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)
50606 AXP Financial Center, Minneapolis, Minnesota 55474
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(Address of principal executive offices) (Zip code)
Leslie L. Ogg - 901 S. Marquette Avenue, Suite 2810, Minneapolis, MN 55402-3268
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(Name and address of agent for service)
Registrant's telephone number, including area code: (612) 330-9283
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Date of fiscal year end: 7/31
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Date of reporting period: 1/31
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AXP(R)
Growth
Fund
Semiannual Report
for the Period Ended
Jan. 31, 2004
AXP Growth 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 8
Financial Statements (Portfolio) 12
Notes to Financial Statements (Portfolio) 15
Financial Statements (Fund) 19
Notes to Financial Statements (Fund) 22
Proxy Voting 27
(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 - 2004 SEMIANNUAL REPORT
Fund Snapshot
AS OF JAN. 31, 2004
PORTFOLIO MANAGER
Portfolio manager Nick Thakore
Since 4/02
Years in industry 11
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 $3.521 billion
Number of holdings 135
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 graph)
Health care 22.2%
Consumer discretionary 18.1%
Technology 14.8%
Financials 9.5%
Consumer staples 8.9%
Short-term securities 7.8%
Telecommunications 6.5%
Energy 5.9%
Industrials 3.4%
Materials 2.4%
Other 0.5%
TOP TEN HOLDINGS
Percentage of portfolio assets
NTL (Cable) 5.7%
Nextel Communications Cl A
(Cellular telecommunications) 3.7
Pfizer (Health care products) 3.6
Boston Scientific (Health care products) 3.3
Intel (Electronics) 2.6
Amgen (Health care products) 2.1
Freddie Mac (Financial services) 1.9
Hewlett-Packard (Computer hardware) 1.9
Dell (Computer hardware) 1.8
Johnson & Johnson (Health care products) 1.7
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. Stocks of small- and medium-sized companies
may be subject to more abrupt or erratic price movements than stocks of larger
companies. Some of these companies also may have fewer financial resources.
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 - 2004 SEMIANNUAL REPORT
Questions & Answers
WITH PORTFOLIO MANAGEMENT
Below, Portfolio Manager Nick Thakore discusses AXP Growth Fund's results and
positioning for the six-month period ended Jan. 31, 2004.
Q: How did AXP Growth Fund perform for fiscal year 2004?
A: AXP Growth Fund's Class A shares rose 7.89%, excluding sales charge, for
the six-month period ended Jan. 31, 2004. The Fund lagged the 12.52% gain
of its peer group as represented by the Lipper Large-Cap Growth Funds
Index. The Fund's benchmark, the Russell 1000(R) Growth Index, climbed
14.23% for the same period.
Q: What factors influenced performance during the period?
A: While the Fund benefited from the stock market's ongoing rally in this most
recent six-month period, it lagged its benchmark and its peers primarily
because it did not have enough of a pro-cyclical tilt and because of
lower-than-index weightings in certain stocks which were among the index's
stronger performers.
The Fund limited its exposure to certain cyclical sectors of the market due
to concerns about companies' abilities to achieve the historically high
level of earnings growth being forecast and due to concern that even if
estimates were achieved that this was already discounted in the valuations.
During the
(bar graph)
PERFORMANCE COMPARISON
For the six-month period ended Jan. 31, 2004
15% (bar 2) (bar 3)
12% +14.23% +12.52%
9% (bar 1)
6% +7.89%
3%
0%
(bar 1) AXP Growth Fund Class A (excluding sales charge)
(bar 2) Russell 1000(R) Growth Index(1) (unmanaged)
(bar 3) Lipper Large-Cap Growth Funds Index(2)
(1) The Russell 1000(R) Growth Index, an unmanaged index, measures the
performance of those companies among the 1,000 largest companies included
in the Russell 3000(R) Index with 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.
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 - 2004 SEMIANNUAL REPORT
Questions & Answers
(begin callout quote)> The most significant change to the portfolio's
positioning was a substantial increase in the weighting of cable companies and
telecommunications services stocks, particularly wireless service providers.(end
callout quote)
period discussed, these concerns proved poorly placed.
The sectors where exposure was limited due to these concerns were
technology, industrials and consumer discretionary. As a substitute for
lower cyclical exposure, the Fund had significant exposure to more stable
growth sectors of the economy.
AVERAGE ANNUAL TOTAL RETURNS
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)
as of Jan. 31, 2004
6 months* +7.89% +1.69% +7.48% +3.48% +7.48% +6.48% +8.01% +8.01%
1 year +23.87% +16.74% +22.86% +18.86% +22.86% +22.86% +24.08% +24.08%
5 years -8.25% -9.33% -8.95% -9.12% N/A N/A -8.10% -8.10%
10 years +6.28% +5.65% N/A N/A N/A N/A N/A N/A
Since inception N/A N/A +5.52% +5.52% -19.33% -19.33% +6.48% +6.48%
as of Dec. 31, 2003
6 months* +6.29% +0.18% +5.86% +0.86% +5.86% +4.86% +6.34% +6.34%
1 year +20.75% +13.80% +19.79% +15.79% +19.79% +19.79% +20.94% +20.94%
5 years -6.58% -7.68% -7.31% -7.48% N/A N/A -6.44% -6.44%
10 years +6.65% +6.02% N/A N/A N/A N/A N/A N/A
Since inception N/A N/A +5.53% +5.53% -19.83% -19.83% +6.50% +6.50%
The performance information shown represents the past performance and is not a
guarantee of future results. The value of your investment and returns will
fluctuate so that your shares, when redeemed, may be worth more or less than
their original cost. Current performance may be lower or higher than the
performance information shown. You may obtain performance information current to
the most recent month-end by calling (888) 723-8476 or visiting
www.americanexpress.com/funds. You should consider the investment objectives,
risks, and charges and expenses of the Fund carefully before investing.
* Not annualized.
(1) Excluding sales charge.
(2) Returns at public offering price (POP) reflect a sales charge of 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 GROWTH FUND - 2004 SEMIANNUAL REPORT
Questions & Answers
As the market embraced expectations for a vigorous economic recovery,
stable growth stocks underperformed cyclical growth stocks. Some large
index components that were underweighted in the Fund and performed well
include 3M, Cisco, Intel and Texas Instruments.
On a positive note, performance benefited from the Fund's positioning in
the telecommunications sector, as well as its positioning in energy and
materials. There were a number of individual stocks which added to relative
return, including NTL, a U.K. cable company, which advanced strongly
following its emergence from bankruptcy and Schlumberger, an energy
equipment and services company, which benefited as the energy sector, which
has lagged other cyclical sectors, began to catch up. Another name which
boosted performance is Boston Scientific, a provider of specialized medical
devices, which will soon release a next generation product which we
anticipated would lead to explosive growth. The stock appreciated as
analysts' earnings expectations rose.
The Fund also benefited from some exposure to small- and mid-cap stocks.
Although our focus continues to be large-cap stocks, the smaller companies
that we owned generally added to relative return, as the small- and mid-cap
sectors meaningfully outperformed their large-cap peers over the past six
months.
Q: What changes did you make during the six-month period?
A: The most significant change to the portfolio's positioning within the last
six months was a substantial increase in the weighting of cable companies
and telecommunications services stocks, particularly wireless service
providers. We are focused on identifying stocks where we see potential for
very strong earnings growth, but reasonable valuations, as well, so that
the Fund won't be significantly affected should the economy not perform as
well as anticipated, but are also likely to do well if economic growth
remains strong.
We have seen such potential within the wireless telecommunication sector.
In our view, the sector 1) has a good growth outlook, 2) is attractively
valued and 3) has historically performed well in periods of consolidation
which we believe 2004 is shaping up to be. Although the stock prices
haven't received much of a boost from economic growth so far, renewed
employment growth could have a positive impact on fundamentals.
At the end of the period, the Fund maintained a modest tilt toward stable
growth, but it is somewhat smaller than it has been, and while we remain
somewhat concerned about valuation levels on many technology stocks, we
have identified some attractive opportunities within the
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6 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT
Questions & Answers
sector. Nevertheless, we have kept the Fund's weightings in technology and
industrials lower than those of the index. To offset this positioning, we
have substituted other cyclical sectors where we believe valuations are
more reasonable, including energy and materials in lieu of industrials and
cable and telecommunications in lieu of technology.
Q: How do you plan to manage the Fund in the coming months given current
market conditions?
A: Regardless of the market environment, we will adhere to our long-term
investment discipline, striving to identify companies with good growth
rates. We believe we do not need to overpay for such growth.
Given the strong fundamentals in the economy, we have added to some
pro-cyclical stocks where we viewed prices as reasonable. However, because
we believe the penalty could be high if economic growth weakens, we are
also maintaining a healthy weighting in the stable growth sectors of the
market. If the economy maintains its current strong growth rate, we may not
see any major shift in market trends. If, however, overall growth slows or
rates begin to rise, we believe investors may demonstrate a preference for
higher quality growth stocks.
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7 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT
Investments in Securities
Growth Portfolio
Jan. 31, 2004 (Unaudited)
(Percentages represent value of investments compared to net assets)
Common stocks (94.5%)
Issuer Shares Value(a)
Aerospace & defense (2.8%)
Empresa Brasileira
de Aeronautica ADR 1,442,000(c) $42,495,740
Lockheed Martin 711,000 34,568,820
Northrop Grumman 75,000 7,253,250
United Technologies 135,000 12,897,900
Total 97,215,710
Airlines (0.1%)
JetBlue Airways 78,000(b) 1,772,940
Banks and savings & loans (0.9%)
Bank of America 87,000 7,087,020
U.S. Bancorp 430,000 12,156,100
Wells Fargo 202,000 11,596,820
Total 30,839,940
Beverages & tobacco (4.8%)
Altria Group 1,037,000 57,646,830
Anheuser-Busch Companies 320,000 16,230,400
Coca-Cola 587,000 28,903,880
PepsiCo 910,000 43,006,600
RJ Reynolds Tobacco Holdings 381,000 22,501,860
Total 168,289,570
Broker dealers (--%)
Piper Jaffray 4,300(b) 201,885
Cable (9.7%)
Cablevision Systems NY
Group Cl A 1,883,000(b) 48,167,140
Comcast Cl A 630,000(b) 21,495,600
Comcast Special Cl A 1,107,000(b) 36,475,650
EchoStar Communications Cl A 893,000(b) 32,594,500
NTL 3,089,000(b) 204,924,260
Total 343,657,150
Cellular telecommunications (4.7%)
AT&T Wireless Services 1,030,000(b) 11,381,500
China Unicom ADR 796,000(c) 9,233,600
Nextel Communications Cl A 5,120,000(b) 135,116,800
Telesystem Intl Wireless 276,000(b,c) 3,560,400
Western Wireless Cl A 302,150(b) 6,846,719
Total 166,139,019
Chemicals (0.5%)
Dow Chemical 420,000 17,619,000
Computer hardware (4.6%)
Cisco Systems 616,000(b) 15,794,240
Dell 1,979,000(b) 66,237,130
EMC 729,625(b) 10,243,935
Hewlett-Packard 2,870,000 68,277,300
Total 160,552,605
Computer software & services (2.5%)
First Data 657,000 25,728,120
Microsoft 1,447,000 40,009,550
Oracle 804,000(b) 11,103,240
VERITAS Software 322,000(b) 10,580,920
Total 87,421,830
Electronics (8.2%)
Analog Devices 842,000 40,289,700
Applied Materials 1,615,000(b) 35,142,400
Intel 3,093,000 94,645,800
KLA-Tencor 190,000(b) 10,843,300
Marvell Technology Group 466,000(b,c) 19,385,600
Maxim Integrated Products 394,000 20,153,100
STMicroelectronics 519,000(c) 13,929,960
Taiwan Semiconductor Mfg ADR 3,802,000(c) 42,506,360
United Microelectronics ADR 2,201,000(c) 11,907,410
Total 288,803,630
Energy (3.6%)
Anadarko Petroleum 690,000 34,431,000
Apache 528,000 20,317,440
ConocoPhillips 213,000 14,032,440
Devon Energy 794,320 44,847,307
Newfield Exploration 103,000(b) 4,860,570
XTO Energy 346,666 9,093,049
Total 127,581,806
Energy equipment & services (2.5%)
Halliburton 1,296,600 39,092,490
Schlumberger 795,600 48,674,808
Total 87,767,298
See accompanying notes to investments in securities.
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8 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Finance companies (1.0%)
Citigroup 732,500 $36,244,100
Financial services (4.4%)
Capital One Financial 138,000 9,809,040
Countrywide Financial 62,000 5,180,100
Fannie Mae 350,000 26,985,000
Freddie Mac 1,098,000 68,537,160
MBNA 340,000 9,166,400
Nomura Holdings 2,157,000(c) 35,294,511
Total 154,972,211
Food (0.4%)
Kellogg 352,000 13,309,120
Health care products (17.9%)
Amgen 1,188,000(b) 76,614,120
Baxter Intl 1,603,000 46,727,450
Boston Scientific 2,976,000(b) 121,391,040
Cytyc 1,473,000(b) 23,862,600
Forest Laboratories 262,000(b) 19,516,380
Gilead Sciences 66,000(b) 3,621,420
Guidant 280,000 17,886,400
Johnson & Johnson 1,171,000 62,554,820
Medtronic 700,000 34,454,000
Merck & Co 754,000 35,890,400
Novartis ADR 297,700(c) 13,441,155
Pfizer 3,542,000 129,743,461
Schering-Plough 788,000 13,821,520
Wyeth 855,000 35,012,250
Total 634,537,016
Health care services (4.8%)
Aetna 266,000 18,620,000
Anthem 327,000(b) 26,742,060
Caremark Rx 1,189,000(b) 31,805,750
Fisher Scientific Intl 167,000(b) 7,456,550
Healthsouth 6,010,590(b) 30,233,268
Lincare Holdings 853,286(b) 27,458,743
Select Medical 1,542,000 26,676,600
Total 168,992,971
Household products (4.0%)
Colgate-Palmolive 1,076,000 55,166,520
Gillette 1,099,000 39,838,750
Procter & Gamble 443,000 44,778,440
Total 139,783,710
Insurance (2.3%)
Allstate 784,000 35,640,640
American Intl Group 120,400 8,361,780
Chubb 501,000 35,816,490
Total 79,818,910
Investment companies (1.3%)
iShares MSCI Japan Index Fund 4,552,000 44,154,400
Leisure time & entertainment (1.2%)
Viacom Cl B 1,078,000 43,443,400
Media (3.9%)
Cendant 1,579,900(b) 35,784,735
Disney (Walt) 2,552,000 61,248,000
InterActiveCorp 1,004,000(b) 32,529,600
Liberty Media Cl A 795,000(b) 9,253,800
Total 138,816,135
Metals (0.2%)
Teck Cominco Cl B 500,000(c) 7,640,559
Multi-industry (0.7%)
Accenture Cl A 493,000(b,c) 11,669,310
Sony 320,000(c) 12,848,370
Total 24,517,680
Precious metals (1.8%)
Agnico-Eagle Mines 540,000(c) 6,885,000
AngloGold ADR 185,000(c) 7,461,050
Barrick Gold 295,000(c) 5,811,500
Coeur d'Alene Mines 1,498,000(b) 8,164,100
Glamis Gold 250,000(b) 3,750,000
Newmont Mining 736,000 30,661,760
Total 62,733,410
Restaurants (0.3%)
McDonald's 367,000 9,446,580
Retail -- general (3.0%)
Home Depot 1,078,000 38,236,660
Kohl's 909,000(b) 40,268,700
Target 281,000 10,666,760
Wal-Mart Stores 315,000 16,962,750
Total 106,134,870
Telecom equipment & services (1.1%)
Ericsson (LM) ADR Cl B 976,000(c) 22,448,000
Motorola 984,000 16,314,720
Total 38,762,720
See accompanying notes to investments in securities.
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9 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Textiles & apparel (0.5%)
Polo Ralph Lauren 551,300 $16,649,260
Utilities -- natural gas (--%)
Kinder Morgan Management LLC --(b) 13
Utilities -- telephone (0.8%)
Sprint (PCS Group) 3,589,000(b) 29,178,570
Total common stocks
(Cost: $2,930,277,251) $3,326,998,018
Options purchased (0.5%)
Issuer Contracts Exercise Expiration Value(a)
price date
Puts
S&P 500 Index 6,140 $1,075 Feb. 2004 $1,657,800
S&P 500 Index 2,029 1,060 March 2004 1,542,040
S&P 500 Index 2,440 1,150 June 2004 13,273,600
Total options purchased
(Cost: $23,206,852) $16,473,440
Short-term securities (8.0%)
Issuer Annualized Account Value(a)
Yield on date payable at
of purchase maturity
U.S. government agencies (3.6%)
Federal Home Loan Mtge Corp Disc Nts
02-12-04 1.07% $14,800,000 $14,794,625
02-26-04 1.09 6,200,000 6,195,367
03-04-04 1.08 3,800,000 3,796,529
04-01-04 1.03 43,100,000 43,028,670
Federal Natl Mtge Assn Disc Nts
02-11-04 1.08 3,200,000 3,198,945
04-07-04 1.00 19,200,000 19,164,979
04-07-04 1.02 9,900,000 9,881,942
04-14-04 1.00 27,900,000 27,843,642
Total 127,904,699
Commercial paper (4.4%)
Bear Stearns
04-02-04 1.04 20,000,000 19,964,178
CC (USA)/Centauri
03-05-04 1.04 10,400,000(d) 10,389,485
Citigroup Global Markets
02-05-04 1.02 3,000,000 2,999,490
CRC Funding LLC
03-09-04 1.04 17,000,000(d) 16,980,939
Falcon Asset Securitization
02-11-04 1.10 8,700,000(d) 8,696,891
HBOS Treasury Services
04-05-04 1.07 18,200,000 18,165,824
Household Finance
02-02-04 1.02 2,100,000 2,099,822
Nordea North America
04-28-04 1.05 17,135,000 17,091,439
Northern Rock
02-24-04 1.12 6,400,000(d) 6,395,156
Scaldis Capital LLC
02-10-04 1.10 6,100,000(d) 6,098,001
Sigma Finance
02-12-04 1.11 17,900,000(d) 17,892,955
Societe Generale North America
05-06-04 1.05 10,683,000 10,651,663
White Pine Finance LLC
02-10-04 1.09 2,200,000(d) 2,199,279
04-27-04 1.04 14,142,000(d) 14,106,456
Total 153,731,578
Total short-term securities
(Cost: $281,631,624) $281,636,277
Total investments in securities
(Cost: $3,235,115,727)(e) $3,625,107,735
See accompanying notes to investments in securities.
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10 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated. As of Jan. 31,
2004, the value of foreign securities represented 7.6% 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 $82,759,162 or 2.4% of net assets.
(e) At Jan. 31, 2004, the cost of securities for federal income tax purposes
was approximately $3,235,116,000 and the approximate aggregate gross
unrealized appreciation and depreciation based on that cost was:
Unrealized appreciation $424,422,000
Unrealized depreciation (34,430,000)
-----------
Net unrealized appreciation $389,992,000
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11 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT
Financial Statements
Statement of assets and liabilities
Growth Portfolio
Jan. 31, 2004 (Unaudited) Assets
Investments in securities, at value (Note 1)*
(identified cost $3,235,115,727) $3,625,107,735
Dividends and accrued interest receivable 1,559,414
Receivable for investment securities sold 128,186,390
U.S. government securities held as collateral (Note 4) 1,739,520
---------
Total assets 3,756,593,059
-------------
Liabilities
Disbursements in excess of cash on demand deposit 654,087
Payable for investment securities purchased 160,377,214
Payable upon return of securities loaned (Note 4) 74,453,420
Accrued investment management services fee 54,555
Other accrued expenses 77,016
------
Total liabilities 235,616,292
-----------
Net assets $3,520,976,767
==============
*Including securities on loan, at value (Note 4) $ 72,236,354
--------------
See accompanying notes to financial statements.
