UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-2503
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AXP FIXED INCOME SERIES, INC.
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(Exact name of registrant as specified in charter)
200 AXP Financial Center, Minneapolis, Minnesota 55474
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(Address of principal executive offices) (Zip code)
Leslie L. Ogg - 901 S. Marquette Avenue, Suite 2810, Minneapolis, MN 55402-3268
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(Name and address of agent for service)
Registrant's telephone number, including area code: (612) 330-9283
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Date of fiscal year end: 8/31
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Date of reporting period: 8/31
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AXP(R)
Diversified
Bond
Fund
Annual Report
for the Period Ended
Aug. 31, 2003
(Prospectus Enclosed)
AXP Diversified 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.)
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(logo) (logo)
American AMERICAN
Express(R) EXPRESS
Funds (R)
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Table of Contents
Fund Snapshot 3
Questions & Answers
with Portfolio Management 4
The Fund's Long-term Performance 8
Investments in Securities 9
Financial Statements 21
Notes to Financial Statements 24
Independent Auditors' Report 34
Federal Income Tax Information 35
Board Members and Officers 37
(Dalbar Logo)
American Express(R) Funds' reports to shareholders have been awarded the
Communications Seal from Dalbar Inc., an independent financial services research
firm. The Seal recognizes communications demonstrating a level of excellence in
the industry.
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2 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
Fund Snapshot
AS OF AUG. 31, 2003
PORTFOLIO MANAGER
Portfolio manager Tom Murphy, CFA*
Since 2/03
Years in industry 17
* Team managed, led by Tom Murphy, CFA.
FUND OBJECTIVE
For investors seeking a high level of current income while conserving the value
of the investment for the longest period of time.
Inception dates
A: 10/3/74 B: 3/20/95 C: 6/26/00 Y: 3/20/95
Ticker symbols
A: INBNX B: ININX C: AXBCX Y: IDBYX
Total net assets $3.476 billion
Number of holdings 427
STYLE MATRIX
Shading within the style matrix indicates areas in which the Fund generally
invests.
STYLE
VALUE BLEND GROWTH
X LARGE
X MEDIUM SIZE
X SMALL
SECTOR COMPOSITION
Percentage of portfolio assets
(pie chart)
Mortgage-backed securities 36.8%
U.S. government obligations & agencies 16.6%
Financials 12.7%
Short-term securities 12.2%
Utilities 5.1%
Consumer discretionary 4.8%
Telecommunications 3.0%
Industrials 2.6%
Materials 2.0%
Consumer staples 1.5%
Foreign government 1.5%
Energy 0.9%
Health care 0.2%
Other 0.1%
CREDIT QUALITY SUMMARY
Percentage of portfolio assets
AAA bonds 60.0%
AA bonds 0.6
A bonds 8.9
BBB bonds 13.7
Non-investment grade bonds 4.5
Non-rated bonds 0.1
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
Fund holdings are subject to change.
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3 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
Questions & Answers
WITH PORTFOLIO MANAGEMENT
On Feb. 24, 2003, a team led by Tom Murphy, Sector Leader for Investment
Grade Corporate Bonds, succeeded Ray Goodner in managing the day-to-day
operations of AXP Diversified Bond Fund. The Fund's name changed from AXP
Bond Fund to AXP Diversified Bond Fund in June 2003.
Q: How did AXP Diversified Bond Fund perform for the fiscal year ended Aug.
31, 2003?
A: AXP Diversified Bond Fund's Class A shares returned 4.91%, excluding sales
charge, for the 12 months ended Aug. 31, 2003, outperforming the Lehman
Brothers Aggregate Bond Index, which rose 4.36%. The Lipper Intermediate
Investment Grade Index, representing the Fund's peer group, rose 5.38% over
the same period.
Q: How did the Fund's positioning contribute to its performance relative to
the benchmark and peer group?
A: For much of the fiscal first half, we had approximately 45% of the
portfolio allocated to investment-grade corporate issues and about 15% in
high-yield corporate debt securities (also known as junk bonds). Corporate
bonds, both investment-grade and high-yield, led the bond market during
this period as they rallied back from the confidence and
liquidity-challenged environment of summer of 2002, making a significant
contribution to performance. As a result of its large position in corporate
bonds, the portfolio had underweight positions in the mortgage sectors
(which outperformed Treasuries, but not to the extent of credit) and in
Treasuries/agencies. However, many of the Fund's peers had even larger
allocations to corporate bonds. This led to the Fund's relative
underperformance compared to its peer group. The Fund outpaced its
unmanaged benchmark, the Lehman Brothers Aggregate Bond Index in the first
six months of the fiscal year.
(bar graph)
PERFORMANCE COMPARISON
For the year ended Aug. 31, 2003
6% (bar 1) (bar 2) (bar 3)
5% +4.91% +4.36% +5.38%
4%
3%
2%
1%
0%
(bar 1) AXP Diversified Bond Fund Class A (excluding sales charge)
(bar 2) Lehman Brothers Aggregate Bond Index (unmanaged)
(bar 3) Lipper Immediate Investment Grade Index
(see "The Fund's Long-term Performance" for Index descriptions)
Past performance is no guarantee of future results. The 4.75% sales charge
applicable to Class A shares of the Fund is not reflected in the bar chart; if
reflected, returns would be lower than those shown. The performance of Class B,
Class C and Class Y may vary from that shown above because of differences in
expenses.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
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4 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
Questions & Answers
(begin callout quote)> We believe our best opportunities to enhance performance
are through sector rotation and individual security selection rather than
increasing interest rate sensitivity.(end callout quote)
During the second half of the year -- following the reorganization of our
fixed income organization and portfolio management structure -- the Fund
continued to benefit from an overweight in corporate bonds, though we pared
our investment-grade and high yield holdings to approximately 30% and 6%,
respectively. In addition, small allocations to foreign-denominated bonds
(2%) and emerging markets (1%) were opportunistically added to the
portfolio and they also had a favorable impact on performance. Our high
yield security selection had a bias to higher-rated BB securities, based
primarily on relative valuations.
AVERAGE ANNUAL TOTAL RETURNS
as of Aug. 31, 2003
Class A Class B Class C Class Y
(Inception dates) (10/3/74) (3/20/95) (6/26/00) (3/20/95)
NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) NAV(5) After CDSC(5)
1 year +4.91% -0.07% +4.12% +0.12% +4.11% +4.11% +5.08% +5.08%
5 years +4.93% +3.91% +4.14% +3.98% N/A N/A +5.08% +5.08%
10 years +5.97% +5.46% N/A N/A N/A N/A N/A N/A
Since inception N/A N/A +6.12% +6.12% +5.79% +5.79% +7.07% +7.07%
(1) Excluding sales charge.
(2) Returns at public offering price (POP) reflect a sales charge of 4.75%.
(3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as
follows: first year 5%; second and third year 4%; fourth year 3%; fifth
year 2%; sixth year 1%; no sales charge thereafter.
(4) 1% CDSC applies to redemptions made within the first year of purchase.
(5) Sales charge is not applicable to these shares. Shares available to
institutional investors only.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate, so that your shares, when redeemed, may be worth
more or less than the original cost. The performance shown for each class of
shares will vary due to differences in sales charges and fees. Short term
performance may be higher or lower than the figures shown. Visit
americanexpress.com/funds for current information.
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5 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
Questions & Answers
Although the mortgage sector struggled in the latter half of the fiscal
year from the combination of low interest rates and a greater interest rate
volatility, the Fund's emphasis on identifying mortgage pools with lower
pre-payment histories helped support performance in this sector.
In general, the portfolio had a somewhat defensive posture through much of
the second half. Although this affected our relative performance versus our
peer group, we believe it was the prudent course, given our outlook for the
economy and valuations across various sectors in the overall bond market.
Our opportunistic additions of out of index securities in high yield,
global and emerging markets helped the portfolio outperform its unmanaged
benchmark in the second half of the fiscal year.
Q: What changes were made to the Fund's positioning during the year?
A: In conjunction with our reorganization of the fixed income department and
the portfolio management structure, we changed the emphasis of the Fund
from being very credit-centric to more diversified across credit, mortgage
product and Treasuries/agencies -- in line with our benchmark, the Lehman
Brothers Aggregate Bond Index. As a point of reference, on Aug. 31, 2003,
the Index was approximately 27% credit, 39% mortgages, and 34%
Treasuries/agencies.
These changes increased the portfolio's turnover rate for the fiscal year.
Early in the second half of the fiscal year, we adjusted the mortgage
component of the Fund, aligning it more closely with the duration and
structure of our benchmark. We also moved from an underweight mortgage
position to a market weight position, while shortening the portfolio's
mortgage duration, a measure of interest rate sensitivity.
In January and February of 2003, we began to trim our allocation to
corporate bonds, both investment-grade and high-yield, and shifted those
assets into government and mortgage-backed securities. Given the corporate
sector's previous strong performance and the fact that so much positive
economic news was already priced into the bonds, we believed near-term
risks outweighed the potential rewards. We also began to phase out our
short-dated Japanese and European bond holdings, which had performed well
as the dollar weakened.
Through the remainder of the fiscal year, we actively managed our
allocation to high-yield corporate bonds -- incrementally adding or
reducing our exposure based on valuations. Within the high yield sector, we
focused primarily on BB-rated securities, which offered good incremental
yield gains over BBB-rated bonds. We specifically sought
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6 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
securities of companies whose financial profile and fundamental performance
were comparable to higher rated companies. We believed such issues were
overlooked and undervalued, creating an attractive investment opportunity
for the Fund versus BBB-rated alternatives.
Q: How sensitive is the Fund to interest rate changes?
A: Throughout the year we kept the Fund's duration fairly conservative.
Interest rates remain near historically low levels and the Fed has
expressed its intention to maintain rates at current levels, (1% Fed Funds
rate) while they look to stimulate the economy. Given monetary and fiscal
stimulus present, it is unlikely that rates will decline much further,
unless the economic recovery does not materialize as expected. Longer
maturity rates shouldn't rise much either, given the Fed's focus on
generating growth as opposed to concerns about inflation. Consequently, we
still believe our best opportunities to provide attractive performance are
through sector rotation and individual security selection rather than
increasing interest rate sensitivity.
Q: How do you plan to position the Fund for the coming months?
A: In the corporate segment of the portfolio, we have maintained a defensive
bias, focusing, for example, on securities of high-quality banks as well as
non-cyclical consumer companies that generate strong free cash flow.
However, if the economy fails to gain momentum, we may see opportunities to
establish positions in more cyclical companies and sectors at wider spreads
since steady economic growth and a return to pricing power are seemingly
priced into those securities at present. Credit spreads in industries such
as automobile manufacturing, basic industries and other cyclical sectors
could widen in the short term should the economy disappoint, and we are
positioned to take advantage of any weakness there.
Mortgages tend to perform best when interest rates are stable, regardless
of whether they are high or low. Unfortunately, during the early part of
this past summer, Treasury rates were anything but stable, and mortgages
struggled as a result. Mortgage rates have since moved slightly higher, and
as the market adjusts to this higher rate level, we believe the outlook for
mortgages could improve.
While we believe the economy is likely to continue its recovery, we remain
somewhat cautious. Regardless of the economic environment, the Fund's
sector-based management team will continue to focus on adding value
primarily through security selection and sector rotation.
