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 811-2111
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AXP GROWTH 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: 7/31
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Date of reporting period: 7/31
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AXP(R)
Growth
Fund
Annual Report
for the Period Ended
July 31, 2003
AXP Growth Fund seeks to provide shareholders with long-term capital growth.
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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 (Portfolio) 13
Notes to Financial Statements (Portfolio) 16
Independent Auditors' Report (Portfolio) 20
Financial Statements (Fund) 21
Notes to Financial Statements (Fund) 24
Independent Auditors' Report (Fund) 32
Board Members and Officers 33
(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 GROWTH FUND -- 2003 ANNUAL REPORT
Fund Snapshot
AS OF JULY 31, 2003
PORTFOLIO MANAGER
Portfolio manager Nick Thakore
Since 4/1/02
Years in industry 10
FUND OBJECTIVE
For investors seeking long-term capital growth.
Inception dates
A: 3/1/72 B: 3/20/95 C: 6/26/00 Y: 3/20/95
Ticker symbols
A: INIDX B: IGRBX C: AXGCX Y: IGRYX
Total net assets $3.447 billion
Number of holdings 150
STYLE MATRIX
Shading within the style matrix indicates areas in which the Fund generally
invests.
STYLE
VALUE BLEND GROWTH
X LARGE
MEDIUM SIZE
SMALL
SECTOR COMPOSITION
Percentage of portfolio assets
(pie chart)
Health care 25.3%
Consumer discretionary 17.2%
Consumer staples 13.1%
Short-term securities 12.1%
Technology 7.9%
Energy 6.0%
Industrials 5.2%
Telecommunications 4.6%
Materials 4.2%
Financials 3.8%
Other 0.6%
TOP TEN HOLDINGS
Percentage of portfolio assets
Pfizer (Health care products) 4.4%
Microsoft (Computer software & services) 4.2
McDonalds (Restaurants) 2.5
Johnson & Johnson (Health care products) 2.2
Lockheed Martin (Aerospace & defense) 2.1
Wyeth (Health care products) 1.9
Amgen (Health care products) 1.8
Procter & Gamble (Household products) 1.8
NTL (Cable) 1.7
Merck & Co (Health care products) 1.6
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
Stock prices of established companies that pay dividends may be less volatile
than the stock market as a whole. There are special risk considerations
associated with international investing related to market, currency, political,
economic and other factors.
Fund holdings are subject to change.
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3 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Questions & Answers
WITH PORTFOLIO MANAGEMENT
Below, Portfolio Manager Nick Thakore of American Express Funds' Boston
investment team discusses AXP Growth Fund's results and positioning for the
12-month period ended July 31, 2003.
Q: How did AXP Growth Fund perform for fiscal year 2003?
A: AXP Growth Fund's Class A shares rose 9.20%, excluding sales charge, for the
12-month period ended July 31, 2003, slightly more than the 8.97% return of
the Lipper Large-Cap Growth Funds Index, the Fund's peer group. The Russell
1000(R) Growth Index climbed 11.64% for the same period. The Fund enjoyed a
positive fiscal year return for the first time in three years.
While the Fund beat its peer, the Lipper Large-Cap Growth Funds Index, for
most of the fiscal year, weak results in the month of July lessened the
extent of the Fund's total outperformance relative to its peers for the full
fiscal year. Sector allocation in industrials, financials and technology
substantially hurt results in July and this unfavorable positioning
overshadowed the strong results generated earlier in the fiscal year.
The Fund was also more conservatively positioned than the Russell 1000(R)
Growth Index during the fiscal year. This helped results during the first
half of the period, enabling the Fund to outperform. However, in the second
half of the fiscal year, as the more volatile stocks in the index did well,
the Fund underperformed its benchmark.
Q: What factors influenced performance during the period?
A: Market conditions and investor psychology affected Fund results this past
year, depressing the portfolio's returns in the late summer of 2002 and
boosting returns during the market rally beginning in March 2003. Aggressive
growth stocks with historically high levels of volatility
(bar chart)
PERFORMANCE COMPARISON
For the period ended July 31, 2003
12% (bar 2)
+11.64%
10% (bar 1) (bar 3)
+9.20% +8.97%
8%
6%
4%
2%
0%
(bar 1) AXP Growth Fund Class A (excluding sales charge)
(bar 2) Russell 1000(R)Growth Index (unmanaged)
(bar 3) Lipper Large-Cap Growth Funds Index
(see "The Fund's Long-term Performance" for Index descriptions)
Past performance is no guarantee of future results. The 5.75% 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 GROWTH FUND -- 2003 ANNUAL REPORT
Questions & Answers
(begin callout quote)> We have recently seen better opportunities in stable
growth sectors than in cyclical growth sectors.(end callout quote)
(high beta) provided exceptionally strong returns in the second calendar
quarter of 2003. During this time, effective stock selection helped the Fund
keep pace with its benchmark and peers even as it avoided stocks that
appeared overvalued and/or lacked sufficient growth potential.
Earlier in the fiscal year the Fund reduced its emphasis on financial stocks
and assumed an overweight position in the health care sector, both of which
benefited relative performance. Yet by early in the summer of 2003 the
market had reversed and the Fund's performance was negatively impacted as
economically sensitive stocks such as financials and technology outperformed
while the stocks in stable growth
AVERAGE ANNUAL TOTAL RETURNS
as of July 31, 2003
Class A Class B Class C Class Y
(Inception dates) (3/1/72) (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)
1 year +9.20% +2.93% +8.36% +4.36% +8.31% +8.31% +9.38% +9.38%
5 years -6.83% -7.93% -7.54% -7.71% N/A N/A -6.69% -6.69%
10 years +6.73% +6.10% N/A N/A N/A N/A N/A N/A
Since inception N/A N/A +4.95% +4.95% -23.90% -23.90% +5.91% +5.91%
(1) Excluding sales charge.
(2) Returns at public offering price (POP) reflect a sales charge of 5.75%.
(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 GROWTH FUND -- 2003 ANNUAL REPORT
Questions & Answers
areas such as health care and consumer staples performed poorly on a
relative basis. In addition, there were some technology holdings within the
portfolio which did not meet expectations, notably Nokia and Sun
Microsystems.
Throughout the year, there has been a consistent focus on identifying
companies with good growth prospects which are trading at reasonable
valuations. McDonald's and IACI (formerly USA Interactive) were two solid
contributors to the Fund's results. We believe McDonald's benefited from a
new CEO focusing on the firm's core fast-food business, cutting capital
spending and improving cash flow. McDonald's was one the Fund's largest
overweight positions during the second half of the fiscal year, and this
benefited performance. IACI grew its earnings very rapidly over the past
year while at the same time simplifying its corporate structure. The stock
delivered positive results for the Fund this past year.
Q: What were the portfolio's weakest areas?
A: The Fund's sector weightings mildly detracted from its performance. The Fund
was underweight in both technology and financials which performed well for
much of the period. While we managed to find some individual opportunities
within technology, we underestimated the extent to which stocks could
advance given what we viewed as limited evidence of fundamental improvement
in the sector and valuations which appeared extended.
Two names in technology that the Fund did own were Motorola and Nokia. We
bought Motorola because it was a stock with a cost cutting story that had
not been appreciated by the market and we bought Nokia as a leadership
technology company with good end market growth which was trading at a
reasonable valuation. While we are always looking for fast growing companies
in the technology sector, we do tend to shy away from those whose valuations
do not appear justified.
Within financials, the Fund's performance was negatively impacted in the
latter half of the year by below average exposure to brokerage stocks which
performed well in the period as well as by its positioning in Fannie Mae and
Freddie Mac which were negatively impacted by management issues at Freddie
Mac.
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6 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Questions & Answers
Q: What changes did you make during the year?
A: Generally, the Fund favored stable growth over cyclical growth throughout
much of the period due to concerns over the extent of earnings recovery
which appeared to be anticipated in cyclical stocks. However, the Fund did
increase its cyclical exposure at points in which these stocks were more
depressed and expectations had been tempered. An example of a cyclical
sector which the Fund increased its exposure to over the course of the year
was energy because we believed that expectations for energy stocks seemed
more reasonable than those for the average cyclical sector.
In healthcare, we substantially reduced the Fund's position in HCA, the
nation's largest hospital operator, during the period as our concerns
related to earnings growth increased, and we reduced our positions in HMO
(health maintenance organization) stocks as well following a period of
significant price appreciation in the stocks subsequent to fundamental
improvements in the sector. While we remained constructive on the HMOs, we
felt that the stocks had fully discounted the favorable near term growth
outlook.
A stock the Fund purchased during the period which fits our investment
discipline is Disney. Disney is a cyclical growth company which, in our
view, was being painted with a different brush than other cyclical stocks.
If there is a cyclical recovery, Disney stands to benefit like many other
companies, yet it was trading at a valuation which suggested it would not
benefit.
Q: How do you plan to manage the Fund in the coming months given current
market conditions?
A: Above all, we will adhere to our long term investment discipline and
continue to strive to identify those companies with good growth rates for
which we believe we do not need to overpay. Given this discipline, we have
recently seen better opportunities in stable growth sectors than in cyclical
growth sectors. Examples of stable growth sectors with substantial
weightings in the Fund exiting the fiscal year include health care and
consumer staples and examples of cyclical sectors with lower weights exiting
the period include information technology and industrials.
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7 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
The Fund's Long-term Performance
This chart illustrates the total value of an assumed $10,000 investment in AXP
Growth Fund Class A shares (from 8/1/93 to 7/31/03) as compared to the
performance of two widely cited performance indices, the Russell 1000(R) Growth
Index and the Lipper Large-Cap Growth Funds 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 5.75%, 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 chart)
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT
IN AXP GROWTH FUND
$46,000
$34,500 (dotted line) Russell 1000(R) Growth Index(1)
(dashed line) Lipper Large-Cap Growth Funds Index(2)
$23,000 (solid line) AXP Growth Fund Class A
$11,500
'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
(solid line) AXP Growth Fund Class A $18,077
(dotted line) Russell 1000(R) Growth Index(1) $23,131
(dashed line) Lipper Large-Cap Growth Funds Index(2) $20,678
(1) Russell 1000(R) Growth Index, an unmanaged index, measures the performance
of the growth subset of the Russell 1000(R) Index, which is composed of the
largest 1,000 companies in the U.S. These companies have higher
price-to-book ratios and higher forecasted growth values.
(2) The Lipper Large-Cap Growth Funds 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 July 31, 2003
1 year +2.93%
5 years -7.93%
10 years +6.10%
Results for other share classes can be found on page 5.
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8 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Investments in Securities
Growth Portfolio
July 31, 2003
(Percentages represent value of investments compared to net assets)
Common stocks (87.3%)
Issuer Shares Value(a)
Aerospace & defense (2.7%)
Boeing 285,000 $9,439,200
Lockheed Martin 1,380,000 72,229,200
United Technologies 135,000 10,156,050
Total 91,824,450
Airlines (0.3%)
JetBlue Airways 235,000(b) 10,706,600
Banks and savings & loans (0.3%)
U.S. Bancorp 430,000 10,543,600
Beverages & tobacco (4.6%)
Altria Group 1,052,300 42,102,523
Anheuser-Busch 320,000 16,582,400
Coca-Cola 900,000 40,473,000
Pepsi Bottling Group 775,000 17,034,500
PepsiCo 910,000 41,923,700
Total 158,116,123
Building materials & construction (0.3%)
American Standard 115,000(b) 8,786,000
Cable (3.3%)
Comcast Cl A 630,000(b) 19,101,600
EchoStar Communications Cl A 960,000(b) 34,819,200
NTL 1,435,500(b) 60,018,255
Total 113,939,055
Cellular telecommunications (1.0%)
Vodafone Group 10,165,000(c) 19,280,891
Vodafone Group ADR 830,000(c) 15,753,400
Total 35,034,291
Chemicals (0.2%)
Dow Chemical 207,300 7,317,690
Computer hardware (1.3%)
Dell 110,000(b) 3,704,800
Hewlett-Packard 310,000 6,562,700
Sun Microsystems 9,180,000(b) 34,333,200
Total 44,600,700
Computer software & services (6.0%)
Affiliated Computer Services Cl A 250,000(b) 12,387,500
Autodesk 450,000 6,732,000
First Data 795,000 30,019,200
Microsoft 5,515,000 145,596,000
Oracle 1,000,000(b) 12,000,000
Total 206,734,700
Electronics (0.6%)
Microchip Technology 345,000 9,094,200
Taiwan Semiconductor Mfg ADR 1,234,000(b,c) 12,340,000
Total 21,434,200
Energy (3.2%)
Anadarko Petroleum 690,000 30,222,000
Apache 480,000 29,740,800
Burlington Resources 600,000 27,702,000
Devon Energy 198,720 9,413,366
Newfield Exploration 180,000(b) 6,503,400
XTO Energy 346,666 6,690,654
Total 110,272,220
Energy equipment & services (2.8%)
ENSCO Intl 352,745 8,843,317
Halliburton 490,000 10,863,300
Rowan Companies 414,860(b) 9,106,177
Schlumberger 1,055,000 47,548,850
Transocean 1,037,000(b) 20,294,090
Total 96,655,734
Financial services (2.1%)
Capital One Financial 74,000 3,545,340
Fannie Mae 350,000 22,414,000
Freddie Mac 275,000 13,433,750
MBNA 320,000 7,132,800
Nomura Holdings 1,340,000(c) 17,785,889
Nomura Holdings ADR 485,000(c) 6,610,550
Total 70,922,329
See accompanying notes to investments in securities.
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9 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Food (1.9%)
General Mills 270,000 $12,384,900
Kellogg 660,000 22,657,800
Kraft Foods Cl A 1,075,000 29,895,750
Total 64,938,450
Health care products (18.5%)
Abbott Laboratories 15,000 588,750
Allergan 100,000 8,048,000
Amgen 913,000(b) 63,526,540
Bard (CR) 98,000 6,718,880
Becton, Dickinson & Co 235,000 8,608,050
Boston Scientific 85,000(b) 5,374,550
Bristol-Myers Squibb 490,000 12,838,000
Gilead Sciences 180,000(b) 12,339,000
GlaxoSmithKline ADR 530,000(c) 20,304,300
Guidant 682,500 32,227,650
Johnson & Johnson 1,435,000 74,318,650
Lilly (Eli) 210,000 13,826,400
Medtronic 700,000 36,050,000
Merck & Co 1,000,000 55,280,000
Millennium Pharmaceuticals 895,000(b) 11,241,200
Pfizer 4,575,000 152,622,000
Schering-Plough 2,785,000 47,289,300
Teva Pharmaceutical Inds ADR 225,000(c) 12,901,500
Wyeth 1,435,000 65,407,300
Total 639,510,070
Health care services (6.7%)
Anthem 100,000(b) 7,551,000
Cardinal Health 555,000 30,386,250
Caremark Rx 1,395,000(b) 34,902,900
IMS Health 1,270,000 24,561,800
Lincare Holdings 335,000(b) 12,194,000
McKesson 1,060,000 34,195,600
Select Medical 633,650(b) 17,805,565
Tenet Healthcare 1,790,000(b) 24,666,200
WebMD 3,785,000(b) 45,722,800
Total 231,986,115
Household products (5.6%)
Avon Products 155,000 9,670,450
Colgate-Palmolive 650,000 35,490,000
Gillette 1,290,000 39,680,400
Kimberly-Clark 745,000 36,058,000
Newell Rubbermaid 450,000 10,633,500
Procter & Gamble 710,000 62,387,700
Total 193,920,050
Insurance (0.9%)
ACE 320,000(c) 10,556,800
Chubb 340,000 22,032,000
Total 32,588,800
Investment companies (0.5%)
iShares MSCI Japan Index Fund 2,277,000 17,305,200
Leisure time & entertainment (0.9%)
Viacom Cl B 735,000(b) 31,987,200
Media (4.4%)
Cendant 1,980,000(b) 35,541,000
Disney (Walt) 1,560,000 34,195,200
InterActiveCorp 1,125,000(b) 45,528,750
Liberty Media Cl A 795,000(b) 8,816,550
Omnicom Group 282,950 20,904,346
Tribune 135,000 6,374,700
Total 151,360,546
Metals (1.1%)
Freeport McMoRan Cooper & Gold Cl B 1,379,000 36,943,410
Multi-industry (2.2%)
General Electric 1,160,000 32,990,400
Harman Intl Inds 212,700 17,781,720
Sony 320,000(c) 9,901,696
Tyco Intl 825,000(c) 15,345,000
Total 76,018,816
Precious metals (2.7%)
Barrick Gold 2,670,000(c) 45,710,400
Newmont Mining 1,310,000 47,291,000
Total 93,001,400
Restaurants (2.5%)
McDonald's 3,735,000 85,942,350
Retail -- general (5.4%)
Circuit City Stores 5,620,750 51,598,485
Expedia Cl A 335,000(b) 26,200,350
Home Depot 1,395,000 43,524,000
Kohl's 205,000(b) 12,166,750
Staples 1,127,000(b) 22,697,780
Target 278,000 10,652,960
Wal-Mart Stores 315,000 17,611,650
Total 184,451,975
See accompanying notes to investments in securities.
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10 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Retail -- grocery (1.0%)
Kroger 1,100,000(b) $18,645,000
Safeway 700,000(b) 14,945,000
Total 33,590,000
Telecom equipment & services (3.4%)
China Mobile 14,000(c) 378,840
Motorola 6,085,000 55,008,400
Nokia ADR 2,982,000(c) 45,624,600
QUALCOMM 450,000 16,857,000
Total 117,868,840
Textiles & apparel (0.7%)
Polo Ralph Lauren 970,000(b) 25,617,700
Utilities -- natural gas (--%)
Kinder Morgan Management LLC -- 11
Utilities -- telephone (0.2%)
Amdocs 320,000(b,c) 6,521,600
Total common stocks
(Cost: $2,696,482,497) $3,010,440,225
Options purchased (0.5%)
Issuer Contracts Exercise Expiration Value(a)
price date
Puts
Nasdaq 100 113,500 $28 Aug. 2003 $283,750
Nasdaq 100 119,605 28 Sept. 2003 2,990,125
S&P 500 Index 2,603 975 Aug. 2003 2,316,670
S&P 500 Index 1,827 975 Sept. 2003 3,717,945
S&P 500 Index 3,747 980 Sept. 2003 8,374,545
Total options purchased
(Cost: $38,870,129) $17,683,035
Short-term securities (12.1%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agency (1.1%)
Federal Natl Mtge Assn Disc Nts
10-08-03 0.99% $21,200,000 $21,158,745
11-17-03 1.00 17,700,000 17,644,245
Total $38,802,990
Commercial paper (11.0%)
AEGON Funding
10-06-03 1.03 4,500,000(d) 4,491,290
10-15-03 1.03 12,300,000(d) 12,272,995
ANZ (Delaware)
08-18-03 1.03 10,200,000 10,194,747
Barton Capital
08-13-03 1.03 9,100,000(d) 9,096,615
CHARTA LLC
08-22-03 1.03 20,000,000(d) 19,987,411
09-18-03 1.07 3,600,000(d) 3,594,757
CRC Funding LLC
09-15-03 1.05 2,400,000(d) 2,396,780
Danske
08-13-03 1.05 2,000,000 1,999,242
Deutsche Bank Financial LLC
08-06-03 1.02 23,900,000 23,895,937
08-06-03 1.03 6,200,000 6,198,936
Dexia Bank (Delaware) LLC
08-04-03 1.05 30,000,000 29,996,517
Fleet Funding
08-19-03 0.94 1,500,000(d) 1,499,256
Galaxy Funding
08-05-03 1.06 2,500,000(d) 2,499,632
Greyhawk Funding
09-04-03 1.03 12,500,000(d) 12,487,482
09-22-03 1.04 12,900,000(d) 12,880,438
HBOS Treasury Services
08-01-03 0.98 7,600,000 7,599,793
ING US Funding
10-07-03 1.03 25,000,000(d) 24,950,888
Kitty Hawk Funding
08-20-03 1.04 24,000,000(d) 23,986,134
08-27-03 1.07 7,400,000(d) 7,394,062
Park Avenue Receivables
08-15-03 1.03 16,800,000(d) 16,792,790
SBC Intl
08-13-03 1.03 40,000,000(d) 39,985,121
See accompanying notes to investments in securities.
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11 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Short-term securities (continued)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
Commercial paper (cont.)
Sheffield Receivables
08-01-03 1.06% $20,000,000(d) $19,999,411
08-21-03 1.04 10,000,000(d) 9,993,933
Southern Company Funding
08-08-03 1.03 6,000,000(d) 5,998,627
Swedbank
08-08-03 0.98 8,300,000 8,298,192
Variable Funding Capital
08-05-03 1.03 13,300,000(d) 13,298,097
Windmill Funding
08-07-03 1.04 40,000,000(d) 39,991,911
08-13-03 1.05 6,600,000(d) 6,597,498
Total 378,378,492
Total short-term securities
(Cost: $417,197,249) $417,181,482
Total investments in securities
(Cost: $3,152,549,875)(e) $3,445,304,742
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars. As of July 31, 2003,
the value of foreign securities represented 6.9% of net assets.
(d) 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.
(e) At July 31, 2003, the cost of securities for federal income tax purposes
was $3,238,806,086 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $276,353,973
Unrealized depreciation (69,855,317)
------------
Net unrealized appreciation $206,498,656
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12 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Financial Statements
Statement of assets and liabilities
Growth Portfolio
July 31, 2003
Assets
Investments in securities, at value (Note 1)*
(identified cost $3,152,549,875) $3,445,304,742
Cash in bank on demand deposit 487,215
Dividends and accrued interest receivable 2,012,182
Receivable for investment securities sold 12,104,324
U.S. government securities held as collateral (Note 4) 13,253,781
----------
Total assets 3,473,162,244
-------------
Liabilities
Payable for investment securities purchased 12,512,558
Payable upon return of securities loaned (Note 4) 13,253,781
Accrued investment management services fee 53,742
Other accrued expenses 93,045
------
Total liabilities 25,913,126
----------
Net assets $3,447,249,118
==============
* Including securities on loan, at value (Note 4) $ 13,850,430
--------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
13 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Statement of operations
Growth Portfolio
Year ended July 31, 2003
Investment income
Income:
Dividends $ 36,230,442
Interest 3,448,295
Fee income from securities lending (Note 4) 316,524
Less foreign taxes withheld (308,101)
--------
Total income 39,687,160
----------
Expenses (Note 2):
Investment management services fee 20,057,173
Compensation of board members 20,958
Custodian fees 256,673
Audit fees 30,000
Other 78,931
------
Total expenses 20,443,735
Earnings credits on cash balances (Note 2) (443)
----
Total net expenses 20,443,292
----------
Investment income (loss) -- net 19,243,868
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) (462,560,347)
Foreign currency transactions 126,315
-------
Net realized gain (loss) on investments (462,434,032)
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 741,212,811
-----------
Net gain (loss) on investments and foreign currencies 278,778,779
-----------
Net increase (decrease) in net assets resulting from operations $ 298,022,647
=============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
14 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Statements of changes in net assets
Growth Portfolio
Year ended July 31, 2003 2002
Operations
Investment income (loss) -- net $ 19,243,868 $ 18,049,333
Net realized gain (loss) on investments (462,434,032) (135,571,463)
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 741,212,811 (1,595,978,419)
----------- --------------
Net increase (decrease) in net assets resulting from operations 298,022,647 (1,713,500,549)
----------- --------------
Proceeds from contributions 46,555,814 1,077,212,062
Fair value of withdrawals (443,556,729) (2,162,141,355)
------------ --------------
Net contributions (withdrawals) from partners (397,000,915) (1,084,929,293)
------------ --------------
Total increase (decrease) in net assets (98,978,268) (2,798,429,842)
Net assets at beginning of year 3,546,227,386 6,344,657,228
------------- -------------
Net assets at end of year $3,447,249,118 $ 3,546,227,386
============== ===============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
15 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Notes to Financial Statements
Growth Portfolio
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Growth Portfolio (the Portfolio) is a series of Growth Trust (the Trust) and is
registered under the Investment Company Act of 1940 (as amended) as a
diversified, open-end management investment company. Growth Portfolio invests
primarily in common stocks and securities convertible into common stocks of U.S.
and foreign companies that appear to offer growth opportunities. The Declaration
of Trust permits the Trustees to issue non-transferable interests in the
Portfolio.