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12 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT
Statement of operations
Growth Portfolio
Six months ended Jan. 31, 2004 (Unaudited)
Investment income
Income:
Dividends $ 19,111,186
Interest 1,660,431
Fee income from securities lending (Note 4) 163,710
Less foreign taxes withheld (133,293)
--------
Total income 20,802,034
----------
Expenses (Note 2):
Investment management services fee 8,818,118
Compensation of board members 9,750
Custodian fees 123,140
Audit fees 15,000
Other 23,409
------
Total expenses 8,989,417
Earnings credits on cash balances (Note 2) (1,156)
------
Total net expenses 8,988,261
---------
Investment income (loss) -- net 11,813,773
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 169,026,491
Foreign currency transactions (85,035)
-------
Net realized gain (loss) on investments 168,941,456
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 97,250,943
----------
Net gain (loss) on investments and foreign currencies 266,192,399
-----------
Net increase (decrease) in net assets resulting from operations $278,006,172
============
See accompanying notes to financial statements.
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13 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT
Statements of changes in net assets
Growth Portfolio
Jan. 31, 2004 July 31, 2003
Six months ended Year ended
(Unaudited)
Operations
Investment income (loss) -- net $ 11,813,773 $ 19,243,868
Net realized gain (loss) on investments 168,941,456 (462,434,032)
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 97,250,943 741,212,811
---------- -----------
Net increase (decrease) in net assets resulting from operations 278,006,172 298,022,647
----------- -----------
Proceeds from contributions 15,829,318 46,555,814
Fair value of withdrawals (220,107,841) (443,556,729)
------------ ------------
Net contributions (withdrawals) from partners (204,278,523) (397,000,915)
------------ ------------
Total increase (decrease) in net assets 73,727,649 (98,978,268)
Net assets at beginning of period 3,447,249,118 3,546,227,386
------------- -------------
Net assets at end of period $3,520,976,767 $3,447,249,118
============== ==============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
14 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT
Notes to Financial Statements
Growth Portfolio
(Unaudited as to Jan. 31, 2004)
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.
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 Portfolio and board of trustees 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.
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.
- --------------------------------------------------------------------------------
15 - AXP GROWTH FUND - 2004 SEMIANNUAL 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.
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.
- --------------------------------------------------------------------------------
16 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT
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. FEES AND EXPENSES
The Trust, on behalf of the Portfolio, has an Investment Management Services
Agreement with 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. The maximum adjustment is 0.12% per year. If the
performance difference is less than 0.50%, the adjustment will be zero. The
adjustment decreased the fee by $1,162,900 for the six months ended Jan. 31,
2004.
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.
Under a Deferred Compensation Plan (the Plan), non-interested trustees may defer
receipt of their compensation. Deferred amounts are treated as though equivalent
dollar amounts had been invested in shares of the underlying Fund or other
American Express mutual funds. The Portfolio's liability for these amounts is
adjusted for market value changes and remains in the Portfolio until distributed
in accordance with the Plan.
During the six months ended Jan. 31, 2004, the Portfolio's custodian fees were
reduced by $1,156 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.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $2,448,058,605 and $2,630,558,655, respectively, for the
six months 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 $80,916 for
the six months ended Jan. 31, 2004.
- --------------------------------------------------------------------------------
17 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT
4. LENDING OF PORTFOLIO SECURITIES
As of Jan. 31, 2004, securities valued at $72,236,354 were on loan to brokers.
For collateral, the Portfolio received $72,713,900 in cash and U.S. government
securities valued at $1,739,520. Cash collateral received is invested in
short-term securities, which are included in the short-term section of the
"Investments in securities." Income from securities lending amounted to $163,710
for the six months ended Jan. 31, 2004. 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.
5. FINANCIAL HIGHLIGHTS
The table below shows certain important financial information for evaluating the
Portfolio's results.
Ratios/supplemental data:
Fiscal period ended July 31, 2004(e) 2003 2002 2001 2000
Ratio of expenses to average daily net assets(a) .51%(c) .62% .47% .55% .59%
Ratio of net investment income (loss) to average daily net assets .67%(c) .59% .37% .09% .09%
Portfolio turnover rate (excluding short-term securities) 77% 205% 225% 41% 23%
Total return(b) 8.22%(d) 9.73% (29.17%) (41.87%) 31.53%
Notes to financial highlights
(a) Expense ratio is based on total expenses of the Portfolio before reduction
of earnings credits on cash balances. The ratio does not include feeder
fund expenses.
(b) Total return is based on a calculated Portfolio NAV and does not reflect
payment of a sales charge.
(c) Adjusted to an annual basis.
(d) Not annualized.
(e) Six months ended Jan. 31, 2004 (Unaudited).
- --------------------------------------------------------------------------------
18 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT
Financial Statements
Statement of assets and liabilities
AXP Growth Fund
Jan. 31, 2004 (Unaudited)
Assets
Investment in Portfolio (Note 1) $ 3,520,930,603
Capital shares receivable 822,977
-------
Total assets 3,521,753,580
-------------
Liabilities
Capital shares payable 328,186
Accrued distribution fee 38,222
Accrued service fee 1,012
Accrued transfer agency fee 18,812
Accrued administrative services fee 4,181
Other accrued expenses 229,933
-------
Total liabilities 620,346
-------
Net assets applicable to outstanding capital stock $ 3,521,133,234
===============
Represented by
Capital stock -- $.01 par value (Note 1) $ 1,454,721
Additional paid-in capital 4,551,579,077
Net operating loss (588,634)
Accumulated net realized gain (loss) (Note 5) (1,421,329,504)
Unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 390,017,574
-----------
Total -- representing net assets applicable to outstanding capital stock $ 3,521,133,234
===============
Net assets applicable to outstanding shares: Class A $ 2,331,265,023
Class B $ 803,255,630
Class C $ 14,112,295
Class Y $ 372,500,286
Net asset value per share of outstanding capital stock: Class A shares 94,757,911 $ 24.60
Class B shares 35,161,349 $ 22.84
Class C shares 617,752 $ 22.84
Class Y shares 14,935,055 $ 24.94
---------- ---------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
19 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT
Statement of operations
AXP Growth Fund
Six months ended Jan. 31, 2004 (Unaudited)
Investment income
Income:
Dividends $ 19,110,945
Interest 1,660,414
Fee income from securities lending 163,708
Less foreign taxes withheld (133,292)
--------
Total income 20,801,775
----------
Expenses (Note 2):
Expenses allocated from Portfolio 8,988,148
Distribution fee
Class A 2,884,657
Class B 3,972,296
Class C 65,916
Transfer agency fee 3,595,428
Incremental transfer agency fee
Class A 249,957
Class B 195,193
Class C 3,185
Service fee -- Class Y 199,799
Administrative services fees and expenses 776,252
Compensation of board members 7,067
Printing and postage 403,600
Registration fees 27,758
Audit fees 5,000
Other 30,577
------
Total expenses 21,404,833
Earnings credits on cash balances (Note 2) (14,424)
-------
Total net expenses 21,390,409
----------
Investment income (loss) -- net (588,634)
--------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions 169,024,438
Foreign currency transactions (85,034)
-------
Net realized gain (loss) on investments 168,939,404
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 97,249,639
----------
Net gain (loss) on investments and foreign currencies 266,189,043
-----------
Net increase (decrease) in net assets resulting from operations $265,600,409
============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
20 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT
Statements of changes in net assets
AXP Growth Fund
Jan. 31, 2004 July 31, 2003
Six months ended Year ended
(Unaudited)
Operations
Investment income (loss) -- net $ (588,634) $ (5,450,978)
Net realized gain (loss) on investments 168,939,404 (462,429,500)
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 97,249,639 741,204,696
---------- -----------
Net increase (decrease) in net assets resulting from operations 265,600,409 273,324,218
----------- -----------
Capital share transactions (Note 3)
Proceeds from sales
Class A shares (Note 2) 118,870,557 299,443,361
Class B shares 50,719,975 108,759,258
Class C shares 2,718,490 5,623,858
Class Y shares 60,011,121 141,293,380
Payments for redemptions
Class A shares (226,619,558) (425,072,323)
Class B shares (Note 2) (80,161,060) (240,971,184)
Class C shares (Note 2) (1,490,861) (1,739,474)
Class Y shares (116,008,278) (258,890,708)
------------ ------------
Increase (decrease) in net assets from capital share transactions (191,959,614) (371,553,832)
------------ ------------
Total increase (decrease) in net assets 73,640,795 (98,229,614)
Net assets at beginning of period 3,447,492,439 3,545,722,053
------------- -------------
Net assets at end of period $3,521,133,234 $3,447,492,439
============== ==============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
21 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT
Notes to Financial Statements
AXP Growth Fund
(Unaudited as to Jan. 31, 2004)
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.
Effective March 4, 2004, the Fund will offer an additional class of shares,
Class I, exclusively to certain institutional investors. Class I shares are made
available through a separate prospectus supplement provided to investors
eligible to purchase the shares.
All classes of shares have identical voting, dividend and liquidation rights.
The distribution fee, incremental transfer agency fee and service fee (class
specific expenses) differ among classes. Income, expenses (other than class
specific expenses) and realized and unrealized gains or losses on investments
are allocated to each class of shares based upon its relative net assets.
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 Jan. 31, 2004 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.
- --------------------------------------------------------------------------------
22 - AXP GROWTH FUND - 2004 SEMIANNUAL 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.
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 Deferred Compensation Plan (the Plan), non-interested board members may
defer receipt of their compensation. Deferred amounts are treated as though
equivalent dollar amounts had been invested in shares of the Fund or other
American Express mutual funds. The Fund's liability for these amounts is
adjusted for market value changes and remains in the Fund until distributed in
accordance with the Plan.
Under a separate Transfer Agency Agreement, American Express Client Service
Corporation (AECSC) maintains shareholder accounts and records. The Fund pays
AECSC an annual fee per shareholder account for this service as follows:
o Class A $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.
- --------------------------------------------------------------------------------
23 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT
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.
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
$2,396,819 for Class A, $436,451 for Class B and $2,181 for Class C for the six
months ended Jan.31, 2004.
During the six months ended Jan. 31, 2004, the Fund's transfer agency fees were
reduced by $14,424 as a result of earnings credits from overnight cash balances.
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
Six months ended Jan. 31, 2004
Class A Class B Class C Class Y
Sold 5,049,553 2,316,869 124,387 2,512,018
Issued for reinvested distributions -- -- -- --
Redeemed (9,561,348) (3,632,096) (67,551) (4,792,818)
---------- ---------- ------- ----------
Net increase (decrease) (4,511,795) (1,315,227) 56,836 (2,280,800)
---------- ---------- ------ ----------
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)
---------- ---------- ------- ----------
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 Fund must
maintain asset coverage for borrowings of at least 300%. The agreement, which
enables the Fund to participate with other American Express mutual funds,
permits borrowings up to $500 million, collectively. Interest is charged to each
Fund based on its borrowings at a rate equal to either the LIBOR plus 0.50%, the
IBOR plus 0.50% or the higher of the Federal Funds Rate plus 0.25% and the Prime
Lending Rate. Borrowings are payable within 60 days after such loan is executed.
The Fund also pays a commitment fee equal to its pro rata share of the amount of
the credit facility at a rate of 0.09% per annum. The Fund had no borrowings
outstanding during the six months ended Jan. 31, 2004.
- --------------------------------------------------------------------------------
24 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT
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.
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, 2004(g) 2003 2002 2001 2000
Net asset value, beginning of period $22.80 $20.88 $29.68 $ 54.36 $42.14
Income from investment operations:
Net investment income (loss) .02 -- (.04) (.14) (.14)
Net gains (losses) (both realized and unrealized) 1.78 1.92 (8.74) (22.34) 13.14
Total from investment operations 1.80 1.92 (8.78) (22.48) 13.00
Less distributions:
Distributions from realized gains -- -- (.02) (2.20) (.78)
Net asset value, end of period $24.60 $22.80 $20.88 $ 29.68 $54.36
Ratios/supplemental data
Net assets, end of period (in millions) $2,331 $2,263 $2,213 $3,851 $6,637
Ratio of expenses to average daily net assets(c) 1.06%(d) 1.21% .99% .99% .99%
Ratio of net investment income (loss) to average daily net assets .12%(d) --% (.15%) (.34%) (.30%)
Portfolio turnover rate (excluding short-term securities) 77% 205% 225% 41% 23%
Total return(e) 7.89%(f) 9.20% (29.59%) (42.14%) 31.01%
See accompanying notes to financial highlights.
- --------------------------------------------------------------------------------
25 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT
Class B
Per share income and capital changes(a)
Fiscal period ended July 31, 2004(g) 2003 2002 2001 2000
Net asset value, beginning of period $21.25 $19.61 $28.11 $ 52.02 $40.65
Income from investment operations:
Net investment income (loss) (.07) (.17) (.25) (.42) (.46)
Net gains (losses) (both realized and unrealized) 1.66 1.81 (8.23) (21.29) 12.61
Total from investment operations 1.59 1.64 (8.48) (21.71) 12.15
Less distributions:
Distributions from realized gains -- -- (.02) (2.20) (.78)
Net asset value, end of period $22.84 $21.25 $19.61 $ 28.11 $52.02
Ratios/supplemental data
Net assets, end of period (in millions) $803 $775 $845 $1,510 $2,468
Ratio of expenses to average daily net assets(c) 1.84%(d) 1.99% 1.77% 1.75% 1.75%
Ratio of net investment income (loss) to average daily net assets (.65%)(d) (.77%) (.93%) (1.11%) (1.06%)
Portfolio turnover rate (excluding short-term securities) 77% 205% 225% 41% 23%
Total return(e) 7.48%(f) 8.36% (30.18%) (42.57%) 30.02%
Class C
Per share income and capital changes(a)
Fiscal period ended July 31, 2004(g) 2003 2002 2001 2000(b)
Net asset value, beginning of period $21.25 $19.62 $28.12 $ 52.03 $52.65
Income from investment operations:
Net investment income (loss) (.07) (.17) (.21) (.42) (.04)
Net gains (losses) (both realized and unrealized) 1.66 1.80 (8.27) (21.29) (.58)
Total from investment operations 1.59 1.63 (8.48) (21.71) (.62)
Less distributions:
Distributions from realized gains -- -- (.02) (2.20) --
Net asset value, end of period $22.84 $21.25 $19.62 $ 28.12 $52.03
Ratios/supplemental data
Net assets, end of period (in millions) $14 $12 $7 $9 $1
Ratio of expenses to average daily net assets(c) 1.83%(d) 2.01% 1.80% 1.75% 1.75%(d)
Ratio of net investment income (loss) to average daily net assets (.65%)(d) (.81%) (.96%) (1.10%) (1.30%)(d)
Portfolio turnover rate (excluding short-term securities) 77% 205% 225% 41% 23%
Total return(e) 7.48%(f) 8.31% (30.17%) (42.56%) (1.18%)(f)
See accompanying notes to financial highlights.
- --------------------------------------------------------------------------------
26 - AXP GROWTH FUND - 2004 SEMIANNUAL REPORT
Class Y
Per share income and capital changes(a)
Fiscal period ended July 31, 2004(g) 2003 2002 2001 2000
Net asset value, beginning of period $23.09 $21.11 $29.96 $ 54.75 $42.37
Income from investment operations:
Net investment income (loss) .04 .04 -- (.07) (.06)
Net gains (losses) (both realized and unrealized) 1.81 1.94 (8.83) (22.52) 13.22
Total from investment operations 1.85 1.98 (8.83) (22.59) 13.16
Less distributions:
Distributions from realized gains -- -- (.02) (2.20) (.78)
Net asset value, end of period $24.94 $23.09 $21.11 $ 29.96 $54.75
Ratios/supplemental data
Net assets, end of period (in millions) $373 $398 $481 $974 $1,551
Ratio of expenses to average daily net assets(c) .89%(d) 1.03% .82% .83% .83%
Ratio of net investment income (loss) to average daily net assets .31%(d) .18% .02% (.18%) (.14%)
Portfolio turnover rate (excluding short-term securities) 77% 205% 225% 41% 23%
Total return(e) 8.01%(f) 9.38% (29.48%) (42.04%) 31.20%
Notes to financial highlights
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date was June 26, 2000.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended Jan. 31, 2004 (Unaudited).
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.
- --------------------------------------------------------------------------------
27 - AXP GROWTH FUND - 2004 SEMIANNUAL 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.
AXP(R)
Large Cap
Equity
Fund
Semiannual Report
for the Period Ended
Jan. 31, 2004
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
Investments in Securities 8
Financial Statements 11
Notes to Financial Statements 14
Proxy Voting 22
(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 -- 2004 SEMIANNUAL REPORT
Fund Snapshot
AS OF JAN. 31, 2004
PORTFOLIO MANAGER
Portfolio manager Doug Chase
Since 3/02
Years in industry 12
FUND OBJECTIVE
The 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 $300.2 million
Number of holdings 100
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 22.3%
Financials 20.0%
Consumer discretionary 13.5%
Technology 13.2%
Consumer staples 10.3%
Industrials 7.2%
Energy 6.5%
Materials 3.5%
Short-term securities 2.5%
Telecommunications 0.5%
Utilities 0.5%
TOP TEN HOLDINGS
Percentage of portfolio assets
Pfizer (Health care products) 6.7%
Citigroup (Finance companies) 4.9
Cendant (Media) 3.3
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) 2.3
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 -- 2004 SEMIANNUAL REPORT
Questions & Answers
WITH PORTFOLIO MANAGEMENT
Below, Portfolio Manager Doug Chase discusses AXP(R) Large Cap Equity Fund's
results and positioning for the first half of fiscal year 2004.
Q: How did the AXP Large Cap Equity Fund perform for the six months
ended Jan. 31, 2004?
A: AXP Large Cap Equity Fund's Class A shares advanced 11.85%, excluding sales
charge, for the six months ended Jan. 31, 2004. This was less than the
Fund's benchmark, the Russell 1000(R) Index, which advanced 15.52% for the
period. The Fund also underperformed its peers as represented by the Lipper
Large-Cap Core Funds Index, which gained 13.12% over the same time frame.
Q: What factors significantly affected performance?
A: While the Fund benefited from the stock market's ongoing rally, in
this most recent six-month period, it lagged its benchmark and
peers for two primary reasons, 1) we favored stable growth
companies with sound balance sheets while the market rewarded
owners of unproven, more volatile companies, and 2) we focused on
large-cap companies while the market rewarded smaller and less
well-capitalized companies. During the semiannual period, smaller
capitalization stocks, in general, performed better than more
established companies. This trend, which was evident even within
the large-cap oriented S&P 500 Index, negatively affected the
Fund's relative performance.
(bar chart)
PERFORMANCE COMPARISON
For the six-month period ended Jan. 31, 2004
20%
(bar 2)
15% (bar 1) +15.52% (bar 3)
+11.85% +13.12%
10%
5%
0%
(bar 1) Large Cap Equity Fund Class A (excluding sales charge)
(bar 2) Russell 1000(R) Index(1) (unmanaged)
(bar 3) Lipper Large-Cap Core Funds Index(2)
(1) The Russell 1000(R) Index, an unmanaged index, measures the performance of
the 1,000 largest companies in the Russell 3000(R) Index, a broad measure
of equity market performance.
