N-30D 1 s6490r.txt AXP BOND FUND, INC. AXP(R) Bond Fund 2002 SEMIANNUAL REPORT 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. 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. CONTENTS From the Chairman 3 Portfolio Manager Q & A 3 Fund Facts 5 The 10 Largest Holdings 6 Financial Statements 7 Notes to Financial Statements 10 Investments in Securities 18 -------------------------------------------------------------------------------- 2 AXP BOND FUND -- SEMIANNUAL 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 Portfolio Manager Q & A Q: How did the Fund perform over the six-month period ended February 28, 2002? A: In an environment where significant events and a changing economy affected interest rate trends, the Fund managed to post a positive return. For the six months, the Fund returned 1.88% (Class A shares excluding sales charges). By comparison, the unmanaged Lehman Brothers Aggregate Bond Index and the Lipper Corporate Debt - BBB rated Funds Index returned 3.02% and 1.01%, respectively, for the same period. Q: What factors affected the portfolio's performance during the six months? A: Early in the period, the shocking events of September 11th threw financial markets into turmoil. The immediate effect was that the U.S. economy, which appeared to be poised for a recovery, suffered a significant blow. This had a negative impact on the portfolio in the -------------------------------------------------------------------------------- 3 AXP BOND FUND -- SEMIANNUAL REPORT immediate aftermath. Prior to the terrorist attacks, I had positioned the portfolio to benefit from an upturn in the U.S. economy. That meant a greater emphasis on corporate bonds, including some high-yield securities issued by companies with credit concerns. Typically, these bonds respond well to positive economic trends. When the economy was dealt this setback, corporate issues suffered as well. Fortunately, the Federal Reserve continued to reduce short-term interest rates, as it had been all year, and that helped restore confidence in the economy. High-yield bonds began to perform particularly well at the end of 2001, boosting the Fund's return. Those holdings struggled again in the closing months of the semiannual period, due in part to fallout from the problems surrounding Enron. However, the market stabilized again toward the end of February. Q: What changes did you make to the portfolio during the period? A: Throughout the six-month span, I maintained a rather conservative stance in the portfolio's duration (a measure of the Fund's sensitivity to interest rate changes). In the weeks following the September 11th attacks, I reduced our exposure to issues sensitive to those events such as bonds from companies in the travel and leisure industry. A greater emphasis was placed on bonds of consumer staple companies, and that provided some stability to the portfolio. As the economic environment began to improve, I put more money to work in bonds issued by companies with a weaker credit standing. These bonds were attractively priced and offered very competitive yields. I expect them to generate solid returns for the Fund. Late in the period, portfolio additions included bonds from companies in consumer cyclical industries like autos and retail stores, which should benefit as the economy improves. Q: What is your outlook for the coming months? A: From all appearances, the U.S. economy seems to be getting back on track after a very sluggish 2001. If that proves to be the case, it presents both positives and negatives for the portfolio. On the positive side, better economic conditions should improve the fortunes of corporate bond issuers, who rely on solid cash flows to make timely interest and principal payments. I expect these bonds, a significant part of the portfolio, to perform well in the months ahead. The downside of an improved economy is that interest rates are likely to trend a bit higher in the months to come. I am maintaining a cautious position in the portfolio in light of that concern. However, it is important to point out that up to now, inflation has not proven to be a major concern for the economy. If that continues to be the case, it is likely that any increase in interest rates (which results in lower bond values) will be only modest. Therefore, I anticipate that the Fund will be in a position to continue to offer solid returns throughout the rest of its fiscal year. Ray Goodner, CFA -------------------------------------------------------------------------------- 4 AXP BOND FUND -- SEMIANNUAL REPORT Fund Facts Class A-- 6-month performance (All figures per share) Net asset value (NAV) Feb. 28, 2002 $4.82 Aug. 31, 2001 $4.86 Decrease $0.04 Distributions-- Sept. 1, 2001 - Feb. 28, 2002 From income $0.13 From long-term capital gains $ -- Total distributions $0.13 Total return* +1.88% Class B-- 6-month performance (All figures per share) Net asset value (NAV) Feb. 28, 2002 $4.82 Aug. 31, 2001 $4.86 Decrease $0.04 Distributions-- Sept. 1, 2001 - Feb. 28, 2002 From income $0.11 From long-term capital gains $ -- Total distributions $0.11 Total return* +1.49% Class C-- 6-month performance (All figures per share) Net asset value (NAV) Feb. 28, 2002 $4.83 Aug. 31, 2001 $4.86 Decrease $0.03 Distributions-- Sept. 1, 2001 - Feb. 28, 2002 From income $0.11 From long-term capital gains $ -- Total distributions $0.11 Total return* +1.71% Class Y-- 6-month performance (All figures per share) Net asset value (NAV) Feb. 28, 2002 $4.82 Aug. 31, 2001 $4.86 Decrease $0.04 Distributions-- Sept. 1, 2001 - Feb. 28, 2002 From income $0.13 From long-term capital gains $ -- Total distributions $0.13 Total return* +1.96% * 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 -- SEMIANNUAL REPORT The 10 Largest Holdings Percent Value (of net assets) (as of Feb. 28, 2002) GMAC 6.88% 2011 0.9% $35,776,080 Union Pacific 6.65% 2011 0.8 33,802,154 Federal Republic of Germany 7.50% 2004 0.8 32,758,166 AT&T Wireless Services 7.88% 2011 0.8 30,720,357 WorldCom 7.50% 2011 0.7 29,001,530 Citizens Communications 9.25% 2011 0.7 28,861,415 BellSouth Capital Funding 7.88% 2030 0.7 28,006,824 Bank of Singapore 7.88% 2009 0.6 26,533,720 Bowater Canada Finance 7.95% 2011 0.6 25,379,249 Vodafone Group 7.75% 2010 0.6 25,078,960 Excludes U.S. Treasury and government agency holdings. For further detail about these holdings, please refer to the section entitled "Investments in Securities." (picture of) pie chart The 10 holdings listed here make up 7.2% of net assets -------------------------------------------------------------------------------- 6 AXP BOND FUND -- SEMIANNUAL REPORT
