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 811-4075
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AXP INTERNATIONAL 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: 10/31
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Date of reporting period: 4/30
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AXP(R)
European Equity
Fund
Semiannual Report
for the Period Ended
April 30, 2004
AXP European Equity Fund seeks to provide shareholders with capital
appreciation.
(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.
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2 --- AXP EUROPEAN EQUITY FUND --- 2004 SEMIANNUAL REPORT
Fund Snapshot
AS OF APRIL 30, 2004
PORTFOLIO MANAGERS
Portfolio manager Since Years in industry
Dominic Baker* 10/03 11
Rob Jones* 10/03 11
* The Fund is managed by a team led by Dominic Baker and Rob Jones.
FUND OBJECTIVE
For investors seeking capital appreciation.
Inception dates
A: 6/26/00 B: 6/26/00 C: 6/26/00 Y: 6/26/00
Ticker symbols
A: AXEAX B: AEEBX C: -- Y: --
Total net assets $128.1 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
X MEDIUM SIZE
X SMALL
COUNTRY COMPOSITION
Percentage of portfolio assets
(pie chart)
United Kingdom 35.7%
France 15.3%
Switzerland 12.8%
Germany 9.6%
Netherlands 6.2%
Spain 4.3%
Italy 3.9%
Sweden 3.3%
Ireland 3.1%
Austria 2.4%
United States 1.4%
Denmark 1.1%
Finland 0.9%
TOP TEN HOLDINGS
Percentage of portfolio assets
BP (United Kingdom) 3.8%
Vodafone Group (United Kingdom) 3.6
HSBC Holdings (United Kingdom) 3.3
UBS (Switzerland) 3.0
Total (France) 2.8
Royal Bank of Scotland Group (United Kingdom) 2.6
Novartis (Switzerland) 2.0
Credit Suisse Group (Switzerland) 1.8
GlaxoSmithKline (United Kingdom) 1.7
Man Group (United Kingdom) 1.7
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
There are special risk considerations associated with international investing
related to market, currency, economic, political and other factors.
Stock prices of established companies that pay dividends may be less volatile
than the stock market as a whole.
Stocks of small- or medium-sized companies may be subject to more abrupt or
erratic price movements than stocks of larger companies. Some of these companies
also have fewer financial resources.
Fund holdings are subject to change.
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3 --- AXP EUROPEAN EQUITY FUND --- 2004 SEMIANNUAL REPORT
Questions & Answers
WITH PORTFOLIO MANAGEMENT
Below, AXP European Equity Fund portfolio managers Dominic Baker and Rob Jones
of Threadneedle Asset Management in London describe the Fund's positioning and
results for the six months ended April 30, 2004. Threadneedle portfolio managers
assumed responsibility for the Fund on Oct. 20, 2003.
Q: How did AXP European Equity Fund perform for the six months ended April 30,
2004?
A: AXP European Equity Fund's Class A shares, excluding sales charge, rose
7.85% for the six-month period ended April 30, 2004. This was less than the
Fund's benchmark, the MSCI Europe Index, which advanced 13.08% for the
period. The Lipper European Funds Index, representing the Fund's peer
group, rose 13.01% for the same time frame.
Q: What changes were made to the Fund?
A: When we assumed responsibility for the Fund in late October, we felt that
the Fund's portfolio reflected an overly defensive position that was not
fully capturing the recovery in the European equity markets. Historically,
stocks in the cyclical sectors benefit from a growing global economy. Given
our optimism about global growth, we made the following changes to the
portfolio in late October and early November 2003:
o We reduced the Fund's large cap emphasis and added more mid-cap stocks.
Mid-cap, as well as small-cap, stocks tend to benefit more during
periods of accelerating economic
(bar chart)
PERFORMANCE COMPARISON
For the six-month period ended April 30, 2004
15%
(bar 2) (bar 3)
12% +13.08% +13.01%
9% (bar 1)
+7.85%
6%
3%
0%
(bar 1) AXP European Equity Fund Class A (excluding sales charge)
(bar 2) MSCI Europe Index(1) (unmanaged)
(bar 3) Lipper European Funds Index(2)
(1) The Morgan Stanley Capital International (MSCI) Europe Index is an
unmanaged index for European portfolios. It is compiled by MSCI in Geneva
from a capitalization market of various European Countries. Income is
included. The MSCI Europe Index reflects reinvestment of all distributions
and changes in market prices, but excludes brokerage commissions or other
fees.
(2) The Lipper European 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 EUROPEAN EQUITY FUND --- 2004 SEMIANNUAL REPORT
Questions & Answers
(begin callout quote)> Although the Bank of England has raised rates by 0.25% on
two occasions during the reporting period, we see no immediate threat of higher
rates from the European Central Bank.(end callout quote)
growth. We believed that mid-cap stocks offered the most capital
appreciation potential in the market environment at that time (i.e.,
early November 2003).
o We increased the number of stocks in the portfolio from 50 to a target
of 90. We believe holding fewer stocks results in a portfolio that is
too concentrated and is subject to too much volatility.
o We focused on stocks poised to benefit from greater economic growth in
Europe. We increased the Fund's positions in industrial, capital goods
and
AVERAGE ANNUAL TOTAL RETURNS
Class A Class B Class C Class Y
(Inception dates) (6/26/00) (6/26/00) (6/26/00) (6/26/00)
NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) NAV(5) POP(5)
as of April 30, 2004
6 months* +7.85% +1.67% +7.49% +3.49% +7.41% +6.41% +7.75% +7.75%
1 year +23.88% +16.75% +22.85% +18.85% +23.19% +23.19% +24.12% +24.12%
Since inception -8.20% -9.61% -8.89% -9.36% -8.89% -8.89% -8.09% -8.09%
as of March 31, 2004
6 months* +17.54% +10.77% +17.28% +13.28% +17.19% +16.19% +17.77% +17.77%
1 year +41.61% +33.46% +40.64% +36.64% +40.53% +40.53% +41.88% +41.88%
Since inception -7.75% -9.19% -8.44% -8.93% -8.45% -8.45% -7.63% -7.63%
The performance information shown represents the past performance and is not a
guarantee of future results. The investment return and principal 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 EUROPEAN EQUITY FUND --- 2004 SEMIANNUAL REPORT
Questions & Answers
services, and financial stocks. We reduced positions in energy,
utilities, consumer staples, and health care.
As part of this restructuring, we implemented Threadneedle's dynamic
investment process to capitalize on opportunities across all sectors and
style disciplines, which require us to adapt to current market conditions.
We actively manage sector weightings, assess the economic environment and
analyze market and stock specific risks. We strive for both consistent
performance and effective risk management.
Q: What factors most significantly affected performance?
A: With the backdrop of relatively moderate growth in Europe, albeit
slower than the U.S. and Asia, the greatest effect on the Fund's
overall performance this period was the performance of certain
holdings. On the downside, Swiss Life has been one of our key
holdings in the Fund since we assumed portfolio management
responsibility in late October. The company sold a bank they owned to
their parent company. This hurt the stock price and, in turn,
impacted the Fund. BMW, another sizeable position in the Fund, lost
ground over the period. We have had many conversations with BMW
management, and we believe they execute well on their business model.
Their plans were solid; they communicated these plans to investors,
and then executed their plans well. However, when the U.S. dollar
moved up so strongly in January, it hurt European exports. The United
States is a key market for BMW and this currency fluctuation hurt
BMW's profits, which in turn, affected the value of their stock. We
are still optimistic about BMW and remain invested.
Nokia, the leading supplier of cellular phone handsets, had been a favored
holding in the Fund following encouraging figures in January. However, in
early April the company issued a surprise profit warning and the stock fell
substantially in one day. Initially we continued to be optimistic and
retained our position because of a favorable valuation, but a week later
Nokia issued a second profit warning. At this point, we sold the Fund's
position in the stock. We continue to hold a greater-than-index position in
its competitor, Ericsson, which is more geared into transmission equipment
and at the same time is gaining market share in handsets at Nokia's
expense.
At the start of 2004, a very negative event occurred in the Fund's position
in Adecco, a Swiss temporary employment company. We had a
greater-than-index position in this stock when it dropped 40% in one day
(January 12). The key reason for the drop was that Adecco announced that
they were postponing the release of their annual report because of
accounting investigations and irregularities at one of Adecco's
subsidiaries in the United States. We sold out of our entire position that
day.
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6 --- AXP EUROPEAN EQUITY FUND --- 2004 SEMIANNUAL REPORT
Questions & Answers
On the positive side, ProSiebenSat1, a German broadcaster that is one of
our mainstream stocks was added to the Fund at the beginning of this
reporting period. ProSiebenSat1 was buoyed up by very strong advertising
figures coming out of Germany. These results demonstrated consecutive
long-term growth as well as notable growth in ad revenues. Advertising on
television is highly correlated with the health of the underlying economy
and also the confidence of individual companies. Strong advertising results
and the performance of ProSeibenSat1 leads us to believe that confidence is
increasing with both manufacturers and consumers in Germany.
Another holding that benefited performance this period is Porsche, the
sports car maker. Porsche is enjoying growth and introduced an upscale
sports utility vehicle, the Cayenne, in 2003. The company will be releasing
a new 911 model, which is scheduled to go to market in July 2004, and the
Boxster model, due out in early 2005. Both of these models are expected to
generate considerable excitement in the marketplace.
In the alternative financial sector, Man Group, a leading provider of
alternative investment products -- such as hedge funds -- performed very
well. Another stellar performer was Nobel Biocare, a Swiss manufacturer of
dental implants. Nobel Biocare falls into the small-cap part of the market,
and it contributed significantly to performance.
Q: How is the Fund currently positioned and how do you intend to manage
the Fund in the months ahead?
A: We remain cautiously optimistic about the outlook for equity markets
in Europe and expect to see healthy economic recovery continuing.
Although the Bank of England has raised rates by 0.25% on two
occasions during the reporting period (with a third 0.25% increase in
early May), we see no immediate threat of higher rates from the
European Central Bank. Inflation continues to be low in Europe, and a
rate hike might affect the pace of Europe's economic recovery.
However, higher oil prices could feed through to push inflation to
the 2% level.