(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.
- --------------------------------------------------------------------------------
4 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT
Questions & Answers
(begin callout quote)> 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. (end callout quote)
At the start of our fiscal period, we made a strategic decision to
emphasize stable growth companies because our research inputs suggested
that economically sensitive stocks were discounting improved profits in the
near term. As it turned out, economic growth and corporate earnings were
stronger than anticipated. In that environment, more economically sensitive
sectors such as materials, industrials, technology, consumer discretionary
and telecommunications
AVERAGE ANNUAL TOTAL RETURNS
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)
as of Jan. 31, 2004
6 months* +11.85% +5.43% +11.42% +7.42% +11.39% +10.39% +11.87% +11.87%
1 year +30.93% +23.40% +29.65% +25.65% +29.57% +29.57% +30.89% +30.89%
Since inception +0.77% -2.41% -0.09% -2.24% +0.02% +0.02% +0.90% +0.90%
as of Dec. 31, 2003
6 months* +10.95% +4.58% +10.26% +5.26% +10.24% +9.24% +10.72% +10.72%
1 year +27.57% +20.24% +26.29% +22.29% +26.23% +26.23% +27.54% +27.54%
Since inception +0.35% -2.97% -0.56% -2.80% -0.45% -0.45% +0.48% +0.48%
The performance information shown represents the past performance and is not a
guarantee of future results. The value of your investment and returns will
fluctuate so that your shares, when redeemed, may be worth more or less than
their original cost. Current performance may be lower or higher than the
performance information shown. You may obtain performance information current to
the most recent month-end by calling (888) 723-8476 or visiting
www.americanexpress.com/funds. You should consider the investment objectives,
risks, and charges and expenses of the Fund carefully before investing.
* Not annualized.
(1) Excluding sales charge.
(2) Returns at public offering price (POP) reflect a sales charge of 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.
- --------------------------------------------------------------------------------
5 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT
Questions & Answers
outperformed, while consumer staples, health care and utilities -- the more
stable growth sectors -- lagged.
The portfolio's larger-than-index position in health care detracted from
relative performance, as did its lower-than-index position in technology.
Moreover, we had moved the Fund to a lower-than-index position in consumer
discretionary stocks over the course of the past year, which proved a
disadvantage in the near term given that sector's strong relative
performance.
The portfolio's higher-than-index position in the industrial sector
benefited relative return. Cendant, in particular, a real estate and travel
services company, was a strong performer for the Fund. The portfolio's
larger-than-index position in energy benefited relative performance as
well, particularly as these stocks rallied in late autumn.
Q: What changes were made to the portfolio during the period?
A: In August 2003, at the start of our fiscal period, we began to scale back
the Fund's exposure to cyclical stocks by reducing our positions in the
retail, industrial and materials sectors. Although this move hampered the
Fund's performance during the past six months, we remain wary of these
sectors because we believe expectations priced into many of these stocks
are much too high.
We added to media stocks in the portfolio during the period. Although media
is a cyclical sector, so far it has not kept pace with the other cyclical
sectors and, therefore, in our view, has room for further price
appreciation. While we did take some profits in a handful of media stocks
that had been strong performers for the Fund, including AOL Time Warner, we
continue to hold significant positions in some of media stocks, including
Viacom, our largest individual overweight in media relative to the
benchmark.
Late in the period, we trimmed some of our position in pharmaceutical firm
Wyeth, which had appreciated significantly, and used a portion of the
proceeds to add a broader mix of pharmaceutical stocks including Johnson &
Johnson, Forest Labs and Novartis. We maintained a higher-than-index
position in health care despite recent weakness because longer term, we
believe earnings in the health care industry will grow at rates faster than
the market overall due to demographic factors, specifically the aging of
the U.S. population. The Fund's health care position is well-diversified
among pharmaceutical firms, biotechnology companies, hospitals, medical
device providers and drug distributors. In the near term, because we have
some concern that health care stocks may suffer from rhetoric related to
the presidential election, we will likely be a bit cautious in adding
further to the health care sector, but may take advantage of any
election-related declines to add to some existing positions given our
constructive long-term views.
- --------------------------------------------------------------------------------
6 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT
Questions & Answers
Among other changes, we trimmed our energy position, particularly in
December after the energy stocks rallied. We also reduced our position in
General Electric following its recent advance because we are skeptical of
the company's ability to grow earnings this year. We maintained some
exposure to industrials and energy, and have kept the Fund's weighting in
the materials sector similar to that of the index. This positioning should
contribute to the Fund's performance should the economy continue to deliver
unusually strong growth. Within each of those sectors we have focused on
selected companies that we believe demonstrate quality growth.
Q: How will you manage the Fund in the coming months?
A: Regardless of the economic environment, we expect to continue to adhere to
our strategy of identifying stocks with strong fundamentals, sustainable
growth rates and reasonable valuations. More cyclical stocks, in our view,
are already trading at valuations which discount strong 2005 earnings
growth. One key issue for the market and for our investment style 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 multi-national 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
detergents. We think such companies are attractive given the improved
export environment.
Currently, we believe the most attractive 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 Index. 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.
- --------------------------------------------------------------------------------
7 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT
Investments in Securities
AXP Large Cap Equity Fund
Jan. 31, 2004 (Unaudited)
(Percentages represent value of investments compared to net assets)
Common stocks (98.5%)
Issuer Shares Value(a)
Aerospace & defense (2.6%)
Empresa Brasileira de
Aeronautica ADR 21,550(c) $635,079
Lockheed Martin 57,125 2,777,418
Northrop Grumman 16,261 1,572,601
United Technologies 29,468 2,815,372
Total 7,800,470
Banks and savings & loans (3.5%)
Bank of America 56,700 4,618,782
U.S. Bancorp 60,700 1,715,989
Washington Mutual 23,600 1,045,480
Wells Fargo 55,700 3,197,737
Total 10,577,988
Beverages & tobacco (5.3%)
Altria Group 89,100 4,953,069
Anheuser-Busch Companies 13,800 699,936
Coca-Cola 30,800 1,516,592
PepsiCo 184,624 8,725,330
Total 15,894,927
Broker dealers (1.8%)
Merrill Lynch & Co 44,201 2,598,577
Morgan Stanley 49,300 2,869,753
Total 5,468,330
Building materials & construction (0.5%)
American Standard 14,000(b) 1,486,800
Cable (0.6%)
EchoStar Communications Cl A 25,400(b) 927,100
NTL 15,369(b) 1,019,579
Total 1,946,679
Cellular telecommunications (0.5%)
Nextel Communications Cl A 57,400(b) 1,514,786
Chemicals (1.5%)
Dow Chemical 54,645 2,292,358
Lyondell Chemical 122,892 2,106,369
Total 4,398,727
Computer hardware (4.8%)
Cisco Systems 217,400(b) 5,574,136
Dell 113,700(b) 3,805,539
Hewlett-Packard 179,300 4,265,547
NVIDIA 30,200(b) 671,950
Total 14,317,172
Computer software & services (4.4%)
Affiliated Computer Services Cl A 12,200(b) 676,490
BMC Software 38,100(b) 758,190
Investors Financial Services 12,200 505,568
Microsoft 315,200 8,715,280
Oracle 120,800(b) 1,668,248
VERITAS Software 23,700(b) 778,782
Total 13,102,558
Electronics (4.2%)
Analog Devices 39,021 1,867,155
Applied Materials 40,600(b) 883,456
Intel 189,100 5,786,460
Jabil Circuit 18,000(b) 532,800
KLA-Tencor 26,300(b) 1,500,941
STMicroelectronics 53,000(c) 1,422,520
Taiwan Semiconductor Mfg ADR 67,600(c) 755,768
Total 12,749,100
Energy (5.2%)
ChevronTexaco 49,100 4,239,785
ConocoPhillips 41,873 2,758,593
Devon Energy 25,500 1,439,730
Exxon Mobil 158,746 6,475,250
Newfield Exploration 16,800(b) 792,792
Total 15,706,150
Energy equipment & services (1.3%)
Halliburton 54,200 1,634,130
Noble 40,400(b) 1,498,840
Weatherford Intl 19,400(b) 782,208
Total 3,915,178
Finance companies (4.9%)
Citigroup 298,008 14,745,436
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
8 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Financial services (4.9%)
Capital One Financial 18,500 $1,314,980
Countrywide Financial 32,033 2,676,357
Fannie Mae 96,797 7,463,049
MBNA 116,927 3,152,352
Total 14,606,738
Health care products (16.0%)
Amgen 64,900(b) 4,185,401
Baxter Intl 74,200 2,162,930
Boston Scientific 42,100(b) 1,717,259
Forest Laboratories 47,100(b) 3,508,479
Gilead Sciences 12,100(b) 663,927
Johnson & Johnson 127,200 6,795,024
Medtronic 40,700 2,003,254
Merck & Co 32,700 1,556,520
Novartis ADR 71,200(c) 3,214,680
Pfizer 551,900 20,216,096
Teva Pharmaceutical Inds ADR 12,200(c) 763,598
Wyeth 34,300 1,404,585
Total 48,191,753
Health care services (6.5%)
AmerisourceBergen 79,655 4,385,008
Anthem 19,800(b) 1,619,244
Cardinal Health 56,400 3,615,804
Caremark Rx 30,100(b) 805,175
HCA 37,000 1,661,300
McKesson 242,666 7,129,527
Tenet Healthcare 24,300(b) 301,320
Total 19,517,378
Household products (5.1%)
Colgate-Palmolive 159,400 8,172,438
Procter & Gamble 70,658 7,142,111
Total 15,314,549
Insurance (5.1%)
ACE 35,047(c) 1,521,741
Allstate 74,800 3,400,408
American Intl Group 54,494 3,784,608
Chubb 65,600 4,689,744
Hartford Financial Services Group 18,300 1,177,422
MBIA 12,000 756,000
Total 15,329,923
Leisure time & entertainment (4.3%)
Mattel 172,100 3,254,411
Viacom Cl B 239,200 9,639,760
Total 12,894,171
Machinery (0.8%)
Caterpillar 30,156 2,356,088
Media (6.9%)
Cendant 444,435(b) 10,066,453
Disney (Walt) 248,200 5,956,800
InterActiveCorp 48,100(b) 1,558,440
Liberty Media Cl A 135,200(b) 1,573,728
Tribune 29,400 1,504,986
Total 20,660,407
Multi-industry (3.9%)
Accenture Cl A 32,500(b,c) 769,275
General Electric 186,850 6,283,766
ITT Inds 9,800 730,492
Tyco Intl 143,000(c) 3,825,250
Total 11,608,783
Paper & packaging (0.9%)
Avery Dennison 30,600 1,902,096
Weyerhaeuser 11,500 706,790
Total 2,608,886
Precious metals (0.7%)
Freeport McMoRan Cooper &
Gold Cl B 54,441 2,006,695
Retail -- general (1.8%)
Best Buy 62,800 3,164,492
Wal-Mart Stores 41,100 2,213,235
Total 5,377,727
Utilities -- electric (0.5%)
Exelon 11,029 738,722
FirstEnergy 20,500 769,160
Total 1,507,882
Total common stocks
(Cost: $275,975,071) $295,605,281
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
9 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT
Short-term securities (2.6%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (2.1%)
Federal Home Loan Mtge Corp Disc Nts
03-04-04 1.01% $2,000,000 $1,998,173
04-06-04 1.03 1,700,000 1,696,947
Federal Natl Mtge Assn Disc Nt
02-19-04 1.07 2,500,000 2,498,616
Total 6,193,736
Commercial paper (0.5%)
General Electric Capital
02-02-04 1.02 1,600,000 1,599,864
Total short-term securities
(Cost: $7,793,436) $7,793,600
Total investments in securities
(Cost: $283,768,507)(d) $303,398,881
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) At Jan. 31, 2004, the cost of securities for federal income tax purposes
was approximately $283,769,000 and the approximate aggregate gross
unrealized appreciation and depreciation based on that cost was:
Unrealized appreciation $21,748,000
Unrealized depreciation (2,118,000)
----------
Net unrealized appreciation $19,630,000
-----------
- --------------------------------------------------------------------------------
10 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT
Financial Statements
Statement of assets and liabilities
AXP Large Cap Equity Fund
Jan. 31, 2004 (Unaudited)
Assets
Investments in securities, at value (Note 1)
(identified cost $283,768,507) $303,398,881
Capital shares receivable 1,226,438
Dividends and accrued interest receivable 268,925
Receivable for investment securities sold 6,652,596
---------
Total assets 311,546,840
-----------
Liabilities
Disbursements in excess of cash on demand deposit 15,207
Capital shares payable 83,596
Payable for investment securities purchased 11,204,114
Accrued investment management services fee 4,905
Accrued distribution fee 3,901
Accrued transfer agency fee 1,587
Accrued administrative services fee 409
Other accrued expenses 70,001
------
Total liabilities 11,383,720
----------
Net assets applicable to outstanding capital stock $300,163,120
============
Represented by
Capital stock -- $.01 par value (Note 1) $ 606,864
Additional paid-in capital 274,008,454
Excess of distributions over net investment income (62,598)
Accumulated net realized gain (loss) 5,980,026
Unrealized appreciation (depreciation) on investments 19,630,374
----------
Total -- representing net assets applicable to outstanding capital stock $300,163,120
============
Net assets applicable to outstanding shares: Class A $209,149,913
Class B $ 85,452,326
Class C $ 5,466,086
Class Y $ 94,795
Net asset value per share of outstanding capital stock: Class A shares 42,113,097 $ 4.97
Class B shares 17,440,845 $ 4.90
Class C shares 1,113,414 $ 4.91
Class Y shares 19,019 $ 4.98
------ ------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
11 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT
Statement of operations
AXP Large Cap Equity Fund
Six months ended Jan. 31, 2004 (Unaudited)
Investment income
Income:
Dividends $ 1,583,906
Interest 52,922
Less foreign taxes withheld (3,763)
------
Total income 1,633,065
---------
Expenses (Note 2):
Investment management services fee 620,137
Distribution fee
Class A 175,518
Class B 294,882
Class C 18,288
Transfer agency fee 185,768
Incremental transfer agency fee
Class A 13,657
Class B 10,557
Class C 663
Service fee -- Class Y 32
Administrative services fees and expenses 51,241
Compensation of board members 4,618
Custodian fees 117,032
Printing and postage 59,546
Registration fees 46,797
Audit fees 8,500
Other 3,829
-----
Total expenses 1,611,065
Expenses waived/reimbursed by AEFC (Note 2) (105,091)
--------
1,505,974
Earnings credits on cash balances (Note 2) (679)
----
Total net expenses 1,505,295
---------
Investment income (loss) -- net 127,770
-------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on security transactions (Note 3) 9,726,957
Net change in unrealized appreciation (depreciation) on investments 13,832,507
----------
Net gain (loss) on investments 23,559,464
----------
Net increase (decrease) in net assets resulting from operations $23,687,234
===========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
12 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT
Statements of changes in net assets
AXP Large Cap Equity Fund
Jan. 31, 2004 July 31, 2003
Six months ended Year ended
(Unaudited)
Operations and distributions
Investment income (loss) -- net $ 127,770 $ (820)
Net realized gain (loss) on security transactions 9,726,957 1,719,341
Net change in unrealized appreciation (depreciation) on investments 13,832,507 7,080,694
---------- ---------
Net increase (decrease) in net assets resulting from operations 23,687,234 8,799,215
---------- ---------
Distributions to shareholders from:
Net investment income
Class A (190,269) (27,013)
Class Y (99) (21)
Net realized gain
Class A (3,195,536) --
Class B (1,348,779) --
Class C (87,464) --
Class Y (1,277) --
---------- -------
Total distributions (4,823,424) (27,034)
---------- -------
Capital share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 120,257,281 72,641,134
Class B shares 46,497,071 31,826,112
Class C shares 3,306,352 1,776,439
Class Y shares 34,611 35,963
Reinvestment of distributions at net asset value
Class A shares 3,355,408 25,435
Class B shares 1,328,324 --
Class C shares 83,247 --
Class Y shares 1,184 13
Payments for redemptions
Class A shares (10,888,872) (6,855,152)
Class B shares (Note 2) (3,276,914) (4,072,868)
Class C shares (Note 2) (312,463) (107,435)
Class Y shares (7,963) (1,872)
------ ------
Increase (decrease) in net assets from capital share transactions 160,377,266 95,267,769
----------- ----------
Total increase (decrease) in net assets 179,241,076 104,039,950
Net assets at beginning of period 120,922,044 16,882,094
----------- ----------
Net assets at end of period $300,163,120 $120,922,044
============ ============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
13 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT
Notes to Financial Statements
AXP Large Cap Equity Fund
(Unaudited as to Jan. 31, 2004)
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.
The Fund offers Class A, Class B, Class C and Class Y shares.
o Class A shares are sold with a front-end sales charge.
o Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares during the ninth calendar year
of ownership.
o Class C shares may be subject to a CDSC.
o Class Y shares have no sales charge and are offered only to qualifying
institutional investors.
Effective March 4, 2004, the Fund will offer an additional class of shares,
Class I, exclusively to certain institutional investors. Class I shares are made
available through a separate prospectus supplement provided to investors
eligible to purchase the shares.
All classes of shares have identical voting, dividend and liquidation rights.
The distribution fee, incremental transfer agency fee and service fee (class
specific expenses) differ among classes. Income, expenses (other than class
specific expenses) and realized and unrealized gains or losses on investments
are allocated to each class of shares based upon its relative net assets.
The Fund's significant accounting policies are summarized below:
Use of estimates
Preparing financial statements that conform to accounting principles generally
accepted in the United States of America requires management to make estimates
(e.g., on assets, liabilities and contingent assets and liabilities) that could
differ from actual results.
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14 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL 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.
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.
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 LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL 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.
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, market discount and original issue discount
using the effective interest method, is accrued daily.
- --------------------------------------------------------------------------------
16 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL 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 adjustment increased the fee by $10,797 for the
six months ended Jan 31, 2004.
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 Deferred Compensation Plan (the Plan), non-interested board members may
defer receipt of their compensation. Deferred amounts are treated as though
equivalent dollar amounts had been invested in shares of the Fund or other
American Express mutual funds. The Fund's liability for these amounts is
adjusted for market value changes and remains in the Fund until distributed in
accordance with the Plan.
Under a separate Transfer Agency Agreement, American Express Client Service
Corporation (AECSC) maintains shareholder accounts and records. The Fund pays
AECSC an annual fee per shareholder account for this service as follows:
o Class A $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.
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.
- --------------------------------------------------------------------------------
17 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL 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
$1,244,280 for Class A, $25,947 for Class B and $977 for Class C for the six
months ended Jan. 31, 2004.
For the six months ended Jan. 31, 2004, AEFC and its affiliates waived certain
fees and expenses to 1.25% for Class A, 2.01% for Class B, 2.00% for Class C and
1.07% for Class Y. In addition, AEFC and its affiliates have agreed to waive
certain fees and expenses until July 31, 2004. Under this agreement, net
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 six months ended Jan. 31, 2004, the Fund's custodian and transfer
agency fees were reduced by $679 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 $284,375,066 and $122,438,707, respectively, for the six
months 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 $2,520 for the
six months ended Jan. 31, 2004.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
Six months ended Jan. 31, 2004
Class A Class B Class C Class Y
Sold 25,332,347 9,931,924 705,174 6,999
Issued for reinvested distributions 691,839 277,312 17,343 244
Redeemed (2,285,138) (697,705) (65,930) (1,701)
---------- -------- ------- ------
Net increase (decrease) 23,739,048 9,511,531 656,587 5,542
---------- --------- ------- -----
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
---------- --------- ------- -----
- --------------------------------------------------------------------------------
18 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL 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 Fund must
maintain asset coverage for borrowings of at least 300%. The agreement, which
enables the Fund to participate with other American Express mutual funds,
permits borrowings up to $500 million, collectively. Interest is charged to each
Fund based on its borrowings at a rate equal to either the LIBOR plus 0.50%, the
IBOR plus 0.50% or the higher of the Federal Funds Rate plus 0.25% and the Prime
Lending Rate. Borrowings are payable within 60 days after such loan is executed.
