<DOCUMENT>
<TYPE>N-30D
<SEQUENCE>1
<FILENAME>s-6370.txt
<DESCRIPTION>AXP EXTRA INCOME FUND, INC.
<TEXT>
AXP(R)
Extra Income
Fund
2001 ANNUAL REPORT
(PROSPECTUS ENCLOSED)
American
Express(R)
Funds
(icon of) clock
AXP Extra Income Fund seeks to provide shareholders with high current income as
its primary goal and, as its secondary goal, capital growth.
(This annual report includes a prospectus that describes in detail the Fund's
objective, investment strategy, risks, sales charges, fees and other matters of
interest. Please read the prospectus carefully before you invest or send money.)
<PAGE>
Bonds with Something Extra
Bonds aren't necessarily conservative securities strictly for people willing to
settle for modest returns. High-yield corporate bonds, for example, are actually
quite aggressive investments, offering high potential returns to investors
willing to take more risk.
These are the bonds that AXP Extra Income Fund invests in. High-yield bonds are
issued by a wide range of companies -- from well-established ones that might be
experiencing financial difficulty to new, rapidly growing ones that have yet to
build a credit history.
Importantly, the Fund spreads its investments among many bonds representing many
types of businesses. This helps to spread the investment risk for shareholders.
Table of Contents
2001 ANNUAL REPORT
The purpose of this annual report is to tell investors how the Fund performed.
From the Chairman 3
From the Portfolio Manager 3
Fund Facts 5
The 10 Largest Holdings 6
Making the Most of the Fund 7
The Fund's Long-term Performance 8
Board Members and Officers 10
Independent Auditors' Report (Fund) 12
Financial Statements (Fund) 13
Notes to Financial Statements (Fund) 16
Independent Auditors'
Report (Portfolio) 21
Financial Statements (Portfolio) 22
Notes to Financial
Statements (Portfolio) 24
Investments in Securities 27
Federal Income Tax Information 38
-------------------------------------------------------------------------------
2 AXP EXTRA INCOME FUND
<PAGE>
(picture of) Arne H. Carlson
Arne H. Carlson
Chairman of the board
From the Chairman
First, I want to thank you for being a shareholder in American Express funds.
While we strongly believe in the virtues of investment, we also are very
sensitive to the fluctuations of the financial markets. That is why we want to
re-emphasize the importance of making certain that you frequently review your
investments and regularly meet with your financial advisor. By doing so, you can
take advantage of shifts in the markets to position your portfolio relative to
expected market volatility and, possibly, achieve better overall performance.
Second, I strongly advise that you keep a focus on the long-term. Reviewing past
performance is helpful, but it should not be viewed as a leading indicator of
the future. One constant is the necessity to have a financial plan based on
appropriate asset allocation. Make sure that the plan provides what you need and
expect.
Our job, as a Board, is to monitor and confirm that the Fund complies with its
investment objective and that its management style stays on target. We want the
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, 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) Scott Schroepfer
Scott Schroepfer
Portfolio manager
From the Portfolio Manager
The high-yield sector of the bond market was under considerable pressure for
most of the past 12 months, as a higher-than-normal level of defaults and
concerns about a slowdown in economic growth took a toll on prices. However,
substantial interest income made up for most of the price slump, leaving AXP
Extra Income Fund's Class A shares with a total-return loss of just 0.94%
(excluding the sales charge) for the fiscal year -- June 2000 through May 2001.
(Total return includes distributions and change in net asset value.)
The first few months of the period were relatively uneventful, although
high-yield bonds did experience some price erosion. By fall, however, investors
were becoming increasingly worried that the economy might be heading toward a
substantial slowdown in growth, which might make it increasingly difficult for
some issuers of high-yield bonds to honor their interest and principal payments.
With that cloud hanging over the market, the selling pressure on high-yield
bonds
-------------------------------------------------------------------------------
3 ANNUAL REPORT -- 2001
<PAGE>
intensified, driving down prices through the end of 2000. Most affected were
bonds in the telecommunications sector. The selling pressure was exacerbated by
substantial redemptions from high-yield-bond mutual funds.
NEW YEAR'S SURPRISE
The new year got off to a stunningly good start, thanks to a surprise
interest-rate cut by the Federal Reserve that spurred high-yield bonds to a
powerful month-long rally. Most of that gain was erased in March, though, as
renewed concerns about the economy and, in particular, the viability of
telecommunications companies, hurt the high-yield market. The period finished on
an even note, as the market essentially treaded water during April and May.
To lessen the effect of the periodic price slumps on the Fund's net asset value,
last summer I began emphasizing higher-quality bonds and increasing the level of
cash reserves in the portfolio. In addition, I began paring back holdings in the
telecommunications sector. The trade-off in that strategy was that the Fund's
dividend, though still quite high on a historical basis, declined slightly.
The downturn that hit the high-yield market last fall was ultimately
unsurprising given the increase in defaults the high-yield sector had been
experiencing since mid-1999, a condition that was spawned by a huge issuance of
high-yield bonds in 1997. (It normally takes two to three years for potential
default problems to emerge.) The simple fact is that as the number of bonds
issued increases, so does the number of potential defaults. As was true in this
case, a big increase in the supply of new bonds usually is accompanied by weaker
underwriting standards, which exacerbates the problem when the economy slows
down.
Looking toward the new fiscal year, it appears that the level of defaults will
peak in 2001. If that proves to be the case, it would signal that the worst for
high-yield bonds probably is behind us. (Usually, the high-yield market begins
to rally ahead of the default peak.) Equally important, the economy seems likely
to strengthen in the months ahead, disproving the recession scenario that has
plagued the high-yield sector.
I'm also encouraged that some relative stability returned to the high-yield
market late in the past period. This indicates to me that the market has
factored in all the past and potential bad news, and is now focusing on the
possibility of a sustainable upturn in high-yield bond prices. In the meantime,
I expect the Fund to continue to generate a high level of monthly income.
Scott Schroepfer
-------------------------------------------------------------------------------
4 AXP EXTRA INCOME FUND
<PAGE>
Fund Facts
Class A-- 12-month performance
(All figures per share)
Net asset value (NAV)
May 31, 2001 $3.07
May 31, 2000 $3.48
Decrease $0.41
Distributions -- June 1, 2000 - May 31, 2001
From income $0.38
From long-term capital gains $ --
Total distributions $0.38
Total return** -0.94%
Class B-- 12-month performance
(All figures per share)
Net asset value (NAV)
May 31, 2001 $3.07
May 31, 2000 $3.48
Decrease $0.41
Distributions -- June 1, 2000 - May 31, 2001
From income $0.35
From long-term capital gains $ --
Total distributions $0.35
Total return** -1.69%
Class C -- June 26, 2000* - May 31, 2001
(All figures per share)
Net asset value (NAV)
May 31, 2001 $3.05
June 26, 2000* $3.48
Decrease $0.43
Distributions -- June 26, 2000* - May 31, 2001
From income $0.32
From long-term capital gains $ --
Total distributions $0.32
Total return** -2.92%***
Class Y-- 12-month performance
(All figures per share)
Net asset value (NAV)
May 31, 2001 $3.07
May 31, 2000 $3.48
Decrease $0.41
Distributions -- June 1, 2000 - May 31, 2001
From income $0.38
From long-term capital gains $ --
Total distributions $0.38
Total return** -0.78%
* Inception date.
** 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.
*** The total return for Class C is not annualized.
-------------------------------------------------------------------------------
5 ANNUAL REPORT -- 2001
<PAGE>
The 10 Largest Holdings
Percent Value
(of net assets) (as of May 31, 2001)
CSC Holdings
11.13% Pay-in-kind Series M Preferred 1.61% $43,843,423
Price Communications Wireless
9.13% 2006 1.41 38,323,999
Allied Waste North America
7.88% 2009 1.31 35,721,000
Paxson Communications
12.50% Cm Pay-in-kind
Exchangeable Preferred 1.11 30,218,300
Outsourcing Solutions
11.00% 2006 1.10 29,916,000
Trump Atlantic City Assn/Funding
11.25% 2006 1.03 27,891,524
Wayland Investment Fund LLC .98 26,644,020
Sequa
9.00% 2009 .97 26,425,937
Park Place Entertainment
8.13% 2011 .96 26,053,125
Varde Fund V LP .95 25,951,999
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
The 10 holdings listed here
make up 11.43% of net assets
-------------------------------------------------------------------------------
6 AXP EXTRA INCOME FUND
<PAGE>
Making the Most of the Fund
BUILD YOUR ASSETS SYSTEMATICALLY
One of the best ways to invest in the Fund is by dollar-cost averaging -- a
time-tested strategy that can make market fluctuations work for you. To
dollar-cost average, simply invest a fixed amount of money regularly. You'll
automatically buy more shares when the Fund's share price is low, fewer shares
when it is high. The chart below shows how dollar-cost averaging works. In these
three hypothetical scenarios, you will see six months of share price
fluctuations.
This strategy does not ensure a profit or avoid a loss if the market declines.
But, if you can continue to invest regularly through changing market conditions
even when the price of your shares falls or the market declines, it can be an
effective way to accumulate shares to meet your long-term goals.
How dollar-cost averaging works
Jan Feb Mar Apr May Jun
$15 $16 $18 $20
$10 $10 $12 $14
$ 5
Accumulated shares* Average market Your average
price per share cost per share
42.25 $15 $14.20
-------------------------------------------------------------------------------
Jan Feb Mar Apr May Jun
$15
$10 $10 $10
$ 5 $8 $5 $5 $8
Accumulated shares* Average market Your average
price per share cost per share
85.0 $7.66 $7.05
-------------------------------------------------------------------------------
Jan Feb Mar Apr May Jun
$15
$10 $10
$ 5 $8 $6 $4 $4 $7
Accumulated shares* Average market Your average
price per share cost per share
103.5 $6.50 $5.80
-------------------------------------------------------------------------------
$100 invested per month. Total invested: $600.
* Shares purchased is determined by dividing the amount invested per month by
the current share price.
