AXP(R)
Blue Chip
Advantage
Fund
Annual Report
for the Period
Ended Jan. 31, 2004
AXP Blue Chip Advantage Fund seeks to provide shareholders with a long-term
total return exceeding that of the U.S. stock market.
(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 8
Investments in Securities 9
Financial Statements 12
Notes to Financial Statements 15
Independent Auditors' Report 25
Federal Income Tax Information 26
Board Members and Officers 28
Proxy Voting 30
(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 BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
Fund Snapshot
AS OF JAN. 31, 2004
PORTFOLIO MANAGER
Portfolio manager Doug Chase
Since 1/04
Years in industry 12
FUND OBJECTIVE
For investors seeking long-term total return exceeding that of the U.S. stock
market.
Inception dates
A: 3/5/90 B: 3/20/95 C: 6/26/00 Y: 3/20/95
Ticker symbols
A: IBLUX B: IDBCX C: AXACX Y: IBCYX
Total net assets $1.585 billion
Number of holdings 99
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 22.7%
Financials 20.5%
Consumer discretionary 13.7%
Technology 13.5%
Consumer staples 10.4%
Industrials 7.3%
Energy 6.6%
Materials 3.5%
Short-term securities 0.8%
Telecommunications 0.5%
Utilities 0.5%
TOP TEN HOLDINGS
Percentage of portfolio assets
Pfizer (Health care products) 6.8%
Citigroup (Finance companies) 5.1
Cendant (Media) 3.4
Viacom Cl B (Leisure time & entertainment) 3.2
PepsiCo (Beverages & tobacco) 2.9
Microsoft (Computer software & services) 2.9
Colgate-Palmolive (Household products) 2.7
Fannie Mae (Financial services) 2.5
Procter & Gamble (Household products) 2.4
McKesson (Health care services) 2.4
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
Fund holdings subject to change.
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3 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
Questions & Answers
WITH PORTFOLIO MANAGEMENT
Doug Chase began managing AXP Blue Chip Advantage Fund at the start of January
2004. Below, he discusses the Fund's positioning and results for the 12 months
ended Jan. 31, 2004.
Shareholders will be asked to approve a merger of the Fund into AXP Large Cap
Equity Fund at a shareholder meeting on June 9, 2004. This approval is not
guaranteed. If shareholder approval is obtained, no new purchases or exchanges
into the Fund will be allowed, although existing shareholders may redeem or
exchange out of the Fund.
Q: How did AXP Blue Chip Advantage Fund perform for the fiscal year
ended Jan. 31, 2004?
A: AXP Blue Chip Advantage Fund's Class A shares advanced 31.20%
for the 12 months ended Jan. 31, 2004, excluding sales charge.
This outpaced the Fund's peer group as represented by the Lipper
Large-Cap Core Funds Index, which advanced 29.98% for the same
period. The Fund underperformed the S&P 500 Index, which gained
34.57%. The Fund's conservative positioning relative to the S&P
500 was responsible for its underperformance, as the riskier
sectors and lower-quality stocks in the index were very strong
performers during much of the year.
Q: What factors had the most significant effect on performance?
A: At the start of our fiscal period, the outlook for stocks was still very
negative due to continuing economic uncertainty, poor corporate earnings
and escalating global tensions. Then, in mid-March, when the U.S.-led
action in Iraq was imminent, stocks began a rally that continued nearly
uninterrupted through the end of our annual period. The Fund capitalized on
the improved stock performance to deliver a strong absolute return.
(bar chart)
PERFORMANCE COMPARISON
For the year ended Jan. 31, 2004
35% (bar 2)
(bar 1) +34.57%
30% +31.20% (bar 3)
+29.98%
25%
20%
15%
10%
5%
0%
(bar 1) AXP Blue Chip Advantage Fund Class A (excluding sales charge)
(bar 2) S&P 500 Index Fund (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.
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4 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
Questions & Answers
(begin callout quote)> The most significant changes occurred in January, when
we began managing the Fund. We substantially altered the portfolio's sector
allocations and individual holdings. (end callout quote)
However, the Fund fell short of its benchmark primarily because of its
emphasis on higher-quality stocks. In general, lower-quality stocks
performed better than higher-quality stocks through much of the last year.
During the second half of the year, the Fund benefited from a
higher-than-index position in the technology sector.
AVERAGE ANNUAL TOTAL RETURNS
Class A Class B Class C Class Y
(Inception dates) (3/5/90) (3/20/95) (6/26/00) (3/20/95)
NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) NAV(5) POP(5)
as of Jan. 31, 2004
1 year +31.20% +23.66% +30.36% +26.36% +30.07% +30.07% +31.53% +31.53%
5 years -3.54% -4.68% -4.26% -4.42% N/A N/A -3.38% -3.38%
10 years +8.22% +7.58% N/A N/A N/A N/A N/A N/A
Since inception N/A N/A +7.86% +7.86% -8.76% -8.76% +8.84% +8.84%
as of Dec. 31, 2003
1 year +27.37% +20.04% +26.45% +22.45% +26.54% +26.54% +27.69% +27.69%
5 years -2.76% -3.90% -3.49% -3.65% N/A N/A -2.59% -2.59%
10 years +8.52% +7.88% N/A N/A N/A N/A N/A N/A
Since inception N/A N/A +7.88% +7.88% -9.07% -9.07% +8.87% +8.87%
The performance information shown represents the past performance and is not a
guarantee of future results. The value of your investment and returns will
fluctuate so that your shares, when redeemed, may be worth more or less than
their original cost. Current performance may be lower or higher than the
performance information shown. You may obtain performance information current to
the most recent month-end by calling (888) 723-8476 or visiting
www.americanexpress.com/funds. You should consider the investment objectives,
risks, and charges and expenses of the Fund carefully before investing.