Six months ago, we positioned the Fund with a strong cyclical focus.
Cyclical stocks tend to have reasonably short, dramatic periods of
outperformance, and we believe that period is coming to an end. Going
forward, we favor later cyclical stocks, such as media and selective
consumer plays. We will also reduce our exposure to the industrial sector.
We are selectively taking profits from some small- and mid-cap stocks in
the Fund and moving into large-cap stocks that fit our investment criteria.
Overall, we continue to favor growth-oriented companies where the potential
for earnings upgrades will come through.
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7 --- AXP EUROPEAN EQUITY FUND --- 2004 SEMIANNUAL REPORT
Investments in Securities
AXP European Equity Fund
April 30, 2004 (Unaudited)
(Percentages represent value of investments compared to net assets)
Common stocks (95.7%)(c)
Issuer Shares Value(a)
Austria (2.4%)
Banks and savings & loans (0.4%)
Erste Bank der
oesterreichischen Sparkassen 3,525 $527,235
Building materials & construction (0.5%)
Wienerberger 19,720 643,769
Utilities -- telephone (1.5%)
Telekom Austria 128,534(b) 1,886,300
Denmark (1.1%)
Industrial transportation (0.4%)
A P Moller - Maersk 83 522,576
Insurance (0.7%)
Topdanmark 15,064(b) 885,376
Finland (0.8%)
Computer software & services
TietoEnator 36,483 1,086,109
France (15.1%)
Airlines (0.7%)
Air France 49,386 859,659
Automotive & related (1.0%)
Renault 17,440 1,300,596
Banks and savings & loans (1.6%)
BNP Paribas 34,456 2,068,041
Beverages & tobacco (0.9%)
LVMH Moet Hennessy
Louis Vuitton 16,879 1,188,997
Computer software & services (0.9%)
Atos Origin 20,223(b) 1,171,382
Energy (2.8%)
Total 19,107 3,531,954
Health care products (1.0%)
Aventis 16,956 1,290,909
Health care services (0.9%)
Essilor Intl 19,496 1,140,016
Insurance (1.3%)
Axa 80,627 1,697,105
Machinery (0.5%)
Schneider Electric 10,351 696,907
Media (0.5%)
Publicis Groupe 19,499 583,995
Multi-industry (1.5%)
Sanofi-Synthelabo 8,670 550,493
Vivendi Universal 55,428(b) 1,393,793
Total 1,944,286
Utilities -- telephone (1.5%)
France Telecom 77,511(b) 1,869,234
Germany (7.3%)
Automotive & related (2.3%)
Bayerische Motoren Werke 31,251 1,346,669
Continental 37,833 1,641,179
Total 2,987,848
Building materials & construction (0.7%)
Hochtief 32,688 913,999
Computer software & services (1.7%)
SAP 7,841 1,188,280
T-Online Intl 87,086(b) 946,264
Total 2,134,544
Electronics (1.5%)
Siemens 26,558 1,916,942
Insurance (0.6%)
Allianz 7,013 743,623
Utilities -- telephone (0.5%)
Deutsche Telekom 35,095(b) 605,431
See accompanying notes to investments in securities.
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8 --- AXP EUROPEAN EQUITY FUND --- 2004 SEMIANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Ireland (3.1%)
Banks and savings & loans (2.2%)
Anglo Irish Bank 118,211 $1,933,068
Bank of Ireland 72,109 873,368
Total 2,806,436
Building materials & construction (0.9%)
CRH 56,211 1,191,932
Italy (3.9%)
Banks and savings & loans (0.6%)
Banco Popolare di
Verona e Novara 48,176 801,082
Energy (1.3%)
Eni 77,019 1,564,877
Insurance (0.6%)
Riunion Adriatica di Sicurta 43,909 803,773
Media (0.5%)
Mediaset 56,603 620,465
Utilities -- electric (0.9%)
Enel 144,037 1,147,499
Netherlands (6.2%)
Banks and savings & loans (0.9%)
ING Groep 52,512 1,124,819
Computer software & services (1.0%)
Buhrmann 131,762 1,243,864
Energy (1.3%)
Royal Dutch Petroleum 37,569 1,825,960
Food (0.6%)
Koninklijke Numico 27,316 755,937
Industrial services (1.3%)
Koninklijke (Royal)
Philips Electronics 58,937 1,604,179
Multi-industry (1.1%)
Euronext 25,412 738,865
Randstad Holding 24,487 653,886
Total 1,392,751
Spain (4.3%)
Banks and savings & loans (2.7%)
Banco Bilbao Vizcaya Argentaria 105,138 1,386,767
Banco Popular Espanol 21,949 1,210,354
Banco Santander Central Hispano 83,933 900,943
Total 3,498,064
Metals (0.6%)
Acerinox 14,270 735,446
Utilities -- telephone (1.0%)
Telefonica 86,577 1,287,155
Sweden (3.3%)
Automotive & related (0.7%)
Volvo AB Cl B 26,777(b) 916,732
Building materials & construction (0.5%)
SKF Cl B 18,432 632,241
Machinery (0.5%)
Atlas Copco Cl A 18,798 659,562
Telecom equipment & services (1.6%)
Telefonaktiebolaget LM
Ericsson Cl B 742,500(b) 2,012,221
Switzerland (12.7%)
Banks and savings & loans (4.7%)
Credit Suisse Group 64,862 2,288,952
UBS 53,044 3,774,521
Total 6,063,473
Chemicals (0.8%)
Syngenta 13,533 1,084,208
Food (1.5%)
Nestle 7,511 1,902,400
Health care products (5.0%)
Actelion 6,462(b) 709,822
Nobel Biocare Holding 10,370 1,407,357
Novartis 58,346 2,604,168
Roche Holding 14,601 1,533,387
Total 6,254,734
Insurance (0.2%)
Swiss Life Holding 2,164(b) 295,775
Multi-industry (0.5%)
ABB 118,308(b) 666,910
See accompanying notes to investments in securities.
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9 --- AXP EUROPEAN EQUITY FUND --- 2004 SEMIANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
United Kingdom (35.5%)
Aerospace & defense (0.9%)
Rolls-Royce Group 286,702 $1,179,821
Rolls-Royce Group Cl B 14,335,100(b) 25,482
Total 1,205,303
Banks and savings & loans (6.6%)
Barclays 124,069 1,121,472
HBOS 153,627 1,994,904
Lloyds TSB Group 103,563 775,955
Royal Bank of Scotland Group 108,474 3,264,501
Standard Chartered 83,813 1,287,240
Total 8,444,072
Beverages & tobacco (0.8%)
British American Tobacco 68,868 1,046,689
Broker dealers (1.7%)
Man Group 70,990 2,130,119
Building materials & construction (0.6%)
Persimmon 68,244 795,797
Cellular telecommunications (3.6%)
Vodafone Group 1,896,146 4,617,709
Computer software & services (0.7%)
lastminute.com 248,985(b) 850,891
Energy (4.4%)
BP 556,829 4,825,371
Cairn Energy 41,970(b) 801,267
Total 5,626,638
Engineering & construction (1.4%)
Hanson 119,131 910,600
Taylor Woodrow 172,545 864,939
Total 1,775,539
Financial services (3.3%)
HSBC Holdings 295,263 4,240,867
Health care products (2.3%)
AstraZeneca 16,589 777,615
GlaxoSmithKline 103,776 2,152,792
Total 2,930,407
Industrial transportation (0.5%)
Peninsular & Oriental
Steam Navigation 181,378 697,228
Insurance (0.2%)
HHG 345,117(b) 292,937
Lodging & gaming (1.5%)
Rank Group 334,509 1,890,903
Media (0.8%)
British Sky Broadcasting Group 41,264 488,517
United Business Media 65,155 532,770
Total 1,021,287
Metals (0.6%)
Lonmin 43,715 772,416
Retail -- general (1.0%)
GUS 90,943 1,262,567
Retail -- grocery (1.2%)
Tesco 350,767 1,551,015
Telecom equipment & services (1.8%)
Marconi 58,130(b) 621,025
mm02 920,120(b) 1,635,606
Total 2,256,631
Utilities -- natural gas (0.8%)
BG Group 182,141 1,054,694
Utilities -- telephone (0.8%)
Cable & Wireless 468,178(b) 1,027,808
Total common stocks
(Cost: $111,085,451) $122,580,845
See accompanying notes to investments in securities.
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10 --- AXP EUROPEAN EQUITY FUND --- 2004 SEMIANNUAL REPORT
Preferred stocks (2.2%)(c)
Issuer Shares Value(a)
Germany
Porsche 3,160 $1,959,164
ProSiebenSat.1 Media 44,741 879,035
Total preferred stocks
(Cost: $2,237,173) $2,838,199
Bond (0.1%)(c)
Issuer Coupon Principal Value(a)
rate amount
France
Axa
(European Monetary Unit) Cv
12-21-04 2.40% 4,559(d) $91,319
Total bond
(Cost: $66,718) $91,319
Short-term securities (1.4%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies
Federal Home Loan Mtge Corp Disc Nt
07-15-04 1.05% $500,000 $498,996
Federal Natl Mtge Assn Disc Nts
06-09-04 1.00 300,000 299,683
06-16-04 1.00 500,000 499,379
07-01-04 1.01 500,000 499,189
Total short-term securities
(Cost: $1,797,098) $1,797,247
Total investments in securities
(Cost: $115,186,440)(e) $127,307,610
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.
(d) Currently this security is non-income producing. This bond will convert
into AXA common stock upon completion of the acquisition of Mony Group Inc.
by AXA. If the acquisition is not completed by 12/21/04, the bonds will be
redeemed with an interest rate of 2.4% (as disclosed).