THREE WAYS TO BENEFIT FROM A MUTUAL FUND:
o your shares increase in value when the Fund's investments do well
o you receive capital gains when the gains on investments sold by the Fund
exceed losses
o you receive income when the Fund's stock dividends, interest and short-term
gains exceed its expenses.
All three make up your total return. You potentially can increase your
investment if, like most investors, you reinvest your dividends and capital gain
distributions to buy additional shares of the Fund or another fund.
-------------------------------------------------------------------------------
7 ANNUAL REPORT -- 2001
<PAGE>
The Fund's Long-term Performance
Average Annual Total Returns (as of May 31, 2001)
1 year 5 years 10 years Since inception
Class A -5.66% +2.11% +8.36% N/A
Class B -5.22% +2.20% N/A +5.26%*
Class C N/A N/A N/A -4.08%**
Class Y -0.78% +3.24% N/A +6.19%*
* Inception date was March 20, 1995.
** Inception date was June 26, 2000.
Assumes: Holding period from 6/1/91 to 5/31/01. Returns do not reflect taxes
payable on distributions. Reinvestment of all income and capital gain
distributions for the Fund has a value of $14,818. Also see "Past Performance"
in the Fund's current prospectus.
On the graph above you can see how the Fund's total return compared to two
widely cited performance indexes, the Merrill Lynch High Yield Bond Index and
the Lipper High Yield Funds Index. In comparing AXPExtra Income Fund (Class A)
to these indexes, you should take into account the fact that the Fund's
performance reflects the maximum sales charge of 4.75%, while such charges are
not reflected in the performance of the indexes.
Your investment and return values fluctuate so that your shares, when redeemed,
may be worth more or less than the original cost. Average annual total return
figures reflect the impact of the maximum applicable sales charge. This was a
period of widely fluctuating security prices. Past performance is no guarantee
of future results.
-------------------------------------------------------------------------------
8 AXP EXTRA INCOME FUND
<PAGE>
Merrill Lynch High Yield Bond Index, an unmanaged index, provides a broad-based
measure of performance of non-investment grade U.S. domestic bond market. The
index currently captures close to $200 billion of the outstanding debt of
domestic market issuers rated below investment grade but not in default. The
index is "rule-based," which means there is a defined list of criteria that a
bond must meet in order to qualify for inclusion in the index.
Lipper High Yield Funds Index, an unmanaged index published by Lipper Inc.,
includes the 30 largest funds that are generally similar to the Fund, although
some funds in the index may have somewhat different investment policies or
objectives.
-------------------------------------------------------------------------------
9 ANNUAL REPORT -- 2001
<PAGE>
Board Members and Officers
Shareholders elect a board that oversees the Fund's operations. The board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the board.
The following is a list of the Fund's board members. Each member oversees 15
Master Trust portfolios and 68 American Express mutual funds. Board members
serve until the next regular shareholders' meeting or until he or she reaches
the mandatory retirement age established by the board.
Independent Board Members
<TABLE>
<CAPTION>
Name, address, age Position held with Principal occupations during Other directorships
Registrant and length past five years
of service
------------------------------- ------------------------- ---------------------------------- -----------------------------
<S> <C> <C> <C>
H. Brewster Atwater, Jr. Board member since 1996 Retired chair and chief Merck & Co., Inc.
4900 IDS Tower Minneapolis, executive officer, General (pharmaceuticals)
MN 55402 Mills, Inc. (consumer foods)
Born in 1931
------------------------------- ------------------------- ---------------------------------- -----------------------------
Arne H. Carlson Chair of the Board Chair, Board Services
901 S. Marquette Ave. since 1999 Corporation (provides
Minneapolis, MN 55402 administrative services to
Born in 1934 boards)
Former Governor of Minnesota
------------------------------- ------------------------- ---------------------------------- -----------------------------
Lynne V. Cheney American Board member since 1994 Distinguished Fellow, AEI The Reader's Digest
Enterprise Institute for Association Inc.
Public Policy Research (AEI)
1150 17th St., N.W.
Washington, D.C. 20036
Born in 1941
------------------------------- ------------------------- ---------------------------------- -----------------------------
Livio D. DeSimone Board member since 2001 Retired chair of the board and Cargill, Incorporated
30 Seventh Street St. Paul, chief executive officer, (commodity merchants and
MN 55101-4901 Minnesota Mining and processors), Target
Manufacturing (3M) Corporation (department
stores), General Mills,
Inc. (consumer foods) and
Vulcan Materials Company
(construction
Born in 1936 materials/chemicals)
------------------------------- ------------------------- ---------------------------------- -----------------------------
Ira D. Hall Board member since 2001 Treasurer, Texaco Inc. since
Texaco, Inc. 1998. Prior to that, director,
2000 Westchester Avenue International Operations IBM
White Plains, NY 10650 Corp.
Born in 1944
------------------------------- ------------------------- ---------------------------------- -----------------------------
Heinz F. Hutter Board member since 1994 Retired president and chief
P.O. Box 2187 operating officer, Cargill,
Minneapolis, MN 55402 Incorporated (commodity
Born in 1929 merchants and processors)
------------------------------- ------------------------- ---------------------------------- -----------------------------
Anne P. Jones Board member since 1985 Attorney and telecommunications Motorola, Inc. (electronics)
5716 Bent Branch Rd. consultant
Bethesda, MD 20816
Born in 1935
------------------------------- ------------------------- ---------------------------------- -----------------------------
William R. Pearce Board member since 1980 RII Weyerhaeuser World
2050 One Financial Plaza Timberfund, L.P. (develops
Minneapolis, MN 55402 timber resources) - management
Born in 1927 committee; Former chair,
American Express Funds
------------------------------- ------------------------- ---------------------------------- -----------------------------
</TABLE>
--------------------------------------------------------------------------------
10 AXP EXTRA INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
Independent Board Members
Name, address, age Position held Principal occupations during past Other directorships
with five years
Registrant and
length of
service
---------------------------- ---------------- ---------------------------------------- ----------------------------------------
<S> <C> <C> <C>
Alan K. Simpson Board member Former three-term United States Biogen, Inc. (bio-pharmaceuticals)
1201 Sunshine Ave. Cody, since 1997 Senator for Wyoming
WY 82414
Born in 1931
---------------------------- ---------------- ---------------------------------------- ----------------------------------------
---------------------------- ---------------- ---------------------------------------- ----------------------------------------
C. Angus Wurtele Suite Board member Retired chair of the board and chief The Valspar Corporation (paints),
1700, Foshay Tower since 1994 executive officer, The Valspar Bemis Corporation (packaging)
Minneapolis, MN 55402 Born Corporation
in 1934
---------------------------- ---------------- ---------------------------------------- ----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Board Members Affiliated with American Express Financial Corporation (AEFC)
Name, address, age Position held Principal occupations during past Other directorships
with five years
Registrant and
length of
service
---------------------------- ---------------- ---------------------------------------- ----------------------------------------
<S> <C> <C> <C>
David R. Hubers Board member Retired chief executive officer and Chronimed Inc. (specialty
50643 AXP Financial Center since 1993 director and current chair of the pharmaceutical distribution) RTW Inc.
Minneapolis, MN 55474 board of AEFC (manages workers compensation
Born in 1943 programs) Lawson Software, Inc.
(technology based business
applications)
---------------------------- ---------------- ---------------------------------------- ----------------------------------------
John R. Thomas Board member Senior vice president - information
50652 AXP Financial Center since 1987, and technology of AEFC
Minneapolis, MN 55474 president
Born in 1937 since 1997
---------------------------- ---------------- ---------------------------------------- ----------------------------------------
</TABLE>
The board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. The officers serve at the
pleasure of the board. In addition to Mr. Thomas, who is president, the Fund's
other officers are:
<TABLE>
<CAPTION>
Other Officers
Name, address, age Position held Principal occupations during past Other directorships
with five years
Registrant and
length of
service
---------------------------- ---------------- ---------------------------------------- ----------------------------------------
<S> <C> <C> <C>
John M. Knight Treasurer Vice president - investment
50005 AXP Financial Center since 1999 accounting of AEFC
Minneapolis, MN 55474 Born
in 1952
---------------------------- ---------------- ---------------------------------------- ----------------------------------------
Leslie L. Ogg Vice President of Board Services
901 S. Marquette Ave. president, Corporation
Minneapolis, MN 55402 general
Born in 1938 counsel and
secretary
since 1978
---------------------------- ---------------- ---------------------------------------- ----------------------------------------
Frederick C. Quirsfeld Vice president Senior vice president - fixed income
53609 AXP Financial Center since 1998 and director of AEFC
Minneapolis, MN 55474
Born in 1947
---------------------------- ---------------- ---------------------------------------- ----------------------------------------
</TABLE>
The SAI has additional information about the Fund's directors and is available,
without charge, upon request by calling (800) 862-7919.
The board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. The officers serve at the
pleasure of the board. In addition to Mr. Thomas, who is president, the Fund's
other officers are: Other Officers
The SAI has additional information about the Fund's directors and is available,
without charge, upon request by calling (800) 862-7919.
-------------------------------------------------------------------------------
11 ANNUAL REPORT -- 2001
<PAGE>
Independent Auditors' Report
THE BOARD AND SHAREHOLDERS
AXP EXTRA INCOME FUND, INC.
We have audited the accompanying statement of assets and liabilities of AXP
Extra Income Fund, Inc. as of May 31, 2001, the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
years in the two-year period ended May 31, 2001, and the financial highlights
for each of the years in the five-year period ended May 31, 2001. These
financial statements and the financial highlights are the responsibility of fund
management. Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AXP Extra Income Fund, Inc. as
of May 31, 2001, and the results of its operations, changes in its net assets
and the financial highlights for each of the periods stated in the first
paragraph above, in conformity with accounting principles generally accepted in
the United States of America.
KPMG LLP
Minneapolis, Minnesota
July 6, 2001
-------------------------------------------------------------------------------
12 AXP EXTRA INCOME FUND
<PAGE>
Financial Statements
Statement of assets and liabilities
AXP Extra Income Fund, Inc.