(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.
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5 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
Questions & Answers
However, the Fund's underlying sub-sector exposure proved to be a
detractor. Specifically, the Fund had a lower-than-index weighting in
semiconductor firms, one of the strongest technology groups, and a
higher-than-index position in software, one of the weaker industries in the
latter part of the fiscal period.
Q: What changes did you make to the portfolio during the fiscal period?
A: There were few meaningful changes to sector or industry positions in the
first half of the fiscal year. Later in the period, the Fund's allocation
to consumer cyclical stocks was increased and the Fund went from a market
weight in financials to a higher-than-index position. Allocations to both
health care and technology stocks were reduced.
The most significant changes occurred in January, when new management took
over the Fund. We substantially altered the portfolio's sector allocations
and individual holdings. We moved to higher-than-index positions in the
health care and industrials sectors and lower-than-index positions in the
technology, financial, telecommunications and utility sectors. All other
sectors were weighted about equal to the benchmark.
We established a large position in health care in spite of last year's
weakness because long term, we believe health care earnings will grow
faster than the market due to demographics, specifically the aging of the
U.S. population. The Fund's well-diversified health care position includes
pharmaceutical firms, biotechnology companies, hospitals, medical device
providers and drug distributors. Our primary concern about healthcare
stocks is that they could suffer from rhetoric related to the presidential
election. Therefore, we will probably be a bit cautious in adding further
to the healthcare sector, but may take advantage of any election-related
declines to add to some existing positions.
The Fund has a higher-than-index position in the industrial sector, despite
less attractive valuations on some industrial stocks, because we want
exposure to cyclically sensitive areas in case the economy does deliver
explosive growth.
The Fund's weighting in the technology sector is smaller than the index. We
believe these stocks, as a group, are very expensive, and, in our opinion,
the only way to justify current valuations is to assume exceptional
economic growth for several quarters to come. We think that if growth is
indeed that strong, it will also
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6 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
Questions & Answers
drive performance in other sectors such as media, which we consider more
reasonably priced. The Fund ended the period with a lower-than-index
position in financial stocks because we believe many of these companies are
vulnerable to the negative effects of a potential increase in interest
rates.
Q: How will you manage the Fund for the coming months?
A: One key issue for the market in 2004 is whether large-cap stocks
can regain market leadership from small-cap stocks. We believe
several factors support such an outcome. First, the overvaluation
of small-caps versus large-caps suggests that a period of large-cap
outperformance may be due. Other factors favoring large-caps
include the decline in the U.S. dollar, which has made U.S.
exports more competitive, and the possibility of higher interest
rates. Small-cap companies generally don't benefit from export
growth the way large-cap companies do. In addition, smaller
companies are often more dependent on borrowed money and could
suffer from either expectations of rising interest rates or actual
rate increases.
Consumer staples is a sector that looks interesting to us now precisely
because it is one of the most multinational groups in the market and could
benefit from the lower dollar. Anywhere you travel globally, you will find
the products of U.S. based multinationals -- from cola to razor blades to
hamburgers. We think such companies are attractive given the improved
export environment.
Currently, we believe the best market opportunities are in growth stocks
that have a high degree of stability to their growth. These stocks have
become cheaper relative to the market; yet in any given year, they tend to
grow earnings faster than the S&P 500. We have been making a concerted
effort to move money into more stable growth stocks and out of companies
that require record levels of profitability to justify their current share
prices.
Given the improving global economy, the weak dollar, and large-cap relative
underperformance in 2003, we think the environment may be more favorable
for large stocks in 2004 and we consider the portfolio well positioned for
such a scenario.
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7 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
The Fund's Long-term Performance
This chart illustrates the total value of an assumed $10,000 investment in AXP
Blue Chip Advantage Fund Class A shares (from 2/1/94 to 1/31/04) as compared to
the performance of two widely cited performance indices, Standard & Poor's 500
Index (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.
The performance information shown represents the past performance and is not a
guarantee of future results. The value of your investment and returns will
fluctuate so that your shares, when redeemed, may be worth more or less than
their original cost. Returns do not reflect taxes payable on distributions and
redemptions. Current performance may be lower or higher than the performance
information shown. You may obtain performance information current to the most
recent month-end by calling (888) 723-8476 or visiting
www.americanexpress.com/funds. Also see "Past Performance" in the Fund's current
prospectus. You should consider the investment objectives, risks, and charges
and expenses of the Fund carefully before investing.
(mountain chart)
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT
IN AXP BLUE CHIP ADVANTAGE FUND
AXP Blue Chip Advantage
Fund Class A $9,425 $9,410 $13,081 $16,193 $19,467 $24,861 $27,173 $25,722 $20,737 $15,822 $20,759
S&P 500 Index(1) $10,000 $10,053 $13,939 $17,611 $22,350 $29,612 $32,677 $32,383 $27,146 $20,897 $28,121
Lipper Large-Cap Core
Funds Index(2) $10,000 $9,753 $12,999 $15,960 $19,747 $25,689 $28,425 $28,218 $23,542 $18,346 $23,846
`94 `95 `96 `97 `98 `99 `00 `01 `02 `03 `04
(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.