Financial Statements Statement of assets and liabilities AXP Bond Fund, Inc. Feb. 28, 2002 (Unaudited) Assets Investments in securities, at value (Note 1) (identified cost $4,424,013,735) $4,435,385,369 Capital shares receivable 924,878 Dividends and accrued interest receivable 67,047,778 Receivable for investment securities sold 237,207,392 Unrealized appreciation on foreign currency contracts held, at value (Notes 1 and 5) 380,587 ------- Total assets 4,740,946,004 ------------- Liabilities Disbursements in excess of cash on demand deposit 358,158 Dividends payable to shareholders 1,210,245 Capital shares payable 16,017 Payable for investment securities purchased 258,026,626 Payable for securities purchased on a when-issued basis (Note 1) 394,850,295 Accrued investment management services fee 53,467 Accrued distribution fee 45,071 Accrued service fee 1,656 Accrued transfer agency fee 14,409 Accrued administrative services fee 4,704 Other accrued expenses 261,261 ------- Total liabilities 654,841,909 ----------- Net assets applicable to outstanding capital stock $4,086,104,095 ============== Represented by Capital stock -- $.01 par value (Note 1) $ 8,478,174 Additional paid-in capital 4,239,238,449 Excess of distributions over net investment income (2,000,352) Accumulated net realized gain (loss) (Note 7) (171,358,368) Unrealized appreciation (depreciation) on investments and on translation of assets and liablities in foreign currencies (Note 5) 11,746,192 ---------- Total -- representing net assets applicable to outstanding capital stock $4,086,104,095 ============== Net assets applicable to outstanding shares: Class A $2,417,148,162 Class B $1,036,883,857 Class C $ 18,185,205 Class Y $ 613,886,871 Net asset value per share of outstanding capital stock: Class A shares 501,596,998 $ 4.82 Class B shares 215,141,886 $ 4.82 Class C shares 3,768,879 $ 4.83 Class Y shares 127,309,598 $ 4.82 ----------- --------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 7 AXP BOND FUND -- SEMIANNUAL REPORT
Statement of operations AXP Bond Fund, Inc. Six months ended Feb. 28, 2002 (Unaudited) Investment income Income: Dividends $ 1,813,644 Interest 125,087,935 Less foreign taxes withheld (62,728) ------- Total income 126,838,851 ----------- Expenses (Note 2): Investment management services fee 9,572,366 Distribution fee Class A 2,993,417 Class B 4,972,532 Class C 69,644 Transfer agency fee 2,353,152 Incremental transfer agency fee Class A 132,710 Class B 97,732 Class C 1,542 Service fee -- Class Y 282,216 Administrative services fees and expenses 916,632 Compensation of board members 14,092 Custodian fees 95,924 Printing and postage 159,811 Registration fees 114,988 Audit fees 21,000 Other 5,731 ----- Total expenses 21,803,489 Earnings credits on cash balances (Note 2) (60,267) ------- Total net expenses 21,743,222 ---------- Investment income (loss) -- net 105,095,629 ----------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) (29,029,817) Foreign currency transactions (85,426) ------- Net realized gain (loss) on investments (29,115,243) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (2,814,513) ---------- Net gain (loss) on investments and foreign currencies (31,929,756) ----------- Net increase (decrease) in net assets resulting from operations $ 73,165,873 ============
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 8 AXP BOND FUND -- SEMIANNUAL REPORT
Statements of changes in net assets AXP Bond Fund, Inc. Feb. 28, 2002 Aug. 31, 2001 Six months ended Year ended (Unaudited) Operations and distributions Investment income (loss) -- net $ 105,095,629 $ 231,113,578 Net realized gain (loss) on investments (29,115,243) (30,599,694) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (2,814,513) 152,685,406 ---------- ----------- Net increase (decrease) in net assets resulting from operations 73,165,873 353,199,290 ---------- ----------- Distributions to shareholders from: Net investment income Class A (64,701,267) (148,004,415) Class B (23,081,543) (52,812,958) Class C (321,086) (260,922) Class Y (15,668,965) (34,391,779) ----------- ----------- Total distributions (103,772,861) (235,470,074) ------------ ------------ Capital share transactions (Note 4) Proceeds from sales Class A shares (Note 2) 236,823,826 431,339,070 Class B shares 191,594,234 303,309,149 Class C shares 9,396,786 10,226,857 Class Y shares 170,224,992 379,466,999 Reinvestment of distributions at net asset value Class A shares 48,610,978 108,087,106 Class B shares 20,031,716 45,446,779 Class C shares 276,217 226,849 Class Y shares 15,636,713 34,534,077 Payments for redemptions Class A shares (239,038,599) (451,380,639) Class B shares (Note 2) (121,596,615) (290,178,522) Class C shares (Note 2) (1,792,723) (1,167,551) Class Y shares (101,210,665) (281,589,615) ------------ ------------ Increase (decrease) in net assets from capital share transactions 228,956,860 288,320,559 ----------- ----------- Total increase (decrease) in net assets 198,349,872 406,049,775 Net assets at beginning of period 3,887,754,223 3,481,704,448 ------------- ------------- Net assets at end of period $4,086,104,095 $3,887,754,223 ============== ==============