May 31, 2001
Assets
Investment in High Yield Portfolio (Note 1) $2,718,557,036
Capital shares receivable 290,834
--------------------------------------------------------------------------------
Total assets 2,718,847,870
--------------------------------------------------------------------------------
Liabilities
Dividends payable to shareholders 4,523,491
Accrued distribution fee 35,415
Accrued service fee 2
Accrued transfer agency fee 9,690
Accrued administrative services fee 3,391
Other accrued expenses 117,816
--------------------------------------------------------------------------------
Total liabilities 4,689,805
--------------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $2,714,158,065
================================================================================
Represented by
Capital stock -- $.01 par value (Note 1) $ 8,851,010
Additional paid-in capital 4,024,462,350
Excess of distributions over net investment income (873,010)
Accumulated net realized gain (loss) (Note 4) (725,067,604)
Unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in
foreign currencies (593,214,681)
--------------------------------------------------------------------------------
Total -- representing net assets applicable to
outstanding capital stock $2,714,158,065
================================================================================
Net assets applicable to
outstanding shares: Class A $1,898,150,056
Class B $ 807,342,103
Class C $ 8,042,805
Class Y $ 623,101
Net asset value per share of
outstanding capital stock: Class A shares 618,954,958 $ 3.07
Class B shares 263,309,724 $ 3.07
Class C shares 2,633,264 $ 3.05
Class Y shares 203,102 $ 3.07
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
-------------------------------------------------------------------------------
13 ANNUAL REPORT -- 2001
<PAGE>
Statement of operations
AXP Extra Income Fund, Inc.
Year ended May 31, 2001
Investment income Income:
Dividends $ 38,662,288
Interest 319,189,187
--------------------------------------------------------------------------------
Total income 357,851,475
--------------------------------------------------------------------------------
Expenses (Note 2):
Expenses allocated from High Yield Portfolio 16,845,169
Distribution fee
Class A 5,016,390
Class B 8,306,572
Class C 30,808
Transfer agency fee 3,239,549
Incremental transfer agency fee
Class A 254,415
Class B 172,432
Class C 514
Service fee -- Class Y 627
Administrative services fees and expenses 1,334,902
Compensation of board members 11,286
Printing and postage 484,654
Registration fees 249,814
Audit fees 12,000
Other 11,125
--------------------------------------------------------------------------------
Total expenses 35,970,257
Earnings credits on cash balances (Note 2) (215,983)
--------------------------------------------------------------------------------
Total net expenses 35,754,274
--------------------------------------------------------------------------------
Investment income (loss) -- net 322,097,201
--------------------------------------------------------------------------------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (382,732,773)
Foreign currency transactions (2,276)
--------------------------------------------------------------------------------
Net realized gain (loss) on investments (382,735,049)
Net change in unrealized appreciation
(depreciation) on investments and on
translation of assets and liabilities in foreign currencies 15,026,448
--------------------------------------------------------------------------------
Net gain (loss) on investments and foreign currencies (367,708,601)
--------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (45,611,400)
================================================================================
See accompanying notes to financial statements.
-------------------------------------------------------------------------------
14 AXP EXTRA INCOME FUND
<PAGE>
Statements of changes in net assets
AXP Extra Income Fund, Inc.
Year ended May 31, 2001 2000
Operations and distributions
Investment income (loss) -- net $ 322,097,201 $ 369,102,894
Net realized gain (loss) on investments (382,735,049) (153,128,652)
Net change in unrealized appreciation
(depreciation) on investments
and on translation of assets
and liabilities in foreign currencies 15,026,448 (311,468,718)
--------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (45,611,400) (95,494,476)
--------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (232,680,925) (267,394,597)
Class B (90,055,179) (98,425,373)
Class C (344,397) --
Class Y (73,820) (94,925)
--------------------------------------------------------------------------------
Total distributions (323,154,321) (365,914,895)
--------------------------------------------------------------------------------
Capital share transactions (Note 3)
Proceeds from sales
Class A shares (Notes 2 and 6) 450,737,898 543,228,750
Class B shares 209,897,046 309,550,131
Class C shares 9,206,823 --
Class Y shares 536,729 505,504
Reinvestment of distributions at net asset value
Class A shares 163,370,284 175,194,772
Class B shares 71,478,524 78,668,584
Class C shares 250,707 --
Class Y shares 74,210 93,810
Payments for redemptions
Class A shares (679,544,189) (978,819,213)
Class B shares (Note 2) (282,951,069) (415,861,083)
Class C shares (Note 2) (1,075,656) --
Class Y shares (529,063) (1,109,891)
--------------------------------------------------------------------------------
Increase (decrease) in net assets from
capital share transactions (58,547,756) (288,548,636)
--------------------------------------------------------------------------------
Total increase (decrease) in net assets (427,313,477) (749,958,007)
Net assets at beginning of year 3,141,471,542 3,891,429,549
--------------------------------------------------------------------------------
Net assets at end of year $2,714,158,065 $3,141,471,542
================================================================================
Undistributed (excess of distributions
over) net investment income $ (873,010) $ 241,427
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
-------------------------------------------------------------------------------
15 ANNUAL REPORT -- 2001
<PAGE>
Notes to Financial Statements
AXP Extra Income Fund, Inc.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940 (as amended) as
a diversified, open-end management investment company. The Fund has 10 billion
authorized shares of capital stock.
Class C shares of the Fund were offered to the public on June 26, 2000. Prior to
this date, American Express Financial Corporation (AEFC) purchased 573 shares of
capital stock at $3.49 per share, which represented the initial capital in Class
C.
The Fund offers Class A, Class B, Class C and Class Y shares.
o Class A shares are sold with a front-end sales charge.
o Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares during the ninth calendar year of
ownership.
o Class C shares may be subject to a CDSC.
o Class Y shares have no sales charge and are offered only to qualifying
institutional investors.
All classes of shares have identical voting, dividend and liquidation rights.
The distribution fee, incremental transfer agency fee and service fee (class
specific expenses) differ among classes. Income, expenses (other than class
specific expenses) and realized and unrealized gains or losses on investments
are allocated to each class of shares based upon its relative net assets.
Investment in High Yield Portfolio
The Fund invests all of its assets in the High Yield 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 long-term
corporate bonds in the lower-rating categories, commonly known as junk 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 May 31, 2001 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.
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
-------------------------------------------------------------------------------
16 AXP EXTRA INCOME FUND
<PAGE>
recognition of certain foreign currency gains (losses) as ordinary income (loss)
for tax purposes, and losses deferred due to "wash sale" transactions. The
character of distributions made during the year from net investment income or
net realized gains may differ from their ultimate characterization for federal
income tax purposes. Also, due to the timing of dividend distributions, the
fiscal year in which amounts are distributed may differ from the year that the
income or realized gains (losses) were recorded by the Fund.
On the statement of assets and liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income has been decreased by $58,276
and accumulated net realized loss has been decreased by $64,007 resulting in a
net reclassification adjustment to decrease paid-in capital by $5,731.
Dividends to shareholders
Dividends from net investment income, declared daily and paid monthly, are
reinvested in additional shares of the Fund at net asset value or payable in
cash. Capital gains, when available, are distributed along with the last income
dividend of the calendar year.
2. EXPENSES AND SALES CHARGES
In addition to the expenses allocated from the Portfolio, the Fund accrues its
own expenses as follows:
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 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 $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
$3,715,625 for Class A and $839,754 for Class B for the year ended May 31, 2001
and $2,108 for Class C for the period ended May 31, 2001.
During the year ended May 31, 2001, the Fund's transfer agency fees were reduced
by $215,983 as a result of earnings credits from overnight cash balances.
-------------------------------------------------------------------------------
17 ANNUAL REPORT -- 2001
<PAGE>
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the years indicated are as follows:
<TABLE>
<CAPTION>
Year ended May 31, 2001
Class A Class B Class C* Class Y
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 138,865,419 64,607,127 2,896,417 168,963
Issued for reinvested distributions 50,473,426 22,066,966 80,205 22,950
Redeemed (208,965,351) (86,509,968) (343,358) (166,782)
------------------------------------------------------------------------------------------
Net increase (decrease) (19,626,506) 164,125 2,633,264 25,131
------------------------------------------------------------------------------------------
<FN>
* Inception date was June 26, 2000.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Year ended May 31, 2000
Class A Class B Class C Class Y
<S> <C> <C> <C> <C>
Sold 143,200,689 81,718,196 N/A 134,219
Issued for reinvested distributions 46,607,413 20,948,743 N/A 24,813
Redeemed (259,529,027) (110,417,887) N/A (293,799)
------------------------------------------------------------------------------------------
Net increase (decrease) (69,720,925) (7,750,948) N/A (134,767)
------------------------------------------------------------------------------------------
</TABLE>
4. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, the Fund has a capital loss carry-over of
$719,449,395 as of May 31, 2001, that if not offset by subsequent capital gains,
will expire in 2003 through 2010. It is unlikely the board will authorize a
distribution of any net realized gains until the available capital loss
carry-over has been offset or expires.
5. BANK BORROWINGS
The Fund has a revolving credit agreement with U.S. Bank, N.A., whereby the Fund
is permitted to have bank borrowings for temporary or emergency purposes to fund
shareholder redemptions. The Fund must have asset coverage for borrowings not to
exceed the aggregate of 333% of advances equal to or less than five business
days plus 367% of advances over five business days. The agreement, which enables
the Fund to participate with other American Express mutual funds, permits
borrowings up to $200 million, collectively. Interest is charged to each Fund
based on its borrowings at a rate equal to the Federal Funds Rate plus 0.30% or
the Eurodollar Rate (Reserve Adjusted) plus 0.20%. Borrowings are payable up to
90 days after such loan is executed. The Fund also pays a commitment fee equal
to its pro rata share of the amount of the credit facility at a rate of 0.05%
per annum. The Fund had no borrowings outstanding during the year ended May 31,
2001.