(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 Jan. 31, 2004
1 year +23.66%
5 years -4.68%
10 years +7.58%
Results for other share classes can be found on page 5.
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8 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
Investments in Securities
AXP Blue Chip Advantage Fund
Jan. 31, 2004
(Percentages represent value of investments compared to net assets)
Common stocks (99.3%)
Issuer Shares Value(a)
Aerospace & defense (2.6%)
Empresa Brasileira de
Aeronautica ADR 114,550(c) $3,375,789
Lockheed Martin 303,500 14,756,170
Northrop Grumman 86,300 8,346,073
United Technologies 156,500 14,952,010
Total 41,430,042
Banks and savings & loans (3.5%)
Bank of America 301,000 24,519,460
U.S. Bancorp 322,200 9,108,594
Washington Mutual 125,500 5,559,650
Wells Fargo 295,500 16,964,655
Total 56,152,359
Beverages & tobacco (5.3%)
Altria Group 473,100 26,299,629
Anheuser-Busch Companies 73,400 3,722,848
Coca-Cola 163,550 8,053,202
PepsiCo 980,300 46,328,978
Total 84,404,657
Broker dealers (1.8%)
Merrill Lynch & Co 234,400 13,780,376
Morgan Stanley 261,600 15,227,736
Total 29,008,112
Building materials & construction (0.5%)
American Standard 74,100(b) 7,869,420
Cable (0.7%)
EchoStar Communications Cl A 134,500(b) 4,909,250
NTL 81,500(b) 5,406,710
Total 10,315,960
Cellular telecommunications (0.5%)
Nextel Communications Cl A 304,800(b) 8,043,672
Chemicals (1.5%)
Dow Chemical 289,800 12,157,110
Lyondell Chemical 652,750 11,188,135
Total 23,345,245
Computer hardware (4.8%)
Cisco Systems 1,154,500(b) 29,601,380
Dell 604,000(b) 20,215,880
Hewlett-Packard 952,300 22,655,217
NVIDIA 160,600(b) 3,573,350
Total 76,045,827
Computer software & services (4.4%)
Affiliated Computer Services Cl A 64,500(b) 3,576,525
BMC Software 202,400(b) 4,027,760
Investors Financial Services 64,600 2,677,024
Microsoft 1,674,500 46,299,925
Oracle 641,900(b) 8,864,639
VERITAS Software 125,800(b) 4,133,788
Total 69,579,661
Electronics (4.3%)
Analog Devices 207,200 9,914,520
Applied Materials 216,200(b) 4,704,512
Intel 1,004,200 30,728,520
Jabil Circuit 95,500(b) 2,826,800
KLA-Tencor 140,000(b) 7,989,800
STMicroelectronics 281,900(c) 7,566,196
Taiwan Semiconductor Mfg ADR 359,300(c) 4,016,974
Total 67,747,322
Energy (5.3%)
ChevronTexaco 260,700 22,511,445
ConocoPhillips 222,500 14,658,300
Devon Energy 135,600 7,655,976
Exxon Mobil 843,400 34,402,286
Newfield Exploration 89,100(b) 4,204,629
Total 83,432,636
Energy equipment & services (1.3%)
Halliburton 287,800 8,677,170
Noble 215,200(b) 7,983,920
Weatherford Intl 103,200(b) 4,161,024
Total 20,822,114
Finance companies (5.1%)
Citigroup 1,646,900 81,488,612
See accompanying notes to investments in securities.