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7 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
The Fund's Long-term Performance
This chart illustrates the total value of an assumed $10,000 investment in AXP
Diversified Bond Fund Class A shares (from 9/1/93 to 8/31/03) as compared to the
performance of two widely cited performance indices, the Lehman Brothers
Aggregate Bond Index and the Lipper Intermediate Investment Grade Index. In
comparing the Fund's Class A shares to these indices, 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
indices. Returns for the Fund include the reinvestment of any distribution paid
during each period.
Past performance is no guarantee of future results. Your investment and return
values fluctuate so that your shares, when redeemed, may be worth more or less
than the original cost. Returns do not reflect taxes payable on distributions
and redemptions. Also see "Past Performance" in the Fund's current prospectus.
(line graph)
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT
IN AXP DIVERSIFIED BOND FUND
$20,000
$16,000
$12,000 (dotted line) Lehman Brothers Aggregate Bond Index(1)
(dashed line) Lipper Intermediate Investment Grade Index(2)
$8,000 (solid line) AXP Diversified Bond Fund Class A
$4,000
`93 `94 `95 `96 `97 `98 `99 `00 `01 `02 `03
(solid line) AXP Diversified Bond Fund Class A $17,012
(dotted line) Lehman Brothers Aggregate Bond Index(1) $19,076
(dashed line) Lipper Intermediate Investment Grade Index(2) $18,101
(1) Lehman Brothers Aggregate Bond Index, an unmanaged index, is made up of a
representative list of government, corporate, asset-backed and
mortgage-backed securities. The index is frequently used as a general
measure of bond market performance. The index reflects reinvestment of all
distributions and changes in market prices, but excludes brokerage
commissions or other fees. However, the securities used to create the index
may not be representative of the bonds held in the Fund.
(2) The Lipper Intermediate Investment Grade 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.
Average Annual Total Returns
Class A with Sales Charge as of Aug. 31, 2003
1 year -0.07%
5 years +3.91%
10 years +5.46%
Results for other share classes can be found on page 5.
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8 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
Investments in Securities
AXP Diversified Bond Fund
Aug. 31, 2003
(Percentages represent value of investments compared to net assets)
Bonds (99.4%)
Issuer Coupon Principal Value(a)
rate amount
Foreign government (1.6%)
Dominican Republic
(U.S. Dollar)
01-23-13 9.04% $4,000,000(c,d) $3,780,000
Federal Republic of Brazil
(U.S. Dollar)
03-12-08 11.50 1,800,000(c) 1,908,000
04-15-10 12.00 4,200,000(c) 4,414,200
04-15-14 8.00 2,154,968(c) 1,940,117
Federation of Russia
(U.S. Dollar)
03-31-30 5.00 2,000,000(c,d,j) 1,827,500
03-31-30 5.00 1,035,000(c,j) 947,025
Govt of Ukraine
(U.S. Dollar)
06-11-13 7.65 2,000,000(c,d) 1,960,000
Republic of Colombia
(U.S. Dollar)
04-23-09 9.75 4,000,000(c) 4,420,000
01-23-12 10.00 2,600,000(c) 2,808,000
Republic of El Salvador
(U.S. Dollar)
01-24-23 7.75 2,675,000(c,d) 2,755,250
Republic of Peru
(U.S. Dollar)
02-06-15 9.88 4,900,000(c) 5,390,000
Republic of Philippines
(U.S. Dollar)
01-15-19 9.88 1,080,000(c) 1,128,600
United Mexican States
(U.S. Dollar)
03-03-15 6.63 23,675,000(c) 23,556,625
Total 56,835,317
U.S. government obligations & agencies (18.8%)
Federal Home Loan Mtge Corp
07-15-13 4.50 85,800,000 82,344,834
Federal Natl Mtge Assn
04-15-06 2.13 46,800,000 46,269,616
08-15-08 3.25 135,000,000 131,722,199
U.S. Treasury
01-31-05 1.63 7,200,000 7,207,034
05-31-05 1.25 21,100,000(l) 20,915,375
06-30-05 1.13 44,535,000 43,980,049
11-15-05 5.75 20,260,000 21,861,006
02-15-06 5.63 15,750,000 17,042,603
05-15-06 2.00 8,089,000 8,028,333
08-15-06 2.38 4,000,000 3,987,812
08-15-08 3.25 5,455,000 5,406,843
08-15-13 4.25 13,800,000 13,569,264
08-15-21 8.13 20,150,000 26,874,277
08-15-22 7.25 10,300,000(l) 12,693,143
08-15-23 6.25 67,800,000 75,260,644
08-15-27 6.38 44,450,000 50,412,567
08-15-29 6.13 15,000,000(l) 16,599,615
02-15-31 5.38 68,549,000 70,021,707
Total 654,196,921
Mortgage-backed securities (41.6%)(f)
Federal Home Loan Mtge Corp
07-01-07 6.50 393 396
09-27-12 3.61 7,500,000 7,428,193
05-01-13 4.50 4,721,247 4,676,339
04-01-17 8.00 59,548 64,698
05-01-17 6.00 3,305,239 3,419,199
08-01-18 5.00 19,377,666 19,464,202
02-01-23 6.00 28,371,850 29,183,725
08-01-24 8.00 1,320,518 1,428,514
10-01-28 7.00 238,594 251,658
12-01-30 5.50 4,412,287 4,411,845
07-01-32 7.00 22,599,269 23,781,768
09-01-32 6.50 14,926,024 15,459,233
10-01-32 6.50 11,898,763 12,323,829
04-01-33 5.50 15,337,892 15,304,048
04-01-33 6.00 11,752,570 11,981,785
05-01-33 5.50 9,035,339 9,001,371
06-01-33 5.50 10,903,727 10,862,735
See accompanying notes to investments in securities.
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9 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Mortgage-backed securities (cont.)
Federal Home Loan Mtge Corp (cont.)
Collateralized Mtge Obligation
10-15-18 5.00% $7,100,000 $7,179,875
11-15-18 5.00 18,368,000 18,517,240
03-15-22 7.00 4,953,371 5,111,382
07-15-22 7.00 4,766,369 4,927,854
02-15-33 5.50 10,639,797 11,052,727
Interest Only
02-15-14 9.85 5,500,000(g) 639,890
06-15-18 24.49 5,311,859(g) 323,219
Federal Natl Mtge Assn
03-01-08 7.00 4,556,897 4,836,471
07-01-08 6.50 1,946,068 2,058,285
11-01-09 9.00 484 539
06-01-10 6.50 4,424,153 4,679,264
08-01-11 8.50 4,486,144 4,874,624
11-01-12 4.79 13,000,000 12,942,361
01-01-13 4.78 10,845,000 11,001,604
01-01-13 4.92 5,742,173 5,691,094
02-01-13 4.83 6,505,353 6,404,469
02-01-13 4.87 15,069,822 15,005,202
02-01-13 5.02 15,842,146 15,925,195
04-01-13 7.00 13,302,381 14,118,509
06-01-13 4.54 13,979,881 13,545,598
06-01-13 4.85 9,337,098 9,160,028
10-01-13 4.50 7,650,000(i) 7,556,747
04-01-14 6.50 2,670,561 2,811,554
08-01-14 5.50 15,900,000(i) 16,237,875
08-01-16 6.00 10,489,793 10,870,614
08-01-16 6.50 4,761,684 5,009,660
12-01-16 5.50 11,955,023 12,229,439
06-01-17 6.50 9,374,573 9,899,270
08-01-17 6.00 16,971,622 17,658,900
08-01-17 6.50 5,096,079 5,396,438
09-01-17 6.00 3,057,405 3,168,275
09-01-17 6.50 6,776,682 7,129,818
12-01-17 6.50 3,387,670 3,564,203
01-01-18 5.50 9,985,870 10,250,437
02-01-18 5.50 17,739,711 18,180,103
03-01-18 5.50 27,955,615 28,702,149
04-01-18 5.00 9,599,300 9,642,167
05-01-18 5.50 4,833,198 4,956,532
08-01-18 4.50 10,666,224 10,481,232
09-01-18 5.00 104,000,000(i) 104,292,239
04-01-23 8.50 1,735,870 1,896,898
09-01-23 5.00 9,188,671(i) 8,993,412
09-01-23 5.50 15,300,000(i) 15,438,512
09-01-23 6.50 1,121,215 1,167,466
01-01-24 6.50 583,673 607,749
05-01-24 6.00 17,814,357 18,222,895
06-01-24 9.00 1,349,247 1,496,865
02-01-25 8.00 526,949 571,335
09-01-25 8.00 1,349,273 1,461,307
03-01-26 7.00 2,730,145 2,886,683
07-01-28 5.50 4,946,798 4,957,140
08-01-28 5.50 6,612,696 6,626,521
09-01-28 7.50 5,000,000(i) 5,314,060
01-01-29 6.50 12,168,984 12,627,982
05-01-29 6.50 7,850,798 8,135,452
06-01-29 7.00 23,030 24,293
06-01-29 7.00 3,474,482(i) 3,665,122
07-01-29 6.00 13,000,000(i) 13,215,306
07-01-29 6.50 28,140,000(i) 29,089,725
08-01-29 6.50 27,000,000(i) 27,843,750
09-01-29 7.00 17,329,056 18,279,878
10-01-30 7.00 5,743,155 6,058,274
09-01-31 5.50 1,200,000(i) 1,194,000
09-01-31 7.00 2,485,861 2,648,656
03-01-32 5.50 3,279,584 3,286,441
08-01-32 7.00 3,710,082 3,911,608
09-01-32 6.00 58,583,924 59,578,255
09-01-32 6.50 5,160,489 5,380,652
10-01-32 5.50 36,125,000(i) 35,831,484
10-01-32 6.00 2,745,693 2,791,532
10-01-32 6.50 6,098,853 6,312,945
11-01-32 6.00 2,280,798 2,318,920
11-01-32 7.00 6,727,697(i) 7,085,090
12-01-32 6.50 6,179,159(i) 6,396,070
12-01-32 6.50 5,092,245 5,271,001
01-01-33 6.00 17,674,776 18,036,138
02-01-33 4.75 5,551,283(h) 5,659,538
02-01-33 6.00 3,781,685 3,854,273
02-01-33 6.50 1,065,945(i) 1,111,439
03-01-33 4.93 5,599,665 5,748,298
03-01-33 5.50 22,844,987 22,786,672
03-01-33 6.00 17,223,023 17,528,502
03-01-33 6.50 56,580,314 58,566,098
04-01-33 5.50 44,174,998 44,063,530
04-01-33 6.00 51,636,164 52,661,739
05-01-33 5.50 30,840,518 30,728,173
05-01-33 6.00 9,809,597 9,997,922
06-01-33 5.50 18,331,487 18,284,426
06-01-33 6.00 19,691,755 20,036,660
See accompanying notes to investments in securities.
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10 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Mortgage-backed securities (cont.)
Federal Natl Mtge Assn (cont.)