6. FUND MERGER
As of the close of business on July 14, 2000, AXP Extra Income Fund, Inc.
acquired the assets and assumed the identified liabilities of Strategist High
Yield Fund.
The aggregate net assets of AXP Extra Income Fund, Inc. immediately before the
acquisition were $3,092,275,794.
The merger was accomplished by a tax-free exchange of 471,445 shares of
Strategist High Yield Fund valued at $1,623,708.
In exchange for the Strategist High Yield Fund shares and net assets, AXP Extra
Income Fund, Inc. issued the following number of shares:
Shares Net assets
--------------------------------------------------------------------------------
Class A 468,720 $1,623,708
Strategist High Yield Fund's net assets at that date consisted of capital stock
of $2,077,880, accumulated net realized loss of $152,814 and unrealized
depreciation of $301,358.
-------------------------------------------------------------------------------
18 AXP EXTRA INCOME FUND
<PAGE>
7. NEW ACCOUNTING PRONOUNCEMENT
In November 2000, the AICPA issued a revised Audit and Accounting Guide, Audits
of Investment Companies, which is effective for fiscal years beginning after
Dec. 15, 2000. Adopting the revised Guide is not expected to have a significant
impact on the Fund's financial position, results of operations or changes in its
net assets.
8. FINANCIAL HIGHLIGHTS
The tables below show certain important financial information for evaluating the
Fund's results.
Class A
<TABLE>
<CAPTION>
Per share income and capital changes(a)
Fiscal period ended May 31, 2001 2000 1999 1998 1997
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $3.48 $3.97 $4.58 $4.39 $4.34
-------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .38 .39 .40 .40 .39
Net gains (losses) (both realized
and unrealized) (.41) (.49) (.58) .17 .06
-------------------------------------------------------------------------------------------------------
Total from investment operations (.03) (.10) (.18) .57 .45
-------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (.38) (.39) (.43) (.38) (.40)
-------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.07 $3.48 $3.97 $4.58 $4.39
Ratios/supplemental data
Net assets, end of period (in millions) $1,898 $2,224 $2,814 $3,112 $2,582
------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(c) 1.04% .99% .91% .89% .92%
-------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 11.54% 10.32% 9.86% 8.90% 9.01%
-------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 76% 44% 47% 81% 92%
-------------------------------------------------------------------------------------------------------
Total return(e) (.94%) (2.78%) (3.67%) 13.24% 10.92%
-------------------------------------------------------------------------------------------------------
</TABLE>
Class B
<TABLE>
<CAPTION>
Per share income and capital changes(a)
Fiscal period ended May 31, 2001 2000 1999 1998 1997
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $3.48 $3.97 $4.58 $4.39 $4.34
-------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .35 .36 .37 .37 .36
Net gains (losses) (both realized
and unrealized) (.41) (.49) (.58) .16 .06
-------------------------------------------------------------------------------------------------------
Total from investment operations (.06) (.13) (.21) .53 .42
-------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (.35) (.36) (.40) (.34) (.37)
-------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.07 $3.48 $3.97 $4.58 $4.39
-------------------------------------------------------------------------------------------------------
Ratios/supplemental data
Net assets, end of period (in millions) $807 $917 $1,076 $1,046 $613
-------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(c) 1.80% 1.75% 1.67% 1.65% 1.68%
-------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 10.79% 9.58% 9.11% 8.23% 8.18%
-------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 76% 44% 47% 81% 92%
-------------------------------------------------------------------------------------------------------
Total return(e) (1.69%) (3.53%) (4.39%) 12.42% 10.07%
-------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial highlights.
-------------------------------------------------------------------------------
19 ANNUAL REPORT -- 2001
<PAGE>
Class C
Per share income and capital changes(a)
Fiscal period ended May 31, 2001(b)
Net asset value, beginning of period $3.48
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .32
Net gains (losses) (both realized and unrealized) (.43)
--------------------------------------------------------------------------------
Total from investment operations (.11)
--------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (.32)
--------------------------------------------------------------------------------
Net asset value, end of period $3.05
--------------------------------------------------------------------------------
Ratios/supplemental data
Net assets, end of period (in millions) $8
--------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(c) 1.80%(d)
--------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average daily net assets 11.10%(d)
--------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 76%
--------------------------------------------------------------------------------
Total return(e) (2.92%)
--------------------------------------------------------------------------------
Class Y
<TABLE>
<CAPTION>
Per share income and capital changes(a)
Fiscal period ended May 31, 2001 2000 1999 1998 1997
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $3.48 $3.97 $4.58 $4.39 $4.34
-------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .38 .39 .41 .41 .40
Net gains (losses) (both realized
and unrealized) (.41) (.49) (.59) .16 .06
-------------------------------------------------------------------------------------------------------
Total from investment operations (.03) (.10) (.18) .57 .46
-------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (.38) (.39) (.43) (.38) (.41)
-------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.07 $3.48 $3.97 $4.58 $4.39
-------------------------------------------------------------------------------------------------------
Ratios/supplemental data
Net assets, end of period (in millions) $1 $1 $1 $2 $--
-------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(c) .88% .83% .83% .82% .85%
-------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average daily net assets 11.72% 10.34% 9.93% 10.07% 8.68%
-------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 76% 44% 47% 81% 92%
-------------------------------------------------------------------------------------------------------
Total return(e) (.78%) (2.68%) (3.58%) 13.42% 11.05%
-------------------------------------------------------------------------------------------------------
<FN>
Notes to financial statements
(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.
</FN>
</TABLE>
-------------------------------------------------------------------------------
20 AXP EXTRA INCOME FUND
<PAGE>
Independent Auditors' Report
THE BOARD OF TRUSTEES AND UNITHOLDERS
INCOME TRUST
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of High Yield Portfolio (a series of
Income Trust) as of May 31, 2001, the related statement of operations for the
year then ended and the statements of changes in net assets for each of the
years in the two-year period ended May 31, 2001. These financial statements are
the responsibility of portfolio management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 2001, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of High Yield Portfolio as of May
31, 2001, and the results of its operations and the changes in its net assets
for each of the periods stated in the first paragraph above, in conformity with
accounting principles generally accepted in the United States of America.
KPMG LLP
Minneapolis, Minnesota
July 6, 2001
-------------------------------------------------------------------------------
21 ANNUAL REPORT -- 2001
<PAGE>
Financial Statements
Statement of assets and liabilities
High Yield Portfolio
May 31, 2001
Assets
Investments in securities, at value (Note 1)
Investments in securities of unaffiliated
issuers (identified cost $3,148,650,953) $2,597,006,848
Investments in securities of affiliated
issuers (identified cost $48,973,125) 5,645,785
--------------------------------------------------------------------------------
Total investments in securities (identified
cost $3,197,624,078) 2,602,652,633
Cash in bank on demand deposit 221,500
Accrued interest and dividends receivable 88,806,338
Receivable for investment securities sold 39,263,760
--------------------------------------------------------------------------------
Total assets 2,730,944,231
--------------------------------------------------------------------------------
Liabilities
Payable for investment securities purchased 9,885,278
Payable upon return of securities loaned (Note 4) 2,259,100
Accrued investment management services fee 42,363
Other accrued expenses 101,626
--------------------------------------------------------------------------------
Total liabilities 12,288,367
--------------------------------------------------------------------------------
Net assets $2,718,655,864
================================================================================
See accompanying notes to financial statements.
-------------------------------------------------------------------------------
22 AXP EXTRA INCOME FUND
<PAGE>
Statement of operations
High Yield Portfolio
Year ended May 31, 2001
Investment income
Income:
Dividends $ 38,666,157
Interest 319,213,011
--------------------------------------------------------------------------------
Total income 357,879,168
--------------------------------------------------------------------------------
Expenses (Note 2):
Investment management services fee 16,164,094
Compensation of board members 14,961
Custodian fees 234,165
Audit fees 36,000
Other 400,820
--------------------------------------------------------------------------------
Total expenses 16,850,040
Earnings credits on cash balances (Note 2) (3,214)
--------------------------------------------------------------------------------
Total net expenses 16,846,826
--------------------------------------------------------------------------------
Investment income (loss) -- net 341,032,342
--------------------------------------------------------------------------------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) (382,745,726)
Foreign currency transactions (2,273)
--------------------------------------------------------------------------------
Net realized gain (loss) on investments (382,747,999)
Net change in unrealized appreciation
(depreciation) on investments
and on translation of assets and liabilities
in foreign currencies 15,016,851
--------------------------------------------------------------------------------
Net gain (loss) on investments and foreign
currencies (367,731,148)
--------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ (26,698,806)
================================================================================
Statements of changes in net assets
High Yield Portfolio
Year ended May 31, 2001 2000
Operations
Investment income (loss) -- net $ 341,032,342 $ 392,069,684
Net realized gain (loss) on investments (382,747,999) (153,205,238)
Net change in unrealized appreciation
(depreciation) on investments
and on translation of assets and
liabilities in foreign currencies 15,016,851 (311,617,708)
--------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (26,698,806) (72,753,262)
Net contributions (withdrawals)
from partners (405,033,310) (671,455,648)
--------------------------------------------------------------------------------
Total increase (decrease) in net assets (431,732,116) (744,208,910)
Net assets at beginning of year 3,150,387,980 3,894,596,890
--------------------------------------------------------------------------------
Net assets at end of year $2,718,655,864 $3,150,387,980
================================================================================
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
23 ANNUAL REPORT -- 2001
<PAGE>
Notes to Financial Statements
High Yield Portfolio
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
High Yield 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 long-term corporate bonds in the lower-rating categories, commonly
known as junk 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.
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.
-------------------------------------------------------------------------------
24 AXP EXTRA INCOME FUND
<PAGE>
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.
Illiquid securities
As of May 31, 2001, investments in securities included issues that are illiquid
which the Portfolio currently limits to 10% of net assets, at market value, at
the time of purchase. The aggregate value of such securities as of May 31, 2001
was $92,709,765 representing 3.41% 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.