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 9 AXP BOND FUND -- SEMIANNUAL REPORT Notes to Financial Statements AXP Bond Fund, Inc. (Unaudited as to Feb. 28, 2002) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Fund is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. The Fund invests primarily in corporate bonds and other debt securities. The Fund offers Class A, Class B, 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. 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. -------------------------------------------------------------------------------- 10 AXP BOND FUND -- SEMIANNUAL REPORT 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. Illiquid securities As of Feb. 28, 2002, investments in securities included issues that are illiquid which the Fund currently limits to 10% of net assets, at market value, at the time of purchase. The aggregate value of such securities as of Feb. 28, 2002 was $28,194,438 representing 0.69% 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. -------------------------------------------------------------------------------- 11 AXP BOND FUND -- SEMIANNUAL REPORT Securities purchased on a when-issued or forward-commitment basis Delivery and payment for securities that have been purchased by the Fund on a when-issued or forward-commitment basis can take place one month or more after the transaction date. During this period, when-issued securities are subject to market fluctuations, 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 Feb. 28, 2002, the Fund has entered into outstanding when-issued or forward commitments of $394,850,295. 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. 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. 2. EXPENSES AND SALES CHARGES The Fund has agreements with American Express Financial Corporation (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. -------------------------------------------------------------------------------- 12 AXP BOND FUND -- SEMIANNUAL REPORT 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 $2,681,007 for Class A, $383,660 for Class B and $4,036 for Class C for the six months ended Feb. 28, 2002. During the six months ended Feb. 28, 2002, the Fund's custodian and transfer agency fees were reduced by $60,267 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 $3,400,990,719 and $3,107,107,372, respectively, for the six months ended Feb. 28, 2002. Realized gains and losses are determined on an identified cost basis. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
Six months ended Feb. 28, 2002 Class A Class B Class C Class Y Sold 49,089,885 39,709,628 1,946,317 35,303,400 Issued for reinvested distributions 10,109,275 4,166,170 57,406 3,251,035 Redeemed (49,609,339) (25,231,499) (371,419) (20,997,964) ----------- ----------- -------- ----------- Net increase (decrease) 9,589,821 18,644,299 1,632,304 17,556,471 --------- ---------- --------- ----------
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 ---------- ---------- --------- ----------
-------------------------------------------------------------------------------- 13 AXP BOND FUND -- SEMIANNUAL REPORT 5. FOREIGN CURRENCY CONTRACTS As of Feb. 28, 2002, the Fund has foreign currency exchange contracts that obligate it to deliver currencies at specified future dates. The unrealized appreciation and/or depreciation on these contracts is included in the accompanying financial statements. See "Summary of significant accounting policies." The terms of the open contracts are as follows: Exchange date Currency to Currency to Unrealized Unrealized be delivered be received appreciation depreciation March 26, 2002 17,100,000 14,962,073 $184,483 $-- European Monetary Unit U.S. Dollar March 26, 2002 16,600,000 14,541,600 196,104 -- European Monetary Unit U.S. Dollar Total $380,587 $-- -------- --- 6. 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 six months ended Feb. 28, 2002. 7. 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. -------------------------------------------------------------------------------- 14 AXP BOND FUND -- SEMIANNUAL 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, 2002(f) 2001 2000 1999 1998 Net asset value, beginning of period $4.86 $4.70 $4.82 $5.11 $5.22 Income from investment operations: Net investment income (loss) .13 .31 .33 .33 .36 Net gains (losses) (both realized and unrealized) (.04) .17 (.12) (.25) (.03) Total from investment operations .09 .48 .21 .08 .33 Less distributions: Dividends from net investment income (.13) (.32) (.33) (.33) (.36) Distributions from realized gains -- -- -- (.04) (.08) Total distributions (.13) (.32) (.33) (.37) (.44) Net asset value, end of period $4.82 $4.86 $4.70 $4.82 $5.11 Ratios/supplemental data Net assets, end of period (in millions) $2,417 $2,390 $2,229 $2,591 $2,709 Ratio of expenses to average daily net assets(c) .93%(d) .94% .93% .86% .83% Ratio of net investment income (loss) to average daily net assets 5.47%(d) 6.51% 7.04% 6.56% 6.79% Portfolio turnover rate (excluding short-term securities) 85% 115% 64% 57% 43% Total return(e) 1.88% 10.48% 4.67% 1.64% 6.30% Class B Per share income and capital changes(a) Fiscal period ended Aug. 31, 2002(f) 2001 2000 1999 1998 Net asset value, beginning of period $4.86 $4.70 $4.82 $5.11 $5.22 Income from investment operations: Net investment income (loss) .11 .27 .30 .29 .32 Net gains (losses) (both realized and unrealized) (.04) .17 (.13) (.24) (.03) Total from investment operations .07 .44 .17 .05 .29 Less distributions: Dividends from net investment income (.11) (.28) (.29) (.30) (.32) Distributions from realized gains -- -- -- (.04) (.08) Total distributions (.11) (.28) (.29) (.34) (.40) Net asset value, end of period $4.82 $4.86 $4.70 $4.82 $5.11 Ratios/supplemental data Net assets, end of period (in millions) $1,037 $954 $867 $1,093 $1,057 Ratio of expenses to average daily net assets(c) 1.69%(d) 1.70% 1.69% 1.63% 1.59% Ratio of net investment income (loss) to average daily net assets 4.71%(d) 5.74% 6.28% 5.79% 6.03% Portfolio turnover rate (excluding short-term securities) 85% 115% 64% 57% 43% Total return(e) 1.49% 9.65% 3.88% .87% 5.50%
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 15 AXP BOND FUND -- SEMIANNUAL REPORT
Class C Per share income and capital changes(a) Fiscal period ended Aug. 31, 2002(f) 2001 2000(b) Net asset value, beginning of period $4.86 $4.71 $4.64 Income from investment operations: Net investment income (loss) .11 .27 .04 Net gains (losses) (both realized and unrealized) (.03) .16 .07 Total from investment operations .08 .43 .11 Less distributions: Dividends from net investment income (.11) (.28) (.04) Net asset value, end of period $4.83 $4.86 $4.71 Ratios/supplemental data Net assets, end of period (in millions) $18 $10 $1 Ratio of expenses to average daily net assets(c) 1.69%(d) 1.70% 1.69%(d) Ratio of net investment income (loss) to average daily net assets 4.72%(d) 5.62% 6.80%(d) Portfolio turnover rate (excluding short-term securities) 85% 115% 64% Total return(e) 1.71% 9.43% 2.58%
