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AXP(SM)
Extra Income
Fund
1999 ANNUAL REPORT
(PROSPECTUS ENCLOSED)
(picture 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.)
Distributed by American Express Financial Advisors Inc.
AMERICAN EXPRESS Financial Advisors
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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 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.
AXP EXTRA INCOME FUND (This annual report is not part of the prospectus.)
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Table of Contents
1999 ANNUAL REPORT
The purpose of this annual report is to tell investors how the Fund performed.
From the Chairman 4
From the Portfolio Manager 4
Fund Facts 6
The 10 Largest Holdings 7
Making the Most of the Fund 8
The Fund's Long-term Performance 9
Independent Auditors' Report (Fund) 11
Financial Statements (Fund) 12
Notes to Financial Statements (Fund) 15
Independent Auditors' Report (Portfolio) 19
Financial Statements (Portfolio) 20
Notes to Financial Statements (Portfolio) 23
Investments in Securities 27
Federal Income Tax Information 60
1999 prospectus
The prospectus, which is bound into the middle of this annual report, describes
the Fund in detail.
The Fund 3p
Goal 3p
Investment Strategy 3p
Risks 5p
Past Performance 6p
Fees and Expenses 8p
Management 9p
Buying and Selling Shares 9p
Valuing Fund Shares 9p
Investment Options 10p
Purchasing Shares 11p
Sales Charges 14p
Exchanging/Selling Shares 18p
Distributions and Taxes 23p
Personalized Shareholder
Information 24p
Master/Feeder Structure 25p
About the Company 26p
Quick Telephone Reference 28p
Financial Highlights 29p
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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(picture of) Arne H. Carlson
Arne H. Carlson
Chairman of the board
From the Chairman
American Express(R) Funds held shareholder meetings in June 1999. Shareholders
approved all of the proposals advanced by management. Among the proposals were:
o The election of Board members and the selection of KPMG LLP as independent
auditors.
o Change in the Fund name from "IDS" to "AXP."
o A new shareholder service and distribution plan.
o Changes with respect to fundamental investment policies.
No other business was presented at the meeting, which was concluded by a report
to shareholders from the Investment Department of American Express Financial
Corporation.
Thanks to all of you for your effort in reviewing the proxy material and voting
your proxies.
Arne H. Carlson
(picture of) Jack Utter
Jack Utter
Portfolio manager
From the Portfolio Manager
High-yield bonds made a strong comeback in the second half of the fiscal year,
but not enough to prevent AXP Extra Income Fund from experiencing a modestly
negative result for the 12 months as a whole. For the period -- June 1998
through May 1999 -- the Fund's Class A shares lost 3.67% on a total return basis
(net asset value change and interest income).
The environment for high-yield bonds was generally good when the period began.
The economy was rolling along, inflation showed no signs of increasing, and the
financial upheaval that struck Asia in the fall of 1997 seemed to have settled
down. But by the mid-summer of 1998, another bout of the "Asian flu" hit, this
time in Russia and, soon after, Latin America.
Here at home, the upshot of the situation for investors was that the possibility
of a global recession appeared considerably greater. The result was a wave of
selling that swamped the high-yield market as investors embarked on a "flight to
quality" whose primary destination was U.S. Treasury bonds, which offered the
safety and liquidity they sought. Although the downturn in the high-yield market
was widespread, the Fund's holdings in the energy, telecommunications and
emerging foreign-market sectors were particularly affected.
AXP EXTRA INCOME FUND (This annual report is not part of the prospectus.)
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AN IMPROVED ENVIRONMENT
Things improved markedly over the winter and early spring, however, as U.S.
economic data stayed remarkably strong, inflation remained well under control
and a measure of calm returned to smaller foreign economies. For the Fund, this
resulted in solid gains in four of
the final five months of the period. Leading the way in the rebound were
holdings in the telecommunications, paper/packaging, media and emerging-market
sectors, which, when combined, represented a substantial portion of the
portfolio.
Looking at other factors in the high-yield market, occasional periods of heavy
supply of new issues hampered bond prices at times. Demand, on the other hand,
remained reasonably good.
As the new fiscal year begins, the investment environment has been clouded by
concern over the possibility that the Federal Reserve will find it necessary to
raise short-term interest rates to head off a potential spike in inflation. In
fact, in anticipation of that possibility, long-term interest rates crept higher
during the final few months of the past fiscal year. My view is that inflation
is unlikely to show signs of a meaningful pickup and, therefore, should the Fed
act, it won't need to raise rates substantially. If that scenario plays out and
the economy remains healthy, I think high-yield bonds are in position to deliver
good performance in the months ahead, especially in relation to other bond
sectors.
Jack Utter
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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Fund Facts
Class A -- 12-month performance
(All figures per share)
Net asset value (NAV)
May 31, 1999 $3.97
May 31, 1998 $4.58
Decrease $0.61
Distributions -- June 1, 1998 - May 31, 1999
From income $0.43
From capital gains $ --
Total distributions $0.43
Total return* -3.67%**
Class B -- 12-month performance
(All figures per share)
Net asset value (NAV)
May 31, 1999 $3.97
May 31, 1998 $4.58
Decrease $0.61
Distributions -- June 1, 1998 - May 31, 1999
From income $0.40
From capital gains $ --
Total distributions $0.40
Total return* -4.39%**
Class Y -- 12-month performance
(All figures per share)
Net asset value (NAV)
May 31, 1999 $3.97
May 31, 1998 $4.58
Decrease $0.61
Distributions -- June 1, 1998 - May 31, 1999
From income $0.43
From capital gains $ --
Total distributions $0.43
Total return* -3.58%**
*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.