The Fund also pays a commitment fee equal to its pro rata share of the amount of
the credit facility at a rate of 0.09% per annum. The Fund had no borrowings
outstanding during the six months ended Jan. 31, 2004.
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, 2004(k) 2003 2002(b)
Net asset value, beginning of period $4.53 $4.11 $5.00
Income from investment operations:
Net investment income (loss) .01 .01 --
Net gains (losses) (both realized and unrealized) .53 .41 (.89)
Total from investment operations .54 .42 (.89)
Less distributions:
Dividends from net investment income (.01) -- --
Distributions from realized gains (.09) -- --
Total distributions (.10) -- --
Net asset value, end of period $4.97 $4.53 $4.11
Ratios/supplemental data
Net assets, end of period (in millions) $209 $83 $11
Ratio of expenses to average daily net assets(c),(e) 1.25%(d) 1.25% 1.25%(d)
Ratio of net investment income (loss) to average daily net assets .36%(d) .24% (.11%)(d)
Portfolio turnover rate (excluding short-term securities) 63% 135% 88%
Total return(i) 11.85%(j) 10.22% (17.80%)(j)
See accompanying notes to financial highlights.
- --------------------------------------------------------------------------------
19 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT
Class B
Per share income and capital changes(a)
Fiscal period ended July 31, 2004(k) 2003 2002(b)
Net asset value, beginning of period $4.48 $4.10 $5.00
Income from investment operations:
Net investment income (loss) (.01) (.01) (.01)
Net gains (losses) (both realized and unrealized) .52 .39 (.89)
Total from investment operations .51 .38 (.90)
Less distributions:
Distributions from realized gains (.09) -- --
Net asset value, end of period $4.90 $4.48 $4.10
Ratios/supplemental data
Net assets, end of period (in millions) $85 $36 $5
Ratio of expenses to average daily net assets(c),(f) 2.01%(d) 2.01% 2.01%(d)
Ratio of net investment income (loss) to average daily net assets (.40%)(d) (.52%) (.86%)(d)
Portfolio turnover rate (excluding short-term securities) 63% 135% 88%
Total return(i) 11.42%(j) 9.27% (18.00%)(j)
Class C
Per share income and capital changes(a)
Fiscal period ended July 31, 2004(k) 2003 2002(b)
Net asset value, beginning of period $4.49 $4.10 $5.00
Income from investment operations:
Net investment income (loss) (.01) (.01) (.01)
Net gains (losses) (both realized and unrealized) .52 .40 (.89)
Total from investment operations .51 .39 (.90)
Less distributions:
Distributions from realized gains (.09) -- --
Net asset value, end of period $4.91 $4.49 $4.10
Ratios/supplemental data
Net assets, end of period (in millions) $5 $2 $--
Ratio of expenses to average daily net assets(c),(g) 2.00%(d) 2.01% 2.01%(d)
Ratio of net investment income (loss) to average daily net assets (.38%)(d) (.53%) (.92%)(d)
Portfolio turnover rate (excluding short-term securities) 63% 135% 88%
Total return(i) 11.39%(j) 9.51% (18.00%)(j)
See accompanying notes to financial highlights.
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20 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT
Class Y
Per share income and capital changes(a)
Fiscal period ended July 31, 2004(k) 2003 2002(b)
Net asset value, beginning of period $4.54 $4.11 $5.00
Income from investment operations:
Net investment income (loss) .01 .01 --
Net gains (losses) (both realized and unrealized) .53 .42 (.89)
Total from investment operations .54 .43 (.89)
Less distributions:
Dividends from net investment income (.01) -- --
Distributions from realized gains (.09) -- --
Total distributions (.10) -- --
Net asset value, end of period $4.98 $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%(d) 1.07% 1.07%(d)
Ratio of net investment income (loss) to average daily net assets .53%(d) .45% .09%(d)
Portfolio turnover rate (excluding short-term securities) 63% 135% 88%
Total return(i) 11.87%(j) 10.46% (17.80%)(j)
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 1.35% for the six
months ended Jan. 31, 2004 and 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 2.12% for the six
months ended Jan. 31, 2004 and 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 2.11% for the six
months ended Jan. 31, 2004 and 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 1.18% for the six
months ended Jan. 31, 2004 and 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.
(k) Six months ended Jan. 31, 2004 (Unaudited).
- --------------------------------------------------------------------------------
21 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL REPORT
Proxy Voting
The policy of the Board is to vote all proxies of the companies in which the
Fund holds investments. The procedures are stated in the Statement of Additional
Information (SAI). You may obtain a copy of the SAI without charge by calling
(800) 862-7919; by looking at the Web site americanexpress.com/funds; or by
searching the Web site of the Securities and Exchange Commission
http://www.sec.gov. You may view the Fund's voting record for all portfolio
companies whose shareholders meetings were completed the previous quarter on
americanexpress.com/funds or obtain a copy by calling the Fund's administrator,
Board Services Corporation, collect at (612) 330-9283. In addition, after Aug.
1, 2004, information regarding how the Fund voted proxies relating to portfolio
securities during the most recent 12-month period ended June 30 will be
available at http://www.sec.gov.
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22 -- AXP LARGE CAP EQUITY FUND -- 2004 SEMIANNUAL 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.
AXP(R)
Large Cap
Value
Fund
Semiannual Report
for the Period Ended
Jan. 31, 2004
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
Investments in Securities 8
Financial Statements 12
Notes to Financial Statements 15
Proxy Voting 23
(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 VALUE FUND - 2004 SEMIANNUAL REPORT
Fund Snapshot
AS OF JAN. 31, 2004
PORTFOLIO MANAGER
Portfolio manager Bob Ewing, CFA
Since 6/02
Years in industry 16
FUND OBJECTIVE
The 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 $77.6 million
Number of holdings 156
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 graph)
Financials 33.2%
Consumer discretionary 12.0%
Energy 9.7%
Consumer staples 7.4%
Industrials 7.1%
Health care 6.9%
Materials 5.9%
Technology 5.2%
Short-term securities 5.1%
Telecommunications 5.0%
Utilities 2.5%
TOP TEN HOLDINGS
Percentage of portfolio assets
Citigroup (Financial companies) 4.4%
Bank of America (Banks and savings & loans) 2.8
Exxon Mobil (Energy) 2.4
Altria Group (Beverages & tobacco) 2.1
J.P. Morgan Chase (Broker dealers) 1.9
U.S. Bancorp (Banks and savings & loans) 1.9
Wells Fargo (Banks and savings & loans) 1.9
American Intl Group (Insurance) 1.8
ChevronTexaco (Energy) 1.7
Disney (Walt) (Media) 1.7
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.
- --------------------------------------------------------------------------------
2 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT
Questions & Answers
WITH PORTFOLIO MANAGEMENT
Below, Portfolio Manager Bob Ewing discusses the AXP Large Cap Value Fund's
positioning and results for first half of fiscal year 2004.
Q: How did AXP Large Cap Value Fund perform for the first half of fiscal year
2004?
A: AXP Large Cap Value Fund's Class A shares advanced 14.54%, excluding sales
charge, for the six months ended Jan. 31, 2004. The Fund underperformed its
peers, as represented by the Lipper Large-Cap Value Funds Index, which
advanced 15.72% for the period. The Fund's benchmark, the Russell 1000(R)
Value Index, gained 16.86%.
Q: What factors had a significant effect on performance?
A: The Fund benefited from the prolonged stock market rally, yet lagged its
benchmark and peers slightly due to its more conservative portfolio and its
continued emphasis on higher-quality stocks, during a period when
lower-quality stocks and higher-risk sectors generally outperformed. The
majority of the Fund's underperformance occurred in August, when the market
embraced the idea of a vigorous economic recovery which, in turn, benefited
volatile growth stocks significantly more than conservative value stocks.
(bar graph)
PERFORMANCE COMPARISON
For the six-month period ended Jan. 31, 2004
20% (bar 1) (bar 2) (bar 3)
15% +14.54% +16.86% +15.72%
10%
5%
0%
(bar 1) AXP Large Cap Value Fund Class A (excluding sales charge)
(bar 2) Russell 1000(R) Value Index(1) (unmanaged)
(bar 3) Lipper Large-Cap Value Funds Index(2)
(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.
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 VALUE FUND - 2004 SEMIANNUAL REPORT
Questions & Answers
(begin callout quote)> We intend to maintain our focus on relative value, which
has been the Fund's strategy since its launch in June 2002. (end callout quote)
There were a number of individual stocks in the portfolio that added
significant value during the past six months. These include NTL, a U.K.
cable company, which has advanced nicely following its emergence from
bankruptcy. We believe the company has fixed its financial structure and is
fundamentally well positioned within its market. At the start of our fiscal
period, we began building
AVERAGE ANNUAL TOTAL RETURNS
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)
as of Jan. 31, 2004
6 months* +14.54% +7.95% +14.11% +10.11% +14.31% +13.31% +14.83% +14.83%
1 year +33.58% +25.89% +32.60% +28.60% +32.87% +32.87% +34.20% +34.20%
Since inception +10.19% +6.18% +9.40% +7.01% +9.42% +9.42% +10.52% +10.52%
as of Dec. 31, 2003
6 months* +14.22% +7.66% +13.57% +8.57% +13.76% +12.76% +14.31% +14.31%
1 year +28.01% +20.65% +27.05% +23.05% +27.01% +27.01% +28.37% +28.37%
Since inception +9.71% +5.50% +8.87% +6.33% +8.89% +8.89% +9.93% +9.93%
The performance information shown represents the past performance and is not a
guarantee of future results. The value of your investment and returns will
fluctuate so that your shares, when redeemed, may be worth more or less than
their original cost. Current performance may be lower or higher than the
performance information shown. You may obtain performance information current to
the most recent month-end by calling (888) 723-8476 or visiting
www.americanexpress.com/funds. You should consider the investment objectives,
risks, and charges and expenses of the Fund carefully before investing.
* Not annualized.
(1) Excluding sales charge.
(2) Returns at public offering price (POP) reflect a sales charge of 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.
- --------------------------------------------------------------------------------
5 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT
Questions & Answers
a position in NTL as it appeared relatively inexpensive and the market
appeared to be underestimating its prospects. Another holding that benefited
performance was Capital One Financial, a credit card company, whose stock
performed well as signs of an improving economy lessened investors' concerns
about consumer delinquencies. Integrated oil company ConocoPhillips
contributed nicely to performance as well as the company benefited from
higher energy prices and the cyclical recovery.
Stock selection among consumer discretionary stocks detracted from the
Fund's relative performance. At the start of the period, we had expected
many consumer discretionary categories to underperform, but as the signs of
an improving economy continued to build, the market remained enthusiastic
about consumers' continued ability to purchase big-ticket items.
Consequently, the Fund's conservative positioning in selected retailers and
media companies hurt relative performance.
Another source of underperformance was the Fund's lower-than-index positions
in a number of stocks that performed well. ExxonMobil, for instance,
detracted from relative performance as the stock advanced strongly. Exxon is
the largest and one of the most expensive oil stocks in the benchmark. The
Fund had a lower-than-index position in Exxon due to our perference to own
what we believe are more attractively valued energy stocks. Similarly, the
Fund had a lower-than-index position in IBM, which was not one of the
strongest technology stocks, but did outpace the Russell 1000 Value Index.
Another strong performer in the index was Lucent Technologies, a stock which
we avoided due to our concerns on Lucent's balance sheet as well as
fundamentals within the telecom equipment sector.
The Fund's cash position also detracted from its relative return.
Q: What changes did you make to the portfolio during the period?
A: As always, we made a number of changes to specific portfolio holdings as
selected stocks reached their price targets and others appeared to us more
attractively valued. However, we have not meaningfully altered the Fund's
thematic orientation, which was implemented last summer. Given the
relatively high valuations on many stocks
- --------------------------------------------------------------------------------
6 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT
Questions & Answers
and the strong economic growth currently being discounted by the market, we
continue to believe this makes sense. The four themes are:
1) We believe higher-quality companies may outperform in the coming
months. While lower-quality stocks performed better in the early
stages of the current economic recovery we anticipate that
higher-quality stocks could take the lead in 2004.
2) We emphasize sectors and industries in which the market has behaved
inconsistently. For example, energy, which has lagged other cyclical
sectors, remains a core position in the Fund. We take the view that if
the market expects the economy to remain strong, and it apparently
does, all economically sensitive sectors should benefit. Up to this
point, energy has been largely left behind and has lagged other
cyclically sensitive sectors.
3) History suggests current valuations may be extended. Therefore, we
believe it is prudent risk management to reduce the Fund's overall
price-to-earnings ratio.
4) We have positioned the portfolio to perform well in a flat market
since stocks rose dramatically in 2003 and we don't see catalysts for
a repeat performance in 2004.
Q: How do you plan to manage the Fund in the coming months?
A: We intend to maintain our focus on relative value, which has been the
Fund's strategy since its launch in June 2002. Our team of analysts will
continue to build the portfolio on a stock-by-stock basis, seeking
companies with potential for earnings growth that offer good value relative
to the overall market, their peers and even to their own histories.
Although we expect the economy to continue improving, we have a fair amount
of concern that its pace could fall short of current investor expectations.
We are also concerned about stock valuations. We believe that if the
economic recovery is as vigorous as expected, the Federal Reserve may be
forced to raise interest rates, which will likely be a negative for stocks.
If economic growth is not as vigorous, there will likely be corporate
earnings disappointments, also negative for stocks.
It is our opinion that when stocks are expensive, as current valuations
suggest they may be, our most prudent course of action is to take some risk
out of the portfolio. For this reason, we have chosen to position the Fund
a bit more conservatively at this time.
