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)
50606 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: 2/29
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AXP(R)
Diversified
Bond
Fund
Semiannual Report
for the Period Ended
Feb. 29, 2004
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.
(logo) (logo)
American AMERICAN
Express(R) EXPRESS
Funds (R)
Table of Contents
Fund Snapshot 3
Questions & Answers
with Portfolio Management 4
Investments in Securities 8
Financial Statements 21
Notes to Financial Statements 24
Proxy Voting 34
(logo) Dalbar
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 -- 2004 SEMIANNUAL REPORT
Fund Snapshot
AS OF FEB. 29, 2004
PORTFOLIO MANAGER
Portfolio manager Tom Murphy, CFA*
Since 2/03
Years in industry 18
* The Fund is managed by a team of portfolio managers led by Tom Murphy.
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 $3.136 billion
Number of holdings 435
Average weighted life* 6.48 years
Effective duration** 4.25 years
STYLE MATRIX
Shading within the style matrix indicates areas in which the Fund generally
invests.
DURATION
SHORT INT. LONG
X HIGH
X MEDIUM
X LOW
SECTOR COMPOSITION
Percentage of portfolio assets
(pie chart)
Mortgage-backed securities 35.7%
Corporate bonds* 31.6%
U.S. government obligations & agencies 20.9%
CMBS/ABS** 6.4%
Short-term securities 4.8%
Foreign government bonds 0.6%
* Includes 5.8% Utilities, 5.4% Communications, 3.9% Other financials, 3.6%
Consumer cyclical, 3.5% Banks & brokers, 2.0% Insurance, 1.9% Consumer
non-cyclical, 1.6% Basic industries, 1.5% Technology, 1.0% Capital goods,
0.9% Energy, 0.4% Transportation and 0.1% Other.
** Commercial mortgage-backed/Asset-backed securities
CREDIT QUALITY SUMMARY
Percentage of portfolio assets
AAA bonds 64.8%
AA bonds 2.4
A bonds 5.7
BBB bonds 15.6
Non-investment grade bonds 6.7
Individual security ratings are based on information from Standard & Poor's
Corp. and Moody's Investors Service. If a rating is unavailable, the rating is
determined through an internal analysis, if appropriate.
* Average weighted life is the average number of years that each dollar of
unpaid principal due on a security remains outstanding.
** Effective duration measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels
of interest rates from two years out to 30 years). Positive duration means
that as rates rise, the price decreases, and negative duration means that
as rates rise, the price increases.
Fund holdings are subject to change.
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3 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
Questions & Answers
WITH PORTFOLIO MANAGEMENT
Below, Portfolio Manager Tom Murphy discusses AXP Diversified Bond Fund's
results and positioning for the first half of fiscal year 2004.
Q: How did AXP Diversified Bond Fund perform for the six-month period ended
Feb. 29, 2004?
A: AXP Diversified Bond Fund's Class A shares rose 4.42%, excluding sales
charge, for the six months ended Feb. 29, 2004. This was less than the
Fund's benchmark, the Lehman Brothers Aggregate Bond Index, which gained
4.92% for the period. It was also less than Lipper Intermediate Investment
Grade Index, representing the Fund's peer group, which advanced 5.11% over
the same time frame.
Q: What factors most significantly affected the Fund's performance?
A: Lower credit quality bonds outperformed higher credit quality bonds for
most of the six-month period. Many funds in the Fund's peer group held a
higher proportion of higher-risk, non-index sectors like high yield and
emerging markets in their portfolios during the period than did the Fund,
and so our results lagged.
While this Fund typically holds some high-yield bonds and some U.S.
dollar-dominated emerging market bonds, the Fund's primary focus is on
investment-grade securities. Indeed,
(bar chart)
PERFORMANCE COMPARISON
For the six-month period ended Feb. 29, 2004
6%
(bar 3)
5% (bar 1) (bar 2) +5.11%
+4.42% +4.92%
4%
3%
2%
1%
0%
(bar 1) AXP Diversified Bond Fund Class A (excluding sales change)
(bar 2) Lehman Brothers Aggregate Bond Index
(bar 3) Lipper Intermediate Investment Grade Index
(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.
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 -- 2004 SEMIANNUAL REPORT
Questions & Answers
(begin callout quote)> Favorable security selection within the mortgage and
investment-grade corporate sectors had a positive effect on portfolio
performance during the period.(end callout quote)
nearly 90% of the portfolio's assets were invested in investment-grade
securities for the first half of fiscal year 2004. Based on our historical
analyses, we believe our high-quality emphasis will provide competitive
performance within our peer group over longer time periods.
AVERAGE ANNUAL TOTAL RETURNS
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) POP(5)
as of Feb. 29, 2004
6 months* +4.42% -0.54% +4.24% +0.24% +4.24% +3.24% +4.71% +4.71%
1 year +4.63% -0.33% +3.84% -0.16% +3.63% +3.63% +4.80% +4.80%
5 years +5.41% +4.39% +4.61% +4.45% N/A N/A +5.56% +5.56%
10 years +6.24% +5.72% N/A N/A N/A N/A N/A N/A
Since inception N/A N/A +6.26% +6.26% +6.18% +6.18% +7.22% +7.22%
as of March 31, 2004
6 months* +2.97% -1.91% +2.59% -1.41% +2.38% +1.38% +3.05% +3.05%
1 year +5.26% +0.26% +4.47% +0.47% +4.25% +4.25% +5.43% +5.43%
5 years +5.38% +4.36% +4.59% +4.42% N/A N/A +5.54% +5.54%
10 years +6.70% +6.18% N/A N/A N/A N/A N/A N/A
Since inception N/A N/A +6.28% +6.28% +6.23% +6.23% +7.24% +7.24%
The performance information shown represents the past performance and is not a
guarantee of future results. The value of your investment and returns will
fluctuate so that your shares, when redeemed, may be worth more or less than
their original cost. Current performance may be lower or higher than the
performance information shown. You may obtain performance information current to
the most recent month-end by calling (888) 723-8476 or visiting
www.americanexpress.com/funds. You should consider the investment objectives,
risks, and charges and expenses of the Fund carefully before investing.
* Not annualized.
(1) Excluding sales charge.
(2) Returns at public offering price (POP) reflect a sales charge of 4.75%.
(3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as
follows: first year 5%; second and third year 4%; fourth year 3%; fifth
year 2%; sixth year 1%; no sales charge thereafter.
(4) 1% CDSC applies to redemptions made within the first year of purchase.
(5) Sales charge is not applicable to these shares. Shares available to
institutional investors only.
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5 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
Questions & Answers
Between August 2003 and February 2004, our long-term strategy did not bear
as much fruit as we would have liked. In comparing the Fund to its peers,
most of our peers had higher non-index positions that outpaced the
benchmark. Still, favorable security selection within the mortgage and
investment-grade corporate sectors had a positive effect on portfolio
performance during the period.
Since August 2003, the Federal Open Market Committee (the part of the
Federal Reserve Board that sets short-term interest rate targets) has
stated that it believes its accommodative policy can be maintained for a
"considerable period". As a result, the yield curve (the difference in
interest rates between long-term and short-term securities) has remained
relatively steep. Most investors believe that there will be no increase in
short-term rates until mid-2004 at the earliest.
On January 28th, the Fed substituted "patient" for "considerable period."
This change served to remind people that short rates will rise eventually.
Low inflation, slack in the economy, and disappointing job creation to date
are the factors that can allow the Fed to keep policy accommodative, even
though they remain optimistic that robust growth is coming. This does point
to a potential for increased volatility later this year if there is a
moderate up-tick in inflation, tightening capacity utilization and jobs
become more plentiful.
Q: What changes did you make to the portfolio and how is it currently
positioned?
A: We modestly increased the Fund's allocation to corporate bonds during the
period. We also took advantage of volatility in the corporate sector to
enhance the quality profile of the Fund's corporate holdings. As
lower-quality, more economically sensitive corporate issues outperformed,
higher-quality, less cyclical issues became more attractively valued,
creating opportunities for us to increase the Fund's positions in
higher-quality bonds. By the end of the semiannual period, the difference
in prices between bonds of varying quality within the high-grade corporate
sector had become compressed.
We substantially increased the portfolio's allocation to government agency
securities, such that we were close to the benchmark positioning at the end
of the semiannual period. Valuations on agency securities grew more
attractive as prices were temporarily depressed by negative publicity early
in the period regarding the questioned status of these agencies as
government-sponsored entities. We do not anticipate any change in the
agencies'
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6 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
Questions & Answers
government-sponsored status, therefore we saw this as an opportunity to
purchase the securities when they were more attractively priced.