07-01-33 5.50% $23,565,005 $23,483,655
09-01-33 5.00 44,698,000(i) 43,217,601
11-01-33 5.00 13,000,000(h,i) 12,813,125
Collateralized Mtge Obligation
11-25-12 4.49 13,500,000 13,040,972
09-25-42 5.00 6,600,000 6,668,990
10-25-42 7.50 9,157,903 9,893,397
12-25-42 4.75 11,500,000 11,476,491
Interest Only
12-25-12 12.05 5,500,000(g) 522,588
Govt Natl Mtge Assn
02-15-24 8.00 644,102 696,810
02-15-25 9.00 86,396 95,350
06-15-26 8.00 839,458 906,377
08-15-26 8.00 515,492 556,585
03-15-33 7.00 6,472,048 6,843,647
05-15-33 6.00 14,158,956 14,466,672
09-01-33 5.50 30,925,000(i) 30,876,757
Collateralized Mtge Obligation
Interest Only
01-20-32 10.48 8,000,000(g) 1,218,702
08-20-32 8.01 24,975,762(g) 7,261,506
Total 1,448,766,532
Aerospace & defense (0.7%)
Alliant Techsystems
05-15-11 8.50 2,000,000 2,160,000
L-3 Communications
06-15-12 7.63 2,000,000 2,085,000
Raytheon
04-01-13 5.38 6,105,000 6,021,722
TD Funding
Sr Sub Nts
07-15-11 8.38 1,500,000(d) 1,563,750
United Technologies
11-15-19 8.88 10,000,000 12,851,220
Total 24,681,692
Airlines (--%)
Northwest Airlines
02-01-20 6.81 1,504,800 1,216,781
Automotive & related (0.8%)
DaimlerChrysler North America Holding
01-15-08 4.75 3,500,000 3,468,990
06-04-08 4.05 18,330,000 17,550,791
Ford Motor
10-01-28 6.63 2,095,000 1,710,218
02-01-29 6.38 5,340,000 4,192,867
Total 26,922,866
Banks and savings & loans (2.6%)
AmSouth Bank NA
Sub Nts
04-01-13 4.85 7,090,000 6,873,401
Bank of America
Sub Nts
02-15-10 7.80 21,000,000 24,613,721
Banknorth Group
05-01-08 3.75 3,120,000 3,060,127
Central Fidelity Capital I
Series A
04-15-27 2.11 16,500,000(j) 15,984,210
Credit Suisse First Boston USA
01-15-12 6.50 5,750,000 6,185,591
Fifth Third Bank
08-15-08 3.38 2,485,000 2,423,770
Marshall & Ilsley
Series E
09-01-06 5.75 8,000,000 8,677,600
Wachovia
08-15-08 3.50 5,050,000 4,924,811
Washington Mutual Bank
06-15-11 6.88 16,360,000 18,246,112
Total 90,989,343
Beverages & tobacco (0.4%)
Cott Beverages
12-15-11 8.00 2,000,000 2,090,000
Diageo Capital
(U.S. Dollar)
03-20-08 3.38 13,705,000(c) 13,454,336
Total 15,544,336
Broker dealers (2.4%)
Goldman Sachs Group
01-15-11 6.88 3,430,000 3,812,812
04-01-13 5.25 3,175,000 3,129,559
07-15-13 4.75 4,860,000 4,602,906
LaBranche
Sr Sub Nts
03-02-07 12.00 1,500,000 1,635,000
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
11 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Broker dealers (cont.)
Lehman Brothers Holdings
01-22-08 4.00% $1,500,000 $1,500,735
08-07-08 3.50 8,200,000 7,951,294
Merrill Lynch
11-15-07 4.00 5,500,000 5,496,145
Morgan Stanley
04-15-06 6.10 14,000,000 15,121,190
04-15-11 6.75 2,530,000 2,789,145
03-01-13 5.30 9,740,000 9,576,465
Morgan Stanley Capital I
Series 2003-IQ4 Cl A1
05-15-40 3.27 6,472,177 6,114,447
Series 2003-T11 Cl A2
06-13-41 4.34 10,190,000 10,093,127
Morgan Stanley, Dean Witter Capital 1
Series 2002-IQ2 Cl A2
12-15-35 5.16 1,500,000 1,563,309
Series 2002-IQ2 Cl A3
12-15-35 5.52 2,950,000 3,071,216
Series 2002-TOP7 Cl A2
01-15-39 5.98 5,900,000 6,250,881
Total 82,708,231
Building materials & construction (0.1%)
Louisiana Pacific
Sr Nts
08-15-10 8.88 2,260,000 2,593,350
Ryland Group
Sr Nts
06-01-08 5.38 2,500,000 2,481,250
Total 5,074,600
Cable (1.0%)
Comcast
03-15-11 5.50 23,945,000 24,076,937
Comcast Cable Communications
Sr Nts
06-15-13 7.13 4,020,000 4,421,059
Cox Communications
06-01-13 4.63 3,230,000 2,991,206
DirectTV Holdings/Finance
Sr Nts
03-15-13 8.38 1,500,000(d) 1,638,750
Rogers Cable
(U.S. Dollar)
06-15-13 6.25 2,000,000(c) 1,877,500
Total 35,005,452
Cellular telecommunications (0.4%)
AT&T Wireless Services
Sr Nts
03-01-11 7.88 11,080,000 12,515,514
Nextel Communications
Sr Nts
08-01-15 7.38 1,035,000 1,035,000
Total 13,550,514
Chemicals (0.5%)
Airgas
10-01-11 9.13 1,500,000 1,650,000
Compass Minerals Group
08-15-11 10.00 2,500,000 2,762,500
Dow Chemical
08-15-05 7.00 1,575,000 1,696,814
02-01-11 6.13 5,560,000 5,773,304
MacDermid
07-15-11 9.13 1,500,000 1,650,000
Praxair
06-15-08 2.75 2,940,000 2,773,184
Rhodia
(U.S. Dollar)
06-01-10 7.63 385,000(c,d) 392,700
06-01-11 8.88 230,000(c,d) 231,150
Total 16,929,652
Electronics (--%)
Flextronics Intl
(U.S. Dollar) Sr Sub Nts
05-15-13 6.50 1,000,000(c,d) 957,500
Energy (0.9%)
Amerada Hess
08-15-11 6.65 1,515,000 1,629,689
Conoco Funding
(U.S. Dollar)
10-15-11 6.35 14,950,000(c) 16,271,221
Devon Financing
09-30-11 6.88 3,205,000 3,540,759
Gulfterra Energy Partner
Sr Nts
06-01-10 6.25 1,000,000(d) 970,000
Newfield Exploration
Sr Nts
03-01-11 7.63 2,500,000 2,675,000
Westport Resources
11-01-11 8.25 1,500,000 1,605,000
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
12 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Energy (cont.)
XTO Energy
Sr Nts
04-15-12 7.50% $2,895,000 $3,112,125
04-15-13 6.25 1,520,000 1,520,000
Total 31,323,794
Energy equipment & services (0.2%)
Grant Prideco Escrow
12-15-09 9.00 2,000,000 2,105,000
Key Energy Services
Sr Nts
03-01-08 8.38 1,250,000 1,306,250
05-01-13 6.38 1,195,000 1,135,250
Offshore Logistics
06-15-13 6.13 725,000(d) 688,750
Total 5,235,250
Finance companies (2.6%)
Citigroup
Sub Nts
10-01-10 7.25 46,278,000 52,993,123
GMAC
09-15-11 6.88 23,020,000 23,028,517
Household Finance
01-24-06 6.50 5,750,000 6,238,411
10-15-11 6.38 6,850,000 7,332,021
Total 89,592,072
Financial services (5.5%)
Bank of America
First Union NB Commercial Mtge
Series 2001-3 Cl A2
04-11-37 5.46 4,090,000 4,221,242
Bear Stearns Commercial Mtge Securities
Series 2003-T10 Cl A1
03-13-40 4.00 8,654,942 8,488,940
Capital One Bank
Sr Nts
02-01-06 6.88 1,740,000 1,865,745
Chase Manhattan Bank-First Union Natl
Series 1999-1 C1 A2
08-15-31 7.44 14,150,000 16,148,922
Citibank Credit Card Issuance Trust
Series 2003-A5 Cl A5
04-07-08 2.50 10,400,000 10,339,264
Series 2003-A6 Cl A6
05-17-10 2.90 8,500,000 8,541,225
Commercial Mtge Acceptance
Series 1998-C1 C1 A2
07-15-31 6.49 15,910,000 17,492,325
General Electric Capital
03-15-07 5.38 6,000,000 6,373,200
06-15-12 6.00 4,240,000 4,464,211
Greenwich Capital Commercial Funding
Series 2002-C1 Cl A3
01-11-17 4.50 6,000,000 5,952,118
Series 2002-C1 Cl A4
01-11-35 4.95 6,825,000 6,712,606
HSBC Holdings
(U.S. Dollar) Sub Nts
12-12-12 5.25 11,350,000(c) 11,319,344
LB-UBS Commercial Mtge Trust
Series 2002-C2 Cl A3
06-15-26 5.39 7,360,000 7,596,353
Series 2002-C2 Cl A4
06-15-31 5.59 4,905,000 5,055,774
Series 2002-C4 Cl A4
09-15-26 4.56 10,000,000 9,833,721
Series 2002-C4 Cl A5
09-15-31 4.85 6,000,000 5,874,793
Series 2003-C3 Cl A2
05-15-27 3.09 14,900,000 14,267,896
MBNA Credit Card Master Note Trust
Series 2003-A1 Cl A1
07-15-10 3.30 5,795,000 5,710,567
Nissan Auto Receivables Owner Trust
Series 2003-A Cl A4
07-15-08 2.61 2,500,000 2,483,789
Residential Asset Securities
Series 2002-KS1 Cl A14
11-25-29 5.86 7,500,000 7,771,275
Residential Funding Mtge
10-25-17 5.50 6,768,772 6,833,955
SLM
03-17-08 3.63 5,420,000 5,342,543
TIAA Global Markets
01-22-08 3.88 14,990,000(d) 15,024,327
Toyota Motor Credit
08-01-08 2.88 4,630,000 4,438,272
Total 192,152,407
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
13 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Food (0.8%)
Burns Philp Capital Property
(U.S. Dollar) Sr Sub Nts
02-15-11 10.75% $500,000(c,d) $512,500
Chiquita Brands Intl
Sr Nts
03-15-09 10.56 500,000 545,000
General Mills
02-15-07 5.13 7,350,000 7,852,203
Kellogg
Series B
04-01-11 6.60 10,115,000(l) 11,158,363
Kraft Foods
11-01-11 5.63 7,520,000 7,551,283
Total 27,619,349
Health care products (0.1%)
Apogent Technologies
Sr Sub Nts
05-15-13 6.50 1,500,000(d) 1,473,750
Kinetic Concepts
Sr Sub Nts
05-15-13 7.38 795,000(d) 795,000
Total 2,268,750
Health care services (0.2%)
AmerisourceBergen
11-15-12 7.25% $2,000,000 $2,020,000
Fisher Scientific Intl
Sr Sub Nts
09-01-13 8.00 750,000(d) 770,625
Omnicare
Sr Sub Nts
06-01-13 6.13 1,650,000 1,571,625
Province Healthcare
Sr Sub Nts
06-01-13 7.50 500,000 481,250
Tenet Healthcare
Sr Nts
12-01-11 6.38 1,000,000 930,000
Total 5,773,500
Home building (0.4%)
D.R. Horton
07-01-13 5.88 1,500,000 1,353,750
Meritage
06-01-11 9.75 2,570,000 2,740,263
NVR
Sr Nts
06-15-10 5.00 2,500,000 2,337,500
Pulte Homes
Sr Nts
12-15-03 7.00 7,700,000 7,764,387
Total 14,195,900
Industrial transportation (1.1%)
Burlington North Santa Fe
12-15-05 6.38 7,000,000 7,596,302
Canadian Natl Railways
(U.S. Dollar)
10-15-11 6.38 8,440,000(c) 9,203,347
CSX
03-15-11 6.75 5,800,000 6,373,226
Greater Beijing First Expressways
(U.S. Dollar) Sr Nts
06-15-07 9.50 3,640,000(b,c) 2,338,700
Interpool
08-01-07 7.35 400,000 390,000
Union Pacific
02-01-08 6.63 1,230,000 1,351,579
01-15-11 6.65 5,250,000 5,769,173
04-15-12 6.50 4,180,000 4,573,848
Total 37,596,175
Insurance (1.2%)
Allstate
06-01-33 5.35 2,450,000 2,144,412
Sr Nts
02-15-12 6.13 1,615,000 1,735,692
ASIF Global Financing
01-17-13 4.90 20,010,000(d) 19,496,142
MassMutual Global Funding II
07-15-08 2.55 6,860,000(d) 6,426,626
Met Life Global Funding I
06-19-08 2.60 9,310,000(d) 8,712,764
Travelers Property Casualty
Sr Nts
03-15-13 5.00 4,810,000 4,710,193
Total 43,225,829
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
14 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Leisure time & entertainment (1.3%)
AOL Time Warner
05-01-12 6.88% $19,800,000 $21,519,967
05-01-32 7.70 3,785,000 4,151,891
KSL Resorts
Series 2003-1A Cl C
05-15-13 2.04 3,500,000 3,499,728
Viacom
05-15-11 6.63 13,002,000 14,375,024
Total 43,546,610
Lodging & gaming (0.2%)
Choctaw Resort Development Enterprises
Sr Nts
04-01-09 9.25 1,500,000 1,606,875
Coast Hotels & Casino
04-01-09 9.50 1,000,000 1,065,000
Hilton Hotels
12-01-12 7.63 750,000 793,125
Mohegan Tribal Gaming
Sr Sub Nts
04-01-12 8.00 2,000,000 2,130,000
Park Place Entertainment
Sr Sub Nts
03-15-10 7.88 1,500,000 1,601,250
Total 7,196,250
Machinery (--%)
Joy Global
Series B
03-15-12 8.75 1,500,000 1,620,000
Media (1.5%)
Alliance Atlantis Communications
(U.S. Dollar) Sr Sub Nts
12-15-09 13.00 1,000,000(c) 1,118,750