(e) At April 30, 2004, the cost of securities for federal income tax purposes
was approximately $115,186,000 and the approximate aggregate gross
unrealized appreciation and depreciation based on that cost was:
Unrealized appreciation $14,820,000
Unrealized depreciation (2,698,000)
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Net unrealized appreciation $12,122,000
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11 --- AXP EUROPEAN EQUITY FUND --- 2004 SEMIANNUAL REPORT
Financial Statements
Statement of assets and liabilities
AXP European Equity Fund
April 30, 2004 (Unaudited)
Assets
Investments in securities, at value (Note 1)*
(identified cost $115,186,440) $ 127,307,610
Cash in bank on demand deposit 479,291
Foreign currency holdings (identified cost $597,947) (Note 1) 599,937
Capital shares receivable 115,985
Dividends and accrued interest receivable 1,095,131
Receivable for investment securities sold 855,896
-------
Total assets 130,453,850
-----------
Liabilities
Capital shares payable 10,433
Payable for investment securities purchased 1,498,555
Payable upon return of securities loaned (Note 5) 810,000
Accrued investment management services fee 2,820
Accrued distribution fee 1,722
Accrued transfer agency fee 1,145
Accrued administrative services fee 211
Other accrued expenses 38,668
------
Total liabilities 2,363,554
---------
Net assets applicable to outstanding capital stock $ 128,090,296
=============
Represented by
Capital stock -- $.01 par value (Note 1) $ 370,479
Additional paid-in capital 220,938,657
Undistributed net investment income 128,470
Accumulated net realized gain (loss) (Note 7) (105,592,384)
Unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 12,245,074
----------
Total -- representing net assets applicable to outstanding capital stock $ 128,090,296
=============
Net assets applicable to outstanding shares: Class A $ 87,318,666
Class B $ 39,193,849
Class C $ 1,562,657
Class Y $ 15,124
Net asset value per share of outstanding capital stock: Class A shares 25,157,648 $ 3.47
Class B shares 11,430,168 $ 3.43
Class C shares 455,692 $ 3.43
Class Y shares 4,357 $ 3.47
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*Including securities on loan, at value (Note 5) $ 787,005
=============
See accompanying notes to financial statements.
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12 --- AXP EUROPEAN EQUITY FUND --- 2004 SEMIANNUAL REPORT
Statement of operations
AXP European Equity Fund
Six months ended April 30, 2004 (Unaudited)
Investment income
Income:
Dividends $1,461,195
Interest 3,461
Fee income from securities lending (Note 5) 24,753
Less foreign taxes withheld (203,621)
--------
Total income 1,285,788
---------
Expenses (Note 2):
Investment management services fee 456,847
Distribution fee
Class A 113,859
Class B 205,470
Class C 8,312
Transfer agency fee 186,098
Incremental transfer agency fee
Class A 13,810
Class B 10,733
Class C 342
Service fee -- Class Y 14
Administrative services fees and expenses 39,468
Compensation of board members 5,542
Custodian fees 33,662
Printing and postage 32,199
Registration fees 40,005
Audit fees 9,000
Other 2,577
-----
Total expenses 1,157,938
Earnings credits on cash balances (Note 2) (1,011)
------
Total net expenses 1,156,927
---------
Investment income (loss) -- net 128,861
-------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 3,513,265
Foreign currency transactions 63,795
------
Net realized gain (loss) on investments 3,577,060
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 6,116,954
---------
Net gain (loss) on investments and foreign currencies 9,694,014
---------
Net increase (decrease) in net assets resulting from operations $9,822,875
==========
See accompanying notes to financial statements.
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13 --- AXP EUROPEAN EQUITY FUND --- 2004 SEMIANNUAL REPORT
Statements of changes in net assets
AXP European Equity Fund
April 30, 2004 Oct. 31, 2003
Six months ended Year ended
(Unaudited)
Operations and distributions
Investment income (loss) -- net $ 128,861 $ 1,093,834
Net realized gain (loss) on investments 3,577,060 (4,297,689)
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 6,116,954 21,815,834
--------- ----------
Net increase (decrease) in net assets resulting from operations 9,822,875 18,611,979
--------- ----------
Distributions to shareholders from:
Net investment income
Class A (931,614) (841,665)
Class B (117,708) --
Class C (3,500) (964)
Class Y (414) (400)
---- ----
Total distributions (1,053,236) (843,029)
---------- --------
Capital share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 7,054,991 76,685,401
Class B shares 2,408,315 8,118,286
Class C shares 104,822 3,479,068
Class Y shares 2,500 --
Reinvestment of distributions at net asset value
Class A shares 921,592 833,544
Class B shares 116,542 --
Class C shares 3,416 949
Class Y shares 389 381
Payments for redemptions
Class A shares (14,498,687) (101,657,844)
Class B shares (Note 2) (5,589,737) (19,192,944)
Class C shares (Note 2) (334,483) (4,026,122)
Class Y shares (22,903) (7,688)
------- ------
Increase (decrease) in net assets from capital share transactions (9,833,243) (35,766,969)
---------- -----------
Total increase (decrease) in net assets (1,063,604) (17,998,019)
Net assets at beginning of period 129,153,900 147,151,919
----------- -----------
Net assets at end of period $128,090,296 $ 129,153,900
============ =============
Undistributed net investment income $ 128,470 $ 1,052,845
------------ -------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
14 --- AXP EUROPEAN EQUITY FUND --- 2004 SEMIANNUAL REPORT
Notes to Financial Statements
AXP European Equity Fund
(Unaudited as to April 30, 2004)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a series of AXP International Series, Inc. and is registered under
the Investment Company Act of 1940 (as amended) as a non-diversified open-end
management investment company. AXP International 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 European companies that offer growth potential.
The Fund offers Class A, Class B, Class C and Class Y shares.
o Class A shares are sold with a front-end sales charge.
o Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares during the ninth calendar year
of ownership.
o Class C shares may be subject to a CDSC.
o Class Y shares have no sales charge and are offered only to qualifying
institutional investors.
All classes of shares have identical voting, dividend and liquidation rights.
The distribution fee, incremental transfer agency fee and service fee (class
specific expenses) differ among classes. Income, expenses (other than class
specific expenses) and realized and unrealized gains or losses on investments
are allocated to each class of shares based upon its relative net assets.
The Fund's significant accounting policies are summarized below:
Use of estimates
Preparing financial statements that conform to accounting principles generally
accepted in the United States of America requires management to make estimates
(e.g., on assets, liabilities and contingent assets and liabilities) that could
differ from actual results.
Valuation of securities
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
Foreign securities are valued based on quotations from the principal market in
which such securities are normally traded. Pursuant to procedures adopted by the
Board of Directors of the funds, American Express Financial Corporation (AEFC)
utilizes Fair Value Pricing (FVP). FVP determinations are made in good faith in
accordance with the procedures. If a development or event is so significant that
there is a reasonably high degree of certainty that the effect of the
development or event has actually caused the closing price to no longer reflect
the actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the New York Stock Exchange.
Significant events include material movements in the U.S. securities markets
prior to the opening of foreign markets on the following trading day. FVP
results in an
- --------------------------------------------------------------------------------
15 --- AXP EUROPEAN EQUITY FUND --- 2004 SEMIANNUAL REPORT
estimated price that reasonably reflects the current market conditions in order
to value the portfolio holdings such that shareholder transactions receive a
fair NAV. 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.
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
- --------------------------------------------------------------------------------
16 --- AXP EUROPEAN EQUITY FUND --- 2004 SEMIANNUAL REPORT
and settlement date on securities transactions, and other translation gains or
losses on dividends, interest income and foreign withholding taxes. As of April
30, 2004, foreign currency holdings consisted of multiple denominations.
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 or upon receipt of
ex-dividend notification in the case of certain foreign securities. Interest
income, including amortization of premium, market discount and original issue
discount using the effective interest method, is accrued daily.
2. EXPENSES AND SALES CHARGES
The Fund has agreements with 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 0.80% to 0.675% 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 European 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 $78,644 for the
six months ended April 30, 2004.
- --------------------------------------------------------------------------------
17 --- AXP EUROPEAN EQUITY FUND --- 2004 SEMIANNUAL REPORT
Under an Administrative Service 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 0.035% 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.
AEFC has a Subadvisory Agreement with American Express Asset Management
International Inc. (AEAMI), a wholly-owned subsidiary of AEFC. Investment
decisions for the Fund are made by a team of seasoned investment professionals
at Threadneedle Asset Management Limited (Threadneedle) who are associated with
AEAMI. Threadneedle is also a wholly-owned subsidiary of AEFC.
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.
Sales charges received by the Distributor for distributing Fund shares were
$112,365 for Class A, $22,612 for Class B and $53 for Class C for the six months
ended April 30, 2004.
During the six months ended April 30, 2004, the Fund's custodian and transfer
agency fees were reduced by $1,011 as a result of earnings credits from
overnight cash balances. The Fund also pays custodian fees to American Express
Trust Company, an affiliate of AEFC.
- --------------------------------------------------------------------------------
18 --- AXP EUROPEAN EQUITY FUND --- 2004 SEMIANNUAL REPORT
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $51,157,803 and $61,710,966, respectively, for the six
months ended April 30, 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 April 30, 2004
Class A Class B Class C Class Y
Sold 1,976,519 686,599 29,601 720
Issued for reinvested distributions 266,356 33,977 996 112
Redeemed (4,117,592) (1,610,317) (96,268) (6,240)
---------- ---------- ------- ------
Net increase (decrease) (1,874,717) (889,741) (65,671) (5,408)
---------- -------- ------- ------
Year ended Oct. 31, 2003
Class A Class B Class C Class Y
Sold 26,692,982 2,810,468 1,252,697 --
Issued for reinvested distributions 303,106 1 349 138
Redeemed (35,323,912) (6,664,648) (1,433,614) (2,945)
----------- ---------- ---------- ------
Net increase (decrease) (8,327,824) (3,854,179) (180,568) (2,807)
---------- ---------- -------- ------
5. LENDING OF PORTFOLIO SECURITIES
As of April 30, 2004, securities valued at $787,005 were on loan to brokers. For
collateral, the Fund received $810,000 in cash. Cash collateral received is
invested in short-term securities, which are included in the short-term section
of the "Investments in securities." Income from securities lending amounted to
$24,753 for the six months ended April 30, 2004. The risks to the Fund of
securities lending are that the borrower may not provide additional collateral
when required or return the securities when due.
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 April 30, 2004.