- --------------------------------------------------------------------------------
7 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT
Investments in Securities
AXP Large Cap Value Fund
Jan. 31, 2004 (Unaudited)
(Percentages represent value of investments compared to net assets)
Common stocks (93.8%)
Issuer Shares Value(a)
Aerospace & defense (3.3%)
Boeing 10,211 $426,309
Empresa Brasileira
de Aeronautica ADR 6,050(c) 178,294
General Dynamics 2,700 246,861
Lockheed Martin 12,865 625,496
Northrop Grumman 6,266 605,985
United Technologies 4,691 448,178
Total 2,531,123
Automotive & related (0.4%)
General Motors 6,815 338,569
Banks and savings & loans (12.2%)
Bank of America 26,590 2,166,020
Bank of New York 8,529 270,796
Bank One 12,309 622,958
Commerce Bancorp 4,200 245,910
FleetBoston Financial 24,303 1,083,428
PNC Financial Services Group 11,040 623,870
U.S. Bancorp 52,550 1,485,589
Wachovia 16,198 748,996
Washington Mutual 17,154 759,922
Wells Fargo 24,986 1,434,446
Total 9,441,935
Beverages & tobacco (4.2%)
Altria Group 29,137 1,619,725
Coca-Cola 13,490 664,248
Pepsi Bottling Group 6,950 184,245
PepsiCo 13,315 629,267
RJ Reynolds Tobacco Holdings 2,650 156,509
Total 3,253,994
Broker dealers (4.6%)
J.P. Morgan Chase 38,217 1,486,259
Merrill Lynch & Co 16,897 993,375
Morgan Stanley 19,156 1,115,071
Total 3,594,705
Building materials & construction (1.1%)
American Standard 2,800(b) 297,360
Masco 9,415 251,004
Temple-Inland 5,172 305,407
Total 853,771
Cable (2.4%)
Comcast Cl A 13,114(b) 447,450
Comcast Special Cl A 14,941(b) 492,306
EchoStar Communications Cl A 8,475(b) 309,338
NTL 9,542(b) 633,015
Total 1,882,109
Cellular telecommunications (0.3%)
Vodafone Group ADR 9,400(c) 240,640
Chemicals (2.4%)
Dow Chemical 24,584 1,031,299
Eastman Chemical 4,250 169,533
Hercules 6,600(b) 80,520
Lyondell Chemical 23,152 396,825
RPM Intl 11,600 196,040
Total 1,874,217
Computer hardware (2.2%)
Apple Computer 8,258(b) 186,300
Cisco Systems 10,718(b) 274,810
Dell 6,250(b) 209,188
Hewlett-Packard 44,583 1,060,629
Total 1,730,927
Computer software & services (1.5%)
Affiliated Computer Services Cl A 4,850(b) 268,933
Cadence Design Systems 16,000(b) 265,120
Microsoft 6,958 192,389
Oracle 12,500(b) 172,625
State Street 5,100 274,634
Total 1,173,701
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
8 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Electronics (1.4%)
Intel 11,000 $336,601
Natl Semiconductor 8,332(b) 320,365
Teradyne 8,346(b) 224,507
Texas Instruments 6,104 191,360
Total 1,072,833
Energy (8.0%)
Anadarko Petroleum 4,100 204,590
BP ADR 17,500(c) 833,000
ChevronTexaco 15,195 1,312,088
ConocoPhillips 19,540 1,287,295
Devon Energy 5,700 321,822
Exxon Mobil 45,296 1,847,624
Newfield Exploration 8,000(b) 377,520
Total 6,183,939
Energy equipment & services (1.6%)
Cooper Cameron 5,600(b) 233,520
Schlumberger 3,795 232,178
Transocean 7,301(b) 196,689
Weatherford Intl 15,300(b) 616,896
Total 1,279,283
Environmental services (0.2%)
Allied Waste Inds 13,075(b) 178,474
Finance companies (4.4%)
Citigroup 68,491 3,388,935
Financial services (4.4%)
Capital One Financial 6,300 447,804
Countrywide Financial 3,183 265,940
Fannie Mae 13,349 1,029,208
Freddie Mac 19,434 1,213,070
MBNA 18,197 490,591
Total 3,446,613
Food (0.5%)
Kraft Foods Cl A 6,286 202,472
Sara Lee 7,800 166,296
Total 368,768
Furniture & appliances (0.2%)
Leggett & Platt 6,888 169,720
Health care products (4.9%)
Amgen 1,250(b) 80,613
Baxter Intl 13,600 396,440
Boston Scientific 1,950(b) 79,541
Bristol-Myers Squibb 7,806 218,958
Gilead Sciences 2,750(b) 150,893
Guidant 1,200 76,656
Medco Health Solutions 7,072(b) 260,603
Merck & Co 23,635 1,125,025
Novartis ADR 4,900(c) 221,235
Pfizer 16,303 597,179
Schering-Plough 12,623 221,407
Wyeth 8,658 354,545
Total 3,783,095
Health care services (2.0%)
Aetna 4,950 346,500
HCA 6,008 269,759
Lincare Holdings 4,963(b) 159,709
Select Medical 9,000 155,700
Tenet Healthcare 18,200(b) 225,680
WellPoint Health Networks 3,500(b) 367,501
Total 1,524,849
Household products (2.0%)
Clorox 3,650 178,412
Colgate-Palmolive 10,850 556,280
Procter & Gamble 7,946 803,181
Total 1,537,873
Insurance (6.5%)
ACE 7,138(c) 309,932
Allstate 20,991 954,251
American Intl Group 20,310 1,410,530
Chubb 9,700 693,453
CIGNA 4,750 294,595
First American 5,700 171,342
Hartford Financial Services Group 5,469 351,875
Prudential Financial 8,128 353,568
Travelers Property Casualty Cl A 13,876 251,988
Travelers Property Casualty Cl B 7,679 138,990
UnumProvident 4,900 76,587
Total 5,007,111
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
9 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Leisure time & entertainment (1.3%)
Mattel 15,396 $291,138
Viacom Cl B 18,204 733,622
Total 1,024,760
Machinery (1.2%)
Caterpillar 4,117 321,661
Illinois Tool Works 3,500 273,350
SPX 6,600(b) 374,484
Total 969,495
Media (4.8%)
Cendant 22,200(b) 502,830
Disney (Walt) 53,820 1,291,680
InterActiveCorp 5,451(b) 176,612
Liberty Media Cl A 46,148(b) 537,163
McGraw-Hill Companies 2,337 175,322
Reader's Digest Assn 9,050 125,433
Scripps (EW) Cl A 1,900 180,709
Time Warner 20,400(b) 358,428
Tribune 7,979 408,445
Total 3,756,622
Metals (0.7%)
Alcan 4,252(c) 181,263
Alcoa 10,868 371,468
Total 552,731
Multi-industry (2.3%)
Accenture Cl A 10,450(b,c) 247,352
Dover 5,484 226,599
General Electric 19,873 668,328
ITT Inds 2,363 176,138
Tyco Intl 18,416(c) 492,628
Total 1,811,045
Paper & packaging (1.6%)
Avery Dennison 5,200 323,231
Bowater 6,893 308,462
Intl Paper 6,343 268,119
Weyerhaeuser 5,250 322,665
Total 1,222,477
Real estate investment trust (0.7%)
Apartment Investment
& Management Cl A 4,268 150,148
Equity Office Properties Trust 13,656 404,901
Total 555,049
Restaurants (0.9%)
Brinker Intl 3,300(b) 116,655
McDonald's 22,599 581,698
Total 698,353
Retail -- general (1.7%)
BJ's Wholesale Club 7,085(b) 153,390
Costco Wholesale 7,400(b) 274,392
Home Depot 8,593 304,794
Kohl's 1,400(b) 62,020
Sonic Automotive 9,718 217,489
Target 7,854 298,138
Total 1,310,223
Retail -- grocery (0.6%)
Kroger 14,500(b) 268,685
Safeway 9,470(b) 213,927
Total 482,612
Telecom equipment & services (0.6%)
Motorola 9,234 153,100
Nokia ADR 15,480(c) 319,817
Total 472,917
Utilities -- electric (2.5%)
Dominion Resources 9,810 629,410
Exelon 8,700 582,726
FirstEnergy 9,445 354,376
Pepco Holdings 17,200 346,236
Total 1,912,748
Utilities -- telephone (4.1%)
BellSouth 26,488 774,244
KT ADR 17,196(c) 321,221
SBC Communications 39,573 1,009,112
Verizon Communications 28,281 1,042,438
Total 3,147,015
Total common stocks
(Cost: $63,966,996) $72,773,231
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
10 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT
Short-term securities (5.0%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies
Federal Home Loan Mtge Corp Disc Nts
02-12-04 1.07% $500,000 $499,818
03-04-04 1.08 800,000 799,269
03-11-04 1.06 1,600,000 1,598,274
Federal Natl Mtge Assn Disc Nts
02-04-04 1.08 500,000 499,931
04-21-04 1.00 500,000 498,892
Total short-term securities
(Cost: $3,895,969) $3,896,184
Total investments in securities
(Cost: $67,862,965)(d) $76,669,415
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) At Jan. 31, 2004, the cost of securities for federal income tax purposes
was approximately $67,863,000 and the approximate aggregate gross
unrealized appreciation and depreciation based on that cost was:
Unrealized appreciation $9,051,000
Unrealized depreciation (245,000)
--------
Net unrealized appreciation $8,806,000
----------
- --------------------------------------------------------------------------------
11 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT
Financial Statements
Statement of assets and liabilities
AXP Large Cap Value Fund
Jan. 31, 2004 (Unaudited)
Assets
Investments in securities, at value (Note 1)
Total investments in securities (identified cost $67,862,965) $76,669,415
Cash in bank on demand deposit 67,405
Capital shares receivable 289,578
Dividends and accrued interest receivable 99,934
Receivable for investment securities sold 2,037,704
---------
Total assets 79,164,036
----------
Liabilities
Payable for investment securities purchased 1,508,823
Accrued investment management services fee 1,268
Accrued distribution fee 1,024
Accrued transfer agency fee 369
Accrued administrative services fee 106
Other accrued expenses 75,891
------
Total liabilities 1,587,481
---------
Net assets applicable to outstanding capital stock $77,576,555
===========
Represented by
Capital stock -- $.01 par value (Note 1) $ 143,299
Additional paid-in capital 68,288,075
Undistributed net investment income 15,036
Accumulated net realized gain (loss) 323,695
Unrealized appreciation (depreciation) on investments 8,806,450
---------
Total -- representing net assets applicable to outstanding capital stock $77,576,555
===========
Net assets applicable to outstanding shares: Class A $53,233,818
Class B $23,103,965
Class C $ 1,196,866
Class Y $ 41,906
Net asset value per share of outstanding capital stock: Class A shares 9,815,530 $ 5.42
Class B shares 4,284,638 $ 5.39
Class C shares 222,048 $ 5.39
Class Y shares 7,707 $ 5.44
----- -----------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
12 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT
Statement of operations
AXP Large Cap Value Fund
Six months ended Jan. 31, 2004 (Unaudited)
Investment income
Income:
Dividends $ 638,562
Interest 20,669
Less foreign taxes withheld (637)
----
Total income 658,594
-------
Expenses (Note 2):
Investment management services fee 181,232
Distribution fee
Class A 51,398
Class B 90,830
Class C 4,954
Transfer agency fee 50,750
Incremental transfer agency fee
Class A 3,643
Class B 3,023
Class C 177
Service fee -- Class Y 17
Administrative services fees and expenses 14,977
Compensation of board members 4,618
Custodian fees 107,975
Printing and postage 19,715
Registration fees 29,895
Audit fees 8,500
Other 2,484
-----
Total expenses 574,188
Expenses waived/reimbursed by AEFC (Note 2) (124,809)
--------
449,379
Earnings credits on cash balances (Note 2) (907)
----
Total net expenses 448,472
-------
Investment income (loss) -- net 210,122
-------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on security transactions (Note 3) 2,714,492
Net change in unrealized appreciation (depreciation) on investments 5,644,342
---------
Net gain (loss) on investments 8,358,834
---------
Net increase (decrease) in net assets resulting from operations $8,568,956
==========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
13 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT
Statements of changes in net assets
AXP Large Cap Value Fund
Jan. 31, 2004 July 31, 2003
Six months ended Year ended
(Unaudited)
Operations and distributions
Investment income (loss) -- net $ 210,122 $ 177,570
Net realized gain (loss) on investments 2,714,492 673,743
Net change in unrealized appreciation (depreciation) on investments 5,644,342 3,294,759
--------- ---------
Net increase (decrease) in net assets resulting from operations 8,568,956 4,146,072
--------- ---------
Distributions to shareholders from:
Net investment income
Class A (291,029) (40,203)
Class B (35,772) (7,259)
Class C (1,580) (539)
Class Y (292) (39)
Net realized gain
Class A (2,044,838) --
Class B (923,949) --
Class C (49,121) --
Class Y (1,778) --
---------- -------
Total distributions (3,348,359) (48,040)
---------- -------
Capital share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 21,376,618 26,344,197
Class B shares 8,660,334 12,297,591
Class C shares 443,785 637,405
Class Y shares 11,836 11,000
Reinvestment of distributions at net asset value
Class A shares 2,311,717 34,417
Class B shares 951,079 7,127
Class C shares 49,389 514
Class Y shares 1,511 9
Payments for redemptions
Class A shares (4,883,526) (2,271,256)
Class B shares (Note 2) (1,485,592) (1,533,475)
Class C shares (Note 2) (137,879) (11,095)
- -------- -------
Increase (decrease) in net assets from capital share transactions 27,299,272 35,516,434
---------- ----------
Total increase (decrease) in net assets 32,519,869 39,614,466
Net assets at beginning of period 45,056,686 5,442,220
---------- ---------
Net assets at end of period $77,576,555 $45,056,686
=========== ===========
Undistributed net investment income $ 15,036 $ 133,587
----------- -----------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
14 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT
Notes to Financial Statements
AXP Large Cap Value Fund
(Unaudited as to Jan. 31, 2004)
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. The Fund offers
Class A, Class B, Class C and Class Y shares.
o Class A shares are sold with a front-end sales charge.
o Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares during the ninth calendar year
of ownership.
o Class C shares may be subject to a CDSC.
o Class Y shares have no sales charge and are offered only to qualifying
institutional investors.
Effective March 4, 2004, the Fund will offer an additional class of shares,
Class I, exclusively to certain institutional investors. Class I shares are made
available through a separate prospectus supplement provided to investors
eligible to purchase the shares.
All classes of shares have identical voting, dividend and liquidation rights.
The distribution fee, incremental transfer agency fee and service fee (class
specific expenses) differ among classes. Income, expenses (other than class
specific expenses) and realized and unrealized gains or losses on investments
are allocated to each class of shares based upon its relative net assets.
The Fund's significant accounting policies are summarized below:
Use of estimates
Preparing financial statements that conform to accounting principles generally
accepted in the United States of America requires management to make estimates
(e.g., on assets, liabilities and contingent assets and liabilities) that could
differ from actual results.
- --------------------------------------------------------------------------------
15 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL 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.
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.
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 - 2004 SEMIANNUAL 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.
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, market discount and original issue discount
using the effective interest method, is accrued daily.
- --------------------------------------------------------------------------------
17 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL 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. 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 $303 for
the six months ended Jan. 31, 2004.
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 Deferred Compensation Plan (the Plan), non-interested board members may
defer receipt of their compensation. Deferred amounts are treated as though
equivalent dollar amounts had been invested in shares of the Fund or other
American Express mutual funds. The Fund's liability for these amounts is
adjusted for market value changes and remains in the Fund until distributed in
accordance with the Plan.
Under a separate Transfer Agency Agreement, American Express Client Service
Corporation (AECSC) maintains shareholder accounts and records. The Fund pays
AECSC an annual fee per shareholder account for this service as follows:
o Class A $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.
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.
- --------------------------------------------------------------------------------
18 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT
Sales charges received by the Distributor for distributing Fund shares were
$217,865 for Class A, $8,128 for Class B and $374 for Class C for the six months
ended Jan. 31, 2004.
For the six months ended Jan. 31, 2004, AEFC and its affiliates waived certain
fees and expenses to 1.25% for Class A, 2.01% for Class B, 2.00% for Class C and
1.07% for Class Y. In addition, AEFC and its affiliates have agreed to waive
certain fees and expenses until July 31, 2004. Under this agreement, net
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 six months ended Jan. 31, 2004, the Fund's custodian and transfer
agency fees were reduced by $907 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 $42,891,498 and $21,004,254, respectively, for the six
months 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 $595 for the
six months ended Jan. 31, 2004.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
Six months ended Jan. 31, 2004
Class A Class B Class C Class Y
Sold 4,102,852 1,678,878 85,985 2,289
Issued for reinvested distributions 442,858 182,900 9,516 289
Redeemed (934,374) (285,826) (26,069) --
--------- --------- ------ -----
Net increase (decrease) 3,611,336 1,575,952 69,432 2,578
--------- --------- ------ -----
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
--------- --------- ------- -----
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19 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL 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 Fund must
maintain asset coverage for borrowings of at least 300%. The agreement, which
enables the Fund to participate with other American Express mutual funds,
permits borrowings up to $500 million, collectively. Interest is charged to each
Fund based on its borrowings at a rate equal to either the LIBOR plus 0.50%, the
IBOR plus 0.50% or the higher of the Federal Funds Rate plus 0.25% and the Prime
Lending Rate. Borrowings are payable within 60 days after such loan is executed.
The Fund also pays a commitment fee equal to its pro rata share of the amount of
the credit facility at a rate of 0.09% per annum. The Fund had no borrowings
outstanding during the six months ended Jan. 31, 2004.
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, 2004(k) 2003 2002(b)
Net asset value, beginning of period $4.98 $4.52 $4.90
Income from investment operations:
Net investment income (loss) .02 .03 --
Net gains (losses) (both realized and unrealized) .69 .44 (.38)
Total from investment operations .71 .47 (.38)
Less distributions:
Dividends from net investment income (.03) (.01) --
Distributions from realized gains (.24) -- --
Total distributions (.27) (.01) --
Net asset value, end of period $5.42 $4.98 $4.52
Ratios/supplemental data
Net assets, end of period (in millions) $53 $31 $4
Ratio of expenses to average daily net assets(c),(e) 1.25%(d) 1.25% 1.19%(d)
Ratio of net investment income (loss) to average daily net assets .95%(d) 1.01% .23%(d)
Portfolio turnover rate (excluding short-term securities) 37% 77% 9%
Total return(l) 14.54%(j) 10.52% (7.75%)(j)
See accompanying notes to financial highlights.
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20 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT
Class B
Per share income and capital changes(a)
Fiscal period ended July 31, 2004(k) 2003 2002(b)
Net asset value, beginning of period $4.95 $4.52 $4.90
Income from investment operations:
Net investment income (loss) .01 .01 --
Net gains (losses) (both realized and unrealized) .68 .43 (.38)
Total from investment operations .69 .44 (.38)
Less distributions:
Dividends from net investment income (.01) (.01) --
Distributions from realized gains (.24) -- --
Total distributions (.25) (.01) --
Net asset value, end of period $5.39 $4.95 $4.52
Ratios/supplemental data
Net assets, end of period (in millions) $23 $13 $1
Ratio of expenses to average daily net assets(c),(f) 2.01%(d) 2.00% 1.95%(d)
Ratio of net investment income (loss) to average daily net assets .15%(d) .25% (.49%)(d)
Portfolio turnover rate (excluding short-term securities) 37% 77% 9%
Total return(l) 14.11%(j) 9.66% (7.75%)(j)
Class C
Per share income and capital changes(a)
Fiscal period ended July 31, 2004(k) 2003 2002(b)
Net asset value, beginning of period $4.94 $4.52 $4.90
Income from investment operations:
Net investment income (loss) .01 .01 --
Net gains (losses) (both realized and unrealized) .69 .42 (.38)
Total from investment operations .70 .43 (.38)
Less distributions:
Dividends from net investment income (.01) (.01) --
Distributions from realized gains (.24) -- --
Total distributions (.25) (.01) --
Net asset value, end of period $5.39 $4.94 $4.52
Ratios/supplemental data
Net assets, end of period (in millions) $1 $1 $--
Ratio of expenses to average daily net assets(c),(g) 2.00%(d) 2.00% 1.95%(d)
Ratio of net investment income (loss) to average daily net assets .19%(d) .26% (.45%)(d)
Portfolio turnover rate (excluding short-term securities) 37% 77% 9%
Total return(l) 14.31%(j) 9.50% (7.75%)(j)
See accompanying notes to financial highlights.
- --------------------------------------------------------------------------------
21 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT
Class Y
Per share income and capital changes(a)
Fiscal period ended July 31, 2004(k) 2003 2002(b)
Net asset value, beginning of period $4.99 $4.52 $4.90
Income from investment operations:
Net investment income (loss) .04 .03 --
Net gains (losses) (both realized and unrealized) .69 .45 (.38)
Total from investment operations .73 .48 (.38)
Less distributions:
Dividends from net investment income (.04) (.01) --
Distributions from realized gains (.24) -- --
Total distributions (.28) (.01) --
Net asset value, end of period $5.44 $4.99 $4.52
Ratios/supplemental data
Net assets, end of period (in millions) $-- $-- $--
Ratio of expenses to average daily net assets(c),(h) 1.07%(d) .95% 1.01%(d)
Ratio of net investment income (loss) to average daily net assets 1.13%(d) 1.30% .31%(d)
Portfolio turnover rate (excluding short-term securities) 37% 77% 9%
Total return(l) 14.83%(j) 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 1.66% for the six
months ended Jan. 31, 2004 and 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 2.42% for the six
months ended Jan. 31, 2004 and 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 2.43% for the six
months ended Jan. 31, 2004 and 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 1.49% for the six
months ended Jan. 31, 2004 and 2.46% and 20.32% for the periods ended July
31, 2003 and 2002, respectively.
(l) Total return does not reflect payment of a sales charge.
(j) Not annualized.
(k) Six months ended Jan. 31, 2004 (Unaudited).
- --------------------------------------------------------------------------------
22 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL REPORT
Proxy Voting
The policy of the Board is to vote all proxies of the companies in which the
Fund holds investments. The procedures are stated in the Statement of Additional
Information (SAI). You may obtain a copy of the SAI without charge by calling
(800) 862-7919; by looking at the Web site americanexpress.com/funds; or by
searching the Web site of the Securities and Exchange Commission
http://www.sec.gov. You may view the Fund's voting record for all portfolio
companies whose shareholders meetings were completed the previous quarter on
americanexpress.com/funds or obtain a copy by calling the Fund's administrator,
Board Services Corporation, collect at (612) 330-9283. In addition, after Aug.
1, 2004, information regarding how the Fund voted proxies relating to portfolio
securities during the most recent 12-month period ended June 30 will be
available at http://www.sec.gov.
- --------------------------------------------------------------------------------
23 - AXP LARGE CAP VALUE FUND - 2004 SEMIANNUAL 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.
AXP(R)
Quantitative
Large Cap Equity
Fund
Semiannual Report
for the Period Ended
Jan. 31, 2004
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
Proxy Voting 22
- --------------------------------------------------------------------------------
2 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT
Fund Snapshot
AS OF JAN. 31, 2004
PORTFOLIO MANAGERS
Portfolio manager Dimitris J. Bertsimas
Since 4/03
Years in industry 11
Portfolio manager Gina K. Mourtzinou
Since 4/03
Years in industry 7
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 $13.7 million
Number of holdings 200
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 graph)
Consumer discretionary 19.5%
Technology 17.0%
Financials 15.3%
Health care 14.6%
Consumer staples 8.9%
Telecommunications 8.4%
Utilities 7.0%
Industrials 4.5%
Energy 3.2%
Materials 1.6%
TOP TEN HOLDINGS
Percentage of portfolio assets
Intel (Electronics) 5.9%
Altria Group (Beverages & tobacco) 5.6
Merck & Co (Health care products) 3.6
Amgen (Health care products) 3.2
General Motors (Automotive & related) 2.5
Fannie Mae (Financial services) 2.4
eBay (Media) 2.2
J.P. Morgan Chase (Broker dealers) 1.9
Yahoo! (Media) 1.7
Sears, Roebuck & Co (Retail -- general) 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 QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT
Questions & Answers
WITH PORTFOLIO MANAGEMENT
Below, portfolio managers Dimitris Bertsimas and Gina Mourtzinou discuss
semiannual performance for AXP Quantitative Large Cap Equity Fund.
Q: How did AXP Quantitative Large Cap Equity Fund perform for the
six-month period ended Jan. 31, 2004?
A: AXP Quantitative Large Cap Equity Fund's Class A shares rose 15.94%,
excluding sales charge. The Fund outperformed its benchmark, the S&P 500
Index, which gained 15.23%, and the Lipper Large-Cap Core Funds Index,
which rose 13.12%.
Q: What factors most significantly affected performance?