The Portfolio'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.
Option transactions
To produce incremental earnings, protect gains and facilitate buying and selling
of securities for investments, the Portfolio 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
Portfolio 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 Portfolio gives up the opportunity for
profit if the market price of the security increases. The risk in writing a put
option is that the Portfolio 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 Portfolio pays a premium whether or not the option is exercised. The
Portfolio also has the additional risk of being unable to enter into a closing
transaction if a liquid secondary market does not exist.
- --------------------------------------------------------------------------------
16 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Portfolio
will realize a gain or loss when the option transaction expires or closes. When
an option is 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 Portfolio may buy
and sell financial futures contracts traded on any U.S. or foreign exchange. The
Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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.
The Portfolio 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 Portfolio and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates from an
independent pricing service. The Portfolio is subject to the credit risk that
the other party will not complete its contract obligations.
- --------------------------------------------------------------------------------
17 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Federal taxes
For federal income tax purposes the Portfolio qualifies as a partnership and
each investor in the Portfolio is treated as the owner of its proportionate
share of the net assets, income, expenses and realized and unrealized gains and
losses of the Portfolio. As a "pass-through" entity, the Portfolio therefore
does not pay any income dividends or capital gain distributions.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date and interest income,
including amortization of premium and discount using the effective interest
method, is accrued daily.
2. FEES AND EXPENSES
The Trust, on behalf of the Portfolio, has an Investment Management Services
Agreement with American Express Financial Corporation (AEFC) to manage its
portfolio. Under an Investment Management Service Agreement, AEFC determines
which securities will be purchased, held or sold. The management fee is a
percentage of the Portfolio's average daily net assets in reducing percentages
from 0.60% to 0.48% annually. The fee may be adjusted upward or downward by a
performance incentive adjustment based on a comparison of the performance of
Class A shares of AXP Growth Fund to the Lipper Large-Cap Growth Funds Index.
Prior to Dec. 1, 2002, the maximum adjustment was 0.12% of the Portfolio's
average daily net assets after deducting 1% from the performance difference. If
the performance difference was less than 1%, the adjustment will be zero. On
Nov.13, 2002, shareholders approved modification of the performance incentive
adjustment calculation by adjusting the performance difference intervals, while
retaining the previous maximum adjustment and reducing the amount of the
performance difference for which no adjustment is made to 0.50%. The effect of
the modifications began Dec. 1, 2002. The adjustment increased the fee by
$1,325,406 for the year ended July 31, 2003.
Under the agreement, the Trust also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees, audit and certain legal
fees, fidelity bond premiums, registration fees for units, office expenses,
consultants' fees, compensation of trustees, corporate filing fees, expenses
incurred in connection with lending securities of the Portfolio and any other
expenses properly payable by the Trust or Portfolio and approved by the board.
During the year ended July 31, 2003, the Portfolio's custodian fees were reduced
by $443 as a result of earnings credits from overnight cash balances. The
Portfolio also pays custodian fees to American Express Trust Company, an
affiliate of AEFC.
According to a Placement Agency Agreement, American Express Financial Advisors
Inc. acts as placement agent of the Trust's units.
- --------------------------------------------------------------------------------
18 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $6,145,769,189 and $7,040,101,896, respectively, for the
year ended July 31, 2003. For the same period, the portfolio turnover rate was
205%. Realized gains and losses are determined on an identified cost basis.
Brokerage clearing fees paid to brokers affiliated with AEFC were $745,620 for
the year ended July 31, 2003.
4. LENDING OF PORTFOLIO SECURITIES
As of July 31, 2003, securities valued at $13,850,430 were on loan to brokers.
For collateral, the Portfolio received U.S. government securities valued at
$13,253,781. As of July 31, 2003, due to fluctuating market conditions, the Fund
was undercollateralized. However, on Aug. 1, 2003, the Fund returned to an
adequately collateralized position. Income from securities lending amounted to
$316,524 for the year ended July 31, 2003. The risks to the Portfolio of
securities lending are that the borrower may not provide additional collateral
when required or return the securities when due.
- --------------------------------------------------------------------------------
19 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Independent Auditors' Report
THE BOARD OF TRUSTEES AND UNITHOLDERS
GROWTH TRUST
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of Growth Portfolio (a series of
Growth Trust) as of July 31, 2003, the related statement of operations for the
year then ended and the statements of changes in net assets for each of the
years in the two-year period ended July 31, 2003. These financial statements are
the responsibility of portfolio management. Our responsibility is to express an
opinion on these financial statements 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 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 July
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 referred to above present fairly, in
all material respects, the financial position of Growth Portfolio as of July 31,
2003, and the results of its operations and the changes in its net assets 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
September 12, 2003
- --------------------------------------------------------------------------------
20 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Financial Statements
Statement of assets and liabilities
AXP Growth Fund
July 31, 2003
Assets
Investment in Portfolio (Note 1) $ 3,447,206,459
Capital shares receivable 801,696
-------
Total assets 3,448,008,155
-------------
Liabilities
Capital shares payable 231,809
Accrued distribution fee 37,104
Accrued service fee 1,084
Accrued transfer agency fee 18,435
Accrued administrative services fee 4,129
Other accrued expenses 223,155
-------
Total liabilities 515,716
-------
Net assets applicable to outstanding capital stock $ 3,447,492,439
===============
Represented by
Capital stock -- $.01 par value (Note 1) $ 1,535,231
Additional paid-in capital 4,743,458,181
Accumulated net realized gain (loss) (Note 5) (1,590,268,908)
Unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 292,767,935
-----------
Total -- representing net assets applicable to outstanding capital stock $ 3,447,492,439
===============
Net assets applicable to outstanding shares: Class A $ 2,262,929,371
Class B $ 775,125,347
Class C $ 11,919,286
Class Y $ 397,518,435
Net asset value per share of outstanding capital stock: Class A shares 99,269,706 $ 22.80
Class B shares 36,476,576 $ 21.25
Class C shares 560,916 $ 21.25
Class Y shares 17,215,855 $ 23.09
---------- ---------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
21 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Statement of operations
AXP Growth Fund
Year ended July 31, 2003
Investment income
Income:
Dividends $ 36,230,010
Interest 3,447,822
Fee income from securities lending 316,520
Less foreign taxes withheld (308,097)
--------
Total income 39,686,255
----------
Expenses (Note 2):
Expenses allocated from Portfolio 20,443,050
Distribution fee
Class A 5,213,982
Class B 7,888,958
Class C 85,000
Transfer agency fee 7,798,358
Incremental transfer agency fee
Class A 520,247
Class B 437,952
Class C 6,402
Service fee -- Class Y 398,235
Administrative services fees and expenses 1,469,076
Compensation of board members 14,341
Printing and postage 807,227
Registration fees 97,323
Audit fees 10,000
------
Total expenses 45,190,151
Earnings credits on cash balances (Note 2) (52,918)
-------
Total net expenses 45,137,233
----------
Investment income (loss) -- net (5,450,978)
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (462,555,814)
Foreign currency transactions 126,314
-------
Net realized gain (loss) on investments (462,429,500)
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 741,204,696
-----------
Net gain (loss) on investments and foreign currencies 278,775,196
-----------
Net increase (decrease) in net assets resulting from operations $ 273,324,218
=============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
22 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Statements of changes in net assets
AXP Growth Fund
Year ended July 31, 2003 2002
Operations and distributions
Investment income (loss) -- net $ (5,450,978) $ (15,399,917)
Net realized gain (loss) on investments (462,429,500) (135,569,398)
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 741,204,696 (1,595,964,275)
----------- --------------
Net increase (decrease) in net assets resulting from operations 273,324,218 (1,746,933,590)
----------- --------------
Distributions to shareholders from:
Net realized gain
Class A -- (2,135,273)
Class B -- (888,287)
Class C -- (5,132)
Class Y -- (580,590)
Tax return of capital
Class A -- (529,673)
Class B -- (220,504)
Class C -- (1,506)
Class Y -- (143,905)
----------- --------------
Total distributions -- (4,504,870)
----------- --------------
Capital share transactions (Note 3)
Proceeds from sales
Class A shares (Note 2) 299,443,361 1,467,991,732
Class B shares 108,759,258 130,290,043
Class C shares 5,623,858 4,063,109
Class Y shares 141,293,380 423,221,812
Reinvestment of distributions at net asset value
Class A shares -- 2,597,294
Class B shares -- 1,098,608
Class C shares -- 6,584
Class Y shares -- 724,495
Payments for redemptions
Class A shares (425,072,323) (2,050,219,864)
Class B shares (Note 2) (240,971,184) (369,829,910)
Class C shares (Note 2) (1,739,474) (2,689,402)
Class Y shares (258,890,708) (653,772,011)
------------ ------------
Increase (decrease) in net assets from capital share transactions (371,553,832) (1,046,517,510)
------------ --------------
Total increase (decrease) in net assets (98,229,614) (2,797,955,970)
Net assets at beginning of year 3,545,722,053 6,343,678,023
------------- -------------
Net assets at end of year $3,447,492,439 $ 3,545,722,053
============== ===============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
23 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Notes to Financial Statements
AXP Growth Fund
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a series of AXP Growth Series, Inc. and is registered under the
Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company. AXP Growth 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 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.
Investment in Growth Portfolio
The Fund invests all of its assets in Growth Portfolio (the Portfolio), a series
of Growth Trust (the Trust), an open-end investment company that has the same
objectives as the Fund. The Portfolio invests primarily in common stocks and
securities convertible into common stocks of U.S. and foreign companies that
appear to offer growth opportunities.
The Fund records daily its share of the Portfolio's income, expenses and
realized and unrealized gains and losses. The financial statements of the
Portfolio are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The Fund records its investment in the Portfolio at the value that is equal to
the Fund's proportionate ownership interest in the Portfolio's net assets. The
percentage of the Portfolio owned by the Fund as of July 31, 2003 was 99.99%.
Valuation of securities held by the Portfolio is discussed in Note 1 of the
Portfolio's "Notes to financial statements" (included elsewhere in this report).
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.
- --------------------------------------------------------------------------------
24 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
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 the 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 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
$5,450,978 and accumulated net realized loss has been increased by $110,831
resulting in a net reclassification adjustment to decrease paid-in capital by
$5,340,147.
The tax character of distributions paid for the years indicated is as follows:
Year ended July 31, 2003 2002
Class A
Distributions paid from:
Ordinary income $-- $ --
Long-term capital gain -- 2,135,273
Tax return of capital -- 529,673
Class B
Distributions paid from:
Ordinary income -- --
Long-term capital gain -- 888,287
Tax return of capital -- 220,504
Class C
Distributions paid from:
Ordinary income -- --
Long-term capital gain -- 5,132
Tax return of capital -- 1,506
Class Y
Distributions paid from:
Ordinary income -- --
Long-term capital gain -- 580,590
Tax return of capital -- 143,905
As of July 31, 2003, the components of distributable earnings on a tax basis are
as follows:
Undistributed ordinary income $ --
Accumulated long-term gain (loss) $(1,525,200,562)
Unrealized appreciation (depreciation) $ 227,699,589
- --------------------------------------------------------------------------------
25 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Dividends to shareholders
An annual dividend from net investment income, declared and paid at the end of
the calendar year, when available, is reinvested in additional shares of the
Fund at net asset value or payable in cash. Capital gains, when available, are
distributed along with the income dividend.
2. EXPENSES AND SALES CHARGES
In addition to the expenses allocated from the Portfolio, the Fund accrues its
own expenses as follows:
The Fund has an agreement with AEFC to provide administrative services. Under an
Administrative Services Agreement, the Fund pays AEFC a fee for administrative
and accounting services at a percentage of the Fund's average daily net assets
in reducing percentages 0.05% to 0.02% 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 $19.50
o Class B $20.50
o Class C $20.00
o Class Y $17.50
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.
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 for Class
A, $20 for Class B, $19.50 for Class C and $17 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
$4,408,048 for Class A, $909,281 for Class B and $2,501 for Class C for the year
ended July 31, 2003.
During the year ended July 31, 2003, the Fund's transfer agency fees were
reduced by $52,918 as a result of earnings credits from overnight cash balances.
- --------------------------------------------------------------------------------
26 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the years indicated are as follows:
Year ended July 31, 2003
Class A Class B Class C Class Y
Sold 13,842,204 5,510,181 283,408 6,670,940
Issued for reinvested distributions -- -- -- --
Redeemed (20,576,625) (12,101,320) (89,705) (12,224,761)
----------- ----------- ------- -----------
Net increase (decrease) (6,734,421) (6,591,139) 193,703 (5,553,821)
---------- ---------- ------- ----------
Year ended July 31, 2002
Class A Class B Class C Class Y
Sold 58,268,502 5,484,859 172,227 16,631,804
Issued for reinvested distributions 97,106 43,514 271 26,813
Redeemed (82,106,853) (16,191,810) (118,208) (26,379,833)
----------- ----------- -------- -----------
Net increase (decrease) (23,741,245) (10,663,437) 54,290 (9,721,216)
----------- ----------- ------ ----------
4. 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
July 31, 2003.
5. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, the Fund has a capital loss carry-over of
$1,525,200,562 as of July 31, 2003, that will expire in 2010 through 2012 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.
- --------------------------------------------------------------------------------
27 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
6. 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 July 31, 2003 2002 2001 2000 1999
Net asset value, beginning of period $20.88 $29.68 $ 54.36 $42.14 $36.58
Income from investment operations:
Net investment income (loss) -- (.04) (.14) (.14) (.03)
Net gains (losses) (both realized and unrealized) 1.92 (8.74) (22.34) 13.14 7.29
Total from investment operations 1.92 (8.78) (22.48) 13.00 7.26
Less distributions:
Distributions from realized gains -- (.02) (2.20) (.78) (1.70)
Net asset value, end of period $22.80 $20.88 $ 29.68 $54.36 $42.14
Ratios/supplemental data
Net assets, end of period (in millions) $2,263 $2,213 $3,851 $6,637 $4,576
Ratio of expenses to average daily net assets(c) 1.21% .99% .99% .99% .89%
Ratio of net investment income (loss) to average daily net assets --% (.15%) (.34%) (.30%) (.08%)
Portfolio turnover rate (excluding short-term securities) 205% 225% 41% 23% 17%
Total return(e) 9.20% (29.59%) (42.14%) 31.01% 20.49%
See accompanying notes to financial highlights.
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28 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Class B
Per share income and capital changes(a)
Fiscal period ended July 31, 2003 2002 2001 2000 1999
Net asset value, beginning of period $19.61 $28.11 $ 52.02 $40.65 $35.61
Income from investment operations:
Net investment income (loss) (.17) (.25) (.42) (.46) (.28)
Net gains (losses) (both realized and unrealized) 1.81 (8.23) (21.29) 12.61 7.02
Total from investment operations 1.64 (8.48) (21.71) 12.15 6.74
Less distributions:
Distributions from realized gains -- (.02) (2.20) (.78) (1.70)
Net asset value, end of period $21.25 $19.61 $ 28.11 $52.02 $40.65
Ratios/supplemental data
Net assets, end of period (in millions) $775 $845 $1,510 $2,468 $1,458
Ratio of expenses to average daily net assets(c) 1.99% 1.77% 1.75% 1.75% 1.65%
Ratio of net investment income (loss) to average daily net assets (.77%) (.93%) (1.11%) (1.06%) (.85%)
Portfolio turnover rate (excluding short-term securities) 205% 225% 41% 23% 17%
Total return(e) 8.36% (30.18%) (42.57%) 30.02% 19.58%
See accompanying notes to financial highlights.
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29 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Class C
Per share income and capital changes(a)
Fiscal period ended July 31, 2003 2002 2001 2000(b)
Net asset value, beginning of period $19.62 $28.12 $ 52.03 $52.65
Income from investment operations:
Net investment income (loss) (.17) (.21) (.42) (.04)
Net gains (losses) (both realized and unrealized) 1.80 (8.27) (21.29) (.58)
Total from investment operations 1.63 (8.48) (21.71) (.62)
Less distributions:
Distributions from realized gains -- (.02) (2.20) --
Net asset value, end of period $21.25 $19.62 $ 28.12 $52.03
Ratios/supplemental data
Net assets, end of period (in millions) $12 $7 $9 $1
Ratio of expenses to average daily net assets(c) 2.01% 1.80% 1.75% 1.75%(d)
Ratio of net investment income (loss) to average daily net assets (.81%) (.96%) (1.10%) (1.30%)(d)
Portfolio turnover rate (excluding short-term securities) 205% 225% 41% 23%
Total return(e) 8.31% (30.17%) (42.56%) (1.18%)(f)
See accompanying notes to financial highlights.
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30 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Class Y
Per share income and capital changes(a)
Fiscal period ended July 31, 2003 2002 2001 2000 1999
Net asset value, beginning of period $21.11 $29.96 $ 54.75 $42.37 $36.74
Income from investment operations:
Net investment income (loss) .04 -- (.07) (.06) --
Net gains (losses) (both realized and unrealized) 1.94 (8.83) (22.52) 13.22 7.33
Total from investment operations 1.98 (8.83) (22.59) 13.16 7.33
Less distributions:
Distributions from realized gains -- (.02) (2.20) (.78) (1.70)
Net asset value, end of period $23.09 $21.11 $ 29.96 $54.75 $42.37
Ratios/supplemental data
Net assets, end of period (in millions) $398 $481 $974 $1,551 $914
Ratio of expenses to average daily net assets(c) 1.03% .82% .83% .83% .80%
Ratio of net investment income (loss) to average daily net assets .18% .02% (.18%) (.14%) --%
Portfolio turnover rate (excluding short-term securities) 205% 225% 41% 23% 17%
Total return(e) 9.38% (29.48%) (42.04%) 31.20% 20.59%
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.
- --------------------------------------------------------------------------------
31 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Independent Auditors' Report
THE BOARD AND SHAREHOLDERS
AXP GROWTH SERIES, INC.
We have audited the accompanying statement of assets and liabilities of AXP
Growth Fund (a series of AXP Growth Series, Inc.) as of July 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 July
31, 2003, and the financial highlights for each of the years in the five-year
period ended July 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. 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
Growth Fund as of July 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
September 12, 2003
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32 -- AXP GROWTH 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 83 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 Principal occupation during past Other directorships
with Fund and five years
length of service
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Arne H. Carlson Board member Chair, Board Services Corporation
901 S. Marquette Ave. since 1999 (provides administrative services
Minneapolis, MN 55402 to boards). Former Governor of
Age 68 Minnesota
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Philip J. Carroll, Jr. Board member Retired Chairman and CEO, Fluor Scottish Power PLC, Vulcan
901 S. Marquette Ave. since 2002 Corporation (engineering and Materials Company, Inc.
Minneapolis, MN 55402 construction) since 1998 (construction
Age 65 materials/chemicals)
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Livio D. DeSimone Board member Retired Chair of the Board and Cargill, Incorporated
30 Seventh Street East since 2001 Chief Executive Officer, Minnesota (commodity merchants and
Suite 3050 Mining and Manufacturing (3M) processors), General Mills,
St. Paul, MN 55101-4901 Inc. (consumer foods), Vulcan
Age 69 Materials Company (construction
materials/ chemicals), Milliken
& Company (textiles and
chemicals), and Nexia
Biotechnologies, Inc.
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Heinz F. Hutter* Board member Retired President and Chief
901 S. Marquette Ave. since 1994 Operating Officer, Cargill,
Minneapolis, MN 55402 Incorporated (commodity merchants
Age 74 and processors)
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Anne P. Jones Board member Attorney and Consultant
901 S. Marquette Ave. since 1985
Minneapolis, MN 55402
Age 68
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Stephen R. Lewis, Jr.** Board member Retired President and Professor of Valmont Industries, Inc.
901 S. Marquette Ave. since 2002 Economics, Carleton College (manufactures irrigation
Minneapolis, MN 55402 systems)
Age 64
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Alan G. Quasha Board member President, Quadrant Management, Compagnie Financiere Richemont
901 S. Marquette Ave. since 2002 Inc. (management of private AG (luxury goods), Harken
Minneapolis, MN 55402 equities) Energy Corporation (oil and gas
Age 53 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.
- --------------------------------------------------------------------------------
33 -- AXP GROWTH FUND -- 2003 ANNUAL REPORT
Independent Board Members (continued)
Name, address, age Position held Principal occupation during past Other directorships
with Fund and five years
length of service
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Alan K. Simpson Board member Former three-term United States Biogen, Inc.
1201 Sunshine Ave. since 1997 Senator for Wyoming (biopharmaceuticals)
Cody, WY 82414
Age 71
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Alison Taunton-Rigby Board member President, Forester Biotech since
901 S. Marquette Ave. since 2002 2000. Former President and CEO,
Minneapolis, MN 55402 Aquila Biopharmaceuticals, Inc.
Age 59
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Board Members Affiliated with AEFC***
Name, address, age Position held Principal occupation during past Other directorships
with Fund and five years
length of service
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Barbara H. Fraser Board member Executive Vice President - AEFA
1546 AXP Financial Center since 2002 Products and Corporate Marketing of
Minneapolis, MN 55474 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 Senior Vice President -
50238 AXP Financial Center since 2002, Vice Institutional Group of AEFC
Minneapolis, MN 55474 President since
Age 54 2002
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
William F. Truscott Board member Senior Vice President - Chief
53600 AXP Financial Center since 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.
- --------------------------------------------------------------------------------
34 -- AXP GROWTH 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 Principal occupation during past Other directorships
with Fund and five years
length of service
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Jeffrey P. Fox Treasurer since Vice President - Investment
50005 AXP Financial Center 2002 Accounting, AEFC, since 2002; Vice
Minneapolis, MN 55474 President - Finance, American
Age 48 Express Company, 2000-2002; Vice
President - Corporate Controller,
AEFC, 1996-2000
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Paula R. Meyer President since Senior Vice President and General
596 AXP Financial Center 2002 Manager - Mutual Funds, AEFC, since
Minneapolis, MN 55474 2002; Vice President and Managing
Age 49 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, Corporation
Minneapolis, MN 55402 and Secretary
Age 64 since 1978
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
The SAI has additional information about the Fund's directors and is available,
without charge, upon request by calling (800) 862-7919.
- --------------------------------------------------------------------------------
35 -- AXP GROWTH 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.
AXP(R)
Large Cap
Equity
Fund
Annual Report
for the Period Ended
July 31, 2003
AXP Large Cap Equity Fund seeks to provide shareholders with long-term growth of
capital.
- --------------------------------------------------------------------------------
(logo) (logo)
American AMERICAN
Express(R) EXPRESS
Funds (R)
- --------------------------------------------------------------------------------
Table of Contents
Fund Snapshot 3
Questions & Answers
with Portfolio Management 4
The Fund's Long-term Performance 7
Investments in Securities 8
Financial Statements 11
Notes to Financial Statements 14
Independent Auditors' Report 24
Federal Income Tax Information 25
Board Members and Officers 26
(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.
- --------------------------------------------------------------------------------
2 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Fund Snapshot
AS OF JULY 31, 2003
PORTFOLIO MANAGER
Portfolio manager Doug Chase
Since 3/02
Years in industry 11
FUND OBJECTIVE
This Fund seeks to provide shareholders with long-term growth of capital.
