.00 2025 156,250,000(j) 149,609,375 6.00 2026 19,536,798 18,761,187 6.50 2003-09 7,719,350 7,705,723 7.00 2010 18,528,806 18,759,490 7.50 2024 7,710,626 7,909,637 8.00 2023-25 64,726,545 67,197,468 8.50 2022-27 20,100,488 21,012,531 9.00 2025-26 41,355,760 44,159,227 14.24 2027 199,625,260(b) 3,485,457 Collateralized Mtge Obligation 4.00 2023 11,817,347 11,172,711 6.75 2022 22,000,000 21,942,580 8.25 2024 33,335,995 36,311,899 8.50 2022 9,150,000 10,175,349 Interest Only 10.00 2020 266,685(c) 84,238 Principal Only 1.08 2027 6,187,259(g) 5,095,765 1.32 2022 4,997,974(g) 4,050,858 1.48 2027 2,356,107(g) 1,850,416 2.47 2023 13,000,000(g) 8,013,281 2.48 2008 10,119,749(g) 8,238,108 2.92 2009 5,979,874(g) 4,554,982 3.41 2003-07 21,486,331(g) 17,631,882 3.82 2008 8,328,020(g) 6,046,923 Total 473,769,087 Federal National Mortgage Association (35.2%) 6.00 2008-27 36,256,755 34,883,125 6.50 2023-27 140,963,111(e,f) 139,078,437 7.00 2023-27 159,022,723 159,454,842 7.50 2025-26 72,316,529 73,889,414 8.00 2021-27 35,172,133 36,430,268 8.50 2007-26 200,875,613 210,783,243 9.00 2023-26 24,096,455 25,799,104 Collateralized Mtge Obligation 3.00 2019 11,250,000 10,292,513 4.50 2010 8,204,208 7,509,230 4.70 2022 5,436,398 5,392,744 5.00 2024 6,507,327 6,265,906 5.50 2008 10,693,282 10,286,617 6.00 2008 6,166,539 6,084,709 6.50 2017-25 13,330,768 13,315,398 7.00 2012 6,130,247 6,172,668 8.50 2021 12,350,000 13,652,753 9.00 2020 11,666,000 12,818,484 Interest Only 8.50 2022 15,129,619(c) 4,471,440 9.50 2018-22 14,086,847(c) 4,245,834 10.00 2018-22 46,501,373(c) 13,621,981 10.50 2021 11,732,705(c) 3,998,961 Inverse Floater 6.45 2023 6,052,314(d) 5,458,340 7.58 2024 4,913,659(d) 4,055,439 Principal Only 1.00 2020-21 6,389,197(g) 6,048,962 1.25 2023 6,436,532(g) 6,105,050 3.08 2023 10,788,439(g) 6,080,297 3.85 2008 7,000,000(g) 5,087,031 4.95 2023 9,558,975(g) 5,053,830 Total 836,336,620 Government National Mortgage Association (0.6%) 7.50 2025 13,882,693 14,209,075 11.00 2019 301,483 336,657 Total 14,545,732 Total bonds (Cost: $2,568,197,121) $2,635,013,073
Options purchased (0.2%) Issuer Number Exercise Expiration Value(a) of contracts price date Put MBS 8,500 $103 Dec. 1997 $ 9,775 MBS 10,000 97 Jan. 1998 250,000 U.S. Treasury Bonds March 98 340 108 Feb. 1998 53,125 Call U.S. Treasury Bonds March 98 1,300 109 Feb. 1998 3,473,431 Total options purchased (Cost: $4,385,854) $3,786,331
Short-term securities (14.5%) Issuer Annualized Amount Value(a) yield on payable at date of maturity purchase U.S. government agencies (10.2%) Federal Home Loan Mtge Corp Disc Nts 12-05-97 5.47% $ 9,400,000 $ 9,391,446 12-11-97 5.47 8,300,000 8,284,922 12-11-97 5.48 20,400,000 20,362,872 12-11-97 5.50 6,000,000 5,989,020 12-11-97 5.50 50,000,000 49,908,500 12-22-97 5.48 5,900,000 5,879,456 Federal Natl Mtge Assn Disc Nts 12-22-97 5.51 49,000,000 48,850,550 12-22-97 5.51 17,000,000 16,948,150 12-22-97 5.51 50,000,000 49,824,625 12-22-97 5.52 27,400,000 27,299,533 Total 242,739,074 Certificates of deposit (4.3%) ABN Yankee 04-17-98 6.27 25,000,000 25,026,043 Canadian Imperial Bank Yankee 03-23-98 6.00 25,000,000 25,000,000 Societe Generale Yankee 03-20-98 5.98 41,400,000 41,399,042 04-15-98 6.25 10,000,000 10,009,474 Total 101,434,559 Total short-term securities (Cost: $344,133,966) $ 344,173,633 Total investment in securities (Cost: $2,916,716,941)(k) $2,982,973,037 See accompanying notes to investments in securities.
Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (c) Interest-only represents securities that entitle holders to receive only interest payments on the underlying mortgages. The yield to maturity of an interest-only is extremely sensitive to the rate of principal payments on the underlying mortgage assets. A rapid (slow) rate of principal repayments may have an adverse (positive) effect on yield to maturity. The principal amount shown is the notional amount of the underlying mortgages. (d) Inverse floaters represent securities that pay interest at a rate that increases (decreases) in the same magnitude as, or in a multiple of, a decline (increase) in the LIBOR (London InterBank Offering Rate) Index. Interest rate disclosed is the rate in effect on Nov. 30, 1997. (e) Partially pledged as initial deposit on the following open interest rate futures contracts (see Note 4 to the financial statements): Type of security Notional amount Purchase contracts U.S. Treasury Note March 98, 5-year notes $74,700,000 U.S. Treasury Note Dec. 97, 5-year notes 308,100,000 U.S. Treasury Note March 98, 2-year notes 38,000,000 Sale contracts U.S. Treasury Note March 98, 10-year notes 122,100,000 U.S. Treasury Note Dec. 97, 10-year notes 157,900,000 U.S. Treasury Bonds March 98 235,400,000 U.S. Treasury Bonds Dec. 97 44,300,000 (f) At Nov. 30, 1997, securities valued at $46,237,690 were held to cover open call options written as follows: Issuer Number of Exercise Expiration Value (a) contracts price date U.S. Treasury Bonds March 98 170 $117 Feb. 1998 $ 393,125 U.S. Treasury Bonds March 98 786 118 Dec. 1997 1,252,688 U.S. Treasury Bonds March 98 425 119 Dec. 1997 425,000 U.S. Treasury Bonds March 98 500 116 Feb. 1998 1,953,125 U.S. Treasury Bonds March 98 1,063 118 Feb. 1998 2,790,375 U.S. Treasury Bonds March 98 1,105 120 Feb. 1998 1,830,156 Mortgage-Backed Security (MBS) Spread 5,500 103 Dec. 1997 56,873,437 Mortgage-Backed Security (MBS) Spread 10,000 98 Jan. 1998 312,500 At Nov. 30, 1997, cash or short-term securities were designated to cover open put options written as follows: Issuer Number of Exercise Expiration Value (a) contracts price date U.S. Treasury Bonds March 98 1,085 $117 Dec. 1997 $305,156 U.S. Treasury Bonds March 98 650 114 Feb. 1998 304,688 U.S. Treasury Bonds March 98 760 116 Feb. 1998 688,750 U.S. Treasury Bonds March 98 170 118 Feb. 1998 273,593 (g) Principal only represents securities that entitle holders to receive only principal payments on the underlying mortgages. The yield to maturity of a principal only is sensitive to the rate of principal payments on the underlying mortgage assets. A slow (rapid) rate of principal repayments may have an adverse (positive) effect on yield to maturity. Interest rate disclosed represents current yield based upon the current cost basis and estimated timing of the future cash flows. (h) Security is partially or fully on loan. See Note 5 to the financial statements. (i) U.S. Treasury inflation-protection securities (TIPS) are securities in which the principal amount is adjusted for inflation and the semi-annual interest payments equal a fixed percentage of the inflation-adjusted principal amount. (j) At Nov. 30, 1997, the cost of securities purchased on a when-issued basis was $150,340,573. (k) At Nov. 30, 1997, the cost of securities for federal income tax purposes was approximately $2,916,717,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation......................................$73,157,000 Unrealized depreciation.......................................(6,901,000) ---------- Net unrealized appreciation..................................$66,256,000 Board members and officers Independent board members and officers Chariman of the board William R. Pearce* Chairman of the board, Board Services Corporation (provides administrative services to boards including the boards of the IDS and IDSLife funds and Master Trust portfolios). H. Brewster Atwater, Jr. Former chairman and chief executive officer, General Mills, Inc. Lynne V. Cheney Distinguished fellow, American Enterprise Institute for Public Policy Research. Heinz F. Hutter Former president and chief operating officer, Cargill, Inc. Anne P. Jones Attorney and telecommunications consultant. Alan K. Simpson Former United States senator for Wyoming. Edson W. Spencer Former chairman and chief executive officer, Honeywell, Inc. Wheelock Whitney Chairman, Whitney Management Company. C. Angus Wurtele Chairman of the board, The Valspar Corporation. Officer Vice president, general counsel and secretary Leslie L. Ogg* President, treasurer and corporate secretary of Board Services Corporation. Board members and officers associated with AEFC President John R. Thomas* Senior vice president, AEFC. William H. Dudley* Senior advisor to the chief executive officer, AEFC. David R. Hubers* President and chief executive officer, AEFC. Officers associated with AEFC Vice president Peter J. Anderson* Senior vice president, AEFC Treasurer Matthew N. Karstetter* Vice president, AEFC * Interested person as defined by the Investment Company Act of 1940. IDS mutual funds Global/International funds Funds in this group seek capital growth and/or income by investing primarily in foreign