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19 --- AXP EUROPEAN EQUITY FUND --- 2004 SEMIANNUAL REPORT
7. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, the Fund has a capital loss carry-over of
$108,385,797 as of Oct. 31, 2003, that will expire in 2009 through 2011 if not
offset by capital gains. It is unlikely the board will authorize a distribution
of any net realized capital gains until the available capital loss carry-over
has been offset or expires.
8. 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 Oct. 31, 2004(h) 2003 2002 2001 2000(b)
Net asset value, beginning of period $3.25 $2.83 $3.30 $ 4.90 $4.95
Income from investment operations:
Net investment income (loss) .01 .04 .03 .02 --
Net gains (losses) (both realized and unrealized) .25 .40 (.50) (1.59) (.05)
Total from investment operations .26 .44 (.47) (1.57) (.05)
Less distributions:
Dividends from net investment income (.04) (.02) -- -- --
Distributions from realized gains -- -- -- (.03) --
Total distributions (.04) (.02) -- (.03) --
Net asset value, end of period $3.47 $3.25 $2.83 $ 3.30 $4.90
Ratios/supplemental data
Net assets, end of period (in millions) $87 $88 $100 $144 $76
Ratio of expenses to average daily net assets(c) 1.48%(e) 1.54% 1.54% 1.37%(d) 1.34%(d),(e)
Ratio of net investment income (loss) to average daily net assets .44%(e) 1.07% .68% .69% 1.05%(e)
Portfolio turnover rate (excluding short-term securities) 40% 186% 110% 297% 52%
Total return(f) 7.85%(g) 15.89% (14.18%) (32.23%) (1.01%)(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from June 26, 2000 (when shares became publicly available)
to Oct. 31, 2000.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratios of expenses for Class A would have been 1.53% and 2.21%
for the periods ended Oct. 31, 2001 and 2000, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
(h) Six months ended April 30, 2004 (Unaudited).
- --------------------------------------------------------------------------------
20 --- AXP EUROPEAN EQUITY FUND --- 2004 SEMIANNUAL REPORT
Class B
Per share income and capital changes(a)
Fiscal period ended Oct. 31, 2004(h) 2003 2002 2001 2000(b)
Net asset value, beginning of period $3.20 $2.78 $3.27 $ 4.89 $4.95
Income from investment operations:
Net investment income (loss) (.01) .01 -- -- --
Net gains (losses) (both realized and unrealized) .25 .41 (.49) (1.59) (.06)
Total from investment operations .24 .42 (.49) (1.59) (.06)
Less distributions:
Dividends from net investment income (.01) -- -- -- --
Distributions from realized gains -- -- -- (.03) --
Total distributions (.01) -- -- (.03) --
Net asset value, end of period $3.43 $3.20 $2.78 $ 3.27 $4.89
Ratios/supplemental data
Net assets, end of period (in millions) $39 $39 $45 $66 $40
Ratio of expenses to average daily net assets(c) 2.25%(e) 2.32% 2.31% 2.14%(d) 2.12%(d),(e)
Ratio of net investment income (loss) to average daily net assets (.33%)(e) .31% (.08%) (.07%) .05%(e)
Portfolio turnover rate (excluding short-term securities) 40% 186% 110% 297% 52%
Total return(f) 7.49%(g) 15.11% (14.98%) (32.71%) (1.21%)(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from June 26, 2000 (when shares became publicly available)
to Oct. 31, 2000.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratios of expenses for Class B would have been 2.30% and 2.98%
for the periods ended Oct. 31, 2001 and 2000, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
(h) Six months ended April 30, 2004 (Unaudited).
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21 --- AXP EUROPEAN EQUITY FUND --- 2004 SEMIANNUAL REPORT
Class C
Per share income and capital changes(a)
Fiscal period ended Oct. 31, 2004(h) 2003 2002 2001 2000(b)
Net asset value, beginning of period $3.20 $2.78 $3.27 $ 4.88 $4.95
Income from investment operations:
Net investment income (loss) (.01) .01 -- -- --
Net gains (losses) (both realized and unrealized) .25 .41 (.49) (1.58) (.07)
Total from investment operations .24 .42 (.49) (1.58) (.07)
Less distributions:
Dividends from net investment income (.01) -- -- -- --
Distributions from realized gains -- -- -- (.03) --
Total distributions (.01) -- -- (.03) --
Net asset value, end of period $3.43 $3.20 $2.78 $ 3.27 $4.88
Ratios/supplemental data
Net assets, end of period (in millions) $2 $2 $2 $2 $1
Ratio of expenses to average daily net assets(c) 2.24%(e) 2.32% 2.32% 2.14%(d) 2.12%(d),(e)
Ratio of net investment income (loss) to average daily net assets (.34%)(e) .31% (.10%) (.08%) .15%(e)
Portfolio turnover rate (excluding short-term securities) 40% 186% 110% 297% 52%
Total return(f) 7.41%(g) 15.17% (14.98%) (32.57%) (1.41%)(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from June 26, 2000 (when shares became publicly available)
to Oct. 31, 2000.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratios of expenses for Class C would have been 2.30% and 2.99%
for the periods ended Oct. 31, 2001 and 2000, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
(h) Six months ended April 30, 2004 (Unaudited).
- --------------------------------------------------------------------------------
22 --- AXP EUROPEAN EQUITY FUND --- 2004 SEMIANNUAL REPORT
Class Y
Per share income and capital changes(a)
Fiscal period ended Oct. 31, 2004(h) 2003 2002 2001 2000(b)
Net asset value, beginning of period $3.26 $2.84 $3.31 $ 4.89 $4.95
Income from investment operations:
Net investment income (loss) .01 .04 .03 .03 --
Net gains (losses) (both realized and unrealized) .24 .41 (.50) (1.58) (.06)
Total from investment operations .25 .45 (.47) (1.55) (.06)
Less distributions:
Dividends from net investment income (.04) (.03) -- -- --
Distributions from realized gains -- -- -- (.03) --
Total distributions (.04) (.03) -- (.03) --
Net asset value, end of period $3.47 $3.26 $2.84 $ 3.31 $4.89
Ratios/supplemental data
Net assets, end of period (in millions) $-- $-- $-- $-- $--
Ratio of expenses to average daily net assets(c) 1.27%(e) 1.36% 1.35% 1.19%(d) 1.18%(d),(e)
Ratio of net investment income (loss) to average daily net assets (.12%)(e) 1.21% .76% .84% 1.29%(e)
Portfolio turnover rate (excluding short-term securities) 40% 186% 110% 297% 52%
Total return(f) 7.75%(g) 16.12% (14.10%) (31.89%) (1.21%)(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from June 26, 2000 (when shares became publicly available)
to Oct. 31, 2000.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratios of expenses for Class Y would have been 1.35% and 2.09%
for the periods ended Oct. 31, 2001 and 2000, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
(h) Six months ended April 30, 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.
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23 --- AXP EUROPEAN 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)
International
Fund
Semiannual Report
for the Period Ended
April 30, 2004
AXP International 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 9
Financial Statements 14
Notes to Financial Statements 17
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.
- --------------------------------------------------------------------------------
2 -- AXP INTERNATIONAL FUND -- 2004 SEMIANNUAL REPORT
Fund Snapshot
AS OF APRIL 30, 2004
PORTFOLIO MANAGERS
Portfolio manager Alex Lyle*
Since 10/03
Years in industry 23
Portfolio manager Dominic Rossi*
Since 10/03
Years in industry 17
* The Fund is managed by a team led by Alex Lyle and Dominic Rossi.
FUND OBJECTIVE
For investors seeking long-term capital growth.
Inception dates
A: 11/15/84 B: 3/20/95 C: 6/26/00 Y: 3/20/95
Ticker symbols
A: INIFX B: IWWGX C: -- Y: IDIYX
Total net assets $431.7 million
Number of holdings 142
STYLE MATRIX
Shading within the style matrix indicates areas in which the Fund generally
invests.
STYLE
VALUE BLEND GROWTH
X LARGE
X MEDIUM SIZE
X SMALL
COUNTRY COMPOSITION
Percentage of portfolio assets
(pie chart)
United Kingdom 24.5%
Japan 18.9%
France 9.9%
Switzerland 7.0%
Germany 6.3%
Italy 3.7%
Hong Kong 2.7%
Netherlands 2.6%
South Korea 2.2%
Ireland 2.0%
Taiwan 1.9%
Mexico 1.6%
Singapore 1.3%
Austria 1.2%
Australia 1.1%
Sweden 1.0%
Other* 12.1%
* Includes Brazil, Denmark, Finland, Norway, Portugal, Russia, South Africa,
Spain and short-term securities. 3.8% of the securities included in the
short-term category is due to security lending activity.
TOP TEN HOLDINGS
Percentage of portfolio assets
Vodafone Group (United Kingdom) 2.5%
Total (France) 2.3
BP (United Kingdom) 2.1
Eni (Italy) 1.9
UBS (Switzerland) 1.9
Royal Bank of Scotland Group (United Kingdom) 1.6
Tesco (United Kingdom) 1.6
Axa (France) 1.4
Novartis (Switzerland) 1.3
Samsung Electronics (South Korea) 1.3
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
There are special risk considerations associated with international investing
related to market, currency, economic, political and other factors.
Shares of small- or medium-sized companies may be subject to more abrupt or
erratic price movement than stocks of larger companies. Some of these companies
also have fewer financial resources.
Fund holdings are subject to change.
- --------------------------------------------------------------------------------
3 -- AXP INTERNATIONAL FUND -- 2004 SEMIANNUAL REPORT
Questions & Answers
WITH PORTFOLIO MANAGEMENT
Below, AXP International Fund portfolio managers Alex Lyle and Dominic Rossi of
Threadneedle describe the Fund's positioning and results for the six months
ended April 30, 2004. Threadneedle portfolio managers assumed responsibility for
the Fund on Oct. 20, 2003.
Q: How did the AXP International Fund perform for the six months ended April
30, 2004?
A: The AXP International Fund's Class A shares rose 7.58%, excluding sales
charge, for the six-month period ended April 30, 2004. The Fund
underperformed its benchmark, the MSCI EAFE Index, which rose 12.58%. The
Fund also underperformed the Lipper International Funds Index, representing
the Fund's peer group, which increased 10.98% for the period.