We positioned the mortgage portion of the portfolio more defensively and
reduced the Fund's overall exposure to mortgages over the semiannual
period, as bond prices rose and valuations became more extreme.
Q: How do you intend to manage the Fund in the coming months?
A: Treasuries have traded in a 0.50% range since September 2003. Continued
foreign central bank buying of U.S. Treasuries, election year politics, and
a pause in the performance of more volatile stocks and corporate bonds
during the reporting period offset generally constructive economic releases
and concerns that with the passage of time, we are that much closer to an
increase in short-term rates. This scenario has kept current market rates
for U.S. Treasuries at the lower end of the recent trading range.
While we believe the economy is likely to continue its recovery, we remain
cautious given relatively full valuations on what are known as the spread
sectors of the bond market, including corporate and mortgage-backed
securities, and the numerous crosscurrents in the market. Thus, we intend
to continue to position the portfolio for the market's most likely
scenario. We do not plan to deviate dramatically from the Lehman Brothers
Aggregate Bond Index in the near term. We intend to maintain a slightly
higher-than-index position in corporate bonds with a higher-quality focus
and a slightly lower-than-index position in mortgages with a higher coupon
focus. Our expectation is that the eventual increase in interest rates will
affect the short end of the U.S. Treasury yield curve more adversely than
longer maturity securities.
At the same time, we are mindful that we do not simply want to mirror a
consensus view about the bond market. As Federal Reserve Board Chairman
Greenspan stated in his recent Humphrey-Hawkins testimony, "...all
forecasts are projections into an uncertain future. The fact that most
professional forecasters perceive much the same benign short-term outlook
that is our most likely expectation provides scant comfort. When the future
surprises, history tells us, it often surprises us all."
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7 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
Investments in Securities
AXP Diversified Bond Fund
Feb. 29, 2004 (Unaudited)
(Percentages represent value of investments compared to net assets)
Bonds (97.8%)
Issuer Coupon Principal Value(a)
rate amount
Foreign government (0.6%)
United Mexican States
(U.S. Dollar)
03-03-15 6.63% $18,295,000(c) $19,502,470
U.S. government obligations & agencies (21.2%)
Federal Home Loan Mtge Corp
08-15-06 2.75 50,500,000 51,307,495
11-15-13 4.88 46,926,000 48,574,229
01-15-14 4.50 35,800,000 35,955,730
Federal Natl Mtge Assn
04-15-06 2.13 26,800,000 26,928,586
08-15-08 3.25 86,170,000 86,791,286
11-17-08 3.88 32,300,000 32,818,738
02-15-09 3.25 44,990,000 44,872,981
Student Loan Mtge Assn
07-25-39 3.46 6,000,000(d) 6,001,878
U.S. Treasury
02-15-07 2.25 7,460,000 7,488,557
02-15-09 3.00 32,190,000(l) 32,270,475
02-15-14 4.00 46,060,500 46,118,076
08-15-23 6.25 112,900,000 132,838,365
02-15-26 6.00 98,542,000(l) 113,030,729
Total 664,997,125
Commercial mortgage-backed/Asset-backed
securities (6.6%)(f)
Aesop Funding II LLC
Series 2002-1A Cl A1
10-20-06 3.85 7,090,000 7,304,712
Series 2003-3A Cl A3
07-20-09 3.72 4,650,000 4,702,381
AmeriCredit Automobile Receivables Trust
Series 2002-C Cl 4A (FSA Insured)
02-12-09 3.55 2,660,000(o) 2,729,633
Bank of America Alternative Loan Trust
Series 2003-11 Cl 1A1
01-25-34 6.00 8,706,526 9,019,439
Bear Stearns
Commercial Mtge Securities
Series 2003-RWR2 Cl A4
05-11-39 5.19 8,000,000 8,108,732
Bear Stearns
Series 2003-T10 Cl A1
03-13-40 4.00 8,436,270 8,547,376
CS First Boston Mortgage Securities
Series 2003-29 Cl 8A1
11-25-18 6.00 6,686,766(i) 7,030,183
Series 2003-8 Cl 5A1
04-25-33 6.50 13,031,994(i) 13,590,740
GMAC Commercial Mtge Securities
Series 1999-C1 Cl B
05-15-33 6.30 5,800,000 6,506,133
Greenwich Capital Commercial Funding
Series 2003-C2 Cl A2
01-05-36 4.02 5,000,000 5,091,461
KSL Resorts
Series 2003-1A Cl C
05-15-13 1.99 3,500,000(d,j) 3,499,942
LB-UBS Commercial Mtge Trust
Series 2002-C2 Cl A3
06-15-26 5.39 7,360,000 7,926,972
Series 2002-C2 Cl A4
06-15-31 5.59 4,905,000 5,310,609
Series 2002-C4 Cl A4
09-15-26 4.56 10,000,000 10,302,912
Series 2002-C4 Cl A5
09-15-31 4.85 6,000,000 6,195,875
Series 2002-C8 Cl A3
11-15-27 4.83 2,950,000 3,060,714
Series 2003-C3 Cl A2
05-15-27 3.09 14,900,000 14,800,982
Series 2003-C8 Cl A2
11-15-27 4.21 1,500,000 1,544,745
Series 2004-C1 Cl A4
01-15-31 4.57 8,000,000 7,947,500
See accompanying notes to investments in securities.
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8 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Commercial mortgage-backed/Asset-backed
securities (cont.)
Morgan Stanley Capital 1
Series 2003-IQ4 Cl A1
05-15-40 3.27% $6,244,820 $6,128,055
Series 2003-T11 Cl A2
06-13-41 4.34 10,190,000 10,514,349
Series 2004-T13 Cl A2
09-13-45 3.94 4,800,000 4,840,656
Morgan Stanley, Dean Witter Capital 1
Series 2002-TOP7 Cl A2
01-15-39 5.98 5,900,000 6,537,205
Nissan Auto Receivables Owner Trust
Series 2003-A Cl A4
07-15-08 2.61 2,500,000 2,524,541
Residential Asset Securities
Series 2002-KS1 Cl AI4
11-25-29 5.86 7,500,000 7,719,675
Series 2004-KS1 Cl AI3
09-25-28 2.95 2,400,000 2,407,874
Structured Asset Securities
Series 2003-33H Cl 1A1
10-25-33 5.50 5,622,959 5,674,166
Wachovia Bank Commercial Mtge Trust
Series 2003-C8 Cl A2
11-15-35 3.89 15,000,000 15,313,515
Washington Mutual
Series 2003-AR10 Cl A6
10-25-33 4.10 12,300,000 12,368,063
Total 207,249,140
Mortgage-backed securities (36.8%)(f)
Federal Home Loan Mtge Corp
09-27-12 3.61 7,500,000 7,624,663
05-01-13 4.50 4,338,671 4,448,832
04-01-17 8.00 33,687 36,872
05-01-17 6.00 2,962,303 3,123,973
05-01-18 5.50 6,787,553 7,077,844
08-01-18 5.00 18,774,938 19,291,037
10-01-18 5.00 11,387,631 11,700,662
10-01-18 6.00 3,363,448 3,546,651
11-15-18 5.00 16,000,000 16,790,488
02-01-23 6.00 23,854,903 24,964,927
10-01-23 5.50 7,599,305 7,873,367
12-01-23 6.00 16,924,861 17,711,388
08-01-24 8.00 1,037,624 1,132,889
10-01-28 7.00 157,967 167,799
11-15-28 4.50 6,562,927 6,664,938
12-01-30 5.50 3,801,364 3,903,747
04-01-33 5.50 14,744,348 15,147,893
04-01-33 6.00 11,116,478 11,631,892
05-01-33 5.50 8,562,317 8,772,190
06-01-33 5.50 10,474,280 10,731,016
09-01-33 4.56 973,382(h) 973,285
04-01-34 5.00 10,598,000(i) 10,516,395
Collateralized Mtge Obligation
07-15-16 4.00 7,600,000 7,654,413
03-01-17 4.50 2,500,000 2,485,938
10-15-18 4.00 5,364,338 4,980,627
10-15-18 5.00 7,100,000 7,450,875
11-15-18 5.00 18,368,000 19,277,341
01-15-19 5.00 12,740,000 13,378,829
03-15-22 7.00 3,433,579 3,527,089
07-15-22 7.00 3,397,602 3,529,429
02-15-27 5.00 10,070,000 10,481,345
02-15-33 5.50 10,269,501 10,916,788
Interest Only
02-15-14 7.40 5,500,000(g) 524,865
06-15-18 30.45 4,237,292(g) 329,592
10-15-22 0.00 13,998,982(g) 1,683,798
Federal Natl Mtge Assn
03-01-08 7.00 3,344,503 3,587,766
07-01-08 6.50 1,446,366 1,542,743
11-01-09 9.00 309 342
06-01-10 6.50 3,335,222 3,557,460
08-01-11 8.50 3,545,758 3,903,152
01-01-13 4.78 10,845,000 11,201,056
01-01-13 4.92 5,706,389 5,979,513
02-01-13 4.83 6,462,415 6,730,237
02-01-13 5.02 15,738,970 16,516,167
04-01-13 7.00 9,950,011 10,673,726
06-01-13 4.85 9,273,255 9,642,305
04-01-14 6.50 1,960,844 2,087,883
08-01-16 6.00 8,002,885 8,441,866
08-01-16 6.50 3,661,688 3,896,820
12-01-16 5.50 10,589,114 11,047,998
06-01-17 6.50 7,513,157 8,044,978
08-01-17 6.00 14,243,635 15,110,408
08-01-17 6.50 4,305,304 4,628,292
09-01-17 6.00 2,177,625 2,297,084
09-01-17 6.50 5,210,413 5,545,807
12-01-17 6.50 2,659,262 2,830,439
01-01-18 5.50 8,925,086 9,339,997
02-01-18 5.50 15,600,434 16,308,607
03-01-18 5.50 25,614,752 26,801,373
04-01-18 5.00 9,282,021 9,540,613
See accompanying notes to investments in securities.
