<DOCUMENT>
<TYPE>N-30D
<SEQUENCE>1
<FILENAME>s6495.txt
<DESCRIPTION>AXP BOND FUND, INC.
<TEXT>
AXP(R)
Bond Fund
2001 ANNUAL REPORT
(PROSPECTUS ENCLOSED)
American
Express(R)
Funds
(icon of) clock
AXP Bond Fund seeks to provide shareholders with a high level of current income
while conserving the value of the investment for the longest period of time.
(This annual report includes a prospectus that describes in detail the Fund's
objective, investment strategy, risks, sales charges, fees and other matters of
interest. Please read the prospectus carefully before you invest or send money.)
<PAGE>
Striking a Balance Among Bonds
A bond is like an I.O.U. But with a bond, it's a corporation or the government
-- the bond issuer -- that promises to pay the money back. In return for lending
money to the issuer, bond investors get paid interest, which varies by bond
quality. (The lower the quality, the higher the interest.)
AXP Bond Fund invests largely in high-quality bonds, but includes some
lower-quality and even some foreign bonds seeking to boost the return. The
portfolio manager shifts this mix, as well as the balance between corporate and
government bonds, as investment conditions dictate. In doing so, the Fund seeks
to maximize the long-term return potential for investors.
Table of Contents
2001 ANNUAL REPORT
The purpose of this annual report is to tell investors how the Fund performed.
From the Chairman 3
From the Portfolio Manager 3
Fund Facts 5
The 10 Largest Holdings 6
Making the Most of the Fund 7
The Fund's Long-term Performance 8
Board Members and Officers 9
Independent Auditors' Report 11
Financial Statements 12
Notes to Financial Statements 15
Investments in Securities 23
Federal Income Tax Information 36
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2 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
(picture of) Arne H. Carlson
Arne H. Carlson
Chairman of the board
From the Chairman
For most of us investors, the past several months proved to be an extremely
trying time. More recently, the events of this past September and the prospect
of what may follow have added to our collective concern.
While nothing can change what has happened, we can control how we respond. In
broad terms, I would strongly advise that you keep a focus on your long-term
financial goals and not let specific events dictate your investment decisions.
Ultimately, it is where you finish, not where you are at the moment, that
matters most. Your financial advisor plays an essential role in this process, so
please let him or her help you by reviewing your situation and plotting the
proper investment course.
As I have indicated in the past, the role our Board plays in your financial
future is to monitor and confirm that each American Express mutual fund meets
its investment objective and that its management style stays on target. We want
each fund to be able to deliver to you, the shareholder, the type of performance
you expect and the best results that can be obtained. Toward that end, American
Express has made significant changes in its investment management capability,
and will continue to make changes as it strives to provide a consistent standard
of excellence.
On behalf of the Board,
Arne H. Carlson
(picture of) Ray Goodner
Ray Goodner
Portfolio manager
From the Portfolio Manager
The Fund enjoyed a productive fiscal year, as rising prices in most sectors of
the bond market complemented the Fund's interest income. For the 12 months --
September 2000 through August 2001 -- the Class A shares' total return, which
includes net asset value change and interest income, was 10.48% (excluding the
sales charge).
The bond market had the wind mostly at its back during the period. The most
important factor was that investors became increasingly convinced that the
economy was slowing down, which, they expected, would temper any upward pressure
off inflation. Their reasoning proved correct, and soon became confirmed in
early January by the first in a series of short-term interest-rate cuts by the
Federal Reserve. Longer-term rates actually began falling a month earlier as
investors increased their bond-buying, which in turn drove up prices. (Falling
rates boost bond prices.)
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3 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
STRONG FINISH
Bonds gave up some of their gains, though, over the spring and early summer, as
investors began anticipating an end to the Fed's rate cuts and the beginning of
an economic recovery. That led to an increase in selling, a rise in longer-term
rates, and a drop in prices. However, the period did end on a positive note, as
weak economic reports spawned a buying spurt during July and August.
Performing especially well over the 12 months were higher-grade corporate bonds,
which enjoyed healthy price appreciation. The trend worked to the advantage of
the Fund, as early in the period I increased the amount of "corporates" in the
portfolio to about two-thirds. This included some high-yield, or "junk," bonds,
which accounted for about 16% of the portfolio at the peak. Although the
high-yield sector suffered from rising defaults during the last half of the
period, the Fund was less affected by this trend because of its concentration on
higher-quality issues within the high-yield market. Looking at the other major
portfolio components, I reduced holdings among mortgage-backed and U.S. Treasury
bonds. Both groups performed positively overall, though not as well as
higher-grade corporates.
Looking ahead to the new fiscal year, I think inflation is likely to remain
benign, the economy will shake off the effect of the events of September 11 and
return to moderate growth and the Federal Reserve will cease cutting rates by
the end of 2001. In such an environment, I would expect to see relatively stable
longer-term interest rates, which in turn would mean modest, if any, price
appreciation for bonds. Therefore, I plan to maintain the emphasis on corporate
bonds in an effort to maintain a healthy level of interest income in the Fund.
Ray Goodner
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4 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
Fund Facts
Class A -- 12-month performance
(All figures per share)
Net asset value (NAV)
Aug. 31, 2001 $4.86
Aug. 31, 2000 $4.70
Increase $0.16
Distributions -- Sept. 1, 2000 - Aug. 31, 2001
From income $0.32
From long-term capital gains $ --
Total distributions $0.32
Total return* +10.48%
Class B -- 12-month performance
(All figures per share)
Net asset value (NAV)
Aug. 31, 2001 $4.86
Aug. 31, 2000 $4.70
Increase $0.16
Distributions -- Sept. 1, 2000 - Aug. 31, 2001
From income $0.28
From long-term capital gains $ --
Total distributions $0.28
Total return* +9.65%
Class C -- 12-month performance
(All figures per share)
Net asset value (NAV)
Aug. 31, 2001 $4.86
Aug. 31, 2000 $4.71
Increase $0.15
Distributions -- Sept. 1, 2000 - Aug. 31, 2001
From income $0.28
From long-term capital gains $ --
Total distributions $0.28
Total return* +9.43%
Class Y -- 12-month performance
(All figures per share)
Net asset value (NAV)
Aug. 31, 2001 $4.86
Aug. 31, 2000 $4.70
Increase $0.16
Distributions -- Sept. 1, 2000 - Aug. 31, 2001
From income $0.33
From long-term capital gains $ --
Total distributions $0.33
Total return* +10.65%
* The total return is a hypothetical investment in the Fund with all
distributions reinvested. Returns do not include sales load. The prospectus
discusses the effect of sales charges, if any, on the various classes.
--------------------------------------------------------------------------------
5 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
The 10 Largest Holdings
Percent Value
(of net assets) (as of Aug. 31, 2001)
United Mexican States
9.88% 2010 0.9% $35,360,000
Union Pacific
6.65% 2011 0.9 33,421,525
Bank of Singapore
7.88% 2009 0.8 30,514,400
BellSouth Capital Funding
7.88% 2030 0.7 26,922,912
Vodafone Group
7.75% 2010 0.6 24,781,817
FleetBoston Financial
7.25% 2005 0.6 23,505,900
Bistro Trust
9.50% 2002 0.6 23,122,810
Bank of America
7.40% 2011 0.6 22,658,580
Citigroup
7.25% 2010 0.6 21,542,400
Albertson's
7.50% 2011 0.5 21,347,200
Excludes U.S. Treasury and government agency holdings.
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
(icon of) pie chart
The 10 holdings listed here make up 6.8% of net assets
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6 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
Making the Most of the Fund
BUILD YOUR ASSETS SYSTEMATICALLY
One of the best ways to invest in the Fund is by dollar-cost averaging -- a
time-tested strategy that can make market fluctuations work for you. To
dollar-cost average, simply invest a fixed amount of money regularly. You'll
automatically buy more shares when the Fund's share price is low, fewer shares
when it is high. The chart below shows how dollar-cost averaging works. In these
three hypothetical scenarios, you will see six months of share price
fluctuations.
This strategy does not ensure a profit or avoid a loss if the market declines.
But, if you can continue to invest regularly through changing market conditions
even when the price of your shares falls or the market declines, it can be an
effective way to accumulate shares to meet your long-term goals.
How dollar-cost averaging works
Jan Feb Mar Apr May Jun
$15 $16 $18 $20
$10 $10 $12 $14
$ 5
Accumulated shares* Average market Your average
price per share cost per share
42.25 $15 $14.20
-------------------------------------------------------------------------------
Jan Feb Mar Apr May Jun
$15
$10 $10 $10
$ 5 $8 $5 $5 $8
Accumulated shares* Average market Your average
price per share cost per share
85.0 $7.66 $7.05
-------------------------------------------------------------------------------
Jan Feb Mar Apr May Jun
$15
$10 $10
$ 5 $8 $6 $4 $4 $7
Accumulated shares* Average market Your average
price per share cost per share
103.5 $6.50 $5.80
-------------------------------------------------------------------------------
$100 invested per month. Total invested: $600
* Shares purchased is determined by dividing the amount invested per month by
the current share price.
THREE WAYS TO BENEFIT FROM A MUTUAL FUND:
o your shares increase in value when the Fund's investments do well
o you receive capital gains when the gains on investments sold by the Fund
exceed losses
o you receive income when the Fund's stock dividends, interest and short-term
gains exceed its expenses.
All three make up your total return. You potentially can increase your
investment if, like most investors, you reinvest your dividends and capital gain
distributions to buy additional shares of the Fund or another fund.
--------------------------------------------------------------------------------
7 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
The Fund's Long-term Performance
Value of your $10,000 in AXP Bond Fund
(line chart)
$30,000
$21,286
AXP Bond Fund
Class A
$20,000 Lipper Corporate Debt - BBB rated Index
Lehman Brothers Aggregate Bond Index
$9,525
'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01
Average Annual Total Returns (as of Aug. 31, 2001)
1 year 5 years 10 years Since inception
Class A +5.24% +5.95% +7.85% N/A
Class B +5.65% +6.02% N/A +7.03%*
Class C +8.43% N/A N/A +10.28%**
Class Y +10.65% +7.12% N/A +7.99%*
* Inception date was March 20, 1995.