Q: What changes were made to the Fund?
A: When we assumed responsibility for the Fund in late October, we made some
substantial changes to give the Fund a stronger cyclical focus. After these
changes were made, cyclical stocks became the mainstay of the Fund.
Historically, stocks in the cyclical sectors benefit from a growing global
economy.
In addition, we made the following changes to the Fund:
o Reduced the Fund's large-cap emphasis and added more mid-cap stocks.
Mid-cap, as well as small-cap, stocks tend to benefit more during
periods of accelerating economic growth.
(bar chart)
PERFORMANCE COMPARISON
For the six-month period ended April 30, 2004
15%
(bar 2)
12% +12.58% (bar 3)
+10.98%
9% (bar 1)
+7.58%
6%
3%
0%
(bar 1) AXP International Fund Class A (excluding sales charge)
(bar 2) MSCI EAFE Index (1) (unmanaged)
(bar 3) Lipper International Funds Index(2)
(1) Morgan Stanley Capital International EAFE Index (MSCI EAFE), an unmanaged
index, is compiled from a composite of securities markets of Europe,
Australia and the Far East. The index is widely recognized by investors in
foreign markets as the measurement index for portfolios of non-North
American securities. The index reflects reinvestment of all distributions
and changes in market prices, but excludes brokerage commissions or other
fees.
(2) The Lipper International 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 INTERNATIONAL FUND -- 2004 SEMIANNUAL REPORT
Questions & Answers
(begin callout quote)> We have been moving out of cyclical stocks and are adding
some companies that we believe will better serve the Fund as the global economy
moves into its next phase of growth.(end callout quote)
o Increased the number of stocks we believed were benefiting from
restructuring. In our view, a number of companies that had been badly
hit by the economic slowdown, but now were repairing their balance
sheets and winning back investors' confidence, were added to the Fund.
AVERAGE ANNUAL TOTAL RETURNS
Class A Class B Class C Class Y
(Inception dates) (11/15/84) (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 April 30, 2004
6 months* +7.58% +1.41% +6.96% +2.96% +6.90% +5.90% +7.68% +7.68%
1 year +30.45% +22.94% +29.20% +25.20% +29.00% +29.00% +30.94% +30.94%
5 years -5.94% -7.04% -6.68% -6.82% N/A N/A -5.73% -5.73%
10 years +0.90% +0.30% N/A N/A N/A N/A N/A N/A
Since inception N/A N/A +1.07% +1.07% -12.47% -12.47% +2.04% +2.04%
as of March 31, 2004
6 months* +18.53% +11.70% +18.05% +14.05% +18.05% +17.05% +18.55% +18.55%
1 year +46.83% +38.40% +45.68% +41.68% +45.54% +45.54% +47.34% +47.34%
5 years -4.27% -5.40% -5.00% -5.13% N/A N/A -4.07% -4.07%
10 years +1.61% +1.00% N/A N/A N/A N/A N/A N/A
Since inception N/A N/A +1.54% +1.54% -11.76% -11.76% +2.50% +2.50%
The performance information shown represents the past performance and is not a
guarantee of future results. The investment return and principal 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 INTERNATIONAL FUND -- 2004 SEMIANNUAL REPORT
Questions & Answers
Q: What factors most significantly affected performance?
A: Although we provided positive results, the Fund's relative performance was
disappointing over the six-month reporting period. Our key long-term
strategy of focusing on cyclical stocks was not as effective as we would
have liked. As discussed above, when the Threadneedle team took over the
management of the Fund in late October, we restructured its holdings and
applied a much greater focus on cyclical stocks and mid-cap stocks. Small-
and mid-cap stocks and cyclical stocks benefited greatly as the economy and
markets improved through much of 2003. Traditionally, strong rallies occur
when the economy is recovering, and within this environment, small- to
mid-cap stocks and those companies with a cyclical focus were well
positioned to enjoy the rally. Unfortunately, cyclical stocks suffered from
profit-taking toward the end of 2003. Cyclicals had a strong start in 2004,
performing very well in January, but subsequently gave up a lot of that
performance. During this six-month reporting period (November through
April), cyclical stocks have not been favored in the marketplace, so the
Fund's large exposure to cyclicals has not worked well. Therefore some of
our sector allocations were not beneficial because they were geared toward
the more cyclical sectors.
Mid-cap stocks were propelled by the recovering global economy and performed
very well from March through September 2003. Then in the fourth calendar
quarter, so many investors decided to sell their mid-cap stocks (i.e., take
their profits) that mid caps -- as an asset class -- suffered for those few
months, as did the Fund's performance. Mid-cap stocks enjoyed strong
performance early in 2004, and the Fund benefited. The underperformance of
cyclical stocks and mid-cap stocks for the last three months of 2003 also
hurt performance, as mid-cap and cyclical stocks have been the focus of the
Fund since October of 2003.
Our asset allocation strategy was effective. For example, we have held a
greater-than-index position in Europe, which has been one of the best
performing markets for more than six months. Europe and the United Kingdom
account for the largest allocation of the Fund's assets. Within this region,
Nobel Biocare, a Swiss manufacturer of dental implants, and a small-cap
stock was a very strong contributor to performance. Another strong
investment for the Fund was the Man Group, a U.K. company that is a leading
provider of alternative investment products -- such as hedge funds. We think
this is a good long-term company and the performance of the shares has been
beneficial to the Fund. One of the biggest contributors to performance since
we took over the Fund in October has been mm02, the U.K. mobile company that
was spun
- --------------------------------------------------------------------------------
6 -- AXP INTERNATIONAL FUND -- 2004 SEMIANNUAL REPORT
Questions & Answers
out of BT Group. However, we had some disappointing results from some
companies that had performed well in the past. One example, Swiss Life, is
an insurance company that has been a turnaround situation and had performed
extremely well for the Fund for a time. Then, Swiss Life announced a rights
issue in order to fund the acquisition of an Italian bank that they already
partially owned. This acquisition was a drain on the stock and, in turn, the
Fund. We have significantly reduced our holding in Swiss Life. Another
disappointing European stock, for a very different reason was BMW, the
luxury automaker. The Threadneedle team had many conversations with the
management team at BMW. Their plans were solid; they communicated these
plans to investors, and then executed well on their plans. However, when the
euro moved up so strongly in January, it hurt European exports. The United
States is a key market for BMW and this currency fluctuation impacted BMW's
profits, which in turn, affected the value of their stock. We are still
optimistic about BMW and remain invested.
The Fund continues to hold a greater-than-index position in emerging
markets, but clearly these developing markets have been impacted by the
stronger U.S. dollar and are getting worried about the likelihood of rising
interest rates in the United States. We still believe that maintaining our
greater-than-index position, at least for the medium term, is the right
decision. There is still a lot of value to be had in emerging markets, but
we will focus on stronger companies there. So we have bought companies, such
as Lukoil in Russia. We regard Lukoil as the highest quality among the
Russian oil companies and obviously a good asset-backed company. Wal-Mart in
Mexico, a subsidiary of the U.S. Wal-Mart is another example of a strong
company that we believe will add additional value to our emerging markets
position. Several other emerging market positions are worth noting. Samsung,
the electronics company in South Korea, has been very beneficial and a very
strong performer over the period, and we continue to hold this stock. Mobile
Telesystems, a Russian wireless telecom operator, was another strong
performer. Although it did well, we have subsequently taken profits and sold
that position.
The Fund experienced some mixed performance in the developed Far East --
Asia and Japan. In the Far East, performance of the Hong Kong property
market and the Hong Kong Stock Exchange benefited the Fund. In Japan, we
have increased our exposure to banks through what we regard as the more
stable, reliable banks, such as Sumitomo Trust & Banking. Recently, however,
lower-quality banks have been generating the best performance, so this has
not been particularly beneficial to the Fund.
- --------------------------------------------------------------------------------
7 -- AXP INTERNATIONAL FUND -- 2004 SEMIANNUAL REPORT
Questions & Answers
Q: How is the Fund currently positioned?
A: Throughout the six-month period, the Fund has focused on mid-cap, cyclical
stocks. As discussed previously, mid-cap, as well as small-cap, stocks tend
to benefit more during periods of accelerating economic growth. This
strategy played out well in late 2002 and most of 2003, but has not done
well in the past six months. Cyclical stocks, in most markets, are no longer
getting the performance boost in tandem with the strengthening global
economy. We have been moving out of cyclical stocks and are adding some
companies that we believe will better serve the Fund as the global economy
moves into its next phase of growth.
On a geographic basis, we retained a reinflationary focus in Japan and the
Far East. (Reinflation is the reversal of deflation by deliberate government
monetary action.) We believe deflation in Japan is declining. Recent
indications, such as strong gross domestic product (GDP) results, are
promising. As mentioned, the Fund has increased exposure in Japan. On a
sector basis, we have increased our allocation to the energy sector (oil, in
particular), moving from a less-than-index position to a greater-than-index
position. We also increased the allocation to healthcare. Our position in
health care remains less than the index, but where we had a very low
weighting before, we increased the weighting by adding to several positions
in pharmaceuticals. We added to these areas because we think these sectors
show promise for the long term.
Q: How do you intend to manage the Fund in the months ahead?
A: We remain cautiously optimistic about the outlook for equity markets and
expect to see healthy economic recovery continuing. However, cyclical stocks
tend to have reasonably short, dramatic periods of outperformance, and we
believe that period is coming to an end. With this in mind, we plan to
further reduce the cyclical focus of the Fund. We will move away from
cyclicals and move toward medium term growth and better-quality companies.
For the next phase, we will look at having a different type of company
exposure, such as moving towards the late cycle stocks and taking profits in
the early to mid cycle stocks.
The economy and the equity markets have undergone significant change over
the past year, and we believe the recovery is moving on to the next phase.
We have had the initial recovery phase. Now we are going through the period
of adjusting to a world of higher interest rates and associated concerns.
Then, after the inevitable interest rate increases by the Fed and other
central banks, we believe we will move into a more gentle growth phase. The
corporate news that we are seeing is good. Many companies in the United
States and Europe have outpaced earnings expectations, and that has sent a
positive message to investors.