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9 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Mortgage-backed securities (cont.)
Federal Natl Mtge Assn (cont.)
05-01-18 5.50% $4,535,043 $4,746,463
06-01-18 5.00 9,789,313 10,062,037
08-01-18 4.50 10,221,271 10,335,462
10-01-18 5.00 5,842,484 6,018,474
03-01-19 4.50 25,440,000(i) 25,678,500
03-01-19 5.00 4,500,000(i) 4,619,529
03-01-19 5.50 24,700,000(i) 25,726,581
03-01-19 6.00 5,690,000(i) 5,994,062
04-01-19 5.00 30,700,000(i) 31,419,548
04-01-23 8.50 1,309,678 1,437,767
07-01-23 5.00 8,951,785 9,119,619
09-01-23 5.50 14,664,486 15,169,571
09-01-23 6.50 902,522 954,664
01-01-24 6.50 377,508 399,318
05-01-24 6.00 13,346,465 13,982,219
06-01-24 9.00 1,038,030 1,156,789
02-01-25 8.00 365,838 399,789
09-01-25 8.00 864,829 943,736
03-01-26 7.00 1,980,174 2,107,418
07-01-28 5.50 4,460,541 4,585,928
08-01-28 5.50 6,306,182 6,483,450
09-01-28 7.50 3,330,056 3,581,072
01-01-29 6.50 8,666,154 9,133,042
05-01-29 6.50 5,864,853 6,174,358
06-01-29 7.00 2,099,943 2,230,889
09-01-29 7.00 11,549,410 12,269,594
10-01-30 7.00 4,064,691 4,318,152
07-01-31 7.00 7,665,526 8,141,293
09-01-31 7.00 1,833,548 1,963,265
03-01-32 5.50 2,689,827 2,765,439
06-01-32 7.00 5,920,685 6,339,456
07-01-32 6.50 4,088,828 4,302,156
08-01-32 7.00 2,786,413 2,959,244
09-01-32 6.00 23,992,794 24,999,578
09-01-32 6.50 4,366,477 4,628,168
10-01-32 6.00 2,728,677 2,843,178
10-01-32 6.50 4,776,472 5,025,677
11-01-32 6.00 2,267,009 2,362,126
11-01-32 7.00 3,861,770 4,101,523
12-01-32 6.50 9,953,890 10,473,217
01-01-33 6.00 16,806,506 17,543,267
02-01-33 6.00 3,476,352 3,630,907
02-01-33 6.50 815,646 864,519
03-01-33 5.50 21,699,529 22,255,613
03-01-33 6.00 12,870,980 13,438,615
03-01-33 6.50 11,309,787 11,899,859
04-01-33 5.50 17,058,302 17,464,796
04-01-33 6.00 46,809,562 49,000,592
05-01-33 5.50 29,551,907 30,268,617
05-01-33 6.00 9,514,255 9,937,208
06-01-33 5.50 12,531,698 12,845,949
06-01-33 6.00 5,729,571 5,984,283
07-01-33 5.50 19,226,234 19,684,339
08-01-33 5.50 1,191,754 1,220,153
11-01-33 6.50 11,204,955 11,789,557
12-01-33 5.00 12,958,904(h) 13,218,601
01-01-34 6.50 1,788,297 1,881,599
02-01-34 6.50 19,505,980(i) 20,523,676
03-01-34 6.50 11,500,000(i) 12,092,963
04-01-34 6.00 1,730,000(i) 1,794,875
Collateralized Mtge Obligation
04-25-12 5.34 15,000,000 15,985,512
11-25-12 4.49 13,500,000 13,541,448
07-25-16 4.00 7,500,000 7,551,290
12-25-26 8.00 6,780,110 7,429,505
03-30-34 5.00 9,300,000(i) 9,731,578
09-25-42 5.00 6,600,000 6,829,517
Interest Only
12-25-12 0.00 5,325,377(g) 404,143
Govt Natl Mtge Assn
02-15-24 8.00 447,202 490,658
02-15-25 9.00 85,750 95,296
06-15-26 8.00 479,941 525,265
08-15-26 8.00 423,425 463,413
05-15-33 6.00 12,141,101 12,689,422
10-15-33 5.50 19,082,249 19,612,822
Collateralized Mtge Obligation
Interest Only
01-20-32 9.44 6,054,722(g) 581,366
08-20-32 6.70 22,033,560(g) 2,804,634
Total 1,155,338,517
Aerospace & defense (0.5%)
Alliant Techsystems
05-15-11 8.50 1,000,000 1,110,000
DRS Technologies
Sr Sub Nts
11-01-13 6.88 1,000,000(d) 1,035,000
L-3 Communications
06-15-12 7.63 2,000,000 2,220,000
07-15-13 6.13 420,000 431,550
Raytheon
11-01-08 6.15 1,490,000 1,648,439
04-01-13 5.38 6,105,000 6,319,719
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
10 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Aerospace & defense (cont.)
TD Funding
07-15-11 8.38% $1,525,000 $1,608,875
Total 14,373,583
Airlines (--%)
Northwest Airlines
Series 1999-1A
02-01-20 6.81 1,465,230 1,377,799
Automotive & related (0.6%)
DaimlerChrysler NA Holding
01-15-08 4.75 3,500,000 3,615,150
06-04-08 4.05 535,000 536,107
11-15-13 6.50 6,635,000 7,084,389
Ford Motor
10-01-28 6.63 2,095,000 1,925,460
02-01-29 6.38 5,340,000 4,754,042
TRW Automotive
Sr Nts
02-15-13 9.38 931,000 1,061,340
Total 18,976,488
Banks and savings & loans (2.3%)
ANZ Capital Trust I
12-29-49 5.36 6,000,000(d) 6,125,916
Bank of America
Sr Nts
09-15-12 4.88 6,605,000 6,774,313
Banknorth Group
Sr Nts
05-01-08 3.75 3,960,000 3,986,374
Golden West Financial
Sr Nts
10-01-12 4.75 2,500,000 2,558,338
US Bank Natl Assn Minnesota
08-01-11 6.38 11,115,000 12,584,181
Wachovia
Sr Nts
02-17-09 3.63 6,020,000 6,061,971
Washington Mutual Bank FA
Sub Nts
06-15-11 6.88 13,700,000 15,812,376
Wells Fargo Bank NA
Sub Nts
02-01-11 6.45 15,845,000 18,045,568
Total 71,949,037
Beverages & tobacco (0.1%)
Cott Beverages
12-15-11 8.00 2,000,000 2,185,000
Broker dealers (1.3%)
Goldman Sachs Group
04-01-13 5.25 6,120,000 6,301,409
07-15-13 4.75 1,460,000 1,444,217
Lehman Brothers Holdings
03-13-09 3.60 5,710,000 5,724,161
Merrill Lynch & Co
11-04-10 4.50 7,385,000 7,583,723
Morgan Stanley
01-15-09 3.88 5,900,000 5,986,022
05-15-10 4.25 3,920,000 3,986,464
03-01-13 5.30 10,660,000 11,121,152
Total 42,147,148
Building materials & construction (0.3%)
Associated Materials
04-15-12 9.75 600,000 660,000
Louisiana Pacific
Sr Nts
08-15-10 8.88 2,260,000 2,700,700
Norcraft Companies LP/Finance
Sr Sub Nts
11-01-11 9.00 1,245,000(d) 1,307,250
Nortek Holdings
Sr Sub Nts Series B
06-15-11 9.88 1,000,000 1,115,000
Ryland Group
Sr Nts
06-01-08 5.38 2,500,000 2,581,250
Total 8,364,200
Cable (1.0%)
Comcast
03-15-11 5.50 1,650,000 1,753,158
Comcast Cable Communications
11-15-08 6.20 18,410,000 20,336,698
CSC Holdings
Sr Nts
12-15-07 7.88 1,500,000 1,616,250
DirectTV Holdings/Finance
Sr Nts
03-15-13 8.38 1,700,000 1,933,750
EchoStar DBS
Sr Nts
10-01-08 5.75 1,500,000(d) 1,530,000
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
11 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Cable (cont.)