** Inception date was June 26, 2000.
Assumes: Holding period from 9/1/91 to 8/31/01. Returns do not reflect taxes
payable on distributions. Reinvestment of all income and capital gain
distributions for the Fund has a value of $12,095. Also see "Past Performance"
in the Fund's current prospectus.
On the graph above you can see how the Fund's total return compared to two
widely cited performance indexes, the Lehman Brothers Aggregate Bond Index and
the Lipper Corporate Debt - BBB rated Index. In comparing AXP Bond Fund (Class
A) to these indexes, you should take into account the fact that the Fund's
performance reflects the maximum sales charge of 4.75%, while such charges are
not reflected in the performance of the indexes.
Your investment and return values fluctuate so that your shares, when redeemed,
may be worth more or less than the original cost. Average annual total return
figures reflect the impact of the maximum applicable sales charge. This was a
period of widely fluctuating security prices. Past performance is no guarantee
of future results.
Lehman Brothers Aggregate Bond Index, an unmanaged index, is made up of a
representative list of government, corporate, asset-backed and mortgage-backed
securities. The index is frequently used as a general measure of bond market
performance. The index reflects reinvestment of all distributions and changes in
market prices, but excludes brokerage commissions or other fees. However, the
securities used to create the index may not be representative of the bonds held
in the Fund.
Lipper Corporate Debt - BBB rated Index, an unmanaged index published by Lipper
Inc., includes the 30 largest funds that are generally similar to the Fund,
although some funds in the index may have somewhat different investment policies
or objectives.
--------------------------------------------------------------------------------
8 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
Board Members and Officers
Shareholders elect a board that oversees the Fund's operations. The board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the board.
The following is a list of the Fund's board members. Each member oversees 15
Master Trust portfolios and 72 American Express mutual funds. Board members
serve until the next regular shareholders' meeting or until he or she reaches
the mandatory retirement age established by the board.
<TABLE>
<CAPTION>
Independent Board Members
-------------------------------------- ------------------------- ---------------------------------- --------------------------
Name, Position held with Principal occupations Other directorships
address, Registrant and length during past five years
age of service
-------------------------------------- ------------------------- ---------------------------------- --------------------------
<S> <C> <C> <C>
H. Brewster Atwater, Jr. Board member since 1996 Retired chair and chief
4900 IDS Tower executive officer, General
Minneapolis, MN 55402 Mills, Inc. (consumer foods)
Born in 1931
-------------------------------------- ------------------------- ---------------------------------- --------------------------
Arne H. Carlson Chair of the Board Chair, Board Services
901 S. Marquette Ave. since 1999 Corporation (provides
Minneapolis, MN 55402 administrative services to
Born in 1934 boards), former Governor of
Minnesota
-------------------------------------- ------------------------- ---------------------------------- --------------------------
Lynne V. Cheney Board member since 1994 Distinguished Fellow, AEI The Reader's Digest
American Enterprise Institute Association Inc.
for Public Policy Research (AEI)
1150 17th St., N.W.
Washington, D.C. 20036
Born in 1941
-------------------------------------- ------------------------- ---------------------------------- --------------------------
Livio D. DeSimone Board member since 2001 Retired chair of the board and Cargill, Incorporated
30 Seventh Street East chief executive officer, (commodity merchants and
Suite 3050 Minnesota Mining and processors), Target
St. Paul, MN 55101-4901 Manufacturing (3M) Corporation (department
Born in 1936 stores), General Mills,
Inc. (consumer foods),
Vulcan Materials Company
(construction
materials/chemicals) and
Milliken & Company
(textiles and chemicals)
-------------------------------------- ------------------------- ---------------------------------- --------------------------
Ira D. Hall Board member since 2001 Treasurer, Texaco Inc. since
Texaco, Inc. 1998. Prior to that, director,
2000 Westchester Avenue International Operations IBM
White Plains, NY 10650 Corp.
Born in 1944
-------------------------------------- ------------------------- ---------------------------------- --------------------------
Heinz F. Hutter Board member since 1994 Retired president and chief
P.O. Box 2187 operating officer, Cargill,
Minneapolis, MN 55402 Incorporated (commodity
Born in 1929 merchants and processors)
-------------------------------------- ------------------------- ---------------------------------- --------------------------
Anne P. Jones Board member since 1985 Attorney and consultant Motorola, Inc.
5716 Bent Branch Rd. (electronics)
Bethesda, MD 20816
Born in 1935
-------------------------------------- ------------------------- ---------------------------------- --------------------------
William R. Pearce Board member since 1980 RII Weyerhaeuser World
2050 One Financial Plaza Timberfund, L.P. (develops
Minneapolis, MN 55402 timber resources) - management
Born in 1927 committee; former chair,
American Express Funds
-------------------------------------- ------------------------- ---------------------------------- --------------------------
</TABLE>
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9 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
Independent Board Members
-------------------------------------- ------------------------- ---------------------------------- --------------------------
Name, Position held with Principal occupations Other directorships
address, Registrant and length during past five years
age of service
-------------------------------------- ------------------------- ---------------------------------- --------------------------
<S> <C> <C> <C>
Alan K. Simpson Board member since 1997 Former three-term United States Biogen, Inc.
1201 Sunshine Ave. Senator for Wyoming (bio-pharmaceuticals)
Cody, WY 82414
Born in 1931
-------------------------------------- ------------------------- ---------------------------------- --------------------------
C. Angus Wurtele Board member since 1994 Retired chair of the board and Bemis Corporation
4900 IDS Tower chief executive officer, The (packaging)
Minneapolis, MN 55402 Valspar Corporation
Born in 1934
-------------------------------------- ------------------------- ---------------------------------- --------------------------
</TABLE>
<TABLE>
<CAPTION>
Board Members Affiliated with American Express Financial Corporation (AEFC)
-------------------------------------- ------------------------- ---------------------------------- --------------------------
Name, Position held with Principal occupations Other directorships
address, Registrant and length during past five years
age of service
-------------------------------------- ------------------------- ---------------------------------- --------------------------
<S> <C> <C> <C>
David R. Hubers Board member since 1993 Retired chief executive officer Chronimed Inc.
50643 AXP Financial Center and director of AEFC (specialty
Minneapolis, MN 55474 pharmaceutical
Born in 1943 distribution), RTW Inc.
(manages workers
compensation programs),
Lawson Software, Inc.
(technology based
business applications)
-------------------------------------- ------------------------- ---------------------------------- --------------------------
John R. Thomas Board member since Senior vice president -
50652 AXP Financial Center 1987, president since information and technology of
Minneapolis, MN 55474 1997 AEFC
Born in 1937
-------------------------------------- ------------------------- ---------------------------------- --------------------------
</TABLE>
The board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. The officers serve at the
pleasure of the board. In addition to Mr. Thomas, who is president, the Fund's
other officers are:
<TABLE>
<CAPTION>
Other Officers
-------------------------------------- ------------------------- ---------------------------------- --------------------------
Name, Position held with Principal occupations Other directorships
address, Registrant and length during past five years
age of service
-------------------------------------- ------------------------- ---------------------------------- --------------------------
<S> <C> <C> <C>
John M. Knight Treasurer since 1999 Vice president - investment
50005 AXP Financial Center accounting of AEFC
Minneapolis, MN 55474
Born in 1952
-------------------------------------- ------------------------- ---------------------------------- --------------------------
Leslie L. Ogg Vice president, general President of Board Services
901 S. Marquette Ave. counsel and secretary Corporation
Minneapolis, MN 55402 since 1978
Born in 1938
-------------------------------------- ------------------------- ---------------------------------- --------------------------
Frederick C. Quirsfeld Vice president since Senior vice president - fixed
53609 AXP Financial Center 1998 income of AEFC
Minneapolis, MN 55474
Born in 1947
-------------------------------------- ------------------------- ---------------------------------- --------------------------
</TABLE>
The SAI has additional information about the Fund's directors and is available,
without charge, upon request by calling (800) 862-7919.
--------------------------------------------------------------------------------
10 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
Independent Auditors' Report
THE BOARD AND SHAREHOLDERS
AXP BOND FUND, INC.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of AXP Bond Fund, Inc. as of August
31, 2001, the related statement of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year period
ended August 31, 2001, and the financial highlights for each of the years in the
five-year period ended August 31, 2001. 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 auditing standards generally accepted
in the United States of America. 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. Our procedures included confirmation of
securities owned as of August 31, 2001, by correspondence with the custodian and
brokers. 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 AXP Bond Fund, Inc. as of
August 31, 2001, and the results of its operations, changes in its net assets
and the financial highlights for each of the periods stated in the first
paragraph above, in conformity with accounting principles generally accepted in
the United States of America.
KPMG LLP
Minneapolis, Minnesota
October 5, 2001
--------------------------------------------------------------------------------
11 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
Financial Statements
<TABLE>
<CAPTION>
Statement of assets and liabilities
AXP Bond Fund, Inc.