AOA Holdings LLC
Sr Nts
06-15-08 12.00 6,000,000(k) 6,462,000
Belo (AH)
11-01-08 8.00 6,550,000 7,546,452
CanWest Media
(U.S. Dollar) Sr Sub Nts
05-15-11 10.63 1,000,000(c) 1,115,000
CBD Media/Finance
Sr Sub Nts
06-01-11 8.63 1,935,000(d) 2,031,750
Corus Entertainment
(U.S. Dollar) Sr Sub Nts
03-01-12 8.75 1,500,000(c) 1,586,250
Dex Media West/Finance
Sr Nts
08-15-10 8.50 700,000(d) 761,250
Sr Sub Nts
08-15-13 9.88 610,000(d) 680,150
Hollinger Intl Publishing
Sr Nts
12-15-10 9.00 1,180,000 1,224,250
Lamar Media Corp
09-15-07 8.63 1,730,000 1,786,225
Morris Publishing
Sr Sub Nts
08-01-13 7.00 1,250,000(d) 1,250,000
News Corp
(U.S. Dollar)
06-24-10 10.15 2,722,711(c,k) 3,315,986
Nexstar Finance LLC
04-01-08 12.00 1,000,000 1,120,000
Quebecor Media
(U.S. Dollar) Sr Nts
07-15-11 11.13 890,000(c) 983,450
Radio One
Series B
07-01-11 8.88 1,000,000 1,092,500
Sinclair Broadcast Group
03-15-12 8.00 1,000,000 1,042,500
Sun Media
(U.S. Dollar) Sr Nts
02-15-13 7.63 1,500,000(c) 1,548,750
Susquehanna Media
Sr Sub Nts
04-15-13 7.38 665,000 677,469
TCI Communications
02-15-06 6.88 5,512,000 5,973,828
United Artists Theatre
07-01-15 9.30 10,417,788 10,157,343
Total 51,473,903
Metals (0.1%)
Euramax Intl
Sr Sub Nts
08-15-11 8.50 710,000(d) 717,100
Jorgensen Earle M.
06-01-12 9.75 500,000 527,500
Peabody Energy
Series B
03-15-13 6.88 500,000 500,000
Total 1,744,600
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
15 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Multi-industry (1.1%)
General Electric
02-01-13 5.00% $33,190,000 $32,555,407
SPX
Sr Nts
06-15-11 6.25 500,000 490,000
Tyco Intl Group
(U.S. Dollar)
02-15-11 6.75 2,045,000(c) 2,080,788
Vivendi Universal
(U.S. Dollar) Sr Nts
07-15-08 6.25 1,500,000(c,d) 1,500,000
Total 36,626,195
Paper & packaging (1.6%)
Ball
12-15-12 6.88 1,520,000 1,535,200
Carter Holt Harvey
(U.S. Dollar)
12-01-04 8.88 10,500,000(c) 11,200,319
Cascades
(U.S. Dollar) Sr Nts
02-15-13 7.25 2,000,000(c,d) 1,966,278
Crown Euro Holdings
(U.S. Dollar)
03-01-13 10.88 500,000(c,d) 547,500
Crown Paper
Sr Sub Nts
09-01-05 11.00 6,950,000(b) 695
Doman Inds
(U.S. Dollar) Sr Nts Series B
11-15-07 9.25 3,395,000(b,c) 611,100
Domtar
(U.S. Dollar)
10-15-11 7.88 1,100,000(c) 1,262,843
Georgia-Pacific
Sr Nts
02-01-10 8.88 1,000,000(d) 1,050,000
Graphic Packaging Intl
Sr Nts
08-15-11 8.50 540,000(d) 564,300
Intl Paper
10-30-12 5.85 1,835,000 1,869,986
Norampac
(U.S. Dollar) Sr Nts
06-01-13 6.75 2,000,000(c,d) 1,975,000
Packaging Corp of America
08-01-13 5.75 3,910,000(d) 3,792,114
Stone Container
Sr Nts
07-01-12 8.38 1,500,000 1,590,000
Weyerhaeuser
03-15-07 6.13 21,680,000 23,382,334
(U.S. Dollar)
01-15-04 8.50 3,000,000(c) 3,053,790
Total 54,401,459
Retail -- general (0.4%)
Sonic Automotive
Sr Sub Nts
08-15-13 8.63 500,000(d) 505,000
Wal-Mart CRAVE 401
07-17-06 7.00 6,793,744(d) 7,348,929
Wal-Mart Stores
06-29-11 8.88 3,500,000 3,567,375
William Carter
Series B
08-15-11 10.88 1,030,000 1,133,000
Total 12,554,304
Retail -- grocery (0.4%)
Dairy Mart Convenience Stores
Sr Sub Nts
03-15-04 10.25 5,925,000(b) 1,066,500
Kroger
03-01-08 7.45 3,000,000 3,362,760
Sr Nts
07-15-06 8.15 9,000,000 10,118,250
Total 14,547,510
Telecom equipment & services (1.0%)
Qwest
11-01-04 7.20 2,000,000 2,030,000
Sprint Capital
03-15-12 8.38 7,425,000 8,432,706
Telus
(U.S. Dollar)
06-01-07 7.50 7,050,000(c) 7,695,371
Verizon Maryland
03-01-12 6.13 5,940,000 6,311,630
Verizon Virginia Cl A
03-15-13 4.63 6,600,000 6,241,686
Vodafone Group
(U.S. Dollar)
02-15-10 7.75 4,045,000(c) 4,683,665
Total 35,395,058
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
16 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Utilities -- electric (5.4%)
American Electric Power
Sr Nts
06-01-15 5.25% $4,850,000 $4,489,936
Carolina Power & Light
07-15-12 6.50 990,000 1,065,348
Cincinnati Gas & Electric
09-15-12 5.70 1,600,000 1,652,432
Cleveland Electric Illuminating
1st Mtge Series B
05-15-05 9.50 18,790,000 18,915,179
Columbus Southern Power
03-01-13 5.50 3,645,000(d) 3,629,017
Commonwealth Edison
02-01-08 3.70 6,355,000 6,304,605
Consolidated Natural Gas
Sr Nts
04-15-11 6.85 1,660,000 1,850,186
Consumers Energy
1st Mtge
04-15-08 4.25 17,040,000(d) 16,830,919
Dominion Resources
Sr Nts
09-17-12 5.70 9,300,000 9,527,924
Sr Nts Series F
08-01-33 5.25 1,630,000 1,539,651
Duke Energy
01-15-12 6.25 10,000,000 10,507,550
1st Mtge
03-05-08 3.75 11,600,000(d) 11,539,680
Exelon
Sr Nts
05-01-11 6.75 1,530,000 1,677,140
FirstEnergy
Series B
11-15-11 6.45 9,350,000 9,140,186
Florida Power
1st Mtge
03-01-13 4.80 10,885,000 10,665,994
FPL Group Capital
04-11-06 3.25 2,080,000 2,089,277
Indianapolis Power & Light
07-01-13 6.30 1,880,000(d) 1,870,562
IPALCO Enterprises
11-14-08 8.38 400,000 420,000
11-14-11 8.63 3,000,000 3,150,000
NiSource Finance
Sr Nts
03-01-13 6.15 3,565,000 3,647,458
Northern States Power
1st Mtge
08-01-10 4.75 2,940,000 2,906,014
Northern States Power - Minnesota
1st Mtge Series B
08-29-12 8.00 3,070,000 3,641,800
Ohio Power
02-15-13 5.50 1,010,000(d) 1,005,557
Pacific Gas & Electric
1st Mtge Series 1992B
05-01-25 8.38 4,100,000 4,171,750
PG&E
07-15-08 6.88 2,010,000(d) 2,045,115
PowerGen US Funding LLC
10-15-04 4.50 8,000,000 8,198,824
PSI Energy
08-01-05 6.50 10,000,000 10,618,300
Public Service Colorado
1st Mtge
03-01-13 4.88 1,520,000(d) 1,460,317
Tampa Electric
08-15-07 5.38 900,000 922,074
Teco Energy
Sr Nts
06-15-10 7.50 930,000 906,750
Texas Utilities Electric
01-01-05 9.45 1,416,000 1,424,925
1st Mtge
07-01-25 7.63 10,000,000 10,301,710
10-01-25 7.38 3,000,000 3,079,479
Tucson Electric Power
10-01-09 8.50 3,250,000 3,258,125
Virginia Electric & Power
Sr Nts Series A
03-31-06 5.75 4,685,000 5,027,431
WPD Holdings
(U.S. Dollar)
12-15-17 7.25 5,000,000(c,d) 4,365,935
Xcel Energy
Sr Nts
07-01-08 3.40 2,380,000(d) 2,262,809
Total 186,109,959
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
17 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Utilities -- natural gas (0.4%)
ANR Pipeline
03-15-10 8.88% $2,250,000 $2,373,750
El Paso Production Holding
06-01-13 7.75 1,000,000(d) 960,000
NiSource Finance
07-15-14 5.40 3,210,000 3,043,080
Northwest Pipeline
03-01-10 8.13 570,000 592,800
Panhandle Eastern Pipeline
08-15-08 4.80 2,490,000(d) 2,479,467
Southern Natural Gas
03-15-10 8.88 1,750,000 1,846,250
Transcontinental Gas Pipeline
Series B
08-15-11 7.00 2,250,000 2,207,813
Total 13,503,160
Utilities -- telephone (2.0%)
AT&T
Sr Nts
11-15-06 7.00 4,235,000(j) 4,696,488
British Telecom
(U.S. Dollar)
12-15-10 8.38 12,700,000(c) 15,070,798
Citizens Communications
05-15-11 9.25 3,500,000 4,313,176
Deutsche Telekom Intl Finance
(U.S. Dollar)
07-22-13 5.25 5,255,000(c) 5,039,703
06-15-30 8.75 3,150,000(c) 3,782,791
France Telecom
(U.S. Dollar)
03-01-11 9.25 1,280,000(c,j) 1,527,921
03-01-31 10.00 1,500,000(c,j) 1,933,497
SBC Communications
03-15-11 6.25 3,905,000 4,219,805
08-15-12 5.88 4,420,000 4,670,128
Verizon Global Funding
06-15-12 6.88 1,650,000 1,817,736
Verizon New England
Sr Nts
09-15-11 6.50 14,990,000 16,245,861
Verizon Pennsylvania Cl A
11-15-11 5.65 6,890,000 7,089,741
Total 70,407,645
Variable rate senior loan interests (0.1%)
American Commercial Lines LLC
Term Loan B
06-30-06 5.38 2,488,972 2,090,737
Term Loan C
03-30-07 7.62 3,489,735 2,913,929
Total 5,004,666
Total bonds
(Cost: $3,494,678,942) $3,456,494,082
Common stocks (--%)
Issuer Shares Value(a)
Davel Communications 703,793(b) $5,630
Stellex Aerostructures 1,311(b,n) --
Total common stocks
(Cost: $4,947,691) $5,630
Other (0.1%)
Issuer Shares Value(a)
Wayland Investment Fund LLC 6,000,000(b,e,k) $2,255,220
Total other
(Cost: $6,671,880) $2,255,220
Short-term securities (13.8%)(m)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agency (8.1%)
Federal Natl Mtge Assn Disc Nts
09-10-03 1.05% $50,000,000 $49,982,501
10-15-03 1.00 33,400,000 33,356,870
10-22-03 1.03 21,200,000 21,168,546
10-29-03 1.05 20,000,000 19,967,700
11-17-03 1.00 22,200,000 22,151,249
11-26-03 1.06 49,500,000 49,370,283
11-26-03 1.07 42,500,000 42,395,620
12-24-03 1.00 42,000,000 41,861,568
Total 280,254,337
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
18 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
Short-term securities (continued)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
Commercial paper (5.7%)
AEGON Funding
10-06-03 1.03% $11,400,000(o) $11,387,366
ANZ (Delaware) Funding
10-03-03 1.03 6,100,000 6,093,508
Ciesco LLC
09-03-03 1.04 14,500,000 14,497,906
11-04-03 1.07 10,000,000(o) 9,980,086
CRC Funding LLC
10-06-03 1.08 16,400,000(o) 16,381,824
Danske
11-12-03 1.07 11,300,000 11,274,810
Delaware Funding
09-02-03 1.03 7,300,000(o) 7,299,164
Edison Asset Securitization
10-03-03 1.04 20,000,000(o) 19,978,713
Falcon Asset Securitization
09-15-03 1.06 30,000,000(o) 29,984,982
Fleet Funding
09-02-03 1.04 25,100,000(o) 25,097,678
Nordea North America
10-21-03 1.04 9,300,000 9,285,487
Park Avenue Receivables
09-09-03 1.03 19,800,000(o) 19,793,768
Preferred Receivables Funding
09-15-03 1.07 10,000,000(o) 9,994,947
Sigma Finance
11-03-03 1.08 1,500,000(o) 1,497,058
Svenska Handelsbanken
09-05-03 1.03 7,000,000 6,998,598
Total 199,545,895
Total short-term securities
(Cost: $479,803,065) $479,800,232
Total investments in securities
(Cost: $3,986,101,578)(p) $3,938,555,164
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 Aug. 31,
2003, the value of foreign securities represented 5.5% of net assets.
(d) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
has been determined to be liquid under guidelines established by the board.
(e) The share amount for Limited Liability Companies (LLC) or Limited
Partnerships (LP) represents capital contributions.
(f) Mortgage-backed securities represent direct or indirect participations in,
or are secured by and payable from, mortgage loans secured by real
property, and include single- and multi-class pass-through securities and
Collateralized Mortgage Obligations. These securities may be issued or