Videotron Ltee
(U.S. Dollar)
01-15-14 6.88% $2,705,000(c) $2,833,488
Total 30,003,344
Cellular telecommunications (0.4%)
AT&T Wireless Services
Sr Nts
03-01-11 7.88 7,170,000 8,437,047
Nextel Communications
Sr Nts
10-31-13 6.88 3,550,000 3,780,750
Total 12,217,797
Chemicals (0.2%)
Airgas
10-01-11 9.13 1,500,000 1,702,500
Compass Minerals Group
08-15-11 10.00 2,500,000 2,825,000
Georgia Gulf
Sr Nts
12-15-13 7.13 920,000(d) 977,500
MacDermid
07-15-11 9.13 1,500,000 1,702,500
Total 7,207,500
Computer hardware (--%)
Seagate Technology HDD Holdings
(U.S. Dollar)
05-15-09 8.00 1,000,000(c) 1,082,500
Energy (0.7%)
Chesapeake Energy
Sr Nts
01-15-16 6.88 1,250,000(d) 1,290,625
01-15-16 6.88 750,000 775,313
Gulfterra Energy Partner
Sr Nts
06-01-10 6.25 2,790,000 2,936,475
Newfield Exploration
Sr Nts
03-01-11 7.63 2,500,000 2,812,500
Sr Sub Nts
08-15-12 8.38 380,000 427,500
Pemex Project Funding Master Trust
12-15-14 7.38 4,895,000 5,335,941
Tom Brown
09-15-13 7.25 335,000 359,288
XTO Energy
Sr Nts
04-15-12 7.50 2,895,000 3,401,625
04-15-13 6.25 4,770,000 5,169,487
Total 22,508,754
Energy equipment & services (0.2%)
Grant Prideco Escrow
12-15-09 9.00 2,000,000 2,230,000
Key Energy Services
Series C
03-01-08 8.38 1,250,000 1,350,000
Sr Nts
05-01-13 6.38 1,195,000 1,236,825
Offshore Logistics
06-15-13 6.13 1,975,000 1,915,750
Total 6,732,575
Finance companies (2.6%)
Citigroup
02-01-08 3.50 17,000,000 17,238,680
Sub Nts
10-01-10 7.25 5,383,000 6,349,055
Ford Motor Credit
10-25-11 7.25 2,230,000 2,415,899
10-01-13 7.00 11,190,000 11,758,788
GMAC
09-15-11 6.88 39,950,000 43,086,514
Total 80,848,936
Financial services (1.4%)
Capital One Bank
Sr Nts
02-01-06 6.88 1,740,000 1,884,258
HSBC Holdings
(U.S. Dollar) Sub Nts
12-12-12 5.25 23,580,000(c) 24,600,494
TIAA Global Markets
01-22-08 3.88 14,990,000(d) 15,431,905
Toyota Motor Credit
12-15-10 4.35 1,395,000 1,445,639
Total 43,362,296
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
12 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Food (1.3%)
Burns Philp Capital Property
(U.S. Dollar) Sr Sub Nts
02-15-11 10.75% $500,000(c,d) $545,000
Chiquita Brands Intl
Sr Nts
03-15-09 10.56 1,500,000 1,657,500
Del Monte
Sr Sub Nts
12-15-12 8.63 500,000 552,500
Kellogg
Sr Nts
06-01-08 2.88 19,015,000 18,700,302
Kraft Foods
10-01-08 4.00 18,705,000 19,116,697
Total 40,571,999
Health care products (0.3%)
Apogent Technologies
Sr Sub Nts
05-15-13 6.50 1,500,000 1,571,250
Kinetic Concepts
Sr Sub Nts
05-15-13 7.38 615,000(d) 651,900
Wyeth
02-01-14 5.50 6,225,000 6,487,259
Total 8,710,409
Health care services (0.2%)
Fisher Scientific Intl
Sr Sub Nts
09-01-13 8.00 750,000(d) 823,125
09-01-13 8.00 750,000 823,125
NeighborCare
Sr Sub Nts
11-15-13 6.88 910,000(d) 946,400
Omnicare
Sr Sub Nts
06-01-13 6.13 2,100,000 2,152,500
Province Healthcare
Sr Sub Nts
06-01-13 7.50 500,000 516,250
Triad Hospitals
Sr Sub Nts
11-15-13 7.00 500,000(d) 517,500
Total 5,778,900
Home building (0.4%)
D.R. Horton
12-01-07 7.50 1,000,000 1,100,000
01-15-09 5.00 990,000 999,900
07-01-13 5.88 3,030,000 3,060,300
KB HOME
Sr Nts
02-01-14 5.75 2,055,000(d) 1,983,075
Meritage
06-01-11 9.75 2,570,000 2,878,400
NVR
Sr Nts
06-15-10 5.00 2,500,000 2,468,750
Total 12,490,425
Household products (--%)
Scotts
Sr Sub Nts
11-15-13 6.63 280,000(d) 289,800
Industrial services (0.1%)
Allied Waste North America
11-15-10 6.50 625,000(d) 634,375
02-15-14 6.13 995,000(d) 962,663
Sr Nts
04-15-13 7.88 1,500,000 1,627,500
Total 3,224,538
Industrial transportation (0.4%)
Canadian Natl Railways
(U.S. Dollar)
10-15-11 6.38 8,440,000(c) 9,546,872
Greater Beijing First Expressways
(U.S. Dollar) Sr Nts
06-15-07 9.50 3,640,000(b,c,k) 72,800
Union Pacific
02-01-08 6.63 1,230,000 1,365,903
Total 10,985,575
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
13 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Insurance (2.0%)
ASIF Global Financing
11-26-07 3.85% $5,190,000(d) $5,344,195
01-17-13 4.90 30,125,000(d) 30,612,121
Berkshire Hathaway
10-15-13 4.63 13,560,000(d,l) 13,643,530
MassMutual Global Funding II
07-15-08 2.55 3,201,000(d) 3,110,399
Met Life Global Funding I
06-19-08 2.60 9,310,000(d) 9,049,413
Pacific Life
09-15-33 6.60 1,650,000(d) 1,797,015
Total 63,556,673
Leisure time & entertainment (0.9%)
Speedway Motorsports
Sr Sub Nts
06-01-13 6.75 1,500,000 1,563,750
Time Warner
05-01-12 6.88 3,435,000 3,890,502
05-15-29 6.63 10,895,000 11,315,449
05-01-32 7.70 4,745,000 5,582,488
Vail Resorts
Sr Sub Nts
02-15-14 6.75 865,000(d) 860,675
Viacom
05-15-11 6.63 3,120,000 3,579,404
Total 26,792,268
Lodging & gaming (0.4%)
Caesars Entertainment
Sr Sub Nts
05-15-11 8.13 500,000 565,000
Choctaw Resort Development Enterprises
Sr Nts
04-01-09 9.25 1,500,000 1,627,500
Coast Hotels & Casino
04-01-09 9.50 1,000,000 1,052,500
Hilton Hotels
12-01-12 7.63 1,250,000 1,412,500
MGM Mirage
10-01-09 6.00 2,000,000 2,080,000
02-27-14 5.88 860,000 851,400
Mohegan Tribal Gaming
Sr Sub Nts
04-01-12 8.00 3,000,000 3,285,000
Park Place Entertainment
Sr Sub Nts
03-15-10 7.88 1,500,000 1,665,000
Total 12,538,900
Machinery (0.1%)
Joy Global
Series B
03-15-12 8.75 1,500,000 1,680,000
Manitowoc
Sr Nts
11-01-13 7.13 385,000 404,250
Terex
01-15-14 7.38 970,000(d) 1,023,350
Total 3,107,600
Media (1.3%)
AOA Holdings LLC
Sr Nts
06-15-08 12.00 5,850,000(k) 6,083,999
CanWest Media
(U.S. Dollar) Series B
04-15-13 7.63 1,000,000(c) 1,090,000
CBD Media/Finance
06-01-11 8.63 1,955,000 2,140,725
Corus Entertainment
(U.S. Dollar) Sr Sub Nts
03-01-12 8.75 2,000,000(c) 2,225,000
Dex Media West/Finance
Sr Nts
08-15-10 8.50 700,000(d) 780,500
Hollinger Intl Publishing
Sr Nts
12-15-10 9.00 1,180,000 1,286,200
Lamar Media
01-01-13 7.25 425,000 459,000
Lin Television
Sr Sub Nts
05-15-13 6.50 1,340,000 1,366,800
Morris Publishing
Sr Sub Nts
08-01-13 7.00 1,250,000(d) 1,276,563
News Corp
(U.S. Dollar)
06-24-10 10.15 2,583,493(c,k) 3,256,430
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
14 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Media (cont.)
