-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TPGwj9sScE/kptcFoWX1HCi8ARdLvKpo0AGQotFWnr4+KuPjowm/MVb5b8CXWCzB ythKgcjMdmJAZDOd1A1gsQ== 0000820027-04-000083.txt : 20040203 0000820027-04-000083.hdr.sgml : 20040203 20040203101342 ACCESSION NUMBER: 0000820027-04-000083 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20031130 FILED AS OF DATE: 20040203 EFFECTIVENESS DATE: 20040203 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP INCOME SERIES INC CENTRAL INDEX KEY: 0000052407 IRS NUMBER: 410839316 STATE OF INCORPORATION: MN FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-00499 FILM NUMBER: 04561161 BUSINESS ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 612-671-7981 MAIL ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP SELECTIVE FUND INC /MN/ DATE OF NAME CHANGE: 20000829 FORMER COMPANY: FORMER CONFORMED NAME: IDS SELECTIVE FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: INVESTORS SELECTIVE FUND INC DATE OF NAME CHANGE: 19841002 N-CSRS 1 income-nscrs.txt AXP INCOME SERIES, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-499 ------------ AXP INCOME SERIES, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 50606 AXP Financial Center, Minneapolis, Minnesota 55474 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Leslie L. Ogg - 901 S. Marquette Avenue, Suite 2810, Minneapolis, MN 55402-3268 - -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (612) 330-9283 ----------------- Date of fiscal year end: 5/31 -------------- Date of reporting period: 11/30 -------------- AXP(R) Selective Fund Semiannual Report for the Period Ended Nov. 30, 2003 AXP Selective Fund seeks to provide shareholders with current income and preservation of capital. - -------------------------------------------------------------------------------- (logo) (logo) American AMERICAN Express(R) EXPRESS(R) Funds - -------------------------------------------------------------------------------- Table of Contents Fund Snapshot 3 Questions & Answers with Portfolio Management 4 Investments in Securities 8 Financial Statements (Portfolio) 15 Notes to Financial Statements (Portfolio) 18 Financial Statements (Fund) 23 Notes to Financial Statements (Fund) 26 Proxy Voting 31 (Dalbar logo) American Express(R) Funds' reports to shareholders have been awarded the Communications Seal from Dalbar Inc., an independent financial services research firm. The Seal recognizes communications demonstrating a level of excellence in the industry. - -------------------------------------------------------------------------------- 2 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT Fund Snapshot AS OF NOV. 30, 2003 PORTFOLIO MANAGER Portfolio manager Tom Murphy, CFA* Since 2/03 Years in industry 17 * The Fund is managed by a team of portfolio managers led by Tom Murphy, CFA. FUND OBJECTIVE For investors seeking current income and preservation of capital. Inception dates A: 4/6/45 B: 3/20/95 C: 6/26/00 Y: 3/20/95 Ticker symbols A: INSEX B: ISEBX C: ASLCX Y: IDEYX Total net assets $1.176 billion Number of holdings 252 STYLE MATRIX Shading within the style matrix indicates areas in which the Fund generally invests. DURATION SHORT INT LONG X HIGH MEDIUM QUALITY LOW SECTOR COMPOSITION Percentage of portfolio assets (pie chart) Mortgage-backed securities 37.6% U.S. government obligations & agencies 26.3% Financials 15.2% Short-term securities 5.0% Utilities 4.4% Telecommunications 3.6% Consumer discretionary 3.4% Industrials 1.4% Energy 1.0% Consumer staples 0.9% Foreign government bonds 0.6% Materials 0.6% CREDIT QUALITY SUMMARY Percentage of portfolio assets AAA bonds 71.2% AA bonds 3.0% A bonds 7.5% BBB bonds 13.0% For further detail about these holdings, please refer to the section entitled "Investments in Securities." Fund holdings are subject to change. - -------------------------------------------------------------------------------- 3 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT Below, Portfolio Manager Tom Murphy discusses the Fund's results and positioning for the six-month period ended Nov. 30, 2003. Q: How did AXP Selective Fund perform in the six months ended Nov. 30, 2003? A: AXP Selective Fund's Class A shares, excluding sales charge, declined 1.52% for the period. The Lehman Brothers Aggregate Bond Index declined 1.04% while the Lipper Corporate Debt - A rated Funds Index, representing the Fund's peer group, declined 0.85%. At the start of the period, the Treasury market was grappling with concerns about potential deflation. However, during the period, the combination of Federal Open Markets Committee actions and stronger economic news spurred a high level of bond volatility, driving yields higher. Q: What factors affected the Fund's performance? A: At the Fed meeting in May 2003, the Federal Reserve left the Fed funds rate unchanged, affirmed their accommodative monetary policy and said deflation was more likely than inflation. The comments sparked a Treasury rally that continued into mid-June. Then on June 25, the Fed reduced the Fed funds rate by 0.25%, less than expected. The Fed also did not repeat previous comments about stimulating the economy through unconventional measures. Treasury prices (bar graph) PERFORMANCE COMPARISON For the six-month period ended Nov. 30, 2003 0.0% - -0.5% (bar 3) - -1.0% (bar 2) -0.85% - -1.5% (bar 1) -1.04% - -2.0% -1.52% (bar 1) AXP Selective Fund Class A (excluding sales charge) (bar 2) Lehman Brothers Aggregate Bond Index(1) (unmanaged) (bar 3) Lipper Corporate Debt - A rated Funds Index(2) (1) The 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. (2) The Lipper Corporate Debt - A rated Funds 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. Past performance is no guarantee of future results. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart; if reflected, returns would be lower than those shown. The performance of Class B, Class C and Class Y may vary from that shown above because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. - -------------------------------------------------------------------------------- 4 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT Questions & Answers (begin callout quote)> We took advantage of volatility in the corporate sector to enhance the quality profile of our corporate holdings.(end callout quote) declined all through July. Mortgages experienced extreme volatility, although they recouped some losses in the latter part of the six-month period. Corporate bonds, on the other hand, withstood the volatility. Though performance was not as strong as in the first half of calendar year 2003, the sector benefited from a strengthening economy and its effect on corporate balance sheets and earnings.