A: Stocks selected using the Fund's three quantitative models (value, momentum
and quality) drove performance in the six-month period. We do not make
sector or industry bets based on our outlook for the economy or the equity
markets. At the beginning of the period, the Fund invested 60% of its
holdings in the momentum model, 20% in the value model and 20% in the
quality model. The current allocation invests 50% in the momentum model,
30% in the value model and 20% in the quality model. The value model
outperformed the S&P 500 Index for the period while both the momentum and
factor models fell short.
(bar graph)
PERFORMANCE COMPARISON
For the six-month period ended Jan. 31, 2004
20% (bar 1) (bar 2)
15% +15.94% +15.23% (bar 3)
10% +13.12%
5%
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.
- --------------------------------------------------------------------------------
4 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT
Questions & Answers
(begin callout quote)> We have made a gradual move to increase the value model
to take advantage of strong performance of the model.(end callout quote)
At the start of the period, lower-quality, lower-priced stocks continued
their outperformance. However, the market environment began to move away
from this trend later in the period. Our well-diversified portfolio has no
bias for or against these lower-quality stocks.
TOTAL RETURNS
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)
as of Jan. 31, 2004
6 months* +15.94% +9.27% +15.46% +11.46% +15.66% +14.66% +16.00% +16.00%
Since inception* +26.14% +18.89% +25.39% +21.39% +25.61% +24.61% +26.44% +26.44%
as of Dec. 31, 2003
6 months* +13.26% +6.75% +12.79% +7.79% +12.80% +11.80% +13.35% +13.35%
Since inception* +23.68% +16.57% +22.94% +17.94% +22.96% +21.96% +23.78% +23.78%
The performance information shown represents the past performance and is not a
guarantee of future results. The value of your investment and returns will
fluctuate so that your shares, when redeemed, may be worth more or less than
their original cost. Current performance may be lower or higher than the
performance information shown. You may obtain performance information current to
the most recent month-end by calling (888) 723-8476 or visiting
www.americanexpress.com/funds. You should consider the investment objectives,
risks, and charges and expenses of the Fund carefully before investing.
* Not annualized.
(1) Excluding sales charge.
(2) Returns at public offering price (POP) reflect a sales charge of 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.
- --------------------------------------------------------------------------------
5 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT
Questions & Answers
In relation to the benchmark, the Fund held higher-than-Index positions in
autos, electronics, semiconductors and electrical utilities. The Fund held
lower-than-Index positions in banks, beverages and manufacturing.
Currently, our largest positions are Intel, Merck, Altria Group, Amgen and
General Motors.
Q: What changes did you make during the period?
A: The Fund grew in size during the period. We usually rebalance the portfolio
once a month, however, the influx of cash caused us to rebalance more often
during the period.
We have made a gradual move to increase the weighting of the value model to
take advantage of strong performance of the model. Other than this move, we
have not made any significant changes to the Fund.
Q: How will you manage the Fund in the coming months?
A: Overall, we are bullish on equities. The Fund's goal is to outpace the
performance of the S&P 500 Index over time with less risk with lower than
average portfolio turnover. Our focus for the coming months is to keep
using our well-tested models to find the best-performing stocks regardless
of market conditions. Also, we will continue our strategy of monitoring
weightings as a risk control, so that no individual security, industry or
sector becomes too large within the Fund's portfolio. We believe the Fund's
consistent, disciplined approach will benefit performance over the long
term.
- --------------------------------------------------------------------------------
6 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT
Investments in Securities
AXP Quantitative Large Cap Equity Fund
Jan. 31, 2004 (Unaudited)
(Percentages represent value of investments compared to net assets)
Common stocks (98.2%)
Issuer Shares Value(a)
Aerospace & defense (1.2%)
Boeing 1,438 $60,037
General Dynamics 448 40,961
Goodrich 831 25,636
Honeywell Intl 320 11,558
Rockwell Automation 416 13,549
Rockwell Collins 322 10,526
Total 162,267
Automotive & related (3.8%)
Dana 502 10,442
Delphi 5,201 55,027
General Motors 6,909 343,238
Navistar Intl 469(b) 22,301
PACCAR 1,058 83,191
Visteon 973 10,411
Total 524,610
Banks and savings & loans (3.2%)
Bank of America 2,028 165,201
Charter One Financial 401 14,520
Comerica 138 7,881
First Tennessee Natl 649 28,829
FleetBoston Financial 628 27,996
Natl City 889 30,688
Union Planters 250 7,568
Washington Mutual 3,446 152,658
Total 435,341
Beverages & tobacco (6.2%)
Altria Group 13,642 758,359
Coca-Cola Enterprises 901 20,633
RJ Reynolds Tobacco Holdings 1,098 64,848
Total 843,840
Broker dealers (2.8%)
Bear Stearns Companies 237 19,517
J.P. Morgan Chase 6,411 249,324
Lehman Brothers Holdings 267 21,921
Merrill Lynch & Co 966 56,791
Schwab (Charles) 2,639 33,225
Total 380,778
Building materials & construction (0.1%)
Louisiana-Pacific 425(b) 9,040
Cable (1.4%)
Comcast Cl A 5,630(b) 192,096
Cellular telecommunications (1.7%)
AT&T Wireless Services 10,184(b,d) 112,533
Nextel Communications Cl A 4,419(b) 116,618
Total 229,151
Computer hardware (1.0%)
EMC 712(b) 9,996
Hewlett-Packard 1,286 30,594
Lexmark Intl Cl A 296(b) 24,535
Network Appliance 2,325(b) 51,988
NVIDIA 668(b) 14,863
Total 131,976
Computer software & services (4.9%)
Adobe Systems 1,065 40,960
Citrix Systems 936(b) 18,823
Computer Associates Intl 5,171 135,171
Comverse Technology 1,288(b) 22,669
Convergys 584(b) 9,764
Electronic Arts 1,198(b) 56,138
Electronic Data Systems 3,988 95,552
Novell 723(b) 9,182
Oracle 7,604(b) 105,011
QLogic 251(b) 11,285
Siebel Systems 1,197(b) 15,956
SunGard Data Systems 625(b) 19,456
VERITAS Software 4,082(b) 134,135
Total 674,102
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
7 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Electronics (10.8%)
Advanced Micro Devices 805(b) $11,962
Agilent Technologies 925(b) 34,096
Altera 2,411(b) 53,982
American Power Conversion 497 12,321
Analog Devices 1,583 75,747
Applied Materials 5,763(b) 125,402
Broadcom Cl A 307(b) 12,461
Intel 25,939 793,732
Jabil Circuit 396(b) 11,722
KLA-Tencor 1,181(b) 67,400
Linear Technology 842 33,680
LSI Logic 2,592(b) 26,672
Natl Semiconductor 746(b) 28,684
PMC-Sierra 2,297(b) 50,327
Sanmina-SCI 3,516(b) 46,095
Xerox 3,075(b) 45,018
Xilinx 1,191(b) 49,915
Total 1,479,216
Energy (3.0%)
Amerada Hess 949 53,514
Anadarko Petroleum 596 29,740
Apache 504 19,394
Ashland 391 18,107
Burlington Resources 1,072 58,681
ConocoPhillips 488 32,149
Devon Energy 841 47,483
Kerr-McGee 205 9,988
Marathon Oil 1,837 59,666
Occidental Petroleum 1,907 84,004
Total 412,726
Energy equipment & services (0.1%)
Halliburton 457 13,779
Finance companies (0.6%)
MGIC Investment 1,148 79,143
Financial services (4.5%)
Capital One Financial 482 34,261
Countrywide Financial 765 63,916
Fannie Mae 4,211 324,667
Freddie Mac 756 47,190
Janus Capital Group 1,384 23,224
MBNA 1,320 35,587
Providian Financial 3,505(b) 47,983
SLM 542 20,813
T. Rowe Price Group 388 20,226
Total 617,867
Food (0.6%)
Sara Lee 4,107 87,561
Furniture & appliances (0.3%)
Black & Decker 212 10,865
Maytag 390 11,170
Whirlpool 267 20,278
Total 42,313
Health care products (13.1%)
Abbott Laboratories 1,137 48,982
Allergan 149 12,345
Amgen 6,774(b) 436,854
Baxter Intl 1,540 44,891
Biomet 302 11,675
Boston Scientific 3,362(b) 137,136
Bristol-Myers Squibb 1,863 52,257
Chiron 322(b) 16,647
Forest Laboratories 422(b) 31,435
Genzyme 1,201(b) 65,875
Guidant 1,943 124,119
King Pharmaceuticals 538(b) 8,974
MedImmune 1,347(b) 31,655
Merck & Co 10,222 486,566
PerkinElmer 1,422 29,364
Pfizer 3,247 118,938
Schering-Plough 2,124 37,255
St. Jude Medical 672(b) 48,283
Stryker 230 20,410
Waters 258(b) 9,781
Zimmer Holdings 245(b) 18,743
Total 1,792,185
Health care services (1.2%)
Aetna 496 34,720
Cardinal Health 383 24,554
Humana 949(b) 22,140
Manor Care 360 12,852
Tenet Healthcare 4,052(b) 50,245
WellPoint Health Networks 237(b) 24,885
Total 169,396
Home building (1.3%)
Centex 816 86,414
KB HOME 696 47,008
Pulte Homes 987 42,579
Total 176,001
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
8 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Household products (0.4%)
Kimberly-Clark 875 $51,678
Insurance (3.8%)
Allstate 1,153 52,415
Aon 1,510 37,101
CIGNA 1,455 90,239
Jefferson-Pilot 350 17,969
Lincoln Natl 652 28,786
Loews 1,903 102,115
MBIA 195 12,285
MetLife 3,045 102,159
SAFECO 382 16,628
UnumProvident 3,436 53,705
XL Capital Cl A 143(c) 11,369
Total 524,771
Leisure time & entertainment (0.2%)
Hasbro 1,062 20,975
Lodging & gaming (0.3%)
Intl Game Technology 1,256 47,050
Machinery (0.2%)
Deere & Co 466 29,171
Thermo Electron 132(b) 3,679
Total 32,850
Media (5.5%)
Cendant 8,839(b) 200,203
eBay 4,326(b) 289,972
Monster Worldwide 523(b) 12,803
Univision Communications Cl A 535(b) 18,923
Yahoo! 4,999(b) 234,203
Total 756,104
Metals (0.4%)
Alcoa 877 29,976
Phelps Dodge 306(b) 23,155
United States Steel 200 6,810
Total 59,941
Multi-industry (3.1%)
Eastman Kodak 2,159 61,337
General Electric 3,834 128,937
Monsanto 442 13,521
Textron 137 7,299
Tyco Intl 7,789(c) 208,357
Total 419,451
Paper & packaging (0.4%)
Georgia-Pacific 1,027 28,858
Sealed Air 492(b) 24,497
Total 53,355
Precious metals (0.7%)
Freeport McMoRan Cooper &
Gold Cl B 975 35,939
Newmont Mining 1,320 54,991
Total 90,930
Real estate investment trust (0.2%)
Equity Office Properties Trust 398 11,800
Starwood Hotels & Resorts Worldwide 299 10,567
Total 22,367
Restaurants (1.6%)
McDonald's 7,079(d) 182,214
Starbucks 824(b) 30,290
Total 212,504
Retail -- drugstores (0.2%)
CVS 769 27,469
Retail -- general (4.8%)
Best Buy 3,526 177,674
Dollar General 1,016 22,576
Federated Dept Stores 741 35,183
Home Depot 2,685 95,237
Lowe's Companies 803 43,001
Nordstrom 266 10,454
Sears, Roebuck & Co 4,995 221,028
Tiffany 700 27,748
Toys "R" Us 2,055(b) 29,017
Total 661,918
Retail -- grocery (1.3%)
Albertson's 1,602 37,423
Kroger 2,256(b) 41,804
Safeway 3,452(b) 77,980
SUPERVALU 922 26,646
Total 183,853
Telecom equipment & services (2.7%)
ADC Telecommunications 3,218(b) 11,263
Avaya 1,273(b) 22,125
JDS Uniphase 5,753(b) 29,340
Motorola 7,128 118,182
QUALCOMM 2,672 156,099
Scientific-Atlanta 1,061 35,904
Total 372,913
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
9 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Utilities -- electric (6.5%)
American Electric Power 971 $31,703
CenterPoint Energy 19,675 206,588
Constellation Energy Group 646 25,989
Duke Energy 3,318 72,100
Edison Intl 3,777 83,094
Exelon 466 31,213
PG&E 8,116(b) 217,914
PPL 357 16,322
Public Service Enterprise Group 1,311 59,572
TECO Energy 2,604 37,159
TXU 1,695 40,680
Xcel Energy 3,995 69,193
Total 891,527
Utilities -- natural gas (0.4%)
Kinder Morgan 540 31,860
Sempra Energy 660 20,552
Total 52,412
Utilities -- telephone (3.9%)
AT&T 6,645 129,312
BellSouth 1,568 45,833
Citizens Communications 1,302(b) 15,272
SBC Communications 6,514 166,106
Sprint (FON Group) 6,569 114,366
Sprint (PCS Group) 2,568(b) 20,878
Verizon Communications 975 35,939
Total 527,706
Total common stocks
(Cost: $11,757,711) $13,463,162
Total investments in securities
(Cost: $11,757,711)(e) $13,463,162
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 1.6% of net assets.
(d) Partially pledged as initial margin deposit on the following open stock
index futures contracts (see Note 5 to the financial statements):
Type of security Contracts
Purchase contracts
E-Mini S&P 500 Index, March 2004 2
(e) At Jan. 31, 2004, the cost of securities for federal income tax purposes
was approximately $11,758,000 and the approximate aggregate gross
unrealized appreciation and depreciation based on that cost was:
Unrealized appreciation $1,861,000
Unrealized depreciation (156,000)
--------
Net unrealized appreciation $1,705,000
----------
- --------------------------------------------------------------------------------
10 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT
Financial Statements
Statement of assets and liabilities
AXP Quantitative Large Cap Equity Fund
Jan. 31, 2004 (Unaudited)
Assets
Investments in securities, at value (Note 1)
(identified cost $11,757,711) $13,463,162
Cash in bank on demand deposit 264,241
Capital shares receivable 9,219
Dividends and accrued interest receivable 14,123
Receivable for investment securities sold 687,700
-------
Total assets 14,438,445
----------
Liabilities
Payable for investment securities purchased 685,466
Accrued investment management services fee 224
Accrued distribution fee 141
Accrued transfer agency fee 36
Accrued administrative services fee 19
Other accrued expenses 46,424
------
Total liabilities 732,310
-------
Net assets applicable to outstanding capital stock $13,706,135
===========
Represented by
Capital stock -- $.01 par value (Note 1) $ 22,248
Additional paid-in capital 11,803,364
Excess of distributions over net investment income (4,281)
Accumulated net realized gain (loss) 180,971
Unrealized appreciation (depreciation) on investments 1,703,833
---------
Total -- representing net assets applicable to outstanding capital stock $13,706,135
===========
Net assets applicable to outstanding shares: Class A $11,379,681
Class B $ 2,151,794
Class C $ 150,730
Class Y $ 23,930
Net asset value per share of outstanding capital stock: Class A shares 1,846,206 $ 6.16
Class B shares 350,192 $ 6.14
Class C shares 24,527 $ 6.15
Class Y shares 3,879 $ 6.17
----- -----------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
11 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT
Statement of operations
AXP Quantitative Large Cap Equity Fund
Six months ended Jan. 31, 2004 (Unaudited)
Investment income
Income:
Dividends $ 90,717
Interest 605
---
Total income 91,322
------
Expenses (Note 2):
Investment management services fee 34,568
Distribution fee
Class A 11,672
Class B 7,810
Class C 581
Transfer agency fee 5,455
Incremental transfer agency fee
Class A 413
Class B 283
Class C 22
Service fee -- Class Y 11
Administrative services fees and expenses 2,760
Custodian fees 18,142
Printing and postage 15,685
Registration fees 29,381
Audit fees 7,750
-----
Total expenses 134,533
Expenses waived/reimbursed by AEFC (Note 2) (58,921)
-------
75,612
Earnings credits on cash balances (Note 2) (654)
----
Total net expenses 74,958
------
Investment income (loss) -- net 16,364
------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 318,699
Futures contracts 88
--
Net realized gain (loss) on investments 318,787
Net change in unrealized appreciation (depreciation) on investments 1,335,397
---------
Net gain (loss) on investments 1,654,184
---------
Net increase (decrease) in net assets resulting from operations $1,670,548
==========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
12 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT
Statements of changes in net assets
AXP Quantitative Large Cap Equity Fund
Jan. 31, 2004 For the period from
Six months ended April 24, 2003* to
(Unaudited) July 31, 2003
Operations and distributions
Investment income (loss) -- net $ 16,364 $ 14,024
Net realized gain (loss) on investments 318,787 105,405
Net change in unrealized appreciation (depreciation) on investments 1,335,397 368,601
--------- -------
Net increase (decrease) in net assets resulting from operations 1,670,548 488,030
--------- -------
Distributions to shareholders from:
Net investment income
Class A (34,930) --
Class B (921) --
Class C (88) --
Class Y (94) --
Net realized gain
Class A (204,760) --
Class B (35,467) --
Class C (2,669) --
Class Y (461) --
--------- -------
Total distributions (279,390) --
--------- -------
Capital share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 2,720,043 2,122,213
Class B shares 1,125,171 985,940
Class C shares 74,758 49,247
Class Y shares -- 10,000
Reinvestment of distributions at net asset value
Class A shares 99,015 --
Class B shares 34,783 --
Class C shares 2,508 --
Class Y shares 257 --
Payments for redemptions
Class A shares (153,504) (18,491)
Class B shares (Note 2) (168,467) (53,851)
Class C shares (Note 2) (2,275) --
Class Y shares -- --
--------- -------
Increase (decrease) in net assets from capital share transactions 3,732,289 3,095,058
--------- -------
Total increase (decrease) in net assets 5,123,447 3,583,088
Net assets at beginning of period 8,582,688 4,999,600**
--------- ---------
Net assets at end of period $13,706,135 $8,582,688
=========== ==========
Undistributed (excess of distributions over) net investment income $ (4,281) $ 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 - 2004 SEMIANNUAL REPORT
Notes to Financial Statements
AXP Quantitative Large Cap Equity Fund
(Unaudited as to Jan. 31, 2004)
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 Jan. 31,
2004, AEFC owned approximately 45% 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 - 2004 SEMIANNUAL 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.
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.
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 - 2004 SEMIANNUAL 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.
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, market discount and original issue discount
using the effective interest method, is accrued daily.
- --------------------------------------------------------------------------------
16 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL 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 adjustment increased the fee by $1,454 for the
six months ended Jan. 31, 2004.
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 Deferred Compensation Plan (the Plan), non-interested board members may
defer receipt of their compensation. Deferred amounts are treated as though
equivalent dollar amounts had been invested in shares of the Fund or other
American Express mutual funds. The Fund's liability for these amounts is
adjusted for market value changes and remains in the Fund until distributed in
accordance with the Plan.
Under a separate Transfer Agency Agreement, American Express Client Service
Corporation (AECSC) maintains shareholder accounts and records. The Fund pays
AECSC an annual fee per shareholder account for this service as follows:
o Class A $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.
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.
- --------------------------------------------------------------------------------
17 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL 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
$33,047 for Class A and $260 for Class B for the six months ended Jan. 31, 2004.