Class Y Per share income and capital changes(a) Fiscal period ended Aug. 31, 2002(f) 2001 2000 1999 1998 Net asset value, beginning of period $4.86 $4.70 $4.82 $5.11 $5.22 Income from investment operations: Net investment income (loss) .14 .32 .34 .33 .36 Net gains (losses) (both realized and unrealized) (.05) .17 (.12) (.24) (.03) Total from investment operations .09 .49 .22 .09 .33 Less distributions: Dividends from net investment income (.13) (.33) (.34) (.34) (.36) Distributions from realized gains -- -- -- (.04) (.08) Total distributions (.13) (.33) (.34) (.38) (.44) Net asset value, end of period $4.82 $4.86 $4.70 $4.82 $5.11 Ratios/supplemental data Net assets, end of period (in millions) $614 $533 $385 $296 $224 Ratio of expenses to average daily net assets(c) .77%(d) .78% .77% .77% .76% Ratio of net investment income (loss) to average daily net assets 5.63%(d) 6.66% 7.20% 6.67% 6.90% Portfolio turnover rate (excluding short-term securities) 85% 115% 64% 57% 43% Total return(e) 1.96% 10.65% 4.84% 1.71% 6.40%
See accompanying notes to financial highlights. -------------------------------------------------------------------------------- 16 AXP BOND FUND -- SEMIANNUAL 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. (f) Six months ended Feb. 28, 2002 (Unaudited). -------------------------------------------------------------------------------- 17 AXP BOND FUND -- SEMIANNUAL REPORT Investments in Securities AXP Bond Fund, Inc. Feb. 28, 2002 (Unaudited) (Percentages represent value of investments compared to net assets) Bonds (93.6%) Issuer Coupon Principal Value(a) rate amount Government obligations (8.8%) Federal Republic of Brazil (U.S. Dollar) 07-26-07 11.25% $14,000,000(c) $13,986,000 01-11-12 11.00 13,000,000(c) 11,986,000 Federal Republic of Germany (European Monetary Unit) 11-11-04 7.50 35,000,000(c) 32,758,166 Resolution Funding Corp Zero Coupon 10-15-02 6.19 24,660,000(f) 24,345,338 U.S. Treasury 11-15-16 7.50 202,995,000 243,943,152 TIPS 01-15-07 3.38 10,000,000(j) 11,445,460 United Mexican States (U.S. Dollar) 01-14-12 7.50 17,000,000(c) 17,297,500 Total 355,761,616 Mortgage-backed securities (26.5%) Federal Home Loan Mtge Corp 07-01-07 6.50 5,529 5,564 03-01-13 5.50 7,135,373 7,210,349 04-01-15 7.50 10,172,184 10,759,210 04-01-17 8.00 185,797 200,122 08-01-24 8.00 2,828,214 3,017,931 12-01-27 6.00 7,691,103 7,714,501 10-01-28 7.00 21,346,168 22,061,138 11-01-29 7.00 14,019,816 14,459,546 02-01-31 7.50 13,845,588 14,446,315 Collateralized Mtge Obligation 03-15-22 7.00 10,000,000 10,440,613 07-15-22 7.00 11,856,732 12,346,296 Federal Natl Mtge Assn 03-15-04 4.75 25,000,000 25,729,450 07-15-05 7.00 35,000,000 38,194,135 07-01-08 6.50 4,162,307 4,346,607 11-01-09 9.00 880 961 06-01-10 6.50 9,347,348 9,761,232 08-01-11 8.50 8,888,709 9,460,315 05-01-13 6.50 21,592,420 22,397,465 03-01-14 5.50 24,376,842 24,573,663 04-01-14 6.50 6,223,122 6,455,143 08-01-16 6.00 23,533,978 23,917,451 04-01-23 8.50 3,413,829 3,720,986 05-01-23 6.50 19,649,117 20,154,360 08-01-23 6.50 1,481,867 1,519,971 09-01-23 6.50 2,455,814 2,518,961 11-01-23 6.50 4,580,184 4,697,955 01-01-24 6.50 31,305,318 32,110,281 02-01-24 6.50 3,714,276 3,808,352 05-01-24 6.00 36,129,557 36,412,527 06-01-24 9.00 2,691,694 2,965,550 02-01-25 8.00 1,382,394 1,475,157 09-01-25 6.50 13,110,431 13,419,436 09-01-25 8.00 2,938,149 3,131,323 02-01-26 6.00 14,169,154 14,260,749 03-01-26 7.00 8,414,642 8,710,296 06-01-28 6.00 22,872,751 22,891,981 08-01-28 6.50 16,563,539 16,891,982 10-01-28 6.00 15,278,969 15,291,814 11-01-28 6.50 7,845,684 8,001,259 12-01-28 6.00 17,043,563 17,057,892 12-01-28 6.50 3,366,363 3,433,115 01-01-29 6.50 25,204,354 25,729,718 03-01-29 6.50 15,204,469 15,497,769 05-01-29 6.50 19,455,086 19,830,381 06-01-29 7.00 62,209 64,183 07-01-29 7.00 22,885,564 23,611,942 09-01-29 7.00 56,845,968 58,650,232 03-01-30 7.00 45,000,000(l) 46,350,000 04-01-30 6.00 65,000,000(l) 64,329,687 04-01-30 7.00 126,500,000(l) 129,781,093 01-01-31 7.50 20,413,289 21,312,373 03-01-31 6.00 50,000,000(l) 49,687,500 02-01-32 6.50 50,000,000(l) 50,734,375 03-01-32 7.50 53,000,000(l) 55,202,812 Collateralized Mtge Obligation 06-25-23 5.25 11,553,126 11,668,657 Govt Natl Mtge Assn 02-15-24 8.00 1,388,293 1,485,320 02-15-25 9.00 274,274 298,819 06-15-26 8.00 1,993,032 2,127,653 08-15-26 8.00 3,061,010 3,267,769 Total 1,079,602,237 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 18 AXP BOND FUND -- SEMIANNUAL REPORT Bonds (continued) Issuer Coupon Principal Value(a) rate amount Aerospace & defense (0.7%) Alliant Techsystems Company Guaranty 05-15-11 8.50% $1,725,000 $1,845,750 Boeing Capital Medium-term Sr Nts Series X 01-27-10 7.22 10,000,000 10,802,700 L-3 Communications Sr Sub Nts Series B 05-01-07 10.38 5,000,000 5,300,000 United Technologies 11-15-19 8.88 10,000,000 12,428,900 Total 30,377,350 Airlines (1.3%) American Airlines 10-01-06 7.80 6,500,000(d) 6,453,200 1st Series 2001 Cl C 05-23-16 7.38 11,748,894 10,901,681 Continental Airlines Series 1996B 10-15-13 7.82 3,825,737 3,807,220 Series 1998A 09-15-17 6.65 11,912,057 11,227,702 Delta Air Lines 05-15-10 10.13 10,000,000 9,221,400 Northwest Airlines 06-01-06 8.88 6,000,000 5,538,720 United Air Lines 10-01-10 7.03 7,056,160 6,702,364 Total 53,852,287 Automotive & related (1.4%) Advance Stores Sr Sub Nts 04-15-08 10.25 4,510,000(d) 4,746,775 ArvinMeritor 03-01-12 8.75 7,000,000 7,188,160 DaimlerChrysler North America Holding Company Guaranty 09-01-04 6.90 7,000,000 7,298,410 01-15-12 7.30 9,000,000 9,270,756 Ford Motor 07-16-31 7.45 9,400,000 9,005,867 Ford Motor Credit 07-16-04 6.70 3,000,000 3,070,440 02-01-11 7.38 15,000,000 15,124,575 Total 55,704,983 Banks and savings & loans (2.9%) Bank of Singapore (U.S. Dollar) Sub Nts 08-10-09 7.88 24,500,000(c,d) 26,533,720 Central Fidelity Capital Company Guaranty Series