- --------------------------------------------------------------------------------
8 -- AXP INTERNATIONAL FUND -- 2004 SEMIANNUAL REPORT
Investments in Securities
AXP International Fund
April 30, 2004 (Unaudited)
(Percentages represent value of investments compared to net assets)
Common stocks (94.7%)(c)
Issuer Shares Value(a)
Australia (1.2%)
Media (0.5%)
News Corp 222,014 $2,045,539
Metals (0.7%)
BHP Billiton 371,306 3,072,783
Austria (1.2%)
Building materials & construction (0.4%)
Wienerberger 57,166 1,866,212
Utilities -- telephone (0.8%)
Telekom Austria 229,382(b) 3,366,293
Brazil (0.9%)
Metals (0.5%)
Companhia Vale do Rio Doce ADR 49,200 1,923,228
Paper & packaging (0.4%)
Aracruz Celulose ADR 60,667 1,889,170
Denmark (0.4%)
Insurance
Topdanmark 31,663(b) 1,860,970
Finland (0.5%)
Computer software & services
TietoEnator 67,982 2,023,843
France (10.2%)
Automotive & related (0.8%)
Renault 47,729 3,559,412
Banks and savings & loans (0.6%)
BNP Paribas 42,428 2,546,519
Beverages & tobacco (0.8%)
LVMH Moet Hennessy Louis Vuitton 51,133 3,601,929
Computer software & services (0.6%)
Atos Origin 41,635(b) 2,411,635
Energy (2.5%)
Total 56,069 10,364,427
Health care products (0.8%)
Aventis 46,227 3,519,394
Health care services (0.6%)
Essilor Intl 46,490 2,718,472
Insurance (1.4%)
Axa 296,127 6,233,132
Multi-industry (1.4%)
Sanofi-Synthelabo 47,118 2,991,709
Vivendi Universal 123,650(b) 3,109,303
Total 6,101,012
Utilities -- telephone (0.7%)
France Telecom 129,793(b) 3,130,053
Germany (4.8%)
Automotive & related (1.7%)
Bayerische Motoren Werke 95,677 4,122,917
Continental 80,533 3,493,486
Total 7,616,403
Computer software & services (0.4%)
SAP 10,222 1,549,113
Electronics (0.6%)
Siemens 36,579 2,640,252
Insurance (0.6%)
Hannover Rueckversicherung 79,074 2,714,979
Retail -- general (0.5%)
Metro 44,620 1,977,290
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
9 -- AXP INTERNATIONAL FUND -- 2004 SEMIANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Germany (cont.)
Utilities -- electric (1.0%)
E.On 63,232 $4,189,080
Hong Kong (2.8%)
Financial services (1.0%)
Cheung Kong Holdings 246,000 1,884,641
Hong Kong Exchanges
& Clearing 1,124,000 2,248,259
Total 4,132,900
Multi-industry (1.0%)
New World Development 1,642,200 1,316,017
Swire Pacific Cl A 514,500 3,364,427
Total 4,680,444
Real estate (0.8%)
Sun Hung Kai Properties 405,000 3,479,247
Ireland (2.1%)
Banks and savings & loans (1.2%)
Anglo Irish Bank 307,095 5,021,830
Building materials & construction (0.9%)
CRH 190,524 4,039,983
Italy (3.9%)
Banks and savings & loans (0.7%)
Banco Popolare
di Verona e Novara 169,447 2,817,604
Energy (1.9%)
Eni 416,917 8,470,948
Insurance (0.7%)
Riunione Adriatica di Sicurta 153,817 2,815,686
Media (0.6%)
Mediaset 241,798 2,650,516
Japan (19.7%)
Automotive & related (1.8%)
Nissan Motor 235,000 2,613,710
Toyota Motor 145,100 5,239,358
Total 7,853,068
Banks and savings & loans (0.8%)
Mitsubishi Tokyo Financial Group 365 3,243,710
Building materials & construction (0.9%)
Asahi Glass 348,000 3,678,407
Cellular telecommunications (0.5%)
NTT DoCoMo 1,040 2,061,176
Chemicals (1.2%)
Shin-Etsu Chemical 40,000 1,614,480
Sumitomo Chemical 750,000 3,461,538
Total 5,076,018
Computer software & services (0.5%)
Nomura Research Institute 19,400 2,003,204
Electronics (2.2%)
Hitachi 270,000 1,893,665
Hitachi Maxell 105,600 1,529,050
Keyence 12,190 2,923,394
Murata Manufacturing 21,600 1,415,240
Rohm 9,500 1,183,846
Tokyo Electron 13,000 790,588
Total 9,735,783
Engineering & construction (0.4%)
Daiwa House Inds 143,000 1,598,235
Financial services (1.3%)
Nomura Holdings 210,000 3,405,611
Sumitomo Trust & Banking 400,000 2,403,620
Total 5,809,231
Furniture & appliances (0.8%)
Matsushita Electric Industrial 243,000 3,564,733
Health care products (0.9%)
Chugai Pharmaceutical 119,800 1,810,552
Yamanouchi Pharmaceutical 60,400 2,011,511
Total 3,822,063
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
10 -- AXP INTERNATIONAL FUND -- 2004 SEMIANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Japan (cont.)
Industrial transportation (0.5%)
East Japan Railway 350 $1,786,425
West Japan Railway 129 500,824
Total 2,287,249
Insurance (0.6%)
Sompo Japan Insurance 281,000 2,530,272
Machinery (1.1%)
Amada 317,000 1,781,511
SMC 25,000 2,861,991
Total 4,643,502
Media (1.3%)
Dai Nippon Printing 147,000 2,226,949
Dentsu 420 1,174,480
Nippon Telegraph & Telephone 422 2,215,023
Total 5,616,452
Metals (0.4%)
Nippon Steel 750,000 1,567,873
Multi-industry (1.5%)
Canon 75,000 3,929,865
Mitsubishi 266,000 2,532,416
Total 6,462,281
Paper & packaging (0.6%)
Nippon Unipac Holding 537 2,667,991
Real estate (0.8%)
Mitsui Fudosan 331,000 3,639,503
Retail -- general (0.9%)
Marui 122,500 1,920,090
Seven-Eleven Japan 63,000 2,138,010
Total 4,058,100
Utilities -- electric (0.7%)
Tokyo Electric Power 146,300 3,131,217
Mexico (1.6%)
Cellular telecommunications (1.1%)
America Movil ADR Series L 133,354 4,507,365
America Telecom 298,034(b) 522,056
Total 5,029,421
Retail -- general (0.5%)
Wal-Mart de Mexico 693,900 2,025,395
Netherlands (2.7%)
Computer software & services (0.7%)
Buhrmann 315,120 2,974,807
Food (0.8%)
Koninklijke Numico 117,630(b) 3,255,267
Industrial services (0.8%)
Koninklijke (Royal)
Philips Electronics 124,857 3,398,425
Retail -- general (0.4%)
Koninklijke Ahold 247,163(b) 1,912,813
Norway (0.8%)
Insurance
Storebrand 573,524 3,576,743
Portugal (0.5%)
Utilities -- electric
EDP-Electricdade de Portugal 831,937 2,272,385
Russia (0.7%)
Energy
Lukoil ADR 26,100 2,844,900
Singapore (1.4%)
Banks and savings & loans (0.9%)
DBS Group Holdings 468,000 3,933,467
Real estate (0.5%)
City Developments 554,000 1,986,247
South Africa (0.5%)
Metals
Anglo American 103,300 2,084,157
South Korea (2.3%)
Automotive & related (0.2%)
Hyundai Motor 23,310 889,277
Banks and savings & loans (0.5%)
Kookmin Bank 55,610 2,076,486
Electronics (1.4%)
Samsung Electronics 12,550 5,959,378
Metals (0.2%)
POSCO 7,600 929,753
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
11 -- AXP INTERNATIONAL FUND -- 2004 SEMIANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Spain (0.7%)
Banks and savings & loans
Banco Popular Espanol 57,393 $3,164,874
Sweden (1.0%)
Telecom equipment & services
Telefonaktiebolaget LM
Ericsson Cl B 1,624,000(b) 4,401,142
Switzerland (7.3%)
Banks and savings & loans (2.5%)
Credit Suisse Group 66,815 2,357,873
UBS 116,923 8,320,042
Total 10,677,915
Health care products (3.7%)
Nobel Biocare Holding 31,433 4,265,907
Novartis 135,579 6,051,326
Roche Holding 54,530 5,726,703
Total 16,043,936
Insurance (0.1%)
Swiss Life Holding 3,961(b) 541,388
Multi-industry (0.5%)
ABB 362,660(b) 2,044,338
Retail -- general (0.5%)
Swatch Group Cl B 16,478 2,191,765
Taiwan (2.0%)
Banks and savings & loans (1.1%)
Chinatrust Financial Holding 4,471,810 4,784,906
Electronics (0.9%)
Taiwan Semiconductor Mfg 2,209,560 3,807,988
United Kingdom (25.6%)
Aerospace & defense (0.7%)
Rolls-Royce Group 746,786 3,073,134
Rolls-Royce Group Cl B 37,339,300(b) 66,374
Total 3,139,508
Airlines (0.5%)
British Airways 447,333(b) 2,246,382
Banks and savings & loans (3.2%)
HBOS 239,154 3,105,504
Royal Bank of Scotland Group 239,115 7,196,113
Standard Chartered 208,440 3,201,320
Total 13,502,937
Beverages & tobacco (1.1%)
British American Tobacco 311,411 4,732,976
Broker dealers (0.9%)
Man Group 123,697 3,711,640
Cellular telecommunications (2.7%)
Vodafone Group 4,683,245 11,405,168
Computer software & services (0.8%)
ARM Holdings 683,988 1,416,474
lastminute.com 556,206(b) 1,900,799
Total 3,317,273
Energy (3.1%)
BP 1,098,790 9,521,899
Cairn Energy 184,341(b) 3,519,334
Total 13,041,233
Engineering & construction (0.6%)
Hanson 358,446 2,739,848
Financial services (0.9%)
HSBC Holdings 268,441 3,855,622
Health care products (0.6%)
AstraZeneca 59,451 2,786,785
Home building (0.4%)
Bellway 129,760 1,792,240
Industrial services (0.7%)
BOC Group 191,859 3,091,607
Insurance (0.2%)
HHG 1,188,571(b) 1,008,864
Lodging & gaming (0.7%)
Rank Group 547,799 3,096,582
Media (0.9%)
Taylor Nelson Sofres 594,865 2,093,716
United Business Media 219,412 1,794,124
Total 3,887,840
Multi-industry (0.6%)
Hays 1,248,933 2,619,723
Retail -- general (1.5%)
GUS 297,854 4,135,126
Signet Group 1,055,773 2,172,330
Total 6,307,456
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
12 -- AXP INTERNATIONAL FUND -- 2004 SEMIANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
United Kingdom (cont.)