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. Interest income,
including level-yield amortization of premium and discount, is accrued daily.
-------------------------------------------------------------------------------
25 ANNUAL REPORT -- 2001
<PAGE>
2. FEES AND EXPENSES
The Trust, on behalf of the Portfolio, has an Investment Management Services
Agreement with 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 0.59% to 0.465% 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.
During the year ended May 31, 2001, the Portfolio's custodian fees were reduced
by $3,214 as a result of earnings credits from overnight cash balances. The
Portfolio also pays custodian fees to American Express Trust Company, an
affiliate of AEFC.
According to a Placement Agency Agreement, American Express Financial Advisors
Inc. acts as placement agent of the Trust's units.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $2,050,147,343 and $2,086,583,748, respectively, for the
year ended May 31, 2001. For the same period, the portfolio turnover rate was
76%. Realized gains and losses are determined on an identified cost basis.
4. LENDING OF PORTFOLIO SECURITIES
As of May 31, 2001, securities valued at $2,235,320 were on loan to brokers. For
collateral, the Portfolio received $2,259,100 in cash. Income from securities
lending amounted to $36,104 for the year ended May 31, 2001. 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. NEW ACCOUNTING PRONOUNCEMENT
In November 2000, the AICPA issued a revised Audit and Accounting Guide, Audits
of Investment Companies, which is effective for fiscal years beginning after
Dec. 15, 2000. Adopting the revised Guide is not expected to have a significant
impact on the Portfolio's financial position, results of operations or changes
in its net assets.
-------------------------------------------------------------------------------
26 AXP EXTRA INCOME FUND
<PAGE>
Investments in Securities
High Yield Portfolio
May 31, 2001
(Percentages represent value of investments compared to net assets)
Bonds (81.3%)
Issuer Coupon Principal Value(a)
rate amount
Government obligations & agencies (0.4%)
Republic of Panama
(U.S. Dollar)
02-08-11 9.63% $5,000,000(c) $5,098,045
Republic of Venezuela
(U.S. Dollar)
12-18-07 7.38 6,666,600(c,g) 5,620,778
Total 10,718,823
Aerospace & defense (1.9%)
Alliant Techsystems
Sr Sub Nts
05-15-11 8.50 4,275,000(d) 4,317,750
Compass Aerospace
Company Guaranty Series B
04-15-05 10.13 10,890,000(b) 2,409,413
Company Guaranty Series D
04-15-05 10.13 4,000,000(b) 885,000
Fairchild
Company Guaranty
04-15-09 10.75 21,400,000 17,120,000
Sequa
Sr Nts
08-01-09 9.00 25,750,000 26,425,937
Total 51,158,100
Automotive & related (2.6%)
Delco Remy Intl
Company Guaranty
05-01-09 11.00 8,125,000(d) 8,450,000
Exide
04-29-05 9.85 4,923,791(l) 4,603,744
French (JL) Auto Casting
Company Guaranty Series B
06-01-09 11.50 13,676,000 5,060,120
Hayes Lemmerz Intl
Company Guaranty
07-15-06 11.00 3,100,000 2,821,000
Company Guaranty Series B
07-15-07 9.13 7,100,000 5,822,000
Lear
Company Guaranty Series B
05-15-09 8.11 20,000,000 20,193,400
MSX Intl
Company Guaranty
01-15-08 11.38 13,110,000 12,061,200
Oxford Automotive
Company Guaranty Series D
06-15-07 10.13 9,540,000 6,117,525
Venture Holdings Trust
Sr Nts Series B
07-01-05 9.50 5,370,000 4,376,550
Total 69,505,539
Beverages & tobacco (0.4%)
Constellation Brands
Company Guaranty
08-01-06 8.63 10,415,000 10,831,600
Building materials & construction (1.3%)
K Hovnanian Enterprises
Company Guaranty
10-01-07 10.50 3,300,000 3,456,750
Nortek
Sr Nts Series B
03-15-07 9.25 3,000,000 2,962,500
09-01-07 9.13 4,200,000 4,126,500
WCI Communities
Sr Sub Nts
02-15-11 10.63 23,235,000(d) 24,396,750
Total 34,942,500
Chemicals (4.0%)
Allied Waste North America
Company Guaranty Series B
01-01-09 7.88 36,450,000 35,721,000
08-01-09 10.00 10,200,000 10,531,500
Georgia Gulf
11-15-05 7.63 4,500,000 4,351,518
Huntsman
Sr Sub Nts
07-01-07 9.50 17,055,000(d) 11,426,850
IMC Global
Sr Nts
06-01-08 10.88 15,825,000(d) 16,062,375
See accompanying notes to investments in securities.
-------------------------------------------------------------------------------
27 ANNUAL REPORT -- 2001
<PAGE>
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Chemicals (cont.)
Lyondell Chemical
Series B
05-01-07 9.88% $18,900,000 $19,656,000
PMD Group
Sr Sub Nts
02-28-11 11.00 6,550,000(d) 6,746,500
Sterling Chemicals
Company Guaranty Series B
07-15-06 12.38 5,000,000 3,862,500
Total 108,358,243
Commercial finance (0.3%)
Advance Holding
Zero Coupon Series B
04-15-03 13.34 11,200,000(i) 8,946,000
Communications equipment & services (10.5%)
360networks
(U.S. Dollar) Sr Nts
05-01-08 13.00 15,385,000(c) 1,692,350
08-01-09 12.00 9,900,000(c) 990,000
Birch Telecom
Sr Nts
06-15-08 14.00 14,000,000 7,700,000
Cable Satisfaction Intl
(U.S. Dollar)
03-01-10 12.75 7,565,000(c) 4,614,650
Celcaribe
Sr Nts
03-15-04 14.50 6,184,000 4,452,480
Crown Castle Intl
Sr Nts
08-01-11 9.38 15,000,000(d) 14,775,000
Dobson/Sygnet Communications
Sr Nts
12-15-08 12.25 16,000,000 16,560,000
EchoStar DBS
Sr Nts
02-01-09 9.38 21,815,000 21,978,612
Equinix
Sr Nts
12-01-07 13.00 11,260,000 7,009,350
Fairpoint Communications
Sr Sub Nts
05-01-10 12.50 6,400,000 5,792,000
Sr Sub Nts Series B
05-01-08 9.50 7,925,000 6,340,000
Global Telesystems
(U.S. Dollar) Sr Nts
12-15-07 11.50 19,560,000(b,c) 415,650
06-15-08 10.88 15,340,000(b,c) 325,975
GT Group Telecom
06-30-08 9.89 20,000,000(l) 15,850,000
(U.S. Dollar) Zero Coupon Sr Disc Nts
02-01-05 17.71 23,540,000(c,i) 8,239,000
Horizon PCS
Zero Coupon Company Guaranty
10-01-05 14.40 26,625,000(i) 11,049,375
Insight Midwest/Insight Capital
Sr Nts
11-01-10 10.50 17,805,000(d) 19,140,375
IPCS
Zero Coupon Sr Disc Nts
07-15-05 13.49 14,810,000(i) 6,146,150
NATG Holdings LLC/Orius Capital
Company Guaranty Series B
02-01-10 12.75 19,000,000 5,890,000
Nextel Communications
Sr Nts
02-01-11 9.50 18,425,000(d) 14,878,188
Nextel Partners
Sr Nts
03-15-10 11.00 4,400,000 3,784,000
NTL
Sr Nts Series B
02-01-06 11.50 22,400,000 18,480,000
Price Communications Wireless
Company Guaranty Series B
12-15-06 9.13 36,850,000 38,323,999
Rural Cellular
Sr Sub Nts Series B
05-15-08 9.63 11,375,000 11,033,750
Spectrasite Holdings
Zero Coupon Sr Disc Nts
04-15-04 11.67 21,450,000(i) 11,046,750
Telehub Communications
Zero Coupon Company Guaranty
07-31-01 13.88 12,000,000(b,h,i) --
UbiquiTel
Zero Coupon Company Guaranty
04-15-05 12.73 21,940,000(i) 9,543,900
Voicestream Wireless/Voicestream Wireless Holdings
Sr Nts
11-15-09 10.38 15,799,974 18,051,470
Total 284,103,024
See accompanying notes to investments in securities.
-------------------------------------------------------------------------------
28 AXP EXTRA INCOME FUND
<PAGE>
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Computers & office equipment (0.8%)
Exodus Communications
Sr Nts
07-01-08 11.25% $4,000,000 $2,640,000
07-15-10 11.63 7,600,000 5,054,000
Globix
Sr Nts
02-01-10 12.50 38,375,000 14,198,750
Total 21,892,750
Energy (2.7%)
AES Drax Energy
(U.S. Dollar)
08-30-10 11.50 3,200,000(c,g) 3,480,000
Calpine Canada Energy Finance
(U.S. Dollar) Company Guaranty
05-01-08 8.50 20,000,000(c) 19,823,600
Energy Corp of America
Sr Sub Nts Series A
05-15-07 9.50 14,900,000 12,292,500
Grant Prideco
Sr Nts
12-01-07 9.63 19,500,000(d) 20,670,000
Hurricane Hydrocarbons
(U.S. Dollar) Sr Nts
12-31-01 16.00 2,117,160(b,c,d) 2,027,181
Ocean Energy
Company Guaranty Series B
07-01-08 8.38 14,000,000 14,775,880
Total 73,069,161
Energy equipment & services (0.2%)
SESI LLC
Company Guaranty
05-15-11 8.88 4,450,000(d) 4,561,250
Financial services (1.9%)
AOA Holdings LLC
Sr Nts
06-01-06 10.38 15,500,000 14,880,000
CSC Holdings
Sr Nts
04-01-11 7.63 10,000,000(d) 9,710,200
Indah Kiat Finance Mauritius
(U.S. Dollar) Company Guaranty
07-01-07 10.00 11,520,000(b,c) 2,534,400
LaBranche
Sr Nts
08-15-04 9.50 3,030,000 3,176,470
Sr Sub Nts
03-02-07 12.00 15,900,000 18,126,000
SBA Communications
Sr Nts
02-01-09 10.25 3,000,000(d) 2,940,000
Total 51,367,070
Food (1.1%)
Aurora Foods
Sr Sub Nts Series D
02-15-07 9.88 16,800,000 15,036,000
Del Monte
Sr Sub Nts
05-15-11 9.25 8,400,000(d) 8,599,500
RAB Enterprises
Company Guaranty
05-01-05 10.50 9,600,000 6,540,000
Total 30,175,500
Furniture & appliances (0.4%)
Sealy Mattress
Sr Sub Nts
12-15-07 9.88 10,775,000(d) 10,801,938
Health care services (4.0%)
DaVita
Company Guaranty
04-15-11 9.25 5,600,000(d) 5,824,000
HCA-The Healthcare
05-20-08 7.25 1,600,000 1,556,000
09-01-10 8.75 20,875,000 22,075,313
02-01-11 7.88 13,000,000 13,065,000
Magellan Health Services
Sr Nts
11-15-07 9.38 5,600,000(d) 5,684,000
Sr Sub Nts
02-15-08 9.00 8,125,000 7,678,125
Manor Care
Sr Nts
03-01-08 8.00 8,025,000(d) 8,197,698
Omnicare
Sr Sub Nts
03-15-11 8.13 10,500,000(d) 10,710,000
Paracelsus Healthcare
Sr Sub Nts
08-15-06 10.00 26,275,000(b) 8,670,750
Physician Sales & Service
Company Guaranty
10-01-07 8.50 9,350,000 8,321,500
Triad Hospitals
Sr Nts
05-01-09 8.75 17,555,000(d) 17,993,875
Total 109,776,261
See accompanying notes to investments in securities.