A 04-15-27 2.83 16,500,000(n) 16,351,005 Comerica Bank Sub Nts 10-01-08 6.00 9,780,000 9,753,154 FCB/NC Capital Trust 1 Company Guaranty 03-01-28 8.05 9,250,000 8,319,210 FleetBoston Financial 09-15-05 7.25 22,000,000 23,727,440 Marshall & Ilsley Series E 09-01-06 5.75 8,000,000 8,189,200 Sovereign Bancorp Sr Nts 05-15-04 10.25 2,835,000 2,990,925 11-15-06 10.50 3,165,000 3,434,025 Union Planters Capital Company Guaranty 12-15-26 8.20 4,000,000 3,790,560 Washington Mutual Bank 06-15-11 6.88 15,000,000 15,501,330 Total 118,590,569 Beverages & tobacco (0.3%) Constellation Brands Sr Sub Nts Series B 01-15-12 8.13 6,000,000 6,225,000 Cott Beverages Company Guaranty 12-15-11 8.00 6,000,000(d) 6,127,500 Total 12,352,500 Building materials & construction (1.2%) Collins & Aikman Floor Cover Sr Sub Nts 02-15-10 9.75 820,000(d) 846,650 Louisiana Pacific Sr Nts 11-15-08 10.88 775,000 778,875 08-15-10 8.88 1,160,000 1,154,440 Sr Sub Nts 08-15-05 8.50 4,860,000 4,877,622 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 19 AXP BOND FUND -- SEMIANNUAL REPORT Bonds (continued) Issuer Coupon Principal Value(a) rate amount Building materials & construction (cont.) Nortek Sr Nts Series B 09-01-07 9.13% $3,000,000 $3,078,750 08-01-08 8.88 3,600,000 3,676,500 Pulte Homes Company Guaranty 08-01-11 7.88 10,800,000 10,943,684 Sr Nts 12-15-03 7.00 7,700,000 7,855,771 Schuler Homes Company Guaranty 04-15-08 9.00 1,000,000 992,500 07-15-09 9.38 7,000,000 7,420,000 WCI Communities Company Guaranty 02-15-11 10.63 8,025,000 8,586,750 Total 50,211,542 Chemicals (2.4%) Airgas Company Guaranty 10-01-11 9.13 8,000,000 8,400,000 Allied Waste North America Company Guaranty Series B 01-01-09 7.88 10,625,000 10,465,625 Sr Nts 12-01-08 8.50 4,375,000(d) 4,462,500 Dow Chemical 08-15-05 7.00 1,575,000 1,657,064 Equistar Chemical/Funding Company Guaranty 09-01-08 10.13 5,000,000 5,000,000 IMC Global Company Guaranty Series B 06-01-08 10.88 4,160,000 4,534,400 06-01-11 11.25 2,795,000 3,032,575 Lyondell Chemical 12-15-08 9.50 3,000,000(d) 3,015,000 Series B 05-01-07 9.88 3,000,000 3,045,000 MacDermid 07-15-11 9.13 2,170,000 2,256,800 Noveon Company Guaranty Series B 02-28-11 11.00 3,850,000 4,066,563 Resolution Performance Sr Sub Nts 11-15-10 13.50 2,050,000 2,296,000 Waste Management Company Guaranty 05-15-09 6.88 20,000,000 19,783,399 Sr Nts 10-01-07 7.13 15,000,000 15,393,450 07-15-28 7.00 12,500,000 11,463,700 Total 98,872,076 Communications equipment & services (3.0%) AT&T Wireless Services Sr Nts 03-01-11 7.88 29,550,000 30,720,357 03-01-31 8.75 14,000,000 15,324,470 Brocade Communications Cv 01-01-07 2.00 3,100,000(d) 2,635,000 Celcaribe Sr Nts 03-15-04 14.50 3,395,000 1,833,300 Citizens Communications 05-15-11 9.25 26,500,000 28,861,415 Comverse Technology Cv 12-01-05 1.50 5,250,000 3,990,000 EchoStar DBS Sr Nts 02-01-09 9.38 5,000,000 5,137,500 Nextel Communications Sr Nts 02-01-11 9.50 8,930,000 5,491,950 Price Communications Wireless Company Guaranty Series B 12-15-06 9.13 12,000,000 12,120,000 Rural Cellular Sr Sub Nts Series B 05-15-08 9.63 1,500,000 1,200,000 Verizon New England Sr Nts 09-15-11 6.50 13,000,000 13,307,970 Western Wireless Sr Sub Nts 02-01-07 10.50 1,570,000 1,318,800 Total 121,940,762 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 20 AXP BOND FUND -- SEMIANNUAL REPORT Bonds (continued) Issuer Coupon Principal Value(a) rate amount Computer software & services (0.3%) Computer Sciences 06-15-06 6.75% $10,000,000 $10,422,100 Extreme Networks Cv 12-01-06 3.50 2,750,000(d) 1,900,938 Wind River Systems Cv 12-15-06 3.75 1,250,000(d) 1,059,375 Total 13,382,413 Computers & office equipment (0.1%) Acxiom Cv 02-15-09 3.75 2,400,000(d) 2,481,000 Adaptec Cv 03-05-07 3.00 2,610,000(d) 2,610,000 Emulex Cv 02-01-07 1.75 800,000(d) 726,000 Total 5,817,000 Electronics (0.9%) Celestica (U.S. Dollar) Zero Coupon Cv 08-01-20 3.41 14,500,000(c,f) 6,090,000 Kulicke & Soffa Inds Cv 12-15-06 4.75 2,800,000 2,726,500 Reliance Electric 04-15-03 6.80 6,000,000 6,187,440 RF Micro Devices Cv 08-15-05 3.75 4,900,000 3,993,500 Solectron Zero Coupon Cv 11-20-20 3.25 15,200,000(f) 6,897,000 STMicroelectronics (U.S. Dollar) Zero Coupon Cv 11-16-10 3.75 6,060,000(c,d,f) 4,014,750 Triquint Semiconductor Cv Sub Nts 03-01-07 4.00 4,270,000 3,085,075 Veeco Instruments Cv 12-21-08 4.13 3,500,000(d) 3,198,125 Total 36,192,390 Energy (2.5%) Anadarko Finance Company Guaranty Series B 05-01-11 6.75 14,000,000 14,545,160 Ashland Medium-term Nts Series J 08-15-05 7.83 14,000,000 15,056,174 Calpine Canada Energy Finance (U.S. Dollar) Company Guaranty 05-01-08 8.50 3,000,000(c) 2,160,045 Conoco Funding Company Guaranty 10-15-11 6.35 13,000,000 13,421,876 Devon Energy Cv 08-15-08 4.90 3,000,000 2,951,250 Forest Oil Sr Nts 12-15-11 8.00 9,000,000(d) 9,090,000 Hanover Equipment Trust Sr Nts 09-01-08 8.50 4,150,000(d) 4,191,500 Luscar Coal (U.S. Dollar) Sr Nts 10-15-11 9.75 5,025,000(c,d) 5,332,781 Newfield Exploration Sr Nts 03-01-11 7.63 6,500,000 6,381,044 Petroliam Nasional (U.S. Dollar) 08-15-15 7.75 6,000,000(c,d) 6,280,848 Phillips Petroleum 05-25-10 8.75 15,000,000 17,720,055 Westport Resources Company Guaranty 11-01-11 8.25 4,850,000(d) 4,862,125 Total 101,992,858 Energy equipment & services (0.2%) Key Energy Services Company Guaranty Series B 03-01-08 8.38 2,290,000 2,335,800 Sr Nts 03-01-08 8.38 2,710,000 2,750,650 Nabors Inds Zero Coupon Cv 06-20-20 6.91 6,860,000(f) 4,364,675 Total 9,451,125 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 21 AXP BOND FUND -- SEMIANNUAL REPORT Bonds (continued) Issuer Coupon Principal Value(a) rate amount Financial services (7.4%) Amvescap (U.S. Dollar) Sr Nts 01-15-07 5.90% $6,000,000(c,d) $6,012,822 Citigroup Sub Nts 10-01-10 7.25 20,000,000 21,704,000 Credit Suisse First Boston USA 01-15-12 6.50 20,000,000 20,405,440 E*TRADE Group Cv 02-01-07 6.00 3,700,000 2,825,838 First Union-Lehman Brothers Cl A3 Series 1997-C2 12-18-07 6.65 20,000,000 21,151,062 GenAmerica Capital Company Guaranty 06-30-27 8.53 8,000,000(d) 8,141,520 GMAC 09-15-06 6.13 15,000,000 14,966,265 09-15-11 6.88 36,000,000 35,776,080 Goldman Sachs Group 01-15-11 6.88 21,800,000 22,642,701 Household Finance 01-24-06 