N-30D 1 s6495.txt AXP BOND FUND, INC. 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.) 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 -------------------------------------------------------------------------------- 2 AXP BOND FUND -- ANNUAL REPORT (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.) -------------------------------------------------------------------------------- 3 AXP BOND FUND -- ANNUAL REPORT 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 -------------------------------------------------------------------------------- 4 AXP BOND FUND -- ANNUAL REPORT 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 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 -------------------------------------------------------------------------------- 6 AXP BOND FUND -- ANNUAL REPORT 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 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 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.
Independent Board Members -------------------------------------- ------------------------- ---------------------------------- -------------------------- Name, Position held with Principal occupations Other directorships address, Registrant and length during past five years age of service -------------------------------------- ------------------------- ---------------------------------- -------------------------- 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 -------------------------------------- ------------------------- ---------------------------------- --------------------------
-------------------------------------------------------------------------------- 9 AXP BOND FUND -- ANNUAL REPORT
Independent Board Members -------------------------------------- ------------------------- ---------------------------------- -------------------------- Name, Position held with Principal occupations Other directorships address, Registrant and length during past five years age of service -------------------------------------- ------------------------- ---------------------------------- -------------------------- 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 -------------------------------------- ------------------------- ---------------------------------- --------------------------
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 -------------------------------------- ------------------------- ---------------------------------- -------------------------- 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 -------------------------------------- ------------------------- ---------------------------------- --------------------------
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:
Other Officers -------------------------------------- ------------------------- ---------------------------------- -------------------------- Name, Position held with Principal occupations Other directorships address, Registrant and length during past five years age of service -------------------------------------- ------------------------- ---------------------------------- -------------------------- 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 -------------------------------------- ------------------------- ---------------------------------- --------------------------
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 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 Financial Statements
Statement of assets and liabilities AXP Bond Fund, Inc. Aug. 31, 2001 Assets Investments in securities, at value (Note 1) (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 ----------- --------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 12 AXP BOND FUND -- ANNUAL REPORT
Statement of operations AXP Bond Fund, Inc. Year ended Aug. 31, 2001 Investment income Income: 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 ============
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 13 AXP BOND FUND -- ANNUAL REPORT
Statements of changes in net assets AXP Bond Fund, Inc. Year ended Aug. 31, 2001 2000 Operations and distributions 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 -------------- --------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 14 AXP BOND FUND -- ANNUAL REPORT 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 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 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 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 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the years indicated are as follows:
Year ended Aug. 31, 2001 Class A Class B Class C Class Y 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 ----------- ----------- ------- ----------
* 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 8. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating the Fund's results.
Class A 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) .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% ---- ---- --- ---- -----
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 20 AXP BOND FUND -- ANNUAL REPORT
Class C Per share income and capital changes(a) Fiscal period ended Aug. 31, 2001 2000(b) 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% ---- ----
Class Y 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) .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% ----- ---- ---- ---- -----
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 21 AXP BOND FUND -- ANNUAL REPORT 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 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 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 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 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 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 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 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 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 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 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 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. -------------------------------------------------------------------------------- 33 AXP BOND FUND -- ANNUAL REPORT 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 -------------------------------------------------------------------------------- 34 AXP BOND FUND -- ANNUAL REPORT 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 ------------- -------------------------------------------------------------------------------- 35 AXP BOND FUND -- ANNUAL REPORT 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 -------------------------------------------------------------------------------- 36 AXP BOND FUND -- ANNUAL REPORT 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 -------------------------------------------------------------------------------- 37 AXP BOND FUND -- ANNUAL REPORT 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)