-------------------------------------------------------------------------------
29 ANNUAL REPORT -- 2001
<PAGE>
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Household products (0.4%)
Revlon Consumer Products
Sr Nts
02-01-06 8.13% $15,000,000 $11,700,000
Industrial equipment & services(0.7%)
Motors & Gears
Sr Nts Series D
11-15-06 10.75 19,460,000 19,070,800
Insurance (0.6%)
Americo Life
Sr Sub Nts
06-01-05 9.25 16,875,000 16,664,063
Leisure time & entertainment (7.8%)
Alliance Atlantis Communications
(U.S. Dollar) Sr Sub Nts
12-15-09 13.00 10,750,000(c) 11,569,688
Choctaw Resort Development Enterprises
Sr Nts
04-01-09 9.25 12,175,000(d) 12,540,250
Cinemark USA
Sr Sub Nts Series B
08-01-08 9.63 4,285,000 3,663,675
Coast Hotels & Casino
Company Guaranty
04-01-09 9.50 23,460,000 24,163,800
Hammons (JQ) Hotels
1st Mtge
02-15-04 8.88 17,800,000 17,577,500
Harrahs Entertainment
12-15-05 7.88 8,000,000 8,090,000
Horseshoe Gaming Holdings
Company Guaranty Series B
05-15-09 8.63 8,175,000 8,297,625
Horseshoe Gaming LLC
Company Guaranty Series B
06-15-07 9.38 6,825,000 7,234,500
Icon Health & Fitness
Company Guaranty
09-27-05 12.00 5,550,000(d) 3,330,000
Isle of Capri Casinos/Capital
1st Mtge Series B
08-31-04 13.00 20,850,000 22,622,250
Lodgenet Entertainment
Sr Nts
12-15-06 10.25 5,000,000 5,025,000
Premier Cruises
Sr Nts
03-15-08 11.00 11,000,000(b,d,h) --
Six Flags
Sr Nts
04-01-06 9.25 10,000,000 10,287,500
06-15-07 9.75 13,650,000 14,127,750
02-01-09 9.50 5,740,000(d) 5,955,250
Station Casinos
Sr Sub Nts
07-01-10 9.88 11,070,000 11,554,313
Steinway Musical Instruments
Sr Nts
04-15-11 8.75 8,600,000(d) 8,772,000
Trump Atlantic City Assn/Funding
1st Mtge Company Guaranty
05-01-06 11.25 42,180,000 27,891,524
United Artists Theatres
Series 1995A
07-01-15 9.30 12,555,535 10,672,205
Total 213,374,830
Media (11.4%)
Adelphia Communications
Sr Nts
10-01-10 10.88 14,550,000 15,350,250
Australis Holdings
(U.S. Dollar) Sr Disc Nts
11-01-02 15.00 17,753,000(b,c) 30,890
Australis Media
(U.S. Dollar)
05-15-03 15.75 43,500,000(b,c) 435,000
(U.S. Dollar) Sr Disc Nts
05-15-03 15.75 469,560(b,c) 42
Benedek Communications
Sr Disc Nts
05-15-06 13.25 8,500,000 5,015,000
CanWest Media
(U.S. Dollar) Sr Sub Nts
05-15-11 10.63 15,605,000(c,d) 15,936,606
Charter Communications Holdings LLC
Sr Nts
11-15-09 9.63 12,850,000(d) 13,042,750
Charter Communications Holdings/ Charter Capital
Sr Nts
04-01-09 10.00 20,900,000 21,527,000
10-01-09 10.75 8,400,000 8,925,000
01-15-10 10.25 7,850,000 8,085,500
Charter Communications LLC/Capital
Zero Coupon Sr Disc Nts
04-01-04 14.16 14,650,000(i) 10,255,000
See accompanying notes to investments in securities.
-------------------------------------------------------------------------------
30 AXP EXTRA INCOME FUND
<PAGE>
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Media (cont.)
Coaxial Communications/Phoenix
Company Guaranty
08-15-06 10.00% $16,585,000 $16,709,388
Cumulus Media
Company Guaranty
07-01-08 10.38 12,885,000 12,885,000
Golden Sky Systems
Company Guaranty Series B
08-01-06 12.38 11,165,000 10,941,700
MDC
(U.S. Dollar) Sr Sub Nts
12-01-06 10.50 16,350,000(c) 15,042,000
MediaCom LLC/Capital
Sr Nts
01-15-13 9.50 11,200,000(d) 10,794,000
Nexstar Finance LLC
Sr Sub Nts
04-01-08 12.00 6,850,000(d) 7,072,625
Paxson Communications
Sr Sub Nts
10-01-02 11.63 15,100,000 15,288,750
Pegasus Communications
Sr Nts Series B
10-15-05 9.63 9,500,000 8,930,000
Pegasus Media & Communications
Series B
07-01-05 12.50 21,550,000 21,819,374
Radio Unica
Zero Coupon Company Guaranty
08-01-02 11.74 5,645,000(i) 3,302,325
Regional Independent Medical
(U.S. Dollar) Sr Nts
07-01-08 10.50 15,200,000(c) 15,352,000
Sinclair Broadcasting Group
Company Guaranty
07-15-07 9.00 11,500,000 11,040,000
Telemundo Holdings
Zero Coupon Sr Disc Nts Series B
08-15-03 11.50 12,000,000(i) 9,240,000
TeleWest Communications
(U.S. Dollar) Sr Nts
11-01-08 11.25 8,000,000(c) 7,880,000
(U.S. Dollar) Zero Coupon Sr Disc Nts
04-15-04 8.96 13,725,000(c,i) 7,622,865
Telewest Finance
(U.S. Dollar) Cv Company Guaranty
07-07-05 6.00 8,400,000(c,d) 6,599,149
Veninfotel
(U.S. Dollar) Cv Pay-in-kind
03-01-02 10.00 10,939,556(b,c,k,l)10,939,556
WRC Media/Weekly Read/Compass
Sr Sub Nts
11-15-09 12.75 11,610,000 11,029,500
XM Satellite Radio
03-15-10 14.00 10,750,000 7,202,500
Total 308,293,770
Metals (2.4%)
AK Steel
Sr Nts
12-15-06 9.13 10,000,000 10,250,000
Great Lakes Carbon
Company Guaranty Pay-in-kind Series B
05-15-08 10.25 22,075,000(k) 13,024,250
Kaiser Aluminum & Chemical
Sr Nts Series B
10-15-06 10.88 9,590,000 9,254,350
Sr Sub Nts
02-01-03 12.75 4,000,000 3,600,000
Maxxam Group Holdings
Sr Nts Series B
08-01-03 12.00 19,850,000 16,872,500
Oregon Steel Mills
1st Mtge
06-15-03 11.00 12,940,000(f) 12,163,600
WCI Steel
Sr Nts Series B
12-01-04 10.00 1,600,000 1,056,000
Total 66,220,700
Miscellaneous (6.9%)
Actuant
Company Guaranty
05-01-09 13.00 3,175,000 3,190,875
Adams Outdoor Advertising LP
Sr Nts
03-15-06 10.75 16,775,000 17,383,094
Advanced Glassfiber Yarn
Sr Sub Nts
01-15-09 9.88 10,465,000 8,999,900
Alliance Imaging
Sr Sub Nts
04-15-11 10.38 6,150,000(d) 6,349,875
Argo-Tech
Company Guaranty Series D
10-01-07 8.63 8,308,000 7,311,040
Bistro Trust
12-31-02 9.50 10,000,000(d) 8,134,100
See accompanying notes to investments in securities.
-------------------------------------------------------------------------------
31 ANNUAL REPORT -- 2001
<PAGE>
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Miscellaneous (cont.)