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9 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Financial services (4.9%)
Capital One Financial 98,200 $6,980,056
Countrywide Financial 170,166 14,217,369
Fannie Mae 514,200 39,644,820
MBNA 620,600 16,731,376
Total 77,573,621
Health care products (16.3%)
Amgen 344,700(b) 22,229,703
Baxter Intl 393,910 11,482,477
Boston Scientific 223,600(b) 9,120,644
Forest Laboratories 250,000(b) 18,622,500
Gilead Sciences 64,400(b) 3,533,628
Johnson & Johnson 675,750 36,098,564
Medtronic 216,400 10,651,208
Merck & Co 173,900 8,277,640
Novartis ADR 378,350(c) 17,082,503
Pfizer 2,932,800 107,428,463
Teva Pharmaceutical Inds ADR 65,300(c) 4,087,127
Wyeth 182,100 7,456,995
Total 256,071,452
Health care services (6.5%)
AmerisourceBergen 423,100 23,291,655
Anthem 105,500(b) 8,627,790
Cardinal Health 299,300 19,188,123
Caremark Rx 159,800(b) 4,274,650
HCA 196,500 8,822,850
McKesson 1,289,100 37,873,758
Tenet Healthcare 128,900(b) 1,598,360
Total 103,677,186
Household products (5.1%)
Colgate-Palmolive 846,600 43,405,182
Procter & Gamble 375,400 37,945,432
Total 81,350,614
Insurance (5.1%)
ACE 186,100(c) 8,080,462
Allstate 397,400 18,065,804
American Intl Group 289,300 20,091,885
Chubb 348,600 24,921,414
Hartford Financial
Services Group 97,400 6,266,716
MBIA 64,000 4,032,000
Total 81,458,281
Leisure time & entertainment (4.3%)
Mattel 914,500 17,293,195
Viacom Cl B 1,270,700 51,209,210
Total 68,502,405
Machinery (0.8%)
Caterpillar 160,300 12,524,239
Media (6.9%)
Cendant 2,360,300(b) 53,460,795
Disney (Walt) 1,318,900 31,653,600
InterActiveCorp 255,300(b) 8,271,720
Liberty Media Cl A 718,800(b) 8,366,832
Tribune 156,200 7,995,878
Total 109,748,825
Multi-industry (3.9%)
Accenture Cl A 172,800(b,c) 4,090,176
General Electric 992,206 33,367,888
ITT Inds 52,300 3,898,442
Tyco Intl 759,900(c) 20,327,325
Total 61,683,831
Paper & packaging (0.9%)
Avery Dennison 162,550 10,104,108
Weyerhaeuser 60,800 3,736,768
Total 13,840,876
Precious metals (0.7%)
Freeport McMoRan Cooper &
Gold Cl B 289,500 10,670,970
Retail -- general (1.8%)
Best Buy 333,500 16,805,065
Wal-Mart Stores 218,400 11,760,840
Total 28,565,905
Utilities -- electric (0.5%)
Exelon 58,900 3,945,122
FirstEnergy 108,700 4,078,424
Total 8,023,546
Total common stocks
(Cost: $1,528,896,966) $1,573,377,390
See accompanying notes to investments in securities.
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10 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
Short-term securities (0.8%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agency (0.2%)
Federal Natl Mtge Assn Disc Nt
04-28-04 1.01% $3,200,000 $3,192,278
Commercial paper (0.6%)
Fleet Funding
02-06-04 1.09 2,500,000(d) 2,499,461
Household Finance
02-02-04 1.02 7,200,000 7,199,389
Total 9,698,850
Total short-term securities
(Cost: $12,891,236) $12,891,128
Total investments in securities
(Cost: $1,541,788,202)(e) $1,586,268,518
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 Jan. 31, 2004,
the value of foreign securities represented 4.3% 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. These securities may be resold
in transactions exempt from registration, normally to qualified
institutional buyers. As of Jan. 31, 2004, the value of these securities
amounted to $2,499,461 or 0.2% of net assets.
(e) At Jan. 31, 2004, the cost of securities for federal income tax purposes
was $1,575,444,685 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $ 44,948,835
Unrealized depreciation (34,125,002)
-----------
Net unrealized appreciation $ 10,823,833
------------
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11 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
Financial Statements
Statement of assets and liabilities
AXP Blue Chip Advantage Fund
Jan. 31, 2004
Assets
Investments in securities, at value (Note 1)
(identified cost $1,541,788,202) $ 1,586,268,518
Capital shares receivable 77,213
Dividends and accrued interest receivable 1,766,504
Receivable for investment securities sold 35,588,103
----------
Total assets 1,623,700,338
-------------
Liabilities
Disbursements in excess of cash on demand deposit 129,906
Capital shares payable 85,841
Payable for investment securities purchased 38,621,681
Accrued investment management services fee 20,810
Accrued distribution fee 21,941
Accrued service fee 271
Accrued transfer agency fee 8,514
Accrued administrative services fee 1,210
Other accrued expenses 204,891
-------
Total liabilities 39,095,065
----------
Net assets applicable to outstanding capital stock $ 1,584,605,273
===============
Represented by
Capital stock -- $.01 par value (Note 1) $ 2,035,639
Additional paid-in capital 2,545,457,350
Undistributed net investment income 566,599
Accumulated net realized gain (loss) (Note 7) (1,007,934,631)
Unrealized appreciation (depreciation) on investments 44,480,316
----------
Total -- representing net assets applicable to outstanding capital stock $ 1,584,605,273
===============
Net assets applicable to outstanding shares: Class A $ 913,221,327
Class B $ 567,680,792
Class C $ 4,677,635
Class Y $ 99,025,519
Net asset value per share of outstanding capital stock: Class A shares 116,142,338 $ 7.86
Class B shares 74,241,206 $ 7.65
Class C shares 613,490 $ 7.62
Class Y shares 12,566,854 $ 7.88
---------- ---------------
See accompanying notes to financial statements.
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12 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
Statement of operations
AXP Blue Chip Advantage Fund
Year ended Jan. 31, 2004
Investment income
Income:
Dividends $ 26,678,335
Interest 434,830
Fee income from securities lending (Note 3) 13,004
------
Total income 27,126,169
----------
Expenses (Note 2):
Investment management services fee 7,547,131
Distribution fee
Class A 2,192,461
Class B 5,564,674
Class C 42,586
Transfer agency fee 3,558,268
Incremental transfer agency fee
Class A 214,365
Class B 229,836
Class C 2,053
Service fee -- Class Y 122,921
Administrative services fees and expenses 465,352
Compensation of board members 15,067
Custodian fees 105,813
Printing and postage 492,299
Registration fees 75,509
Audit fees 26,500
Other 34,343
------
Total expenses 20,689,178
Earnings credits on cash balances (Note 2) (19,728)
-------
Total net expenses 20,669,450
----------
Investment income (loss) -- net 6,456,719
---------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 41,752,414
Futures contracts 7,243,735
Options contracts written (Note 5) 616,032
-------
Net realized gain (loss) on investments 49,612,181
Net change in unrealized appreciation (depreciation) on investments 363,514,410
-----------
Net gain (loss) on investments 413,126,591
-----------
Net increase (decrease) in net assets resulting from operations $419,583,310
============
See accompanying notes to financial statements.