Aug. 31, 2001
Assets
Investments in securities, at value (Note 1)
<S> <C> <C>
(identified cost $4,088,225,931) $4,102,786,636
Cash in bank on demand deposit 128,460
Capital shares receivable 495,653
Dividends and accrued interest receivable 58,096,309
Receivable for investment securities sold 30,942,683
----------
Total assets 4,192,449,741
-------------
Payable for investment securities purchased 31,518,216
Payable for securities purchased on a when-issued basis (Note 1) 270,562,500
Dividends payable to shareholders 2,347,601
Accrued investment management services fee 51,619
Accrued distribution fee 42,755
Accrued service fee 1,489
Accrued transfer agency fee 13,064
Accrued administrative services fee 4,559
Other accrued expenses 153,715
-------
Total liabilities 304,695,518
-----------
Net assets applicable to outstanding capital stock $3,887,754,223
==============
Represented by
Capital stock -- $.01 par value (Note 1) $ 8,003,945
Additional paid-in capital 4,010,755,818
Excess of distributions over net investment income (3,323,120)
Accumulated net realized gain (loss) (Note 6) (142,243,125)
Unrealized appreciation (depreciation) on investments and
on translation of assets and liabilities in foreign currencies 14,560,705
----------
Total -- representing net assets applicable to outstanding capital stock $3,887,754,223
==============
Net assets applicable to outstanding shares: Class A $2,389,522,838
Class B $ 954,453,300
Class C $ 10,389,449
Class Y $ 533,388,636
Net asset value per share of outstanding capital stock: Class A shares 492,007,177 $ 4.86
Class B shares 196,497,587 $ 4.86
Class C shares 2,136,575 $ 4.86
Class Y shares 109,753,127 $ 4.86
----------- --------------
</TABLE>
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
12 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
AXP Bond Fund, Inc.
Year ended Aug. 31, 2001
Investment income
Income:
<S> <C>
Dividends $ 4,633,657
Interest 266,376,941
-----------
Total income 271,010,598
-----------
Expenses (Note 2):
Investment management services fee 17,706,886
Distribution fee
Class A 5,576,669
Class B 9,003,270
Class C 45,950
Transfer agency fee 4,126,044
Incremental transfer agency fee
Class A 250,090
Class B 185,745
Class C 877
Service fee -- Class Y 506,698
Administrative services fees and expenses 1,752,624
Compensation of board members 20,260
Custodian fees 220,186
Printing and postage 624,588
Registration fees 137,669
Audit fees 42,000
Other 81,370
------
Total expenses 40,280,926
Earnings credits on cash balances (Note 2) (383,906)
--------
Total net expenses 39,897,020
----------
Investment income (loss) -- net 231,113,578
-----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) (28,609,165)
Foreign currency transactions (1,747,348)
Futures contracts (243,181)
--------
Net realized gain (loss) on investments (30,599,694)
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 152,685,406
-----------
Net gain (loss) on investments and foreign currencies 122,085,712
-----------
Net increase (decrease) in net assets resulting from operations $353,199,290
============
</TABLE>
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
13 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
AXP Bond Fund, Inc.
Year ended Aug. 31, 2001 2000
Operations and distributions
<S> <C> <C>
Investment income (loss) -- net $ 231,113,578 $ 253,801,433
Net realized gain (loss) on investments (30,599,694) (83,535,520)
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 152,685,406 (10,199,341)
----------- -----------
Net increase (decrease) in net assets resulting from operations 353,199,290 160,066,572
----------- -----------
Distributions to shareholders from:
Net investment income
Class A (148,004,415) (166,972,232)
Class B (52,812,958) (62,651,422)
Class C (260,922) (3,602)
Class Y (34,391,779) (23,178,750)
----------- -----------
Total distributions (235,470,074) (252,806,006)
------------ ------------
Capital share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 431,339,070 337,981,402
Class B shares 303,309,149 212,775,426
Class C shares 10,226,857 979,718
Class Y shares 379,466,999 203,898,586
Reinvestment of distributions at net asset value
Class A shares 108,087,106 115,353,529
Class B shares 45,446,779 53,865,113
Class C shares 226,849 2,440
Class Y shares 34,534,077 23,031,446
Payments for redemptions
Class A shares (451,380,639) (755,695,893)
Class B shares (Note 2) (290,178,522) (466,608,253)
Class C shares (Note 2) (1,167,551) (45,775)
Class Y shares (281,589,615) (131,383,807)
------------ ------------
Increase (decrease) in net assets from capital share transactions 288,320,559 (405,846,068)
----------- ------------
Total increase (decrease) in net assets 406,049,775 (498,585,502)
Net assets at beginning of year 3,481,704,448 3,980,289,950
------------- -------------
Net assets at end of year $3,887,754,223 $3,481,704,448
============== ==============
Undistributed (excess of distributions over) net investment income $ (3,323,120) $ 1,123,796
-------------- --------------
</TABLE>
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
14 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
Notes to Financial Statements
AXP Bond Fund, Inc.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940 (as amended) as
a diversified, open-end management investment company. The Fund invests
primarily in corporate bonds and other debt securities.
Class C shares of the Fund were offered to the public on June 26, 2000. Prior to
this date, American Express Financial Corporation (AEFC) purchased 431 shares of
capital stock at $4.64 per share, which represented the initial capital in Class
C.
The Fund offers Class A, Class B, Class C and Class Y shares.
o Class A shares are sold with a front-end sales charge.
o Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares during the ninth calendar year of
ownership.
o Class C shares may be subject to a CDSC.
o Class Y shares have no sales charge and are offered only to qualifying
institutional investors.
All classes of shares have identical voting, dividend and liquidation rights.
The distribution fee, incremental 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.
The Fund's significant accounting policies are summarized below:
Use of estimates
Preparing financial statements that conform to accounting principles generally
accepted in the United States of America requires management to make estimates
(e.g., on assets, liabilities and contingent assets and liabilities) that could
differ from actual results.
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 that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
Securities for which market quotations are not readily available are valued at
fair value according to methods selected in good faith by the board. Short-term
securities maturing in more than 60 days from the valuation date are valued at
the market price or approximate market value based on current interest rates;
those maturing in 60 days or less are valued at amortized cost.
--------------------------------------------------------------------------------
15 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
Option transactions
To produce incremental earnings, protect gains, and facilitate buying and
selling of securities for investments, the Fund may buy and write options traded
on any U.S. or foreign exchange or in the over-the-counter market where
completing the obligation depends upon the credit standing of the other party.
The Fund also may buy and sell put and call options and write covered call
options on portfolio securities as well as write cash-secured put options. The
risk in writing a call option is that the Fund gives up the opportunity for
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 being unable to enter into a closing transaction if a
liquid secondary market does not exist.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Fund will
realize a gain or loss when the option transaction expires or closes. 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
To gain exposure to or protect itself from market changes, the Fund may buy and
sell financial futures contracts traded on any U.S. or foreign exchange. The
Fund also may buy and write put and call options on these futures contracts.
Risks of entering into futures contracts and related options include the
possibility of an illiquid market and that a change in the value of the contract
or option may not correlate with changes in the value of the underlying
securities.
Upon entering into a futures contract, the Fund is required to deposit either
cash or securities in an amount (initial margin) equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Fund each day. The variation margin payments are equal to the
daily changes in the contract value and are recorded as unrealized gains and
losses. The Fund recognizes a realized gain or loss when the contract is closed
or expires.
Foreign currency translations and foreign currency contracts
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars. Foreign currency amounts related to the
purchase or sale of securities and income and expenses are translated at the
exchange rate on the transaction date. The effect of changes in foreign exchange
rates on realized and unrealized security gains or losses is reflected as a
component of such gains or losses. In the statement of operations, net realized
gains or losses from foreign currency transactions, if any, may arise from sales
of foreign currency, closed forward contracts, exchange gains or losses realized
between the trade date and settlement date on securities transactions, and other
translation gains or losses on dividends, interest income and foreign
withholding taxes.
The Fund may enter into forward foreign currency exchange contracts for
operational purposes and to protect against adverse exchange rate fluctuation.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates from an
independent pricing service. The Fund is subject to the credit risk that the
other party will not complete its contract obligations.
--------------------------------------------------------------------------------
16 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
Illiquid securities
As of Aug. 31, 2001, investments in securities included issues that are
illiquid. The Fund currently limits investments in illiquid securities to 10% of
net assets, at market value, at the time of purchase. The aggregate value of
such securities as of Aug. 31, 2001 was $18,175,256 representing 0.47% of net
assets. These securities are valued at fair value according to methods selected
in good faith by the board. According to board guidelines, certain unregistered
securities are determined to be liquid and are not included within the 10%
limitation specified above.
Securities purchased on a when-issued basis
Delivery and payment for securities that have been purchased by the Fund 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
fluctuation, and they may affect the Fund's net assets the same as owned
securities. The Fund designates cash or liquid securities at least equal to the
amount of its commitment. As of Aug. 31, 2001, the Fund has entered into
outstanding when-issued or forward commitments of $241,059,662.
Federal taxes
The Fund's policy is to comply with all sections of the Internal Revenue Code
that apply to regulated investment companies and to distribute substantially all
of its taxable income to shareholders. No provision for income or excise taxes
is thus required.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of the deferred 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.
On the statement of assets and liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income has been decreased by $90,420
and accumulated net realized loss has been decreased by $90,420.
Dividends to shareholders
Dividends from net investment income, declared daily and payable monthly, when
available, are reinvested in additional shares of the Fund at net asset value or
payable in cash. Capital gains, when available, are distributed along with the
last income dividend of the calendar year.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date or upon receipt of
ex-dividend notification in the case of certain foreign securities. Interest
income, including level-yield amortization of premium and discount, is accrued
daily.
--------------------------------------------------------------------------------
17 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
2. EXPENSES AND SALES CHARGES
The Fund has agreements with AEFC to manage its portfolio and provide
administrative services. Under an 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 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. A minor
portion of additional administrative service expenses paid by the Fund are
consultants' fees and fund office expenses. 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 incremental
transfer agency fee is the amount charged to the specific classes for the
additional expense above the fee for Class Y. The Fund pays AECSC an annual fee
per shareholder account for this service as follows:
o Class A $19.50
o Class B $20.50
o Class C $20.00
o Class Y $17.50
The Fund has agreements with American Express Financial Advisors Inc. (the
Distributor) for distribution and shareholder services. Under a Plan and
Agreement of Distribution, the Fund pays a distribution fee at an annual rate up
to 0.25% of the Fund's average daily net assets attributable to Class A shares
and up to 1.00% for Class B and Class C shares.
Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for
service provided to shareholders by financial advisors and other servicing
agents. 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 the Distributor for distributing Fund shares were
$4,175,527 for Class A, $698,978 for Class B and $1,960 for Class C for the year
ended Aug. 31, 2001.