Inception dates
A: 3/28/02 B: 3/28/02 C: 3/28/02 Y: 3/28/02
Ticker symbols
A: ALEAX B: ALEBX C: -- Y: --
Total net assets $120.9 million
Number of holdings 78
STYLE MATRIX
Shading within the style matrix indicates areas in which the Fund generally
invests.
STYLE
VALUE BLEND GROWTH
X LARGE
MEDIUM SIZE
SMALL
SECTOR COMPOSITION
Percentage of portfolio assets
(pie chart)
Health care 20.2%
Consumer discretionary 15.3%
Financials 12.8%
Technology 11.1%
Consumer staples 10.2%
Short-term securities 9.5%
Industrials 9.3%
Energy 6.8%
Materials 4.5%
Utilities 0.3%
TOP TEN HOLDINGS
Percentage of portfolio assets
Pfizer (Health care products) 6.7%
Citigroup (Finance companies) 3.9
Microsoft (Computer software & services) 3.5
Wyeth (Health care products) 3.5
AmerisourceBergen (Health care services) 3.4
General Electric (Multi-industry) 3.2
ConocoPhillips (Energy) 2.8
Cendant (Media) 2.8
Altria Group (Beverages & tobacco) 2.6
Procter & Gamble (Household products) 2.6
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
Stock prices of established companies that pay dividends may be less volatile
than the stock market as a whole.
Fund holdings are subject to change.
- --------------------------------------------------------------------------------
3 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Questions & Answers
WITH PORTFOLIO MANAGEMENT
AXP Large Cap Equity Fund has grown to more than $120 million in assets during
its first 15 months in operation. Below, Portfolio Manager Doug Chase discusses
the Fund's performance and positioning as of July 31, 2003.
Q: How did the AXP Large Cap Equity Fund perform in fiscal year 2003?
A: AXP Large Cap Equity Fund's Class A shares advanced 10.22%, excluding sales
charge, for the 12 months ended July 31, 2003. The Fund outperformed its
peers as represented by the Lipper Large-Cap Core Funds Index, which gained
8.63%. The Fund underperformed its benchmark, the Russell 1000(R) Index,
which advanced 11.19% for the period.
Q: What factors significantly affected performance?
A: Individual stock selection added to the Fund's relative performance while
sector positioning hampered results. Underweights in technology and
telecommunications, which had benefited the Fund during the volatile period
from July to September 2002, prevented the Fund from fully participating in
the subsequent market rallies. Similarly, an overweight in health care that
was advantageous early in the period had a negative impact late in 2002. In
addition, the Fund had no exposure to utilities, a sector that did well in
the first seven months of 2003.
Strong results from select portfolio holdings helped offset the impact of
sector allocations. Cendant, a leisure and travel company that was
purchased in the first half of the fiscal year, was one of the Fund's
strongest performers. Among other stocks that contributed to the Fund's
results were pharmaceutical companies Wyeth and Pfizer, media giant AOL
Time Warner, technology company Sun Microsystems and a number of financial
services companies, including Citigroup.
PERFORMANCE COMPARISON
For the period ended July 31, 2003
12% (bar 2)
(bar 1) +11.19%
10% +10.22% (bar 3)
+8.63%
8%
6%
4%
2%
0%
(bar 1) AXP Large Cap Equity Fund Class A (excluding sales charge)
(bar 2) Russell 1000(R)Index (unmanaged)
(bar 3) Lipper Large-Cap Core Funds Index
(see "The Fund's Long-term Performance" for Index descriptions)
Past performance is no guarantee of future results. The 5.75% 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.
- --------------------------------------------------------------------------------
4 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Questions & Answers
(begin callout quote)> The Fund emphasized media companies with strong brands
and spread our investments among content providers, infrastructure companies,
advertising firms and other communications companies.(end callout quote)
On the negative side, Transocean, an oil service company, did not perform
well for the Fund. Fannie Mae and Freddie Mac, which were added to the
portfolio in the first half of the fiscal period, also proved to be a
disappointment later in the year. Despite benefiting from record home
refinancing volume, both stocks declined due to unfavorable sentiment
stemming from Freddie Mac's accounting and regulatory problems.
Q: What changes were made to the portfolio during the period?
A: At the start of the fiscal year, the Fund was positioned for a continuation
of the weak economic and market environments. In particular, exposure to
stocks believed to be most sensitive to cyclical economic trends was
reduced. Later in 2002, the Fund's overweight in health care stocks was
reduced and its energy positioning increased.
AVERAGE ANNUAL TOTAL RETURNS
as of July 31, 2003
Class A Class B Class C Class Y
(Inception dates) (3/28/02) (3/28/02) (3/28/02) (3/28/02)
NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) NAV(5) POP(5)
1 year +10.22% +3.90% +9.27% +5.27% +9.51% +9.51% +10.46% +10.46%
Since inception -7.03% -11.04% -7.85% -10.61% -7.70% -7.70% -6.87% -6.87%
(1) Excluding sales charge.
(2) Returns at public offering price (POP) reflect a sales charge of 5.75%.
(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 LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Questions & Answers
At the beginning of 2003, the expectation was that the economy would
surprise on the upside. The Fund was overweighted energy, materials and
industrial stocks in order to gain some cyclical exposure. Underweights
were maintained in financial and technology stocks because the fundamentals
were not as favorable as in other areas. The Fund's position in consumer
discretionary stocks was increased in February and March 2003, as these
stocks became more attractively priced in the midst of war-related
pessimism. In particular, holdings of media companies were increased. Media
stocks appeared cheap compared to where they would typically trade in a
more normal environment. The Fund emphasized media companies with strong
brands and spread its investments among content providers, infrastructure
companies, advertising firms and other communications companies.
During the latter part of the fiscal period, the Fund began to trim
positions in individual stocks that had outperformed. These included AOL
Time Warner, Cendant, McDonald's and McKesson, as well as both Pfizer and
Wyeth.
Q: How will the Fund be managed in the coming months?
A: It appears as though the marketplace is experiencing somewhat of a euphoric
period right now. Stock prices have been rising without a clear reason for
them to do so. It seems as though a large amount of earnings growth has
already been priced into many stocks, particularly in the technology and
small-cap areas.
Despite the potentially favorable impact of the recent tax cut,
expectations for economic growth in the fourth quarter may be too high. The
economy is already recovering and given that it declined just 0.2% in the
recent recession, there is little case for a strong rebound. Estimates for
growth in the fourth quarter are coming in at about 4%.
Given the broad economic and market backdrop, as the stock market rises we
may sell stocks that have shifted from inexpensive to expensive. However,
we anticipate no major shifts in sector positioning. While sectors we
emphasized underperformed in the past year, this potentially positions
these areas of the market for a period of stronger performance in the
future.
- --------------------------------------------------------------------------------
6 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
The Fund's Long-term Performance
This chart illustrates the total value of an assumed $10,000 investment in AXP
Large Cap Equity Fund Class A shares (from 4/1/02 to 7/31/03) as compared to the
performance of two widely cited performance indices, the Russell 1000(R) Index
and the Lipper Large-Cap Core Funds 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 5.75%, 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 chart)
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT
IN AXP LARGE CAP EQUITY FUND
$12,000
$9,000
(dotted line) Russell 1000(R) Index(1)
$6,000 (dashed line) Lipper Large-Cap Core Funds Index(2)
(solid line) AXP Large Cap Equity Fund Class A
$3,000
4/01/02 7/02 10/02 1/03 4/03 7/03
(solid line) AXP Large Cap Equity Fund Class A $8,548
(dotted line) Russell 1000(R)Index(1) $8,911
(dashed line) Lipper Large-Cap Core Funds Index(2) $8,807
(1) The Russell 1000(R) Index, an unmanaged index, measures the performance of
the 1,000 largest companies in the Russell 3000(R) Index and represents
approximately 92% of the total market capitalization of the Russell 3000
Index.
(2) Lipper Large-Cap Core Funds 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 July 31, 2003
1 year +3.90%
Since inception (3/28/02) -11.04%
Results for other share classes can be found on page 5.
- --------------------------------------------------------------------------------
7 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Investments in Securities
AXP Large Cap Equity Fund
July 31, 2003
(Percentages represent value of investments compared to net assets)
Common stocks (91.1%)
Issuer Shares Value(a)
Aerospace & defense (2.9%)
Boeing 14,400 $476,928
Lockheed Martin 12,625 660,793
Northrop Grumman 6,900 636,456
Rockwell Automation 18,282 472,407
United Technologies 17,468 1,314,117
Total 3,560,701
Banks and savings & loans (0.5%)
U.S. Bancorp 25,800 632,616
Beverages & tobacco (5.8%)
Altria Group 80,300 3,212,803
Anheuser-Busch 11,700 606,294
PepsiCo 65,824 3,032,512
Total 6,851,609
Broker dealers (1.8%)
J.P. Morgan Chase 16,700 585,335
Merrill Lynch 16,201 880,848
Morgan Stanley 15,500 735,320
Total 2,201,503
Building materials & construction (0.8%)
American Standard 12,100(b) 924,440
Cable (2.5%)
Comcast Cl A 33,484(b) 1,015,234
Comcast Special Cl A 33,925(b) 994,003
EchoStar Communications Cl A 26,900(b) 975,663
Total 2,984,900
Chemicals (1.8%)
Dow Chemical 42,545 1,501,839
Lyondell Chemical 48,392 724,428
Total 2,226,267
Computer hardware (4.0%)
Cisco Systems 82,500(b) 1,610,400
Dell 56,700(b) 1,909,656
Sun Microsystems 362,333(b) 1,355,125
Total 4,875,181
Computer software & services (5.4%)
Affiliated Computer Services Cl A 12,700(b) 629,285
First Data 42,965 1,622,358
Microsoft 163,500 4,316,400
Total 6,568,043
Electronics (1.8%)
Analog Devices 10,221(b) 387,887
Intel 51,200 1,277,440
Taiwan Semiconductor Mfg ADR 45,368(b,c) 453,680
Total 2,119,007
Energy (5.6%)
ChevronTexaco 8,400 605,724
ConocoPhillips 64,873 3,395,453
Exxon Mobil 78,946 2,808,899
Total 6,810,076
Energy equipment & services (1.2%)
Transocean 76,696(b) 1,500,941
Finance companies (3.9%)
Citigroup 106,408 4,767,078
Financial services (3.8%)
Capital One Financial 25,800 1,236,078
Fannie Mae 41,197 2,638,256
MBNA 33,827 754,004
Total 4,628,338
Health care products (13.7%)
Amgen 18,000(b) 1,252,440
Medtronic 44,400 2,286,600
Pfizer 242,900 8,103,145
Schering-Plough 34,900 592,602
Wyeth 93,050 4,241,219
Total 16,476,006
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
8 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Health care services (6.8%)
AmerisourceBergen 66,155 $4,173,720
Cardinal Health 56,500 3,093,375
McKesson 23,766 766,691
Select Medical 2,800(b) 78,680
Total 8,112,466
Household products (4.1%)
Avon Products 8,814 549,905
Kimberly-Clark 23,800 1,151,920
Procter & Gamble 36,458 3,203,565
Total 4,905,390
Industrial transportation (0.8%)
Expeditors Intl of Washington 12,100 410,311
United Parcel Service Cl B 9,400 592,952
Total 1,003,263
Insurance (2.8%)
ACE 7,447(c) 245,677
American Intl Group 29,294 1,880,674
Chubb 19,100 1,237,680
Total 3,364,031
Leisure time & entertainment (3.2%)
Mattel 57,900 1,124,997
Viacom Cl B 63,100(b) 2,746,112
Total 3,871,109
Machinery (1.7%)
Caterpillar 18,656 1,258,720
Illinois Tool Works 9,600 668,640
SPX 2,500(b) 117,725
Total 2,045,085
Media (5.0%)
Cendant 189,135(b) 3,394,973
Disney (Walt) 78,300 1,716,336
Scripps (EW) Cl A 4,700 389,912
Tribune 12,500 590,250
Total 6,091,471
Metals (0.8%)
Freeport McMoRan Cooper
& Gold Cl B 37,341 1,000,365
Multi-industry (3.9%)
General Electric 137,950 3,923,298
Grainger (WW) 6,289 309,419
ITT Inds 2,400 160,080
Tyco Intl 17,400(c) 323,640
Total 4,716,437
Paper & packaging (1.1%)
Avery Dennison 24,100 1,300,436
Restaurants (0.5%)
McDonald's 28,100 646,581
Retail -- general (4.1%)
Best Buy 17,700(b) 772,605
Dollar General 32,450 597,080
Home Depot 56,116 1,750,819
Wal-Mart Stores 33,400 1,867,394
Total 4,987,898
Retail -- grocery (0.5%)
Kroger 37,700(b) 639,015
Utilities -- electric (0.2%)
FirstEnergy 8,700 300,063
Total common stocks
(Cost: $104,312,349) $110,110,316
Short-term securities (9.6%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agency (6.0%)
Federal Natl Mtge Assn Disc Nts
09-17-03 0.98% $2,900,000 $2,896,506
09-17-03 1.02 2,900,000 2,896,056
10-22-03 1.00 1,500,000 1,496,481
Total 7,289,043
Commercial paper (3.6%)
Abbey Natl North America LLC
08-01-03 1.11 4,300,000 4,299,867
Total short-term securities
(Cost: $11,589,010) $11,588,910
Total investments in securities
(Cost: $115,901,359)(d) $121,699,226
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
9 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars. As of July 31, 2003,
the value of foreign securities represented 0.8% of net assets.
(d) At July 31, 2003, the cost of securities for federal income tax purposes
was $116,840,781 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $ 6,230,284
Unrealized depreciation (1,371,839)
----------
Net unrealized appreciation $ 4,858,445
-----------
- --------------------------------------------------------------------------------
10 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Financial Statements
Statement of assets and liabilities
AXP Large Cap Equity Fund
July 31, 2003
Assets
Investments in securities, at value (Note 1)
(identified cost $115,901,359) $121,699,226
Cash in bank on demand deposit 186,921
Capital shares receivable 766,524
Dividends and accrued interest receivable 120,039
Receivable for investment securities sold 1,026,697
---------
Total assets 123,799,407
-----------
Liabilities
Capital shares payable 12,526
Payable for investment securities purchased 2,758,797
Accrued investment management services fee 1,976
Accrued distribution fee 1,590
Accrued transfer agency fee 772
Accrued administrative services fee 165
Other accrued expenses 101,537
-------
Total liabilities 2,877,363
---------
Net assets applicable to outstanding capital stock $120,922,044
============
Represented by
Capital stock -- $.01 par value (Note 1) $ 267,737
Additional paid-in capital 113,970,315
Accumulated net realized gain (loss) (Note 6) 886,125
Unrealized appreciation (depreciation) on investments 5,797,867
---------
Total -- representing net assets applicable to outstanding capital stock $120,922,044
============
Net assets applicable to outstanding shares: Class A $ 83,257,409
Class B $ 35,551,265
Class C $ 2,052,118
Class Y $ 61,252
Net asset value per share of outstanding capital stock: Class A shares 18,374,049 $ 4.53
Class B shares 7,929,314 $ 4.48
Class C shares 456,827 $ 4.49
Class Y shares 13,477 $ 4.54
------ ------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
11 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Statement of operations
AXP Large Cap Equity Fund
Year ended July 31, 2003
Investment income
Income:
Dividends $ 764,115
Interest 68,385
------
Total income 832,500
-------
Expenses (Note 2):
Investment management services fee 342,000
Distribution fee
Class A 94,937
Class B 171,345
Class C 9,241
Transfer agency fee 129,382
Incremental transfer agency fee
Class A 8,905
Class B 8,414
Class C 617
Service fee -- Class Y 29
Administrative services fees and expenses 27,560
Compensation of board members 4,966
Custodian fees 274,440
Printing and postage 1,370
Registration fees 81,089
Audit fees 17,000
------
Total expenses 1,171,295
Expenses waived/reimbursed by AEFC (Note 2) (333,483)
--------
837,812
Earnings credits on cash balances (Note 2) (4,492)
------
Total net expenses 833,320
-------
Investment income (loss) -- net (820)
----
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on security transactions (Note 3) 1,719,341
Net change in unrealized appreciation (depreciation) on investments 7,080,694
---------
Net gain (loss) on investments 8,800,035
---------
Net increase (decrease) in net assets resulting from operations $8,799,215
==========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
12 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Statements of changes in net assets
AXP Large Cap Equity Fund
For the period from
July 31, 2003 March 28, 2002* to
Year ended July 31, 2002
Operations and distributions
Investment income (loss) -- net $ (820) $ (10,970)
Net realized gain (loss) on investments 1,719,341 (805,384)
Net change in unrealized appreciation (depreciation) on investments 7,080,694 (1,281,341)
--------- ----------
Net increase (decrease) in net assets resulting from operations 8,799,215 (2,097,695)
--------- ----------
Distributions to shareholders from:
Net investment income
Class A (27,013) --
Class Y (21) --
--------- ----------
Total distributions (27,034) --
--------- ----------
Capital share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 72,641,134 11,367,703
Class B shares 31,826,112 5,967,979
Class C shares 1,776,439 241,975
Class Y shares 35,963 23,000
Reinvestment of distributions at net asset value
Class A shares 25,435 --
Class Y shares 13 --
Payments for redemptions
Class A shares (6,855,152) (434,672)
Class B shares (Note 2) (4,072,868) (181,280)
Class C shares (Note 2) (107,435) --
Class Y shares (1,872) (4,191)
------ ------
Increase (decrease) in net assets from capital share transactions 95,267,769 16,980,514
---------- ----------
Total increase (decrease) in net assets 104,039,950 14,882,819
Net assets at beginning of period (Note 1) 16,882,094 1,999,275**
---------- ---------
Net assets at end of period $120,922,044 $16,882,094
============ ===========
Undistributed net investment income $ -- $ 7
------------ -----------
* When shares became publicly available.
** Initial capital of $2,000,000 was contributed on March 21, 2002. The Fund
had a decrease in net assets resulting from operations of $725 during the
period from March 21, 2002 to March 28, 2002 (when shares became publicly
available).
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
13 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Notes to Financial Statements
AXP Large Cap Equity Fund
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a series of AXP Growth Series, Inc. and is registered under the
Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company. AXP Growth 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 equity securities of
companies with a market capitalization greater than $5 billion at the time of
purchase. On March 21, 2002, American Express Financial Corporation (AEFC)
invested $2,000,000 in the Fund which represented 394,000 shares for Class A,
2,000 shares for Class B, Class C and Class Y, respectively, which represented
the initial capital for each class at $5 per share. Shares of the Fund were
first offered to the public on March 28, 2002.
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.
- --------------------------------------------------------------------------------
14 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
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.
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 an
option is 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.
- --------------------------------------------------------------------------------
15 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
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.
The Fund may enter into forward foreign currency exchange contracts for
operational purposes. 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.
- --------------------------------------------------------------------------------
16 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
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 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 $27,847
and accumulated net realized gain has been decreased by $27,847.
The tax character of distributions paid for the periods indicated is as follows:
For the period from
July 31, 2003 March 28, 2002* to
Year ended July 31, 2002
Class A
Distributions paid from:
Ordinary income $27,013 $--
Long-term capital gain -- --
Class B
Distributions paid from:
Ordinary income -- --
Long-term capital gain -- --
Class C
Distributions paid from:
Ordinary income -- --
Long-term capital gain -- --
Class Y
Distributions paid from:
Ordinary income 21 --
Long-term capital gain -- --
* When shares became publicly available.
As of July 31, 2003, the components of distributable earnings on a tax basis are
as follows:
Undistributed ordinary income $1,827,826
Accumulated long-term gain (loss) $ (2,279)
Unrealized appreciation (depreciation) $4,858,445
- --------------------------------------------------------------------------------
17 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Dividends to shareholders
An annual dividend from net investment income, declared and paid at the end of
the calendar year, when available, is reinvested in additional shares of the
Fund at net asset value or payable in cash. Capital gains, when available, are
distributed along with the income dividend.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date and 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 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 0.60% to 0.48% annually. The fee may be adjusted upward or downward by a
performance incentive adjustment based on a comparison of the performance of
Class A shares of the Fund to the Lipper Large-Cap Core Funds Index. Prior to
Dec. 1, 2002, the maximum adjustment was 0.12% of the Fund's average daily net
assets after deducting 1% from the performance difference. If the performance
difference was less than 1%, the adjustment was zero. On Nov. 13, 2002,
shareholders approved modification of the performance incentive adjustment
calculation by adjusting the performance difference intervals, while retaining
the previous maximum adjustment and reducing the amount of the performance
difference for which no adjustment is made to 0.50%. The effect of the
modifications began Dec. 1, 2002. The adjustment increased the fee by $5,623 for
the year ended July 31, 2003.
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 0.02% 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.
- --------------------------------------------------------------------------------
18 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
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 $19.50
o Class B $20.50
o Class C $20.00
o Class Y $17.50
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.
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 for Class
A, $20 for Class B, $19.50 for Class C and $17 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
$577,722 for Class A, $14,453 for Class B and $151 for Class C for the year
ended July 31, 2003.
For the year ended July 31, 2003, AEFC and American Express Financial Advisors
Inc. waived certain fees and expenses to 1.25% for Class A, 2.01% for Class B,
2.01% for Class C and 1.07% for Class Y. In addition, AEFC and American Express
Financial Advisors Inc. have agreed to waive certain fees and expenses until
July 31, 2004. Under this agreement, total expenses will not exceed 1.25% for
Class A, 2.01% for Class B, 2.01% for Class C and 1.07% for Class Y of the
Fund's average daily net assets.
During the year ended July 31, 2003, the Fund's custodian and transfer agency
fees were reduced by $4,492 as a result of earnings credits from overnight cash
balances. The Fund also pays custodian fees to American Express Trust Company,
an affiliate of AEFC.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $155,444,808 and $69,733,311, respectively, for the year
ended July 31, 2003. Realized gains and losses are determined on an identified
cost basis.
Brokerage clearing fees paid to brokers affiliated with AEFC were $353 for the
year ended July 31, 2003.
- --------------------------------------------------------------------------------
19 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
Year ended July 31, 2003
Class A Class B Class C Class Y
Sold 17,273,053 7,641,133 426,869 8,203
Issued for reinvested distributions 6,391 -- -- 3
Redeemed (1,688,951) (977,921) (25,450) (400)
---------- -------- ------- ----
Net increase (decrease) 15,590,493 6,663,212 401,419 7,806
---------- --------- ------- -----
March 28, 2002* to July 31, 2002
Class A Class B Class C Class Y
Sold 2,497,491 1,308,348 53,408 4,674
Issued for reinvested distributions -- -- -- --
Redeemed (107,935) (44,246) -- (1,003)
--------- --------- ------ -----
Net increase (decrease) 2,389,556 1,264,102 53,408 3,671
--------- --------- ------ -----
* When shares became publicly available.
5. 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
July 31, 2003.
6. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, the Fund has a capital loss carry-over of
$2,279 as of July 31, 2003, that will expire in 2012 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.
- --------------------------------------------------------------------------------
20 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
7. 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 July 31, 2003 2002(b)
Net asset value, beginning of period $4.11 $5.00
Income from investment operations:
Net investment income (loss) .01 --
Net gains (losses) (both realized and unrealized) .41 (.89)
Total from investment operations .42 (.89)
Net asset value, end of period $4.53 $4.11
Ratios/supplemental data
Net assets, end of period (in millions) $83 $11
Ratio of expenses to average daily net assets(c),(e) 1.25% 1.25%(d)
Ratio of net investment income (loss) to average daily net assets .24% (.11%)(d)
Portfolio turnover rate (excluding short-term securities) 135% 88%
Total return(i) 10.22% (17.80%)(j)
Class B
Per share income and capital changes(a)
Fiscal period ended July 31, 2003 2002(b)
Net asset value, beginning of period $4.10 $5.00
Income from investment operations:
Net investment income (loss) (.01) (.01)
Net gains (losses) (both realized and unrealized) .39 (.89)
Total from investment operations .38 (.90)
Net asset value, end of period $4.48 $4.10
Ratios/supplemental data
Net assets, end of period (in millions) $36 $5
Ratio of expenses to average daily net assets(c),(f) 2.01% 2.01%(d)
Ratio of net investment income (loss) to average daily net assets (.52%) (.86%)(d)
Portfolio turnover rate (excluding short-term securities) 135% 88%
Total return(i) 9.27% (18.00%)(j)
See accompanying notes to financial highlights.