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13 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
Statements of changes in net assets
AXP Blue Chip Advantage Fund
Year ended Jan. 31, 2004 2003
Operations and distributions
Investment income (loss) -- net $ 6,456,719 $ 7,276,521
Net realized gain (loss) on investments 49,612,181 (324,321,708)
Net change in unrealized appreciation (depreciation) on investments 363,514,410 (288,292,776)
----------- ------------
Net increase (decrease) in net assets resulting from operations 419,583,310 (605,337,963)
----------- ------------
Distributions to shareholders from:
Net investment income
Class A (5,779,812) (5,062,662)
Class B (171,405) --
Class C (1,158) --
Class Y (1,044,739) (1,215,387)
---------- ----------
Total distributions (6,997,114) (6,278,049)
---------- ----------
Capital share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 76,906,611 182,752,085
Class B shares 28,269,314 47,803,193
Class C shares 809,934 1,661,370
Class Y shares 35,629,604 58,125,349
Reinvestment of distributions at net asset value
Class A shares 5,636,195 4,932,119
Class B shares 168,919 --
Class C shares 1,121 --
Class Y shares 1,044,739 1,215,387
Payments for redemptions
Class A shares (252,077,109) (541,090,333)
Class B shares (Note 2) (175,937,521) (301,061,281)
Class C shares (Note 2) (1,298,049) (1,655,252)
Class Y shares (94,981,459) (169,455,492)
----------- ------------
Increase (decrease) in net assets from capital share transactions (375,827,701) (716,772,855)
------------ ------------
Total increase (decrease) in net assets 36,758,495 (1,328,388,867)
Net assets at beginning of year 1,547,846,778 2,876,235,645
------------- -------------
Net assets at end of year $1,584,605,273 $ 1,547,846,778
============== ===============
Undistributed net investment income $ 566,599 $ 1,222,525
-------------- ---------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
14 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
Notes to Financial Statements
AXP Blue Chip Advantage Fund
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a series of AXP Market Advantage Series, Inc. and is registered
under the Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company. AXP Market Advantage Series, Inc. has 10 billion
authorized shares of capital stock that can be allocated among the separate
series as designated by the board. Under normal market conditions, at least 80%
of the Fund's net assets are invested in blue chip stocks. Blue chip stocks are
issued by companies with a market capitalization of at least $1 billion, an
established management, a history of consistent earnings and a leading position
within their respective industries.
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.
American Express Financial Corporation (AEFC) may use fair value if a security's
value has been materially affected by events after the close of the primary
exchanges or markets on which the security is traded and before the NAV is
calculated. The fair value of a security may be different from the quoted or
published price. AEFC will price a security at fair value in accordance with
procedures adopted by the Fund and board if a reliable market quotation is not
readily available. 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 BLUE CHIP ADVANTAGE FUND -- 2004 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 call 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 risk in
buying an option is that the Fund pays a premium whether or not the option is
exercised. 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 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 and the
cost of a security for a purchased 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
financial futures contracts and also may buy call options on these futures
contracts. Risks of entering into futures contracts include the possibility of
an illiquid market and that a change in the value of the contract 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.
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 decreased by $115,531
and accumulated net realized loss has been decreased by $115,531.
- --------------------------------------------------------------------------------
16 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
The tax character of distributions paid for the years indicated is as follows:
Year ended Jan. 31, 2004 2003
Class A
Distributions paid from:
Ordinary income $5,779,812 $5,062,662
Long-term capital gain -- --
Class B
Distributions paid from:
Ordinary income 171,405 --
Long-term capital gain -- --
Class C
Distributions paid from:
Ordinary income 1,158 --
Long-term capital gain -- --
Class Y
Distributions paid from:
Ordinary income 1,044,739 1,215,387
Long-term capital gain -- --
As of Jan. 31, 2004, the components of distributable earnings on a tax basis
are as follows:
Undistributed ordinary income $ 566,599
Accumulated long-term gain (loss) $(974,278,148)
Unrealized appreciation (depreciation) $ 10,823,833
Dividends to shareholders
Dividends from net investment income, declared and paid each calendar quarter,
when available, are reinvested in additional shares of the Fund at net asset
value or payable in cash. Capital gains, when available, are distributed along
with the last income dividend of the calendar year.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date and interest income,
including amortization of premium, market discount and original issue discount
using the effective interest method, is accrued daily.
2. EXPENSES AND SALES CHARGES
The Fund has agreements with 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 0.54% to 0.35% 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 adjustment increased the fee by $57,205 for the
year ended Jan. 31, 2004.