Centaur Mining & Exploration
(U.S. Dollar) Company Guaranty
12-01-07 11.00% $6,825,000(b,c) $716,625
Consolidated Container LLC/Consolidated Container Capital
07-15-09 10.13 15,900,000 15,860,250
ECM Funding LP
06-10-02 11.92 1,078,342(l) 948,941
Falcon Products
Company Guaranty Series B
06-15-09 11.38 10,250,000 9,711,875
ISG Resources
04-15-08 10.00 15,220,000 7,610,000
Meritage
Sr Nts
06-01-11 9.75 7,640,000(d) 7,773,700
Nationwide Credit
Sr Nts Series A
01-15-08 10.25 6,040,000 1,751,600
NSM Steel
Company Guaranty
02-01-06 12.00 10,375,000(b,d) 415,000
02-01-08 12.25 11,700,000(b,d) 234,000
Omega Cabinets
Sr Sub Nts
06-15-07 10.50 8,509,000 8,764,270
Outsourcing Solutions
Sr Sub Nts Series B
11-01-06 11.00 37,395,000 29,916,000
Park-Ohio Inds
Sr Sub Nts
12-01-07 9.25 19,025,000 15,029,750
Poland Telecom Finance
(U.S. Dollar) Company Guaranty Series B
12-01-07 14.00 13,200,000(b,c) 132,000
Resolution Performance
Sr Sub Nts
11-30-08 10.37 9,260,714(d) 9,353,321
11-15-10 13.50 8,425,000(d) 9,183,250
SC Intl
09-01-07 9.25 16,860,000 17,871,600
Stellex Technologies
Sr Sub Nts Series B
11-01-07 9.50 11,450,000(b) 572,500
Total 187,213,566
Multi-industry conglomerates (1.2%)
Communications & Power Inds
Sr Sub Nts Series B
08-01-05 12.00 7,095,000 3,831,300
Jordan Inds
Sr Nts Series D
08-01-07 10.38 18,460,000 16,060,200
Zero Coupon Sr Sub Debs Series B
04-01-02 11.75 17,692,251(i) 9,730,738
Metromedia Intl Group
Zero Coupon Sr Disc Nts Series B
03-30-02 7.61 4,516,000(i) 2,574,120
Prime Succession
Sr Sub Nts
08-15-04 10.75 13,475,000(b) 1,617,000
Total 33,813,358
Paper & packaging (3.8%)
Berry Plastics
Company Guaranty Series B
07-15-07 11.00 6,400,000 5,952,000
Company Guaranty Series C
04-15-04 12.25 5,650,000 5,621,750
Sr Sub Nts
04-15-04 12.25 4,360,000 4,338,200
BPC Holding
Sr Nts Series B
06-15-06 12.50 14,242,946 9,685,203
Crown Paper
Sr Sub Nts
09-01-05 11.00 29,470,000(b) 589,400
Doman Inds
(U.S. Dollar) Company Guaranty
07-01-04 12.00 4,750,000(c) 4,916,250
(U.S. Dollar) Sr Nts Series B
11-15-07 9.25 14,745,000(c) 8,847,000
Fibermark
Sr Nts
04-15-11 10.75 3,150,000(d) 3,197,250
Packaging Corp of America
Company Guaranty
04-01-09 9.63 9,905,000 10,647,875
Riverwood Intl
Company Guaranty
08-01-07 10.63 7,500,000 7,725,000
Company Guaranty Sr Nts
04-01-06 10.25 9,250,000 9,435,000
Silgan Holdings
06-01-09 9.00 17,730,000 18,084,600
Stone Container
Sr Nts
08-01-16 12.58 12,600,000 13,293,000
See accompanying notes to investments in securities.
-------------------------------------------------------------------------------
32 AXP EXTRA INCOME FUND
<PAGE>
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Paper & packaging (cont.)
Tjiwi Kimia Intl
(U.S. Dollar) Company Guaranty
08-01-01 13.25% $7,000,000(b,c) $1,120,000
Total 103,452,528
Real estate investment trust (0.9%)
Meristar Hospitality
Sr Nts
01-15-08 9.00 10,850,000(d) 11,012,750
01-15-11 9.13 13,625,000(d) 14,033,750
Total 25,046,500
Restaurants & lodging (3.3%)
BOCA Resorts
Company Guaranty
04-15-09 9.88 11,800,000 11,918,000
Domino's
Company Guaranty Series B
01-15-09 10.38 10,225,000 10,429,500
MGM Mirage
Company Guaranty
09-15-10 8.50 12,500,000 13,007,375
Park Place Entertainment
Sr Sub Nts
09-15-08 8.88 9,100,000 9,509,500
05-15-11 8.13 26,250,000(d) 26,053,125
Prime Hospitality
Sr Sub Nts Series B
04-01-07 9.75 18,700,000 18,980,500
Total 89,898,000
Retail (1.7%)
Dairy Mart Convenience Stores
Company Guaranty Series B
03-15-04 10.25 6,250,000 3,875,000
Sr Sub Nts
03-15-04 10.25 17,675,000 10,958,500
Eye Care Centers of America
Company Guaranty
05-01-08 9.13 7,525,000 3,085,250
Flooring America
Company Guaranty
10-15-07 9.25 9,245,000(b) 69,338
Levi Strauss
Sr Nts
01-15-08 11.63 13,785,000 13,785,000
Rite Aid
09-15-02 10.50 15,000,000(d) 15,487,500
Total 47,260,588
Textiles & apparel (0.2%)
Galey & Lord
Company Guaranty
03-01-08 9.13 12,865,000 6,689,800
Transportation (0.6%)
American Architectural
Company Guaranty
12-01-07 11.75 12,900,000(b) 3,096,000
Greater Beijing First Expressways
(U.S. Dollar) Sr Nts
06-15-04 9.25 3,500,000(b,c) 1,470,000
06-15-07 9.50 5,000,000(b,c) 2,100,000
Interpool
08-01-07 7.35 10,000,000 8,800,000
Total 15,466,000
Utilities -- electric (0.9%)
AES
Sr Nts
12-15-02 8.75 20,000,000 20,350,000
Pacific Gas & Electric
1st Mtge Series 1992B
05-01-25 8.38 1,600,000 1,328,000
1st Mtge Series 1993C
08-01-03 6.25 800,000 688,000
Southern California Edison
1st Refunding Mtge
09-01-04 5.88 2,400,000 2,040,000
Total 24,406,000
Utilities -- gas (0.2%)
El Paso Energy Partners
Company Guaranty
06-01-11 8.50 4,125,000(d) 4,176,563
Utilities -- telephone (5.8%)
Adelphia Business Solutions
Sr Nts Series B
09-01-04 12.25 21,000,000 17,535,000
Allegiance Telecom
Sr Nts
05-15-08 12.88 1,600,000 1,488,000
Zero Coupon Sr Disc Nts Series B
02-15-03 12.01 23,410,000(i) 14,514,200
COLT Telecom Group
(U.S. Dollar) Zero Coupon Sr Disc Nts
12-15-01 9.52 6,900,000(c,i) 6,900,000
Dobson Communications
Sr Nts
07-01-10 10.88 6,600,000 6,748,500
See accompanying notes to investments in securities.
-------------------------------------------------------------------------------
33 ANNUAL REPORT -- 2001
<PAGE>
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Utilities -- telephone (cont.)
Geotek Communications
Escrow Cv Sr Sub Nts
02-15-02 0% $4,135,000(b,h,l) $--
Global Crossing Holdings
(U.S. Dollar) Sr Sub Deb
08-01-07 8.70 10,400,000(c,d) 9,412,000
Intermedia Communications
Sr Disc Nts
05-15-06 12.50 4,000,000 3,960,000
Zero Coupon Sr Disc Nts Series B
07-15-02 11.08 26,065,000(i) 23,197,850
ITC Deltacom
Sr Nts
03-01-08 8.88 10,465,000 6,697,600
11-15-08 9.75 4,500,000 2,970,000
McLeod USA
Sr Nts
03-15-08 8.38 980,000 646,800
11-01-08 9.50 5,000,000 3,400,000
02-15-09 8.13 16,855,000 10,787,200
Metromedia Fiber Network
Sr Nts
12-15-09 10.00 11,770,000 6,591,200
PSINet
Sr Nts
12-01-06 10.50 27,265,000(b) 2,590,175
08-01-09 11.00 5,000,000(b) 450,000
RSL Communications
(U.S. Dollar) Company Guaranty
11-15-06 12.25 29,867,000(b,c) 522,673
United Pan-Europe Communications
(U.S. Dollar) Sr Nts Series B
08-01-09 10.88 18,200,000(c) 10,010,000
11-01-09 11.25 8,500,000(c) 4,696,250
02-01-10 11.25 8,190,000(c) 4,545,450
02-01-10 11.50 5,550,000(c) 3,080,250
Williams Communications Group
Sr Nts
08-01-10 11.88 23,700,000 13,094,250
XO Communications
Sr Nts
10-01-07 9.63 800,000 336,000
06-01-09 10.75 7,740,000 3,483,000
Total 157,656,398
Total bonds
(Cost: $2,657,209,068) $2,210,611,223
Common stocks (0.6%)(b)
Issuer Shares Value(a)
Arena Brands 111,111(l) $2,777,776
Aurora Foods 441,087(l) 2,337,761
Communications & Power Inds 3,500(l) 17,500
Gaylord Container Cl A 1,000,000 1,020,000
Gemini Inds 245,278(l) 450,000
Genesys ADR 152,830(c) 2,069,315
Globix 47,212 142,108
Intermedia Communications 6,937 118,415
PhoneTel Technologies 1,786,000(j) 218,785
Premier Holdings 814,645(l) 8,146
Wilshire Financial
Services Group 2,412,000(j) 5,427,000
WorldCom 150,000 2,676,000
WRC Media 13,543(l) 135
Total common stocks
(Cost: $87,934,388) $17,262,941
Preferred stocks & other (12.0%)
Issuer Shares Value(a)
Adelphia Communications
13.00% Cm Series B 66,000 $6,633,000
American Restaurant Group
12.00% Pay-in-kind Series B 355(k) 35,500
Australis Holdings
Warrants 13,400(c) 134
Benedek Communications
Warrants 70,000 140,000
Bestel
Warrants 4,000 480,000
Birch Telecom
Warrants 14,000 140,000
Cable Satisfaction Intl
Warrants 7,565(c) 76
Century Maintenance
13.25% Pay-in-kind Series C 187,899(k) 14,937,971
Citadel Broadcasting
13.25% Cm Pay-in-kind
Series B 40,121(k) 4,894,762
Communications & Power Inds
14.00% Pay-in-kind Series B 251,884 (k) 10,610,610
CSC Holdings
11.13% Cm Pay-in-kind
Series M 399,940 (k) 43,843,423
11.75% Cm Series H 181,976 20,062,854
Dairy Mart
Warrants 311,333 (l) 3,113
Dobson Communications
13.00% Pay-in-kind 11,538(k) 10,946,678
Earthwatch
12.00% Cv Series C 357,031 806,890
See accompanying notes to investments in securities.