- --------------------------------------------------------------------------------
21 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Class C
Per share income and capital changes(a)
Fiscal period ended July 31, 2003 2002(b)
Net asset value, beginning of period $4.10 $5.00
Income from investment operations:
Net investment income (loss) (.01) (.01)
Net gains (losses) (both realized and unrealized) .40 (.89)
Total from investment operations .39 (.90)
Net asset value, end of period $4.49 $4.10
Ratios/supplemental data
Net assets, end of period (in millions) $2 $--
Ratio of expenses to average daily net assets(c),(g) 2.01% 2.01%(d)
Ratio of net investment income (loss) to average daily net assets (.53%) (.92%)(d)
Portfolio turnover rate (excluding short-term securities) 135% 88%
Total return(i) 9.51% (18.00%)(j)
Class Y
Per share income and capital changes(a)
Fiscal period ended July 31, 2003 2002(b)
Net asset value, beginning of period $4.11 $5.00
Income from investment operations:
Net investment income (loss) .01 --
Net gains (losses) (both realized and unrealized) .42 (.89)
Total from investment operations .43 (.89)
Net asset value, end of period $4.54 $4.11
Ratios/supplemental data
Net assets, end of period (in millions) $-- $--
Ratio of expenses to average daily net assets(c),(h) 1.07% 1.07%(d)
Ratio of net investment income (loss) to average daily net assets .45% .09%(d)
Portfolio turnover rate (excluding short-term securities) 135% 88%
Total return(i) 10.46% (17.80%)(j)
Notes to financial highlights
See accompanying notes to financial highlights.
- --------------------------------------------------------------------------------
22 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Notes to financial highlights
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from March 28, 2002 (when shares became publicly available)
to July 31, 2002.
(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) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratios of expenses for Class A would have been 1.84% and 5.12%
for the periods ended July 31, 2003 and 2002, respectively.
(f) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratios of expenses for Class B would have been 2.60% and 5.88%
for the periods ended July 31, 2003 and 2002, respectively.
(g) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratios of expenses for Class C would have been 2.60% and 5.88%
for the periods ended July 31, 2003 and 2002, respectively.
(h) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratios of expenses for Class Y would have been 1.66% and 4.94%
for the periods ended July 31, 2003 and 2002, respectively.
(i) Total return does not reflect payment of a sales charge.
(j) Not annualized.
- --------------------------------------------------------------------------------
23 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Independent Auditors' Report
THE BOARD AND SHAREHOLDERS
AXP GROWTH SERIES, INC.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of AXP Large Cap Equity Fund (a
series of AXP Growth Series, Inc.) as of July 31, 2003, the related statement of
operations for the year then ended and the statements of changes in net assets
and the financial highlights for the year ended July 31, 2003, and for the
period from March 28, 2002 (when shares became publicly available) to July 31,
2002. 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 July 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
Large Cap Equity Fund as of July 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
September 12, 2003
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24 -- AXP LARGE CAP EQUITY 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 Large Cap Equity Fund
Fiscal year ended July 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 38.07%
Payable date Per share
Dec. 19, 2002 $0.00351
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 38.07%
Payable date Per share
Dec. 19, 2002 $0.00365
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25 -- AXP LARGE CAP EQUITY 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 83 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 Principal occupation during past Other directorships
with Fund and five years
length of service
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Arne H. Carlson Board member Chair, Board Services Corporation
901 S. Marquette Ave. since 1999 (provides administrative services
Minneapolis, MN 55402 to boards). Former Governor of
Age 68 Minnesota
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Philip J. Carroll, Jr. Board member Retired Chairman and CEO, Fluor Scottish Power PLC, Vulcan
901 S. Marquette Ave. since 2002 Corporation (engineering and Materials Company, Inc.
Minneapolis, MN 55402 construction) since 1998 (construction
Age 65 materials/chemicals)
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Livio D. DeSimone Board member Retired Chair of the Board and Cargill, Incorporated
30 Seventh Street East since 2001 Chief Executive Officer, Minnesota (commodity merchants and
Suite 3050 Mining and Manufacturing (3M) processors), General Mills,
St. Paul, MN 55101-4901 Inc. (consumer foods), Vulcan
Age 69 Materials Company (construction
materials/ chemicals), Milliken
& Company (textiles and
chemicals), and Nexia
Biotechnologies, Inc.
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Heinz F. Hutter* Board member Retired President and Chief
901 S. Marquette Ave. since 1994 Operating Officer, Cargill,
Minneapolis, MN 55402 Incorporated (commodity merchants
Age 74 and processors)
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Anne P. Jones Board member Attorney and Consultant
901 S. Marquette Ave. since 1985
Minneapolis, MN 55402
Age 68
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Stephen R. Lewis, Jr.** Board member Retired President and Professor of Valmont Industries, Inc.
901 S. Marquette Ave. since 2002 Economics, Carleton College (manufactures irrigation
Minneapolis, MN 55402 systems)
Age 64
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Alan G. Quasha Board member President, Quadrant Management, Compagnie Financiere Richemont
901 S. Marquette Ave. since 2002 Inc. (management of private AG (luxury goods), Harken
Minneapolis, MN 55402 equities) Energy Corporation (oil and gas
Age 53 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.
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26 -- AXP LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Independent Board Members (continued)
Name, address, age Position held Principal occupation during past Other directorships
with Fund and five years
length of service
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Alan K. Simpson Board member Former three-term United States Biogen, Inc.
1201 Sunshine Ave. since 1997 Senator for Wyoming (biopharmaceuticals)
Cody, WY 82414
Age 71
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Alison Taunton-Rigby Board member President, Forester Biotech since
901 S. Marquette Ave. since 2002 2000. Former President and CEO,
Minneapolis, MN 55402 Aquila Biopharmaceuticals, Inc.
Age 59
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Board Members Affiliated with AEFC***
Name, address, age Position held Principal occupation during past Other directorships
with Fund and five years
length of service
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Barbara H. Fraser Board member Executive Vice President - AEFA
1546 AXP Financial Center since 2002 Products and Corporate Marketing of
Minneapolis, MN 55474 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 Senior Vice President -
50238 AXP Financial Center since 2002, Vice Institutional Group of AEFC
Minneapolis, MN 55474 President since
Age 54 2002
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
William F. Truscott Board member Senior Vice President - Chief
53600 AXP Financial Center since 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.
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27 -- AXP LARGE CAP EQUITY 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 Principal occupation during past Other directorships
with Fund and five years
length of service
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Jeffrey P. Fox Treasurer since Vice President - Investment
50005 AXP Financial Center 2002 Accounting, AEFC, since 2002; Vice
Minneapolis, MN 55474 President - Finance, American
Age 48 Express Company, 2000-2002; Vice
President - Corporate Controller,
AEFC, 1996-2000
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Paula R. Meyer President since Senior Vice President and General
596 AXP Financial Center 2002 Manager - Mutual Funds, AEFC, since
Minneapolis, MN 55474 2002; Vice President and Managing
Age 49 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, Corporation
Minneapolis, MN 55402 and Secretary
Age 64 since 1978
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
The SAI has additional information about the Fund's directors and is available,
without charge, upon request by calling (800) 862-7919.
- --------------------------------------------------------------------------------
28 -- AXP LARGE CAP EQUITY 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.
AXP(R)
Large Cap
Value
Fund
Annual Report
for the Period Ended
July 31, 2003
AXP Large Cap Value Fund seeks to provide shareholders with long-term growth of
capital.
- --------------------------------------------------------------------------------
(logo) (logo)
American AMERICAN
Express(R) EXPRESS
Funds (R)
- --------------------------------------------------------------------------------
Table of Contents
Fund Snapshot 3
Questions & Answers
with Portfolio Management 4
The Fund's Long-term Performance 7
Investments in Securities 8
Financial Statements 12
Notes to Financial Statements 15
Independent Auditors' Report 25
Federal Income Tax Information 26
Board Members and Officers 27
- --------------------------------------------------------------------------------
2 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
Fund Snapshot
AS OF JULY 31, 2003
PORTFOLIO MANAGER
Portfolio manager Bob Ewing, CFA
Since 6/02
Years in industry 15
FUND OBJECTIVE
This Fund seeks to provide shareholders with long-term growth of capital.
Inception dates
A: 6/27/02 B: 6/27/02 C: 6/27/02 Y: 6/27/02
Ticker symbols
A: ALVAX B: ALVBX C: -- Y: --
Total net assets $45.1 million
Number of holdings 153
STYLE MATRIX
Shading within the style matrix indicates areas in which the Fund generally
invests.
STYLE
VALUE BLEND GROWTH
X LARGE
MEDIUM SIZE
SMALL
SECTOR COMPOSITION
Percentage of portfolio assets
(pie chart)
Financials 30.6%
Consumer discretionary 12.2%
Energy 9.5%
Consumer staples 8.8%
Health care 7.1%
Industrials 6.6%
Short-term securities 6.4%
Materials 5.6%
Technology 5.6%
Telecommunications 4.9%
Utilities 2.7%
TOP TEN HOLDINGS
Percentage of portfolio assets
Citigroup (Financial companies) 4.7%
ConocoPhillips (Energy) 2.8
ChevronTexaco (Energy) 2.7
Bank of America (Banks and savings & loans) 2.5
Exxon Mobil (Energy) 2.2
Altria Group (Beverage & tobacco) 1.8
U.S. Bancorp (Banks and savings & loans) 1.8
J.P. Morgan Chase (Broker dealers) 1.7
American Intl Group (Insurance) 1.6
Wells Fargo (Banks and savings & loans) 1.6
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
Stock prices of established companies that pay dividends may be less volatile
than the stock market as a whole.
Fund holdings are subject to change.
- --------------------------------------------------------------------------------
3 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
Questions & Answers
WITH PORTFOLIO MANAGEMENT
AXP Large Cap Value Fund grew to more than $45 million in assets in its initial
12 months of operation. Below, Portfolio Manager Bob Ewing, CFA, discusses the
Fund's positioning and performance for the 12 months ended July 31, 2003.
Q: How did AXP Large Cap Value Fund perform for fiscal year 2003?
A: AXP Large Cap Value Fund's Class A shares advanced 10.52%, excluding sales
charge, for the 12 months ended July 31, 2003. The Fund outpaced its peers,
as represented by the Lipper Large-Cap Value Funds Index, which advanced
8.61% for the period. The Fund underperformed its benchmark, the Russell
1000(R) Value Index, which advanced 10.75%, for the same period.
Q: What factors had a significant effect on performance?
A: In the early months of this past fiscal year, stocks in all styles,
including value, declined sharply as the stock market fell to four-year
lows. During that time, the Fund benefited from its exposure to
healthcare stocks as well as an overweight in consumer staples, an
underweight in telecommunications and good stock selection. In October
and November of 2002, the market rallied, led primarily by stocks that
had been previously beaten down. An underweight in telecommunications
hurt performance during this time.
The market was unable to sustain its late fall rally, as mixed economic
signals and escalation of the conflict in Iraq negatively impacted investor
sentiment. Entering 2003, we emphasized selection of individual stocks,
rather than placing significant bets on any particular stock sectors. This
approach was effective in an environment where the market as a whole stayed
in a trading range, while some individual stocks and industry sectors
experienced much wider price swings.
(bar chart)
PERFORMANCE COMPARISON
For the period ended July 31, 2003
12%
(bar 1) (bar 2)
10% +10.52% +10.75 (bar 3)
+8.61%
8%
6%
4%
2%
0%
(bar 1) AXP Large Cap Value Fund Class A (excluding sales charge)
(bar 2) Russell 1000(R) Value Index (unmanaged)
(bar 3) Lipper Large-Cap Value Funds Index
(see "The Fund's Long-term Performance" for Index descriptions)
Past performance is no guarantee of future results. The 5.75% 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 LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
Questions & Answers
(begin callout quote)> We further increased our existing exposure to energy
companies, which we found to be a uniquely attractive cyclical opportunity.(end
callout quote)
In March 2003, stocks once again rallied as it became clear that military
action in Iraq was imminent. Following the end of major combat, the market
continued to advance as investors became more optimistic about economic
growth. This period was challenging for the Fund because we had positioned
it for a disappointingly slow recovery, rather than the stronger economic
scenario favored by the market, reflected in index returns. Nevertheless,
the Fund more than kept pace with its peers due to strong individual stock
selection.
Stocks that were overweighted in the portfolio that helped performance
included MBNA Corp, a credit card company; Circuit City, a consumer
electronics company; and Cendant, a leisure and travel company. The Fund
was able to exploit these valuation inconsistencies, as the stocks did well
during the second half of the fiscal year.
AVERAGE ANNUAL TOTAL RETURNS
as of July 31, 2003
Class A Class B Class C Class Y
(Inception dates) (6/27/02) (6/27/02) (6/27/02) (6/27/02)
NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) NAV(5) POP(5)
1 year +10.52% +4.16% +9.66% +5.66% +9.50% +9.50% +10.76% +10.76%
Since inception +1.78% -3.59% +1.06% -2.61% +0.92% +0.92% +1.99% +1.99%
(1) Excluding sales charge.
(2) Returns at public offering price (POP) reflect a sales charge of 5.75%.
(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 LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
Questions & Answers
Q: What changes did you make to the portfolio during the period?
A: Since the Fund was launched in June 2002, our strategy has been focused
on relative value. We seek stocks of companies with potential for
earnings growth that offer good value relative to the overall market,
their peers and even to their own histories. Following the brief autumn
rally when prices of technology and telecommunications stocks experienced
the most meaningful gains, we reduced our positions in these sectors,
maintaining our focus on undervalued stocks with solid fundamentals. We
also added slightly to the Fund's positions in the energy, industrials
and financial sectors, areas we would expect to do well in a recovering
economy.
During the second half of the fiscal period, we made few changes to sector
allocations, but we adjusted individual holdings to enhance the make-up of
the Fund. We further increased our existing exposure to energy companies,
which we found to be a uniquely attractive cyclical opportunity.
The Fund remained overweight in areas that would be considered more
classically defensive -- consumer staples and healthcare. The Fund remained
underweight in the traditional cyclical sectors, including consumer
discretionary, financials, industrials, and materials. However, within
these sectors we made changes to Fund holdings of individual stocks as we
sought to keep the portfolio well positioned in a fast moving equity
market.
Q: How do you plan to manage the Fund in the coming months?
A: We currently have two main themes in managing the Fund -- having a lower
valuation than the Fund's peers and maintaining a larger cap orientation
than some peers. From a valuation perspective, we are striving to achieve a
portfolio with a higher yield than the overall market, as well as lower
price to earnings, price to sales and price to book ratios than the market.
Larger companies have lagged mid-size and small companies pretty
significantly so far in 2003. We believe that in any scenario that unfolds
from here, the larger companies could have the advantage. Either the
economy improves and the large companies that have lagged begin to catch
up, or the economy slows, making it more likely that investors will
gravitate toward large cap stocks due to their industry leadership, proven
business models and superior positioning.
- --------------------------------------------------------------------------------
6 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
The Fund's Long-term Performance
This chart illustrates the total value of an assumed $10,000 investment in AXP
Large Cap Value Fund Class A shares (from 7/1/02 to 7/31/03) as compared to the
performance of two widely cited performance indices, the Russell 1000(R) Value
Index and the Lipper Large-Cap Value Funds 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 5.75%, 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 chart)
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT
IN AXP LARGE CAP VALUE FUND
$12,000
$9,000
(dotted line) Russell 1000(R) Value Index(1)
$6,000 (dashed line) Lipper Large-Cap Value Funds Index(2)
(solid line) AXP Large Cap Value Fund Class A
$3,000
7/01/02 7/02 10/02 1/03 4/03 7/03
(solid line) AXP Large Cap Value Fund Class A $9,611
(dotted line) Russell 1000(R) Value Index(1) $10,044
(dashed line) Lipper Large-Cap Value Funds Index(2) $9,922
(1) The Russell 1000(R) Value Index, an unmanaged index, measures the
performance of the large capitalization value portion of the Russell
1000(R) Index. The Russell 1000(R) Value Index consists of companies with
lower price-to-book ratios and lower forecasted growth values.
(2) The Lipper Large-Cap Value Funds 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 July 31, 2003
1 year +4.16%
Since inception (6/27/02) -3.59%
Results for other share classes can be found on page 5.
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7 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
Investments in Securities
AXP Large Cap Value Fund
July 31, 2003
(Percentages represent value of investments compared to net assets)
Common stocks (94.4%)
Issuer Shares Value(a)
Aerospace & defense (3.1%)
Boeing 3,511 $116,284
General Dynamics 1,550 122,977
Lockheed Martin 8,665 453,526
Northrop Grumman 3,666 338,152
United Technologies 4,791 360,427
Total 1,391,366
Airlines (0.1%)
Northwest Airlines Cl A 3,343(b) 30,421
Automotive & related (0.3%)
General Motors 4,077 152,602
Banks and savings & loans (11.2%)
Bank of America 13,890 1,146,898
Bank of New York 12,729 383,397
Bank One 7,309 289,144
FleetBoston Financial 10,703 332,756
Mellon Financial 11,743 355,226
PNC Financial Services Group 6,540 320,133
U.S. Bancorp 32,450 795,674
Wachovia 11,098 484,872
Washington Mutual 5,654 223,220
Wells Fargo 14,086 711,766
Total 5,043,086
Beverages & tobacco (4.5%)
Altria Group 20,137 805,682
Anheuser-Busch 1,750 90,685
Coca-Cola 9,990 449,250
Pepsi Bottling Group 8,850 194,523
PepsiCo 10,315 475,212
Total 2,015,352
Broker dealers (4.2%)
J.P. Morgan Chase 21,517 754,170
Merrill Lynch 10,797 587,033
Morgan Stanley 11,756 557,705
Total 1,898,908
Building materials & construction (0.6%)
Masco 5,615 136,838
Temple-Inland 3,142 145,757
Total 282,595
Cable (1.7%)
Comcast Cl A 7,814(b) 236,921
Comcast Special Cl A 5,341(b) 156,491
EchoStar Communications Cl A 5,075(b) 184,070
NTL 4,800(b) 200,688
Total 778,170
Cellular telecommunications (0.4%)
Vodafone Group ADR 10,100(c) 191,698
Chemicals (3.0%)
Dow Chemical 16,084 567,764
du Pont (EI) de Nemours 6,939 304,900
Lyondell Chemical 10,402 155,718
Praxair 2,762 178,591
RPM Intl 6,900 97,083
Solutia 21,580 26,328
Total 1,330,384
Computer hardware (2.5%)
Apple Computer 9,958(b) 209,616
Cisco Systems 3,618(b) 70,623
Dell 2,750(b) 92,620
Hewlett-Packard 25,383 537,358
Sun Microsystems 63,400(b) 237,116
Total 1,147,333
Computer software & services (1.8%)
Affiliated Computer Services Cl A 1,600(b) 79,280
Cadence Design Systems 7,500(b) 102,525
First Data 2,100 79,296
Microsoft 21,258 561,211
Total 822,312
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
8 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Electronics (1.3%)
ChipPAC Cl A 7,700(b) $43,890
Micron Technology 10,180(b) 149,035
Natl Semiconductor 6,032(b) 134,815
Teradyne 5,017(b) 82,530
Texas Instruments 8,204 154,810
Total 565,080
Energy (8.4%)
Anadarko Petroleum 2,450 107,310
Burlington Resources 4,326 199,731
ChevronTexaco 16,895 1,218,298
ConocoPhillips 24,240 1,268,722
Exxon Mobil 27,796 988,982
Total 3,783,043
Energy equipment & services (1.2%)
Grant Prideco 5,815(b) 62,511
Schlumberger 4,895 220,618
Transocean 13,401(b) 262,257
Total 545,386
Environmental services (0.4%)
Allied Waste Inds 14,750(b) 178,770
Finance companies (4.7%)
Citigroup 47,491 2,127,597
Financial services (4.0%)
Capital One Financial 4,700 225,177
Fannie Mae 8,849 566,690
Freddie Mac 9,034 441,311
MBNA 24,697 550,496
Total 1,783,674
Food (1.0%)
General Mills 4,776 219,075
Kraft Foods Cl A 8,486 235,996
Total 455,071
Furniture & appliances (0.3%)
Black & Decker 1,543 63,047
Leggett & Platt 4,088 90,508
Total 153,555
Health care products (5.3%)
Bristol-Myers Squibb 4,706 123,297
Merck & Co 12,435 687,406
Pfizer 15,103 503,836
Schering-Plough 38,323 650,725
Wyeth 8,958 408,306
Total 2,373,570
Health care services (1.9%)
AmerisourceBergen 1,100 69,399
Caremark Rx 5,929(b) 148,344
HCA 3,608 127,182
Lincare Holdings 2,900(b) 105,560
McKesson 4,474 144,331
Select Medical 1,050(b) 29,505
Tenet Healthcare 15,400(b) 212,212
Total 836,533
Household products (2.8%)
Avon Products 4,101 255,861
Clorox 2,100 91,119
Kimberly-Clark 8,861 428,872
Newell Rubbermaid 1,930 45,606
Procter & Gamble 4,946 434,606
Total 1,256,064
Insurance (5.5%)
ACE 6,038(c) 199,194
Allstate 11,291 429,397
American Intl Group 11,210 719,682
Chubb 4,550 294,840
CIGNA 1,250 58,475
Hartford Financial Services Group 4,669 243,675
Montpelier Re Holdings 2,428(b,c) 78,157
Prudential Financial 6,428 228,708
Travelers Property Casualty Cl A 8,376 135,691
Travelers Property Casualty Cl B 4,579 73,905
Total 2,461,724
Leisure time & entertainment (1.9%)
AOL Time Warner 12,200(b) 188,246
Mattel 9,196 178,678
Viacom Cl B 11,304(b) 491,950
Total 858,874
Machinery (1.1%)
Caterpillar 3,517 237,292
Illinois Tool Works 2,100 146,265
Ingersoll-Rand Cl A 1,111(c) 60,261
SPX 700(b) 32,963
Total 476,781
Media (4.0%)
Cendant 21,700(b) 389,515
Disney (Walt) 28,220 618,583
InterActiveCorp 3,251(b) 131,568
Liberty Media Cl A 27,648(b) 306,616
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
9 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Media (cont.)