AVERAGE ANNUAL TOTAL RETURNS Class A Class B Class C Class Y (Inception dates) (4/6/45) (3/20/95) (6/26/00) (3/20/95) NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) NAV(5) POP(5) as of Nov. 30, 2003 6 months* -1.52% -6.20% -1.90% -6.75% -1.90% -2.87% -1.45% -1.45% 1 year +4.20% -0.75% +3.41% -0.59% +3.40% +3.40% +4.36% +4.36% 5 years +4.14% +3.13% +3.35% +3.19% N/A N/A +4.29% +4.29% 10 years +5.49% +4.97% N/A N/A N/A N/A N/A N/A Since inception N/A N/A +5.47% +5.47% +4.79% +4.79% +6.42% +6.42% as of Dec. 31, 2003 6 months* -0.46% -5.19% -0.84% -5.74% -0.85% -1.83% -0.38% -0.38% 1 year +3.13% -1.77% +2.34% -1.66% +2.33% +2.33% +3.29% +3.29% 5 years +4.19% +3.18% +3.41% +3.24% N/A N/A +4.35% +4.35% 10 years +5.52% +5.01% N/A N/A N/A N/A N/A N/A Since inception N/A N/A +5.51% +5.51% +4.90% +4.90% +6.46% +6.46%
* Not annualized. (1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 4.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. (5) Sales charge is not applicable to these shares. Shares available to institutional investors only. Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than the original cost. The performance shown for each class of shares will vary due to differences in sales charges and fees. Short term performance may be higher or lower than the figures shown. Visit americanexpress.com/funds for current information. - -------------------------------------------------------------------------------- 5 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT Questions & Answers The Fund benefited from a slightly greater-than-index position in corporate bonds relative to its index. However, many of our peers had even larger corporate allocations, which largely explains why the Fund lagged the peer group. Given current valuations, we do not plan to deviate dramatically from the Lehman Brothers Aggregate Bond Index. We believe the corporate sector is very close to fair value and could be vulnerable to any economic stumbles. In addition, we are committed to the Fund's style discipline, which we think would be compromised by an extreme corporate overweight. The Fund's mortgage positioning was a detractor due to the sector's extreme volatility during the summer months. Security selection in the mortgage and corporate sectors added to relative return, a testament to our sector-focused investment strategy and the expertise of our sector teams. We kept the Fund's duration, a measure of interest rate sensitivity, and yield curve positioning fairly similar to that of the benchmark, which had a modest positive impact on relative return. Q: What changes have been made to the portfolio's positioning? A: We modestly increased our allocation to corporate bonds over the six-month period. We also took advantage of volatility in the corporate sector to enhance the quality profile of our corporate holdings. As lower quality, more cyclical corporate issues outperformed, higher quality, less cyclical issues became more attractively valued, creating opportunities for us to increase our positions in these better quality bonds. Throughout the period, we kept the Fund's mortgage allocation in a narrow range similar to the benchmark weighting. We modestly adjusted the allocation up and down to capitalize on last summer's mortgage volatility. Within the mortgage component, we continued to focus on the selection of individual mortgage pools believed to have lower-than-average prepayment risk. We substantially increased the Fund's allocation to government agency securities, such that we are now close to the benchmark positioning. Valuations on agency securities grew more attractive as prices were depressed by concerns about the status of these organizations as government sponsored entities. - -------------------------------------------------------------------------------- 6 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT Questions & Answers We believe this political question may garner more attention in the future; however, we don't anticipate any change in the agencies' government sponsored status. Therefore, we saw this as an opportunity to purchase the securities when they were more attractively priced. We kept duration and yield curve positioning similar to the benchmark because of uncertainties about the economy and the direction of interest rates. Late in the six-month period, we shortened the Fund's duration to about quarter year below the benchmark, reflecting our view of future rates, the strength of recent economic data and messages from the Fed governors. The Fund has a lower-than index position in shorter maturities securities. The current steepness of the yield curve and our belief that the Fed is unlikely to raise rates before the end of first quarter 2004 suggest a continued carrry advantage in holding longer maturity securities. Q: How do you plan to position the Fund in the coming months? A: We expect the recovery to be steady throughout the early part of 2004, though the economy probably won't repeat the stellar 8.20% growth rate of third quarter 2003. We will be watching for factors that may spur the Fed to raise interest rates, including a pick-up in inflation or unabated job growth. Though we don't anticipate the Fed changing its current policy until late first quarter or second quarter 2004, we are mindful that once they commit to a less accommodative monetary policy, they could move interest rates decisively higher. Based on this outlook, we anticipate interest rates remaining in a trading range, with rates possibly moving toward the high end of the range in the early months of 2004. Mortgages tend to perform relatively well when interest rates remain in a trading range. Therefore, we are optimistic about the mortgage sector and will continue to focus on the selection of attractive mortgage pools. We expect to retain the Fund's higher-than-index position in the corporate sector and given that the yield advantage provided by lower quality bonds remains small, we will likely maintain our high quality, non-cyclical focus. If the recovery falters we might take advantage of opportunities to purchase more cyclical or lower quality corporate issues. - -------------------------------------------------------------------------------- 7 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT Investments in Securities Quality Income Portfolio Nov. 30, 2003 (Unaudited) (Percentages represent value of investments compared to net assets) Bonds (98.3%) Issuer Coupon Principal Value(a) rate amount Foreign government (0.7%) United Mexican States (U.S. Dollar) 01-16-13 6.38% $7,720,000(c) $7,970,900 U.S. government obligations & agencies (27.3%) Federal Home Loan Bank 06-14-13 3.88 18,970,000(h) 17,822,581 Federal Home Loan Mtge Corp 08-15-06 2.75 25,350,000 25,398,646 12-20-07 3.53 23,000,000 23,171,740 11-15-13 4.88 22,480,000 22,584,779 Federal Natl Mtge Assn 02-15-05 7.13 8,000,000 8,523,864 05-15-08 6.00 8,815,000 9,725,096 11-17-08 3.88 9,625,000 9,588,233 05-15-11 6.00 3,520,000 3,878,797 Overseas Private Investment U.S. Govt Guaranty Series 1996A 01-15-09 6.99 5,555,555 6,104,722 U.S. Treasury 10-31-04 2.13 9,100,000 9,161,498 01-31-05 1.63 9,500,000 9,512,987 05-31-05 1.25 500,000 496,720 11-15-06 2.63 10,821,000 10,848,475 08-15-07 3.25 2,880,000(i) 2,917,126 11-15-07 3.00 3,450,000 3,454,178 11-15-08 3.38 40,168,000 40,208,810 08-15-10 5.75 1,230,000(h) 1,370,633 11-15-13 4.25 2,264,000 2,250,912 08-15-22 7.25 8,000,000(i) 10,014,376 08-15-23 6.25 15,300,000 17,286,017 02-15-26 6.00 69,080,000 76,031,174 02-15-31 5.38 9,699,000(i) 10,049,076 Total 320,400,440 Mortgage-backed securities (39.0%)(g) Federal Home Loan Mtge Corp 09-27-12 3.61 2,800,000 2,799,200 05-01-13 4.50 2,803,388 2,831,750 11-01-14 7.50 2,832,603 3,049,606 07-01-16 8.00 225 245 01-01-17 8.00 1,327 1,467 03-01-17 8.50 