-------------------------------------------------------------------------------
34 AXP EXTRA INCOME FUND
<PAGE>
Preferred stocks & other (continued)
Issuer Shares Value(a)
GT Group Telecom
Warrants 23,540 $740,757
HF Holdings
Warrants 53,125 53,125
Horizon PCS
Warrants 26,625 519,188
Hosiery Corp of America
Warrants 10,000 1,000
Intermedia Communications
13.50% Pay-in-kind Series B 23,404 (k) 23,872,080
IPCS
Warrants 14,810 296,200
Nextel Communications
11.13% Pay-in-kind Series E 16,602 (k) 9,961,200
13.00% Cm Pay-in-kind
Series D 26,474 (k) 18,002,320
NSM Steel
Warrants 7,407,184(d) 7
NTL
13.00% Pay-in-kind Series B 33,383 (k) 22,992,541
Paxson Communications
12.50% Cm Pay-in-kind
Exchangeable 30,835 (k) 30,218,300
Pegasus Satellite
12.75% Cm Pay-in-kind
Series AI 15,920 (k) 15,124,000
PLD Telekom
Warrants 8,000 240
Poland Telecom
Warrants 13,200(c,d,h) --
RSL Communications
Warrants 9,500 570
Rural Cellular
12.25% Pay-in-kind 23,261 (k) 19,655,545
SGW Holding
12.50% Cm Pay-in-kind Series B 173,887 (k,l) 1,738,869
Cv Series A 87,091(l) 435,455
Warrants 2,750 (l) 2,750
Sinclair Capital
11.63% Cm 140,000 13,037,500
Telehub Communications
Warrants 12,000 (h) --
UbiquiTel
Warrants 21,940 219,400
Varde Fund V LP 25,000,000(l,m) 25,951,999
Wayland Investment
Fund LLC 26,000,000(l,m) 26,644,020
XM Satellite Radio
Warrants 10,750 94,063
XO Communications
13.50% Pay-in-kind Series E 16,520 (k) 1,982,400
Total preferred stocks & other
(Cost: $402,772,110) $325,078,540
Short-term securities (1.8%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (0.5%)
Federal Home Loan Bank Disc Nt
06-22-01 4.24% $4,300,000 $4,288,885
Federal Home Loan Mtge Corp Disc Nt
07-17-01 3.93 1,800,000 1,790,811
Federal Natl Mtge Assn Disc Nt
06-07-01 4.87 6,500,000 6,493,705
Total 12,573,401
Commercial paper (1.3%)
Charta
08-21-01 3.96 3,000,000(e) 2,972,667
Electronic Data Systems
06-04-01 4.79 8,400,000(e) 8,395,530
06-11-01 4.17 3,100,000(e) 3,096,059
Falcon Asset
06-14-01 4.79 17,100,000(e) 17,066,689
McDonalds
06-05-01 4.00 600,000 599,667
Windmill Funding
06-06-01 4.94 5,000,000(e) 4,995,916
Total 37,126,528
Total short-term securities
(Cost: $49,708,512) $49,699,929
Total investments in securities
(Cost: $3,197,624,078)(n) $2,602,652,633
See accompanying notes to investments in securities.
-------------------------------------------------------------------------------
35 ANNUAL REPORT -- 2001
<PAGE>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing. For long-term debt securities, item identified is in
default as to payment of interest and/or principal.
(c) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated. As of May 31,
2001, the value of foreign securities represented 7.61% 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) 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.
(f) Security is partially or fully on loan. See Note 4 to the financial
statements.
(g) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on May 31,
2001.
(h) Negligible market value.
(i) 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.
(j) Investments representing 5% or more of the outstanding voting securities of
the issuer. Transactions with companies that are or were affiliates during
the year ended May 31, 2001 are as follows:
<TABLE>
<CAPTION>
Issuer Beginning Purchase Sales Ending Dividend Value(a)
cost cost cost cost income
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PhoneTel
Technologies $23,769,375 $-- $-- $23,769,375 $-- $ 218,785
Wilshire Financial
Services Group 25,203,750 -- -- 25,203,750 -- 5,427,000
---------------------------------------------------------------------------------------------------------
Total $48,973,125 $-- $-- $48,973,125 $-- $5,645,785
---------------------------------------------------------------------------------------------------------
</TABLE>
(k) 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.
-------------------------------------------------------------------------------
36 AXP EXTRA INCOME FUND
<PAGE>
Notes to investments in securities (continued)
(l) Identifies issues considered to be illiquid as to their marketability (see
Note 1 to the financial statements). Information concerning such security
holdings at May 31, 2001, is as follows:
Security Acquisition Cost
dates
--------------------------------------------------------------------------------
Arena Brands
Common 09-03-92 $ 5,888,888
Aurora Foods
Common 10-17-00 1,102,717
Communications & Power Inds
Common 08-17-95 350,000
Dairy Mart
Warrants 11-28-95 239,401
ECM Funding LP
11.92% 2002 04-13-92 thru 12-10-99 1,078,342
Exide
9.85% 2005 01-15-01 4,373,791
GT Group Telecom
9.89% 2008 02-09-01 15,851,750
Gemini Inds
Common 12-23-96 thru 10-22-99 13,554,000
Geotek Communications
0% 2002 08-26-00 --
Premier Holdings
Common 07-19-99 10,706,600
SGW Holdings
12.50% Pay-in-kind Series B 08-12-97 thru 05-08-01 2,821,729
Cv Series A 08-12-97 899,998
Warrants 08-12-97 867,900
Varde Fund V LP 04-27-00 thru 06-19-00 25,000,000
Veninfotel
(U.S. Dollar) 10.00%
Cv Pay-in-kind 2002 03-05-97 thru 03-09-00 10,939,556
WRC Media
Common 05-30-00 thru 10-05-00 3,485
Wayland Investment Fund LLC 05-17-00 28,911,480
(m) The share amount for Limited Liability Companies (LLC) or Limited
Partnerships (LP) represents capital contributions.
(n) At May 31, 2001, the cost of securities for federal income tax purposes was
$3,203,241,964 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $ 75,807,897
Unrealized depreciation (676,397,228)
------------------------------------------------------------------------
Net unrealized depreciation $(600,589,331)
------------------------------------------------------------------------
--------------------------------------------------------------------------------
37 ANNUAL REPORT -- 2001
<PAGE>
Federal Income Tax Information
(Unaudited)
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its fiscal
year. The dividends listed below are reported to you on Form 1099-DIV, Dividends
and Distributions. Shareholders should consult a tax advisor on how to report
distributions for state and local tax purposes.
AXP Extra Income Fund, Inc.
Fiscal year ended May 31, 2001
Class A
Income distributions taxable as dividend income, 11.89% qualifying for deduction
by corporations.
Payable date Per share
June 21, 2000 $0.03259
July 24, 2000 0.03570
Aug. 24, 2000 0.03364
Sept. 21, 2000 0.03340
Oct. 24, 2000 0.03067
Nov. 21, 2000 0.02955
Dec. 20, 2000 0.03238
Jan. 26, 2001 0.03070
Feb. 26, 2001 0.02911
March 26, 2001 0.03055
April 26, 2001 0.03259
May 24, 2001 0.02803
Total distributions $0.37891
Class B
Income distributions taxable as dividend income, 11.89% qualifying for deduction
by corporations.
Payable date Per share
June 21, 2000 $0.03056
July 24, 2000 0.03332
Aug. 24, 2000 0.03143
Sept. 21, 2000 0.03141
Oct. 24, 2000 0.02837
Nov. 21, 2000 0.02768
Dec. 20, 2000 0.03053
Jan. 26, 2001 0.02831
Feb. 26, 2001 0.02704
March 26, 2001 0.02870
April 26, 2001 0.03061
May 24, 2001 0.02623
Total distributions $0.35419
-------------------------------------------------------------------------------
38 AXP EXTRA INCOME FUND
<PAGE>
Class C
Income distributions taxable as dividend income, 11.89% qualifying for deduction
by corporations.
Payable date Per share
July 24, 2000 $0.03177
Aug. 24, 2000 0.03157
Sept. 21, 2000 0.03142
Oct. 24, 2000 0.02835
Nov. 21, 2000 0.02765
Dec. 20, 2000 0.03050
Jan. 26, 2001 0.02830
Feb. 26, 2001 0.02906
March 26, 2001 0.02864
April 26, 2001 0.03053
May 24, 2001 0.02618
Total distributions $0.32397
Class Y
Income distributions taxable as dividend income, 11.89% qualifying for deduction
by corporations.
Payable date Per share
June 21, 2000 $0.03304
July 24, 2000 0.03622
Aug. 24, 2000 0.03413
Sept. 21, 2000 0.03384
Oct. 24, 2000 0.03117
Nov. 21, 2000 0.02996
Dec. 20, 2000 0.03280
Jan. 26, 2001 0.03123
Feb. 26, 2001 0.02954
March 26, 2001 0.03094
April 26, 2001 0.03302
May 24, 2001 0.02842
Total distributions $0.38431
-------------------------------------------------------------------------------
39 ANNUAL REPORT -- 2001
<PAGE>
AXP Extra Income Fund
70100 AXP Financial Center
Minneapolis, MN 55474
americanexpress.com
PRSRT STD AUTO
U.S. POSTAGE
PAID
AMERICAN
EXPRESS
Ticker Symbol
Class A: INEAX Class B: IEIBX
Class C: N/A Class Y: N/A
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-6370 U (7/01)
</TEXT>
</DOCUMENT>