McGraw-Hill Companies 1,437 $87,341
Scripps (EW) Cl A 1,100 91,256
Tribune 3,479 164,278
Total 1,789,157
Metals (0.9%)
Alcan 2,552(c) 88,835
Alcoa 6,468 179,617
Phelps Dodge 3,155(b) 133,109
Total 401,561
Multi-industry (2.0%)
Dover 9,184 336,226
General Electric 10,873 309,228
ITT Inds 2,263 150,942
Tyco Intl 6,616(c) 123,058
Total 919,454
Paper & packaging (1.1%)
Avery Dennison 3,700 199,653
Bowater 4,093 157,662
Intl Paper 3,843 150,338
Total 507,653
Real estate investment trust (1.3%)
Apartment Investment &
Management Cl A 2,518 99,234
Equity Office Properties Trust 12,356 342,756
Starwood Hotels & Resorts
Worldwide 4,584 149,438
Total 591,428
Restaurants (0.8%)
McDonald's 15,999 368,137
Retail -- general (3.0%)
BJ's Wholesale Club 7,585(b) 147,908
Circuit City Stores 23,460 215,363
Dollar General 4,830 88,872
Home Depot 8,893 277,461
Sonic Automotive 5,818(b) 149,232
Staples 3,000(b) 60,420
Target 5,854 224,325
Wal-Mart Stores 3,400 190,094
Total 1,353,675
Retail -- grocery (0.6%)
Kroger 9,000(b) 152,550
Safeway 5,670(b) 121,055
Total 273,605
Telecom equipment & services (0.5%)
Motorola 23,134 209,131
Textiles & apparel (0.2%)
Liz Claiborne 3,204 110,314
Utilities -- electric (2.7%)
Dominion Resources 4,910 295,091
DTE Energy 1,622 57,922
Exelon 5,200 298,844
FirstEnergy 10,045 346,452
FPL Group 2,129 131,295
Pepco Holdings 5,000 86,600
Total 1,216,204
Utilities -- telephone (4.1%)
BellSouth 25,988 661,915
Davel Communications 5,200(b) 62
KT ADR 10,296(c) 195,521
SBC Communications 15,773 368,457
Verizon Communications 17,819 621,170
Total 1,847,125
Total common stocks
(Cost: $39,365,347) $42,527,393
Short-term securities (6.4%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agency
Federal Natl Mtge Assn Disc Nts
08-04-03 0.91% $500,000 $499,949
09-17-03 1.00 1,200,000 1,198,555
09-24-03 0.98 300,000 299,577
10-01-03 0.98 400,000 399,302
10-15-03 1.00 500,000 498,927
Total short-term securities
(Cost: $2,896,248) $2,896,310
Total investments in securities
(Cost: $42,261,595)(d) $45,423,703
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
10 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars. As of July 31, 2003,
the value of foreign securities represented 2.1% of net assets.
(d) At July 31, 2003, the cost of securities for federal income tax purposes
was $42,598,042 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $3,291,078
Unrealized depreciation (465,417)
--------
Net unrealized appreciation $2,825,661
----------
- --------------------------------------------------------------------------------
11 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
Financial Statements
Statement of assets and liabilities
AXP Large Cap Value Fund
July 31, 2003
Assets
Investments in securities, at value (Note 1)
(identified cost $42,261,595) $45,423,703
Cash in bank on demand deposit 49,086
Capital shares receivable 119,593
Dividends and accrued interest receivable 65,916
Receivable for investment securities sold 263,172
-------
Total assets 45,921,470
----------
Liabilities
Capital shares payable 5,368
Payable for investment securities purchased 777,384
Accrued investment management services fee 737
Accrued distribution fee 597
Accrued transfer agency fee 233
Accrued administrative services fee 61
Other accrued expenses 80,404
------
Total liabilities 864,784
-------
Net assets applicable to outstanding capital stock $45,056,686
===========
Represented by
Capital stock -- $.01 par value (Note 1) $ 90,706
Additional paid-in capital 41,041,396
Undistributed net investment income 133,587
Accumulated net realized gain (loss) 628,889
Unrealized appreciation (depreciation) on investments 3,162,108
---------
Total -- representing net assets applicable to outstanding capital stock $45,056,686
===========
Net assets applicable to outstanding shares: Class A $30,878,757
Class B $13,397,932
Class C $ 754,403
Class Y $ 25,594
Net asset value per share of outstanding capital stock: Class A shares 6,204,194 $ 4.98
Class B shares 2,708,686 $ 4.95
Class C shares 152,616 $ 4.94
Class Y shares 5,129 $ 4.99
----- -----------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
12 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
Statement of operations
AXP Large Cap Value Fund
Year ended July 31, 2003
Investment income
Income:
Dividends $ 497,579
Interest 17,721
Less foreign taxes withheld (310)
----
Total income 514,990
-------
Expenses (Note 2):
Investment management services fee 139,254
Distribution fee
Class A 39,449
Class B 68,230
Class C 3,620
Transfer agency fee 47,265
Incremental transfer agency fee
Class A 3,250
Class B 3,077
Class C 217
Service fee -- Class Y 15
Administrative services fees and expenses 11,000
Compensation of board members 3,058
Custodian fees 228,980
Printing and postage 40,801
Registration fees 43,039
Audit fees 17,000
Other 13,788
------
Total expenses 662,043
Expenses waived/reimbursed by AEFC (Note 2) (321,108)
--------
340,935
Earnings credits on cash balances (Note 2) (3,515)
------
Total net expenses 337,420
-------
Investment income (loss) -- net 177,570
-------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on security transactions (Note 3) 673,743
Net change in unrealized appreciation (depreciation) on investments 3,294,759
---------
Net gain (loss) on investments 3,968,502
---------
Net increase (decrease) in net assets resulting from operations $4,146,072
==========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
13 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
Statements of changes in net assets
AXP Large Cap Value Fund
For the period from
July 31, 2003 June 27, 2002* to
Year ended July 31, 2002
Operations and distributions
Investment income (loss) -- net $ 177,570 $ 361
Net realized gain (loss) on investments 673,743 (47,883)
Net change in unrealized appreciation (depreciation) on investments 3,294,759 (91,249)
--------- -------
Net increase (decrease) in net assets resulting from operations 4,146,072 (138,771)
--------- --------
Distributions to shareholders from:
Net investment income
Class A (40,203) --
Class B (7,259) --
Class C (539) --
Class Y (39) --
--------- --------
Total distributions (48,040) --
--------- --------
Capital share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 26,344,197 2,213,078
Class B shares 12,297,591 1,424,918
Class C shares 637,405 46,247
Class Y shares 11,000 3,000
Reinvestment of distributions at net asset value
Class A shares 34,417 --
Class B shares 7,127 --
Class C shares 514 --
Class Y shares 9 --
Payments for redemptions
Class A shares (2,271,256) (25,502)
Class B shares (Note 2) (1,533,475) (40,778)
Class C shares (Note 2) (11,095) --
--------- --------
Increase (decrease) in net assets from capital share transactions 35,516,434 3,620,963
---------- ---------
Total increase (decrease) in net assets 39,614,466 3,482,192
Net assets at beginning of period (Note 1) 5,442,220 1,960,028**
--------- ---------
Net assets at end of period $45,056,686 $5,442,220
=========== ==========
Undistributed net investment income $ 133,587 $ 2,951
----------- ----------
* When shares became publicly available.
** Initial capital of $2,000,000 was contributed on June 20, 2002. The Fund
had a decrease in net assets resulting from operations of $39,972 during
the period from June 20, 2002 to June 27, 2002 (when shares became publicly
available).
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
14 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
Notes to Financial Statements
AXP Large Cap Value Fund
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a series of AXP Growth Series, Inc. and is registered under the
Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company. AXP Growth 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 equity securities of
companies with a market capitalization greater than $5 billion. On June 20,
2002, American Express Financial Corporation (AEFC) invested $2,000,000 in the
Fund which represented 394,000 shares for Class A, 2,000 shares for Class B,
Class C and Class Y, respectively, which represented the initial capital for
each class at $5 per share. Shares of the Fund were first offered to the public
on June 27, 2002. 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.
- --------------------------------------------------------------------------------
15 -- AXP LARGE CAP VALUE 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 an
option is 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.
- --------------------------------------------------------------------------------
16 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
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.
The Fund may enter into forward foreign currency exchange contracts for
operational purposes. 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.
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 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 $1,106
and accumulated net realized gain has been increased by $2,968 resulting in a
net reclassification adjustment to decrease paid-in capital by $4,074.
- --------------------------------------------------------------------------------
17 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
The tax character of distributions paid for the periods indicated is as follows:
For the period from
July 31, 2003 June 27, 2002* to
Year ended July 31, 2002
Class A
Distributions paid from:
Ordinary income $40,203 $--
Long-term capital gain -- --
Class B
Distributions paid from:
Ordinary income 7,259 --
Long-term capital gain -- --
Class C
Distributions paid from:
Ordinary income 539 --
Long-term capital gain -- --
Class Y
Distributions paid from:
Ordinary income 39 --
Long-term capital gain -- --
* When shares became publicly available.
As of July 31, 2003, the components of distributable earnings on a tax basis are
as follows:
Undistributed ordinary income $1,093,627
Accumulated long-term gain (loss) $ 5,296
Unrealized appreciation (depreciation) $2,825,661
Dividends to shareholders
An annual dividend from net investment income, declared and paid at the end of
the calendar year, when available, is reinvested in additional shares of the
Fund at net asset value or payable in cash. Capital gains, when available, are
distributed along with the income dividend.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date and interest income,
including amortization of premium and discount using the effective interest
method, is accrued daily.
- --------------------------------------------------------------------------------
18 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
2. EXPENSES AND SALES CHARGES
The Fund has agreements with 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 0.60% to 0.48% annually. The fee may be adjusted upward or downward by a
performance incentive adjustment based on a comparison of the performance of
Class A shares of the Fund to the Lipper Large-Cap Value Funds Index. Prior to
Dec. 1, 2002, the maximum adjustment was 0.12% of the Fund's average daily net
assets after deducting 1%, from the performance difference. If the performance
difference was less than 1%, the adjustment was zero. On Nov. 13, 2002,
shareholders approved modification of the performance incentive adjustment
calculation by adjusting the performance difference intervals, while retaining
the previous maximum adjustment and reducing the amount of the performance
difference for which no adjustment is made to 0.50%. The effect of the
modifications began Dec. 1, 2002. The adjustment increased the fee by $1,373 for
the year ended July 31, 2003
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 0.02% 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 $19.50
o Class B $20.50
o Class C $20.00
o Class Y $17.50
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.
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 for Class
A, $20 for Class B, $19.50 for Class C and $17 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.
- --------------------------------------------------------------------------------
19 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
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
$175,798 for Class A, $4,447 for Class B and $18 for Class C for the year ended
July 31, 2003.
For the year ended July 31, 2003, AEFC and American Express Financial Advisors
Inc. waived certain fees and expenses to 1.25% for Class A, 2.00% for Class B,
2.00% for Class C and .95% for Class Y. In addition, AEFC and American Express
Financial Advisors Inc. have agreed to waive certain fees and expenses until
July 31, 2004. Under this agreement, total expenses will not exceed 1.25% for
Class A, 2.01% for Class B, 2.01% for Class C and 1.07% for Class Y of the
Fund's average daily net assets.
During the year ended July 31, 2003, the Fund's custodian and transfer agency
fees were reduced by $3,515 as a result of earnings credits from overnight cash
balances. The Fund also pays custodian fees to American Express Trust Company,
an affiliate of AEFC.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $50,432,888 and $16,765,447, respectively, for the year
ended July 31, 2003. Realized gains and losses are determined on an identified
cost basis.
Brokerage clearing fees paid to brokers affiliated with AEFC were $1,577 for the
year ended July 31, 2003.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
Year ended July 31, 2003
Class A Class B Class C Class Y
Sold 5,828,574 2,731,482 142,666 2,495
Issued for reinvested distributions 7,804 1,620 117 2
Redeemed (509,520) (335,784) (2,292) --
--------- --------- ------- -----
Net increase (decrease) 5,326,858 2,397,318 140,491 2,497
--------- --------- ------- -----
June 27, 2002* to July 31, 2002
Class A Class B Class C Class Y
Sold 489,221 318,593 10,125 632
Issued for reinvested distributions -- -- -- --
Redeemed (5,885) (9,225) -- --
------- ------- ------ ---
Net increase (decrease) 483,336 309,368 10,125 632
------- ------- ------ ---
* When shares became publicly available.
- --------------------------------------------------------------------------------
20 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
5. 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
July 31, 2003.
6. 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 July 31, 2003 2002(b)
Net asset value, beginning of period $4.52 $4.90
Income from investment operations:
Net investment income (loss) .03 --
Net gains (losses) (both realized and unrealized) .44 (.38)
Total from investment operations .47 (.38)
Less distributions:
Dividends from net investment income (.01) --
Net asset value, end of period $4.98 $4.52
Ratios/supplemental data
Net assets, end of period (in millions) $31 $4
Ratio of expenses to average daily net assets(c),(e) 1.25% 1.19%(d)
Ratio of net investment income (loss) to average daily net assets 1.01% .23%(d)
Portfolio turnover rate (excluding short-term securities) 77% 9%
Total return(i) 10.52% (7.75%)(j)
See accompanying notes to financial highlights.
- --------------------------------------------------------------------------------
21 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
Class B
Per share income and capital changes(a)
Fiscal period ended July 31, 2003 2002(b)
Net asset value, beginning of period $4.52 $4.90
Income from investment operations:
Net investment income (loss) .01 --
Net gains (losses) (both realized and unrealized) .43 (.38)
Total from investment operations .44 (.38)
Less distributions:
Dividends from net investment income (.01) --
Net asset value, end of period $4.95 $4.52
Ratios/supplemental data
Net assets, end of period (in millions) $13 $1
Ratio of expenses to average daily net assets(c),(f) 2.00% 1.95%(d)
Ratio of net investment income (loss) to average daily net assets .25% (.49%)(d)
Portfolio turnover rate (excluding short-term securities) 77% 9%
Total return(i) 9.66% (7.75%)(j)
See accompanying notes to financial highlights.
- --------------------------------------------------------------------------------
22 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
Class C
Per share income and capital changes(a)
Fiscal period ended July 31, 2003 2002(b)
Net asset value, beginning of period $4.52 $4.90
Income from investment operations:
Net investment income (loss) .01 --
Net gains (losses) (both realized and unrealized) .42 (.38)
Total from investment operations .43 (.38)
Less distributions:
Dividends from net investment income (.01) --
Net asset value, end of period $4.94 $4.52
Ratios/supplemental data
Net assets, end of period (in millions) $1 $--
Ratio of expenses to average daily net assets(c),(g) 2.00% 1.95%(d)
Ratio of net investment income (loss) to average daily net assets .26% (.45%)(d)
Portfolio turnover rate (excluding short-term securities) 77% 9%
Total return(i) 9.50% (7.75%)(j)
See accompanying notes to financial highlights.
- --------------------------------------------------------------------------------
23 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
Class Y
Per share income and capital changes(a)
Fiscal period ended July 31, 2003 2002(b)
Net asset value, beginning of period $4.52 $4.90
Income from investment operations:
Net investment income (loss) .03 --
Net gains (losses) (both realized and unrealized) .45 (.38)
Total from investment operations .48 (.38)
Less distributions:
Dividends from net investment income (.01) --
Net asset value, end of period $4.99 $4.52
Ratios/supplemental data
Net assets, end of period (in millions) $-- $--
Ratio of expenses to average daily net assets(c),(h) .95% 1.01%(d)
Ratio of net investment income (loss) to average daily net assets 1.30% .31%(d)
Portfolio turnover rate (excluding short-term securities) 77% 9%
Total return(i) 10.76% (7.75%)(j)
Notes to financial highlights
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from June 27, 2002 (when shares became publicly available)
to July 31, 2002.
(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) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratios of expenses for Class A would have been 2.64% and 20.50%
for the periods ended July 31, 2003 and 2002, respectively.
(f) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratios of expenses for Class B would have been 3.40% and 21.26%
for the periods ended July 31, 2003 and 2002, respectively.
(g) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratios of expenses for Class C would have been 3.40% and 21.26%
for the periods ended July 31, 2003 and 2002, respectively.
(h) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratios of expenses for Class Y would have been 2.46% and 20.32%
for the periods ended July 31, 2003 and 2002, respectively.
(i) Total return does not reflect payment of a sales charge.
(j) Not annualized.
- --------------------------------------------------------------------------------
24 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
Independent Auditors' Report
THE BOARD AND SHAREHOLDERS
AXP GROWTH SERIES, INC.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of AXP Large Cap Value Fund (a series
of AXP Growth Series, Inc.) as of July 31, 2003, the related statement of
operations for the year then ended and the statements of changes in net assets
and the financial highlights for the year ended July 31, 2003, and for the
period from June 27, 2002 (when shares became publicly available) to July 31,
2002. 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 July 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
Large Cap Value Fund as of July 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
September 12, 2003
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25 -- AXP LARGE CAP VALUE 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 Large Cap Value Fund
Fiscal year ended July 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 44.43%
Payable date Per share
Dec. 19, 2002 $0.01380
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 44.43%
Payable date Per share
Dec. 19, 2002 $0.00587
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 44.43%
Payable date Per share
Dec. 19, 2002 $0.00839
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 44.43%
Payable date Per share
Dec. 19, 2002 $0.01463
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26 -- AXP LARGE CAP VALUE 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 83 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 Principal occupation during past Other directorships
with Fund and five years
length of service
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Arne H. Carlson Board member Chair, Board Services Corporation
901 S. Marquette Ave. since 1999 (provides administrative services
Minneapolis, MN 55402 to boards). Former Governor of
Age 68 Minnesota
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Philip J. Carroll, Jr. Board member Retired Chairman and CEO, Fluor Scottish Power PLC, Vulcan
901 S. Marquette Ave. since 2002 Corporation (engineering and Materials Company, Inc.
Minneapolis, MN 55402 construction) since 1998 (construction
Age 65 materials/chemicals)
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Livio D. DeSimone Board member Retired Chair of the Board and Cargill, Incorporated
30 Seventh Street East since 2001 Chief Executive Officer, Minnesota (commodity merchants and
Suite 3050 Mining and Manufacturing (3M) processors), General Mills,
St. Paul, MN 55101-4901 Inc. (consumer foods), Vulcan
Age 69 Materials Company (construction
materials/ chemicals), Milliken
& Company (textiles and
chemicals), and Nexia
Biotechnologies, Inc.
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Heinz F. Hutter* Board member Retired President and Chief
901 S. Marquette Ave. since 1994 Operating Officer, Cargill,
Minneapolis, MN 55402 Incorporated (commodity merchants
Age 74 and processors)
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Anne P. Jones Board member Attorney and Consultant
901 S. Marquette Ave. since 1985
Minneapolis, MN 55402
Age 68
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Stephen R. Lewis, Jr.** Board member Retired President and Professor of Valmont Industries, Inc.
901 S. Marquette Ave. since 2002 Economics, Carleton College (manufactures irrigation
Minneapolis, MN 55402 systems)
Age 64
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Alan G. Quasha Board member President, Quadrant Management, Compagnie Financiere Richemont
901 S. Marquette Ave. since 2002 Inc. (management of private AG (luxury goods), Harken
Minneapolis, MN 55402 equities) Energy Corporation (oil and gas
Age 53 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.
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27 -- AXP LARGE CAP VALUE FUND -- 2003 ANNUAL REPORT
Independent Board Members (continued)
Name, address, age Position held Principal occupation during past Other directorships
with Fund and five years
length of service
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Alan K. Simpson Board member Former three-term United States Biogen, Inc.
1201 Sunshine Ave. since 1997 Senator for Wyoming (biopharmaceuticals)
Cody, WY 82414
Age 71
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Alison Taunton-Rigby Board member President, Forester Biotech since
901 S. Marquette Ave. since 2002 2000. Former President and CEO,
Minneapolis, MN 55402 Aquila Biopharmaceuticals, Inc.
Age 59
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Board Members Affiliated with AEFC***
Name, address, age Position held Principal occupation during past Other directorships
with Fund and five years
length of service
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Barbara H. Fraser Board member Executive Vice President - AEFA
1546 AXP Financial Center since 2002 Products and Corporate Marketing of
Minneapolis, MN 55474 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 Senior Vice President -
50238 AXP Financial Center since 2002, Vice Institutional Group of AEFC
Minneapolis, MN 55474 President since
Age 54 2002
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
William F. Truscott Board member Senior Vice President - Chief
53600 AXP Financial Center since 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.
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28 -- AXP LARGE CAP VALUE 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 Principal occupation during past Other directorships
with Fund and five years
length of service
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Jeffrey P. Fox Treasurer since Vice President - Investment
50005 AXP Financial Center 2002 Accounting, AEFC, since 2002; Vice
Minneapolis, MN 55474 President - Finance, American
Age 48 Express Company, 2000-2002; Vice
President - Corporate Controller,
AEFC, 1996-2000
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Paula R. Meyer President since Senior Vice President and General
596 AXP Financial Center 2002 Manager - Mutual Funds, AEFC, since
Minneapolis, MN 55474 2002; Vice President and Managing
Age 49 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, Corporation
Minneapolis, MN 55402 and Secretary
Age 64 since 1978
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
The SAI has additional information about the Fund's directors and is available,
without charge, upon request by calling (800) 862-7919.
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29 -- AXP LARGE CAP VALUE 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.
AXP(R)
Quantitative
Large Cap Equity
Fund
Annual Report
for the Period Ended
July 31, 2003
AXP Quantitative Large Cap Equity Fund seeks to provide shareholders with
long-term capital growth.
- --------------------------------------------------------------------------------
(logo) (logo)
American AMERICAN
Express(R) EXPRESS
Funds (R)
- --------------------------------------------------------------------------------
Table of Contents
Fund Snapshot 3
Questions & Answers with Portfolio Management 4
Investments in Securities 7
Financial Statements 11
Notes to Financial Statements 14
Independent Auditors' Report 23
Board Members and Officers 24
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2 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Fund Snapshot
AS OF JULY 31, 2003
PORTFOLIO MANAGER
Portfolio manager Dimitris J. Bertsimas
Since 4/03
Years in industry 10
FUND OBJECTIVE
This Fund seeks to provide shareholders with long-term capital growth.
Inception dates
A: 4/24/03 B: 4/24/03 C: 4/24/03 Y: 4/24/03
Ticker symbols
A: -- B: -- C: -- Y: --
Total net assets $8.6 million
Number of holdings 201
STYLE MATRIX
Shading within the style matrix indicates areas in which the Fund generally
invests.
STYLE
VALUE BLEND GROWTH
X LARGE
MEDIUM SIZE
SMALL
SECTOR COMPOSITION
Percentage of portfolio assets
(pie chart)
Health care 21.8%
Financials 14.2%
Consumer discretionary 13.6%
Technology 10.9%
Short-term securities 10.5%
Telecommunications 6.7%
Utilities 6.0%
Consumer staples 5.9%
Industrials 5.9%
Energy 3.8%
Materials 0.7%
TOP TEN HOLDINGS
Percentage of portfolio assets
Merck & Co (Health care products) 5.1%
Amgen (Health care products) 4.7
Bank of America (Banks and savings & loans) 3.5
Comcast Cl A (Cable) 3.0
eBay (Media) 2.4
Altria Group (Beverages & tobacco) 2.2
Intl Business Machines
(Computer software & services) 1.9
Tyco Intl (Multi-industry) 1.7
Oracle (Computer software & services) 1.7
Pfizer (Health care products) 1.6
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 QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Questions & Answers
WITH PORTFOLIO MANAGEMENT
Q: How did AXP Quantitative Large Cap Equity Fund perform for the initial
fiscal period through July 31, 2003?
A: AXP Quantitative Large Cap Equity Fund's Class A shares (excluding sales
charge) rose 8.80% from April 24, 2003 (when the Fund's shares became
publicly available) to July 31, 2003. From May 1, 2003 through July 31,
2003, the Fund's benchmark, the S&P 500 Index gained 8.49%, while the
Lipper Large-Cap Core Funds Index rose 7.55%.
Q: How was the Fund's initial portfolio built?
A: The Fund uses a quantitative approach to construct its portfolio based on
three sophisticated computer models developed by a team of research and
mathematics Ph.D.s from the Massachusetts Institute of Technology.
Starting with the universe of large-cap stocks in the S&P 500 Index, all
three models rank each stock, creating three different sets of
recommendations. The Fund then sums up the rankings from the models to
create its portfolio of both value and growth stocks, giving more or less
emphasis to the three model outputs based on current market conditions.
The Fund does not make specific sector or industry bets based on economic
or market conditions. Rather the sector and industry weightings are a
result of the stocks that are selected by the quantitative models. The
Fund's risk control measures ensure that no one sector or industry
becomes too large within the portfolio.