During the year ended Aug. 31, 2001, the Fund's custodian and transfer agency
fees were reduced by $383,906 as a result of earnings credits from overnight
cash balances.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $4,121,408,752 and $3,964,151,772, respectively, for the
year ended Aug. 31, 2001. Realized gains and losses are determined on an
identified cost basis.
Income from securities lending amounted to $6,462 for the year ended Aug. 31,
2001. 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.
--------------------------------------------------------------------------------
18 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the years indicated are as follows:
<TABLE>
<CAPTION>
Year ended Aug. 31, 2001
Class A Class B Class C Class Y
<S> <C> <C> <C> <C>
Sold 90,085,921 63,371,133 2,133,169 79,681,999
Issued for reinvested distributions 22,682,885 9,535,719 47,319 7,237,196
Redeemed (94,825,425) (60,827,005) (243,972) (58,909,366)
----------- ----------- -------- -----------
Net increase (decrease) 17,943,381 12,079,847 1,936,516 28,009,829
---------- ---------- --------- ----------
Year ended Aug. 31, 2000
Class A Class B Class C* Class Y
Sold 71,649,017 45,011,759 209,329 43,266,929
Issued for reinvested distributions 24,445,884 11,410,989 519 4,886,509
Redeemed (160,122,036) (98,987,039) (9,789) (27,864,427)
------------ ----------- ------ -----------
Net increase (decrease) (64,027,135) (42,564,291) 200,059 20,289,011
----------- ----------- ------- ----------
</TABLE>
* Inception date was June 26, 2000.
5. BANK BORROWINGS
The Fund has a revolving credit agreement with U.S. Bank, N.A., whereby the Fund
is permitted to have bank borrowings for temporary or emergency purposes to fund
shareholder redemptions. The Fund must have asset coverage for borrowings not to
exceed the aggregate of 333% of advances equal to or less than five business
days plus 367% of advances over five business days. The agreement, which enables
the Fund to participate with other American Express mutual funds, permits
borrowings up to $200 million, collectively. Interest is charged to each Fund
based on its borrowings at a rate equal to the Federal Funds Rate plus 0.30% or
the Eurodollar Rate (Reserve Adjusted) plus 0.20%. Borrowings are payable up to
90 days after such loan is executed. The Fund also pays a commitment fee equal
to its pro rata share of the amount of the credit facility at a rate of 0.05%
per annum. The Fund had no borrowings outstanding during the year ended Aug. 31,
2001.
6. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, the Fund has a capital loss carry-over of
$138,199,934 as of Aug. 31, 2001, that if not offset by subsequent capital
gains, will expire in 2007 through 2010. It is unlikely the board will authorize
a distribution of any net realized capital gains until the available capital
loss carry-over has been offset or expires.
7. NEW ACCOUNTING PRONOUNCEMENT
In November 2000, the AICPA issued a revised Audit and Accounting Guide, Audits
of Investment Companies, which is effective for fiscal years beginning after
Dec. 15, 2000. Adopting the revised Guide is not expected to have a significant
impact on the Fund's financial position, results of operations or changes in its
net assets.
--------------------------------------------------------------------------------
19 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
8. FINANCIAL HIGHLIGHTS
The tables below show certain important financial information for evaluating the
Fund's results.
<TABLE>
<CAPTION>
Class A
Per share income and capital changes(a)
Fiscal period ended Aug. 31, 2001 2000 1999 1998 1997
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $4.70 $4.82 $5.11 $5.22 $4.99
----- ----- ----- ----- -----
Income from investment operations:
Net investment income (loss) .31 .33 .33 .36 .35
Net gains (losses) (both realized and unrealized) .17 (.12) (.25) (.03) .23
--- ---- ---- ---- ---
Total from investment operations .48 .21 .08 .33 .58
--- --- --- --- ---
Less distributions:
Dividends from net investment income (.32) (.33) (.33) (.36) (.35)
Distributions from realized gains -- -- (.04) (.08) --
--- --- ---- ---- ---
Total distributions (.32) (.33) (.37) (.44) (.35)
---- ---- ---- ---- ----
Net asset value, end of period $4.86 $4.70 $4.82 $5.11 $5.22
----- ----- ----- ----- -----
Ratios/supplemental data
Net assets, end of period (in millions) $2,390 $2,229 $2,591 $2,709 $2,646
------ ------ ------ ------ ------
Ratio of expenses to average daily net assets(c) .94% .93% .86% .83% .84%
--- --- --- --- ---
Ratio of net investment income (loss)
to average daily net assets 6.51% 7.04% 6.56% 6.79% 6.86%
---- ---- ---- ---- ----
Portfolio turnover rate (excluding short-term securities) 115% 64% 57% 43% 50%
--- -- -- -- --
Total return(e) 10.48% 4.67% 1.64% 6.30% 12.06%
----- ---- ---- ---- -----
Class B
Per share income and capital changes(a)
Fiscal period ended Aug. 31, 2001 2000 1999 1998 1997
Net asset value, beginning of period $4.70 $4.82 $5.11 $5.22 $4.99
----- ----- ----- ----- -----
Income from investment operations:
Net investment income (loss) .27 .30 .29 .32 .31
Net gains (losses) (both realized and unrealized) .17 (.13) (.24) (.03) .23
--- ---- ---- ---- ---
Total from investment operations .44 .17 .05 .29 .54
--- --- --- --- ---
Less distributions:
Dividends from net investment income (.28) (.29) (.30) (.32) (.31)
Distributions from realized gains -- -- (.04) (.08) --
--- --- ---- ---- ---
Total distributions (.28) (.29) (.34) (.40) (.31)
---- ---- ---- ---- ----
Net asset value, end of period $4.86 $4.70 $4.82 $5.11 $5.22
----- ----- ----- ----- -----
Ratios/supplemental data
Net assets, end of period (in millions) $954 $867 $1,093 $1,057 $913
---- ---- ------ ------ ----
Ratio of expenses to average daily net assets(c) 1.70% 1.69% 1.63% 1.59% 1.60%
---- ---- ---- ---- ----
Ratio of net investment income (loss)
to average daily net assets 5.74% 6.28% 5.79% 6.03% 6.10%
---- ---- ---- ---- ----
Portfolio turnover rate (excluding short-term securities) 115% 64% 57% 43% 50%
--- -- -- -- --
Total return(e) 9.65% 3.88% .87% 5.50% 11.21%
---- ---- --- ---- -----
</TABLE>
See accompanying notes to financial highlights.
--------------------------------------------------------------------------------
20 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
Class C
Per share income and capital changes(a)
Fiscal period ended Aug. 31, 2001 2000(b)
<S> <C> <C>
Net asset value, beginning of period $4.71 $4.64
----- -----
Income from investment operations:
Net investment income (loss) .27 .04
Net gains (losses) (both realized and unrealized) .16 .07
--- ---
Total from investment operations .43 .11
--- ---
Less distributions:
Dividends from net investment income (.28) (.04)
Distributions from realized gains -- --
--- ---
Total distributions (.28) (.04)
---- ----
Net asset value, end of period $4.86 $4.71
----- -----
Ratios/supplemental data
Net assets, end of period (in millions) $10 $1
--- --
Ratio of expenses to average daily net assets(c) 1.70% 1.69%(d)
---- ----
Ratio of net investment income (loss)
to average daily net assets 5.62% 6.80%(d)
---- ----
Portfolio turnover rate (excluding short-term securities) 115% 64%
--- --
Total return(e) 9.43% 2.58%
---- ----
</TABLE>
<TABLE>
<CAPTION>
Class Y
Per share income and capital changes(a)
Fiscal period ended Aug. 31, 2001 2000 1999 1998 1997
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $4.70 $4.82 $5.11 $5.22 $4.99
----- ----- ----- ----- -----
Income from investment operations:
Net investment income (loss) .32 .34 .33 .36 .36
Net gains (losses) (both realized and unrealized) .17 (.12) (.24) (.03) .23
--- ---- ---- ---- ---
Total from investment operations .49 .22 .09 .33 .59
--- --- --- --- ---
Less distributions:
Dividends from net investment income (.33) (.34) (.34) (.36) (.36)
Distributions from realized gains -- -- (.04) (.08) --
--- --- ---- ---- ---
Total distributions (.33) (.34) (.38) (.44) (.36)
---- ---- ---- ---- ----
Net asset value, end of period $4.86 $4.70 $4.82 $5.11 $5.22
----- ----- ----- ----- -----
Ratios/supplemental data
Net assets, end of period (in millions) $533 $385 $296 $224 $116
---- ---- ---- ---- ----
Ratio of expenses to average daily net assets(c) .78% .77% .77% .76% .70%
--- --- --- --- ---
Ratio of net investment income (loss)
to average daily net assets 6.66% 7.20% 6.67% 6.90% 7.01%
---- ---- ---- ---- ----
Portfolio turnover rate (excluding short-term securities) 115% 64% 57% 43% 50%
--- -- -- -- --
Total return(e) 10.65% 4.84% 1.71% 6.40% 12.21%
----- ---- ---- ---- -----
</TABLE>
See accompanying notes to financial highlights.
--------------------------------------------------------------------------------
21 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
Notes to financial highlights
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date was June 26, 2000.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
--------------------------------------------------------------------------------
22 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
Investments in Securities
AXP Bond Fund, Inc.