Nexstar Finance LLC
04-01-08 12.00% $1,000,000 $1,126,250
Quebecor Media
(U.S. Dollar) Sr Nts
07-15-11 11.13 640,000(c) 732,800
Radio One
Series B
07-01-11 8.88 1,000,000 1,105,000
Shaw Communications
(U.S. Dollar) Sr Nts
04-06-11 7.25 1,685,000(c) 1,882,988
Sinclair Broadcast Group
03-15-12 8.00 1,000,000 1,075,000
Sun Media
(U.S. Dollar)
02-15-13 7.63 1,500,000(c) 1,623,750
Susquehanna Media
Sr Sub Nts
04-15-13 7.38 900,000 955,125
United Artists Theatre
07-01-15 9.30 8,527,309 8,442,035
Vivendi Universal
(U.S. Dollar) Sr Nts
07-15-08 6.25 4,690,000(c) 4,947,950
Total 41,856,115
Metals (0.1%)
Jorgensen Earle M.
06-01-12 9.75 500,000 557,500
Peabody Energy
Series B
03-15-13 6.88 1,000,000 1,067,500
United States Steel
Sr Nts
05-15-10 9.75 1,500,000 1,710,000
Total 3,335,000
Multi-industry (0.4%)
SPX
Sr Nts
06-15-11 6.25 2,335,000 2,405,050
Tyco Intl Group
(U.S. Dollar)
02-15-11 6.75 2,045,000(c) 2,258,968
(U.S. Dollar) Sr Nts
11-15-13 6.00 6,885,000(c,d) 7,203,645
Total 11,867,663
Paper & packaging (1.4%)
Abitibi-Consolidated
(U.S. Dollar)
06-20-13 6.00 2,100,000(c) 2,015,479
Ball
12-15-12 6.88 2,220,000 2,364,300
Boise Cascade
Sr Nts
11-01-10 6.50 560,000 588,011
Cascades
(U.S. Dollar) Sr Nts
02-15-13 7.25 2,000,000(c) 2,090,000
Crown Paper
Sr Sub Nts
09-01-05 11.00 6,950,000(b,m) --
Doman Inds
(U.S. Dollar) Sr Nts Series B
11-15-07 9.25 3,395,000(b,c) 950,600
Georgia-Pacific
02-01-10 8.88 1,000,000 1,140,000
Graphic Packaging Intl
Sr Nts
08-15-11 8.50 430,000 474,075
Intl Paper
01-15-14 5.50 8,340,000 8,611,551
MeadWestvaco
04-01-12 6.85 2,970,000 3,326,941
Norampac
(U.S. Dollar) Sr Nts
06-01-13 6.75 2,110,000(c) 2,226,050
Owens-Brockway Glass
02-15-09 8.88 400,000 435,000
05-15-11 7.75 1,500,000 1,590,000
Silgan Holdings
Sr Sub Nts
11-15-13 6.75 2,000,000(d) 2,040,000
Stone Container
Sr Nts
07-01-12 8.38 1,500,000 1,616,250
Weyerhaeuser
03-15-07 6.13 5,860,000 6,400,743
03-15-12 6.75 5,980,000 6,711,294
Total 42,580,294
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
15 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Real estate investment trust (--%)
Host Marriott LP
Sr Nts
11-01-13 7.13% $1,000,000 $1,032,500
Restaurants (0.2%)
Dominos
Sr Sub Nts
07-01-11 8.25 1,000,000 1,072,500
YUM! Brands
Sr Nts
05-15-08 7.65 4,872,000 5,578,440
Total 6,650,940
Retail -- general (0.9%)
CSK Auto
01-15-14 7.00 1,000,000(d) 1,000,000
United Auto Group
03-15-12 9.63 1,500,000 1,657,500
Wal-Mart CRAVE 401
07-17-06 7.00 5,756,483(d) 6,176,533
Wal-Mart Stores
02-15-11 4.13 13,945,000 14,073,294
06-29-11 8.88 3,500,000 3,568,810
William Carter
Series B
08-15-11 10.88 2,195,000 2,546,200
Total 29,022,337
Retail -- grocery (0.1%)
Dairy Mart Convenience Stores
Sr Sub Nts
03-15-04 10.25 5,925,000(b) 1,007,250
Kroger
02-01-13 5.50 1,270,000 1,333,360
Total 2,340,610
Telecom equipment & services (1.5%)
Cincinnati Bell
07-15-13 7.25 1,500,000 1,545,000
Cingular Wireless LLC
Sr Nts
12-15-11 6.50 4,020,000 4,430,434
Qwest
11-01-04 7.20 2,000,000 2,050,000
03-15-12 9.13 2,015,000(d,j) 2,287,025
Rogers Wireless
(U.S. Dollar)
03-01-14 6.38 1,500,000(c,d) 1,515,000
Sprint Capital
03-15-12 8.38 15,395,000 18,454,571
Telus
(U.S. Dollar)
06-01-07 7.50 9,480,000(c) 10,715,140
Verizon Virginia Cl A
03-15-13 4.63 6,600,000 6,466,548
Vodafone Group
(U.S. Dollar)
02-15-10 7.75 825,000(c) 984,885
Total 48,448,603
Utilities -- electric (5.3%)
American Electric Power
Sr Nts Series C
03-15-10 5.38 4,360,000 4,653,925
Carolina Power & Light
07-15-12 6.50 1,185,000 1,334,399
Centerpoint Energy
02-15-11 7.75 2,000,000 2,265,070
CenterPoint Energy Houston Electric LLC
01-15-14 5.75 305,000 324,237
Cleveland Electric Illuminating
Sr Nts
12-15-13 5.65 6,240,000(d) 6,385,317
Columbus Southern Power
Sr Nts Series C
03-01-13 5.50 4,715,000 4,974,929
Commonwealth Edison
02-01-08 3.70 3,205,000 3,270,478
1st Mtge
08-15-10 4.74 2,230,000 2,318,040
Consumers Energy
1st Mtge
02-17-09 4.80 3,160,000 3,272,711
1st Mtge Series C
04-15-08 4.25 13,665,000 13,975,824
Dayton Power & Light
1st Mtge
10-01-13 5.13 7,795,000(d) 8,032,981
Dominion Resources
Sr Nts
09-17-12 5.70 725,000 778,447
Sr Nts Series B
06-30-12 6.25 620,000 684,900
Sr Nts Series F
08-01-33 5.25 4,614,000 4,655,595
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
16 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Utilities -- electric (cont.)