securities. Foreign investments may be subject to currency fluctuations and political and economic risks of the countries in which the investments are made. They are high risk mutual funds with a potential for high reward. IDS Emerging Markets Fund Invests in a Portfolio comprised primarily of stocks of companies in developing countries throughout the world that are believed to offer growth potential. Seeks to provide long-term growth of capital. (icon of) world with countries IDS Global Growth Fund Invests in a Portfolio comprised primarily of stocks of companies throughout the world that are positioned to meet market needs in a changing world economy. These companies offer above-average potential for long-term growth. (icon of) world IDS International Fund Invests primarily in common stocks of foreign companies that offer potential for superior growth. The Fund may invest up to 20% of its assets in the U.S. market. (icon of) three flags IDS Global Balanced Fund Invests in stocks and bonds in, for the most part, major markets throughout the world, including the U.S. Seeks to provide a balance of growth of capital and current income. (icon of) scale of globes IDS Global Bond Fund Invests in a Portfolio comprised primarily of debt securities of U.S. and foreign issuers to seek high total return through income and growth of capital. (icon of) globe Growth funds Funds in this group seek capital growth, primarily from common stocks. They are high risk mutual funds with a potential for high reward. IDS Precious Metals Fund Invests primarily in the securities of foreign or domestic companies that explore for, mine and process or distribute gold and other precious metals. A highly aggressive and speculative fund that seeks long-term growth of capital. (icon of) cart of precious gems IDS Discovery Fund Invests in small- and medium-size, growth-oriented companies emphasizing technological innovation and productivity enhancement. Buys and holds larger growth-oriented stocks. (icon of) ship IDS Small Company Index Fund Invests in all or a representative group of the equity securities comprising the S&P SmallCap 600 Index, as it strives to provide long-term capital appreciation. (icon of) building IDS Strategy Aggressive Fund Invests primarily in common stocks of companies that are selected for their potential for above-average growth. Above-average means that their growth potential is better, in the opinion of the portfolio's investment manager, than the Standard & Poor's Corporation (S&P) 500 Stock Index. (icon of) chess piece IDS Research Opportunities Fund Invests in a Portfolio comprised primarily of equity securities of companies included in the S&P 500 Index that are believed to have strong growth potential. The Portfolio is managed using a research methodology by the Research Department of AEFC. Goal is long-term appreciation. (icon of) magnifying glass IDS Growth Fund Invests in a Portfolio comprised primarily of companies that have above-average potential for long-term growth as a result of new management, marketing opportunities or technological superiority. (icon of) trees IDS New Dimensions Fund Invests in a Portfolio comprised primarily of companies with significant growth potential due to superiority in technology, marketing or management. The Fund frequently changes its industry mix. (icon of) dimension IDS Progressive Fund Invests primarily in undervalued common stocks. The Fund holds stocks for the long term with the goal of capital growth. (icon of) shooting star Growth & income funds These funds focus on securities of medium to large, well-established companies that offer long-term growth of capital and reasonable income from dividends and interest. Foreign investments may be subject to currency fluctuations and political and economic risks of the countries in which the investments are made. IDS Equity Select Fund Invests primarily in a combination of moderate growth stocks, higher-yielding equities and bonds. Seeks growth of capital and income. (icon of) three pine trees IDS Blue Chip Advantage Fund Invests in selected stocks from a major market index. Securities purchased are those recommended by our research analysts as the best from each industry represented on the index. Offers potential for long-term growth as well as dividend income. (icon of) ribbon IDS Managed Allocation Fund Invests in a Portfolio comprised primarily of U.S. equity securities, U.S. and foreign debt securities, foreign equity securities and money market instruments. The Fund provides diversification among these major investment categories and has a target mix that represents the way the Fund's investments will be allocated over the long term. Seeks maximum total return. (icon of) gyroscope IDS Stock Fund Invests in a Portfolio comprised primarily of common stock of companies representing many sectors of the economy. Seeks current income and growth of capital. (icon of) building with columns IDS Equity Value Fund Invests primarily in undervalued common stocks that offer potential for growth of capital and income. (icon of) three growing flowers IDS Utilities Income Fund Invests primarily in the stocks of public utility companies to seek high current income and growth of income and capital