6.50 20,000,000 20,313,400 07-15-06 7.20 10,000,000 10,428,000 10-15-11 6.38 20,000,000 19,273,600 Indah Kiat Finance Mauritius (U.S. Dollar) Company Guaranty 07-01-07 10.00 9,225,000(b,c) 1,752,750 LaBranche Sr Nts 08-15-04 9.50 6,930,000 7,363,402 Sr Sub Nts 03-02-07 12.00 6,000,000 6,900,000 Legg Mason Sr Nts 07-02-08 6.75 11,300,000 11,247,116 MBNA 01-17-07 6.25 8,500,000 8,330,731 Ohio Savings Capital Company Guaranty 06-03-27 9.50 9,500,000(d) 9,220,415 Osprey Trust/Osprey 1 01-15-03 8.31 1,100,000(b,d) 192,500 Prudential Bache Collateralized Mtge Obligation 04-01-19 7.97 3,799,343 3,896,226 Salomon Smith Barney Holdings 01-15-03 6.13 15,000,000 15,421,800 Swiss Re America Holdings Cv 11-21-21 3.25 2,700,000(d) 2,511,000 Tyco Capital 05-17-04 5.63 18,775,000 18,034,965 Verizon Global Funding 12-01-30 7.75 12,000,000 13,407,768 Total 301,919,401 Food (0.3%) Kellogg Series B 04-01-11 6.60 10,000,000 10,452,200 Furniture & appliances (0.1%) Falcon Products Company Guaranty Series B 06-15-09 11.38 1,745,000 1,553,050 Interface Sr Nts 02-01-10 10.38 2,325,000(d) 2,418,000 Total 3,971,050 Health care (0.7%) Allergan Zero Coupon Cv 11-01-20 2.50 4,250,000(f) 2,629,688 American Home Products 03-15-11 6.70 15,000,000 15,841,949 Enzon Cv 07-01-08 4.50 2,720,000 2,352,800 Invitrogen Cv 12-15-06 2.25 2,800,000(d) 2,411,500 Laboratory Corp of America Holdings Zero Coupon Cv 09-11-21 1.90 3,940,000(d,f) 2,772,775 Quest Diagnostic Cv 11-30-21 1.75 2,610,000 2,763,338 Total 28,772,050 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 22 AXP BOND FUND -- SEMIANNUAL REPORT Bonds (continued) Issuer Coupon Principal Value(a) rate amount Health care services (0.9%) Charles River Laboratories Cv 02-01-22 3.50% $2,720,000(d) $2,679,200 Clarent Hospital Sr Nts 08-15-05 11.50 4,803,000(h) 4,803,000 Coventry Health Care Sr Nts 02-15-12 8.13 6,000,000(d) 6,150,000 HCA 06-01-06 7.13 6,010,000 6,220,350 02-01-11 7.88 5,400,000 5,724,000 Insight Healthcare Services Sr Sub Nts 11-01-11 9.88 1,500,000(d) 1,545,000 Paracelsus Healthcare Sr Sub Nts 08-15-06 10.00 13,100,000(b,o) -- Triad Hospitals Company Guaranty 05-01-09 8.75 10,200,000 10,863,000 Total 37,984,550 Industrial equipment & services (0.2%) Terex Company Guaranty Series D 04-01-08 8.88 2,000,000 2,020,000 Sr Sub Nts 07-15-11 9.25 6,000,000(d) 6,180,000 Total 8,200,000 Insurance (1.9%) American General Institute Capital Company Guaranty Series A 12-01-45 7.57 10,000,000(d) 10,610,620 American Intl Group Zero Coupon Cv 11-09-31 1.40 5,900,000(f) 3,621,125 Americo Life Sr Sub Nts 06-01-05 9.25 9,400,000 9,376,500 Executive Risk Capital Company Guaranty Series B 02-01-27 8.68 11,500,000 11,945,752 Florida Windstorm Sr Nts (MBIA Insured) 08-25-07 6.85 15,000,000(d,k) 15,852,104 Lincoln Natl 12-15-11 6.20 5,600,000 5,612,656 Principal Mutual 03-01-44 8.00 10,000,000(d) 9,635,620 Zurich Capital Trust I Company Guaranty 06-01-37 8.38 10,785,000(d) 10,859,805 Total 77,514,182 Leisure time & entertainment (1.7%) Choctaw Resort Development Enterprises Sr Nts 04-01-09 9.25 6,000,000 6,180,000 Coast Hotels & Casino Company Guaranty 04-01-09 9.50 1,315,000 1,390,613 Hammons (JQ) Hotels 1st Mtge 02-15-04 8.88 2,470,000 2,457,650 Mandalay Resort Group 11-15-36 7.00 2,525,000 2,278,813 MGM Mirage Sr Nts 10-15-06 7.25 15,000,000 14,917,304 Mohegan Tribal Gaming Sr Sub Nts 04-01-12 8.00 4,650,000(d) 4,655,813 Six Flags Sr Nts 02-01-09 9.50 5,000,000 5,168,750 02-01-10 8.88 2,000,000(d,h) 1,995,000 Station Casinos Sr Nts 02-15-08 8.38 4,000,000 4,130,000 Sr Sub Nts 07-01-10 9.88 2,000,000 2,140,000 United Artists Theatre Series 1995A 07-01-15 9.30 11,484,939 9,417,650 Viacom Company Guaranty 05-15-11 6.63 13,650,000 13,986,199 Total 68,717,792 Media (4.5%) Adelphia Communications Sr Nts 11-01-06 10.25 8,000,000 8,240,000 Sr Nts Series B 03-01-07 9.88 5,500,000 5,527,500 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 23 AXP BOND FUND -- SEMIANNUAL REPORT Bonds (continued) Issuer Coupon Principal Value(a) rate amount Media (cont.) American Media Operation Sr Sub Nts 05-01-09 10.25% $4,000,000(d) $4,075,000 Belo (AH) 11-01-08 8.00 6,550,000 6,795,625 Charter Communications Holdings LLC/Capital Sr Nts 10-01-09 10.75 7,000,000 7,000,000 05-15-11 10.00 7,485,000 7,166,888 05-15-11 10.00 5,500,000(d) 5,266,250 Zero Coupon Sr Disc Nts 04-01-04 14.19 4,750,000(g) 3,325,000 Clear Channel Communications 11-01-06 6.00 17,100,000 16,699,843 Comcast Cable Communications Sr Nts 06-15-13 7.13 23,475,000 23,703,364 Corus Entertainment (U.S. Dollar) Sr Sub Nts 03-01-12 8.75 6,510,000(c,d) 6,657,126 CSC Holdings Series B 08-15-09 8.13 5,000,000 5,015,650 Sr Nts 07-15-08 7.25 14,000,000 13,696,900 Cumulus Media Company Guaranty 07-01-08 10.38 530,000 561,800 News Corp 06-24-10 10.15 3,101,306(h) 3,602,476 Pegasus Satellite Sr Nts 08-01-06 12.38 1,500,000 1,185,000 Quebecor Media (U.S. Dollar) Sr Nts 07-15-11 11.13 505,000(c) 542,875 Time Warner 08-15-06 8.11 4,095,000 4,473,583 02-01-24 7.57 10,875,000 10,993,755 Time Warner Entertainment 03-15-23 8.38 17,000,000 18,554,446 Turner Broadcasting 07-01-13 8.38 10,000,000 11,300,200 02-01-24 8.40 19,500,000 20,365,995 Total 184,749,276 Metals (0.6%) AK Steel Sr Nts 12-15-06 9.13 6,000,000 6,240,000 Compass Minerals Group Sr Sub Nts 08-15-11 10.00 6,695,000(d) 7,029,750 Imexsa Export Trust (U.S. Dollar) 05-31-03 10.13 2,056,420(c,d) 760,876 Inco (U.S. Dollar) Cv 03-15-16 7.75 4,718,000(c) 4,689,220 Normandy Yandal Operations (U.S. Dollar) Sr Nts 04-01-08 8.88 5,000,000(c) 5,025,000 Total 23,744,846 Miscellaneous (2.0%) American Commercial Lines LLC Series B 06-30-06 7.37 3,254,605(h) 2,986,100 Series C 03-30-07 7.62 4,563,212(h) 4,186,747 Bistro Trust 12-31-02 9.50 23,000,000(d) 19,780,000 ECM Funding LP 06-10-02 11.92 1,020,511(h) 877,639 EOP Operating LP Sr Nts 07-15-11 7.00 14,000,000 14,430,206 ERP Operating LP 03-02-11 6.95 10,000,000 10,416,600 ISG Resources 04-15-08 10.00 6,260,000 5,540,100 Meritage Company Guaranty 06-01-11 9.75 4,140,000 4,367,700 MSX Intl Company Guaranty 01-15-08 11.38 5,665,000 4,354,969 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 4,470,000 4,693,500 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 