AXP EXTRA INCOME FUND (This annual report is not part of the prospectus.)
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<TABLE>
<CAPTION>
The 10 Largest Holdings
Percent Value
(of net assets) (as of May 31, 1999)
<S> <C> <C>
Chancellor Media 1.27% $49,687,499
8.00% 2008
EchoStar DBS 1.06 41,220,074
9.38% 2009
CSC Holdings .98 38,081,479
11.13% Pay-in-kind Series M Preferred
Outsourcing Solutions .95 37,067,793
11.00% 2006
NTL .88 34,199,999
11.40% 2001
Motor & Gears .81 31,376,875
10.75% 2006
Warren (SD) .81 31,365,075
14.00% Series B Preferred
Lear .76 29,550,000
8.11% 2009
Gaylord Container .73 28,559,374
9.88% 2008
NTL .73 28,432,800
13.00% Pay-in-kind Series B Preferred
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 8.98% of net assets
</TABLE>
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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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 fall 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 $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.
AXP EXTRA INCOME FUND (This annual report is not part of the prospectus.)
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<TABLE>
<CAPTION>
The Fund's Long-term Performance
How your $10,000 has grown in AXP Extra Income Fund
$30,000
X
Merrill Lynch High
Yield Bond Index
X
$20,000 $23,151
Extra Income
X Fund Class A
Lehman Brothers
Aggregate Bond Index
9,500
89 90 91 92 93 94 95 96 97 98 99
Average annual total return (as of May 31, 1999)
1 year 5 years 10 years (A) Since inception (B&Y)
<S> <C> <C> <C> <C>
Class A -8.48% +7.44% +8.76% --%
Class B -7.86% --% --% +8.85%*
Class Y -3.58% --% --% +10.17%*
*Inception date was March 20, 1995.
Assumes: Holding period from 6/1/89 to 5/31/99. Returns do not reflect taxes
payable on distributions. Reinvestment of all income and capital gain
distributions for the Fund, with a value of $14,808. Also see "Past Performance"
in the Fund's current prospectus.
On the graph above you can see how the Fund's total return compared to two
widely cited performance indexes, the Lehman Brothers Aggregate Bond Index and
the Merrill Lynch High Yield Bond 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 5%, while such charges
are not reflected in the performance of the index.
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.
</TABLE>
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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Lehman Brothers Aggregate Bond Index is an unmanaged index 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. However, the securities used to create the index may not be
representative of the bonds held in the Fund.
Merrill Lynch High Yield Bond Index provides a broad-based measure of
performance of the 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.
The indexes reflect reinvestment of all distributions and changes in market
prices, but exclude brokerage commissions or other fees.
AXP EXTRA INCOME FUND (This annual report is not part of the prospectus.)
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The financial statements contained in Post-Effective Amendment #31 to
Registration Statement No. 2-86637 filed on or about July 28, 1999, are
incorporated herein by reference.
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Federal Income Tax Information
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 purposes.
AXP Extra Income Fund, Inc.
Fiscal year ended May 31, 1999
Class A
Income distributions taxable as dividend income, 1.80% qualifying for deduction
by corporations.
Payable date Per share
June 26, 1998 $0.03610
July 29, 1998 0.03792
Aug. 27, 1998 0.03753
Sept. 24, 1998 0.04053
Oct. 27, 1998 0.04069
Nov. 25, 1998 0.03461
Dec. 22, 1998 0.03059
Jan. 25, 1999 0.03324
Feb. 25, 1999 0.03269
March 24, 1999 0.03361
April 26, 1999 0.03525
May 27, 1999 0.03521
Total distributions $0.42797
AXP EXTRA INCOME FUND (This annual report is not part of the prospectus.)
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Class B
Income distributions taxable as dividend income, 1.80% qualifying for deduction
by corporations.
Payable date Per share
June 26, 1998 $0.03336
July 29, 1998 0.03482
Aug. 27, 1998 0.03485
Sept. 24, 1998 0.03807
Oct. 27, 1998 0.03803
Nov. 25, 1998 0.03228
Dec. 22, 1998 0.02836
Jan. 25, 1999 0.03046
Feb. 25, 1999 0.03012
March 24, 1999 0.03135
April 26, 1999 0.03248
May 27, 1999 0.03261
Total distributions $0.39679
Class Y
Income distributions taxable as dividend income, 1.80% qualifying for deduction
by corporations.
Payable date Per share
June 26, 1998 $0.03638
July 29, 1998 0.03823
Aug. 27, 1998 0.03780
Sept. 24, 1998 0.04078
Oct. 27, 1998 0.04097
Nov. 25, 1998 0.03484
Dec. 22, 1998 0.03080
Jan. 25, 1999 0.03353
Feb. 25, 1999 0.03295
March 24, 1999 0.03397
April 26, 1999 0.03559
May 27, 1999 0.03552
Total distributions $0.43136
(This annual report is not part of the prospectus.) ANNUAL REPORT - 1999
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BULKRATE
U.S. POSTAGE
PAID
PERMIT NO. 85
SPENCER, IA
S-6370 N (7/99)
AXP Extra Income Fund
IDS Tower 10
Minneapolis, MN 55440-0010
AMERICAN EXPRESS Financial Advisors
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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) Headings. 2) The headings in the
annual report are
placed in a blue strip
at the top of the page.
3) There are pictures, icons 3) Each picture, icon and
and graphs throughout the graph is described in
annual report. parentheses.
4) Footnotes for charts and 4) The footnotes for each
graphs are described at chart or graph are typed
the left margin. below the description of
the chart or graph.