with reduced volatility. (icon of) light bulb IDS Diversified Equity Income Fund Invests in a Portfolio comprised primarily in high-yielding common stocks to seek high current income and, secondarily, to benefit from the growth potential offered by stock investments. (icon of) two puzzle pieces IDS Mutual Invests in a Portfolio which seeks to balance between common stocks and senior securities (preferred stocks and bonds). Seeks a balance of growth of capital and current income. (icon of) scale of justice Income funds The funds in this group invest their assets primarily in corporate bonds or government securities to seek interest income. Secondary objective is capital growth. Risk varies by bond quality. IDS Extra Income Fund Invests in a Portfolio comprised mainly of long-term, high-yielding corporate fixed-income securities in the lower rated, higher risk bond categories to seek high current income. Secondary objective is capital growth. (icon of) two coins IDS Bond Fund Invests mainly in corporate bonds, at least 50% in the higher rated, lower risk bond categories, or the equivalent, and in government bonds. (icon of) Greek column IDS Selective Fund Invests in a Portfolio comprised primarily of high-quality corporate bonds and other highly rated debt instruments including government securities and short-term investments. Seeks current income and preservation of capital. (icon of) skyline IDS Federal Income Fund Invests in a Portfolio comprised primarily of securities issued or guaranteed as to the timely payment of principal and interest by the U.S. government, its agencies and instrumentalities. Seeks a high level of current income and safety of principal consistent with its type of investments. (icon of) shield with eagle head Tax-exempt income funds These funds provide tax-free income by investing in municipal bonds. The income is generally free from federal income tax, but a portion of the income may be subject to state and local taxes. Risk varies by bond quality. IDS Tax-Exempt Bond Fund Invests mainly in bonds and notes of state or local government units, with at least 75% in the four highest rated, lowest risk bond categories. (icon of) shield with Greek column IDS Insured Tax-Exempt Fund Invests primarily in municipal securities that are insured as to the timely payment of principal and interest. The insurance feature minimizes credit risk of the Fund but does not guarantee the market value of the Fund's shares. (icon of) shield with star IDS State Tax-Exempt Funds (CA, MA, MI, MN, NY, OH) Invests primarily in high- and medium-grade municipal securities to provide income to residents of each respective state that is exempt from federal, state and local income taxes. (New York is the only state that is exempt at the local level.) (icon of) shield with U.S. enclosed IDS High Yield Tax-Exempt Fund Invests in a Portfolio comprised primarily of medium- and lower-quality municipal bonds and notes. Lower-quality securities generally involve greater risk of principal and income. (icon of) shield with basket of apples enclosed IDS Intermediate Tax-Exempt Fund Invests in mainly investment-grade bonds and other debt securities with intermediate-term maturities issued by state and local government units. Goal is to seek a high level of current income exempt from federal taxes. (icon of) shield with tree enclosed Money market funds These money market funds have three main goals: conservation of capital, constant liquidity and the highest possible current income consistent with these objectives. An investment in these funds is neither insured nor guaranteed by the U.S. government, and there can be no assurance that these funds will be able to maintain a stable net asset value of $1.00 per share. Very limited risk. IDS Cash Management Fund Invests in such money market securities as high quality commercial paper, bankers' acceptances, certificates of deposit (CDs) and other bank securities. (icon of) piggy bank IDS Tax-Free Money Fund Invests primarily in short-term bonds and notes issued by state and local governments to seek high current income exempt from federal income taxes. (icon of) shield with piggy bank enclosed For more complete information about any of these funds, including charges and expenses, you can obtain a prospectus by contacting your financial advisor or writing to American Express Shareholder Service, P.O. Box 534, Minneapolis, MN 55440-0534. Read it carefully before you invest or send money. Quick telephone reference American Express Redemptions and exchanges, National/Minnesota Telephone Transaction dividend payments or 800-437-3133 Service reinvestments and automatic payment arrangements Mpls./St. Paul area: 671-3800 American Express Fund performance, objectives 612-671-3733 Shareholder Service and account inquiries TTY Service For the hearing impaired 800-846-4852 American Express Automated account information National/Minnesota Infoline (TouchTone(R) phones only), 800-272-4445 including current fund prices and performance, account values Mpls./St. Paul area: and recent account transactions 671-1630 AMERICAN EXPRESS Financial Advisors IDS Federal Income Fund IDS Tower 10 Minneapolis, MN 55440-0010 -----END PRIVACY-ENHANCED MESSAGE-----