guaranteed by U.S. government agencies or instrumentalities, or by private
issuers, generally originators and investors in mortgage loans, including
savings associations, mortgage bankers, commercial banks, investment
bankers and special purpose entities. The maturity dates shown represent
the original maturity of the underlying obligation. Actual maturity may
vary based upon prepayment activity on these obligations. Unless otherwise
noted, the coupon rates presented are fixed rates.
(g) Interest only represents securities that entitle holders to receive only
interest payments on the underlying mortgages. The yield to maturity of an
interest only is extremely sensitive to the rate of principal payments on
the underlying mortgage assets. A rapid (slow) rate of principal repayments
may have an adverse (positive) effect on yield to maturity. The principal
amount shown is the notional amount of the underlying mortgages. Interest
rate disclosed represents yield based upon the estimated timing of future
cash flows as of Aug. 31, 2003.
(h) Adjustable rate mortgage; interest rate varies to reflect current market
conditions; rate shown is the effective rate on Aug. 31, 2003.
(i) At Aug. 31, 2003, the cost of securities purchased, including interest
purchased, on a when-issued and/or other forward-commitment basis was
$372,824,835.
- --------------------------------------------------------------------------------
19 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
Notes to investments in securities (continued)
(j) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Aug. 31,
2003.
(k) Identifies issues considered to be illiquid as to their marketability (see
Note 1 to the financial statements). Information concerning such security
holdings at Aug. 31, 2003, is as follows:
Security Acquisition Cost
dates
AOA Holdings LLC
12.00% Sr Nts 2008 06-02-02 $6,000,000
News Corp
(U.S. Dollar) 10.15% 2010 01-29-93 thru 06-01-03 2,788,138
Wayland Investment Fund LLC 05-17-00 6,671,880
(l) Partially pledged as initial deposit on the following open interest rate
futures contracts (see Note 6 to the financial statements):
Type of security Notional amount
Purchase contracts
Eurodollar, Sept. 2003, 90-day $192,000,000
Eurodollar, Sept. 2007, 90-day 177,750,000
U.S. Treasury Bonds, Dec. 2003, 20-year 30,000,000
Sale contracts
U.S. Treasury Notes, Sept. 2003, 5-year 3,500,000
U.S. Treasury Notes, Sept. 2003, 10-year 68,000,000
U.S. Treasury Notes, Dec. 2003, 5-year 72,800,000
U.S. Treasury Notes, Dec. 2003, 10-year 181,500,000
(m) At Aug. 31, 2003, cash or short-term securities were designated to cover
open call options on futures written as follows (see Note 7 to the
financial statements):
Issuer Notional Exercise Expiration Value(a)
amount price date
U.S. Treasury Notes Dec. 2003, 10-year $39,500,000 $110 Nov. 2003 $734,451
At Aug. 31, 2003, cash or short-term securities were designated to cover open put
options on futures written as follows (see Note 7 to the financial statements):
Issuer Notional Exercise Expiration Value(a)
amount price date
U.S. Treasury Notes Dec. 2003, 10-year $39,500,000 $110 Nov. 2003 $845,545
(n) Negligible market value.
(o) 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.
(p) At Aug. 31, 2003, the cost of securities for federal income tax purposes
was $3,984,242,901 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $ 41,456,610
Unrealized depreciation (87,144,347)
-----------
Net unrealized depreciation $(45,687,737)
------------
- --------------------------------------------------------------------------------
20 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
Financial Statements
Statement of assets and liabilities
AXP Diversified Bond Fund
Aug. 31, 2003
Assets
Investments in securities, at value (Note 1)*
(identified cost $3,986,101,578) $3,938,555,164
Cash in bank on demand deposit 19,957,417
Capital shares receivable 643,269
Dividends and accrued interest receivable 29,158,460
Receivable for investment securities sold 97,867,502
----------
Total assets 4,086,181,812
-------------
Liabilities
Dividends payable to shareholders 1,601,246
Capital shares payable 748,679
Payable for investment securities purchased 138,638,348
Payable for securities purchased on a forward-commitment basis (Note 1) 372,824,835
Payable upon return of securities loaned (Note 5) 94,272,500
Accrued investment management services fee 46,576
Accrued distribution fee 41,124
Accrued service fee 737
Accrued transfer agency fee 13,260
Accrued administrative services fee 4,162
Other accrued expenses 253,458
Options contracts written, at value (premiums received $1,120,125) (Note 7) 1,579,996
---------
Total liabilities 610,024,921
-----------
Net assets applicable to outstanding capital stock $3,476,156,891
==============
Represented by
Capital stock -- $.01 par value (Note 1) $ 7,278,529
Additional paid-in capital 3,648,047,082
Undistributed net investment income 3,631,514
Accumulated net realized gain (loss) (Note 9) (136,202,003)
Unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies (Note 6) (46,598,231)
-----------
Total -- representing net assets applicable to outstanding capital stock $3,476,156,891
==============
Net assets applicable to outstanding shares: Class A $2,279,810,794
Class B $ 901,664,851
Class C $ 26,520,135
Class Y $ 268,161,111
Net asset value per share of outstanding capital stock: Class A shares 477,385,529 $ 4.78
Class B shares 188,783,060 $ 4.78
Class C shares 5,545,851 $ 4.78
Class Y shares 56,138,452 $ 4.78
---------- --------------
*Including securities on loan, at value (Note 5) $ 91,494,680
==============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
21 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
Statement of operations
AXP Diversified Bond Fund
Year ended Aug. 31, 2003
Investment income
Income:
Interest $191,743,752
Fee income from securities lending (Note 5) 298,766
-------
Total income 192,042,518
-----------
Expenses (Note 2):
Investment management services fee 18,159,757
Distribution fee
Class A 5,994,788
Class B 10,343,876
Class C 260,914
Transfer agency fee 5,645,366
Incremental transfer agency fee
Class A 287,233
Class B 227,024
Class C 7,812
Service fee -- Class Y 286,295
Administrative services fees and expenses 1,674,570
Compensation of board members 27,775
Custodian fees 262,414
Printing and postage 639,997
Registration fees 72,593
Audit fees 43,000
Other 58,049
------
Total expenses 43,991,463
Earnings credits on cash balances (Note 2) (45,481)
-------
Total net expenses 43,945,982
----------
Investment income (loss) -- net 148,096,536
-----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 118,661,863
Foreign currency transactions (8,780,944)
Futures contracts (199,115)
Options contracts written (Note 7) 2,155,018
---------
Net realized gain (loss) on investments 111,836,822
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies (82,489,907)
-----------
Net gain (loss) on investments and foreign currencies 29,346,915
----------
Net increase (decrease) in net assets resulting from operations $177,443,451
============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
22 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
Statements of changes in net assets
AXP Diversified Bond Fund
Year ended Aug. 31, 2003 2002
Operations and distributions
Investment income (loss) -- net $ 148,096,536 $ 193,601,257
Net realized gain (loss) on investments 111,836,822 (104,216,173)
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies (82,489,907) 21,330,971
----------- ----------
Net increase (decrease) in net assets resulting from operations 177,443,451 110,716,055
----------- -----------
Distributions to shareholders from:
Net investment income
Class A (98,126,653) (121,329,296)
Class B (34,728,824) (44,277,498)
Class C (854,382) (754,797)
Class Y (12,225,930) (24,276,463)
Tax return of capital
Class A (2,476,941) (7,330,284)
Class B (876,635) (2,675,088)
Class C (21,567) (45,602)
Class Y (308,611) (1,466,697)
-------- ----------
Total distributions (149,619,543) (202,155,725)
------------ ------------
Capital share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 392,003,998 524,025,978
Class B shares 232,251,463 398,928,016
Class C shares 11,080,202 18,470,000
Class Y shares 150,904,209 271,716,616
Reinvestment of distributions at net asset value
Class A shares 77,130,545 96,090,237
Class B shares 30,927,117 40,340,249
Class C shares 767,401 691,608
Class Y shares 11,324,132 24,587,425
Payments for redemptions
Class A shares (642,065,690) (516,477,447)
Class B shares (Note 2) (419,428,542) (322,964,143)
Class C shares (Note 2) (9,230,935) (5,410,217)
Class Y shares (193,312,689) (520,331,103)
------------ ------------
Increase (decrease) in net assets from capital share transactions (357,648,789) 9,667,219
------------ ---------
Total increase (decrease) in net assets (329,824,881) (81,772,451)
Net assets at beginning of year 3,805,981,772 3,887,754,223
------------- -------------
Net assets at end of year $3,476,156,891 $3,805,981,772
============== ==============
Undistributed net investment income $ 3,631,514 $ 1,145,568
-------------- --------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
23 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
Notes to Financial Statements
AXP Diversified Bond Fund (formerly AXP Bond Fund)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a series of AXP Fixed Income Series, Inc. (formerly AXP Bond Fund,
Inc.) and is registered under the Investment Company Act of 1940 (as amended) as
a diversified, open-end management investment company. AXP Fixed Income Series,
Inc. has 10 billion authorized shares of capital stock that can be allocated
among the separate series as designated by the board. The Fund invests primarily
in bonds and other debt securities including securities issued by the U.S.
