AXPSM
Bond Fund
2000 ANNUAL REPORT
(PROSPECTUS ENCLOSED)
American
Express(R)
Funds
(icon of) clock
AXP Bond Fund seeks to provide shareholders with a high level of current income
while conserving the value of the investment for the longest period of time.
(This annual report includes a prospectus that describes in detail the Fund's
objective, investment strategy, risks, sales charges, fees and other matters of
interest. Please read the prospectus carefully before you invest or send money.)
AMERICAN
EXPRESS (R) (logo)
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Striking a Balance Among Bonds
A bond is like an I.O.U. But with a bond, it's a corporation or the government
-- the bond issuer -- that promises to pay the money back. In return for lending
money to the issuer, bond investors get paid interest, which varies by bond
quality. (The lower the quality, the higher the interest.)
AXP Bond Fund invests largely in high-quality bonds, but includes some
lower-quality and even some foreign bonds seeking to boost the return. The
portfolio manager shifts this mix, as well as the balance between corporate and
government bonds, as investment conditions dictate. In doing so, the Fund seeks
to maximize the long-term return potential for investors.
AXP BOND FUND
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Table of Contents
2000 ANNUAL REPORT
The purpose of this annual report is to tell investors how the Fund performed.
From the Chairman 4
From the Portfolio Managers 4
Fund Facts 6
The 10 Largest Holdings 8
Making the Most of the Fund 9
The Fund's Long-term Performance 10
Independent Auditors' Report 12
Financial Statements 13
Notes to Financial Statements 16
Investments in Securities 27
Federal Income Tax Information 52
ANNUAL REPORT - 2000
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(picture of) Arne H. Carlson
Arne H. Carlson
Chairman of the board
From the Chairman
The financial markets have always had their ups and downs, but in recent months
volatility has become more frequent and intense. While no one can say with
certainty what the markets will do, American Express Financial Corporation, the
Fund's investment manager, expects economic growth to continue this year,
accompanied by a modest rise in long-term interest rates. But no matter what
transpires, this is a great time to take a close look at your goals and
investments. We encourage you to:
o Consult a professional investment advisor who can help you cut through
mountains of data.
o Set financial goals that extend beyond those achievable through retirement
plans of your employer.
o Learn as much as you can about your current investments.
The portfolio managers' letter that follows provides a review of the Fund's
investment strategies and performance. The annual report contains other valuable
information as well. The Fund's prospectus describes its investment objectives
and how it intends to achieve those objectives. As experienced investors know,
information is vital to making good investment decisions.
So, take a moment and decide again whether the Fund's investment objectives and
management style fit with your other investments to help you reach your
financial goals. And make it a practice on a regular basis to assess your
investment options.
Arne H. Carlson
(picture of) Fred Quirsfeld
Fred Quirsfeld
Portfolio manager
From the Portfolio Managers
Concerns about higher interest rates and potentially higher inflation made for
an often-difficult environment for corporate bonds during the past 12 months.
Still, AXP Bond Fund's Class A shares did produce a positive total return of
4.67% (excluding the sales charge) for its fiscal year -- September 1999 through
August 2000.
Thanks to a remarkably robust economy and a run-up in oil prices, the
possibility of higher inflation weighed on the minds of bond investors
throughout the period. And while there would ultimately
AXP BOND FUND
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be only modest evidence that inflation was picking up, the Federal Reserve (the
Fed) made it clear that it was concerned about the inflation risk when it raised
short-term interest rates six times during the fiscal year.
(picture of) Ray Goodner
Ray Goodner
Portfolio manager
RATES UP, BONDS DOWN
The initial repercussion was that long-term interest rates climbed substantially
from last fall through last January, taking a toll on bond prices in the
process. The Fund was somewhat shielded from the negative effect of the
interest-rate rise by our decision to keep the portfolio's average maturity
relatively short early in the period. Still, the Fund did experience some
erosion of its net asset value.
February marked the beginning of a strong rally by U.S. Treasury bonds and a
commensurate decline in long-term interest rates. But corporate and
mortgage-backed bonds continued to languish under the cloud of Fed rate
increases and the possibility of an eventual slowdown in economic growth. The
period ended on an encouraging note, though, as a brighter outlook for corporate
bonds emerged during July and August, helping the Fund to rebound nicely.