For the six months ended Jan. 31, 2004, AEFC and its affiliates waived certain
fees and expenses to 1.25% for Class A, 2.03% for Class B, 2.03% for Class C and
1.05% for Class Y. In addition, AEFC and its affiliates have agreed to waive
certain fees and expenses until July 31, 2004. Under this agreement, net
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 six months ended Jan. 31, 2004, the Fund's custodian and transfer
agency fees were reduced by $654 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 $6,895,194 and $3,614,269, respectively, for the six
months ended Jan. 31, 2004. Realized gains and losses are determined on an
identified cost basis.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
Six months ended Jan. 31, 2004
Class A Class B Class C Class Y
Sold 469,759 196,782 13,274 --
Issued for reinvested distributions 16,868 5,946 429 45
Redeemed (26,768) (29,689) (390) --
------- ------- ------ ----
Net increase (decrease) 459,859 173,039 13,313 45
------- ------- ------ ----
April 24, 2003* to July 31, 2003
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. STOCK INDEX FUTURES CONTRACTS
As of Jan. 31, 2004, investments in securities included securities valued at
$92,794 that were pledged as collateral to cover initial margin deposits on two
open purchase contracts. The notional market value of the open purchase
contracts as of Jan. 31, 2004 was $112,990 with a net unrealized loss of $1,618.
See " Summary of significant accounting policies" and "Notes to investments in
securities."
- --------------------------------------------------------------------------------
18 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL 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 six months ended Jan. 31, 2004.
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, 2004(k) 2003(b)
Net asset value, beginning of period $5.44 $5.00
Income from investment operations:
Net investment income (loss) .01 .01
Net gains (losses) (both realized and unrealized) .85 .43
Total from investment operations .86 .44
Less distributions:
Dividends from net investment income (.02) --
Distributions from realized gains (.12) --
Total distributions (.14) --
Net asset value, end of period $6.16 $5.44
Ratios/supplemental data
Net assets, end of period (in millions) $11 $8
Ratio of expenses to average daily net assets(c),(e) 1.25%(d) 1.22%(d)
Ratio of net investment income (loss) to average daily net assets .42%(d) .81%(d)
Portfolio turnover rate (excluding short-term securities) 34% 17%
Total return(i) 15.94%(j) 8.80%(j)
See accompanying notes to financial highlights.
- --------------------------------------------------------------------------------
19 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT
Class B
Per share income and capital changes(a)
Fiscal period ended July 31, 2004(k) 2003(b)
Net asset value, beginning of period $5.43 $5.00
Income from investment operations:
Net investment income (loss) (.01) --
Net gains (losses) (both realized and unrealized) .84 .43
Total from investment operations .83 .43
Less distributions:
Dividends from net investment income -- --
Distributions from realized gains (.12) --
Total distributions (.12) --
Net asset value, end of period $6.14 $5.43
Ratios/supplemental data
Net assets, end of period (in millions) $2 $1
Ratio of expenses to average daily net assets(c),(f) 2.03%(d) 2.01%(d)
Ratio of net investment income (loss) to average daily net assets (.38%)(d) (.08%)(d)
Portfolio turnover rate (excluding short-term securities) 34% 17%
Total return(i) 15.46%(j) 8.60%(j)
Class C
Per share income and capital changes(a)
Fiscal period ended July 31, 2004(k) 2003(b)
Net asset value, beginning of period $5.43 $5.00
Income from investment operations:
Net investment income (loss) (.01) --
Net gains (losses) (both realized and unrealized) .85 .43
Total from investment operations .84 .43
Less distributions:
Dividends from net investment income -- --
Distributions from realized gains (.12) --
Total distributions (.12) --
Net asset value, end of period $6.15 $5.43
Ratios/supplemental data
Net assets, end of period (in millions) $-- $--
Ratio of expenses to average daily net assets(c),(g) 2.03%(d) 2.01%(d)
Ratio of net investment income (loss) to average daily net assets (.34%)(d) (.05%)(d)
Portfolio turnover rate (excluding short-term securities) 34% 17%
Total return(i) 15.66%(j) 8.60%(j)
See accompanying notes to financial highlights.
- --------------------------------------------------------------------------------
20 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT
Class Y
Per share income and capital changes(a)
Fiscal period ended July 31, 2004(k) 2003(b)
Net asset value, beginning of period $5.45 $5.00
Income from investment operations:
Net investment income (loss) .01 .01
Net gains (losses) (both realized and unrealized) .85 .44
Total from investment operations .86 .45
Less distributions:
Dividends from net investment income (.02) --
Distributions from realized gains (.12) --
Total distributions (.14) --
Net asset value, end of period $6.17 $5.45
Ratios/supplemental data
Net assets, end of period (in millions) $-- $--
Ratio of expenses to average daily net assets(c),(h) 1.05%(d) 1.01%(d)
Ratio of net investment income (loss) to average daily net assets .61%(d) .90%(d)
Portfolio turnover rate (excluding short-term securities) 34% 17%
Total return(i) 16.00%(j) 9.00%(j)
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 ratios of expenses for Class A would have been 2.32% for the six
months ended Jan. 31, 2004 and 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 ratios of expenses for Class B would have been 3.08% for the six
months ended Jan. 31, 2004 and 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 ratios of expenses for Class C would have been 3.09% for the six
months ended Jan. 31, 2004 and 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 ratios of expenses for Class Y would have been 2.17% for the six
months ended Jan. 31, 2004 and 7.20% for the period ended July 31, 2003.
(i) Total return does not reflect payment of a sales charge.
(j) Not annualized.
(k) Six months ended Jan. 31, 2004 (Unaudited).
- --------------------------------------------------------------------------------
21 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL REPORT
Proxy Voting
The policy of the Board is to vote all proxies of the companies in which the
Fund holds investments. The procedures are stated in the Statement of Additional
Information (SAI). You may obtain a copy of the SAI without charge by calling
(800) 862-7919; by looking at the Web site americanexpress.com/funds; or by
searching the Web site of the Securities and Exchange Commission
http://www.sec.gov. You may view the Fund's voting record for all portfolio
companies whose shareholders meetings were completed the previous quarter on
americanexpress.com/funds or obtain a copy by calling the Fund's administrator,
Board Services Corporation, collect at (612) 330-9283. In addition, after Aug.
1, 2004, information regarding how the Fund voted proxies relating to portfolio
securities during the most recent 12-month period ended June 30 will be
available at http://www.sec.gov.
- --------------------------------------------------------------------------------
22 - AXP QUANTITATIVE LARGE CAP EQUITY FUND - 2004 SEMIANNUAL 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.
AXP(R)
Research
Opportunities
Fund
Semiannual Report
for the Period Ended
Jan. 31, 2004
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
Investments in Securities 8
Financial Statements (Portfolio) 11
Notes to Financial Statements (Portfolio) 14
Financial Statements (Fund) 18
Notes to Financial Statements (Fund) 21
Proxy Voting 28
(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 -- 2004 SEMIANNUAL REPORT
Fund Snapshot
AS OF JAN. 31, 2004
PORTFOLIO MANAGER
Portfolio manager Doug Chase
Since 11/03
Years in industry 12
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 $233.2 million
Number of holdings 96
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 22.9%
Financials 20.7%
Consumer discretionary 13.8%
Technology 13.6%
Consumer staples 10.5%
Industrials 7.4%
Energy 6.6%
Materials 3.5%
Telecommunications 0.5%
Utilities 0.5%
TOP TEN HOLDINGS
Percentage of portfolio assets
Pfizer (Health care products) 6.8%
Citigroup (Finance companies) 5.2
Cendant (Media) 3.4
Viacom Cl B (Leisure time & entertainment) 3.3
PepsiCo (Beverages & tobacco) 2.9
Microsoft (Computer software & services) 2.9
Colgate-Palmolive (Household products) 2.8
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."
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 -- 2004 SEMIANNUAL REPORT
Questions & Answers
WITH PORTFOLIO MANAGEMENT
Doug Chase began managing AXP Research Opportunities Fund in November 2003.
Below, he discusses the Fund's repositioning and results for the six 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 Research Opportunities Fund perform in the six months ended
Jan. 31, 2004?
A: AXP Research Opportunities Fund's Class A shares, excluding sales charge,
gained 12.07% for the six months ended Jan. 31, 2004. This was less than
the Standard & Poor's 500 Index, which rose 15.23% for the period. The
Lipper Large-Cap Core Funds Index, the Fund's peer group, rose 13.12% over
the same time frame.
Q: What factors most significantly affected Fund performance during the
semiannual period?
A: The Fund benefited from the U.S. equity market's strong rally, which has
been fueled by the improving economic environment and strong corporate
earnings results. Stock selection for most
(bar chart)
PERFORMANCE COMPARISON
For the six-month period ended Jan. 31, 2004
20%
(bar 2)
15% (bar 1) +15.23% (bar 3)
+12.07% +13.12%
10%
5%
0%
(bar 1) AXP Research Opportunities Fund Class A (excluding sales charge)
(bar 2) S&P 500 Index Fund(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) 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.
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 -- 2004 SEMIANNUAL REPORT
Questions & Answers
(begin callout quote)> Currently, we believe the best market opportunities are
in growth stocks that have a high degree of stability to their growth. (end
callout quote)
of the fiscal period and a conservative positioning relative to the S&P 500
Index and its peer group since November were the primary reasons why the
Fund's return fell short of the Index and peer group for the six months
ended Jan. 31, 2004.
Early in the period, good stock selection in the health care, industrial
and technology sectors added to relative performance. However, stock
selection
AVERAGE ANNUAL TOTAL RETURNS
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)
as of Jan. 31, 2004
6 months* +12.07% +5.63% +11.54% +7.54% +11.25% +10.25% +11.81% +11.81%
1 year +29.19% +21.75% +28.32% +24.32% +27.94% +27.94% +29.37% +29.37%
5 years -4.61% -5.73% -5.35% -5.50% N/A N/A -4.47% -4.47%
Since inception +4.61% +3.78% +3.80% +3.80% -10.07% -10.07% +4.76% +4.76%
as of Dec. 31, 2003
6 months* +12.46% +6.00% +11.92% +6.92% +11.92% +10.92% +12.46% +12.46%
1 year +23.95% +16.82% +23.08% +19.08% +23.08% +23.08% +24.16% +24.16%
5 years -3.86% -4.99% -4.59% -4.74% N/A N/A -3.72% -3.72%
Since inception +4.54% +3.70% +3.75% +3.75% -10.48% -10.48% +4.69% +4.69%
The performance information shown represents the past performance and is not a
guarantee of future results. The value of your investment and returns will
fluctuate so that your shares, when redeemed, may be worth more or less than
their original cost. Current performance may be lower or higher than the
performance information shown. You may obtain performance information current to
the most recent month-end by calling (888) 723-8476 or visiting
www.americanexpress.com/funds. You should consider the investment objectives,
risks, and charges and expenses of the Fund carefully before investing.
* Not annualized.
(1) Excluding sales charge.
(2) Returns at public offering price (POP) reflect a sales charge of 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.
- --------------------------------------------------------------------------------
5 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT
Questions & Answers
within the consumer cyclical, financial and energy sectors hindered the
Fund's results.
One strong market trend working against the Fund's investment strategy was
the continued outperformance of small-cap stocks relative to large-cap
stocks, which are the focus of the Fund. Even within the S&P 500 Index, the
smaller the market capitalization, the stronger the stock's performance
generally was.
In mid-November, we made substantial changes to sector allocations and
individual holdings within the portfolio. Toward the end of the semiannual
period, we began to see some positive results from this repositioning. For
example, energy stocks that we added to the portfolio in mid-November
benefited performance in December when the energy sector rallied. However,
since the overall equity market generally favored smaller and lower quality
stocks, our restructuring of the portfolio toward high quality, large-cap
stocks was not fully rewarded.
Q: What changes did you make to the portfolio and how is it currently
positioned?
A: Early in the period, the portfolio's cyclical exposure was increased in an
effort to take advantage of the strengthening U.S. economy. In addition,
holdings of brokerage firms, biotechnology companies and home improvement
retail stores were increased. The Fund's exposure to big pharmaceutical
companies was reduced.
The most significant changes came in November. 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.
Late in the period, we broadened our ownership of pharmaceutical firms,
trimming holdings of Wyeth, which had appreciated significantly, and adding
Johnson & Johnson, Eli Lilly and Novartis to the Fund's holdings. Despite
last year's weakness, we maintain a higher-than-index weighting in health
care because we believe, long term, health care earnings will grow at rates
faster than the market overall due to demographic shifts, primarily the
aging of the U.S. population. In addition to pharmaceuticals, the Fund's
holdings within the health care sector are well diversified among
biotechnology companies, hospitals, medical device providers and drug
distributors. Our primary concern about health care is the forthcoming
November 2004 general election, and the potential for negative political
discourse about the industry. Therefore, we will probably be a bit cautious
in adding further to the health care sector. We may take advantage of
- --------------------------------------------------------------------------------
6 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT
Questions & Answers
election-related uncertainties to add to some existing positions.
The Fund's weighting in the technology sector is smaller than the index. We
believe these stocks, as a group, are expensive. In our opinion, the only
way to justify current valuations is to assume exceptional economic growth
for several quarters to come. We believe that if growth is indeed that
strong, it will also 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 do you intend to manage the Fund in 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 do not 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 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 Index. 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.
- --------------------------------------------------------------------------------
7 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT
Investments in Securities
Aggressive Growth Portfolio
Jan. 31, 2004 (Unaudited)
(Percentages represent value of investments compared to net assets)
Common stocks (99.4%)
Issuer Shares Value(a)
Aerospace & defense (2.6%)
Empresa Brasileira de
Aeronautica ADR 16,800(c) $495,096
Lockheed Martin 44,800 2,178,176
Northrop Grumman 12,700 1,228,217
United Technologies 23,100 2,206,974
Total 6,108,463
Banks and savings & loans (3.5%)
Bank of America 44,400 3,616,824
U.S. Bancorp 47,500 1,342,825
Washington Mutual 18,500 819,550
Wells Fargo 43,600 2,503,076
Total 8,282,275
Beverages & tobacco (5.3%)
Altria Group 69,800 3,880,182
Anheuser-Busch Companies 10,800 547,776
Coca-Cola 24,100 1,186,684
PepsiCo 144,600 6,833,796
Total 12,448,438
Broker dealers (1.8%)
Merrill Lynch & Co 34,600 2,034,134
Morgan Stanley 38,600 2,246,906
Total 4,281,040
Building materials & construction (0.5%)
American Standard 10,900(b) 1,157,580
Cable (0.7%)
EchoStar Communications Cl A 19,800(b) 722,700
NTL 12,000(b) 796,080
Total 1,518,780
Cellular telecommunications (0.5%)
Nextel Communications Cl A 45,000(b) 1,187,550
Chemicals (1.5%)
Dow Chemical 42,700 1,791,265
Lyondell Chemical 96,200 1,648,868
Total 3,440,133
Computer hardware (4.8%)
Cisco Systems 170,200(b) 4,363,928
Dell 89,100(b) 2,982,177
Hewlett-Packard 140,400 3,340,116
NVIDIA 23,600(b) 525,100
Total 11,211,321
Computer software & services (4.4%)
Affiliated Computer Services Cl A 9,500(b) 526,775
BMC Software 29,800(b) 593,020
Investors Financial Services 9,500 393,680
Microsoft 246,900 6,826,785
Oracle 94,700(b) 1,307,807
VERITAS Software 18,500(b) 607,910
Total 10,255,977
Electronics (4.3%)
Analog Devices 30,600 1,464,210
Applied Materials 31,900(b) 694,144
Intel 148,000 4,528,800
Jabil Circuit 14,000(b) 414,400
KLA-Tencor 20,600(b) 1,175,642
STMicroelectronics 41,500(c) 1,113,860
Taiwan Semiconductor Mfg ADR 53,100(c) 593,658
Total 9,984,714
Energy (5.3%)
ChevronTexaco 38,400 3,315,840
ConocoPhillips 32,800 2,160,864
Devon Energy 20,000 1,129,200
Exxon Mobil 124,400 5,074,276
Newfield Exploration 13,100(b) 618,189
Total 12,298,369
Energy equipment & services (1.3%)
Halliburton 42,500 1,281,375
Noble 31,700(b) 1,176,070
Weatherford Intl 15,200(b) 612,864
Total 3,070,309
Finance companies (5.2%)
Citigroup 243,000 12,023,640
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
8 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Financial services (4.9%)
Capital One Financial 14,500 $1,030,660
Countrywide Financial 25,100 2,097,105
Fannie Mae 75,800 5,844,180
MBNA 91,600 2,469,536
Total 11,441,481
Health care products (16.2%)
Amgen 50,800(b) 3,276,092
Baxter Intl 58,100 1,693,615
Boston Scientific 32,900(b) 1,341,991
Forest Laboratories 36,900(b) 2,748,681
Gilead Sciences 9,500(b) 521,265
Johnson & Johnson 99,700 5,325,974
Medtronic 31,900 1,570,118
Merck & Co 25,600 1,218,560
Novartis ADR 55,800(c) 2,519,370
Pfizer 432,300 15,835,149
Teva Pharmaceutical Inds ADR 9,600(c) 600,864
Wyeth 26,800 1,097,460
Total 37,749,139
Health care services (6.6%)
AmerisourceBergen 62,400 3,435,120
Anthem 15,500(b) 1,267,590
Cardinal Health 44,200 2,833,662
Caremark Rx 23,600(b) 631,300
HCA 29,000 1,302,100
McKesson 190,100 5,585,138
Tenet Healthcare 19,000(b) 235,600
Total 15,290,510
Household products (5.1%)
Colgate-Palmolive 124,900 6,403,623
Procter & Gamble 55,400 5,599,832
Total 12,003,455
Insurance (5.1%)
ACE 27,400(c) 1,189,708
Allstate 58,600 2,663,956
American Intl Group 42,700 2,965,515
Chubb 51,400 3,674,586
Hartford Financial Services Group 14,400 926,496
MBIA 9,400 592,200
Total 12,012,461
Leisure time & entertainment (4.3%)
Mattel 134,800 2,549,068
Viacom Cl B 187,400 7,552,220
Total 10,101,288
Machinery (0.8%)
Caterpillar 23,600 1,843,868
Media (6.9%)
Cendant 348,200(b) 7,886,730
Disney (Walt) 194,500 4,668,000
InterActiveCorp 37,700(b) 1,221,480
Liberty Media Cl A 106,000(b) 1,233,840
Tribune 23,100 1,182,489
Total 16,192,539
Multi-industry (3.9%)
Accenture Cl A 25,400(b,c) 601,218
General Electric 146,400 4,923,432
ITT Inds 7,700 573,958
Tyco Intl 112,000(c) 2,996,000
Total 9,094,608
Paper & packaging (0.9%)
Avery Dennison 24,000 1,491,840
Weyerhaeuser 9,000 553,140
Total 2,044,980
Precious metals (0.7%)
Freeport McMoRan Cooper &
Gold Cl B 42,600 1,570,236
Retail -- general (1.8%)
Best Buy 49,250 2,481,708
Wal-Mart Stores 32,200 1,733,970
Total 4,215,678
Utilities -- electric (0.5%)
Exelon 8,700 582,726
FirstEnergy 16,000 600,320
Total 1,183,046
Total common stocks
(Cost: $216,769,389) $232,011,878
Total investments in securities
(Cost: $216,769,389)(d) $232,011,878
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
9 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(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) At Jan. 31, 2004, the cost of securities for federal income tax purposes
was approximately $216,769,000 and the approximate aggregate gross
unrealized appreciation and depreciation based on that cost was:
Unrealized appreciation $18,350,000
Unrealized depreciation (3,107,000)
----------
Net unrealized appreciation $15,243,000
-----------
- --------------------------------------------------------------------------------
10 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT
Financial Statements
Statement of assets and liabilities
Aggressive Growth Portfolio
Jan. 31, 2004 (Unaudited)
Assets
Investments in securities, at value (Note 1)
(identified cost $216,769,389) $232,011,878
Cash in bank on demand deposit 783,598
Dividends and accrued interest receivable 219,470
Receivable for investment securities sold 5,918,498
---------
Total assets 238,933,444
-----------
Liabilities
Payable for investment securities purchased 5,565,617
Accrued investment management services fee 4,162
Other accrued expenses 13,678
------
Total liabilities 5,583,457
---------
Net assets $233,349,987
============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
11 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT
Statement of operations
Aggressive Growth Portfolio
Six months ended Jan. 31, 2004 (Unaudited)
Investment income
Income:
Dividends $ 2,053,380
Interest 28,015
Less foreign taxes withheld (10,066)
-------
Total income 2,071,329
---------
Expenses (Note 2):
Investment management services fee 747,615
Compensation of board members 4,618
Custodian fees 17,300
Audit fees 10,500
Other 2,344
-----
Total expenses 782,377
Earnings credits on cash balances (Note 2) (592)
----
Total net expenses 781,785
-------
Investment income (loss) -- net 1,289,544
---------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 9,989,087
Options contracts written (Note 4) 43,301
------
Net realized gain (loss) on investments 10,032,388
Net change in unrealized appreciation (depreciation) on investments 16,000,429
----------
Net gain (loss) on investments 26,032,817
----------
Net increase (decrease) in net assets resulting from operations $27,322,361
===========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
12 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT
Statements of changes in net assets
Aggressive Growth Portfolio
Jan. 31, 2004 July 31, 2003
Six months ended Year ended
(Unaudited)
Operations
Investment income (loss) -- net $ 1,289,544 $ 3,016,145
Net realized gain (loss) on investments 10,032,388 (54,088,180)
Net change in unrealized appreciation (depreciation) on investments 16,000,429 65,040,858
---------- ----------
Net increase (decrease) in net assets resulting from operations 27,322,361 13,968,823
---------- ----------
Proceeds from contributions -- 280,192
Fair value of withdrawals (34,841,103) (82,264,696)
----------- -----------
Net contributions (withdrawals) from partners (34,841,103) (81,984,504)
----------- -----------
Total increase (decrease) in net assets (7,518,742) (68,015,681)
Net assets at beginning of period 240,868,729 308,884,410
----------- -----------
Net assets at end of period $233,349,987 $240,868,729
============ ============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
13 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT
Notes to Financial Statements
Aggressive Growth Portfolio
(Unaudited as to Jan. 31, 2004)
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.