24 AXP BOND FUND -- SEMIANNUAL REPORT Bonds (continued) Issuer Coupon Principal Value(a) rate amount Miscellaneous (cont.) Outsourcing Solutions Sr Sub Nts Series B 11-01-06 11.00% $2,241,000 $1,893,645 Prime Succession Holding Cv Pay-in-kind 08-29-04 10.75 205,788(m) 154,341 Rural Cellular Series B 10-03-08 5.89 2,948,362(h) 2,594,558 Series C 04-03-09 6.14 2,948,362(h) 2,594,558 Total 81,029,878 Multi-industry conglomerates (0.6%) Tyco Intl Group (U.S. Dollar) 10-15-11 6.38 12,000,000(c) 10,787,700 (U.S. Dollar) Company Guaranty 06-15-05 6.38 13,000,000(c) 11,883,911 Total 22,671,611 Paper & packaging (2.2%) APP China Group (U.S. Dollar) Sr Nts 03-15-05 14.00 4,300,000(b,c,d) 774,000 Berry Plastics Company Guaranty Series B 07-15-07 11.00 1,360,000 1,400,800 Sr Sub Nts 04-15-04 12.25 75,000 75,563 Bowater Canada Finance (U.S. Dollar) Company Guaranty 11-15-11 7.95 24,700,000(c) 25,379,249 BPC Holding Sr Nts Series B 06-15-06 12.50 100,000 98,000 Carter Holt Harvey (U.S. Dollar) 12-01-04 8.88 10,500,000(c) 11,193,420 Crown Paper Sr Sub Nts 09-01-05 11.00 6,950,000(b) 69,500 Doman Inds (U.S. Dollar) Sr Nts Series B 11-15-07 9.25 3,395,000(c) 780,850 Graphic Packaging Sr Sub Nts 02-15-12 8.63 7,000,000(d) 7,245,000 Intl Paper 11-15-12 5.13 9,000,000 7,943,490 Packaging Corp of America Company Guaranty 04-01-09 9.63 7,000,000 7,717,500 Pactiv 06-15-17 8.13 5,000,000 5,415,560 Plastipak Holdings Sr Nts 09-01-11 10.75 1,385,000(d) 1,488,875 Quno (U.S. Dollar) Sr Nts 05-15-05 9.13 7,000,000(c) 7,232,274 Riverwood Intl Company Guaranty 04-01-06 10.25 2,200,000 2,271,500 08-01-07 10.63 3,800,000 4,047,000 04-01-08 10.88 1,275,000 1,322,813 Silgan Holdings Sr Sub Deb 06-01-09 9.00 725,000 750,375 Weyerhaeuser (U.S. Dollar) Company Guaranty 01-15-04 8.50 3,000,000(c) 3,200,790 Total 88,406,559 Real estate investment trust (0.2%) Meristar Hospitality Company Guaranty 01-51-11 9.13 5,650,000 5,621,750 Sr Sub Nts 08-15-07 8.75 2,000,000 1,845,000 RFS Partnership LP Sr Nts 03-01-12 9.75 1,050,000(d) 1,071,000 Total 8,537,750 Restaurants & lodging (0.4%) Extended Stay America Sr Sub Nts 06-15-11 9.88 6,000,000 6,270,000 Park Place Entertainment Sr Nts 11-15-06 8.50 1,125,000 1,173,020 Sr Sub Nts 09-15-08 8.88 6,000,000 6,284,999 05-15-11 8.13 1,875,000 1,905,469 Prime Hospitality 1st Mtge 01-15-06 9.25 500,000 515,000 Total 16,148,488 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 25 AXP BOND FUND -- SEMIANNUAL REPORT Bonds (continued) Issuer Coupon Principal Value(a) rate amount Retail (3.6%) Albertson's Sr Nts 02-15-11 7.50% $20,000,000 $21,783,940 American Stores 06-01-26 8.00 10,000,000 10,807,600 Best Buy Cv 01-15-22 2.25 2,800,000(d) 2,667,000 Dairy Mart Convenience Stores Sr Sub Nts 03-15-04 10.25 5,925,000(b) 1,777,500 Federated Dept Stores Sr Nts 09-01-08 6.63 20,800,000 21,370,752 Kroger Company Guaranty 03-01-08 7.45 10,000,000 10,671,300 Sr Nts 07-15-06 8.15 13,000,000 14,480,570 Pathmark Stores Sr Sub Nts 02-01-12 8.75 8,000,000(d) 8,290,000 Safeway 03-01-06 6.15 23,369,000 24,354,938 Target 01-15-11 6.35 15,000,000 15,651,600 Wal-Mart CRAVE Trust 07-17-06 7.00 9,699,775(d) 10,196,501 Wal-Mart Stores 06-29-11 8.88 3,500,000 3,572,485 Total 145,624,186 Transportation (1.7%) American Architectural Company Guaranty 12-01-07 11.75 7,500,000(b) 1,125,000 Enterprise Rent-A-Car USA Finance 02-15-08 6.80 10,000,000(d) 10,088,090 01-15-11 8.00 15,500,000(d) 16,519,435 Greater Beijing First Expressways (U.S. Dollar) Sr Nts 06-15-07 9.50 3,640,000(b,c) 1,783,600 Interpool 08-01-07 7.35 3,930,000 3,615,600 Union Pacific 01-15-11 6.65 32,700,000 33,802,154 Vectura Group Company Guaranty Series B 06-30-08 10.25 4,370,000(b) 3,146,400 Zhuhai Highway (U.S. Dollar) Sub Nts 07-01-08 12.00 4,140,000(b,c,d) 1,035,000 Total 71,115,279 Utilities -- electric (5.9%) Appalachian Power 1st Mtge Medium-term Nts 12-01-22 8.50 5,000,000 5,160,500 Arizona Public Service 1st Mtge Sale Lease-backed Obligation 12-30-15 8.00 6,556,000 6,713,344 Cleveland Electric Illuminating 1st Mtge Series B 05-15-05 9.50 18,790,000 18,989,926 1st Mtge Series E 07-01-23 9.00 7,000,000 7,129,430 CMS Energy Sr Nts 05-15-02 8.13 10,000,000 10,009,100 07-01-03 8.38 15,000,000 15,000,000 Dominion Virginia Power Sr Nts Series A 03-31-06 5.75 20,000,000 20,405,580 EIP Funding-PNM 10-01-12 10.25 5,941,000 6,162,183 El Paso Electric 1st Mtge Series E 05-01-11 9.40 10,000,000 11,052,200 FirstEnergy Series B 11-15-11 6.45 10,000,000 10,022,300 Indiana & Michigan Power Sale Lease-backed Obligation Series F 12-07-22 9.82 4,964,912 5,351,877 Ipalco Enterprises 11-14-11 7.63 10,000,000(d) 9,262,560 Korea Electric Power (U.S. Dollar) Zero Coupon 04-01-16 10.97 30,000,000(c,g) 7,909,080 Midland Funding I Series 1991-C 07-23-02 10.33 873,717 879,593 Series 1994-C 07-23-02 10.33 470,402 473,565 Midland Funding II Series A 07-23-05 11.75 14,900,000 16,066,044 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 26 AXP BOND FUND -- SEMIANNUAL REPORT Bonds (continued) Issuer Coupon Principal Value(a) rate amount Utilities -- electric (cont.) Mirant Americas Generation Sr Nts 05-01-11 8.30% $3,375,000 $2,868,750 NRG Northeast Generating Company Guaranty Series A1 12-15-04 8.07 1,687,500 1,730,042 Company Guaranty Series B1 06-15-15 8.84 4,000,000 4,153,720 Ohio Edison 1st Mtge 04-01-23 7.88 6,000,000 5,909,220 Pacific Gas & Electric 1st Mtge Series 1992B 05-01-25 8.38 4,100,000 4,089,750 PowerGen US Funding LLC 10-15-04 4.50 8,000,000 7,949,176 PSI Energy 08-01-05 6.50 10,000,000 10,125,800 RGS (AEGCO) Funding Sale Lease-backed Obligation Series F 12-07-22 9.82 4,964,917 5,351,883 Salton Sea Funding Series C 05-30-10 7.84 10,000,000 9,594,200 Sithe Independence Funding Series A 06-30-07 8.50 7,500,000 7,890,375 12-30-13 9.00 4,700,000 4,947,361 Texas Utilities Electric 01-01-05 9.45 2,033,000 2,220,117 1st Mtge 07-01-25 7.63 10,000,000 9,741,600 10-01-25 7.38 3,000,000 2,873,460 Tucson Electric Power 10-01-09 8.50 3,250,000 3,302,127 WPD Holdings (U.S. Dollar) 12-15-17 7.25 8,000,000(c,d) 7,591,416 Total 240,926,279 Utilities -- gas (1.8%) Coastal 02-15-37 7.42 6,000,000 5,533,200 El Paso Sr Nts 05-15-09 6.75 4,900,000 