DPL
Sr Nts
09-01-11 6.88% $1,525,000 $1,612,688
Duke Energy
01-15-12 6.25 3,610,000 3,950,845
1st Mtge
03-05-08 3.75 12,470,000 12,731,122
Sr Nts
10-01-08 4.20 14,605,000 14,830,166
Duquesne Light
1st Mtge Series O
04-15-12 6.70 820,000 934,628
Florida Power
1st Mtge
03-01-13 4.80 13,455,000 13,786,397
Indianapolis Power & Light
1st Mtge
07-01-13 6.30 1,880,000(d) 2,040,627
IPALCO Enterprises
11-14-08 8.38 400,000 446,000
11-14-11 8.63 3,680,000 4,158,400
Metropolitan Edison
03-15-13 4.95 3,685,000 3,714,310
MidAmerican Energy
Sr Nts
05-15-08 3.50 1,260,000 1,255,615
Northern States Power
1st Mtge
08-01-10 4.75 6,110,000 6,370,775
Northern States Power - Minnesota
1st Mtge Series B
08-28-12 8.00 3,070,000 3,823,510
Ohio Power
Sr Nts Series F
02-15-13 5.50 2,155,000 2,273,225
Sr Nts Series H
01-15-14 4.85 4,510,000 4,504,678
Pacific Gas & Electric
1st Mtge Series 1992B
05-01-25 8.38 4,100,000 4,161,500
PG&E
07-15-08 6.88 2,010,000(d) 2,193,955
Public Service Co of Colorado
10-01-08 4.38 4,690,000 4,878,116
03-01-13 4.88 210,000 214,850
04-01-14 5.50 2,730,000 2,901,529
Tampa Electric
08-15-07 5.38 900,000 962,192
08-15-12 6.38 7,410,000 8,110,319
Teco Energy
Sr Nts
06-15-10 7.50 930,000 981,150
Texas Utilities Electric
01-01-05 9.45 741,000 744,749
Tucson Electric Power
10-01-09 8.50 3,205,000 3,245,063
Virginia Electric & Power
Sr Nts Series A
03-31-06 5.75 4,685,000 5,020,783
Total 166,774,045
Utilities -- natural gas (0.6%)
ANR Pipeline
03-15-10 8.88 1,570,000 1,734,850
Consolidated Natural Gas
Sr Nts
04-15-11 6.85 1,660,000 1,899,057
El Paso Natl Gas
Sr Nts Series A
08-01-10 7.63 680,000 693,600
NiSource Finance
11-01-06 3.20 3,200,000 3,245,663
Northwest Pipeline
03-01-10 8.13 2,455,000 2,675,950
Panhandle Eastern Pipeline
Sr Nts
08-15-08 4.80 2,490,000 2,578,744
Southern Natural Gas
03-15-10 8.88 1,750,000 1,925,000
Transcontinental Gas Pipeline
Series B
08-15-11 7.00 2,250,000 2,418,750
Williams Companies
03-15-12 8.13 1,750,000 1,907,500
Total 19,079,114
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
17 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
Bonds (continued)
Issuer Coupon Principal Value(a)
rate amount
Utilities -- telephone (2.9%)
AT&T
Sr Nts
11-15-11 8.05% $3,682,000 $4,288,613
British Telecom
(U.S. Dollar)
12-15-10 8.38 4,165,000(c) 5,094,403
Deutsche Telekom Intl Finance
(U.S. Dollar)
06-15-10 8.50 3,835,000(c) 4,664,196
07-22-13 5.25 11,055,000(c) 11,297,215
06-15-30 8.75 3,150,000(c) 4,058,054
France Telecom
(U.S. Dollar)
03-01-11 8.75 1,280,000(c,j) 1,543,986
03-01-31 9.50 1,500,000(c,j) 1,983,506
Telecom Italia Capital
(U.S. Dollar)
11-15-13 5.25 12,450,000(c,d) 12,615,249
11-15-33 6.38 1,890,000(c,d) 1,940,678
Verizon New England
Sr Nts
09-15-11 6.50 11,135,000 12,450,489
Verizon New York
Series A
04-01-12 6.88 10,305,000 11,609,190
Verizon Pennsylvania
Series A
11-15-11 5.65 16,880,000 18,034,592
Total 89,580,171
Variable rate senior loan interests (0.2%)
American Commercial Lines LLC
Term Loan B
06-30-06 5.38 2,488,972 2,227,630
Term Loan C
03-30-07 7.62 3,489,735 3,123,313
Total 5,350,943
Total bonds
(Cost: $3,021,755,601) $3,066,389,631
Common stock (--%)
Issuer Shares Value(a)
Stellex Aerostructures 1,311(b,m) $--
Total common stock
(Cost: $--) $--
Other (--%)
Issuer Shares Value(a)
Wayland Investment Fund LLC 6,000,000(b,e,k) $1,474,440
Total other
(Cost: $6,671,880) $1,474,440
Short-term securities (4.9%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (1.6%)
Federal Home Loan Mtge Corp Disc Nts
05-20-04 1.01% $25,000,000 $24,945,550
05-25-04 1.01 20,000,000 19,953,720
Federal Natl Mtge Assn Disc Nt
03-10-04 1.07 4,900,000 4,898,478
Total 49,797,748
Commercial paper (3.3%)
Danske
04-08-04 1.05 13,500,000 13,484,010
Edison Asset Securitization
04-02-04 1.04 14,800,000(n) 14,784,789
General Electric Capital
03-01-04 1.04 20,100,000 20,098,259
Jupiter Securitization
03-11-04 1.03 8,500,000(n) 8,496,838
Sigma Finance
03-01-04 1.04 25,800,000(n) 25,797,764
04-26-04 1.04 6,700,000(n) 6,688,983
Special Purpose Accounts Receivable
03-08-04 1.06 14,200,000(n) 14,195,819
Total 103,546,462
Total short-term securities
(Cost: $153,341,830) $153,344,210
Total investments in securities
(Cost: $3,181,769,311)(p) $3,221,208,281
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
18 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
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 Feb. 29,
2004, the value of foreign securities represented 4.7% 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.
These securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers. As of Feb. 29, 2004, the value
of these securities amounted to $165,482,625 or 5.3% of net assets.
(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 and amount
of future cash flows as of Feb. 29, 2004.
(h) Adjustable rate mortgage; interest rate varies to reflect current market
conditions; rate shown is the effective rate on Feb. 29, 2004.
(i) At Feb. 29, 2004, the cost of securities purchased, including interest
purchased, on a when-issued and/or other forward-commitment basis was
$168,779,360.
(j) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Feb. 29,
2004.
(k) Identifies issues considered to be illiquid as to their marketability (see
Note 1 to the financial statements). Information concerning such security
holdings at Feb. 29, 2004, is as follows:
Security Acquisition Cost
dates
AOA Holdings LLC
12.00% Sr Nts 2008 06-02-02 $5,850,000
News Corp
(U.S. Dollar) 10.15% 2010 01-29-93 thru 06-01-03 2,617,427
Greater Beijing First Expressways
(U.S. Dollar) Sr Nts 9.50% 2007 10-22-03 --
Wayland Investment Fund LLC 05-17-00 6,671,880
- --------------------------------------------------------------------------------
19 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
Notes to investments in securities (continued)
(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
U.S. Treasury Bonds, June 2004, 30-year $ 71,000,000
Sale contracts
U.S. Treasury Notes, March 2004, 5-year 23,100,000
U.S. Treasury Notes, March 2004, 10-year 23,100,000
U.S. Treasury Notes, June 2004, 5-year 45,800,000
U.S. Treasury Notes, June 2004, 10-year 322,000,000
(m) Negligible market value.
(n) 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. These securities may be resold
in transactions exempt from registration, normally to qualified
institutional buyers. As of Feb. 29, 2004, the value of these securities
amounted to $69,964,193 or 2.2% of net assets.