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 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 Portfolio and board of trustees 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.
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.
- --------------------------------------------------------------------------------
14 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL 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.
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.
- --------------------------------------------------------------------------------
15 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT
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. FEES AND EXPENSES
The Trust on behalf of the Portfolio, has an Investment Management Services
Agreement with 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. The maximum adjustment is 0.12% per year. If the
performance difference is less than 0.50%, the adjustment will be zero. The
adjustment decreased the fee by $25,550 for the six months ended Jan. 31, 2004.
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.
Under a Deferred Compensation Plan (the Plan), non-interested trustees may defer
receipt of their compensation. Deferred amounts are treated as though equivalent
dollar amounts had been invested in shares of the underlying Fund or other
American Express mutual funds. The Portfolio's liability for these amounts is
adjusted for market changes and remains in the Portfolio until distributed in
accordance with the Plan.
During the six months ended Jan. 31, 2004, the Portfolio's custodian fees were
reduced by $592 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.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $239,217,887 and $266,572,558, respectively, for the six
months 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 $14,068 for
the six months ended Jan. 31, 2004.
- --------------------------------------------------------------------------------
16 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT
4. OPTIONS CONTRACTS WRITTEN
Contracts and premiums associated with options contracts written are as follows:
Six months ended Jan. 31, 2004
Calls
Contracts Premiums
Balance July 31, 2003 270 $ 25,579
Opened 857 75,390
Closed (767) (76,750)
Exercised (170) (10,880)
Expired (190) (13,339)
---- -------
Balance Jan. 31, 2004 -- $ --
---- --------
See "Summary of significant accounting policies."
5. FINANCIAL HIGHLIGHTS
The table below shows certain important financial information for evaluating the
Portfolio's results.
Ratios/supplemental data
Fiscal period ended July 31, 2004(e) 2003 2002 2001 2000
Ratio of expenses to average daily net assets(a) .66%(c) .60% .60% .61% .63%
Ratio of net investment income (loss) to average daily net assets 1.08%(c) 1.18% .76% .91% .53%
Portfolio turnover rate (excluding short-term securities) 104% 82% 144% 234% 160%
Total return(b) 12.25%(d) 7.40% (26.92%) (17.05%) 8.43%
Notes to financial highlights
(a) Expense ratio is based on total expenses of the Portfolio before reduction
of earnings credits on cash balances. The ratio does not include feeder
fund expenses.
(b) Total return is based on a calculated Portfolio NAV and does not reflect
payment of a sales charge.
(c) Adjusted to an annual basis.
(d) Not annualized.
(e) Six months ended Jan. 31, 2004 (Unaudited).
- --------------------------------------------------------------------------------
17 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT
Financial Statements
Statement of assets and liabilities
AXP Research Opportunities Fund
Jan. 31, 2004 (Unaudited)
Assets
Investment in Portfolio (Note 1) $ 233,281,106
Capital shares receivable 933
---
Total assets 233,282,039
-----------
Liabilities
Capital shares payable 3,354
Accrued distribution fee 3,442
Accrued transfer agency fee 1,711
Accrued administrative services fee 384
Other accrued expenses 76,769
------
Total liabilities 85,660
------
Net assets applicable to outstanding capital stock $ 233,196,379
=============
Represented by
Capital stock -- $.01 par value (Note 1) $ 515,748
Additional paid-in capital 480,830,274
Undistributed net investment income 124,415
Accumulated net realized gain (loss) (Note 5) (263,512,214)
Unrealized appreciation (depreciation) on investments 15,238,156
----------
Total -- representing net assets applicable to outstanding capital stock $ 233,196,379
=============
Net assets applicable to outstanding shares: Class A $ 143,595,618
Class B $ 89,301,137
Class C $ 298,219
Class Y $ 1,405
Net asset value per share of outstanding capital stock: Class A shares 30,978,884 $ 4.64
Class B shares 20,527,086 $ 4.35
Class C shares 68,489 $ 4.35
Class Y shares 300 $ 4.68
--- -------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
18 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT
Statement of operations
AXP Research Opportunities Fund
Six months ended Jan. 31, 2004 (Unaudited)
Investment income
Income:
Dividends $ 2,052,818
Interest 28,008
Less foreign taxes withheld (10,063)
-------
Total income 2,070,763
---------
Expenses (Note 2):
Expenses allocated from Portfolio 781,570
Distribution fee
Class A 183,538
Class B 452,606
Class C 1,421
Transfer agency fee 327,159
Incremental transfer agency fee
Class A 22,314
Class B 22,776
Class C 66
Administrative services fees and expenses 71,661
Compensation of board members 4,250
Printing and postage 71,885
Registration fees 20,465
Audit fees 3,500
Other 5,908
-----
Total expenses 1,969,119
Expenses waived/reimbursed by AEFC (Note 2) (21,747)
-------
1,947,372
Earnings credits on cash balances (Note 2) (1,277)
------
Total net expenses 1,946,095
---------
Investment income (loss) -- net 124,668
-------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions 9,986,498
Options contracts written 43,301
------
Net realized gain (loss) on investments 10,029,799
Net change in unrealized appreciation (depreciation) on investments 15,995,872
----------
Net gain (loss) on investments 26,025,671
----------
Net increase (decrease) in net assets resulting from operations $26,150,339
===========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
19 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT
Statements of changes in net assets
AXP Research Opportunities Fund
Jan. 31, 2004 July 31, 2003
Six months ended Year ended
(Unaudited)
Operations and distributions
Investment income (loss) -- net $ 124,668 $ 338,450
Net realized gain (loss) on investments 10,029,799 (54,080,938)
Net change in unrealized appreciation (depreciation) on investments 15,995,872 65,030,053
---------- ----------
Net increase (decrease) in net assets resulting from operations 26,150,339 11,287,565
---------- ----------
Distributions to shareholders from:
Net investment income
Class A (338,698) --
Class Y (5) --
---------- ----------
Total distributions (338,703) --
---------- ----------
Capital share transactions (Note 3)
Proceeds from sales
Class A shares (Note 2) 2,482,756 10,144,239
Class B shares 1,450,155 4,732,632
Class C shares 17,565 67,130
Class Y shares -- 4,652
Reinvestment of distributions at net asset value
Class A shares 333,621 --
Payments for redemptions
Class A shares (24,353,913) (57,637,339)
Class B shares (Note 2) (13,223,406) (36,351,756)
Class C shares (Note 2) (25,103) (91,096)
Class Y shares -- (198,402)
---------- ----------
Increase (decrease) in net assets from capital share transactions (33,318,325) (79,329,940)
----------- -----------
Total increase (decrease) in net assets (7,506,689) (68,042,375)
Net assets at beginning of period 240,703,068 308,745,443
----------- -----------
Net assets at end of period $233,196,379 $240,703,068
============ ============
Undistributed net investment income $ 124,415 $ 338,450
------------ ------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
20 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT
Notes to Financial Statements
AXP Research Opportunities Fund
(Unaudited as to Jan. 31, 2004)
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 Jan. 31, 2004, 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 -- 2004 SEMIANNUAL 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.
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 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 Deferred Compensation Plan (the Plan), non-interested board members may
defer receipt of their compensation. Deferred amounts are treated as though
equivalent dollar amounts had been invested in shares of the Fund or other
American Express mutual funds. The Fund's liability for these amounts is
adjusted for market value changes and remains in the Fund until distributed in
accordance with the Plan.
Under a separate Transfer Agency Agreement, American Express Client Service
Corporation (AECSC) maintains shareholder accounts and records. The Fund pays
AECSC an annual fee per shareholder account for this service as follows:
o Class A $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.
- --------------------------------------------------------------------------------
22 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT
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.
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
$76,055 for Class A, $33,286 for Class B and $22 for Class C for the six months
ended Jan. 31, 2004.
For the six months ended Jan. 31, 2004, AEFC and its affiliates waived certain
fees and expenses to 1.35% for Class A, 2.11% for Class B, 2.11% for Class C and
1.11% for Class Y. In addition, AEFC and its affiliates have agreed to waive
certain fees and expenses until July 31, 2004. Under this agreement, net
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 six months ended Jan. 31, 2004, the Fund's transfer agency fees were
reduced by $1,277 as a result of earnings credits from overnight cash balances.
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
Six months ended Jan. 31, 2004
Class A Class B Class C Class Y
Sold 564,967 351,796 4,271 --
Issued for reinvested distributions 73,810 -- -- --
Redeemed (5,549,852) (3,212,455) (6,195) --
----------- ----------- ------- -------
Net increase (decrease) (4,911,075) (2,860,659) (1,924) --
----------- ----------- ------- -------
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)
----------- ---------- ------ -------
- --------------------------------------------------------------------------------
23 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT
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 Fund must
maintain asset coverage for borrowings of at least 300%. The agreement, which
enables the Fund to participate with other American Express mutual funds,
permits borrowings up to $500 million, collectively. Interest is charged to each
Fund based on its borrowings at a rate equal to either the LIBOR plus 0.50%, the
IBOR plus 0.50% or the higher of the Federal Funds Rate plus 0.25% and the Prime
Lending Rate. Borrowings are payable within 60 days after such loan is executed.
The Fund also pays a commitment fee equal to its pro rata share of the amount of
the credit facility at a rate of 0.09% per annum. The Fund had no borrowings
outstanding during the six months ended Jan. 31, 2004.
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.
6. 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.
- --------------------------------------------------------------------------------
24 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL 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, 2004(k) 2003 2002 2001 2000
Net asset value, beginning of period $4.15 $3.90 $ 5.37 $ 7.61 $7.94
Income from investment operations:
Net investment income (loss) .01 .02 -- .02 --
Net gains (losses) (both realized and unrealized) .49 .23 (1.46) (1.27) .66
Total from investment operations .50 .25 (1.46) (1.25) .66
Less distributions:
Dividends from net investment income (.01) -- (.01) -- --
Distributions from realized gains -- -- -- (.99) (.99)
Total distributions (.01) -- (.01) (.99) (.99)
Net asset value, end of period $4.64 $4.15 $ 3.90 $ 5.37 $7.61
Ratios/supplemental data
Net assets, end of period (in millions) $144 $149 $189 $365 $540
Ratio of expenses to average daily net assets(c) 1.35%(d),(e) 1.35% 1.22% 1.16% 1.14%
Ratio of net investment income (loss) to average daily net assets .40%(d) .43% .15% .37% .02%
Portfolio turnover rate (excluding short-term securities) 104% 82% 144% 234% 160%
Total return(i) 12.07%(j) 6.41% (27.24%) (17.54%) 7.73%
Class B
Per share income and capital changes(a)
Fiscal period ended July 31, 2004(k) 2003 2002 2001 2000
Net asset value, beginning of period $3.90 $3.69 $ 5.12 $ 7.36 $7.76
Income from investment operations:
Net investment income (loss) (.01) (.02) (.01) (.02) (.05)
Net gains (losses) (both realized and unrealized) .46 .23 (1.42) (1.23) .64
Total from investment operations .45 .21 (1.43) (1.25) .59
Less distributions:
Distributions from realized gains -- -- -- (.99) (.99)
Net asset value, end of period $4.35 $3.90 $ 3.69 $ 5.12 $7.36
Ratios/supplemental data
Net assets, end of period (in millions) $89 $91 $119 $235 $336
Ratio of expenses to average daily net assets(c) 2.11%(d),(f) 2.11% 1.98% 1.92% 1.91%
Ratio of net investment income (loss) to average daily net assets (.37%)(d) (.33%) (.62%) (.39%) (.73%)
Portfolio turnover rate (excluding short-term securities) 104% 82% 144% 234% 160%
Total return(i) 11.54%(j) 5.69% (27.93%) (18.19%) 7.03%
See accompanying notes to financial highlights.
- --------------------------------------------------------------------------------
25 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT
Class C
Per share income and capital changes(a)
Fiscal period ended July 31, 2004(k) 2003 2002 2001 2000(b)
Net asset value, beginning of period $3.91 $3.69 $ 5.13 $ 7.36 $7.50
Income from investment operations:
Net investment income (loss) (.02) (.01) (.02) (.02) .02
Net gains (losses) (both realized and unrealized) .46 .23 (1.42) (1.22) (.16)
Total from investment operations .44 .22 (1.44) (1.24) (.14)
Less distributions:
Distributions from realized gains -- -- -- (.99) --
Net asset value, end of period $4.35 $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%(d),(g) 2.11% 1.99% 1.92% 1.91%(d)
Ratio of net investment income (loss) to average daily net assets (.36%)(d) (.34%) (.61%) (.36%) (.50%)(d)
Portfolio turnover rate (excluding short-term securities) 104% 82% 144% 234% 160%
Total return(i) 11.25%(j) 5.96% (28.05%) (18.03%) (1.87%)(j)
Class Y
Per share income and capital changes(a)
Fiscal period ended July 31, 2004(k) 2003 2002 2001 2000
Net asset value, beginning of period $4.20 $3.93 $ 5.42 $ 7.65 $7.96
Income from investment operations:
Net investment income (loss) .01 .04 -- .04 .01
Net gains (losses) (both realized and unrealized) .49 .23 (1.48) (1.28) .67
Total from investment operations .50 .27 (1.48) (1.24) .68
Less distributions:
Dividends from net investment income (.02) -- (.01) -- --
Distributions from realized gains -- -- -- (.99) (.99)
Total distributions (.02) -- (.01) (.99) (.99)
Net asset value, end of period $4.68 $4.20 $ 3.93 $ 5.42 $7.65
Ratios/supplemental data
Net assets, end of period (in millions) $-- $-- $-- $-- $--
Ratio of expenses to average daily net assets(c) 1.13%(d),(h) 1.13% 1.04% 1.00% .97%
Ratio of net investment income (loss) to average daily net assets .61%(d) .64% .33% .54% .17%
Portfolio turnover rate (excluding short-term securities) 104% 82% 144% 234% 160%
Total return(i) 11.81%(j) 6.87% (27.30%) (17.29%) 7.99%
See accompanying notes to financial highlights.
- --------------------------------------------------------------------------------
26 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL 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) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratio of expenses for Class A would have been 1.36% for the six
months ended Jan. 31, 2004.
(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 2.13% for the six
months ended Jan. 31, 2004.
(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 2.13% for the six
months ended Jan. 31, 2004.
(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 1.15% for the six
months ended Jan. 31, 2004.
(i) Total return does not reflect payment of a sales charge.
(j) Not annualized.
(k) Six months ended Jan. 31, 2004 (Unaudited).
- --------------------------------------------------------------------------------
27 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL REPORT
Proxy Voting
The policy of the Board is to vote all proxies of the companies in which the
Fund holds investments. The procedures are stated in the Statement of Additional
Information (SAI). You may obtain a copy of the SAI without charge by calling
(800) 862-7919; by looking at the Web site americanexpress.com/funds; or by
searching the Web site of the Securities and Exchange Commission
http://www.sec.gov. You may view the Fund's voting record for all portfolio
companies whose shareholders meetings were completed the previous quarter on
americanexpress.com/funds or obtain a copy by calling the Fund's administrator,
Board Services Corporation, collect at (612) 330-9283. In addition, after Aug.
1, 2004, information regarding how the Fund voted proxies relating to portfolio
securities during the most recent 12-month period ended June 30 will be
available at http://www.sec.gov.
- --------------------------------------------------------------------------------
28 -- AXP RESEARCH OPPORTUNITIES FUND -- 2004 SEMIANNUAL 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.
Item 2. Code of Ethics. Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert. Not applicable for semi-annual
reports.
Item 4. Principal Accountant Fees and Services. Not applicable for
semi-annual reports.
Item 5. Audit Committee of Listed Registrants. Not applicable.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. Not applicable.
Item 8. Purchase of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers. Not applicable.
Item 9. Submission of matters to a vote of security holders. Not applicable.
Item 10. Controls and Procedures.
(a) The registrant's Principal Executive Officer and Principal
Financial Officer have evaluated the registrant's disclosure
controls and procedures within 90 days of this filing and have
concluded that the registrant's disclosure controls and
procedures by the registrant in this Form N-CSR was recorded,
processed, summarized, and reported timely.
(b) At the date of filing this Form N-CSR, the registrant's Principal
Executive Officer and Principal Financial Officer are aware of no
significant changes in the registrant's internal controls or in
other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Item 11. Exhibits.
(a)(1) Not applicable for semi-annual reports.
(a)(2) Separate certification for the Registrant's principal
executive officer and principal financial officer, as required by
Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a)
under the Investment Company Act of 1940, are attached as
EX.99.CERT.
(a)(3) Not applicable.
(b) A certification by the Registrant's principal executive officer
and principal financial officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment
Company Act of 1940, is attached as EX.99.906 CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) AXP Growth Series, Inc.
By /s/ Paula R. Meyer
------------------
Paula R. Meyer
President and Principal Executive Officer
Date April 6, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ Paula R. Meyer
------------------
Paula R. Meyer
President and Principal Executive Officer
Date April 6, 2004
By /s/ Jeffrey P. Fox
------------------
Jeffrey P. Fox
Treasurer and Principal Financial Officer
Date April 6, 2004