government, corporate bonds and mortgage- and asset-backed securities.
The Fund offers Class A, Class B, Class C and Class Y shares.
o Class A shares are sold with a front-end sales charge.
o Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares during the ninth calendar year
of ownership.
o Class C shares may be subject to a CDSC.
o Class Y shares have no sales charge and are offered only to qualifying
institutional investors.
All classes of shares have identical voting, dividend and liquidation rights.
The distribution fee, incremental transfer agency fee and service fee (class
specific expenses) differ among classes. Income, expenses (other than class
specific expenses) and realized and unrealized gains or losses on investments
are allocated to each class of shares based upon its relative net assets.
The Fund's significant accounting policies are summarized below:
Use of estimates
Preparing financial statements that conform to accounting principles generally
accepted in the United States of America requires management to make estimates
(e.g., on assets, liabilities and contingent assets and liabilities) that could
differ from actual results.
Valuation of securities
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
Securities for which market quotations are not readily available are valued at
fair value according to methods selected in good faith by the board. Short-term
securities maturing in more than 60 days from the valuation date are valued at
the market price or approximate market value based on current interest rates;
those maturing in 60 days or less are valued at amortized cost.
- --------------------------------------------------------------------------------
24 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
Option transactions
To produce incremental earnings, protect gains, and facilitate buying and
selling of securities for investments, the Fund may buy and write options traded
on any U.S. or foreign exchange or in the over-the-counter market where
completing the obligation depends upon the credit standing of the other party.
The Fund also may buy and sell put and call options and write covered call
options on portfolio securities as well as write cash-secured put options. The
risk in writing a call option is that the Fund gives up the opportunity for
profit if the market price of the security increases. The risk in writing a put
option is that the Fund may incur a loss if the market price of the security
decreases and the option is exercised. The risk in buying an option is that the
Fund pays a premium whether or not the option is exercised. The Fund also has
the additional risk of being unable to enter into a closing transaction if a
liquid secondary market does not exist.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Fund will
realize a gain or loss when the option transaction expires or closes. When
options on debt securities or futures are exercised, the Fund will realize a
gain or loss. When other options are exercised, the proceeds on sales for a
written call option, the purchase cost for a written put option or the cost of a
security for a purchased put or call option is adjusted by the amount of premium
received or paid.
Futures transactions
To gain exposure to or protect itself from market changes, the Fund may buy and
sell financial futures contracts traded on any U.S. or foreign exchange. The
Fund also may buy and write put and call options on these futures contracts.
Risks of entering into futures contracts and related options include the
possibility of an illiquid market and that a change in the value of the contract
or option may not correlate with changes in the value of the underlying
securities.
Upon entering into a futures contract, the Fund is required to deposit either
cash or securities in an amount (initial margin) equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Fund each day. The variation margin payments are equal to the
daily changes in the contract value and are recorded as unrealized gains and
losses. The Fund recognizes a realized gain or loss when the contract is closed
or expires.
Foreign currency translations and foreign currency contracts
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars. Foreign currency amounts related to the
purchase or sale of securities and income and expenses are translated at the
exchange rate on the transaction date. The effect of changes in foreign exchange
rates on realized and unrealized security gains or losses is reflected as a
component of such gains or losses. In the statement of operations, net realized
gains or losses from foreign currency transactions, if any, may arise from sales
of foreign currency, closed forward contracts, exchange gains or losses realized
between the trade date and settlement date on securities transactions, and other
translation gains or losses on dividends, interest income and foreign
withholding taxes.
- --------------------------------------------------------------------------------
25 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
The Fund may enter into forward foreign currency exchange contracts for
operational purposes and to protect against adverse exchange rate fluctuation.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates from an
independent pricing service. The Fund is subject to the credit risk that the
other party will not complete its contract obligations.
Illiquid securities
As of Aug. 31, 2003, investments in securities included issues that are illiquid
which the Fund currently limits to 10% of net assets, at market value, at the
time of purchase. The aggregate value of such securities as of Aug. 31, 2003 was
$12,033,206 representing 0.35% 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.
Securities purchased on a forward-commitment basis
Delivery and payment for securities that have been purchased by the Fund on a
forward-commitment basis, including when-issued securities and other
forward-commitments, can take place one month or more after the transaction
date. During this period, such securities are subject to market fluctuations,
and they may affect the Fund's net assets the same as owned securities. The Fund
designates cash or liquid securities at least equal to the amount of its
forward-commitments. As of Aug. 31, 2003, the Fund has entered into outstanding
when-issued securities of $339,136,481 and other forward-commitments of
$33,688,354.
The Fund also enters into transactions to sell purchase commitments to third
parties at current market values and concurrently acquires other purchase
commitments for similar securities at later dates. As an inducement for the Fund
to "roll over" its purchase commitments, the Fund receives negotiated amounts in
the form of reductions of the purchase price of the commitment.
Federal taxes
The Fund's policy is to comply with all sections of the Internal Revenue Code
that apply to regulated investment companies and to distribute substantially all
of its taxable income to shareholders. No provision for income or excise taxes
is thus required.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of the deferred losses on
certain futures contracts, the recognition of certain foreign currency gains
(losses) as ordinary income (loss) for tax purposes and losses deferred due to
"wash sale" transactions. The character of distributions made during the year
from net investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the year that the income or realized gains (losses) were recorded by
the Fund.
On the statement of assets and liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income has been increased by $325,199
and accumulated net realized loss has been increased by $325,199.
- --------------------------------------------------------------------------------
26 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
The tax character of distributions paid for the years indicated is as follows:
Year ended Aug. 31, 2003 2002
Class A
Distributions paid from:
Ordinary income $98,126,653 $121,329,296
Long-term capital gain -- --
Tax return of capital 2,476,941 7,330,284
Class B
Distributions paid from:
Ordinary income 34,728,824 44,277,498
Long-term capital gain -- --
Tax return of capital 876,635 2,675,088
Class C
Distributions paid from:
Ordinary income 854,382 754,797
Long-term capital gain -- --
Tax return of capital 21,567 45,602
Class Y
Distributions paid from:
Ordinary income 12,225,930 24,276,463
Long-term capital gain -- --
Tax return of capital 308,611 1,466,697
As of Aug. 31, 2003, the components of distributable earnings on a tax basis are
as follows:
Undistributed ordinary income $ --
Accumulated long-term gain (loss) $(134,159,555)
Unrealized appreciation (depreciation) $ (43,407,919)
Dividends to shareholders
Dividends from net investment income, declared daily and payable monthly, when
available, are reinvested in additional shares of the Fund at net asset value or
payable in cash. Capital gains, when available, are distributed along with the
last income dividend of the calendar year.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date or upon receipt of
ex-dividend notification in the case of certain foreign securities. Interest
income, including amortization of premium and discount using the effective
interest method, is accrued daily.
2. EXPENSES AND SALES CHARGES
The Fund has agreements with American Express Financial Corporation (AEFC) to
manage its portfolio and provide administrative services. Under an Investment
Management Services Agreement, AEFC determines which securities will be
purchased, held or sold. The management fee is a percentage of the Fund's
average daily net assets in reducing percentages from 0.52% to 0.395% annually.
- --------------------------------------------------------------------------------
27 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
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 incremental
transfer agency fee is the amount charged to the specific classes for the
additional expense above the fee for Class Y. The Fund pays AECSC an annual fee
per shareholder account for this service as follows:
o Class A $20.50
o Class B $21.50
o Class C $21.00
o Class Y $18.50
In addition, there is an annual closed-account fee of $5 per inactive account,
charged on a pro rata basis from the date the account becomes inactive until the
date the account is purged from the transfer agent system generally within one
year. However, the closed account fee is not being charged to the Fund until a
new transfer agency system is installed.
Under terms of a prior agreement that ended April 30, 2003, the Fund paid a
transfer agency fee at an annual rate per shareholder account of $19.50 for
Class A, $20.50 for Class B, $20 for Class C and $17.50 for Class Y.
The Fund has agreements with American Express Financial Advisors Inc. (the
Distributor) for distribution and shareholder services. Under a Plan and
Agreement of Distribution, the Fund pays a fee at an annual rate up to 0.25% of
the Fund's average daily net assets attributable to Class A shares and up to
1.00% for Class B and Class C shares.
Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for
service provided to shareholders by financial advisors and other servicing
agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net
assets attributable to Class Y shares.
Sales charges received by the Distributor for distributing Fund shares were
$3,815,788 for Class A, $1,213,704 for Class B and $16,511 for Class C for the
year ended Aug. 31, 2003.
During the year ended Aug. 31, 2003, the Fund's custodian and transfer agency
fees were reduced by $45,481 as a result of earnings credits from overnight cash
balances.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $9,243,313,617 and $9,520,130,022, respectively, for the
year ended Aug. 31, 2003. Realized gains and losses are determined on an
identified cost basis.