PERFORMANCE COMPARISON
For the period ended July 31, 2003
10%
(bar 1) (bar 2)
8% +8.80% +8.49% (bar 3)
+7.55%
6%
4%
2%
0%
(bar 1) AXP Quantitative Large Cap Equity Fund Class A (excluding sales charge)
(bar 2) S&P 500 Index(1) (unmanaged)
(bar 3) Lipper Large-Cap Core Funds Index(2)
(1) Standard & Poor's 500 Index (S&P 500 Index), an unmanaged index of common
stocks, is frequently used as a general measure of market performance. The
index reflects reinvestment of all distributions and changes in market
prices, but excludes brokerage commissions or other fees. However, the S&P
500 companies may be generally larger than those in which the Fund invests.
(2) Lipper Large-Cap Core Funds 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 5.75% 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 QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Questions & Answers
(begin callout quote)> During the period, the Fund had a slight bias toward
value stocks in its holdings, which could change over time as the model
weightings change.(end callout quote)
During the period, the Fund had a slight bias toward value stocks in its
holdings, which could change over time as the model weightings change. In
addition to the model outputs, risk controls are applied to the Fund's
construction. These include a 6% limit on individual stock positions within
the portfolio, a 5% over/under-weight limit on sector and industry
variances relative to the benchmark and constraints for holding securities
with potential market liquidity issues. Going forward, we plan to rebalance
the Fund holdings at least once a month, more often if cash flows or
unpredictable market conditions dictate.
TOTAL RETURNS
as of July 31, 2003
Class A Class B Class C Class Y
(Inception dates) (4/24/03) (4/24/03) (4/24/03) (4/24/03)
NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) NAV(5) POP(5)
Since inception* +8.80% +2.54% +8.60% +3.60% +8.60% +7.60% +9.00% +9.00%
* Not annualized.
(1) Excluding sales charge.
(2) Returns at public offering price (POP) reflect a sales charge of 5.75%.
(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 QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Questions & Answers
Q. What factors affected the Fund for the initial fiscal period through July
31, 2003?
A: During the period, the Fund's largest holdings included pharmaceutical
company Merck, financial services company Bank of America, biotechnology
company Amgen, cable provider Comcast and tobacco/food company Altria
Group. The Fund's industry overweightings versus the S&P 500 Index
included drug, telecommunication, electric utility and broadcasting
companies, while industries such as department stores, electronics and
semiconductors, and financials were underweighted. The best performing
stocks for the Fund during the period were Computer Associates, a
computer software company; PG&E, an electricity and natural gas
distributor; and Boston Scientific, a medical device company.
Q: How will you manage AXP Quantitative Large Cap Equity Fund in the coming
months?
A: In the months ahead we will continue to follow our three quantitative
models and adapt our weightings as market conditions change. We will
maintain strong risk controls in terms of individual stock positions as
well as sector/industry exposures in place and the current modest level of
turnover. We believe that following a consistent strategy will allow the
Fund to provide steady results over time.
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6 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Investments in Securities
AXP Quantitative Large Cap Equity Fund
July 31, 2003
(Percentages represent value of investments compared to net assets)
Common stocks (99.3%)
Issuer Shares Value(a)
Aerospace & defense (1.9%)
Boeing 1,777 $58,854
General Dynamics 245 19,438
Goodrich 806 18,538
Honeywell Intl 890 25,169
Northrop Grumman 149 13,744
Rockwell Automation 850 21,964
Rockwell Collins 322 8,382
Total 166,089
Automotive & related (2.1%)
Delphi 2,969 24,940
General Motors 3,362 125,839
PACCAR 433 33,428
Total 184,207
Banks and savings & loans (7.3%)
AmSouth Bancorporation 464 10,055
Bank of America 3,992 329,618
Charter One Financial 401 13,041
First Tennessee Natl 649 27,842
FleetBoston Financial 628 19,525
KeyCorp 705 18,972
Natl City 584 19,243
North Fork Bancorporation 268 9,393
Regions Financial 206 7,437
SouthTrust 248 7,108
Wachovia 2,239 97,822
Washington Mutual 1,790 70,669
Total 630,725
Beverages & tobacco (3.7%)
Altria Group 5,149 206,011
Brown-Forman Cl B 102 7,946
Coca-Cola 996 44,790
Coca-Cola Enterprises 1,269 21,636
Fortune Brands 244 13,569
PepsiCo 212 9,767
RJ Reynolds Tobacco Holdings 442 15,700
Total 319,419
Broker dealers (0.4%)
Bear Stearns Companies 237 15,879
Lehman Brothers Holdings 267 16,893
Total 32,772
Cable (3.3%)
Comcast Cl A 9,436(b) 286,100
Cellular telecommunications (2.1%)
AT&T Wireless Services 9,140(b) 77,964
Nextel Communications Cl A 5,446(b) 99,444
Total 177,408
Chemicals (0.1%)
Sigma-Aldrich 162 9,229
Computer hardware (0.8%)
EMC 712(b) 7,576
Lexmark Intl Cl A 372(b) 23,871
Network Appliance 1,534(b) 24,514
NVIDIA 762(b) 14,569
Total 70,530
Computer software & services (8.7%)
Adobe Systems 894 29,216
BMC Software 501(b) 7,064
Citrix Systems 4,859(b) 88,191
Computer Associates Intl 1,814 46,166
Comverse Technology 1,037(b) 15,296
Deluxe 1,011 44,888
Electronic Arts 394(b) 33,096
Electronic Data Systems 2,856 63,603
Intl Business Machines 2,250 182,814
Intuit 499(b) 21,467
Oracle 13,238(b) 158,856
QLogic 255(b) 10,748
Siebel Systems 1,338(b) 12,550
VERITAS Software 1,129(b) 34,773
Total 748,728
See accompanying notes to investments in securities.
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7 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Electronics (2.6%)
Altera 1,500(b) $28,860
American Power Conversion 722(b) 12,584
Analog Devices 996(b) 37,798
KLA-Tencor 519(b) 26,806
Linear Technology 851 31,385
PMC-Sierra 664(b) 8,141
Xerox 3,847(b) 41,548
Xilinx 1,259(b) 33,087
Total 220,209
Energy (3.9%)
Amerada Hess 777 36,496
Anadarko Petroleum 286 12,527
Apache 671 41,575
Ashland 419 13,739
Burlington Resources 1,016 46,909
ConocoPhillips 488 25,542
Devon Energy 841 39,838
Kerr-McGee 257 11,308
Marathon Oil 1,580 40,669
Occidental Petroleum 1,907 62,340
Sunoco 189 6,993
Total 337,936
Energy equipment & services (0.3%)
BJ Services 408(b) 13,974
Nabors Inds 384(b,c) 13,747
Total 27,721
Finance companies (0.5%)
MGIC Investment 714 39,627
Financial services (3.0%)
Capital One Financial 248 11,882
Countrywide Financial 574 38,349
Fannie Mae 704 45,084
Freddie Mac 431 21,054
Janus Capital Group 1,296 22,680
Moody's 341 17,637
Providian Financial 2,457(b) 23,710
SLM 1,959 81,220
Total 261,616
Food (0.9%)
General Mills 215 9,862
Sara Lee 1,775 33,175
Sysco 1,265 38,114
Total 81,151
Furniture & appliances (0.2%)
Black & Decker 212 8,662
Whirlpool 190 12,309
Total 20,971
Health care products (21.3%)
Abbott Laboratories 1,128 44,274
Amgen 6,448(b) 448,652
Biomet 917 27,152
Boston Scientific 1,681(b) 106,290
Bristol-Myers Squibb 3,023 79,203
Chiron 356(b) 16,234
Forest Laboratories 1,275(b) 61,047
Genzyme-General Division 1,227(b) 61,890
Guidant 1,250 59,025
MedImmune 1,274(b) 49,928
Medtronic 1,376 70,864
Merck & Co 8,873 490,498
PerkinElmer 908 13,493
Pfizer 4,699 156,759
Schering-Plough 1,348 22,889
St. Jude Medical 807(b) 43,296
Stryker 697 53,334
Waters 330(b) 10,464
Watson Pharmaceuticals 344(b) 13,739
Total 1,829,031
Health care services (2.9%)
Aetna 223 13,741
AmerisourceBergen 141 8,896
Cardinal Health 272 14,892
HCA 1,350 47,588
Manor Care 216 6,156
Tenet Healthcare 2,603(b) 35,869
UnitedHealth Group 1,706 88,866
WellPoint Health Networks 413(b) 34,547
Total 250,555
Home building (1.2%)
Centex 669 48,550
KB HOME 456 25,814
Pulte Homes 434 26,526
Total 100,890
Household products (1.1%)
Avon Products 145 9,047
Colgate-Palmolive 1,034 56,456
Kimberly-Clark 621 30,056
Total 95,559
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
8 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Industrial transportation (0.1%)
Burlington Northern Santa Fe 305 $8,406
Insurance (4.1%)
AFLAC 838 26,883
Allstate 1,153 43,849
Aon 851 20,467
CIGNA 650 30,407
Jefferson-Pilot 353 15,532
John Hancock Financial Services 221 7,216
Lincoln Natl 430 16,056
Loews 1,332 61,271
MBIA 156 7,897
MetLife 1,970 54,608
Progressive 353 23,277
SAFECO 392 14,594
Torchmark 178 7,234
UnumProvident 1,429 19,406
Total 348,697
Leisure time & entertainment (0.1%)
Viacom Cl B 271(b) 11,794
Lodging & gaming (0.3%)
Intl Game Technology 993 25,272
Machinery (0.1%)
Thermo Electron 334(b) 7,432
Media (4.9%)
Cendant 2,778(b) 49,865
eBay 2,169(b) 232,517
Gannett 563 43,255
New York Times Cl A 339 15,119
Yahoo! 2,698(b) 83,989
Total 424,745
Metals (0.2%)
Freeport McMoRan Cooper
& Gold Cl B 440 11,788
Phelps Dodge 121(b) 5,105
Total 16,893
Multi-industry (4.5%)
3M 111 15,562
Apollo Group Cl A 688(b) 44,555
Eastman Kodak 1,326 36,637
General Electric 4,401 125,165
Tyco Intl 8,640(c) 160,704
Total 382,623
Paper & packaging (0.2%)
Sealed Air 368(b) 17,565
Precious metals (0.3%)
Newmont Mining 650 23,465
Real estate investment trust (0.4%)
Equity Office Properties Trust 558 15,478
Simon Property Group 311 13,171
Starwood Hotels & Resorts Worldwide 236 7,694
Total 36,343
Restaurants (0.2%)
Starbucks 689(b) 18,830
Retail -- general (2.5%)
Best Buy 1,202(b) 52,467
Federated Dept Stores 461 18,445
Home Depot 1,408 43,930
Penney (JC) 443 8,231
Sears, Roebuck & Co 1,912 77,818
Toys "R" Us 888(b) 9,901
Total 210,792
Retail -- grocery (0.7%)
Kroger 1,164(b) 19,730
Safeway 1,672(b) 35,697
SUPERVALU 268 6,311
Total 61,738
Telecom equipment & services (1.8%)
ADC Telecom 3,618(b) 7,887
JDS Uniphase 7,207(b) 21,693
Lucent Technologies 3,753(b) 6,605
QUALCOMM 2,540 95,149
Scientific-Atlanta 342 10,359
Tellabs 1,403(b) 9,442
Total 151,135
Textiles & apparel (0.2%)
Nike Cl B 266 13,763
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
9 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Utilities -- electric (6.0%)
American Electric Power 563 $15,798
CenterPoint Energy 8,317 67,118
Constellation Energy Group 646 21,576
DTE Energy 290 10,356
Duke Energy 909 15,953
Edison Intl 2,837(b) 46,555
Exelon 647 37,183
FirstEnergy 186 6,415
FPL Group 271 16,713
PG&E 4,709(b) 101,008
Pinnacle West Capital 231 7,928
PPL 357 14,134
Public Service Enterprise Group 655 26,691
Southern Co 1,617 45,987
TECO Energy 1,305 16,182
TXU 1,203 24,265
Xcel Energy 3,142 45,496
Total 519,358
Utilities -- natural gas (0.6%)
Kinder Morgan 497 26,589
Sempra Energy 784 21,819
Total 48,408
Utilities -- telephone (3.6%)
ALLTEL 546 25,547
AT&T 4,727 100,495
BellSouth 1,568 39,937
Citizens Communications 1,596(b) 18,913
Qwest Communications Intl 2,535(b) 10,115
SBC Communications 1,611 37,633
Sprint (FON Group) 5,399 76,234
Total 308,874
Total common stocks
(Cost: $8,158,141) $8,526,606
Short-term securities (11.6%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agency
Federal Natl Mtge Assn Disc Nts
08-15-03 0.98% $500,000 $499,796
10-15-03 1.06 500,000 498,886
Total short-term securities
(Cost: $998,711) $998,682
Total investments in securities
(Cost: $9,156,852)(d) $9,525,288
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars. As of July 31, 2003,
the value of foreign securities represented 2.0% of net assets.
(d) At July 31, 2003, the cost of securities for federal income tax purposes
was $9,157,434 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $ 497,311
Unrealized depreciation (129,457)
--------
Net unrealized appreciation $ 367,854
---------
- --------------------------------------------------------------------------------
10 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Financial Statements
Statement of assets and liabilities
AXP Quantitative Large Cap Equity Fund
July 31, 2003
Assets
Investments in securities, at value (Note 1)
(identified cost $9,156,852) $9,525,288
Capital shares receivable 14,180
Dividends and accrued interest receivable 9,387
Receivable for investment securities sold 439,141
-------
Total assets 9,987,996
---------
Liabilities
Disbursements in excess of cash on demand deposit 8,144
Payable for investment securities purchased 1,342,456
Accrued investment management services fee 141
Accrued distribution fee 80
Accrued transfer agency fee 23
Accrued administrative services fee 12
Other accrued expenses 54,452
------
Total liabilities 1,405,308
---------
Net assets applicable to outstanding capital stock $8,582,688
==========
Represented by
Capital stock -- $.01 par value (Note 1) $ 15,785
Additional paid-in capital 8,077,538
Undistributed net investment income 15,388
Accumulated net realized gain (loss) 105,541
Unrealized appreciation (depreciation) on investments 368,436
-------
Total -- representing net assets applicable to outstanding capital stock $8,582,688
==========
Net assets applicable to outstanding shares: Class A $7,539,431
Class B $ 961,510
Class C $ 60,870
Class Y $ 20,877
Net asset value per share of outstanding capital stock: Class A shares 1,386,347 $ 5.44
Class B shares 177,153 $ 5.43
Class C shares 11,214 $ 5.43
Class Y shares 3,834 $ 5.45
----- ----------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
11 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Statement of operations
AXP Quantitative Large Cap Equity Fund
For the period from April 24, 2003* to July 31, 2003
Investment income
Income:
Dividends $ 36,655
Interest 1,302
-----
Total income 37,957
------
Expenses (Note 2):
Investment management services fee 11,265
Distribution fee
Class A 4,331
Class B 1,458
Class C 84
Transfer agency fee 1,114
Incremental transfer agency fee
Class A 86
Class B 52
Class C 5
Service fee -- Class Y 4
Administrative services fees and expenses 939
Custodian fees 19,600
Printing and postage 10,000
Registration fees 76,460
Audit fees 15,500
Other 2,986
-----
Total expenses 143,884
Expenses waived/reimbursed by AEFC (Note 2) (119,460)
--------
24,424
Earnings credits on cash balances (Note 2) (491)
----
Total net expenses 23,933
------
Investment income (loss) -- net 14,024
------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 88,880
Futures contracts 16,525
------
Net realized gain (loss) on investments 105,405
Net change in unrealized appreciation (depreciation) on investments 368,601
-------
Net gain (loss) on investments 474,006
-------
Net increase (decrease) in net assets resulting from operations $ 488,030
=========
* When shares became publicly available.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
12 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Statement of changes in net assets
AXP Quantitative Large Cap Equity Fund
For the period from April 24, 2003* to July 31, 2003
Operations
Investment income (loss) -- net $ 14,024
Net realized gain (loss) on investments 105,405
Net change in unrealized appreciation (depreciation) on investments 368,601
-------
Net increase (decrease) in net assets resulting from operations 488,030
-------
Capital share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 2,122,213
Class B shares 985,940
Class C shares 49,247
Class Y shares 10,000
Payments for redemptions
Class A shares (18,491)
Class B shares (Note 2) (53,851)
-------
Increase (decrease) in net assets from capital share transactions 3,095,058
---------
Total increase (decrease) in net assets 3,583,088
Net assets at beginning of period (Note 1) 4,999,600**
---------
Net assets at end of period $8,582,688
==========
Undistributed net investment income $ 15,388
----------
* When shares became publicly available.
** Initial capital of $5,000,000 was contributed on April 17, 2003. The Fund
had a decrease in net assets resulting from operations of $400 during the
period from April 17, 2003 to April 24, 2003 (when shares became publicly
available).
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
13 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Notes to Financial Statements
AXP Quantitative Large Cap Equity Fund
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a series of AXP Growth Series, Inc. and is registered under the
Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company. AXP Growth 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 equity securities of
companies listed on U.S. exchanges with market capitalizations greater than $5
billion at the time of purchase. On April 17, 2003, American Express Financial
Corporation (AEFC) invested $5,000,000 in the Fund which represented 994,000
shares for Class A, 2,000 shares for Class B, Class C and Class Y, respectively,
which represented the initial capital for each class at $5 per share. Shares of
the Fund were first offered to the public on April 24, 2003. As of July 31,
2003, AEFC owned approximately 63% of the Fund.
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.
- --------------------------------------------------------------------------------
14 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
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.
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 an
option is 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.
- --------------------------------------------------------------------------------
15 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
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.
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.
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 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.
- --------------------------------------------------------------------------------
16 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
On the statement of assets and liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income has been increased by $1,599
and accumulated net realized gain has been increased by $136 resulting in a net
reclassification adjustment to decrease paid-in capital by $1,735.
For the period from April 24, 2003* to July 31, 2003
Class A
Distributions paid from:
Ordinary income $--
Long-term capital gain --
Class B
Distributions paid from:
Ordinary income --
Long-term capital gain --
Class C
Distributions paid from:
Ordinary income --
Long-term capital gain --
Class Y
Distributions paid from:
Ordinary income --
Long-term capital gain --
* When shares became publicly available.
As of July 31, 2003, the components of distributable earnings on a tax basis are
as follows:
Undistributed ordinary income $111,460
Accumulated long-term gain (loss) $ 10,051
Unrealized appreciation (depreciation) $367,854
Dividends to shareholders
An annual dividend from net investment income, declared and paid at the end of
the calendar year, when available, is reinvested in additional shares of the
Fund at net asset value or payable in cash. Capital gains, when available, are
distributed along with the income dividend.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date and interest income,
including amortization of premium and discount using the effective interest
method, is accrued daily.
- --------------------------------------------------------------------------------
17 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
2. EXPENSES AND SALES CHARGES
The Fund has agreements with 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 0.60% to 0.48% annually. The fee may be adjusted upward or downward by a
performance incentive adjustment based on a comparison of the performance of
Class A shares of the Fund to the Lipper Large-Cap Core Funds Index. The maximum
adjustment is 0.12% per year. If the performance difference is less than 0.50%,
the adjustment will be zero. The first adjustment will be made on Nov. 1, 2003
and will cover the six-month period beginning May 1, 2003.
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 0.02% 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 $19.50
o Class B $20.50
o Class C $20.00
o Class Y $17.50
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 for Class
A, $20 for Class B, $19.50 for Class C and $17 for Class Y.
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.
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
$15,207 for Class A for the period ended July 31, 2003.
- --------------------------------------------------------------------------------
18 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
For the period ended July 31, 2003, AEFC and American Express Financial Advisors
Inc. waived certain fees and expenses to 1.22% for Class A, 2.01% for Class B,
2.01% for Class C and 1.01% for Class Y. In addition, AEFC and American Express
Financial Advisors Inc. have agreed to waive certain fees and expenses until
July 31, 2004. Under this agreement, total expenses will not exceed 1.25% for
Class A, 2.04% for Class B, 2.06% for Class C and 1.06% for Class Y of the
Fund's average daily net assets.
During the period ended July 31, 2003, the Fund's custodian and transfer agency
fees were reduced by $491 as a result of earnings credits from overnight cash
balances. The Fund also pays custodian fees to American Express Trust Company,
an affiliate of AEFC.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $9,197,653 and $1,128,346 respectively, for the period
ended July 31, 2003. Realized gains and losses are determined on an identified
cost basis.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the period from April 24, 2003* to
July 31, 2003 are as follows:
Class A Class B Class C Class Y
Sold 395,711 184,979 9,214 1,834
Issued for reinvested distributions -- -- -- --
Redeemed (3,364) (9,826) -- --
------- ------- ----- -----
Net increase (decrease) 392,347 175,153 9,214 1,834
------- ------- ----- -----
* When shares became publicly available.
5. 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 period ended July 31, 2003.
- --------------------------------------------------------------------------------
19 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
6. 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 July 31, 2003(b)
Net asset value, beginning of period $5.00
Income from investment operations:
Net investment income (loss) .01
Net gains (losses) (both realized and unrealized) .43
Total from investment operations .44
Net asset value, end of period $5.44
Ratios/supplemental data
Net assets, end of period (in millions) $8
Ratio of expenses to average daily net assets(c),(e) 1.22%(d)
Ratio of net investment income (loss) to average daily net assets .81%(d)
Portfolio turnover rate (excluding short-term securities) 17%
Total return(i) 8.80%(j)
Class B
Per share income and capital changes(a)
Fiscal period ended July 31, 2003(b)
Net asset value, beginning of period $5.00
Income from investment operations:
Net gains (losses) (both realized and unrealized) .43
Net asset value, end of period $5.43
Ratios/supplemental data
Net assets, end of period (in millions) $1
Ratio of expenses to average daily net assets(c),(f) 2.01%(d)
Ratio of net investment income (loss) to average daily net assets (.08%)(d)
Portfolio turnover rate (excluding short-term securities) 17%
Total return(i) 8.60%(j)
See accompanying notes to financial highlights.
- --------------------------------------------------------------------------------
20 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Class C
Per share income and capital changes(a)
Fiscal period ended July 31, 2003(b)
Net asset value, beginning of period $5.00
Income from investment operations:
Net gains (losses) (both realized and unrealized) .43
Net asset value, end of period $5.43
Ratios/supplemental data
Net assets, end of period (in millions) $--
Ratio of expenses to average daily net assets(c),(g) 2.01%(d)
Ratio of net investment income (loss) to average daily net assets (.05%)(d)
Portfolio turnover rate (excluding short-term securities) 17%
Total return(i) 8.60%(j)
Class Y
Per share income and capital changes(a)
Fiscal period ended July 31, 2003(b)
Net asset value, beginning of period $5.00
Income from investment operations:
Net investment income (loss) .01
Net gains (losses) (both realized and unrealized) .44
Total from investment operations .45
Net asset value, end of period $5.45
Ratios/supplemental data
Net assets, end of period (in millions) $--
Ratio of expenses to average daily net assets(c),(h) 1.01%(d)
Ratio of net investment income (loss) to average daily net assets .90%(d)
Portfolio turnover rate (excluding short-term securities) 17%
Total return(i) 9.00%(j)
See accompanying notes to financial highlights.
- --------------------------------------------------------------------------------
21 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Notes to financial highlights
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from April 24, 2003 (when shares became publicly available)
to July 31, 2003.
(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) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratio of expenses for Class A would have been 7.39% for the
period ended July 31, 2003.
(f) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratio of expenses for Class B would have been 8.18% for the
period ended July 31, 2003.
(g) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratio of expenses for Class C would have been 8.20% for the
period ended July 31, 2003.
(h) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratio of expenses for Class Y would have been 7.20% for the
period ended July 31, 2003.
(i) Total return does not reflect payment of a sales charge.