- --------------------------------------------------------------------------------
17 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
Under an Administrative Services Agreement, the Fund pays AEFC a fee for
administration and accounting services at a percentage of the Fund's average
daily net assets in reducing percentages from 0.04% 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 deferred Compensation Plan (the Plan), non-interested board members may
defer receipt of their compensation. Deferred amounts are treated as though
equivalent dollar amounts had been invested in shares of the Fund or other
American Express mutual funds. The Funds liability for these amounts is adjusted
for market value changes and remains in the Fund until distributed in accordance
with the Plan.
Under a separate Transfer Agency Agreement, American Express Client Service
Corporation (AECSC) maintains shareholder accounts and records. The Fund pays
AECSC an annual fee per shareholder account for this service as follows:
o Class A $19.50
o Class B $20.50
o Class C $20.00
o Class Y $17.50
The incremental transfer agency fee is the amount charged to the specific
classes for the additional expense above the fee for Class Y.
In addition, AECSC is entitled to charge an annual closed-account fee of $5 per
inactive account, charged on a pro rata basis from the date the account becomes
inactive until the date the account is purged from the transfer agent system
generally within one year. However, the closed account fee is currently not
effective.
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
$1,030,050 for Class A, $486,073 for Class B and $1,290 for Class C for the year
ended Jan. 31, 2004.
During the year ended Jan. 31, 2004, the Fund's custodian and transfer agency
fees were reduced by $19,728 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.
- --------------------------------------------------------------------------------
18 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $2,269,009,166 and $2,626,331,581, respectively, for the
year ended Jan. 31, 2004. Realized gains and losses are determined on an
identified cost basis.
Brokerage clearing fees paid to brokers affiliated with AEFC were $36,538 for
the year ended Jan. 31, 2004.
Income from securities lending amounted to $13,004 for the year ended Jan. 31,
2004. The risks to the Fund of securities lending are that the borrower may not
provide additional collateral when required or return the securities when due.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the years indicated are as follows:
Year ended Jan. 31, 2004
Class A Class B Class C Class Y
Sold 11,178,891 4,261,937 120,573 5,222,827
Issued for reinvested distributions 813,906 26,946 178 150,891
Redeemed (37,065,033) (26,677,573) (197,922) (13,406,511)
----------- ----------- -------- -----------
Net increase (decrease) (25,072,236) (22,388,690) (77,171) (8,032,793)
----------- ----------- ------- ----------
Year ended Jan. 31, 2003
Class A Class B Class C Class Y
Sold 24,860,224 7,033,264 245,508 8,374,682
Issued for reinvested distributions 732,455 -- -- 178,866
Redeemed (77,333,074) (45,318,877) (249,971) (24,560,966)
----------- ----------- -------- -----------
Net increase (decrease) (51,740,395) (38,285,613) (4,463) (16,007,418)
----------- ----------- ------ -----------
5. OPTIONS CONTRACTS WRITTEN
Contracts and premiums associated with options contracts written are as follows:
Year ended Jan. 31, 2004
Calls
Contracts Premiums
Balance Jan. 31, 2003 -- $ --
Opened 22,743 1,389,325
Closed (22,743) (1,389,325)
------- ----------
Balance Jan. 31, 2004 -- $ --
------- -----------
See "Summary of significant accounting policies."
- --------------------------------------------------------------------------------
19 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
6. 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 year ended Jan. 31, 2004.
7. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, the Fund has a capital loss carry-over of
$974,278,148 as of Jan. 31, 2004, 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.
8. SUBSEQUENT EVENT
Shareholders will be asked to approve a merger of the Fund into AXP Large Cap
Equity Fund at a shareholder meeting on June 9, 2004. This approval is not
guaranteed. If shareholder approval is obtained, no new purchases or exchanges
into the Fund will be allowed, although existing shareholders may redeem or
exchange out of the Fund.
- --------------------------------------------------------------------------------
20 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
9. 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 Jan. 31, 2004 2003 2002 2001 2000
Net asset value, beginning of period $6.03 $ 7.94 $ 9.92 $11.80 $11.88
Income from investment operations:
Net investment income (loss) .04 .04 .03 .05 .03
Net gains (losses) (both realized and unrealized) 1.84 (1.92) (1.95) (.76) 1.11
Total from investment operations 1.88 (1.88) (1.92) (.71) 1.14
Less distributions:
Dividends from net investment income (.05) (.03) (.04) (.04) (.03)
Distributions from realized gains -- -- (.02) (1.13) (1.19)
Total distributions (.05) (.03) (.06) (1.17) (1.22)
Net asset value, end of period $7.86 $ 6.03 $ 7.94 $ 9.92 $11.80
Ratios/supplemental data
Net assets, end of period (in millions) $913 $852 $1,533 $2,247 $2,455
Ratio of expenses to average daily net assets(c) 1.06% 1.00% .89% .85% .83%
Ratio of net investment income (loss) to average daily net assets .67% .61% .54% .50% .40%
Portfolio turnover rate (excluding short-term securities) 149% 104% 135% 140% 81%
Total return(e) 31.20% (23.70%) (19.38%) (5.34%) 9.30%
See accompanying notes to financial highlights.