(o) The following abbreviation is used in the portfolio security description to
identify the insurer of the issue:
FSA -- Financial Security Assurance
(p) At Feb. 29, 2004, the cost of securities for federal income tax purposes
was approximately $3,181,769,000 and the approximate aggregate gross
unrealized appreciation and depreciation based on that cost was:
Unrealized appreciation $ 60,579,000
Unrealized depreciation (21,140,000)
-----------
Net unrealized appreciation $ 39,439,000
------------
- --------------------------------------------------------------------------------
20 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
Financial Statements
Statement of assets and liabilities
AXP Diversified Bond Fund
Feb. 29, 2004 (Unaudited)
Assets
Investments in securities, at value (Note 1)*
(identified cost $3,181,769,311) $3,221,208,281
Capital shares receivable 962,262
Dividends and accrued interest receivable 24,701,518
Receivable for investment securities sold 261,326,891
-----------
Total assets 3,508,198,952
-------------
Liabilities
Disbursements in excess of cash on demand deposit 418,644
Dividends payable to shareholders 605,393
Capital shares payable 699,772
Payable for investment securities purchased 163,641,082
Payable for securities purchased on a forward-commitment basis (Note 1) 168,779,360
Payable upon return of securities loaned (Note 5) 37,698,750
Accrued investment management services fee 42,177
Accrued distribution fee 37,032
Accrued service fee 563
Accrued transfer agency fee 10,961
Accrued administrative services fee 3,815
Other accrued expenses 273,620
-------
Total liabilities 372,211,169
-----------
Net assets applicable to outstanding capital stock $3,135,987,783
==============
Represented by
Capital stock -- $.01 par value (Note 1) $ 6,380,243
Additional paid-in capital 3,213,367,942
Undistributed net investment income 6,422,003
Accumulated net realized gain (loss) (Note 9) (127,757,129)
Unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies (Note 6) 37,574,724
----------
Total -- representing net assets applicable to outstanding capital stock $3,135,987,783
==============
Net assets applicable to outstanding shares: Class A $2,096,694,314
Class B $ 808,498,979
Class C $ 24,437,729
Class Y $ 206,356,761
Net asset value per share of outstanding capital stock: Class A shares 426,601,940 $ 4.91
Class B shares 164,482,472 $ 4.92
Class C shares 4,965,421 $ 4.92
Class Y shares 41,974,507 $ 4.92
---------- --------------
* Including securities on loan, at value (Note 5) $ 37,055,000
--------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
21 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
Statement of operations
AXP Diversified Bond Fund
Six months ended Feb. 29, 2004 (Unaudited)
Investment income
Income:
Interest $ 73,130,723
Fee income from securities lending (Note 5) 116,962
-------
Total income 73,247,685
----------
Expenses (Note 2):
Investment management services fee 8,066,629
Distribution fee
Class A 2,714,323
Class B 4,244,785
Class C 126,868
Transfer agency fee 2,415,204
Incremental transfer agency fee
Class A 129,524
Class B 82,770
Class C 2,290
Service fee -- Class Y 121,898
Administrative services fees and expenses 750,662
Compensation of board members 13,100
Custodian fees 149,833
Printing and postage 261,860
Registration fees 66,515
Audit fees 21,500
Other 39,535
------
Total expenses 19,207,296
Earnings credits on cash balances (Note 2) (25,201)
-------
Total net expenses 19,182,095
----------
Investment income (loss) -- net 54,065,590
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 24,000,200
Futures contracts (16,675,451)
Options contracts written (Note 7) 1,120,125
---------
Net realized gain (loss) on investments 8,444,874
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 84,172,955
----------
Net gain (loss) on investments and foreign currencies 92,617,829
----------
Net increase (decrease) in net assets resulting from operations $146,683,419
============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
22 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
Statements of changes in net assets
AXP Diversified Bond Fund
Feb. 29, 2004 Aug. 31, 2003
Six months ended Year ended
(Unaudited)
Operations and distributions
Investment income (loss) -- net $ 54,065,590 $ 148,096,536
Net realized gain (loss) on investments 8,444,874 111,836,822
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 84,172,955 (82,489,907)
---------- -----------
Net increase (decrease) in net assets resulting from operations 146,683,419 177,443,451
----------- -----------
Distributions to shareholders from:
Net investment income
Class A (35,916,733) (98,126,653)
Class B (10,811,713) (34,728,824)
Class C (323,847) (854,382)
Class Y (4,222,808) (12,225,930)
Tax return of capital
Class A -- (2,476,941)
Class B -- (876,635)
Class C -- (21,567)
Class Y -- (308,611)
----------- ------------
Total distributions (51,275,101) (149,619,543)
----------- ------------
Capital share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 99,915,045 392,003,998
Class B shares 54,005,331 232,251,463
Class C shares 3,271,365 11,080,202
Class Y shares 43,640,841 150,904,209
Reinvestment of distributions at net asset value
Class A shares 28,471,926 77,130,545
Class B shares 9,604,179 30,927,117
Class C shares 289,863 767,401
Class Y shares 3,528,672 11,324,132
Payments for redemptions
Class A shares (374,492,161) (642,065,690)
Class B shares (Note 2) (181,445,292) (419,428,542)
Class C shares (Note 2) (6,387,907) (9,230,935)
Class Y shares (115,979,288) (193,312,689)
------------ ------------
Increase (decrease) in net assets from capital share transactions (435,577,426) (357,648,789)
------------ ------------
Total increase (decrease) in net assets (340,169,108) (329,824,881)
Net assets at beginning of period 3,476,156,891 3,805,981,772
------------- -------------
Net assets at end of period $3,135,987,783 $3,476,156,891
============== ==============
Undistributed net investment income $ 6,422,003 $ 3,631,514
-------------- --------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
23 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
Notes to Financial Statements
AXP Diversified Bond Fund
(Unaudited as to Feb. 29, 2004)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a series of AXP Fixed Income Series, 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.
Effective March 4, 2004, the Fund will offer an additional class of shares,
Class I, exclusively to certain institutional investors. Class I shares are made
available through a separate prospectus supplement provided to investors
eligible to purchase the shares.
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 -- 2004 SEMIANNUAL 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 -- 2004 SEMIANNUAL 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 Feb. 29, 2004, 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 Feb. 29, 2004 was
$10,887,669 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. Assets are
liquid if they can be sold or disposed of in the ordinary course of business
within seven days at approximately the value at which the asset is valued by the
Fund.
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 Feb. 29, 2004, the Fund has entered into outstanding
when-issued securities of $127,590,365 and other forward-commitments of
$41,188,995.
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.
- --------------------------------------------------------------------------------
26 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
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, market discount and original issue
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.
Under an Administrative Services Agreement, the Fund pays AEFC a fee for
administration and accounting services at a percentage of the Fund's average
daily net assets in reducing percentages from 0.05% to 0.025% annually. A minor
portion of additional administrative service expenses paid by the Fund are
consultants' fees and fund office expenses. Under this agreement, the Fund also
pays taxes, audit and certain legal fees, registration fees for shares,
compensation of board members, corporate filing fees and any other expenses
properly payable by the Fund and approved by the board.
Under a Deferred Compensation Plan (the Plan), non-interested board members may
defer receipt of their compensation. Deferred amounts are treated as though
equivalent dollar amounts had been invested in shares of the Fund or other
American Express mutual funds. The Fund's liability for these amounts is
adjusted for market value changes and remains in the Fund until distributed in
accordance with the Plan.
Under a separate Transfer Agency Agreement, American Express Client Service
Corporation (AECSC) maintains shareholder accounts and records. The Fund pays
AECSC an annual fee per shareholder account for this service as follows:
o Class A $20.50
o Class B $21.50
o Class C $21.00
o Class Y $18.50
The incremental transfer agency fee is the amount charged to the specific
classes for the additional expense above the fee for Class Y.
In addition, AECSC is entitled to charge an annual closed-account fee of $5 per
inactive account, charged on a pro rata basis from the date the account becomes
inactive until the date the account is purged from the transfer agent system
generally within one year. However, the closed account fee is currently not
effective.
- --------------------------------------------------------------------------------
27 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
The Fund has agreements with American Express Financial Advisors Inc. (the
Distributor) for distribution and shareholder services. Under a Plan and
Agreement of Distribution, the Fund pays a fee at an annual rate up to 0.25% of
the Fund's average daily net assets attributable to Class A shares and up to
1.00% for Class B and Class C shares.
Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for
service provided to shareholders by financial advisors and other servicing
agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net
assets attributable to Class Y shares.
Sales charges received by the Distributor for distributing Fund shares were
$1,580,555 for Class A, $543,527 for Class B and $3,854 for Class C for the six
months ended Feb. 29, 2004.
During the six months ended Feb. 29, 2004, the Fund's custodian and transfer
agency fees were reduced by $25,201 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 $4,786,052,298 and $5,287,898,219, respectively, for the
six months ended Feb. 29, 2004. Realized gains and losses are determined on an
identified cost basis.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
Six months ended Feb. 29, 2004
Class A Class B Class C Class Y
Sold 20,569,718 11,132,069 672,775 9,018,636
Issued for reinvested distributions 5,853,600 1,974,414 59,455 725,675
Redeemed (77,206,907) (37,407,071) (1,312,660) (23,908,256)
----------- ----------- ---------- -----------
Net increase (decrease) (50,783,589) (24,300,588) (580,430) (14,163,945)
----------- ----------- -------- -----------
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)
----------- ----------- ------- ----------
5. LENDING OF PORTFOLIO SECURITIES
As of Feb. 29, 2004, securities valued at $37,055,000 were on loan to brokers.
For collateral, the Fund received $37,698,750 in cash. Cash collateral received
is invested in short-term securities, which are included in the short-term
section of the "Investments in securities." Income from securities lending
amounted to $116,962 for the six months ended Feb. 29, 2004. 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.
- --------------------------------------------------------------------------------
28 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
6. INTEREST RATE FUTURES CONTRACTS
As of Feb. 29, 2004, investments in securities included securities valued at
$6,716,029 that were pledged as collateral to cover initial margin deposits on
710 open purchase contracts and 4,140 open sale contracts. The notional market
value of the open purchase contracts as of Feb. 29, 2004 was $79,830,625 with a
net unrealized gain of $809,181. The notional market value of the open sale
contracts as of Feb. 29, 2004 was $471,091,048 with a net unrealized loss of
$2,673,427. See "Summary of significant accounting policies" and "Notes to
investments in securities."
7. OPTIONS CONTRACTS WRITTEN
Contracts and premiums associated with options contracts written are as follows:
Six months ended Feb. 29, 2004
Puts Calls
Contracts Premiums Contracts Premiums
Balance Aug. 31, 2003 395 $ 362,563 395 $ 757,562
Opened -- -- -- --
Exercised -- -- (395) (757,562)
Expired (395) (362,563) -- --
--- --------- --- ---------
Balance Feb. 29, 2004 -- $ -- -- $ --
--- --------- --- ---------
See "Summary of significant accounting policies."