20,140 21,840 06-01-17 8.50 4,426 4,852 07-01-17 7.00 9,649,387 10,246,702 05-01-18 5.50 2,920,095 3,010,827 09-01-18 5.00 4,593,481 4,653,566 10-01-18 5.00 6,960,732 7,051,781 09-01-19 8.50 38,463 42,087 04-01-20 9.00 209,969 233,594 04-01-21 9.00 213,598 237,729 03-01-22 8.50 388,914 425,232 08-01-22 8.50 434,100 474,019 02-01-25 8.00 602,296 655,488 06-01-32 7.00 2,639,136 2,804,324 07-01-32 7.00 10,168,856 10,729,632 04-01-33 6.00 7,470,204 7,717,678 06-01-33 5.50 4,345,685 4,372,797 09-01-33 4.56 3,956,581(j) 3,943,920 12-01-33 5.00 6,581,000(b) 6,445,267 Collateralized Mtge Obligation 07-15-16 4.00 3,000,000 2,973,621 09-15-18 4.00 3,800,000 3,461,635 10-15-18 5.00 2,700,000 2,779,627 11-15-18 5.00 6,900,000 7,110,102 01-15-19 5.00 5,200,000 5,329,584 02-15-27 5.00 4,000,000 4,082,928 02-15-33 5.50 3,992,171 4,169,223 02-25-42 6.50 6,622,164 7,021,567 Interest Only 02-15-14 10.21 2,000,000(e) 204,000 06-15-18 47.42 1,634,271(e) 108,795 Federal Natl Mtge Assn 11-01-12 4.79 12,809,000 12,827,395 01-01-13 4.78 4,280,000 4,364,945 01-01-13 4.92 1,385,337 1,391,547 02-01-13 4.83 2,531,247 2,526,230 06-01-13 4.54 5,176,692 5,073,219 06-01-13 4.85 3,430,605 3,408,047 12-01-13 4.50 3,000,000(b) 3,026,016 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 8 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT Bonds (continued) Issuer Coupon Principal Value(a) rate amount Mortgage-backed securities (cont.) Federal Natl Mtge Assn (cont.) 04-01-14 6.00% $4,450,008 $4,657,872 03-01-17 6.50 5,748,077 6,065,019 04-01-17 6.50 3,309,791 3,492,290 08-01-17 6.00 9,366,801 9,784,862 09-01-17 5.50 2,742,919 2,827,416 09-01-17 6.00 11,056,754 11,550,241 01-01-18 5.50 3,161,520 3,258,911 04-01-18 5.00 7,123,994 7,235,617 05-01-18 5.50 6,651,318 6,880,977 08-01-18 4.50 6,834,353 6,797,244 10-15-18 4.00 1,900,000 1,684,198 12-01-18 4.50 5,400,000(b) 5,361,185 12-01-18 5.00 5,900,000(b) 5,975,579 07-01-23 5.00 3,436,447 3,421,383 07-01-23 5.50 3,917,218 3,974,072 09-01-23 5.50 4,888,630 4,959,583 12-01-26 8.00 841,101 914,241 04-01-27 7.50 1,110,488 1,187,223 08-01-27 8.00 968,510 1,050,510 01-01-28 6.50 557,570 586,029 07-01-28 5.50 2,812,549 2,847,009 01-01-30 8.00 816,966 883,692 06-01-31 7.00 6,960,733 7,397,313 07-01-31 6.50 3,922,179 4,090,110 03-01-32 7.50 1,078,423 1,150,649 04-01-32 7.50 1,078,762 1,150,986 05-01-32 7.50 1,245,846 1,329,298 06-01-32 7.50 3,184,714 3,397,933 08-01-32 6.50 9,614,843 10,031,454 08-01-32 7.00 1,242,687 1,311,322 09-01-32 6.00 11,566,115 11,893,217 10-01-32 6.50 1,562,367 1,629,212 11-01-32 6.50 2,206,990 2,301,485 01-01-33 6.00 19,167,710 19,719,694 02-01-33 6.00 20,221,771 20,805,481 04-01-33 5.50 46,151,665 46,507,218 04-01-33 6.00 13,343,479 13,779,570 05-01-33 5.50 7,034,714 4,983,846 07-01-33 5.50 7,428,102 7,479,087 08-01-33 5.50 996,597 1,003,437 10-01-33 6.50 7,921,886 8,267,850 12-01-33 6.50 11,800,000(b) 12,301,500 12-30-33 4.80 3,300,000(b,j) 3,387,656 Collateralized Mtge Obligation 07-25-16 4.00 3,000,000 2,968,412 10-25-19 8.50 1,040,018 1,143,251 09-25-42 5.00 2,570,000 2,629,155 Interest Only 12-25-12 25.80 2,000,000(e) 151,625 Principal Only 09-01-18 0.98 74,524(f) 72,587 Govt Natl Mtge Assn 05-15-26 7.50 1,596,860 1,716,622 12-15-32 6.00 15,474,212 16,023,699 03-15-33 7.00 1,914,776 2,036,821 10-15-33 5.50 5,281,794 5,343,036 Collateralized Mtge Obligation Interest Only 01-20-32 6.14 2,673,238(e) 346,844 08-20-32 5.88 8,818,118(e) 1,452,886 Total 454,810,493 Aerospace & defense (0.2%) Raytheon 11-01-08 6.15 310,000 333,046 04-01-13 5.38 2,310,000 2,288,958 Total 2,622,004 Airlines (--%) Northwest Airlines Series 1999-1A 02-01-20 6.81 580,800 516,099 Automotive & related (0.9%) DaimlerChrysler NA Holding 01-15-08 4.75 860,000 866,760 06-04-08 4.05 5,020,000 4,907,401 11-15-13 6.50 1,740,000 1,793,053 Ford Motor 02-01-29 6.38 4,060,000 3,387,282 Total 10,954,496 Banks and savings & loans (3.4%) ANZ Capital Trust I 12-29-49 5.36 2,370,000(d) 2,318,498 Bank of America Sr Nts 12-01-10 4.38 1,570,000 1,556,237 09-15-12 4.88 6,800,000 6,771,194 Banknorth Group Sr Nts 05-01-08 3.75 1,510,000 1,488,996 Credit Suisse First Boston USA 01-15-09 3.88 1,950,000 1,932,195 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 9 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT Bonds (continued) Issuer Coupon Principal Value(a) rate amount Banks and savings & loans (cont.) Golden West Financial Sr Nts 10-01-12 4.75% $940,000 $936,446 Rabobank Capital Funding II 12-29-49 5.26 2,950,000(d,k) 3,069,977 US Bank Natl Assn Minnesota 08-01-11 6.38 2,530,000 2,809,110 Wachovia Bank Commercial Mtge Trust Series 2003-C8 Cl A2 11-15-35 3.89 2,600,000 2,612,594 Washington Mutual Series 2003-AR10 Cl A6 10-25-33 4.11 4,600,000 4,580,783 Washington Mutual Bank FA Sub Nts 06-15-11 6.88 6,080,000 6,833,506 Wells Fargo Bank NA Sub Nts 02-01-11 6.45 4,250,000 4,746,034 Total 39,655,570 Broker dealers (2.2%) Goldman Sachs Group 01-15-11 6.88 1,310,000 1,478,513 04-01-13 5.25 1,250,000 1,258,061 07-15-13 4.75 570,000 548,842 10-15-13 5.25 1,410,000 1,409,281 Merrill Lynch & Co 11-04-10 4.50 2,650,000 2,644,610 Morgan Stanley 04-15-11 6.75 5,085,000(i) 5,706,936 03-01-13 5.30 2,340,000 2,362,675 Morgan Stanley Capital 1 Series 2003-IQ4 Cl A1 05-15-40 3.27 4,890,898 4,686,913 Series 2003-T11 Cl A2 06-13-41 4.34 3,870,000 3,891,958 Morgan Stanley, Dean Witter Capital 1 Series 2002-TOP7 Cl A2 01-15-39 5.98 2,235,000 2,416,457 Total 26,404,246 Cable (1.2%) Comcast 03-15-11 5.50 5,410,000(i) 5,571,056 Comcast Cable Communications 11-15-08 6.20 7,000,000 7,599,487 Cox Communications 06-01-13 4.63 480,000 458,285 Total 13,628,828 Cellular telecommunications (0.5%) AT&T Wireless Services 05-01-12 8.13 5,440,000 6,209,053 Energy (1.0%) Amerada Hess 08-15-11 6.65 1,200,000 1,290,744 Conoco Funding (U.S. Dollar) 10-15-11 6.35 8,120,000(c,i) 9,043,675 Devon Financing 09-30-11 6.88 1,230,000 1,385,559 Total 11,719,978 Finance companies (2.5%) Citigroup 01-18-11 6.50 17,065,000 19,114,250 Ford Motor Credit 10-01-13 7.00 1,050,000 1,065,771 GMAC 09-15-11 6.88 3,620,000 3,749,180 02-01-12 7.00 5,580,000 5,794,540 Total 29,723,741 Financial services (5.5%) Bank of America First Union NB Commercial Mtge Series 2001-3 Cl A2 04-11-37 5.46 1,580,000 1,663,049 Bear Stearns Commercial Mtge Securities Series 2003-T10 Cl A1 03-13-40 4.00 3,302,035 3,277,765 California State Teachers' Retirement System Trust Series 2002-C6 Cl A3 11-20-09 4.46 9,587,337 9,686,610 Capital One Bank Sr Nts 02-01-06 6.88 680,000 732,030 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 10 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT Bonds (continued) Issuer Coupon Principal Value(a) rate amount Financial services (cont.) Citibank Credit Card Issuance Trust Series 2003-A5 Cl A5 04-07-08 2.50% $4,580,000 $4,562,871 Series 2003-A6 Cl A6 05-17-10 2.90 3,300,000 3,201,693 Series 2003-A7 Cl A7 07-07-17 4.15 4,180,000 3,850,659 General Electric Capital Sr Nts 12-01-10 4.25 1,640,000(b) 1,628,684 GMAC Commercial Mtge Securities Series 1999-C1 Cl B 05-15-33 6.30 2,200,000 2,424,617 HSBC Holdings (U.S. Dollar) Sub Nts 12-12-12 5.25 8,040,000(c,i) 8,194,022 LB-UBS Commercial Mtge Trust Series 2002-C2 Cl A3 06-15-26 5.39 2,790,000 2,937,680 Series 2002-C2 Cl A4 06-15-31 5.59 1,860,000 1,964,847 Series 2002-C8 Cl A3 11-15-27 4.73 1,150,000 1,163,297 Series 2003-C3 Cl A2 05-15-27 3.09 5,800,000 5,633,227 Series 2003-C8 Cl A2 11-15-27 4.21 650,000 655,688 MBNA Credit Card Master Note Trust Series 2003-A1 Cl A1 07-15-10 3.30 2,300,000 2,282,658 Nissan Auto Receivables Owner Trust Series 2003-A Cl A4 07-15-08 2.61 980,000 976,391 Residential Asset Securities Series 2002-KS1 Cl AI4 11-25-29 5.86 2,800,000 2,888,564 SLM 01-15-09 4.00 2,250,000 2,238,705 TIAA Global Markets 01-22-08 3.88 4,870,000(d) 4,926,102 Total 64,889,159 Food (0.9%) Kellogg