As always, the largest area of investment for the Fund was corporate bonds,
including investment-grade and high-yield issues. The rest of the portfolio was
composed of mortgage-backed and U.S. Treasury bonds, plus a small amount of
convertible and emerging-market bonds. Overall, about 80% of the portfolio was
invested in issues rated investment grade, and about 20% in below investment
grade.
The most notable change to the asset mix was a reduction in high-yield corporate
issues, which were especially poor performers, and an increase in
investment-grade corporate and U.S. Treasury bonds. In addition, we lengthened
the portfolio's average maturity last summer as it appeared that the Fed's
interest-rate increases were coming to an end. Those strategies enhanced
performance late in the period.
As the new fiscal year begins, we continue to look forward to an improving bond
environment, especially for higher-quality issues. The economy is showing signs
of slowing down, which should take some pressure off inflation and, in turn,
persuade the Fed that further interest-rate increases may not be necessary. In
light of that, we plan to maintain our recent emphasis on quality and a slightly
aggressive maturity structure.
Fred Quirsfeld
Ray Goodner
ANNUAL REPORT - 2000
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Fund Facts
Class A -- 12-month performance
(All figures per share)
Net asset value (NAV)
Aug. 31, 2000 $ 4.70
Aug. 31, 1999 $ 4.82
Decrease $ 0.12
Distributions -- Sept. 1, 1999-Aug. 31, 2000
From income $ 0.33
From capital gains $ --
Total distributions $ 0.33
Total return** +4.67%***
Class B -- 12-month performance
(All figures per share)
Net asset value (NAV)
Aug. 31, 2000 $ 4.70
Aug. 31, 1999 $ 4.82
Decrease $ 0.12
Distributions -- Sept. 1, 1999-Aug. 31, 2000
From income $ 0.29
From capital gains $ --
Total distributions $ 0.29
Total return** +3.88%***
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Class C -- June 26, 2000*-Aug. 31, 2000
(All figures per share)
Net asset value (NAV)
Aug. 31, 2000 $ 4.71
June 26, 2000* $ 4.64
Increase $ 0.07
Distributions -- June 26, 2000*-Aug. 31, 2000
From income $ 0.04
From capital gains $ --
Total distributions $ 0.04
Total return** +2.58%***
Class Y -- 12-month performance
(All figures per share)
Net asset value (NAV)
Aug. 31, 2000 $ 4.70
Aug. 31, 1999 $ 4.82
Decrease $ 0.12
Distributions -- Sept. 1, 1999-Aug. 31, 2000
From income $ 0.34
From capital gains $ --
Total distributions $ 0.34
Total return** +4.84%***
*Inception date.
**Returns do not include sales load. The prospectus discusses the effect of
sales charges, if any, on the various classes.
***The total return is a hypothetical investment in the Fund with all
distributions reinvested. The total return for Class C is not annualized.
ANNUAL REPORT - 2000
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The 10 Largest Holdings
Percent Value
(of net assets) (as of Aug. 31, 2000)
Federal Republic of Germany
7.50% 2004 .96% $33,586,567
Qwest Communications Intl
7.50% 2008 .92 31,867,728
Bistro Trust
9.50% 2002 .89 31,145,250
New York Telephone
9.38% 2031 .83 28,863,008
Govt of Canada
5.25% 2008 .78 27,160,530
BellSouth Capital Funding
7.88% 2030 .69 23,918,208
Tenet Healthcare
8.13% 2008 .62 21,565,000
First Union-Lehman Brothers Cl A3
6.65% 2007 .56 19,364,688
Turner Broadcasting
8.40% 2024 .55 19,234,449
Cleveland Electric Illuminating
9.50% 2005 .55 19,038,215
Excludes U.S. Treasury and government agency holdings.
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
(icon of) pie chart
The 10 holdings listed here make up 7.35% of net assets
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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
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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
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Jan Feb Mar Apr May Jun
$15
$10 $10 $8 $6 $7
$ 5 $4 $4
Accumulated shares* Average market Your average
price per share cost per share
103.5 $6.50 $5.80
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$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.
ANNUAL REPORT - 2000
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The Fund's Long-term Performance
$30,000 $22,663
AXP Bond Fund
Class A
X
Lipper Corporate Debt
$20,000 BBB rated Index X
X Lehman Brothers Aggregate
Bond Index
$9,525
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00
Average Annual Total Returns (as of Aug. 31, 2000)
1 year 5 years 10 years (A) Since inception (B&Y)
Class A -0.30% +5.03% +8.52% --%
Class B -0.02% +5.10% --% +6.42%*
Class Y +4.84% +6.19% --% +7.50%*
* Inception date was March 20, 1995.