- --------------------------------------------------------------------------------
21 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
Class B
Per share income and capital changes(a)
Fiscal period ended Jan. 31, 2004 2003 2002 2001 2000
Net asset value, beginning of period $5.87 $ 7.76 $ 9.72 $11.63 $11.79
Income from investment operations:
Net gains (losses) (both realized and unrealized) 1.78 (1.89) (1.94) (.78) 1.03
Less distributions:
Distributions from realized gains -- -- (.02) (1.13) (1.19)
Net asset value, end of period $7.65 $ 5.87 $ 7.76 $ 9.72 $11.63
Ratios/supplemental data
Net assets, end of period (in millions) $568 $568 $1,047 $1,530 $1,588
Ratio of expenses to average daily net assets(c) 1.83% 1.77% 1.65% 1.60% 1.59%
Ratio of net investment income (loss) to average daily net assets (.09%) (.16%) (.22%) (.25%) (.36%)
Portfolio turnover rate (excluding short-term securities) 149% 104% 135% 140% 81%
Total return(e) 30.36% (24.36%) (19.98%) (6.01%) 8.45%
See accompanying notes to financial highlights.
- --------------------------------------------------------------------------------
22 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
Class C
Per share income and capital changes(a)
Fiscal period ended Jan. 31, 2004 2003 2002 2001(b)
Net asset value, beginning of period $5.86 $ 7.74 $ 9.70 $11.99
Income from investment operations:
Net investment income (loss) -- -- -- .03
Net gains (losses) (both realized and unrealized) 1.76 (1.88) (1.94) (1.16)
Total from investment operations 1.76 (1.88) (1.94) (1.13)
Less distributions:
Dividends from net investment income -- -- -- (.03)
Distributions from realized gains -- -- (.02) (1.13)
Total distributions -- -- (.02) (1.16)
Net asset value, end of period $7.62 $ 5.86 $ 7.74 $ 9.70
Ratios/supplemental data
Net assets, end of period (in millions) $5 $4 $5 $4
Ratio of expenses to average daily net assets(c) 1.84% 1.79% 1.67% 1.60%(d)
Ratio of net investment income (loss) to average daily net assets (.10%) (.16%) (.26%) .04%(d)
Portfolio turnover rate (excluding short-term securities) 149% 104% 135% 140%
Total return(e) 30.07% (24.29%) (19.98%) (8.79%)(f)
See accompanying notes to financial highlights.
- --------------------------------------------------------------------------------
23 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
Class Y
Per share income and capital changes(a)
Fiscal period ended Jan. 31, 2004 2003 2002 2001 2000
Net asset value, beginning of period $6.04 $ 7.96 $ 9.94 $11.81 $11.89
Income from investment operations:
Net investment income (loss) .05 .05 .04 .06 .04
Net gains (losses) (both realized and unrealized) 1.85 (1.93) (1.95) (.75) 1.11
Total from investment operations 1.90 (1.88) (1.91) (.69) 1.15
Less distributions:
Dividends from net investment income (.06) (.04) (.05) (.05) (.04)
Distributions from realized gains -- -- (.02) (1.13) (1.19)
Total distributions (.06) (.04) (.07) (1.18) (1.23)
Net asset value, end of period $7.88 $ 6.04 $ 7.96 $ 9.94 $11.81
Ratios/supplemental data
Net assets, end of period (in millions) $99 $124 $291 $362 $369
Ratio of expenses to average daily net assets(c) .89% .82% .72% .68% .69%
Ratio of net investment income (loss) to average daily net assets .86% .76% .70% .67% .54%
Portfolio turnover rate (excluding short-term securities) 149% 104% 135% 140% 81%
Total return(e) 31.53% (23.63%) (19.23%) (5.16%) 9.44%
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.
- --------------------------------------------------------------------------------
24 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
Independent Auditors' Report
THE BOARD AND SHAREHOLDERS
AXP MARKET ADVANTAGE SERIES, INC.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of AXP Blue Chip Advantage Fund (a
series of AXP Market Advantage Series, Inc.) as of January 31, 2004, 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 January 31, 2004,
and the financial highlights for each of the years in the five-year period ended
January 31, 2004. 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 January 31, 2004, 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
Blue Chip Advantage Fund as of January 31, 2004, 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
March 22, 2004
- --------------------------------------------------------------------------------
25 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 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 Blue Chip Advantage Fund
Fiscal year ended Jan. 31, 2004
Class A
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 100%
Dividends Received Deduction for corporations 100%
Payable date Per share
March 21, 2003 $0.01317
June 20, 2003 0.01274
Sept. 19, 2003 0.00751
Dec. 19, 2003 0.01206
Total distributions $0.04548
Class B
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 100%
Dividends Received Deduction for corporations 100%
Payable date Per share
March 21, 2003 $0.00139
June 20, 2003 0.00050
Total distributions $0.00189
- --------------------------------------------------------------------------------
26 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
Class C
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 100%
Dividends Received Deduction for corporations 100%
Payable date Per share
March 21, 2003 $0.00114
June 20, 2003 0.00065
Total distributions $0.00179
Class Y
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 100%
Dividends Received Deduction for corporations 100%
Payable date Per share
March 21, 2003 $0.01601
June 20, 2003 0.01568
Sept. 19, 2003 0.00994
Dec. 19, 2003 0.01529
Total distributions $0.05692
- --------------------------------------------------------------------------------
27 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 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 94 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
901 S. Marquette Ave. since 1999 Corporation (provides
Minneapolis, MN 55402 administrative services to
Age 69 boards). Former Governor of
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 66 materials/chemicals)
- ------------------------------------ -------------------- ---------------------------------- -------------------------------
Livio D. DeSimone Board member Retired Chair of the Board and Cargill, Incorporated
30 Seventh Street East since 2001 Chief Executive Officer, (commodity merchants and
Suite 3050 Minnesota Mining and processors), General Mills,
St. Paul, MN 55101-4901 Manufacturing (3M) 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
Age 74 merchants and processors)
- ------------------------------------ -------------------- ---------------------------------- -------------------------------
Anne P. Jones Board member Attorney and Consultant
901 S. Marquette Ave. since 1985
Minneapolis, MN 55402
Age 69
- ------------------------------------ -------------------- ---------------------------------- -------------------------------
Stephen R. Lewis, Jr.** Board member Retired President and Professor Valmont Industries, Inc.