Series B 04-01-11 6.60 3,940,000 4,397,749 Kraft Foods 10-01-08 4.00 4,710,000 4,683,766 11-01-11 5.63 1,490,000 1,552,550 Total 10,634,065 Industrial transportation (0.8%) Burlington Northern Santa Fe 12-15-05 6.38 2,415,000 2,604,626 Canadian Natl Railways (U.S. Dollar) 10-15-11 6.38 3,330,000(c) 3,676,466 Union Pacific 02-01-08 6.63 875,000 964,486 01-15-11 6.65 1,760,000 1,964,616 Total 9,210,194 Insurance (2.0%) ASIF Global Financing 11-26-07 3.85 1,870,000(d) 1,885,388 01-17-13 4.90 8,220,000(d) 8,115,112 Berkshire Hathaway 10-15-13 4.63 4,980,000(d) 4,871,287 MassMutual Global Funding II 07-15-08 2.55 2,790,000(d) 2,646,959 Met Life Global Funding I 06-19-08 2.60 3,530,000(d) 3,344,499 New York Life Global Funding 09-15-13 5.38 2,320,000(d) 2,374,590 Pacific Life 09-15-33 6.60 620,000(d) 645,445 Total 23,883,280 Leisure time & entertainment (1.4%) KSL Resorts Series 2003-1A Cl C 05-15-13 2.02 1,300,000 1,299,968 Time Warner 05-01-12 6.88 6,645,000 7,389,394 05-01-32 7.70 1,430,000 1,637,238 Viacom 05-15-11 6.63 5,380,000 6,047,857 Total 16,374,457 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 11 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT Bonds (continued) Issuer Coupon Principal Value(a) rate amount Multi-industry (0.4%) General Electric 02-01-13 5.00% $3,475,000(i) $3,491,055 Tyco Intl Group (U.S. Dollar) 02-15-11 6.75 750,000(c) 806,250 Total 4,297,305 Paper & packaging (0.6%) Domtar (U.S. Dollar) 10-15-11 7.88 410,000(c) 479,788 12-01-13 5.38 1,380,000(c) 1,363,530 Weyerhaeuser 03-15-07 6.13 410,000 440,750 03-15-12 6.75 4,430,000 4,777,799 Total 7,061,867 Telecom equipment & services (0.5%) Sprint Capital 03-15-12 8.38 2,760,000 3,133,954 Vodafone Group (U.S. Dollar) 02-15-10 7.75 270,000(c) 317,399 12-16-13 5.00 2,620,000(c) 2,578,971 Total 6,030,324 Utilities -- electric (3.8%) American Electric Power Sr Nts 06-01-15 5.25 1,190,000 1,162,719 Sr Nts Series C 03-15-10 5.38 1,400,000 1,456,199 Carolina Power & Light 07-15-12 6.50 1,920,000 2,109,725 Cincinnati Gas & Electric 09-15-12 5.70 620,000 646,207 Columbus Southern Power Sr Nts Series C 03-01-13 5.50 1,750,000 1,802,238 Commonwealth Edison 1st Mtge Series 102 08-15-10 4.74 800,000 810,920 Series 99 02-01-08 3.70 2,360,000 2,360,165 Consumers Energy 1st Mtge 04-15-08 4.25 5,260,000(d,i) 5,281,197 Dayton Power & Light 1st Mtge 10-01-13 5.13 1,650,000(d) 1,654,835 Dominion Resources Sr Nts Series B 06-30-12 6.25 2,082,000 2,252,241 Sr Nts Series F 08-01-33 5.25 970,000(i) 955,644 Duke Energy 01-15-12 6.25 2,875,000 3,107,783 1st Mtge 03-05-08 3.75 4,310,000 4,300,215 Duquesne Light 1st Mtge Series O 04-15-12 6.70 300,000 331,782 FirstEnergy Series B 11-15-11 6.45 2,190,000 2,282,987 Florida Power 1st Mtge 03-01-13 4.80 2,200,000 2,168,254 FPL Group Capital 04-11-06 3.25 810,000 820,433 Northern States Power 1st Mtge 08-01-10 4.75 2,220,000 2,253,988 Northern States Power - Minnesota 1st Mtge Series B 08-29-12 8.00 1,160,000 1,410,646 Ohio Power Sr Nts Series F 02-15-13 5.50 380,000 390,739 Sr Nts Series H 01-15-14 4.85 2,270,000 2,189,665 PSEG Power 12-01-15 5.50 1,320,000(b) 1,311,328 PSI Energy 09-15-13 5.00 750,000 739,935 Public Service Co. of Colorado Series 14 10-01-08 4.38 2,915,000 2,974,233 Tampa Electric 08-15-07 5.38 350,000 370,992 Total 45,145,070 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 12 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT Bonds (continued) Issuer Coupon Principal Value(a) rate amount Utilities -- natural gas (0.7%) Consolidated Natural Gas Sr Nts 04-15-11 6.85% $630,000 $706,986 Sr Nts Series A 03-01-14 5.00 780,000(b) 767,442 Kinder Morgan Energy Partners LP Sr Nts 12-15-13 5.00 1,910,000 1,874,450 NiSource Finance 11-01-06 3.20 1,150,000 1,149,000 07-15-14 5.40 390,000 389,485 Sr Nts 03-01-13 6.15 1,250,000 1,327,679 Panhandle Eastern Pipeline 08-15-08 4.80 950,000(d) 965,628 Texas Eastern Transmission Sr Nts 07-15-07 5.25 1,410,000 1,484,847 Total 8,665,517 Utilities -- telephone (2.7%) AT&T Sr Nts 11-15-11 8.05 1,373,000 1,558,869 BellSouth 10-15-11 6.00 4,270,000 4,598,679 British Telecom (U.S. Dollar) 12-15-10 8.38 1,520,000(c) 1,825,909 Citizens Communications 05-15-06 8.50 1,390,000 1,565,387 Deutsche Telekom Intl Finance (U.S. Dollar) 06-15-10 8.50 1,460,000(c) 1,748,898 France Telecom (U.S. Dollar) 03-01-11 9.00 1,660,000(c) 1,989,681 Telecom Italia Capital (U.S. Dollar) 11-15-13 5.25 2,120,000(c,d) 2,108,259 Verizon New England Sr Nts 09-15-11 6.50 7,650,000 8,368,335 Verizon New York Series A 04-01-12 6.88 2,330,000 2,550,968 Verizon Pennsylvania Series A 11-15-11 5.65 5,100,000 5,306,397 Total 31,621,382 Total bonds (Cost: $1,155,368,574) $1,152,428,468 Short-term securities (5.2%) Issuer Annualized Amount Value(a) yield on date payable at of purchase maturity U.S. government agencies (4.7%) Federal Home Loan Mtge Corp Disc Nts 12-19-03 1.05% $12,700,000 $12,692,494 01-08-04 1.08 20,000,000 19,977,093 Federal Natl Mtge Assn Disc Nts 01-14-04 1.07 12,400,000 12,383,988 01-21-04 1.08 10,000,000 9,985,022 Total 55,038,597 Commercial paper (0.5%) UBS Finance (Delaware) LLC 12-01-03 1.05 5,800,000 5,799,493 Total short-term securities (Cost: $60,835,664) $60,838,090 Total investments in securities (Cost: $1,216,204,238)(l) $1,213,266,558 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 13 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT Notes to investments in securities (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) At Nov. 30, 2003, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $40,176,266. (c) Foreign security values are stated in U.S. dollars. For debt securities, principal amounts are denominated in the currency indicated. As of Nov. 30, 2003, the value of foreign securities represented 3.6% 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) Interest only represents securities that entitle holders to receive only interest payments on the underlying mortgages. The yield to maturity of an interest only is extremely sensitive to the rate of principal payments on the underlying mortgage assets. A rapid (slow) rate of principal repayments may have an adverse (positive) effect on yield to maturity. The principal amount shown is the notional amount of the underlying mortgages. Interest rate disclosed represents yield based upon the estimated timing of future cash flows as of Nov. 30, 2003. (f) Principal only represents securities that entitle holders to receive only principal payments on the underlying mortgages. The yield to maturity of a principal only is sensitive to the rate of principal payments on the underlying mortgage assets. A slow (rapid) rate of principal repayments may have an adverse (positive) effect on yield to maturity. Interest rate disclosed represents yield based upon the estimated timing of future cash flows as of Nov. 30, 2003. (g) Mortgage-backed securities represent direct or indirect participations in, or are secured by and payable from, mortgage loans secured by real property, and include single- and multi-class pass-through securities and Collateralized Mortgage Obligations. These securities may be issued or guaranteed by U.S. government agencies or instrumentalities, or by private issuers, generally originators and investors in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers and special purpose entities. The maturity dates shown represent the original maturity of the underlying obligation. Actual maturity may vary based upon prepayment activity on these obligations. Unless otherwise noted, the coupon rates presented are fixed rates. (h) Security is partially or fully on loan. See Note 4 to the financial statements. (i) Partially pledged as initial deposit on the following open interest rate futures contracts (see Note 6 to the financial statements): Type of security Notional amount Purchase contracts