Assumes: Holding period from 9/1/90 to 8/31/00. Returns do not reflect taxes
payable on distributions. Reinvestment of all income and capital gain
distributions for the Fund has a value of $10,785. Also see "Past Performance"
in the Fund's current prospectus.
On the graph above you can see how the Fund's total return compared to two
widely cited performance indexes, the Lehman Brothers Aggregate Bond Index and
Lipper Corporate Debt - BBB rated Index. In comparing AXP Bond Fund (Class A)
with 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 index. Class C went effective June 26,
2000 and therefore performance information is not presented.
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 applicable sales charge up to a maximum of 5%.
This was a period of widely fluctuating security prices. Past performance is no
guarantee of future results.
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Lehman Brothers Aggregate Bond Index, an unmanaged index, is made up of a
representative list of government, corporate, asset-backed and mortgage-backed
securities. The index is frequently used as a general measure of bond market
performance. The index reflects reinvestment of all distributions and changes in
market prices, but excludes brokerage commissions or other fees. However, the
securities used to create the index may not be representative of the bonds held
in the Fund.
Lipper Corporate Debt - BBB rated Index, an unmanaged index published by Lipper
Inc., includes the 30 largest funds that are generally similar to the Fund,
although some funds in the index may have somewhat different investment policies
or objectives.
ANNUAL REPORT - 2000
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The financial statements contained in Post-Effective Amendment #52 to
Registration Statement No. 2-51586 filed on or about October 26, 2000, are
incorporated herein by reference.
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Federal Income Tax Information
(Unaudited)
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its fiscal
year. The dividends listed below are reported to you on Form 1099-DIV, Dividends
and Distributions. Shareholders should consult a tax advisor on how to report
distributions for state and local tax purposes.
AXP Bond Fund, Inc.
Fiscal year ended Aug. 31, 2000
Class A
Income distributions taxable as dividend income, 1.77% qualifying for deduction
by corporations.
Payable date Per share
Sept. 22, 1999 $0.03171
Oct. 25, 1999 0.02943
Nov. 23, 1999 0.02856
Dec. 22, 1999 0.02874
Jan. 24, 2000 0.02883
Feb. 24, 2000 0.02828
March 23, 2000 0.02817
April 24, 2000 0.02729
May 24, 2000 0.02522
June 21, 2000 0.02367
July 24, 2000 0.02579
Aug. 24, 2000 0.02518
Total distributions $0.33087
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Class B
Income distributions taxable as dividend income, 1.77% qualifying for deduction
by corporations.
Payable date Per share
Sept. 22, 1999 $0.02900
Oct. 25, 1999 0.02614
Nov. 23, 1999 0.02567
Dec. 22, 1999 0.02585
Jan. 24, 2000 0.02558
Feb. 24, 2000 0.02523
March 23, 2000 0.02531
April 24, 2000 0.02415
May 24, 2000 0.02235
June 21, 2000 0.02098
July 24, 2000 0.02257
Aug. 24, 2000 0.02216
Total distributions $0.29499
Class C
Income distributions taxable as dividend income, 1.77% qualifying for deduction
by corporations.
Payable date Per share
July 24, 2000 $0.02119
Aug. 24, 2000 0.02249
Total distributions $0.04368
ANNUAL REPORT - 2000
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Class Y
Income distributions taxable as dividend income, 1.77% qualifying for deduction
by corporations.
Payable date Per share
Sept. 22, 1999 $0.03229
Oct. 25, 1999 0.03013
Nov. 23, 1999 0.02918
Dec. 22, 1999 0.02936
Jan. 24, 2000 0.02953
Feb. 24, 2000 0.02893
March 23, 2000 0.02879
April 24, 2000 0.02796
May 24, 2000 0.02584
June 21, 2000 0.02425
July 24, 2000 0.02648
Aug. 24, 2000 0.02583
Total distributions $0.33857
AXP BOND FUND
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American
Express(R)
Funds
AXP Bond Fund
70100 AXP Financial Center
Minneapolis, MN 55474
AMERICAN
EXPRESS (R) (logo)
S-6495 T (10/00)
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.
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STATEMENT OF DIFFERENCES
Difference Description
1) The layout is different 1) Some of the layout in the
throughout the annual report. annual report to
shareholders is in two
columns.
2) There are pictures, icons 2) Each picture, icon and
and graphs throughout the graph is described in
annual report. parentheses.