(j) Not annualized.
- --------------------------------------------------------------------------------
22 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Independent Auditors' Report
THE BOARD AND SHAREHOLDERS
AXP GROWTH SERIES, INC.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of AXP Quantitative Large Cap Equity
Fund (a series of AXP Growth Series, Inc.) as of July 31, 2003, and the related
statements of operations, changes in net assets and the financial highlights for
the period from April 24, 2003 (when shares became publicly available) to July
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 audit.
We conducted our audit 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 July 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 audit provides 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
Quantitative Large Cap Equity Fund as of July 31, 2003, and the results of its
operations, changes in its net assets and the financial highlights for the
period stated in the first paragraph above, in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
Minneapolis, Minnesota
September 12, 2003
- --------------------------------------------------------------------------------
23 -- AXP QUANTITATIVE LARGE CAP EQUITY 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 83 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 Principal occupation during past Other directorships
with Fund and five years
length of service
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Arne H. Carlson Board member Chair, Board Services Corporation
901 S. Marquette Ave. since 1999 (provides administrative services
Minneapolis, MN 55402 to boards). Former Governor of
Age 68 Minnesota
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Philip J. Carroll, Jr. Board member Retired Chairman and CEO, Fluor Scottish Power PLC, Vulcan
901 S. Marquette Ave. since 2002 Corporation (engineering and Materials Company, Inc.
Minneapolis, MN 55402 construction) since 1998 (construction
Age 65 materials/chemicals)
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Livio D. DeSimone Board member Retired Chair of the Board and Cargill, Incorporated
30 Seventh Street East since 2001 Chief Executive Officer, Minnesota (commodity merchants and
Suite 3050 Mining and Manufacturing (3M) processors), General Mills,
St. Paul, MN 55101-4901 Inc. (consumer foods), Vulcan
Age 69 Materials Company (construction
materials/ chemicals), Milliken
& Company (textiles and
chemicals), and Nexia
Biotechnologies, Inc.
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Heinz F. Hutter* Board member Retired President and Chief
901 S. Marquette Ave. since 1994 Operating Officer, Cargill,
Minneapolis, MN 55402 Incorporated (commodity merchants
Age 74 and processors)
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Anne P. Jones Board member Attorney and Consultant
901 S. Marquette Ave. since 1985
Minneapolis, MN 55402
Age 68
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Stephen R. Lewis, Jr.** Board member Retired President and Professor of Valmont Industries, Inc.
901 S. Marquette Ave. since 2002 Economics, Carleton College (manufactures irrigation
Minneapolis, MN 55402 systems)
Age 64
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Alan G. Quasha Board member President, Quadrant Management, Compagnie Financiere Richemont
901 S. Marquette Ave. since 2002 Inc. (management of private AG (luxury goods), Harken
Minneapolis, MN 55402 equities) Energy Corporation (oil and gas
Age 53 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.
- --------------------------------------------------------------------------------
24 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2003 ANNUAL REPORT
Independent Board Members (continued)
Name, address, age Position held Principal occupation during past Other directorships
with Fund and five years
length of service
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Alan K. Simpson Board member Former three-term United States Biogen, Inc.
1201 Sunshine Ave. since 1997 Senator for Wyoming (biopharmaceuticals)
Cody, WY 82414
Age 71
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Alison Taunton-Rigby Board member President, Forester Biotech since
901 S. Marquette Ave. since 2002 2000. Former President and CEO,
Minneapolis, MN 55402 Aquila Biopharmaceuticals, Inc.
Age 59
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Board Members Affiliated with AEFC***
Name, address, age Position held Principal occupation during past Other directorships
with Fund and five years
length of service
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Barbara H. Fraser Board member Executive Vice President - AEFA
1546 AXP Financial Center since 2002 Products and Corporate Marketing of
Minneapolis, MN 55474 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 Senior Vice President -
50238 AXP Financial Center since 2002, Vice Institutional Group of AEFC
Minneapolis, MN 55474 President since
Age 54 2002
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
William F. Truscott Board member Senior Vice President - Chief
53600 AXP Financial Center since 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.
- --------------------------------------------------------------------------------
25 -- AXP QUANTITATIVE LARGE CAP EQUITY 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 Principal occupation during past Other directorships
with Fund and five years
length of service
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Jeffrey P. Fox Treasurer since Vice President - Investment
50005 AXP Financial Center 2002 Accounting, AEFC, since 2002; Vice
Minneapolis, MN 55474 President - Finance, American
Age 48 Express Company, 2000-2002; Vice
President - Corporate Controller,
AEFC, 1996-2000
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Paula R. Meyer President since Senior Vice President and General
596 AXP Financial Center 2002 Manager - Mutual Funds, AEFC, since
Minneapolis, MN 55474 2002; Vice President and Managing
Age 49 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, Corporation
Minneapolis, MN 55402 and Secretary
Age 64 since 1978
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
The SAI has additional information about the Fund's directors and is available,
without charge, upon request by calling (800) 862-7919.
- --------------------------------------------------------------------------------
26 -- AXP QUANTITATIVE LARGE CAP EQUITY 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.
AXP(R)
Research
Opportunities
Fund
Annual Report
for the Period Ended
July 31, 2003
AXP Research Opportunities Fund seeks to provide shareholders with long-term
capital growth.
- --------------------------------------------------------------------------------
(logo) (logo)
American AMERICAN
Express(R) EXPRESS
Funds (R)
- --------------------------------------------------------------------------------
Table of Contents
Fund Snapshot 3
Questions & Answers
with Portfolio Management 4
The Fund's Long-term Performance 7
Investments in Securities 8
Financial Statements (Portfolio) 11
Notes to Financial Statements (Portfolio) 13
Independent Auditors' Report (Portfolio) 17
Financial Statements (Fund) 18
Notes to Financial Statements (Fund) 21
Independent Auditors' Report (Fund) 28
Board Members and Officers 29
(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.
- --------------------------------------------------------------------------------
2 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
Fund Snapshot
AS OF JULY 31, 2003
PORTFOLIO MANAGERS
Portfolio manager Joan Kampmeyer, CFA
Since 1/02
Years in industry 17
Portfolio manager Tom Mahowald, CFA
Since 6/02
Years in industry 13
FUND OBJECTIVE
For investors seeking long-term growth of capital.
Inception dates
A: 8/19/96 B: 8/19/96 C: 6/26/00 Y: 8/19/96
Ticker symbols
A: IRDAX B: IROBX C: -- Y: --
Total net assets $240.7 million
Number of holdings 107
STYLE MATRIX
Shading within the style matrix indicates areas in which the Fund generally
invests.
STYLE
VALUE BLEND GROWTH
X LARGE
MEDIUM SIZE
SMALL
SECTOR COMPOSITION
Percentage of portfolio assets
(pie chart)
Financials 20.7%
Technology 17.6%
Health care 13.7%
Consumer discretionary 13.5%
Industrials 10.7%
Consumer staples 8.1%
Energy 5.3%
Telecommunications 3.7%
Short-term securities 2.6%
Utilities 2.4%
Materials 1.7%
TOP TEN HOLDINGS
Percentage of portfolio assets
Microsoft (Computer software & services) 4.5%
General Electric (Multi-industry) 3.8
Citigroup (Finance companies) 3.5
Pfizer (Health care) 3.1
Wal-Mart Stores (Retail-general) 2.9
Bank of America (Banks and savings & loans) 2.5
Wells Fargo (Banks and savings & loans) 2.4
Intel (Electronics) 2.1
Amgen (Health care products) 1.8
Altria Group (Beverages & tobacco) 1.8
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
Stock prices of established companies that pay dividends may be less volatile
than the stock market as a whole.
Fund holdings are subject to change.
- --------------------------------------------------------------------------------
3 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
Questions & Answers
WITH PORTFOLIO MANAGEMENT
Q: How did AXP Research Opportunities Fund perform in fiscal year 2003?
A: AXP Research Opportunities Fund's Class A shares, excluding sales charge,
gained 6.41% for the 12 months ended July 31, 2003. In comparison, the S&P
500 Index increased 10.64% while the Lipper Large-Cap Core Funds Index,
representing the Fund's peer group, rose 8.63% over the same period.
Q: What factors most significantly affected Fund performance during the annual
period?
A: After several difficult years for the U.S. equity markets, we are
pleased to report a positive return. However, the Fund did not
achieve its goal this past year largely due to stock selection. The
Fund held relatively conservative stocks that did not rally as much
as more aggressive, high-risk stocks amid an equity rebound that
began last fall. In addition, the Fund emphasized
large-capitalization stocks in an environment in which small- and
medium-capitalization stocks performed better. The Fund's holdings in
banks, telecom services and equipment, and computer-related stocks
also hurt performance. Several stocks that were especially weak
included TXU Corp., Tenet Healthcare and Baxter International.
We did have a number of successes. Selected retailing, pharmaceutical and
electric utility stocks boosted performance. In terms of specific stocks,
medical device maker Boston Scientific rose on strong anticipated demand
for the company's drug-coated stents. After a two-year slump in demand,
KLA-Tencor, a semiconductor equipment company, benefited from increased
orders. Also, eBay was up dramatically on stellar earnings and market share
gains in the online auction market.
(bar chart)
PERFORMANCE COMPARISON
For the period ended July 31, 2003
12% (bar 2)
+10.64%
10% (bar 3)
+8.63%
8%
(bar 1)
6% +6.41%
4%
2%
0%
(bar 1) AXP Research Opportunities Fund Class A (excluding sales charge)
(bar 2) S&P 500 Index (unmanaged)
(bar 3) Lipper Large-Cap Core Funds Index
(see "The Fund's Long-term Performance" for Index descriptions)
Past performance is no guarantee of future results. The 5.75% 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.
- --------------------------------------------------------------------------------
4 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
Questions & Answers
(begin callout quote)> The Fund held relatively conservative stocks that did
not rally as much as more aggressive high risk stocks. (end callout quote)
Q: What changes did you make to the portfolio and how is it currently
positioned?
A: Most of the changes that occur in the Fund are the result of
adjustments in how stocks are rated by our in-house research
analysts. We eliminated foreign-based holdings, consistent with the
changes in the S&P 500 Index. This effectively trimmed the Fund's
energy position. We initiated positions in several health care
stocks, including medical device makers and health maintenance
organizations, based on improving fundamentals. We purchased media
stocks to gain exposure to a recovering advertising market. We added
personal computer hardware and storage stocks, as technology demand
showed signs of improvement.
AVERAGE ANNUAL TOTAL RETURNS
as of July 31, 2003
Class A Class B Class C Class Y
(Inception dates) (8/19/96) (8/19/96) (6/26/00) (8/19/96)
NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) NAV(5) POP(5)
1 year +6.41% +0.29% +5.69% +1.69% +5.96% +5.96% +6.87% +6.87%
5 years -3.89% -5.02% -4.63% -4.76% N/A N/A -3.70% -3.70%
Since inception +3.24% +2.37% +2.46% +2.46% -14.61% -14.61% +3.44% +3.44%
(1) Excluding sales charge.
(2) Returns at public offering price (POP) reflect a sales charge of 5.75%.
(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.
- --------------------------------------------------------------------------------
5 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
Questions & Answers
During the second half of the fiscal year, we reduced the number of Fund
holdings in order to increase the Fund's exposure to selected stocks. We
also added a small number of non-S&P 500 Index stocks that were among our
research analysts' favorite ideas. Finally, we shifted a portion of Fund
assets within our biggest large-capitalization holdings to several
small-capitalization stocks in an effort to take advantage of anticipated
strong performance in those names. For the 12 months ended July 31, 2003,
we reduced the Fund's portfolio turnover to levels significantly below last
year's.
At the end of the fiscal year, the Fund had 107 holdings representing a
broad cross section of growth and value stocks. The Fund had meaningful
exposure to health care products and services companies and industrial
conglomerates. By contrast, the Fund had limited exposure to pharmaceutical
stocks due to political risks and had no exposure to telecommunications
equipment and chemical stocks.
Q: How do you intend to manage the Fund in the coming months?
A: We are optimistic about the U.S. equity market because there are
definite signs of an economic upturn. Corporate earnings have in turn
been improving. Interest rates are low. There has been a huge amount
of fiscal and monetary stimulus pumped into the economy. Mergers and
acquisition activity has revived. Equity valuations, while not at
historic lows as measured by price-to-earnings ratios, are currently
more attractive than in recent years. Of course, risk always exists.
Investors will likely be paying close attention to employment trends,
commodity prices, geopolitical events, currencies and inflation in
the coming months.
Our focus will remain on seeking long-term growth of capital. We intend to
continue to position the Fund in stocks that we believe offer the best
potential over the long term while maintaining sector weights similar to
the S&P 500 Index. As we emphasize individual stock selection, our research
analysts carefully seek solid companies that are innovators and industry
leaders with stable to improving fundamentals, strong management teams,
superior growth potential and attractive stock valuations.
- --------------------------------------------------------------------------------
6 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
The Fund's Long-term Performance
This chart illustrates the total value of an assumed $10,000 investment in AXP
Research Opportunities Fund Class A shares (from 9/1/96 to 7/31/03) as compared
to the performance of two widely cited performance indices, the S&P 500 Index
and the Lipper Large-Cap Core Funds 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 5.75%, 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 chart)
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT
IN AXP RESEARCH OPPORTUNITIES FUND
$26,000
$19,500
(dotted line) S&P 500 Index(1)
$13,000 (dashed line) Lipper Large-Cap Core Funds Index(2)
(solid line) AXP Research Opportunities Fund Class A
$6,500
9/1/96 7/97 7/98 7/99 7/00 7/01 7/02 7/03
(solid line) AXP Large Cap Equity Fund Class A $11,764
(dotted line) S&P 500 Index(1) $16,850
(dashed line) Lipper Large-Cap Core Funds Index(2) $15,621
(1) S&P 500 Index, an unmanaged index of common stocks, is frequently used as a
general measure of market performance. The index reflects reinvestment of
all distributions and changes in market prices, but excludes brokerage
commissions or other fees. However, the S&P 500 companies may be generally
larger than those in which the Fund invests.
(2) The Lipper Large-Cap Core Funds 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 July 31, 2003
1 year +0.29%
5 years -5.02%
Since inception (8/19/96) +2.37%
Results for other share classes can be found on page 5.
- --------------------------------------------------------------------------------
7 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
Investments in Securities
Aggressive Growth Portfolio
July 31, 2003
(Percentages represent value of investments compared to net assets)
Common stocks (96.9%)
Issuer Shares Value(a)
Aerospace & defense (2.3%)
Lockheed Martin 50,100 $2,622,234
Northrop Grumman 18,500 1,706,440
United Technologies 14,700 1,105,881
Total 5,434,555
Automotive & related (0.6%)
Johnson Controls 14,500 1,400,845
Banks and savings & loans (7.8%)
Bank of America 71,800 5,928,526
KeyCorp 47,300 1,272,843
TCF Financial 36,100 1,647,965
U.S. Bancorp 174,300 4,273,836
Wells Fargo 112,500 5,684,625
Total 18,807,795
Beverages & tobacco (3.4%)
Altria Group 106,900 4,277,069
PepsiCo 85,800 3,952,806
Total 8,229,875
Broker dealers (1.3%)
Merrill Lynch 36,100 1,962,757
Morgan Stanley 25,900 1,228,696
Total 3,191,453
Cable (0.4%)
Comcast CL A 29,600(b) 897,472
Cellular telecommunications (0.7%)
Vodafone Group ADR 89,600(c) 1,700,608
Computer hardware (2.8%)
Dell Computer 88,500(b) 2,980,680
EMC 57,000(b) 606,480
Hewlett-Packard 151,400 3,205,138
Total 6,792,298
Computer software & services (9.4%)
Adobe Systems 37,500 1,225,500
Autodesk 110,100 1,647,096
Electronic Arts 33,600(b,e) 2,822,400
Fiserv 38,200(b) 1,491,328
Intl Business Machines 43,700 3,550,625
Microsoft 405,000 10,692,000
SunGard Data Systems 47,900(b) 1,256,896
Total 22,685,845
Electronics (5.3%)
Applied Materials 46,500(b) 906,750
Flextronics Intl 113,200(b,c) 1,245,200
Intel 200,300 4,997,485
Jabil Circuit 53,500(b) 1,233,175
KLA-Tencor 22,900(b) 1,182,785
Linear Technology 24,400(e) 899,872
Maxim Integrated Products 17,500 683,900
Novellus Systems 41,700(b) 1,493,277
Total 12,642,444
Energy (3.6%)
Apache 23,325 1,445,217
BP ADR 102,500(c) 4,258,875
ChevronTexaco 41,900 3,021,409
Total 8,725,501
Energy equipment & services (1.6%)
Nabors Inds 37,400(b,c) 1,338,920
Schlumberger 28,700 1,293,509
Weatherford Intl 33,800(b) 1,225,926
Total 3,858,355
Finance companies (3.4%)
Citigroup 185,100 8,292,480
Financial services (2.8%)
Capital One Financial 41,000 1,964,310
Fannie Mae 33,800 2,164,552
MBNA 115,850 2,582,297
Total 6,711,159
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
8 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Food (1.3%)
Dean Foods 39,900(b) $1,194,207
Kellogg 53,200 1,826,356
Total 3,020,563
Health care products (9.7%)
Amgen 62,100(b) 4,320,918
Baxter Intl 71,900 1,985,159
Boston Scientific 35,700(b) 2,257,311
Johnson & Johnson 63,400 3,283,486
Medtronic 46,500 2,394,750
Pfizer 220,000 7,339,199
St. Jude Medical 31,500(b) 1,689,975
Total 23,270,798
Health care services (4.0%)
Aetna 29,500 1,817,790
Anthem 23,000(b) 1,736,730
Cardinal Health 28,500 1,560,375
Patterson Dental 27,100(b) 1,449,850
UnitedHealth Group 45,800 2,385,722
WellPoint Health Networks 8,600(b) 719,390
Total 9,669,857
Household products (2.7%)
Colgate-Palmolive 22,100 1,206,660
Kimberly-Clark 46,900 2,269,960
Procter & Gamble 35,300 3,101,811
Total 6,578,431
Industrial transportation (0.3%)
Union Pacific 9,900 603,306
Insurance (5.2%)
AFLAC 79,100 2,537,528
Aon 47,900 1,151,995
Lincoln Natl 34,100 1,273,294
Marsh & McLennan 14,200 704,604
Montpelier Re Holdings 40,600(b,c) 1,306,914
Principal Financial Group 36,500 1,189,900
St. Paul Companies 38,300 1,347,011
UnumProvident 108,400 1,472,072
XL Capital Cl A 18,700(c) 1,486,650
Total 12,469,968
Leisure time & entertainment (1.7%)
Viacom Cl B 93,100(b) 4,051,712
Machinery (2.0%)
Caterpillar 43,700 2,948,439
Illinois Tool Works 27,800 1,936,270
Total 4,884,709
Media (3.8%)
Cendant 114,900(b) 2,062,455
Clear Channel Communications 58,100(b) 2,379,195
eBay 9,200(b) 986,240
Knight-Ridder 36,000 2,470,680
Univision Communications Cl A 39,900(b) 1,244,880
Total 9,143,450
Metals (1.3%)
Alcoa 92,700 2,574,279
Phelps Dodge 14,300(b) 603,317
Total 3,177,596
Multi-industry (6.1%)
3M 20,800 2,916,160
Danaher 19,700 1,422,340
General Electric 316,000 8,987,040
Tyco Intl 75,500(c) 1,404,300
Total 14,729,840
Paper & packaging (0.4%)
Intl Paper 22,000 860,640
Restaurants (1.0%)
Darden Restaurants 77,700 1,453,767
Starbucks 38,600(b) 1,054,938
Total 2,508,705
Retail -- general (6.0%)
Best Buy 39,950(b) 1,743,818
Family Dollar Stores 17,300 648,923
Lowe's Companies 65,800 3,129,448
Target 50,900 1,950,488
Wal-Mart Stores 123,800 6,921,658
Total 14,394,335
Retail -- grocery (0.6%)
SUPERVALU 65,800 1,549,590
Telecom equipment & services (1.1%)
Corning 140,500(b) 1,143,670
Nokia ADR 104,600(c) 1,600,380
Total 2,744,050
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
9 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Utilities -- electric (2.4%)
Dominion Resources 44,400 $2,668,440
Exelon 35,100 2,017,197
Public Service Enterprise Group 28,200 1,149,150
Total 5,834,787
Utilities -- telephone (1.9%)
BellSouth 31,900 812,493
Verizon Communications 106,700 3,719,562
Total 4,532,055
Total common stocks
(Cost: $234,146,731) $233,395,077
Short-term securities (2.6%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agency (2.0%)
Federal Natl Mtge Assn Disc Nts
09-30-03 1.04% $1,800,000 $1,796,940
10-01-03 0.97 1,000,000 998,255
10-15-03 1.00 800,000 798,283
10-22-03 1.00 500,000 498,827
10-29-03 1.06 800,000 797,963
Total 4,890,268
Commercial paper (0.5%)
Barton Capital
08-01-03 1.12 1,300,000(d) 1,299,960
Total short-term securities
(Cost: $6,190,343) $6,190,228
Total investments in securities
(Cost: $240,337,074)(f) $239,585,305
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars. As of July 31, 2003,
the value of foreign securities represented 6.0% of net assets.
(d) 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.
(e) At July 31, 2003, securities valued at $1,796,800 were held to cover open
call options written as follows (see Note 4 to the financial statements):
Issuer Contracts Exercise Expiration Value(a)
price date
Electronic Arts 170 $90.00 Sept. 2003 $29,750
Linear Technology 100 40.00 Aug. 2003 2,000
-------
Total value $31,750
-------
(f) At July 31, 2003, the cost of securities for federal income tax purposes
was $241,649,455 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $ 15,970,753
Unrealized depreciation (18,034,903)
-----------
Net unrealized depreciation $ (2,064,150)
------------
- --------------------------------------------------------------------------------
10 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
Financial Statements
Statement of assets and liabilities
Aggressive Growth Portfolio
July 31, 2003
Assets
Investments in securities, at value (Note 1)
(identified cost $240,337,074) $239,585,305
Dividends and accrued interest receivable 216,950
Receivable for investment securities sold 3,306,688
---------
Total assets 243,108,943
-----------
Liabilities
Disbursements in excess of cash on demand deposit 14,991
Payable for investment securities purchased 2,166,574
Accrued investment management services fee 4,291
Other accrued expenses 22,608
Options contracts written, at value (premiums received $25,579) (Note 4) 31,750
------
Total liabilities 2,240,214
---------
Net assets $240,868,729
============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
11 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
Statement of operations
Aggressive Growth Portfolio
Year ended July 31, 2003
Investment income
Income:
Dividends $ 4,459,453
Interest 100,218
Fee income from securities lending (Note 3) 114
---
Total income 4,559,785
---------
Expenses (Note 2):
Investment management services fee 1,484,028
Compensation of board members 8,383
Custodian fees 23,204
Audit fees 21,000
Other 7,032
-----
Total expenses 1,543,647
Earnings credits on cash balances (Note 2) (7)
--
Total net expenses 1,543,640
---------
Investment income (loss) -- net 3,016,145
---------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) (54,102,469)
Options contracts written (Note 4) 14,289
------
Net realized gain (loss) on investments (54,088,180)
Net change in unrealized appreciation (depreciation) on investments 65,040,858
----------
Net gain (loss) on investments 10,952,678
----------
Net increase (decrease) in net assets resulting from operations $ 13,968,823
============
Statements of changes in net assets
Aggressive Growth Portfolio
Year ended July 31, 2003 2002
Operations
Investment income (loss) -- net $ 3,016,145 $ 3,496,349
Net realized gain (loss) on investments (54,088,180) (113,496,294)
Net change in unrealized appreciation (depreciation) on investments 65,040,858 (28,602,926)
---------- -----------
Net increase (decrease) in net assets resulting from operations 13,968,823 (138,602,871)
---------- ------------
Proceeds from contributions 280,192 4,397,176
Fair value of withdrawals (82,264,696) (157,127,612)
----------- ------------
Net contributions (withdrawals) from partners (81,984,504) (152,730,436)
----------- ------------
Total increase (decrease) in net assets (68,015,681) (291,333,307)
Net assets at beginning of year 308,884,410 600,217,717
----------- -----------
Net assets at end of year $240,868,729 $ 308,884,410
============ =============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
12 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
Notes to Financial Statements
Aggressive Growth Portfolio
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Aggressive Growth Portfolio (the Portfolio) is a series of Growth Trust (the
Trust) and is registered under the Investment Company Act of 1940 (as amended)
as a diversified, open-end management investment company. Aggressive Growth
Portfolio invests primarily in equity securities of companies that comprise the
S&P 500 Index. The Declaration of Trust permits the Trustees to issue
non-transferable interests in the Portfolio.