901 S. Marquette Ave. since 2002 of Economics, Carleton College (manufactures irrigation
Minneapolis, MN 55402 systems)
Age 65
- ------------------------------------ -------------------- ---------------------------------- -------------------------------
* Interested person of AXP Partners International Aggressive Growth Fund, AXP
Partners Aggressive Growth Fund, AXP Partners Small Cap Core Fund and AXP
Discovery 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 four AXP 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 Columbia Wanger Asset Management, L.P., one of the fund's
subadvisers.
- --------------------------------------------------------------------------------
28 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 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 G. Quasha Board member President, Quadrant Management, Compagnie Financiere
901 S. Marquette Ave. since 2002 Inc. (management of private Richemont AG (luxury goods),
Minneapolis, MN 55402 equities) Harken Energy Corporation
Age 54 (oil and gas exploration)
and SIRIT Inc. (radio
frequency identification
technology)
- ------------------------------------ -------------------- ---------------------------------- ------------------------------
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 72
- ------------------------------------ -------------------- ---------------------------------- ------------------------------
Alison Taunton-Rigby Board member since President, Forester Biotech
901 S. Marquette Ave. 2002 since 2000. Former President and
Minneapolis, MN 55402 CEO, Aquila Biopharmaceuticals,
Age 59 Inc.
- ------------------------------------ -------------------- ---------------------------------- ------------------------------
Board Members Affiliated with AEFC***
Name, address, age Position held Principal occupation during past Other directorships
with Fund and five years
length of service
- ------------------------------------ -------------------- ---------------------------------- ------------------------------
Barbara H. Fraser Board member since Executive Vice President - Chief
1546 AXP Financial Center 2002 Marketing Officer, AEFC, since
Minneapolis, MN 55474 2003. Executive Vice President
Age 54 - AEFA Products and Corporate
Marketing, AEFC, 2002-2003.
President - Travelers Check
Group, American Express
Company, 2001-2002. Management
Consultant, Reuters, 2000-2001.
Managing Director -
International Investments,
Citibank Global, 1999-2000.
- ------------------------------------ -------------------- ---------------------------------- ------------------------------
Stephen W. Roszell Board member since Senior Vice President -
50238 AXP Financial Center 2002, Vice Institutional Group of AEFC
Minneapolis, MN 55474 President since
Age 55 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 43 2002 Officer and Managing Director,
Zurich Scudder Investments
- ------------------------------------ -------------------- ---------------------------------- ------------------------------
*** Interested person by reason of being an officer, director and/or employee
of AEFC.
- --------------------------------------------------------------------------------
29 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 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;
Minneapolis, MN 55474 Vice President - Finance,
Age 48 American Express Company,
2000-2002; Vice President -
Corporate Controller, AEFC,
1996-2000
- ------------------------------------ -------------------- ---------------------------------- ------------------------------
Paula R. Meyer President since Senior Vice President and
596 AXP Financial Center 2002 General Manager - Mutual Funds,
Minneapolis, MN 55474 AEFC, since 2002; Vice President
Age 50 and Managing Director - American
Express Funds, AEFC, 2000-2002;
Vice President, AEFC, 1998-2000
- ------------------------------------ -------------------- ---------------------------------- ------------------------------
Leslie L. Ogg Vice President, President of Board Services
901 S. Marquette Ave. General Counsel, Corporation
Minneapolis, MN 55402 and Secretary
Age 65 since 1978
- ------------------------------------ -------------------- ---------------------------------- ------------------------------
The SAI has additional information about the Fund's directors and is available,
without charge, upon request by calling (800) 862-7919.
Proxy Voting
The policy of the Board is to vote all proxies of the companies in which the
Fund holds investments. The procedures are stated in the Statement of Additional
Information (SAI). You may obtain a copy of the SAI without charge by calling
(800) 862-7919; by looking at the Web site americanexpress.com/funds; or by
searching the Web site of the Securities and Exchange Commission
http://www.sec.gov. You may view the Fund's voting record for all portfolio
companies whose shareholders meetings were completed the previous quarter on
americanexpress.com/funds or obtain a copy by calling the Fund's administrator,
Board Services Corporation, collect at (612) 330-9283. In addition, after Aug.
1, 2004, information regarding how the Fund voted proxies relating to portfolio
securities during the most recent 12-month period ended June 30 will be
available at http://www.sec.gov.
- --------------------------------------------------------------------------------
30 -- AXP BLUE CHIP ADVANTAGE FUND -- 2004 ANNUAL REPORT
(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.