Aug. 31, 2001
(Percentages represent value of investments compared to net assets)
Bonds (91.3%)
Issuer Coupon Principal Value(a)
rate amount
Government obligations & agencies (11.9%)
Federal Republic of Brazil
(U.S. Dollar)
07-26-07 11.25% $18,000,000(c) $16,785,000
Govt Trust Certs Israel
11-15-01 9.25 1,156,134 1,167,776
People's Republic of China
(U.S. Dollar)
01-15-96 9.00 10,000,000(c) 10,056,000
Resolution Funding Corp
Zero Coupon
10-15-02 6.19 24,660,000(f) 23,605,292
Russian Federation
(U.S. Dollar)
03-31-10 8.25 13,000,000(c,d) 10,205,000
U.S. Treasury
11-15-01 7.50 64,900,000 65,417,253
11-15-16 7.50 232,045,000 283,022,965
TIPS
01-15-07 3.38 10,000,000(j) 11,374,628
United Mexican States
(U.S. Dollar)
02-01-10 9.88 32,000,000(c) 35,360,000
01-14-11 8.38 8,000,000(c) 8,155,040
Total 465,148,954
Mortgage-backed securities (28.7%)
Federal Home Loan Mtge Corp
07-01-07 6.50 22,681 22,659
03-01-13 5.50 7,973,831 7,927,527
04-01-15 7.50 14,491,274 15,062,805
04-01-17 8.00 236,154 249,806
08-01-24 8.00 3,507,374 3,678,709
12-01-27 6.00 8,582,732 8,512,138
10-01-28 7.00 27,153,488 27,819,563
11-01-29 7.00 17,109,741 17,552,437
02-01-31 7.50 19,711,503 20,356,673
Collateralized Mtge Obligation
03-15-22 7.00 10,000,000 10,194,206
07-15-22 7.00 12,000,000 12,431,040
Federal Natl Mtge Assn
07-01-08 6.50 5,005,780 5,163,933
01-15-09 5.25 25,000,000 24,763,400
06-15-09 6.38 65,000,000 68,697,849
11-01-09 9.00 1,054 1,125
06-01-10 6.50 11,105,056 11,455,909
08-01-11 8.50 10,691,166 11,278,748
05-01-13 6.50 26,063,313 26,704,287
03-01-14 5.50 27,030,712 26,811,268
04-01-14 6.50 7,360,549 7,541,567
08-01-16 6.00 24,881,364 24,996,153
04-01-23 8.50 4,098,823 4,388,285
05-01-23 6.50 22,639,448 22,976,323
08-01-23 6.50 1,544,937 1,567,632
09-01-23 6.50 2,750,747 2,791,465
11-01-23 6.50 5,244,077 5,321,113
01-01-24 6.50 35,126,341 35,631,776
02-01-24 6.50 4,698,546 4,767,568
05-01-24 6.00 39,089,465 38,963,988
06-01-24 9.00 3,219,551 3,502,051
02-01-25 8.00 1,847,710 1,937,398
09-01-25 6.50 15,523,291 15,731,924
09-01-25 8.00 3,820,881 4,002,373
02-01-26 6.00 15,497,539 15,400,680
03-01-26 7.00 10,480,121 10,784,674
06-01-28 6.00 24,474,088 24,244,521
08-01-28 6.50 18,503,568 18,659,738
10-01-28 6.00 16,393,304 16,239,535
11-01-28 6.50 8,970,865 9,038,146
12-01-28 6.00 18,674,419 18,458,542
12-01-28 6.50 3,973,217 4,003,016
01-01-29 6.50 27,878,287 28,113,580
03-01-29 6.50 16,767,348 16,912,491
05-01-29 6.50 21,955,146 22,145,196
06-01-29 7.00 75,075 76,834
07-01-29 6.00 115,000,000(m) 113,059,374
07-01-29 7.00 28,181,545 28,842,120
07-01-29 7.50 125,000,000(m) 128,828,124
08-01-29 7.00 30,000,000 30,590,628
09-01-29 7.00 71,622,281 73,409,781
01-01-31 7.50 29,559,443 30,464,553
03-01-31 7.50 28,617,353 29,511,646
See accompanying notes to investments in securities.
--------------------------------------------------------------------------------
23 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Mortgage-backed securities (cont.)
Collateralized Mtge Obligation
05-18-26 5.00% $15,000,000 $14,507,888
Govt Natl Mtge Assn
02-15-24 8.00 1,641,018 1,724,086
02-15-25 9.00 474,272 505,692
06-15-26 8.00 2,362,663 2,480,797
08-15-26 8.00 3,908,734 4,104,171
Prudential Bache
Collateralized Mtge Obligation
04-01-19 7.97 4,165,600 4,277,905
Total 1,119,187,416
Aerospace & defense (0.9%)
Alliant Techsystems
Sr Sub Nts
05-15-11 8.50 925,000(d) 952,750
Boeing Capital
Medium-term Sr Nts Series X
01-27-10 7.22 10,000,000 10,749,000
Fairchild
Company Guaranty
04-15-09 10.75 6,000,000 4,620,000
L-3 Communications
Sr Sub Nts Series B
05-01-07 10.38 5,000,000 5,331,250
United Technologies
11-15-19 8.88 10,000,000 12,425,500
Total 34,078,500
Airlines (1.2%)
American Airlines
11-23-17 7.38 12,000,000(d) 12,600,840
Continental Airlines
Series 1996B
10-15-13 7.82 4,187,947 4,458,489
Series A
09-15-17 6.65 12,015,565 12,145,574
Delta Air Lines
05-15-10 10.13 10,000,000 11,252,100
Northwest Airlines
06-01-06 8.88 5,000,000 5,027,500
Total 45,484,503
Automotive & related (1.0%)
Dana
Sr Nts
08-15-11 9.00 6,375,000(d) 6,438,750
Ford Motor Credit
02-01-11 7.38 10,000,000 10,458,700
Hayes Lemmerz Intl
Company Guaranty Series B
07-15-07 9.13 1,590,000 985,800
Lear
Company Guaranty Series B
05-15-09 8.11 15,000,000 15,419,250
MSX Intl
Company Guaranty
01-15-08 11.38 5,885,000 5,406,844
Total 38,709,344
Banks and savings & loans (3.7%)
Bank of America
Sub Nts
01-15-11 7.40 21,000,000 22,658,580
Bank of Singapore
(U.S. Dollar) Sub Nts
08-10-09 7.88 28,000,000(c,d) 30,514,400
Central Fidelity Capital
Company Guaranty Series A
04-15-27 4.77 16,500,000(o) 16,625,895
Comerica Bank
Sub Nts
10-01-08 6.00 9,780,000 9,667,579
FleetBoston Financial
09-15-05 7.25 22,000,000 23,505,900
Marshall & Ilsley
Series E
09-01-06 5.75 8,000,000 8,038,000
Union Planters Capital
Company Guaranty
12-15-26 8.20 4,000,000 3,978,480
Washington Mutual Bank
06-15-11 6.88 15,000,000 15,600,765
Wells Fargo
Sub Nts
08-01-11 6.38 13,000,000 13,144,430
Total 143,734,029
See accompanying notes to investments in securities.
--------------------------------------------------------------------------------
24 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Building materials & construction (1.4%)
Louisiana Pacific
Sr Nts
11-15-08 10.88% $1,980,000 $1,999,800
Nortek
Sr Nts Series B
03-15-07 9.25 1,000,000 1,003,750
09-01-07 9.13 3,330,000 3,330,000
08-01-08 8.88 3,600,000 3,550,500
Pulte Homes
Sr Nts
12-15-03 7.00 7,700,000 7,792,246
08-01-11 7.88 10,800,000(d) 10,876,464
Schuler Homes
Sr Nts
07-15-09 9.38 7,000,000(d) 7,105,000
Toll
Company Guaranty
02-01-09 8.13 5,800,000 5,756,500
WCI Communities
Company Guaranty
02-15-11 10.63 10,525,000 11,288,063
Total 52,702,323
Chemicals (1.9%)
Allied Waste North America
Company Guaranty Series B
01-01-09 7.88 10,625,000 10,704,688
Equistar Chemical
Sr Nts
09-01-08 10.13 1,825,000(d) 1,849,656
IMC Global
Sr Nts
06-01-08 10.88 4,160,000(d) 4,284,800
Lyondell Chemical
Sr Sub Nts
05-01-09 10.88 6,200,000 6,138,000
Macdermid
07-15-11 9.13 1,655,000 1,671,550
Resolution Performance
Sr Sub Nts
11-15-10 13.50 2,050,000 2,224,250
Waste Management
Company Guaranty
05-15-09 6.88 20,000,000 20,276,999
Sr Nts
10-01-07 7.13 15,000,000 15,415,500
07-15-28 7.00 12,500,000 11,879,413
Total 74,444,856
Communications equipment & services (1.2%)
Celcaribe
Sr Nts
03-15-04 14.50 3,395,000 1,969,100
CIENA
Cv
02-01-08 3.75 7,160,000 4,940,830
Equinix
Sr Nts
12-01-07 13.00 3,360,000 1,436,400
Fairpoint Communications
Sr Sub Nts
05-01-10 12.50 3,000,000 2,400,000
GTE California
09-01-09 6.70 10,000,000 10,391,400
NTL Communications
Sr Nts Series B
10-01-10 11.88 9,500,000 5,605,000
Price Communications Wireless
Company Guaranty Series B
12-15-06 9.13 7,000,000 7,280,000
Verizon New England
Sr Nts
09-15-11 6.50 13,000,000 13,325,650
Total 47,348,380
Computers & office equipment (1.1%)
Adaptec
Cv Sub Nts
02-01-04 4.75 5,442,000 4,953,308
Akamai Technologies
Cv
07-01-07 5.50 10,920,000 4,613,700
Amdocs
(U.S. Dollar) Cv
06-01-08 2.00 4,750,000(c,d) 3,966,250
Computer Sciences
06-15-06 6.75 10,000,000 10,298,401
Comverse Technology
Cv
12-01-05 1.50 4,030,000 3,022,500
Juniper Networks
Cv
03-15-07 4.75 10,590,000 7,571,850
See accompanying notes to investments in securities.
--------------------------------------------------------------------------------
25 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Computers & office equipment (cont.)