4,791,906 12-15-12 7.38 12,850,000 12,827,127 01-15-32 7.75 10,500,000 10,287,491 Southern California Gas 1st Mtge Series BB 03-01-23 7.38 6,900,000 6,728,466 Southern Natural Gas 03-01-32 8.00 7,700,000 7,714,699 Southwest Gas 02-15-11 8.38 7,900,000 8,063,214 Williams Companies 11-15-04 6.63 4,500,000 4,349,205 09-01-11 7.13 15,000,000 13,809,900 Total 74,105,208 Utilities -- telephone (4.1%) ALLTEL Sr Nts 03-01-06 7.50 17,470,000 18,365,163 AT&T 11-15-11 7.30 10,000,000(d) 10,021,300 BellSouth Capital Funding 02-15-30 7.88 24,000,000 28,006,824 Dobson/Sygnet Communications Sr Nts 12-15-08 12.25 1,700,000 1,598,000 France Telecom (U.S. Dollar) 03-01-11 7.75 5,000,000(c,n) 5,232,440 03-01-31 8.50 19,000,000(c,n) 20,853,564 Pacific Bell 10-15-34 6.63 10,000,000 9,691,240 Vodafone Group Company Guaranty 05-01-08 6.65 10,600,000 10,913,548 (U.S. Dollar) 02-15-10 7.75 22,700,000(c) 25,078,960 WorldCom 05-15-11 7.50 30,100,000 29,001,530 05-15-31 8.25 10,000,000 9,612,410 Total 168,374,979 Municipal bonds (0.4%) Atlanta Downtown Development Authority Lease Revenue Taxable Bonds Atlanta Federal Center 02-01-09 6.25 8,250,000 8,651,363 Denver City & County School District #1 Taxable-Pension-School Facilities Lease (AMBAC Insured) 12-15-12 6.94 7,700,000(k) 8,236,613 Total 16,887,976 Total bonds (Cost: $3,800,797,322) $3,823,955,248 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 27 AXP BOND FUND -- SEMIANNUAL REPORT Common stocks (--%) Issuer Shares Value(a) PhoneTel Technologies 386,000(b) $16,405 Prime Succession Holdings 289,791(b) 405,707 Total common stocks (Cost: $7,356,942) $422,112 Preferred stocks & other (0.7%) Issuer Shares Value(a) Asia Pulp & Paper Warrants 8,500(b,c,d,o) $-- Duke Energy 8.25% Cv 102,500 2,545,075 General Motors 5.25% Cv Series B 208,000 5,418,400 Intermedia Communications 13.50% Pay-in-kind Series B 12,406(m) 11,909,280 Nextel Communications 13.00% Cm Pay-in-kind Series D 3,992(m) 1,437,120 Prudential Financial 6.75% Cm Cv 67,000 3,638,100 Wayland Investment Fund LLC 6,000,000(b,e,h) 4,554,360 Total preferred stocks & other (Cost: $34,329,900) $29,502,335 Short-term securities (14.2%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agencies (7.2%) Federal Home Loan Bank Disc Nts 03-22-02 1.74% $46,400,000 $46,350,660 05-01-02 1.76 31,300,000 31,205,665 Federal Home Loan Mtge Corp Disc Nts 03-05-02 1.70 37,000,000 36,991,264 04-02-02 1.74 44,500,000 44,429,020 04-11-02 1.68 12,800,000 12,775,588 04-16-02 1.73 50,000,000 49,887,070 04-18-02 1.72 8,800,000 8,780,525 Federal Natl Mtge Assn Disc Nts 03-07-02 1.71 10,200,000 10,196,797 03-12-02 1.65 6,100,000 6,096,645 04-17-02 1.72 50,000,000 49,893,453 Total 296,606,687 Commercial paper (7.0%) Abbey Natl North America 04-29-02 1.94 18,500,000 18,441,108 Alcoa 03-26-02 1.76 1,500,000 1,498,093 Charta 03-11-02 1.82 22,500,000(i) 22,487,487 Commerzbank U.S. Finance 03-13-02 1.76 3,800,000 3,797,462 Dexia Bank (Delaware) 04-10-02 1.70 2,300,000 2,294,997 Edison Asset Securitization 04-11-02 1.81 10,000,000(i) 9,978,884 Emerson Electric 04-08-02 1.78 4,000,000(i) 3,992,287 Enterprise Funding 04-30-02 1.82 4,300,000(i) 4,286,011 05-20-02 1.72 5,700,000(i) 5,675,376 Gannett 03-11-02 1.76 6,500,000(i) 6,496,505 04-22-02 1.79 3,600,000(i) 3,590,513 ING US Funding 03-18-02 1.78 20,000,000 19,982,200 03-25-02 1.78 16,100,000 16,080,098 Kimberly-Clark 03-20-02 1.64 13,200,000(i) 13,187,973 Morgan Stanley, Dean Witter & Co 03-08-02 1.80 5,500,000 5,497,800 03-12-02 1.73 16,800,000 16,789,640 Nordea North America 04-02-02 1.68 5,000,000 4,991,292 Park Avenue Receivables 03-06-02 1.80 12,500,000(i) 12,496,250 Procter & Gamble 03-18-02 1.70 19,000,000(i) 18,983,850 04-23-02 1.76 6,000,000(i) 5,984,160 Salomon Smith Barney 03-04-02 1.78 6,700,000 6,698,675 03-08-02 1.78 8,700,000 8,696,559 03-21-02 1.78 17,600,000 17,581,724 04-08-02 1.79 10,000,000 9,980,608 04-11-02 1.79 16,800,000 16,764,916 04-12-02 1.79 9,600,000 9,579,475 SBC Intl 03-18-02 1.72 1,000,000(i) 999,140 Toyota Motor Credit 03-04-02 1.78 4,300,000 4,299,150 Unilever Capital 04-18-02 1.77 13,800,000(i) 13,766,754 Total 284,898,987 Total short-term securities (Cost: $581,529,571) $581,505,674 Total investments in securities (Cost: $4,424,013,735)(p) $4,435,385,369 See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 28 AXP BOND FUND -- SEMIANNUAL 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 Feb. 28, 2002, the value of foreign securities represented 7.2% 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 Feb. 28, 2002, is as follows: Security Acquisition Cost dates American Commercial Lines LLC 7.37% Series B 2006 03-28-01 $2,929,144 7.62% Series C 2007 03-28-01 4,106,890 Clarent Hospital 11.50% Sr Nts 2005 11-19-01 9,298,304 ECM Funding LP 11.92% 2002 04-13-92 thru 10-03-01 1,020,511 News Corp* 10.15% 2010 01-29-93 thru 12-24-01 3,175,830 Rural Cellular 5.89% 2008 10-31-01 thru 01-16-02 2,837,798 6.14% 2009 10-31-01 thru 01-16-02 2,837,798 Six Flags* 8.88% Sr Nts 2010 01-31-02 thru 02-01-02 1,992,880 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 MBIA -- Municipal Bond Investors Assurance (l) At Feb. 28, 2002, the cost of securities purchased, including interest purchased, on a when-issued basis was $394,850,295. (m) 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. (n) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Feb. 28, 2002. -------------------------------------------------------------------------------- 29 AXP BOND FUND -- SEMIANNUAL REPORT Notes to investments in securities (continued) (o) Negligible market value. (p) At Feb. 28, 2002, the cost of securities for federal income tax purposes was approximately $4,424,014,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $101,801,000 Unrealized depreciation (90,430,000) ----------- Net unrealized appreciation $ 11,371,000 ------------ -------------------------------------------------------------------------------- 30 AXP BOND FUND -- SEMIANNUAL REPORT AXP Bond Fund 70100 AXP Financial Center Minneapolis, MN 55474 americanexpress.com Ticker Symbol Class A: INBNX Class B: ININX Class C: AXBCX 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. S-6490 R (4/02)