- --------------------------------------------------------------------------------
28 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the years indicated are as follows:
Year ended Aug. 31, 2003
Class A Class B Class C Class Y
Sold 80,898,241 48,207,053 2,295,059 31,349,284
Issued for reinvested distributions 16,049,376 6,438,951 159,500 2,357,634
Redeemed (133,258,985) (86,570,359) (1,914,872) (40,187,210)
------------ ----------- ---------- -----------
Net increase (decrease) (36,311,368) (31,924,355) 539,687 (6,480,292)
----------- ----------- ------- ----------
Year ended Aug. 31, 2002
Class A Class B Class C Class Y
Sold 109,760,309 83,489,844 3,858,357 56,720,131
Issued for reinvested distributions 20,137,632 8,455,159 145,079 5,140,336
Redeemed (108,208,221) (67,735,175) (1,133,847) (108,994,850)
------------ ----------- ---------- ------------
Net increase (decrease) 21,689,720 24,209,828 2,869,589 (47,134,383)
---------- ---------- --------- -----------
5. LENDING OF SECURITIES
As of Aug. 31, 2003, securities valued at $91,494,680 were on loan to brokers.
For collateral, the Fund received $94,272,500 in cash. Income from securities
lending amounted to $298,766 for the year ended Aug. 31, 2003. The risks to the
Fund of securities lending are that the borrower may not provide additional
collateral when required or return the securities when due.
6. INTEREST RATE FUTURES CONTRACTS
As of Aug. 31, 2003, investments in securities included securities valued at
$6,870,514 that were pledged as collateral to cover initial margin deposits on
1,779 open purchase contracts and 3,258 open sale contracts. The notional market
value of the open purchase contracts as of Aug. 31, 2003 was $389,152,125 with a
net unrealized loss of $2,790,592. The notional market value of the open sale
contracts as of Aug. 31, 2003 was $358,860,363 with a net unrealized gain of
$4,198,646. See "Summary of significant accounting policies."
7. OPTIONS CONTRACTS WRITTEN
Contracts and premiums associated with options contracts written are as follows:
Year ended Aug. 31, 2003
Puts Calls
Contracts Premiums Contracts Premiums
Balance Aug 31, 2002 -- $ -- -- $ --
Opened 7,713 3,175,705 9,359 6,930,275
Closed (6,118) (2,639,500) (7,964) (6,098,583)
Expired (1,200) (173,642) (1,000) (74,130)
------ -------- ------ -------
Balance Aug. 31, 2003 395 $ 362,563 395 $ 757,562
--- ----------- --- -----------
See "Summary of significant accounting policies."
- --------------------------------------------------------------------------------
29 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
8. BANK BORROWINGS
The Fund has a revolving credit agreement with a syndicate of banks headed by
Deutsche Bank, whereby the Fund is permitted to have bank borrowings for
temporary or emergency purposes to fund shareholder redemptions. The agreement
went into effect Sept. 24, 2002. The Fund must maintain asset coverage for
borrowings of at least 300%. The agreement, which enables the Fund to
participate with other American Express mutual funds, permits borrowings up to
$500 million, collectively. Interest is charged to each Fund based on its
borrowings at a rate equal to either the LIBOR plus 0.50%, the IBOR plus 0.50%
or the higher of the Federal Funds Rate plus 0.25% and the Prime Lending Rate.
Borrowings are payable within 60 days after such loan is executed. The Fund also
pays a commitment fee equal to its pro rata share of the amount of the credit
facility at a rate of 0.09% per annum. Prior to this agreement, the Fund had a
revolving credit agreement that permitted borrowings up to $200 million with
U.S. Bank, N.A. The Fund had no borrowings outstanding during the year ended
Aug. 31, 2003.
9. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, the Fund has a capital loss carry-over of
$134,159,555 as of Aug. 31, 2003, that will expire in 2008 through 2010 if not
offset by capital gains. It is unlikely the board will authorize a distribution
of any net realized capital gains until the available capital loss carry-over
has been offset or expires.
10. FINANCIAL HIGHLIGHTS
The tables below show certain important financial information for evaluating the
Fund's results.
Class A
Per share income and capital changes(a)
Fiscal period ended Aug. 31, 2003 2002 2001 2000 1999
Net asset value, beginning of period $4.75 $4.86 $4.70 $4.82 $5.11
Income from investment operations:
Net investment income (loss) .20 .25 .31 .33 .33
Net gains (losses) (both realized and unrealized) .03 (.10) .17 (.12) (.25)
Total from investment operations .23 .15 .48 .21 .08
Less distributions:
Dividends from net investment income (.20) (.25) (.32) (.33) (.33)
Distributions from realized gains -- -- -- -- (.04)
Tax return of capital -- (.01) -- -- --
Total distributions (.20) (.26) (.32) (.33) (.37)
Net asset value, end of period $4.78 $4.75 $4.86 $4.70 $4.82
Ratios/supplemental data
Net assets, end of period (in millions) $2,280 $2,438 $2,390 $2,229 $2,591
Ratio of expenses to average daily net assets(c) .97% .95% .94% .93% .86%
Ratio of net investment income (loss) to average daily net assets 4.16% 5.17% 6.51% 7.04% 6.56%
Portfolio turnover rate (excluding short-term securities) 256% 169% 115% 64% 57%
Total return(e) 4.91% 3.13% 10.48% 4.67% 1.64%
See accompanying notes to financial highlights.
- --------------------------------------------------------------------------------
30 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
Class B
Per share income and capital changes(a)
Fiscal period ended Aug. 31, 2003 2002 2001 2000 1999
Net asset value, beginning of period $4.75 $4.86 $4.70 $4.82 $5.11
Income from investment operations:
Net investment income (loss) .16 .21 .27 .30 .29
Net gains (losses) (both realized and unrealized) .03 (.10) .17 (.13) (.24)
Total from investment operations .19 .11 .44 .17 .05
Less distributions:
Dividends from net investment income (.16) (.21) (.28) (.29) (.30)
Distributions from realized gains -- -- -- -- (.04)
Tax return of capital -- (.01) -- -- --
Total distributions (.16) (.22) (.28) (.29) (.34)
Net asset value, end of period $4.78 $4.75 $4.86 $4.70 $4.82
Ratios/supplemental data
Net assets, end of period (in millions) $902 $1,047 $954 $867 $1,093
Ratio of expenses to average daily net assets(c) 1.73% 1.71% 1.70% 1.69% 1.63%
Ratio of net investment income (loss) to average daily net assets 3.40% 4.40% 5.74% 6.28% 5.79%
Portfolio turnover rate (excluding short-term securities) 256% 169% 115% 64% 57%
Total return(e) 4.12% 2.35% 9.65% 3.88% .87%
See accompanying notes to financial highlights.
- --------------------------------------------------------------------------------
31 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
Class C
Per share income and capital changes(a)
Fiscal period ended Aug. 31, 2003 2002 2001 2000(b)
Net asset value, beginning of period $4.75 $4.86 $4.71 $4.64
Income from investment operations:
Net investment income (loss) .16 .21 .27 .04
Net gains (losses) (both realized and unrealized) .03 (.10) .16 .07
Total from investment operations .19 .11 .43 .11
Less distributions:
Dividends from net investment income (.16) (.21) (.28) (.04)
Tax return of capital -- (.01) -- --
Total distributions (.16) (.22) (.28) (.04)
Net asset value, end of period $4.78 $4.75 $4.86 $4.71
Ratios/supplemental data
Net assets, end of period (in millions) $27 $24 $10 $1
Ratio of expenses to average daily net assets(c) 1.74% 1.72% 1.70% 1.69%(d)
Ratio of net investment income (loss) to average daily net assets 3.34% 4.33% 5.62% 6.80%(d)
Portfolio turnover rate (excluding short-term securities) 256% 169% 115% 64%
Total return(e) 4.11% 2.35% 9.43% 2.58%(f)
See accompanying notes to financial highlights.
- --------------------------------------------------------------------------------
32 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
Class Y
Per share income and capital changes(a)
Fiscal period ended Aug. 31, 2003 2002 2001 2000 1999
Net asset value, beginning of period $4.75 $4.86 $4.70 $4.82 $5.11
Income from investment operations:
Net investment income (loss) .21 .25 .32 .34 .33
Net gains (losses) (both realized and unrealized) .03 (.10) .17 (.12) (.24)
Total from investment operations .24 .15 .49 .22 .09
Less distributions:
Dividends from net investment income (.21) (.25) (.33) (.34) (.34)
Distributions from realized gains -- -- -- -- (.04)
Tax return of capital -- (.01) -- -- --
Total distributions (.21) (.26) (.33) (.34) (.38)
Net asset value, end of period $4.78 $4.75 $4.86 $4.70 $4.82
Ratios/supplemental data
Net assets, end of period (in millions) $268 $297 $533 $385 $296
Ratio of expenses to average daily net assets(c) .81% .78% .78% .77% .77%
Ratio of net investment income (loss) to average daily net assets 4.34% 5.30% 6.66% 7.20% 6.67%
Portfolio turnover rate (excluding short-term securities) 256% 169% 115% 64% 57%
Total return(e) 5.08% 3.29% 10.65% 4.84% 1.71%
Notes to financial highlights
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date was June 26, 2000.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
- --------------------------------------------------------------------------------
33 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
Independent Auditors' Report
THE BOARD AND SHAREHOLDERS AXP FIXED INCOME SERIES, INC.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of AXP Diversified Bond Fund
(formerly AXP Bond Fund) (a series of AXP Fixed Income Series, Inc.) as of
August 31, 2003, 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 August 31, 2003, and the financial highlights for each of the years
in the five-year period ended August 31, 2003. 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. Our procedures included confirmation of
securities owned as of August 31, 2003, by correspondence with the custodian and
brokers or by other appropriate auditing procedures. 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 and financial highlights referred to
above present fairly, in all material respects, the financial position of AXP
Diversified Bond Fund as of August 31, 2003, 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
October 10, 2003
- --------------------------------------------------------------------------------
34 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
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 Diversified Bond Fund
Fiscal year ended Aug. 31, 2003
Class A
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals (effective for
distributions made after Jan. 1, 2003) 0.00%
Dividends Received Deduction for corporations 0.00%
Payable date Per share
Sept. 26, 2002 $0.02081
Oct. 25, 2002 0.02076
Nov. 25, 2002 0.02108
Dec. 20, 2002 0.02016
Jan. 22, 2003 0.01889
Feb. 21, 2003 0.01692
March 24, 2003 0.01669
April 24, 2003 0.01645
May 23, 2003 0.01261
June 23, 2003 0.01250
July 24, 2003 0.01251
Aug. 22, 2003 0.01169
Total distributions(a) $0.20107
Class B
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals (effective for
distributions made after Jan. 1, 2003) 0.00%
Dividends Received Deduction for corporations 0.00%
Payable date Per share
Sept. 26, 2002 $0.01774
Oct. 25, 2002 0.01792
Nov. 25, 2002 0.01803
Dec. 20, 2002 0.01769
Jan. 22, 2003 0.01559
Feb. 21, 2003 0.01390
March 24, 2003 0.01357
April 24, 2003 0.01333
May 23, 2003 0.00964
June 23, 2003 0.00925
July 24, 2003 0.00934
Aug. 22, 2003 0.00879
Total distributions(a) $0.16479
- --------------------------------------------------------------------------------
35 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
Class C
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals (effective for
distributions made after Jan. 1, 2003) 0.00%
Dividends Received Deduction for corporations 0.00%
Payable date Per share
Sept. 26, 2002 $0.01773
Oct. 25, 2002 0.01788
Nov. 25, 2002 0.01799
Dec. 20, 2002 0.01766
Jan. 22, 2003 0.01556
Feb. 21, 2003 0.01387
March 24, 2003 0.01353
April 24, 2003 0.01329
May 23, 2003 0.00961
June 23, 2003 0.00925
July 24, 2003 0.00930
Aug. 22, 2003 0.00876
Total distributions(b) $0.16443
Class Y
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals (effective for
distributions made after Jan. 1, 2003) 0.00%
Dividends Received Deduction for corporations 0.00%
Payable date Per share
Sept. 26, 2002 $0.02147
Oct. 25, 2002 0.02136
Nov. 25, 2002 0.02173
Dec. 20, 2002 0.02069
Jan. 22, 2003 0.01960
Feb. 21, 2003 0.01756
March 24, 2003 0.01736
April 24, 2003 0.01712
May 23, 2003 0.01324
June 23, 2003 0.01319
July 24, 2003 0.01319
Aug. 22, 2003 0.01231
Total distributions(a) $0.20882
(a) $0.005 per share represents a tax return of capital.