Retail -- grocery (2.4%)
Tesco 1,620,091 $7,163,689
William Morrison Supermarkets 710,992 3,026,945
Total 10,190,634
Telecom equipment & services (1.6%)
Marconi 171,829(b) 1,835,715
mm02 2,908,877(b) 5,170,821
Total 7,006,536
Textiles & apparel (0.5%)
Burberry Group 337,119 2,322,144
Utilities -- natural gas (1.0%)
BG Group 711,332 4,118,993
Total common stocks
(Cost: $369,398,919) $408,809,530
Preferred stocks (1.8%)(c)
Issuer Shares Value(a)
Germany
Porsche 9,196 $5,701,415
ProSiebenSat.1 Media 106,123 2,085,019
Total preferred stocks
(Cost: $6,153,077) $7,786,434
Bond (--%)(c)
Issuer Coupon Principal Value(a)
rate amount
France
Axa
(European Monetary Unit) Cv
12-21-04 2.40% 9,104(d) $182,358
Total bond
(Cost: $133,232) $182,358
Short-term securities (7.5%)(e)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agency (4.8%)
Federal Natl Mtge Assn Disc Nts
06-02-04 1.01% $1,500,000 $1,498,693
06-03-04 1.00 5,000,000 4,995,432
07-01-04 1.01 5,000,000 4,991,890
07-07-04 1.03 4,400,000 4,392,137
07-21-04 1.05 5,000,000 4,989,140
Total 20,867,292
Commercial paper (2.7%)
Household Finance
05-03-04 1.03 11,700,000 11,698,996
Total short-term securities
(Cost: $32,564,717) $32,566,288
Total investments in securities
(Cost: $408,249,945)(f) $449,344,610
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.
(d) Currently this security is non-income producing. This bond will convert
into AXA common stock upon completion of the acquisition of Mony Group Inc.
by AXA. If the acquisition is not completed by Dec. 21, 2004, the bonds
will be redeemed with an interest rate of 2.4% (as disclosed).
(e) Cash collateral received from security lending activity is invested in
short-term securities and represents 4.0% of this category (see Note 6 to
the financial statements). 3.5% of the short-term securities is the Fund's
cash position.
(f) At April 30, 2004, the cost of securities for federal income tax purposes
was approximately $408,250,000 and the approximate aggregate gross
unrealized appreciation and depreciation based on that cost was:
Unrealized appreciation $49,820,000
Unrealized depreciation (8,725,000)
----------
Net unrealized appreciation $41,095,000
-----------
- --------------------------------------------------------------------------------
13 -- AXP INTERNATIONAL FUND -- 2004 SEMIANNUAL REPORT
Financial Statements
Statement of assets and liabilities
AXP International Fund
April 30, 2004 (Unaudited)
Assets
Investments in securities, at value (Note 1)*
(identified cost $408,249,945) $ 449,344,610
Foreign currency holdings (identified cost $619,047) (Note 1) 616,475
Capital shares receivable 466,258
Dividends and accrued interest receivable 1,814,530
Receivable for investment securities sold 10,030,049
Unrealized appreciation on foreign currency contracts held, at value (Note 5) 25,592
------
Total assets 462,297,514
-----------
Liabilities
Disbursements in excess of cash on demand deposit 16,968
Capital shares payable 46,961
Payable for investment securities purchased 13,054,809
Payable upon return of securities loaned (Note 6) 17,291,950
Accrued investment management services fee 9,414
Accrued distribution fee 4,517
Accrued service fee 85
Accrued transfer agency fee 5,007
Accrued administrative services fee 690
Other accrued expenses 125,973
-------
Total liabilities 30,556,374
----------
Net assets applicable to outstanding capital stock $ 431,741,140
=============
Represented by
Capital stock -- $.01 par value (Note 1) $ 689,497
Additional paid-in capital 870,769,816
Undistributed net investment income 56,592
Accumulated net realized gain (loss) (Note 8) (480,894,797)
Unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies (Note 5) 41,120,032
----------
Total -- representing net assets applicable to outstanding capital stock $ 431,741,140
=============
Net assets applicable to outstanding shares: Class A $ 310,788,432
Class B $ 84,414,709
Class C $ 1,360,599
Class I $ 4,466,671
Class Y $ 30,710,729
Net asset value per share of outstanding capital stock: Class A shares 49,441,185 $ 6.29
Class B shares 13,717,459 $ 6.15
Class C shares 222,541 $ 6.11
Class I shares 706,250 $ 6.32
Class Y shares 4,862,313 $ 6.32
--------- -------------
* Including securities on loan, at value (Note 6) $ 16,213,632
-------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
14 -- AXP INTERNATIONAL FUND -- 2004 SEMIANNUAL REPORT
Statement of operations
AXP International Fund
Six months ended April 30, 2004 (Unaudited)
Investment income
Income:
Dividends $ 3,805,852
Interest 42,802
Fee income from securities lending (Note 6) 51,626
Less foreign taxes withheld (378,825)
--------
Total income 3,521,455
---------
Expenses (Note 2):
Investment management services fee 1,400,281
Distribution fee
Class A 373,646
Class B 410,558
Class C 5,568
Transfer agency fee 864,030
Incremental transfer agency fee
Class A 52,235
Class B 24,994
Class C 166
Service fee -- Class Y 15,852
Administrative services fees and expenses 121,973
Compensation of board members 6,000
Custodian fees 89,700
Printing and postage 89,245
Registration fees 35,511
Audit fees 19,750
Other 5,537
-----
Total expenses 3,515,046
Expenses waived/reimbursed by AEFC (Note 2) (48,787)
-------
3,466,259
Earnings credits on cash balances (Note 2) (1,929)
------
Total net expenses 3,464,330
---------
Investment income (loss) -- net 57,125
------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 19,466,635
Foreign currency transactions (143,795)
--------
Net realized gain (loss) on investments 19,322,840
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 7,887,493
---------
Net gain (loss) on investments and foreign currencies 27,210,333
----------
Net increase (decrease) in net assets resulting from operations $27,267,458
===========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
15 -- AXP INTERNATIONAL FUND -- 2004 SEMIANNUAL REPORT
Statements of changes in net assets
AXP International Fund
April 30, 2004 Oct. 31, 2003
Six months ended Year ended
(Unaudited)
Operations and distributions
Investment income (loss) -- net $ 57,125 $ 1,996,156
Net realized gain (loss) on investments 19,322,840 (35,110,019)
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 7,887,493 99,404,400
--------- ----------
Net increase (decrease) in net assets resulting from operations 27,267,458 66,290,537
---------- ----------
Distributions to shareholders from:
Net investment income
Class A (1,651,206) (1,097,811)
Class C (715) --
Class Y (214,784) (397,835)
-------- --------
Total distributions (1,866,705) (1,495,646)
---------- ----------
Capital share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 49,674,100 100,829,279
Class B shares 14,162,917 10,143,314
Class C shares 708,389 4,147,607
Class I shares 4,600,209 --
Class Y shares 2,371,019 209,062,631
Reinvestment of distributions at net asset value
Class A shares 1,618,882 1,074,326
Class C shares 711 --
Class Y shares 21,292 305,027
Payments for redemptions
Class A shares (35,077,241) (161,166,939)
Class B shares (Note 2) (11,099,928) (42,610,595)
Class C shares (Note 2) (195,618) (4,399,403)
Class I shares (69) --
Class Y shares (3,870,400) (256,424,326)
---------- ------------
Increase (decrease) in net assets from capital share transactions 22,914,263 (139,039,079)
---------- ------------
Total increase (decrease) in net assets 48,315,016 (74,244,188)
Net assets at beginning of period 383,426,124 457,670,312
----------- -----------
Net assets at end of period $431,741,140 $ 383,426,124
============ =============
Undistributed net investment income $ 56,592 $ 1,866,172
------------ -------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
16 -- AXP INTERNATIONAL FUND -- 2004 SEMIANNUAL REPORT
Notes to Financial Statements
AXP International Fund
(Unaudited as to April 30, 2004)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a series of AXP International Series, Inc. and is registered under
the Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company. AXP International 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 foreign issuers that offer strong growth potential.
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 offers an additional class of shares, Class I,
exclusively to certain institutional investors. Class I shares have no sales
charge and are made available through a separate prospectus supplement provided
to investors eligible to purchase the shares. As of April 30, 2004, American
Express Financial Corporation (AEFC) and the AXP Portfolio Builder Funds owned
100% of Class I shares.
All classes of shares have identical voting, dividend and liquidation rights.
The distribution fee, incremental transfer agency fee and service fee (class
specific expenses) differ among classes. Income, expenses (other than class
specific expenses) and realized and unrealized gains or losses on investments
are allocated to each class of shares based upon its relative net assets.
The Fund's significant accounting policies are summarized below:
Use of estimates
Preparing financial statements that conform to accounting principles generally
accepted in the United States of America requires management to make estimates
(e.g., on assets, liabilities and contingent assets and liabilities) that could
differ from actual results.
Valuation of securities
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
Foreign securities are valued based on quotations from the principal market in
which such securities are normally traded. Pursuant to procedures adopted by the
Board of Directors of the funds, AEFC utilizes Fair Value Pricing (FVP). FVP
determinations are made in good faith in accordance with the procedures. If a
development or event is so significant that
- --------------------------------------------------------------------------------
17 -- AXP INTERNATIONAL FUND -- 2004 SEMIANNUAL REPORT
there is a reasonably high degree of certainty that the effect of the
development or event has actually caused the closing price to no longer reflect
the actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the New York Stock Exchange.