Mercury Interactive
Cv
07-01-07 4.75% $1,940,000 $1,404,075
Solectron
Zero Coupon Cv
11-20-20 3.25 17,338,000(f) 7,280,226
Total 43,110,310
Electronics (1.3%)
Celestica
(U.S. Dollar) Zero Coupon Cv
08-01-20 3.41 16,400,000(c,f) 6,457,500
Corning
Zero Coupon Cv
11-08-15 2.00 5,230,000(f) 3,014,572
Lam Research
Cv
06-01-06 4.00 2,840,000(d) 2,708,650
LSI Logic
Cv
02-15-05 4.00 3,620,000 3,049,850
Reliance Electric
04-15-03 6.80 6,000,000 6,182,820
RF Micro Devices
Cv
08-15-05 3.75 1,660,000 1,437,975
STMicroelectronics
(U.S. Dollar) Zero Coupon Cv
11-16-10 3.75 6,890,000(c,d,f) 4,530,175
Thomas & Betts
01-15-06 6.50 9,200,000 8,472,059
Triquint Semiconductor
Cv Sub Nts
03-01-07 4.00 9,680,000 7,514,100
Vitesse Semiconductor
Cv
03-15-05 4.00 9,640,000 7,808,400
Total 51,176,101
Energy (2.0%)
Ashland
Medium-term Nts Series J
08-15-05 7.83 14,000,000 14,840,770
Devon Energy
Cv
08-15-08 4.90 3,466,000 3,530,814
Grant Prideco
Company Guaranty Series B
12-01-07 9.63 6,500,000 6,630,000
Hanover Equipment Trust
Sr Nts
09-01-08 8.50 1,225,000(d) 1,255,625
Mirant Amerias Generation
Sr Nts
05-01-11 8.30 10,000,000(d) 10,623,670
Newfield Exploration
Sr Nts
03-01-11 7.63 6,500,000 6,515,028
Petroliam Nasional
(U.S. Dollar)
08-15-15 7.75 6,000,000(c,d) 6,112,320
Phillips Petroleum
05-25-10 8.75 15,000,000 17,519,100
Pioneer Natl Resources
Sr Nts
08-15-07 8.25 9,500,000 9,666,250
Total 76,693,577
Energy equipment & services (0.1%)
Nabors Inds
Zero Coupon Cv
06-20-20 6.91 7,780,000(f) 4,648,550
Financial services (3.3%)
Citigroup
Sub Nts
10-01-10 7.25 20,000,000 21,542,400
E* TRADE Group
Cv
02-01-07 6.00 7,260,000 4,657,943
First Union-
Lehman Brothers Cl A3
Series 1997-C2
12-18-07 6.65 20,000,000 20,943,686
GenAmerica Capital
Company Guaranty
06-30-27 8.52 8,000,000(d) 8,331,280
Goldman Sachs Group
01-15-11 6.88 16,800,000 17,360,700
Indah Kiat Finance Mauritius
(U.S. Dollar) Company Guaranty
07-01-07 10.00 9,225,000(b,c) 1,383,750
LaBranche
Sr Nts
08-15-04 9.50 6,930,000 7,399,300
Sr Sub Nts
03-02-07 12.00 2,545,000 2,875,850
See accompanying notes to investments in securities.
--------------------------------------------------------------------------------
26 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Financial services (cont.)
Legg Mason
Sr Nts
07-02-08 6.75% $7,000,000 $7,141,680
Ohio Savings Capital
Company Guaranty
06-03-27 9.50 9,500,000(d) 9,465,800
Osprey Trust/Osprey 1
01-15-03 8.31 10,000,000(d) 10,349,300
Salomon Smith Barney Holdings
01-15-03 6.13 15,000,000 15,375,300
Total 126,826,989
Food (0.3%)
Kellogg
Series B
04-01-11 6.60 10,000,000 10,227,000
Health care (0.5%)
Allergan
Zero Coupon Cv
11-01-20 2.50 4,800,000(f) 2,946,000
American Home Products
03-15-11 6.70 15,000,000 15,564,750
Human Genome
Cv
03-15-07 3.75 1,900,000 1,415,405
Total 19,926,155
Health care services (0.9%)
Amerisource Bergen
Sr Nts
09-01-08 8.13 1,375,000(d) 1,419,688
HCA
06-01-06 7.13 19,750,000 20,144,999
09-01-10 8.75 7,415,000 8,119,425
Manor Care
Company Guaranty
03-01-08 8.00 2,025,000 2,100,938
Paracelsus Healthcare
Sr Sub Nts
08-15-06 10.00 13,100,000(b) 4,290,250
Total 36,075,300
Industrial equipment & services (0.1%)
Motors & Gears
Sr Nts Series D
11-15-06 10.75 3,530,000 3,379,975
Insurance (2.3%)
American General Institute Capital
Company Guaranty Series A
12-01-45 7.57 10,000,000(d) 10,759,320
Americo Life
Sr Sub Nts
06-01-05 9.25 9,400,000 9,188,500
Executive Risk Capital
Company Guaranty Series B
02-01-27 8.68 11,500,000 12,495,831
Florida Windstorm
Sr Nts (MBIA Insured)
08-25-07 6.85 15,000,000(d,k) 15,730,740
Nationwide CSN Trust
02-15-25 9.88 17,000,000(d) 17,790,534
Principal Mutual
03-01-44 8.00 10,000,000(d) 10,023,950
Zurich Capital Trust I
Company Guaranty
06-01-37 8.38 10,785,000(d) 11,548,362
Total 87,537,237
Leisure time & entertainment (0.9%)
Argosy Gaming
Sr Sub Nts
09-01-11 9.00 1,875,000 1,940,625
Six Flags
Sr Nts
02-01-09 9.50 5,000,000(d) 5,100,000
Station Casino
Sr Nts
02-15-08 8.38 4,000,000 4,030,000
Sr Sub Nts
07-01-10 9.88 5,000,000 5,150,000
Time Warner
02-01-24 7.57 5,875,000 6,048,724
United Artists Theatres
Series 1995A
07-01-15 9.30 12,134,659 10,314,460
USA Networks
CV
07-01-03 7.00 2,360,000 2,365,900
Total 34,949,709
See accompanying notes to investments in securities.
--------------------------------------------------------------------------------
27 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Media (2.9%)
Adelphia Communications
Sr Nts
10-01-10 10.88% $3,550,000 $3,621,000
Sr Nts Series B
06-15-11 10.25 2,500,000 2,434,375
Charter Communications
Holdings/Charter Capital
Sr Nts
10-01-09 10.75 7,000,000 7,525,000
05-15-11 10.00 10,485,000(d) 10,720,913
Charter Communications LLC/Capital
Zero Coupon Sr Disc Nts
04-01-04 14.19 4,750,000(g) 3,372,500
Comcast Cable Communications
Sr Nts
06-15-13 7.13 9,400,000 9,698,553
CSC Holdings
Series B
08-15-09 8.13 5,000,000 5,160,050
Sr Nts
07-15-08 7.25 14,000,000 13,813,240
News Corp
06-24-10 10.15 3,215,514(h) 3,714,562
Time Warner Entertainment
03-15-23 8.38 17,000,000 19,115,310
Turner Broadcasting
07-01-13 8.38 10,000,000 11,352,900
02-01-24 8.40 19,500,000 20,516,340
Total 111,044,743
Metals (0.4%)
Freeport-McMoran
Cv
01-31-06 8.25 2,360,000(d) 2,660,900
Imexsa Export Trust
(U.S. Dollar)
05-31-03 10.13 2,986,382(c,d) 2,926,655
Inco
(U.S. Dollar) Cv
03-15-16 7.75 4,990,000(c) 4,967,046
WMC Finance USA
(U.S. Dollar)
11-15-13 7.25 6,500,000(c) 6,641,011
Total 17,195,612
Miscellaneous (2.4%)
Bistro Trust
12-31-02 9.50 32,750,000(d) 23,122,810
ECM Funding LP
06-10-02 11.92 1,078,345(h) 948,944
EOP Operating LP
Sr Nts
07-15-11 7.00 14,000,000 14,371,518
ERP Operating LP
03-02-11 6.95 10,000,000 10,273,600
FCB/NC Capital
Company Guaranty
03-01-28 8.05 9,250,000 8,300,367
ISG Resources
04-15-08 10.00 6,260,000 3,818,600
Meritage
Sr Nts
06-01-11 9.75 4,140,000(d) 4,295,250
Normandy Yandal Operations
(U.S. Dollar) Sr Nts
04-01-08 8.88 6,000,000(c) 5,085,000
NSM Steel
Company Guaranty
02-01-06 12.00 6,925,000(b,d) 2,159,215
Omega Cabinets
Sr Sub Nts
06-15-07 10.50 4,180,000 4,389,000
Outsourcing Solutions
Sr Sub Nts Series B
11-01-06 11.00 3,359,000 2,855,150
Penn-American Water
1st Mtge Medium-term Nts
11-01-17 7.08 13,000,000(d) 13,083,720
Stellex Technologies
Sr Sub Nts Series B
11-01-07 9.50 6,100,000(b) 183,000
Total 92,886,174
Multi-industry conglomerates (0.3%)
Jordan Inds
Sr Nts
08-01-07 10.38 2,000,000 1,700,000
Sr Nts Series D
08-01-07 10.38 4,945,000 4,203,250
Prime Succession
Sr Sub Nts
08-15-04 10.75 3,260,000(b) 391,200
Tyco Intl Group
Zero Coupon Cv
02-12-21 4.17 7,740,000(f) 5,563,125
Total 11,857,575
See accompanying notes to investments in securities.