(b) $0.004 per share represents a tax return of capital.
- --------------------------------------------------------------------------------
36 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
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 86 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
Name, address, age Position held with Principal occupation during past Other directorships
Fund and length of five years
service
- --------------------------------- --------------------- ---------------------------------- --------------------------
Arne H. Carlson Board member since Chair, Board Services
901 S. Marquette Ave. 1999 Corporation (provides
Minneapolis, MN 55402 administrative services to
Age 69 boards). Former Governor of
Minnesota
- --------------------------------- --------------------- ---------------------------------- --------------------------
Philip J. Carroll, Jr. Board member since Retired Chairman and CEO, Fluor Scottish Power PLC,
901 S. Marquette Ave. 2002 Corporation (engineering and Vulcan Materials
Minneapolis, MN 55402 construction) since 1998 Company, Inc.
Age 65 (construction
materials/chemicals)
- --------------------------------- --------------------- ---------------------------------- --------------------------
Livio D. DeSimone Board member since Retired Chair of the Board and Cargill, Incorporated
30 Seventh Street East 2001 Chief Executive Officer, (commodity merchants and
Suite 3050 Minnesota Mining and processors), General
St. Paul, MN 55101-4901 Manufacturing (3M) Mills, Inc. (consumer
Age 69 foods), Vulcan Materials
Company (construction
materials/ chemicals),
Milliken & Company
(textiles and chemicals),
and Nexia Biotechnologies,
Inc.
- --------------------------------- --------------------- ---------------------------------- --------------------------
Heinz F. Hutter* Board member since Retired President and Chief
901 S. Marquette Ave. 1994 Operating Officer, Cargill,
Minneapolis, MN 55402 Incorporated (commodity
Age 74 merchants and processors)
- --------------------------------- --------------------- ---------------------------------- --------------------------
Anne P. Jones Board member since Attorney and Consultant
901 S. Marquette Ave. 1985
Minneapolis, MN 55402
Age 68
- --------------------------------- --------------------- ---------------------------------- --------------------------
Stephen R. Lewis, Jr.** Board member since Retired President and Professor Valmont Industries, Inc.
901 S. Marquette Ave. 2002 of Economics, Carleton College (manufactures irrigation
Minneapolis, MN 55402 systems)
Age 64
- --------------------------------- --------------------- ---------------------------------- --------------------------
Alan G. Quasha Board member since President, Quadrant Management, Compagnie Financiere
901 S. Marquette Ave. 2002 Inc. (management of private Richemont AG (luxury
Minneapolis, MN 55402 equities) goods), Harken Energy
Age 53 Corporation (oil and gas
exploration) and SIRIT
Inc. (radio frequency
identification technology)
- --------------------------------- --------------------- ---------------------------------- --------------------------
* Interested person of AXP Partners International Aggressive Growth Fund and
AXP Partners Aggressive Growth Fund by reason of being a security holder of
J P Morgan Chase & Co., which has a 45% interest in American Century
Companies, Inc., the parent company of the subadviser of two of the AXP
Partners Funds, American Century Investment Management, Inc.
** Interested person of AXP Partners International Aggressive Growth Fund by
reason of being a security holder of FleetBoston Financial Corporation,
parent company of Liberty Wanger Asset Management, L.P., one of the fund's
subadvisers.
- --------------------------------------------------------------------------------
37 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
Independent Board Members (continued)
Name, address, age Position held with Principal occupation during past Other directorships
Fund and length of five years
service
- --------------------------------- --------------------- ---------------------------------- --------------------------
Alan K. Simpson Board member since Former three-term United States Biogen, Inc.
1201 Sunshine Ave. 1997 Senator for Wyoming (biopharmaceuticals)
Cody, WY 82414
Age 71
- --------------------------------- --------------------- ---------------------------------- --------------------------
Alison Taunton-Rigby Board member since President, Forester Biotech
901 S. Marquette Ave. 2002 since 2000. Former President and
Minneapolis, MN 55402 CEO, Aquila Biopharmaceuticals,
Age 59 Inc.
- --------------------------------- --------------------- ---------------------------------- --------------------------
Board Members Affiliated with AEFC***
Name, address, age Position held with Principal occupation during past Other directorships
Fund and length of five years
service
- --------------------------------- --------------------- ---------------------------------- --------------------------
Barbara H. Fraser Board member since Executive Vice President - AEFA
1546 AXP Financial Center 2002 Products and Corporate Marketing
Minneapolis, MN 55474 of AEFC since 2002. President -
Age 53 Travelers Check Group, American
Express Company, 2001-2002.
Management Consultant, Reuters,
2000-2001. Managing Director -
International Investments,
Citibank Global, 1999-2000.
Chairman and CEO, Citicorp
Investment Services and
Citigroup Insurance Group, U.S.,
1998-1999
- --------------------------------- --------------------- ---------------------------------- --------------------------
Stephen W. Roszell Board member since Senior Vice President -
50238 AXP Financial Center 2002, Vice Institutional Group of AEFC
Minneapolis, MN 55474 President since
Age 54 2002
- --------------------------------- --------------------- ---------------------------------- --------------------------
William F. Truscott Board member since Senior Vice President - Chief
53600 AXP Financial Center 2001, Vice Investment Officer of AEFC since
Minneapolis, MN 55474 President since 2001. Former Chief Investment
Age 42 2002 Officer and Managing Director,
Zurich Scudder Investments
- --------------------------------- --------------------- ---------------------------------- --------------------------
*** Interested person by reason of being an officer, director and/or employee
of AEFC.
- --------------------------------------------------------------------------------
38 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
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. Roszell, who is vice president, and
Mr. Truscott, who is vice president, the Fund's other officers are:
Other Officers
Name, address, age Position held with Principal occupation during past Other directorships
Fund and length of five years
service
- -------------------------------- ---------------------- ---------------------------------- --------------------------
Jeffrey P. Fox Treasurer since 2002 Vice President - Investment
50005 AXP Financial Center Accounting, AEFC, since 2002;
Minneapolis, MN 55474 Vice President - Finance,
Age 48 American Express Company,
2000-2002; Vice President -
Corporate Controller, AEFC,
1996-2000
- -------------------------------- ---------------------- ---------------------------------- --------------------------
Paula R. Meyer 596 President since 2002 Senior Vice President and
AXP Financial Center General Manager - Mutual Funds,
Minneapolis, MN 55474 AEFC, since 2002; Vice President
Age 49 and Managing Director - American
Express Funds, AEFC, 2000-2002;
Vice President, AEFC, 1998-2000
- -------------------------------- ---------------------- ---------------------------------- --------------------------
Leslie L. Ogg Vice President, President of Board Services
901 S. Marquette Ave. General Counsel, and Corporation
Minneapolis, MN 55402 Secretary since 1978
Age 65
- -------------------------------- ---------------------- ---------------------------------- --------------------------
The SAI has additional information about the Fund's directors and is available,
without charge, upon request by calling (800) 862-7919.
- --------------------------------------------------------------------------------
39 -- AXP DIVERSIFIED BOND FUND -- 2003 ANNUAL REPORT
The policies and procedures that the Fund uses to determine how to vote proxies
relating to portfolio securities can be found in the Fund's Statement of
Additional Information (SAI) which is available (i) without charge, upon
request, by calling toll-free (800) 862-7919; (ii) on the American Express
Company Web site at americanexpress.com/funds; and (iii) on the Securities and
Exchange Commission Web site at http://www.sec.gov.
- --------------------------------------------------------------------------------
(logo)
AMERICAN
EXPRESS
(R)
- --------------------------------------------------------------------------------
American Express Funds
70100 AXP Financial Center
Minneapolis, MN 55474
This report must be accompanied or preceded by the Fund's current prospectus.
Distributed by American Express Financial Advisors Inc. Member NASD.
American Express Company is separate from American Express Financial Advisors
Inc. and is not a broker-dealer.
Item 2. (a) The Registrant has adopted a code of ethics that applies to the
Registrant's principal executive officer and principal financial
officer. A copy of the code of ethics is filed as an exhibit to this
form N-CSR.
(b) During the period covered by this report, there were not any
amendments to the provisions of the code of ethics adopted in 2(a)
above.
(c) During the period covered by this report, there were not any
implicit or explicit waivers to the provisions of the code of ethics
adopted in 2(a).
Item 3. The Registrant's board of directors has determined that independent
directors Livio D. DeSimone, Anne P. Jones, and Alan G. Quasha, each
qualify as audit committee financial experts.
Item 4. Principal Accountant Fees and Services. Not applicable.
Item 5. Audit Committee of Listed Registrants. Not applicable.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. Not applicable.
Item 8. [Reserved]
Item 9. Controls and Procedures.
(a) The registrant's Principal Executive Officer and Principal
Financial Officer have evaluated the registrant's disclosure
controls and procedures within 90 days of this filing and have
concluded that the registrant's disclosure controls and
procedures by the registrant in this Form N-CSR was recorded,
processed, summarized, and reported timely.
(b) At the date of filing this Form N-CSR, the registrant's
Principal Executive Officer and Principal Financial Officer are
aware of no significant changes in the registrant's internal
controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Item 10. Exhibits.
(a)(1) Code of ethics as applies to the Registrant's principal
executive officer and principal financial officer, as required to be
disclosed under Item 2 of Form N-CSR, is attached as Ex. 99.CODE ETH.
(a)(2) Separate certification for the Registrant's principal
executive officer and principal financial officer, as required by
Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a)
under the Investment Company Act of 1940, are attached as
EX.99.CERT.
(b) A certification by the Registrant's principal executive officer
and principal financial officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment
Company Act of 1940, is attached as EX.99.906 CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) AXP Fixed Income Series, Inc.
By /s/ Paula R. Meyer
------------------
Paula R. Meyer
President and Principal Executive Officer
Date November 5, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ Paula R. Meyer
------------------
Paula R. Meyer
President and Principal Executive Officer
Date November 5, 2003
By /s/ Jeffrey P. Fox
------------------
Jeffrey P. Fox
Treasurer and Principal Financial Officer
Date November 5, 2003