U.S. Treasury Notes, March 2004, 5-year $22,400,000 Sale contracts U.S. Treasury Notes, Dec. 2003, 10-year 88,100,000 U.S. Treasury Notes, March 2004, 10-year 38,400,000 (j) Adjustable rate mortgage; interest rate varies to reflect current market conditions; rate shown is the effective rate on Nov. 30, 2003. (k) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Nov. 30, 2003. (l) At Nov. 30, 2003, the cost of securities for federal income tax purposes was approximately $1,216,204,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 7,475,000 Unrealized depreciation (10,412,000) ----------- Net unrealized depreciation $ (2,937,000) ------------ - -------------------------------------------------------------------------------- 14 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT Financial Statements Statement of assets and liabilities Quality Income Portfolio Nov. 30, 2003 (Unaudited) Assets Investments in securities, at value (Note 1)* (identified cost $1,216,204,238) $1,213,266,558 Dividends and accrued interest receivable 9,275,207 Receivable for investment securities sold 26,883,165 ---------- Total assets 1,249,424,930 ------------- Liabilities Disbursements in excess of cash on demand deposit 146,382 Payable for investment securities purchased 57,451,716 Payable upon return of securities loaned (Note 4) 15,956,250 Accrued investment management services fee 33,410 Other accrued expenses 42,503 ------ Total liabilities 73,630,261 ---------- Net assets $1,175,794,669 ============== *Including securities on loan, at value (Note 4) $ 15,206,980 -------------- See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 15 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT
Statement of operations Quality Income Portfolio Six months ended Nov. 30, 2003 (Unaudited) Investment income Income: Interest $ 26,374,442 Fee income from securities lending (Note 4) 68,354 ------ Total income 26,442,796 ---------- Expenses (Note 2): Investment management services fee 3,374,768 Compensation of board members 6,158 Custodian fees 106,027 Audit fees 16,500 Other 20,046 ------ Total expenses 3,523,499 --------- Investment income (loss) -- net 22,919,297 ---------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) 7,478,478 Futures contracts 5,061,317 Options contracts written (Note 5) 953,314 ------- Net realized gain (loss) on investments 13,493,109 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (57,129,239) ----------- Net gain (loss) on investments and foreign currencies (43,636,130) ----------- Net increase (decrease) in net assets resulting from operations $(20,716,833) ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 16 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT
Statements of changes in net assets Quality Income Portfolio Nov. 30, 2003 May 31, 2003 Six months ended Year ended (Unaudited) Operations Investment income (loss) -- net $ 22,919,297 $ 65,797,801 Net realized gain (loss) on investments 13,493,109 (33,622,722) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (57,129,239) 61,670,469 ----------- ---------- Net increase (decrease) in net assets resulting from operations (20,716,833) 93,845,548 ----------- ---------- Proceeds from contributions 4,174,509 41,557,984 Fair value of withdrawals (265,993,125) (260,762,982) ------------ ------------ Net contributions (withdrawals) from partners (261,818,616) (219,204,998) ------------ ------------ Total increase (decrease) in net assets (282,535,449) (125,359,450) Net assets at beginning of period 1,458,330,118 1,583,689,568 ------------- ------------- Net assets at end of period $1,175,794,669 $1,458,330,118 ============== ==============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 17 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT Notes to Financial Statements Quality Income Portfolio (Unaudited as to Nov. 30, 2003) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Quality Income Portfolio (the Portfolio) is a series of Income Trust (the Trust) and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. The Portfolio invests primarily in investment-grade bonds. The Declaration of Trust permits the Trustees to issue non-transferable interests in the Portfolio. The Portfolio'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 Portfolio 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 Portfolio 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 Portfolio gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Portfolio 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 Portfolio pays a premium whether or not the option is exercised. The Portfolio also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. - -------------------------------------------------------------------------------- 18 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Portfolio will realize a gain or loss when the option transaction expires or closes. When options on debt securities or futures are exercised, the Portfolio 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 Portfolio may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Portfolio 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 Portfolio is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Portfolio each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Portfolio recognizes a realized gain or loss when the contract is closed or expires. 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 Portfolio 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 Portfolio and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Portfolio is subject to the credit risk that the other party will not complete its contract obligations. - -------------------------------------------------------------------------------- 19 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT Securities purchased on a forward-commitment basis Delivery and payment for securities that have been purchased by the Portfolio on a forward-commitment basis, including when issued securities and other forward-commitments, can take place one month or more after the transaction date. During this period, such securities are subject to market fluctuations, and they may affect the Portfolio's net assets the same as owned securities. The Portfolio designates cash or liquid securities at least equal to the amount of its forward-commitments. As of Nov. 30, 2003, the Portfolio has entered into outstanding when-issued securities of $40,176,266. The Portfolio also enters into transactions to sell purchase commitments to third parties at current market values and concurrently acquires other purchase commitments for similar securities at later dates. As an inducement for the Portfolio to "roll over" its purchase commitments, the Portfolio receives negotiated amounts in the form of reductions of the purchase price of the commitment. Federal taxes For federal income tax purposes the Portfolio qualifies as a partnership and each investor in the Portfolio is treated as the owner of its proportionate share of the net assets, income, expenses and realized and unrealized gains and losses of the Portfolio. As a "pass-through" entity, the Portfolio therefore does not pay any income dividends or capital gain distributions. 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 amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. 