--------------------------------------------------------------------------------
28 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Paper & packaging (1.3%)
APP China Group
(U.S. Dollar) Sr Nts
03-15-05 14.00% $8,500,000(b,c,d) $510,000
Carter Holt Harvey
(U.S. Dollar)
12-01-04 8.88 10,500,000(c) 11,434,815
Crown Paper
Sr Sub Nts
09-01-05 11.00 6,950,000(b) 121,625
Doman Inds
(U.S. Dollar) Sr Nts Series B
11-15-07 9.25 3,395,000(c) 1,612,625
Intl Paper
11-15-12 5.13 9,000,000 7,812,000
Packaging Corp of America
Company Guaranty
04-01-09 9.63 7,000,000 7,577,500
Pactiv
06-15-17 8.13 5,000,000 5,108,600
Plastipak Holdings
Sr Nts
09-01-11 10.75 835,000(d) 843,350
Quno
(U.S. Dollar) Sr Nts
05-15-05 9.13 7,000,000(c) 7,226,527
Riverwood Intl
Sr Nts
08-01-07 10.63 6,000,000(d) 6,240,000
Weyerhaeuser
(U.S. Dollar)
01-15-04 8.50 3,000,000(c) 3,171,480
Total 51,658,522
Real estate investment trust (0.2%)
Meristar Hospitality
Sr Nts
01-15-11 9.13 7,650,000(d) 7,716,938
Restaurants & lodging (1.2%)
Extended Stay America
Sr Sub Nts
06-15-11 9.88 7,000,000(d) 7,070,000
Hilton Hotels
Cv
05-15-06 5.00 2,130,000 1,952,273
02-15-11 8.25 11,000,000 11,336,160
MGM Mirage
02-01-05 6.95 10,000,000 10,105,200
Park Place Entertainment
Sr Sub Nts
09-15-08 8.88 14,000,000 14,595,000
Total 45,058,633
Retail (3.0%)
Albertson's
Sr Nts
02-15-11 7.50 20,000,000 21,347,200
Autonation
Sr Nts
08-01-08 9.00 2,925,000(d) 2,968,875
Dairy Mart Convenience Stores
Sr Sub Nts
03-15-04 10.25 5,925,000 2,962,500
Federated Dept Stores
Sr Nts
09-01-08 6.63 18,800,000 18,858,844
Kroger
Company Guaranty
03-01-08 7.45 10,000,000 10,643,800
Sr Nts
07-15-06 8.15 13,000,000 14,369,290
Levi Strauss
Sr Nts
01-15-08 11.63 7,385,000 6,572,650
Lowe's
Zero Coupon Cv Sr Nts
02-16-21 2.50 4,750,000(d,f) 3,437,813
Rite Aid
Sr Nts
07-01-08 11.25 4,000,000(d) 4,200,000
Target
01-15-11 6.35 15,000,000 15,338,100
Wal-Mart CRAVE Trust
07-17-06 7.00 10,603,689(d) 11,178,515
Wal-Mart Stores
06-29-11 8.88 3,500,000 3,588,690
Total 115,466,277
See accompanying notes to investments in securities.
--------------------------------------------------------------------------------
29 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Transportation (2.4%)
American Architectural
Company Guaranty
12-01-07 11.75% $7,500,000(b) $1,125,000
American Commercial Lines LLC
Series B
06-30-06 7.37 3,254,605(h) 2,961,690
Series C
03-30-07 7.62 4,563,212(h) 4,152,523
Enterprise Rent-A-Car USA Finance
02-15-08 6.80 10,000,000(d) 10,046,150
01-15-11 8.00 15,500,000(d) 16,450,755
Greater Beijing First Expressways
(U.S. Dollar) Sr Nts
06-15-07 9.50 3,640,000(b,c) 1,419,600
Norfolk Southern
Sr Nts
02-15-31 7.25 20,000,000 20,280,600
Union Pacific
01-15-11 6.65 32,700,000 33,421,525
Vectura Group
Company Guaranty Series B
06-30-08 10.25 6,415,000 3,335,800
Zhuhai Highway
(U.S. Dollar) Sub Nts
07-01-08 11.50 4,140,000(b,c,d) 538,200
Total 93,731,843
Utilities -- electric (6.4%)
AES
Sr Nts
09-15-10 9.38 4,650,000 4,789,500
Appalachian Power
1st Mtge Medium-term Nts
12-01-22 8.50 5,000,000 5,313,550
Arizona Public Service
1st Mtge Sale Lease-backed Obligation
12-30-15 8.00 6,556,000 6,815,224
Calpine
Sr Nts
02-15-11 8.50 10,000,000 10,187,070
Cleveland Electric Illuminating
1st Mtge Series B
05-15-05 9.50 18,790,000 19,298,457
1st Mtge Series E
07-01-23 9.00 7,000,000 7,390,180
CMS Energy
Sr Nts
05-15-02 8.13 10,000,000 10,136,900
07-01-03 8.38 15,000,000 15,379,620
Dominion Virginia Power
Sr Nts Series A
03-31-06 5.75 20,000,000 20,169,939
EIP Funding-PNM
10-01-12 10.25 6,051,000 6,629,899
El Paso Electric
1st Mtge Series E
05-01-11 9.40 10,000,000 11,142,200
Indiana & Michigan Power
Sale Lease-backed Obligation Series F
12-07-22 9.82 4,965,489 5,909,627
Korea Electric Power
(U.S. Dollar) Zero Coupon
04-01-16 10.97 45,000,000(c,g) 9,530,370
Midland Funding I
Series 1991-C
07-23-02 10.33 1,630,325 1,656,880
Series 1994-C
07-23-02 10.33 877,753 892,050
Midland Funding II
Series A
07-23-05 11.75 14,900,000 16,534,411
NRG Energy
Sr Nts
09-15-10 8.25 3,000,000 3,229,635
NRG Northest Generating
Company Guaranty Series A1
12-15-04 8.06 2,109,375 2,186,705
Company Guaranty Series B1
06-15-15 8.84 4,000,000 4,307,600
Ohio Edison
1st Mtge
04-01-23 7.88 6,000,000 6,024,360
Pacific Gas & Electric
1st Mtge Series 1992B
05-01-25 8.38 4,100,000 3,854,000
PPL Electric Utilities
08-15-09 6.25 13,000,000 13,041,730
PSI Energy
08-01-05 6.50 10,000,000 10,057,700
RGS (AEGCO) Funding
Sale Lease-backed Obligation Series F
12-07-22 9.82 4,965,494 5,909,633
Salton Sea Funding
Series C
05-30-10 7.84 10,000,000 9,499,000
See accompanying notes to investments in securities.
--------------------------------------------------------------------------------
30 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Utilities -- electric (cont.)
Sithe Independence Funding
Series A
06-30-07 8.50% $7,500,000 $7,993,725
12-30-13 9.00 4,700,000 5,122,013
Texas Utilities Electric
01-01-05 9.45 2,596,000 2,838,762
Tucson Electric Power
10-01-09 8.50 3,250,000 3,310,921
TXU
1st Mtge
07-01-25 7.63 10,000,000 9,950,500
10-01-25 7.38 3,000,000 2,919,570
WPD Holdings
(U.S. Dollar)
12-15-17 7.25 8,000,000(c,d) 7,645,736
Total 249,667,467
Utilities -- gas (1.3%)
Coastal
Sr Deb
02-15-37 7.42 6,000,000 5,699,940
El Paso Energy
Sr Nts
05-15-09 6.75 4,900,000 4,836,545
12-15-12 7.38 12,850,000 13,179,217
Southern California Gas
1st Mtge Series BB
03-01-23 7.38 6,900,000 6,538,371
Southwest Gas
02-15-11 8.38 7,900,000 8,302,268
Williams
09-01-11 7.13 12,000,000 12,201,480
Total 50,757,821
Utilities -- telephone (4.2%)
Allegiance Telecom
Zero Coupon Sr Disc Nts Series B
02-15-03 11.75 2,000,000(g) 1,200,000
ALLTEL
Sr Nts
03-01-06 7.50 17,470,000 18,454,260
AT&T Wireless Services
Sr Nts
03-01-11 7.88 8,000,000(d) 8,463,360
03-01-31 8.75 7,000,000(d) 7,762,132
BellSouth Capital Funding
02-15-30 7.88 24,000,000 26,922,912
Citizens Communications
05-15-11 9.25 5,000,000 5,525,300
Geotek Communications
Escrow Cv Sr Sub Nts
02-15-02 12.00 4,135,000(b,h,p) --
Global Crossing Holding
(U.S. Dollar) Company Guaranty
08-01-07 8.70 16,000,000(c) 9,640,000
Nextel Communications
Sr Nts
02-01-11 9.50 5,930,000 4,521,625
Qwest
11-10-26 7.20 19,000,000 17,778,300
SBC Communications
10-15-34 6.63 10,000,000 9,360,380
Vodafone Group
Company Guaranty
05-01-08 6.65 10,600,000 10,799,068
(U.S. Dollar)
02-15-10 7.75 22,700,000(c) 24,781,817
WorldCom
05-15-11 7.50 18,400,000 18,715,928
Total 163,925,082
Municipal bonds (0.6%)
Atlanta Downtown Development Authority
Lease Revenue Taxable Bonds
Atlanta Federal Center
02-01-09 6.25 9,150,000 9,587,279
Denver City & County School District #1
Taxable-Pension-School
Facilities Lease (AMBAC Insured)
12-15-12 6.94 7,700,000(k) 8,306,144
St. Paul Sales Tax Revenue Bonds
RiverCentre Arena (FSA Insured)
11-01-19 6.94 5,000,000(k) 5,190,150
Total 23,083,573
Total bonds
(Cost: $3,525,526,636) $3,549,439,468
See accompanying notes to investments in securities.