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 Fund must
maintain asset coverage for borrowings of at least 300%. The agreement, which
enables the Fund to participate with other American Express mutual funds,
permits borrowings up to $500 million, collectively. Interest is charged to each
Fund based on its borrowings at a rate equal to either the LIBOR plus 0.50%, the
IBOR plus 0.50% or the higher of the Federal Funds Rate plus 0.25% and the Prime
Lending Rate. Borrowings are payable within 60 days after such loan is executed.
The Fund also pays a commitment fee equal to its pro rata share of the amount of
the credit facility at a rate of 0.09% per annum. The Fund had no borrowings
outstanding during the six months ended Feb. 29, 2004.
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.
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29 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
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, 2004(g) 2003 2002 2001 2000
Net asset value, beginning of period $4.78 $4.75 $4.86 $4.70 $4.82
Income from investment operations:
Net investment income (loss) .09 .20 .25 .31 .33
Net gains (losses) (both realized and unrealized) .12 .03 (.10) .17 (.12)
Total from investment operations .21 .23 .15 .48 .21
Less distributions:
Dividends from net investment income (.08) (.20) (.25) (.32) (.33)
Tax return of capital -- -- (.01) -- --
Total distributions (.08) (.20) (.26) (.32) (.33)
Net asset value, end of period $4.91 $4.78 $4.75 $4.86 $4.70
Ratios/supplemental data
Net assets, end of period (in millions) $2,097 $2,280 $2,438 $2,390 $2,229
Ratio of expenses to average daily net assets(c) .98%(d) .97% .95% .94% .93%
Ratio of net investment income (loss) to average daily net assets 3.48%(d) 4.16% 5.17% 6.51% 7.04%
Portfolio turnover rate (excluding short-term securities) 147% 256% 169% 115% 64%
Total return(e) 4.42%(f) 4.91% 3.13% 10.48% 4.67%
See accompanying notes to financial highlights.
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30 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
Class B
Per share income and capital changes(a)
Fiscal period ended Aug. 31, 2004(g) 2003 2002 2001 2000
Net asset value, beginning of period $4.78 $4.75 $4.86 $4.70 $4.82
Income from investment operations:
Net investment income (loss) .07 .16 .21 .27 .30
Net gains (losses) (both realized and unrealized) .13 .03 (.10) .17 (.13)
Total from investment operations .20 .19 .11 .44 .17
Less distributions:
Dividends from net investment income (.06) (.16) (.21) (.28) (.29)
Tax return of capital -- -- (.01) -- --
Total distributions (.06) (.16) (.22) (.28) (.29)
Net asset value, end of period $4.92 $4.78 $4.75 $4.86 $4.70
Ratios/supplemental data
Net assets, end of period (in millions) $809 $902 $1,047 $954 $867
Ratio of expenses to average daily net assets(c) 1.73%(d) 1.73% 1.71% 1.70% 1.69%
Ratio of net investment income (loss) to average daily net assets 2.72%(d) 3.40% 4.40% 5.74% 6.28%
Portfolio turnover rate (excluding short-term securities) 147% 256% 169% 115% 64%
Total return(e) 4.24%(f) 4.12% 2.35% 9.65% 3.88%
See accompanying notes to financial highlights.
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31 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
Class C
Per share income and capital changes(a)
Fiscal period ended Aug. 31, 2004(g) 2003 2002 2001 2000(b)
Net asset value, beginning of period $4.78 $4.75 $4.86 $4.71 $4.64
Income from investment operations:
Net investment income (loss) .07 .16 .21 .27 .04
Net gains (losses) (both realized and unrealized) .13 .03 (.10) .16 .07
Total from investment operations .20 .19 .11 .43 .11
Less distributions:
Dividends from net investment income (.06) (.16) (.21) (.28) (.04)
Tax return of capital -- -- (.01) -- --
Total distributions (.06) (.16) (.22) (.28) (.04)
Net asset value, end of period $4.92 $4.78 $4.75 $4.86 $4.71
Ratios/supplemental data
Net assets, end of period (in millions) $24 $27 $24 $10 $1
Ratio of expenses to average daily net assets(c) 1.73%(d) 1.74% 1.72% 1.70% 1.69%(d)
Ratio of net investment income (loss) to average daily net assets 2.72%(d) 3.34% 4.33% 5.62% 6.80%(d)
Portfolio turnover rate (excluding short-term securities) 147% 256% 169% 115% 64%
Total return(e) 4.24%(f) 4.11% 2.35% 9.43% 2.58%(f)
See accompanying notes to financial highlights.
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32 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
Class Y
Per share income and capital changes(a)
Fiscal period ended Aug. 31, 2004(g) 2003 2002 2001 2000
Net asset value, beginning of period $4.78 $4.75 $4.86 $4.70 $4.82
Income from investment operations:
Net investment income (loss) .09 .21 .25 .32 .34
Net gains (losses) (both realized and unrealized) .14 .03 (.10) .17 (.12)
Total from investment operations .23 .24 .15 .49 .22
Less distributions:
Dividends from net investment income (.09) (.21) (.25) (.33) (.34)
Tax return of capital -- -- (.01) -- --
Total distributions (.09) (.21) (.26) (.33) (.34)
Net asset value, end of period $4.92 $4.78 $4.75 $4.86 $4.70
Ratios/supplemental data
Net assets, end of period (in millions) $206 $268 $297 $533 $385
Ratio of expenses to average daily net assets(c) .82%(d) .81% .78% .78% .77%
Ratio of net investment income (loss) to average daily net assets 3.62%(d) 4.34% 5.30% 6.66% 7.20%
Portfolio turnover rate (excluding short-term securities) 147% 256% 169% 115% 64%
Total return(e) 4.71%(f) 5.08% 3.29% 10.65% 4.84%
Notes to financial highlights
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date was June 26, 2000.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended Feb. 29, 2004 (Unaudited).
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33 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
Proxy Voting
The policy of the Board is to vote all proxies of the companies in which the
Fund holds investments. The procedures are stated in the Statement of Additional
Information (SAI). You may obtain a copy of the SAI without charge by calling
(800) 862-7919; by looking at the Web site americanexpress.com/funds; or by
searching the Web site of the Securities and Exchange Commission
http://www.sec.gov. You may view the Fund's voting record for all portfolio
companies whose shareholders meetings were completed the previous quarter on
americanexpress.com/funds or obtain a copy by calling the Fund's administrator,
Board Services Corporation, collect at (612) 330-9283. In addition, after Aug.
1, 2004, information regarding how the Fund voted proxies relating to portfolio
securities during the most recent 12-month period ended June 30 will be
available at http://www.sec.gov.
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34 -- AXP DIVERSIFIED BOND FUND -- 2004 SEMIANNUAL REPORT
American Express Funds
70100 AXP Financial Center
Minneapolis, MN 55474
This report must be accompanied or preceded by the Fund's current prospectus.
Distributed by American Express Financial Advisors Inc. Member NASD. American
Express Company is separate from American Express Financial Advisors Inc. and is
not a broker-dealer.
Item 2. Code of Ethics. Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert. Not applicable for semi-annual
reports.
Item 4. Principal Accountant Fees and Services. Not applicable for
semi-annual reports.
Item 5. Audit Committee of Listed Registrants. Not applicable.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. Not applicable.
Item 8. Purchase of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers. Not applicable.
Item 9. Submission of matters to a vote of security holders. Not applicable.
Item 10. Controls and Procedures.
(a) The registrant's Principal Executive Officer and Principal
Financial Officer have evaluated the registrant's disclosure
controls and procedures within 90 days of this filing and have
concluded that the registrant's disclosure controls and
procedures by the registrant in this Form N-CSR was recorded,
processed, summarized, and reported timely.
(b) At the date of filing this Form N-CSR, the registrant's Principal
Executive Officer and Principal Financial Officer are aware of no
significant changes in the registrant's internal controls or in
other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Item 11. Exhibits.
(a)(1) Not applicable for semi-annual reports.
(a)(2) Separate certification for the Registrant's principal
executive officer and principal financial officer, as required by
Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a)
under the Investment Company Act of 1940, are attached as
EX.99.CERT.
(a)(3) Not applicable.
(b) A certification by the Registrant's principal executive officer
and principal financial officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment
Company Act of 1940, is attached as EX.99.906 CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) AXP Fixed Income Series, Inc.
By /s/ Paula R. Meyer
------------------
Paula R. Meyer
President and Principal Executive Officer
Date May 5, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ Paula R. Meyer
------------------
Paula R. Meyer
President and Principal Executive Officer
Date May 5, 2004
By /s/ Jeffrey P. Fox
------------------
Jeffrey P. Fox
Treasurer and Principal Financial Officer
Date May 5, 2004