The Portfolio'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 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.
Option transactions
To produce incremental earnings, protect gains and facilitate buying and selling
of securities for investments, the Portfolio 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
Portfolio 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 Portfolio gives up the opportunity for
profit if the market price of the security increases. The risk in writing a put
option is that the Portfolio 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 Portfolio pays a premium whether or not the option is exercised. The
Portfolio also has the additional risk of being unable to enter into a closing
transaction if a liquid secondary market does not exist.
- --------------------------------------------------------------------------------
13 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Portfolio
will realize a gain or loss when the option transaction expires or closes. When
an option is 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 Portfolio may buy
and sell financial futures contracts traded on any U.S. or foreign exchange. The
Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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.
The Portfolio 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 Portfolio and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates from an
independent pricing service. The Portfolio is subject to the credit risk that
the other party will not complete its contract obligations.
- --------------------------------------------------------------------------------
14 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
Federal taxes
For federal income tax purposes the Portfolio qualifies as a partnership and
each investor in the Portfolio is treated as the owner of its proportionate
share of the net assets, income, expenses and realized and unrealized gains and
losses of the Portfolio. As a "pass-through" entity, the Portfolio therefore
does not pay any income dividends or capital gain distributions.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date and interest income,
including amortization of premium and discount using the effective interest
method, is accrued daily.
2. FEES AND EXPENSES
The Trust on behalf of the Portfolio, has an Investment Management Services
Agreement with American Express Financial Corporation (AEFC) to manage its
portfolio. Under this Agreement, AEFC determines which securities will be
purchased, held or sold. The management fee is a percentage of the Portfolio's
average daily net assets in reducing percentages from 0.65% to 0.50% annually.
The fee may be adjusted upward or downward by a performance incentive adjustment
based on a comparison of the performance of Class A shares of AXP Research
Opportunities Fund to the Lipper Large-Cap Core Funds Index. Prior to Dec.1,
2002, the maximum adjustment was 0.12% of the Portfolio's average daily net
assets after deducting 1% from the performance difference. If the performance
difference was less than 1%, the adjustment was zero. On Nov. 13, 2002,
shareholders approved modification of the performance incentive adjustment
calculation by adjusting the performance difference intervals, while retaining
the previous maximum adjustment and reducing the amount of the performance
difference for which no adjustment is made to 0.50%. The effect of the
modifications began Dec. 1, 2002. The adjustment decreased the fee by $181,188
for the year ended July 31, 2003.
Under the agreement, the Trust also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees, audit and certain legal
fees, fidelity bond premiums, registration fees for units, office expenses,
consultants' fees, compensation of trustees, corporate filing fees, expenses
incurred in connection with lending securities of the Portfolio and any other
expenses properly payable by the Trust or Portfolio and approved by the board.
During the year ended July 31, 2003, the Portfolio's custodian fees were reduced
by $7 as a result of earnings credits from overnight cash balances. The
Portfolio also pays custodian fees to American Express Trust Company, an
affiliate of AEFC.
According to a Placement Agency Agreement, American Express Financial Advisors
Inc. acts as placement agent of the Trust's units.
- --------------------------------------------------------------------------------
15 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $205,274,935 and $281,945,714, respectively, for the
year ended July 31, 2003. For the same period, the portfolio turnover rate was
82%. Realized gains and losses are determined on an identified cost basis.
Brokerage clearing fees paid to brokers affiliated with AEFC were $46,054 for
the year ended July 31, 2003.
Income from securities lending amounted to $114 for the year ended July 31,
2003. The risks to the Portfolio of securities lending are that the borrower may
not provide additional collateral when required or return the securities when
due.
4. OPTIONS CONTRACTS WRITTEN
Contracts and premiums associated with options contracts written are as follows:
Year ended July 31, 2003
Calls
Contracts Premiums
Balance July 31, 2002 -- $ --
Opened 764 88,434
Closed -- --
Exercised (264) (48,566)
Expired (230) (14,289)
---- -------
Balance July 31, 2003 270 $ 25,579
--- --------
See "Summary of significant accounting policies."
- --------------------------------------------------------------------------------
16 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
Independent Auditors' Report
THE BOARD OF TRUSTEES AND UNITHOLDERS
GROWTH TRUST
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of Aggressive Growth Portfolio (a
series of Growth Trust) as of July 31, 2003, the related statement of operations
for the year then ended and the statements of changes in net assets for each of
the years in the two-year period ended July 31, 2003. These financial statements
are the responsibility of portfolio management. Our responsibility is to express
an opinion on these financial statements 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 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 July
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 referred to above present fairly, in
all material respects, the financial position of Aggressive Growth Portfolio as
of July 31, 2003, and the results of its operations and the changes in its net
assets 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
September 12, 2003
- --------------------------------------------------------------------------------
17 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
Financial Statements
Statement of assets and liabilities
AXP Research Opportunities Fund
July 31, 2003
Assets
Investment in Portfolio (Note 1) $ 240,807,347
Capital shares receivable 933
---
Total assets 240,808,280
-----------
Liabilities
Capital shares payable 31,155
Accrued distribution fee 3,530
Accrued transfer agency fee 1,852
Accrued administrative services fee 395
Other accrued expenses 68,280
------
Total liabilities 105,212
-------
Net assets applicable to outstanding capital stock $ 240,703,068
=============
Represented by
Capital stock -- $.01 par value (Note 1) $ 593,484
Additional paid-in capital 514,070,863
Undistributed net investment income 338,450
Accumulated net realized gain (loss) (Note 5) (273,542,013)
Unrealized appreciation (depreciation) on investments (757,716)
--------
Total -- representing net assets applicable to outstanding capital stock $ 240,703,068
=============
Net assets applicable to outstanding shares: Class A $ 149,101,302
Class B $ 91,325,311
Class C $ 275,194
Class Y $ 1,261
Net asset value per share of outstanding capital stock: Class A shares 35,889,959 $ 4.15
Class B shares 23,387,745 $ 3.90
Class C shares 70,413 $ 3.91
Class Y shares 300 $ 4.20
--- -------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
18 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
Statement of operations
AXP Research Opportunities Fund
Year ended July 31, 2003
Investment income
Income:
Dividends $ 4,458,482
Interest 100,196
Fee income from securities lending 114
---
Total income 4,558,792
---------
Expenses (Note 2):
Expenses allocated from Portfolio 1,543,302
Distribution fee
Class A 392,605
Class B 990,618
Class C 2,630
Transfer agency fee 796,870
Incremental transfer agency fee
Class A 55,639
Class B 55,748
Class C 146
Service fee -- Class Y 50
Administrative services fees and expenses 154,538
Compensation of board members 8,150
Printing and postage 179,445
Registration fees 30,250
Audit fees 7,000
Other 7,628
-----
Total expenses 4,224,619
Earnings credits on cash balances (Note 2) (4,277)
------
Total net expenses 4,220,342
---------
Investment income (loss) -- net 338,450
-------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (54,095,224)
Options contracts written 14,286
------
Net realized gain (loss) on investments (54,080,938)
Net change in unrealized appreciation (depreciation) on investments 65,030,053
----------
Net gain (loss) on investments 10,949,115
----------
Net increase (decrease) in net assets resulting from operations $ 11,287,565
============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
19 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
Statements of changes in net assets
AXP Research Opportunities Fund
Year ended July 31, 2003 2002
Operations and distributions
Investment income (loss) -- net $ 338,450 $ (700,665)
Net realized gain (loss) on investments (54,080,938) (113,481,022)
Net change in unrealized appreciation (depreciation) on investments 65,030,053 (28,596,657)
---------- -----------
Net increase (decrease) in net assets resulting from operations 11,287,565 (142,778,344)
---------- ------------
Distributions to shareholders from:
Net investment income
Class A -- (548,089)
Class C -- (96)
Class Y -- (693)
---------- ------------
Total distributions -- (548,878)
---------- ------------
Capital share transactions (Note 3)
Proceeds from sales
Class A shares (Note 2) 10,144,239 43,870,066
Class B shares 4,732,632 10,812,283
Class C shares 67,130 159,554
Class Y shares 4,652 9,017
Reinvestment of distributions at net asset value
Class A shares -- 543,290
Class C shares -- 95
Class Y shares -- 689
Payments for redemptions
Class A shares (57,637,339) (133,571,180)
Class B shares (Note 2) (36,351,756) (69,710,542)
Class C shares (Note 2) (91,096) (48,509)
Class Y shares (198,402) (37,131)
-------- -------
Increase (decrease) in net assets from capital share transactions (79,329,940) (147,972,368)
----------- ------------
Total increase (decrease) in net assets (68,042,375) (291,299,590)
Net assets at beginning of year 308,745,443 600,045,033
----------- -----------
Net assets at end of year $240,703,068 $ 308,745,443
============ =============
Undistributed net investment income $ 338,450 $ --
------------ -------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
20 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
Notes to Financial Statements
AXP Research Opportunities Fund
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a series of AXP Growth Series, Inc. and is registered under the
Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company. AXP Growth 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 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.
Investment in Aggressive Growth Portfolio
The Fund invests all of its assets in Aggressive Growth Portfolio (the
Portfolio), a series of Growth Trust (the Trust), an open-end investment company
that has the same objectives as the Fund. The Portfolio invests primarily in
equity securities of companies that comprise the S&P 500 Index.
The Fund records daily its share of the Portfolio's income, expenses and
realized and unrealized gains and losses. The financial statements of the
Portfolio are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The Fund records its investment in the Portfolio at the value that is equal to
the Fund's proportionate ownership interest in the Portfolio's net assets. The
percentage of the Portfolio owned by the Fund as of July 31, 2003, was 99.97%.
Valuation of securities held by the Portfolio is discussed in Note 1 of the
Portfolio's "Notes to financial statements" (included elsewhere in this report).
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.
- --------------------------------------------------------------------------------
21 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
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 the 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 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.
The tax character of distributions paid for the years indicated is as follows:
Year ended July 31, 2003 2002
Class A
Distributions paid from:
Ordinary income $-- $548,089
Long-term capital gain -- --
Class B
Distributions paid from:
Ordinary income -- --
Long-term capital gain -- --
Class C
Distributions paid from:
Ordinary income -- 96
Long-term capital gain -- --
Class Y
Distributions paid from:
Ordinary income -- 693
Long-term capital gain -- --
As of July 31, 2003, the components of distributable earnings on a tax basis are
as follows:
Undistributed ordinary income $ 338,450
Accumulated long-term gain (loss) $(272,229,915)
Unrealized appreciation (depreciation) $ (2,069,814)
Dividends to shareholders
An annual dividend from net investment income, declared and paid at the end of
the calendar year, when available, is reinvested in additional shares of the
Fund at net asset value or payable in cash. Capital gains, when available, are
distributed along with the income dividend.
- --------------------------------------------------------------------------------
22 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
2. EXPENSES AND SALES CHARGES
In addition to the expenses allocated from the Portfolio, the Fund accrues its
own expenses as follows:
The Fund has an agreement with AEFC to provide administrative services. 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 0.06% to 0.03% 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 $19.50
o Class B $20.50
o Class C $20.00
o Class Y $17.50
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.
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 for Class
A, $20 for Class B, $19.50 for Class C and $17 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
$202,452 for Class A, $92,648 for Class B and $24 for Class C for the year ended
July 31, 2003.
- --------------------------------------------------------------------------------
23 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
For the year ended July 31, 2003, AEFC and American Express Financial Advisors
Inc. waived certain fees and expenses to 1.35% for Class A, 2.11% for Class B,
2.11% for Class C and 1.13% for Class Y. In addition, AEFC and American Express
Financial Advisors Inc. have agreed to waive certain fees and expenses until
July 31, 2004. Under this agreement, total expenses will not exceed 1.35% for
Class A, 2.11% for Class B, 2.11% for Class C and 1.18% for Class Y of the
Fund's average daily net assets.
During the year ended July 31, 2003, the Fund's transfer agency fees were
reduced by $4,277 as a result of earnings credits from overnight cash balances.
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the years indicated are as follows:
Year ended July 31, 2003
Class A Class B Class C Class Y
Sold 2,606,091 1,322,189 18,719 1,227
Issued for reinvested distributions -- -- -- --
Redeemed (15,298,541) (10,145,114) (24,738) (53,135)
----------- ----------- ------- -------
Net increase (decrease) (12,692,450) (8,822,925) (6,019) (51,908)
----------- ---------- ------ -------
Year ended July 31, 2002
Class A Class B Class C Class Y
Sold 9,259,194 2,412,020 35,293 1,898
Issued for reinvested distributions 110,287 -- 20 139
Redeemed (28,644,747) (16,048,196) (10,730) (7,914)
----------- ----------- ------- ------
Net increase (decrease) (19,275,266) (13,636,176) 24,583 (5,877)
----------- ----------- ------ ------
4. 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
July 31, 2003.
5. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, the Fund has a capital loss carry-over of
$272,229,915 as of July 31, 2003, that will expire in 2009 through 2012 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.
- --------------------------------------------------------------------------------
24 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
6. 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 July 31, 2003 2002 2001 2000 1999
Net asset value, beginning of period $3.90 $ 5.37 $ 7.61 $7.94 $6.98
Income from investment operations:
Net investment income (loss) .02 -- .02 -- (.01)
Net gains (losses) (both realized and unrealized) .23 (1.46) (1.27) .66 1.32
Total from investment operations .25 (1.46) (1.25) .66 1.31
Less distributions:
Dividends from net investment income -- (.01) -- -- --
Distributions from realized gains -- -- (.99) (.99) (.35)
Total distributions -- (.01) (.99) (.99) (.35)
Net asset value, end of period $4.15 $ 3.90 $ 5.37 $7.61 $7.94
Ratios/supplemental data
Net assets, end of period (in millions) $149 $189 $365 $540 $481
Ratio of expenses to average daily net assets(c) 1.35% 1.22% 1.16% 1.14% 1.12%
Ratio of net investment income (loss) to average daily net assets .43% .15% .37% .02% .04%
Portfolio turnover rate (excluding short-term securities) 82% 144% 234% 160% 143%
Total return(e) 6.41% (27.24%) (17.54%) 7.73% 19.21%
Class B
Per share income and capital changes(a)
Fiscal period ended July 31, 2003 2002 2001 2000 1999
Net asset value, beginning of period $3.69 $ 5.12 $ 7.36 $7.76 $6.88
Income from investment operations:
Net investment income (loss) (.02) (.01) (.02) (.05) (.02)
Net gains (losses) (both realized and unrealized) .23 (1.42) (1.23) .64 1.25
Total from investment operations .21 (1.43) (1.25) .59 1.23
Less distributions:
Distributions from realized gains -- -- (.99) (.99) (.35)
Net asset value, end of period $3.90 $ 3.69 $ 5.12 $7.36 $7.76
Ratios/supplemental data
Net assets, end of period (in millions) $91 $119 $235 $336 $276
Ratio of expenses to average daily net assets(c) 2.11% 1.98% 1.92% 1.91% 1.88%
Ratio of net investment income (loss) to average daily net assets (.33%) (.62%) (.39%) (.73%) (.72%)
Portfolio turnover rate (excluding short-term securities) 82% 144% 234% 160% 143%
Total return(e) 5.69% (27.93%) (18.19%) 7.03% 18.31%
See accompanying notes to financial highlights.
- --------------------------------------------------------------------------------
25 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
Class C
Per share income and capital changes(a)
Fiscal period ended July 31, 2003 2002 2001 2000(b)
Net asset value, beginning of period $3.69 $ 5.13 $ 7.36 $7.50
Income from investment operations:
Net investment income (loss) (.01) (.02) (.02) .02
Net gains (losses) (both realized and unrealized) .23 (1.42) (1.22) (.16)
Total from investment operations 0.22 (1.44) (1.24) (.14)
Less distributions:
Distributions from realized gains -- -- (.99) --
Net asset value, end of period $3.91 $ 3.69 $ 5.13 $7.36
Ratios/supplemental data
Net assets, end of period (in millions) $-- $-- $-- $--
Ratio of expenses to average daily net assets(c) 2.11% 1.99% 1.92% 1.91%(d)
Ratio of net investment income (loss) to average daily net assets (.34%) (.61%) (.36%) (.50%)(d)
Portfolio turnover rate (excluding short-term securities) 82% 144% 234% 160%
Total return(e) 5.96% (28.05%) (18.03%) (1.87%)(f)
Class Y
Per share income and capital changes(a)
Fiscal period ended July 31, 2003 2002 2001 2000 1999
Net asset value, beginning of period $3.93 $ 5.42 $ 7.65 $7.96 $7.01
Income from investment operations:
Net investment income (loss) .04 -- .04 .01 --
Net gains (losses) (both realized and unrealized) .23 (1.48) (1.28) .67 1.32
Total from investment operations 0.27 (1.48) (1.24) .68 1.32
Less distributions:
Dividends from net investment income -- (.01) -- -- (.02)
Distributions from realized gains -- -- (.99) (.99) (.35)
Total distributions -- (.01) (.99) (.99) (.37)
Net asset value, end of period $4.20 $ 3.93 $ 5.42 $7.65 $7.96
Ratios/supplemental data
Net assets, end of period (in millions) $-- $-- $-- $-- $--
Ratio of expenses to average daily net assets(c) 1.13% 1.04% 1.00% .97% 1.02%
Ratio of net investment income (loss) to average daily net assets .64% .33% .54% .17% .12%
Portfolio turnover rate (excluding short-term securities) 82% 144% 234% 160% 143%
Total return(e) 6.87% (27.30%) (17.29%) 7.99% 19.34%
See accompanying notes to financial highlights.
- --------------------------------------------------------------------------------
26 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
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.
- --------------------------------------------------------------------------------
27 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
Independent Auditors' Report
THE BOARD AND SHAREHOLDERS
AXP GROWTH SERIES, INC.
We have audited the accompanying statement of assets and liabilities of AXP
Research Opportunities Fund (a series of AXP Growth Series, Inc.) as of July 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 July 31, 2003, and the financial highlights for each of the years in the
five-year period ended July 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. 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
Research Opportunities Fund as of July 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
September 12, 2003
- --------------------------------------------------------------------------------
28 -- AXP RESEARCH OPPORTUNITIES 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 83 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 Principal occupation during past Other directorships
with Fund and five years
length of service
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Arne H. Carlson Board member Chair, Board Services Corporation
901 S. Marquette Ave. since 1999 (provides administrative services
Minneapolis, MN 55402 to boards). Former Governor of
Age 68 Minnesota
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Philip J. Carroll, Jr. Board member Retired Chairman and CEO, Fluor Scottish Power PLC, Vulcan
901 S. Marquette Ave. since 2002 Corporation (engineering and Materials Company, Inc.
Minneapolis, MN 55402 construction) since 1998 (construction
Age 65 materials/chemicals)
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Livio D. DeSimone Board member Retired Chair of the Board and Cargill, Incorporated
30 Seventh Street East since 2001 Chief Executive Officer, Minnesota (commodity merchants and
Suite 3050 Mining and Manufacturing (3M) processors), General Mills,
St. Paul, MN 55101-4901 Inc. (consumer foods), Vulcan
Age 69 Materials Company (construction
materials/ chemicals), Milliken
& Company (textiles and
chemicals), and Nexia
Biotechnologies, Inc.
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Heinz F. Hutter* Board member Retired President and Chief
901 S. Marquette Ave. since 1994 Operating Officer, Cargill,
Minneapolis, MN 55402 Incorporated (commodity merchants
Age 74 and processors)
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Anne P. Jones Board member Attorney and Consultant
901 S. Marquette Ave. since 1985
Minneapolis, MN 55402
Age 68
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Stephen R. Lewis, Jr.** Board member Retired President and Professor of Valmont Industries, Inc.
901 S. Marquette Ave. since 2002 Economics, Carleton College (manufactures irrigation
Minneapolis, MN 55402 systems)
Age 64
- ---------------------------------- ------------------ ------------------------------------- ---------------------------------
Alan G. Quasha Board member President, Quadrant Management, Compagnie Financiere Richemont
901 S. Marquette Ave. since 2002 Inc. (management of private AG (luxury goods), Harken
Minneapolis, MN 55402 equities) Energy Corporation (oil and gas
Age 53 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.
- --------------------------------------------------------------------------------
29 -- AXP RESEARCH OPPORTUNITIES FUND -- 2003 ANNUAL REPORT
Independent Board Members (continued)
Name, address, age Position held Principal occupation during past Other directorships
with Fund and five years
length of service
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Alan K. Simpson Board member Former three-term United States Biogen, Inc.
1201 Sunshine Ave. since 1997 Senator for Wyoming (biopharmaceuticals)
Cody, WY 82414
Age 71
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Alison Taunton-Rigby Board member President, Forester Biotech since
901 S. Marquette Ave. since 2002 2000. Former President and CEO,
Minneapolis, MN 55402 Aquila Biopharmaceuticals, Inc.
Age 59
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Board Members Affiliated with AEFC***
Name, address, age Position held Principal occupation during past Other directorships
with Fund and five years
length of service
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Barbara H. Fraser Board member Executive Vice President - AEFA
1546 AXP Financial Center since 2002 Products and Corporate Marketing of
Minneapolis, MN 55474 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 Senior Vice President -
50238 AXP Financial Center since 2002, Vice Institutional Group of AEFC
Minneapolis, MN 55474 President since
Age 54 2002
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
William F. Truscott Board member Senior Vice President - Chief
53600 AXP Financial Center since 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.
- --------------------------------------------------------------------------------
30 -- AXP RESEARCH OPPORTUNITIES 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 Principal occupation during past Other directorships
with Fund and five years
length of service
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Jeffrey P. Fox Treasurer since Vice President - Investment
50005 AXP Financial Center 2002 Accounting, AEFC, since 2002; Vice
Minneapolis, MN 55474 President - Finance, American
Age 48 Express Company, 2000-2002; Vice
President - Corporate Controller,
AEFC, 1996-2000
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
Paula R. Meyer President since Senior Vice President and General
596 AXP Financial Center 2002 Manager - Mutual Funds, AEFC, since
Minneapolis, MN 55474 2002; Vice President and Managing
Age 49 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, Corporation
Minneapolis, MN 55402 and Secretary
Age 64 since 1978
- --------------------------------- ------------------- ------------------------------------- ---------------------------------
The SAI has additional information about the Fund's directors and is available,
without charge, upon request by calling (800) 862-7919.
- --------------------------------------------------------------------------------
31 -- AXP RESEARCH OPPORTUNITIES 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.
(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 pursuant to
SEC Release No. IC-25915 (January 28, 2003).
Items 5-6. [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) 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.
(b) 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.
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 Growth Series, Inc.
By /s/ Paula R. Meyer
------------------
Paula R. Meyer
President and Principal Executive Officer
Date October 1, 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 October 1, 2003
By /s/ Jeffrey P. Fox
------------------
Jeffrey P. Fox
Treasurer and Principal Financial Officer
Date October 1, 2003