--------------------------------------------------------------------------------
31 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
Common stock (--%)
Issuer Shares Value(a)
PhoneTel Technologies 386,000(b) $6,176
Total common stock
(Cost: $4,947,697) $6,176
Preferred stocks & other (1.1%)
Issuer Shares Value(a)
Apache
Cv 109,900(b) $4,441,059
Asia Pulp & Paper
Warrants 8,500(b,c,d) 850
Dairy Mart
Warrants 51,666(b,h) 517
Intermedia Communications
13.50% Pay-in-kind Series B 5,830(n) 6,376,016
Kerr-McGee
5.50% Cv 60,690 2,680,677
Metlife Capital
8.00% Cm Cv 29,460 2,827,865
Nextel Communications
13.00% Cm Pay-in-kind
Series D 7,262(n) 4,429,820
NRG Energy
6.50% Cv 143,300 3,007,867
Pharmacia
6.50% Cv ACES 146,400(l) 5,361,900
PPL Capital Funding Trust I
7.75% Cv 189,900 4,206,285
VEC Trust I
7.75% Cm Cv 95,000 3,130,250
Wayland Investment
Fund LLC 6,000,000(b,e,h) 6,397,020
Total preferred stocks & other
(Cost: $47,165,014) $42,860,126
Short-term securities (13.1%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (7.3%)
Federal Home Loan Bank Disc Nts
10-10-01 3.57% $1,900,000 $1,892,421
10-19-01 3.54 11,800,000 11,741,114
10-23-01 3.41 24,600,000 24,477,226
10-31-01 3.42 25,000,000 24,851,736
11-14-01 3.36 20,000,000 19,854,167
11-16-01 3.39 40,700,000 40,395,315
Federal Home Loan Mtge Corp Disc Nts
09-25-01 3.48 20,100,000 20,051,495
09-25-01 3.58 23,800,000 23,740,997
Federal Natl Mtge Assn Disc Nts
09-20-01 3.50 34,800,000 34,727,097
10-12-01 3.38 49,100,000 48,906,954
10-18-01 3.56 13,200,000 13,136,496
11-29-01 3.38 20,000,000 19,828,000
Total 283,603,018
Certificate of deposit (0.3%)
Commerzbank Yankee
11-16-01 3.41 11,500,000 11,413,909
See accompanying notes to investments in securities.
--------------------------------------------------------------------------------
32 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
Short-term securities (continued)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
Commercial paper (5.3%)
Abbey Natl North America
09-17-01 3.60% $5,000,000 $4,991,146
Barclays U.S. Funding
10-02-01 3.50 9,900,000 9,869,288
BellSouth
10-25-01 3.42 31,600,000(i) 31,427,277
Charta
10-26-01 3.57 10,000,000(i) 9,943,449
CXC
10-11-01 3.69 3,600,000(i) 3,585,040
Dexia Bank
11-07-01 3.40 24,600,000 24,437,367
Emerson Electric
09-04-01 3.66 5,000,000(i) 4,997,967
Heinz (HJ) Finance
09-20-01 3.53 4,200,000(i) 4,191,787
Kimberly-Clark
09-06-01 3.66 12,100,000(i) 12,092,497
09-07-01 3.64 2,500,000(i) 2,498,231
10-23-01 3.64 5,700,000(i) 5,670,629
Kitty Hawk Funding
10-02-01 3.59 8,400,000(i) 8,372,672
Natl Rural Utilities
09-24-01 3.51 5,100,000 5,088,100
Salomon Smith Barney
09-21-01 3.53 23,100,000 23,052,569
SBC Communications
09-20-01 3.53 16,400,000(i) 16,367,929
Southern Company Funding
09-06-01 3.65 2,400,000(i) 2,398,540
UBS Finance (Delaware)
09-06-01 3.77 6,200,000 6,196,019
09-19-01 3.64 1,000,000 998,042
Verizon Global Funding
10-18-01 3.42 11,600,000(i) 11,547,413
Verizon Network Funding
09-25-01 3.65 19,800,000 19,748,988
Total 207,474,950
Letter of credit (0.2%)
Bank of America-
AES Shady Point
09-13-01 3.76% $8,000,000 $7,988,989
Total short-term securities
(Cost: $510,586,584) $510,480,866
Total investments in securities
(Cost: $4,088,225,931)(q) $4,102,786,636
See accompanying notes to investments in securities.
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33 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing. For long-term debt securities, item identified is in
default as to payment of interest and/or principal.
(c) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated. As of Aug. 31,
2001, the value of foreign securities represented 5.93% of net assets.
(d) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
has been determined to be liquid under guidelines established by the board.
(e) The share amount for Limited Liability Companies (LLC) or Limited
Partnerships (LP) represents capital contributions.
(f) For zero coupon bonds, the interest rate disclosed represents the
annualized effective yield on the date of acquisition.
(g) For those zero coupon bonds that become coupon paying at a future date, the
interest rate disclosed represents the annualized effective yield from the
date of acquisition to interest reset date disclosed.
(h) Identifies issues considered to be illiquid as to their marketability (see
Note 1 to the financial statements). Information concerning such security
holdings at Aug. 31, 2001, is as follows:
Security Acquisition Cost
dates
American Commercial Lines LLC
7.37% 2006 Series B 03-28-01 $2,929,144
7.62% 2007 Series C 03-28-01 4,106,890
Dairy Mart
Warrants 11-28-95 --
ECM Funding LP
11.92% 2002 04-13-92 thru 02-09-00 1,078,345
Geotek Communications
12.00% Escrow Cv Sr Sub Nts 2002 08-26-00 --
News Corp*
10.15% 2010 01-29-93 thru 06-24-01 3,292,783
Wayland Investment Fund LLC 05-17-00 6,671,880
* Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended.
(i) Commercial paper sold within terms of a private placement memorandum,
exempt from registration under Section 4(2) of the Securities Act of 1933,
as amended, and may be sold only to dealers in that program or other
"accredited investors." This security has been determined to be liquid
under guidelines established by the board.
(j) U.S. Treasury inflation-protection securities (TIPS) are securities in
which the principal amount is adjusted for inflation and the semiannual
interest payments equal a fixed percentage of the inflation-adjusted
principal amount.
(k) The following abbreviations are used in the portfolio security descriptions
to identify the insurer of the issue:
AMBAC -- American Municipal Bond Association Corporation
FSA -- Financial Security Assurance
MBIA -- Municipal Bond Investors Assurance
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34 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
Notes to investments in securities (continued)
(l) ACES (Automatically Convertible Equity Securities) are structured as
convertible preferred securities. Investors receive an enhanced yield but
based upon a specific formula, potential appreciation is limited. ACES pay
dividends, have voting rights, are noncallable for at least three years and
upon maturity, convert into shares of common stock.
(m) At Aug. 31, 2001, the cost of securities purchased, including interest
purchased, on a when-issued basis was $241,059,662.
(n) Pay-in-kind securities are securities in which the issuer makes interest or
dividend payments in cash or in additional securities. The securities
usually have the same terms as the original holdings.
(o) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Aug. 31,
2001.
(p) Negligible market value.
(q) At Aug. 31, 2001, the cost of securities for federal income tax purposes
was $4,090,078,256 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $ 119,680,394
Unrealized depreciation (106,972,014)
------------
Net unrealized appreciation $ 12,708,380
-------------
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35 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
Federal Income Tax Information
(Unaudited)
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its fiscal
year. The dividends listed below are reported to you on Form 1099-DIV, Dividends
and Distributions. Shareholders should consult a tax advisor on how to report
distributions for state and local tax purposes.
AXP Bond Fund, Inc.
Fiscal year ended Aug. 31, 2001
Class A
Income distributions taxable as dividend income, 1.98% qualifying for deduction
by corporations.
Payable date Per share
Sept. 21, 2000 $ 0.02427
Oct. 24, 2000 0.02970
Nov. 21, 2000 0.02683
Dec. 20, 2000 0.03813
Jan. 26, 2001 0.02579
Feb. 26, 2001 0.02466
March 26, 2001 0.02461
April 26, 2001 0.02568
May 24, 2001 0.02462
June 26, 2001 0.02573
July 26, 2001 0.02568
Aug. 27, 2001 0.02369
Total distributions $0.31939
Class B
Income distributions taxable as dividend income, 1.98% qualifying for deduction
by corporations.
Payable date Per share
Sept. 21, 2000 $0.02154
Oct. 24, 2000 0.02649
Nov. 21, 2000 0.02411
Dec. 20, 2000 0.03530
Jan. 26, 2001 0.02211
Feb. 26, 2001 0.02157
March 26, 2001 0.02180
April 26, 2001 0.02259
May 24, 2001 0.02183
June 26, 2001 0.02245
July 26, 2001 0.02266
Aug. 27, 2001 0.02049
Total distributions $0.28294
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36 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
Class C
Income distributions taxable as dividend income, 1.98% qualifying for deduction
by corporations.
Payable date Per share
Sept. 21, 2000 $0.02173
Oct. 24, 2000 0.02661
Nov. 21, 2000 0.02419
Dec. 20, 2000 0.03548
Jan. 26, 2001 0.02225
Feb. 26, 2001 0.02173
March 26, 2001 0.02189
April 26, 2001 0.02266
May 24, 2001 0.02190
June 26, 2001 0.02251
July 26, 2001 0.02276
Aug. 27, 2001 0.02054
Total distributions $0.28425
Class Y
Income distributions taxable as dividend income, 1.98% qualifying for deduction
by corporations.
Payable date Per share
Sept. 21, 2000 $0.02486
Oct. 24, 2000 0.03040
Nov. 21, 2000 0.02743
Dec. 20, 2000 0.03875
Jan. 26, 2001 0.02658
Feb. 26, 2001 0.02534
March 26, 2001 0.02522
April 26, 2001 0.02635
May 24, 2001 0.02522
June 26, 2001 0.02644
July 26, 2001 0.02632
Aug. 27, 2001 0.02439
Total distributions $0.32730
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37 AXP BOND FUND -- ANNUAL REPORT
<PAGE>
AXP Bond Fund PRSRT STD AUTO
70100 AXP Financial Center U.S. POSTAGE
Minneapolis, MN 55474 PAID
AMERICAN
americanexpress.com EXPRESS
Ticker Symbol
Class A: INBNX Class B: ININX
Class C: N/A Class Y: IDBYX
This report must be accompanied or preceded by the Fund's current prospectus.
Distributed by American Express Financial Advisors Inc. Member NASD. American
Express Company is separate from American Express Financial Advisors Inc. and is
not a broker-dealer.
(logo)
American
Express
S-6495 U (10/01)
</TEXT>
</DOCUMENT>