2. FEES AND EXPENSES The Trust, on behalf of the Portfolio, has an Investment Management Services Agreement with American Express Financial Corporation (AEFC) to manage its portfolio. Under this agreement, AEFC determines which securities will be purchased, held or sold. The management fee is a percentage of the Portfolio's average daily net assets in reducing percentages from 0.52% to 0.395% annually. Under the agreement, the Trust also pays taxes, brokerage commissions and nonadvisory expenses, which include custodian fees, audit and certain legal fees, fidelity bond premiums, registration fees for units, office expenses, consultants' fees, compensation of trustees, corporate filing fees, expenses incurred in connection with lending securities of the Portfolio and any other expenses properly payable by the Trust or Portfolio and approved by the board. Under a Deferred Compensation Plan (the Plan), non-interested trustees may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the underlying Fund or other American Express mutual funds. The Portfolio's liability for these amounts is adjusted for market value changes and remains in the Portfolio until distributed in accordance with the Plan. According to a Placement Agency Agreement, American Express Financial Advisors Inc. acts as placement agent of the Trust's units. - -------------------------------------------------------------------------------- 20 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $1,942,506,508 and $2,128,786,086, respectively, for the six months ended Nov. 30, 2003. Realized gains and losses are determined on an identified cost basis. 4. LENDING OF PORTFOLIO SECURITIES As of Nov. 30, 2003, securities valued at $15,206,980 were on loan to brokers. For collateral, the Portfolio received $15,956,250 in cash. Income from securities lending amounted to $68,354 for the six months ended Nov. 30, 2003. The risks to the Portfolio of securities lending are that the borrower may not provide additional collateral when required or return the securities when due. 5. OPTIONS CONTRACTS WRITTEN Contracts and premiums associated with options contracts written are as follows: Six months ended Nov. 30, 2003 Puts Calls Contracts Premiums Contracts Premiums Balance May 31, 2003 -- $ -- -- $ -- Opened 1,122 743,470 2,654 2,356,983 Closed (979) (612,213) (2,511) (2,082,726) Exercised -- -- (143) (274,257) Expired (143) (131,257) -- -- ---- -------- ------ ---------- Balance Nov. 30, 2003 -- $ -- -- $ -- ---- -------- ------ ---------- See "Summary of significant accounting policies." 6. INTEREST RATE FUTURES CONTRACTS As of Nov. 30, 2003, investments in securities included securities valued at $2,724,867 that were pledged as collateral to cover initial margin deposits on 224 open purchase contracts and 1,265 open sale contracts. The notional market value of the open purchase contracts as of Nov. 30, 2003 was $24,724,000 with a net unrealized loss of $244,147. The notional market value of the open sale contracts as of Nov. 30, 2003 was $141,611,908 with a net unrealized loss of $1,596,459. See "Summary of significant accounting policies" and "Notes to investments in securities." - -------------------------------------------------------------------------------- 21 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT 7. FINANCIAL HIGHLIGHTS The table below shows certain important financial information for evaluating the Portfolio's results.
Ratios/supplemental data Fiscal period ended May 31, 2003(e) 2003 2002 2001 2000 Ratio of expenses to average daily net assets(a) .54%(c) .52% .53% .52% .52% Ratio of net investment income (loss) to average daily net assets 3.49%(c) 4.33% 4.89% 6.44% 6.51% Portfolio turnover rate (excluding short-term securities) 153% 263% 389% 150% 62% Total return(b) (1.33%)(d) 6.56% 5.34% 12.06% 1.58%
Notes to financial highlights (a) Expense ratio is based on total expenses of the Portfolio before reduction of earnings credits on cash balances. The ratio does not include feeder fund expenses. (b) Total return is based on a calculated Portfolio NAV and does not reflect payment of a sales charge. (c) Adjusted to an annual basis. (d) Not annualized. (e) Six months ended Nov. 30, 2003 (Unaudited). - -------------------------------------------------------------------------------- 22 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT Financial Statements
Statement of assets and liabilities AXP Selective Fund Nov. 30, 2003 (Unaudited) Assets Investment in Portfolio (Note 1) $1,175,673,865 Capital shares receivable 208,326 ------- Total assets 1,175,882,191 ------------- Liabilities Dividends payable to shareholders 658,773 Capital shares payable 266,288 Accrued distribution fee 24,610 Accrued service fee 615 Accrued transfer agency fee 6,226 Accrued administrative services fee 3,184 Other accrued expenses 50,049 ------ Total liabilities 1,009,745 --------- Net assets applicable to outstanding capital stock $1,174,872,446 ============== Represented by Capital stock -- $.01 par value (Note 1) $ 1,363,056 Additional paid-in capital 1,206,894,257 Undistributed net investment income 933,845 Accumulated net realized gain (loss) (Note 5) (29,540,915) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (4,777,797) ---------- Total -- representing net assets applicable to outstanding capital stock $1,174,872,446 ============== Net assets applicable to outstanding shares: Class A $ 821,175,357 Class B $ 234,218,780 Class C $ 7,535,317 Class Y $ 111,942,992 Net asset value per share of outstanding capital stock: Class A shares 95,267,922 $ 8.62 Class B shares 27,174,722 $ 8.62 Class C shares 874,266 $ 8.62 Class Y shares 12,988,666 $ 8.62 ---------- --------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 23 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT
Statement of operations AXP Selective Fund Six months ended Nov. 30, 2003 (Unaudited) Investment income Income: Interest $ 26,371,762 Fee income from securities lending 68,347 ------ Total income 26,440,109 ---------- Expenses (Note 2): Expenses allocated from Portfolio 3,523,175 Distribution fee Class A 1,109,752 Class B 1,320,070 Class C 42,364 Transfer agency fee 928,048 Incremental transfer agency fee Class A 52,956 Class B 31,409 Class C 1,311 Service fee -- Class Y 75,336 Administrative services fees and expenses 325,667 Compensation of board members 4,875 Printing and postage 70,385 Registration fees 28,503 Audit fees 5,500 Other 6,337 ----- Total expenses 7,525,688 Earnings credits on cash balances (Note 2) (12,844) ------- Total net expenses 7,512,844 --------- Investment income (loss) -- net 18,927,265 ---------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions 7,477,528 Futures contracts 5,061,317 Options contracts written 953,314 ------- Net realized gain (loss) on investments 13,492,159 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (57,124,536) ----------- Net gain (loss) on investments and foreign currencies (43,632,377) ----------- Net increase (decrease) in net assets resulting from operations $(24,705,112) ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 24 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT
Statements of changes in net assets AXP Selective Fund Nov. 30, 2003 May 31, 2003 Six months ended Year ended (Unaudited) Operations and distributions Investment income (loss) -- net $ 18,927,265 $ 56,545,925 Net realized gain (loss) on investments 13,492,159 (33,620,331) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (57,124,536) 61,665,598 ----------- ---------- Net increase (decrease) in net assets resulting from operations (24,705,112) 84,591,192 ----------- ---------- Distributions to shareholders from: Net investment income Class A (12,722,585) (38,956,124) Class B (2,759,490) (10,439,800) Class C (88,684) (297,144) Class Y (2,257,526) (7,246,098) Net realized gain Class A -- (4,035,818) Class B -- (1,350,735) Class C -- (39,140) Class Y -- (745,149) ----------- ----------- Total distributions (17,828,285) (63,110,008) ----------- ----------- Capital share transactions (Note 3) Proceeds from sales Class A shares (Note 2) 59,712,610 135,100,624 Class B shares 13,291,457 84,299,721 Class C shares 726,140 3,528,889 Class Y shares 19,678,167 67,684,417 Reinvestment of distributions at net asset value Class A shares 10,199,847 34,789,046 Class B shares 2,484,643 10,767,133 Class C shares 77,590 300,242 Class Y shares 2,274,655 8,060,258 Payments for redemptions Class A shares (175,339,564) (271,175,749) Class B shares (Note 2) (88,360,130) (126,824,914) Class C shares (Note 2) (2,510,758) (3,881,995) Class Y shares (82,320,187) (88,889,251) ----------- ----------- Increase (decrease) in net assets from capital share transactions (240,085,530) (146,241,579) ------------ ------------ Total increase (decrease) in net assets (282,618,927) (124,760,395) Net assets at beginning of period 1,457,491,373 1,582,251,768 ------------- ------------- Net assets at end of period $1,174,872,446 $1,457,491,373 ============== ============== Undistributed (excess of distributions over) net investment income $ 933,845 $ (165,135) -------------- --------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 25 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT Notes to Financial Statements AXP Selective Fund (Unaudited as to Nov. 30, 2003) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Fund is a series of AXP Income Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. AXP Income Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the board. 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. Investment in Quality Income Portfolio The Fund invests all of its assets in Quality Income Portfolio (the Portfolio), a series of Income Trust (the Trust), an open-end investment company that has the same objectives as the Fund. The Portfolio invests primarily in investment-grade bonds. The Fund records daily its share of the Portfolio's income, expenses and realized and unrealized gains and losses. The financial statements of the Portfolio are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. The Fund records its investment in the Portfolio at the value that is equal to the Fund's proportionate ownership interest in the Portfolio's net assets. The percentage of the Portfolio owned by the Fund as of Nov. 30, 2003 was 99.99%. Valuation of securities held by the Portfolio is discussed in Note 1 of the Portfolio's "Notes to financial statements" (included elsewhere in this report). 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. 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 the shareholders. No provision for income or excise taxes is thus required. - -------------------------------------------------------------------------------- 26 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of 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. 2. EXPENSES AND SALES CHARGES In addition to the expenses allocated from the Portfolio, the Fund accrues its own expenses as follows: The Fund has an agreement with AEFC to provide administrative services. 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 Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the Fund or other American Express mutual funds. The Fund's liability for these amounts is adjusted for market value changes and remains in the Fund until distributed in accordance with the Plan. Under a separate Transfer Agency Agreement, American Express Client Service Corporation (AECSC) maintains shareholder accounts and records. The Fund pays AECSC an annual fee per shareholder account for this service as follows: o Class A $20.50 o Class B $21.50 o Class C $21.00 o Class Y $18.50 The incremental transfer agency fee is the amount charged to the specific classes for the additional expense above the fee for Class Y. In addition, AECSC is entitled to charge an annual closed-account fee of $5 per inactive account, charged on a pro rata basis from the date the account becomes inactive until the date the account is purged from the transfer agent system generally within one year. However, the closed account fee is currently not effective. - -------------------------------------------------------------------------------- 27 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT 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 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 $351,643 for Class A, $221,210 for Class B and $2,209 for Class C for the six months ended Nov. 30, 2003. During the six months ended Nov. 30, 2003, the Fund's transfer agency fees were reduced by $12,844 as a result of earnings credits from overnight cash balances. 3. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
Six months ended Nov. 30, 2003 Class A Class B Class C Class Y Sold 6,832,983 1,529,577 83,671 2,264,285 Issued for reinvested distributions 1,177,047 286,686 8,955 262,464 Redeemed (20,250,063) (10,138,388) (289,946) (9,508,132) ----------- ----------- -------- ---------- Net increase (decrease) (12,240,033) (8,322,125) (197,320) (6,981,383) ----------- ---------- -------- ---------- Year ended May 31, 2003 Class A Class B Class C Class Y Sold 15,626,061 9,752,400 408,574 7,829,635 Issued for reinvested distributions 4,031,980 1,248,789 34,818 934,006 Redeemed (31,360,558) (14,671,741) (448,963) (10,287,933) ----------- ----------- -------- ----------- Net increase (decrease) (11,702,517) (3,670,552) (5,571) (1,524,292) ----------- ---------- ------ ----------
4. BANK BORROWINGS The Fund has a revolving credit agreement with a syndicate of banks headed by Deutsche Bank, whereby the Fund is permitted to have bank borrowings for temporary or emergency purposes to fund shareholder redemptions. The Fund must maintain asset coverage for borrowings of at least 300%. The agreement, which enables the Fund to participate with other American Express mutual funds, permits borrowings up to $500 million, collectively. Interest is charged to each Fund based on its borrowings at a rate equal to either the LIBOR plus 0.50%, the IBOR plus 0.50% or the higher of the Federal Funds Rate plus 0.25% and the Prime Lending Rate. Borrowings are payable within 60 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 0.09% per annum. The Fund had no borrowings outstanding during the six months ended Nov. 30, 2003. - -------------------------------------------------------------------------------- 28 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT 5. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund has a capital loss carry-over of $38,591,537 as of May 31, 2003 that will expire in 2011 if not offset by capital gains. 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. 6. 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 May 31, 2003(g) 2003 2002 2001 2000 Net asset value, beginning of period $8.88 $8.74 $8.74 $8.32 $8.96 Income from investment operations: Net investment income (loss) .13 .33 .40 .52 .52 Net gains (losses) (both realized and unrealized) (.27) .18 .02 .42 (.46) Total from investment operations (.14) .51 .42 .94 .06 Less distributions: Dividends from net investment income (.12) (.33) (.40) (.52) (.53) Distributions from realized gains -- (.04) (.02) -- (.17) Total distributions (.12) (.37) (.42) (.52) (.70) Net asset value, end of period $8.62 $8.88 $8.74 $8.74 $8.32 Ratios/supplemental data Net assets, end of period (in millions) $821 $955 $1,042 $1,004 $949 Ratio of expenses to average daily net assets(c) 1.01%(d) .98% .98% .97% .97% Ratio of net investment income (loss) to average daily net assets 3.03%(d) 3.89% 4.45% 6.01% 6.17% Portfolio turnover rate (excluding short-term securities) 153% 263% 389% 150% 62% Total return(e) (1.52%)(f) 6.05% 4.85% 11.52% .83%
See accompanying notes to financial highlights. - -------------------------------------------------------------------------------- 29 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT
Class B Per share income and capital changes(a) Fiscal period ended May 31, 2003(g) 2003 2002 2001 2000 Net asset value, beginning of period $8.88 $8.74 $8.74 $8.32 $8.96 Income from investment operations: Net investment income (loss) .10 .27 .33 .45 .46 Net gains (losses) (both realized and unrealized) (.27) .18 .02 .42 (.47) Total from investment operations (.17) .45 .35 .87 (.01) Less distributions: Dividends from net investment income (.09) (.27) (.33) (.45) (.46) Distributions from realized gains -- (.04) (.02) -- (.17) Total distributions (.09) (.31) (.35) (.45) (.63) Net asset value, end of period $8.62 $8.88 $8.74 $8.74 $8.32 Ratios/supplemental data Net assets, end of period (in millions) $234 $315 $342 $264 $187 Ratio of expenses to average daily net assets(c) 1.77%(d) 1.74% 1.73% 1.73% 1.73% Ratio of net investment income (loss) to average daily net assets 2.26%(d) 3.12% 3.67% 5.25% 5.41% Portfolio turnover rate (excluding short-term securities) 153% 263% 389% 150% 62% Total return(e) (1.90%)(f) 5.25% 4.06% 10.69% .06%
Class C Per share income and capital changes(a) Fiscal period ended May 31, 2003(g) 2003 2002 2001(b) Net asset value, beginning of period $8.88 $8.74 $8.74 $8.40 Income from investment operations: Net investment income (loss) .10 .27 .33 .42 Net gains (losses) (both realized and unrealized) (.27) .18 .02 .34 Total from investment operations (.17) .45 .35 .76 Less distributions: Dividends from net investment income (.09) (.27) (.33) (.42) Distributions from realized gains -- (.04) (.02) -- Total distributions (.09) (.31) (.35) (.42) Net asset value, end of period $8.62 $8.88 $8.74 $8.74 Ratios/supplemental data Net assets, end of period (in millions) $8 $10 $9 $4 Ratio of expenses to average daily net assets(c) 1.78%(d) 1.75% 1.74% 1.73%(d) Ratio of net investment income (loss) to average daily net assets 2.26%(d) 3.07% 3.64% 5.16%(d) Portfolio turnover rate (excluding short-term securities) 153% 263% 389% 150% Total return(e) (1.90%)(f) 5.24% 4.06% 9.27%(f)
See accompanying notes to financial highlights. - -------------------------------------------------------------------------------- 30 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT
Class Y Per share income and capital changes(a) Fiscal period ended May 31, 2003(g) 2003 2002 2001 2000 Net asset value, beginning of period $8.88 $8.74 $8.74 $8.32 $8.96 Income from investment operations: Net investment income (loss) .14 .35 .42 .53 .54 Net gains (losses) (both realized and unrealized) (.27) .18 .02 .42 (.47) Total from investment operations (.13) .53 .44 .95 .07 Less distributions: Dividends from net investment income (.13) (.35) (.42) (.53) (.54) Distributions from realized gains -- (.04) (.02) -- (.17) Total distributions (.13) (.39) (.44) (.53) (.71) Net asset value, end of period $8.62 $8.88 $8.74 $8.74 $8.32 Ratios/supplemental data Net assets, end of period (in millions) $112 $177 $188 $218 $167 Ratio of expenses to average daily net assets(c) .84%(d) .82% .81% .82% .81% Ratio of net investment income (loss) to average daily net assets 3.17%(d) 4.04% 4.61% 6.16% 6.33% Portfolio turnover rate (excluding short-term securities) 153% 263% 389% 150% 62% Total return(e) (1.45%)(f) 6.22% 5.02% 11.70% .97%
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) Not annualized. (g) Six months ended Nov. 30, 2003 (Unaudited). Proxy Voting The policy of the Board is to vote all proxies of the companies in which the Fund holds investments. The procedures are stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling (800) 862-7919; by looking at the Web site americanexpress.com/funds; or by searching the Web site of the Securities and Exchange Commission http://www.sec.gov. You may view the Fund's voting record for all portfolio companies whose shareholders meetings were completed the previous quarter on americanexpress.com/funds or obtain a copy by calling the Fund's administrator, Board Services Corporation, collect at (612) 330-9283. In addition, after Aug. 1, 2004, information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 will be available at http://www.sec.gov. - -------------------------------------------------------------------------------- 31 --- AXP SELECTIVE FUND --- 2003 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- (logo) AMERICAN EXPRESS (R) - -------------------------------------------------------------------------------- American Express Funds 70100 AXP Financial Center Minneapolis, MN 55474 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. Item 2. Code of Ethics. Not applicable for semi-annual reports. Item 3. Audit Committee Financial Expert. Not applicable for semi-annual reports. Item 4. Principal Accountant Fees and Services. Not applicable at this time. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. [Reserved] Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. Item 9. Submission of matters to a vote of security holders. Not applicable at this time. Item 10. Controls and Procedures. (a) The registrant's Principal Executive Officer and Principal Financial Officer have evaluated the registrant's disclosure controls and procedures within 90 days of this filing and have concluded that the registrant's disclosure controls and procedures by the registrant in this Form N-CSR was recorded, processed, summarized, and reported timely. (b) At the date of filing this Form N-CSR, the registrant's Principal Executive Officer and Principal Financial Officer are aware of no significant changes in the registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Item 11. Exhibits. (a)(1) Not applicable for semi-annual reports. (a)(2) Separate certification for the Registrant's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached as EX.99.CERT. (a)(3) Not applicable. (b) A certification by the Registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment Company Act of 1940, is attached as EX.99.906 CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) AXP Income Series, Inc. By /s/ Paula R. Meyer ------------------ Paula R. Meyer President and Principal Executive Officer Date February 3, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/ Paula R. Meyer ------------------ Paula R. Meyer President and Principal Executive Officer Date February 3, 2004 By /s/ Jeffrey P. Fox ------------------ Jeffrey P. Fox Treasurer and Principal Financial Officer Date February 3, 2004 EX-99.CERT 3 ex99-cert.txt CERTIFICATION PURSUANT TO 270.30A-2 OF THE INVESTMENT COMPANY ACT OF 1940 Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Paula Meyer, certify that: 1. I have reviewed this report on Form N-CSR of AXP Income Series, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: January 16, 2004 /s/ Paula R. Meyer -------------------------------- Name: Paula R. Meyer Title: President and Chief Executive Officer Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Jeffrey Fox, certify that: 1. I have reviewed this report on Form N-CSR of AXP Income Series, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: January 16, 2004 /s/ Jeffrey P. Fox -------------------------------- Name: Jeffrey P. Fox Title: Treasurer and Chief Financial Officer EX-99.906 CERT 4 ex99-906cert.txt CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION AXP Income Series, Inc. (the Registrant) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Each of the undersigned below certifies that 1. This report on Form N-CSR of the Registrant (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: January 16, 2004 /s/ Paula R. Meyer ------------------ Paula R. Meyer President and Chief Executive Officer Date: January 16, 2004 /s/ Jeffrey P. Fox ------------------ Jeffrey P. Fox Treasurer and Chief Financial Officer A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO THE REGISTRANT AND WILL BE RETAINED BY THE REGISTRANT AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. This certification is being furnished to the Commission solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form N-CSR filed with the Commission. -----END PRIVACY-ENHANCED MESSAGE-----