PLAN AND AGREEMENT OF DISTRIBUTION
FOR CLASS C SHARES
This plan and agreement, dated as of January 10, 2002, is by and between AXP(R)
Federal Income Fund, Inc., a Minnesota Corporation, on behalf of its underlying
series AXP(R) U.S. Government Mortgage Fund (the "Fund") and American Express
Financial Advisors Inc., a Delaware Corporation, ("AEFA") the principal
underwriter of the Fund, for distribution services to the Fund.
The plan and agreement has been approved by members of the Board of Directors
(the "Board") of the Fund who are not interested persons of the Fund and have no
direct or indirect financial interest in the operation of the plan or any
related agreement, and all of the members of the Board, in person, at a meeting
called for the purpose of voting on the plan and agreement.
The plan and agreement provides that:
1. The Fund will reimburse AEFA for expenses incurred in connection with the
distribution of the Fund's shares and providing personal service to
shareholders. These expenses include sales commissions; business, employee
and financial advisor expenses charged to distribution of Class C shares;
and overhead appropriately allocated to the sale of Class C shares.
2. A portion of the fee under the agreement will be used to compensate AEFA,
financial advisors and other servicing agents for personal service to
shareholders. Fees paid will be used to help shareholders thoughtfully
consider their investment goals and objectively monitor how well the goals
are being achieved.
3. AEFA agrees to monitor the services it provides, to measure the level and
quality of services, and to provide training and support to financial
advisors and servicing agents. AEFA will use its best efforts to assure
that other distributors provide comparable services to shareholders.
4. The fee under this agreement will be equal on an annual basis to 1.00% of
the average daily net assets of the Fund attributable to Class C shares. Of
that amount, 0.75% shall be reimbursed for distribution expenses. The
additional 0.25% shall be paid to AEFA to compensate AEFA, financial
advisors and servicing agents for personal service to shareholders and
maintenance of shareholder accounts. The amount so determined shall be paid
to AEFA in cash within five (5) business days after the last day of each
month.
5. The Fund understands that if a shareholder redeems Class C shares in the
first year of ownership, AEFA will impose a sales charge directly on the
redemption proceeds to cover those expenses it has previously incurred on
the sale of those shares.
6. AEFA agrees to provide at least quarterly an analysis of expenses under
this agreement and to meet with representatives of the Fund as reasonably
requested to provide additional information.
7. The plan and agreement shall continue in effect for a period of more than
one year provided it is reapproved at least annually in the same manner in
which it was initially approved.
8. The plan and agreement may not be amended to increase materially the amount
that may be paid by the Fund without the approval of a least a majority of
the outstanding shares of the relevant class. Any other amendment must be
approved in the manner in which the plan and agreement was initially
approved.
9. This agreement may be terminated at any time without payment of any penalty
by a vote of a majority of the members of the Board who are not interested
persons of the Fund and have no financial interest in the operation of the
plan and agreement, or by vote of a majority of the outstanding shares of
the relevant class, or by AEFA. The plan and agreement will terminate
automatically in the event of its assignment as that term is defined in the
Investment Company Act of 1940.
AXP FEDERAL INCOME FUND, INC.
AXP U.S. Government Mortgage Fund
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Vice President
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
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Vice President -- Mutual Funds