Significant events include material movements in the U.S. securities markets
prior to the opening of foreign markets on the following trading day. FVP
results in an estimated price that reasonably reflects the current market
conditions in order to value the portfolio holdings such that shareholder
transactions receive a fair NAV. 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.
- --------------------------------------------------------------------------------
18 -- AXP INTERNATIONAL 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. As of April 30, 2004, foreign currency holdings consisted of
multiple denominations.
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 or upon receipt of
ex-dividend notification in the case of certain foreign securities. Interest
income, including amortization of premium, market discount and original issue
discount using the effective interest method, is accrued daily.
- --------------------------------------------------------------------------------
19 -- AXP INTERNATIONAL 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 0.8% to 0.675% 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 International 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 $236,675 for
the six months ended April 30, 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 0.06% to 0.035% 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 the market value changes and remains in the Fund until distributed
in accordance with the Plan.
AEFC has a Subadvisory Agreement with American Express Asset Management
International Inc. (AEAMI), a wholly-owned subsidiary of AEFC. Investment
decisions for the Fund are made by a team of seasoned investment professionals
at Threadneedle Asset Management Limited (Threadneedle) who are associated with
AEAMI. Threadneedle is also a wholly-owned subsidiary of AEFC.
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.
Class I pays a transfer agency fee at an annual rate per shareholder account of
$1. This amount is included in the transfer agency fee on the statement of
operations.
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.
- --------------------------------------------------------------------------------
20 -- AXP INTERNATIONAL FUND -- 2004 SEMIANNUAL REPORT
The Fund has agreements with American Express Financial Advisors Inc. (the
Distributor) for distribution and shareholder services. Under a Plan and
Agreement of Distribution, the Fund pays a fee at an annual rate up to 0.25% of
the Fund's average daily net assets attributable to Class A shares and up to
1.00% for Class B and Class C shares.
Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for
service provided to shareholders by financial advisors and other servicing
agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net
assets attributable to Class Y shares.
Sales charges received by the Distributor for distributing Fund shares were
$505,741 for Class A, $31,632 for Class B and $79 for Class C for the six months
ended April 30, 2004.
For the six months ended April 30, 2004, AEFC and its affiliates waived certain
fees and expenses to 1.53% for Class A, 2.30% for Class B, 2.28% for Class C,
1.03% for Class I and 1.34% for Class Y. In addition, AEFC and its affiliates
have agreed to waive certain fees and expenses until Oct. 31, 2004. Under this
agreement, net expenses will not exceed 1.55% for Class A, 2.31% for Class B,
2.31% for Class C, 1.07% for Class I and 1.38% for Class Y.
During the six months ended April 30, 2004, the Fund's custodian and transfer
agency fees were reduced by $1,929 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 $259,393,488 and $242,983,427, respectively, for the six
months ended April 30, 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 April 30, 2004
Class A Class B Class C Class I* Class Y
Sold 7,770,089 2,273,082 115,030 706,261 379,035
Issued for reinvested distributions 266,264 -- 120 -- 3,491
Redeemed (5,568,303) (1,796,966) (31,109) (11) (607,965)
---------- ---------- ------- --- --------
Net increase (decrease) 2,468,050 476,116 84,041 706,250 (225,439)
--------- ------- ------ ------- --------
* Inception date was March 4, 2004.
Year ended Oct. 31, 2003
Class A Class B Class C Class I Class Y
Sold 19,825,081 2,029,072 842,234 N/A 42,877,692
Issued for reinvested distributions 221,968 -- -- N/A 62,892
Redeemed (31,828,912) (8,482,707) (889,603) N/A (51,587,885)
----------- ---------- -------- ----- -----------
Net increase (decrease) (11,781,863) (6,453,635) (47,369) N/A (8,647,301)
----------- ---------- ------- ----- ----------
- --------------------------------------------------------------------------------
21 -- AXP INTERNATIONAL FUND -- 2004 SEMIANNUAL REPORT
5. FORWARD FOREIGN CURRENCY CONTRACTS
As of April 30, 2004, the Fund has forward foreign currency exchange contracts
that obligate it to deliver currencies at specified future dates. The unrealized
appreciation and/or depreciation on these contracts is included in the
accompanying financial statements. See "Summary of significant accounting
policies." The terms of the open contracts are as follows:
Currency to Currency to Unrealized Unrealized
Exchange date be delivered be received appreciation depreciation
May 4, 2004 1,413,040 800,000 $ 9,040 $--
U.S. Dollar British Pound
May 4, 2004 650,797 550,000 8,103 --
U.S. Dollar European Monetary Unit
May 5, 2004 1,698,048 960,000 8,449 --
U.S. Dollar British Pound
------- ---
Total $25,592 $--
------- ---
6. LENDING OF PORTFOLIO SECURITIES
As of April 30, 2004, securities valued at $16,213,632 were on loan to brokers.
For collateral the Fund received $17,291,950 in cash. Cash collateral received
is invested in short-term securities, which are included in the short-term
section of the "Investments in securities." Income from securities lending
amounted to $51,626 for the six months ended April 30, 2004. The risks to the
Fund of securities lending are that the borrower may not provide additional
collateral when required or return the securities when due.
7. 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 April 30, 2004.
8. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, the Fund has capital loss carry-over of
$498,098,162 as of Oct. 31, 2003, that will expire in 2009 through 2011 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.
- --------------------------------------------------------------------------------
22 -- AXP INTERNATIONAL FUND -- 2004 SEMIANNUAL REPORT
9. FINANCIAL HIGHLIGHTS
The tables below show certain important financial information for evaluating the
Fund's results.
Class A
Per share income and capital changes(a)
Fiscal period ended Oct. 31, 2004(g) 2003 2002 2001 2000
Net asset value, beginning of period $5.88 $4.97 $5.96 $11.17 $13.45
Income from investment operations:
Net investment income (loss) -- .03 .03 .01 .02
Net gains (losses) (both realized and unrealized) .45 .90 (.94) (3.46) .04
Total from investment operations .45 .93 (.91) (3.45) .06
Less distributions:
Dividends from net investment income (.04) (.02) (.08) -- (.14)
Distributions from realized gains -- -- -- (1.76) (2.20)
Total distributions (.04) (.02) (.08) (1.76) (2.34)
Net asset value, end of period $6.29 $5.88 $4.97 $ 5.96 $11.17
Ratios/supplemental data
Net assets, end of period (in millions) $311 $276 $292 $462 $882
Ratio of expenses to average daily net assets(b) 1.53%(c),(d) 1.65% 1.54% 1.28% 1.27%
Ratio of net investment income (loss) to average daily net assets .17%(c) .59% .39% .07% .14%
Portfolio turnover rate (excluding short-term securities) 61% 147% 103% 303% 133%
Total return(e) 7.58%(f) 18.79% (15.55%) (35.71%) (2.79%)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) Adjusted to an annual basis.
(d) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratio of expenses for Class A would have been 1.55% for the six
months ended April 30, 2004.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended April 30, 2004 (Unaudited).
- --------------------------------------------------------------------------------
23 -- AXP INTERNATIONAL FUND -- 2004 SEMIANNUAL REPORT
Class B
Per share income and capital changes(a)
Fiscal period ended Oct. 31, 2004(g) 2003 2002 2001 2000
Net asset value, beginning of period $5.75 $4.88 $5.83 $11.04 $13.32
Income from investment operations:
Net investment income (loss) (.01) .02 (.02) (.07) (.08)
Net gains (losses) (both realized and unrealized) .41 .85 (.92) (3.38) .04
Total from investment operations .40 .87 (.94) (3.45) (.04)
Less distributions:
Dividends from net investment income -- -- (.01) -- (.04)
Distributions from realized gains -- -- -- (1.76) (2.20)
Total distributions -- -- (.01) (1.76) (2.24)
Net asset value, end of period $6.15 $5.75 $4.88 $ 5.83 $11.04
Ratios/supplemental data
Net assets, end of period (in millions) $84 $76 $96 $188 $403
Ratio of expenses to average daily net assets(b) 2.30%(c),(d) 2.43% 2.31% 2.05% 2.03%
Ratio of net investment income (loss) to average daily net assets (.61%)(c) (.16%) (.34%) (.70%) (.62%)
Portfolio turnover rate (excluding short-term securities) 61% 147% 103% 303% 133%
Total return(e) 6.96%(f) 17.83% (16.16%) (36.19%) (3.51%)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) Adjusted to an annual basis.
(d) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratio of expenses for Class B would have been 2.33% for the six
months ended April 30, 2004.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended April 30, 2004 (Unaudited).
- --------------------------------------------------------------------------------
24 -- AXP INTERNATIONAL FUND -- 2004 SEMIANNUAL REPORT
Class C
Per share income and capital changes(a)
Fiscal period ended Oct. 31, 2004(h) 2003 2002 2001 2000(b)
Net asset value, beginning of period $5.72 $4.85 $5.84 $11.05 $12.43
Income from investment operations:
Net investment income (loss) -- .02 (.02) (.07) (.04)
Net gains (losses) (both realized and unrealized) .39 .85 (.92) (3.38) (1.34)
Total from investment operations .39 .87 (.94) (3.45) (1.38)
Less distributions:
Dividends from net investment income -- -- (.05) -- --
Distributions from realized gains -- -- -- (1.76) --
Total distributions -- -- (.05) (1.76) --
Net asset value, end of period $6.11 $5.72 $4.85 $ 5.84 $11.05
Ratios/supplemental data
Net assets, end of period (in millions) $1 $1 $1 $1 $--
Ratio of expenses to average daily net assets(c) 2.28%(d),(e) 2.43% 2.31% 2.05% 2.03%(d)
Ratio of net investment income (loss) to average daily net assets (.49%)(d) (.17%) (.35%) (.64%) (.83%)(d)
Portfolio turnover rate (excluding short-term securities) 61% 147% 103% 303% 133%
Total return(f) 6.90%(g) 17.94% (16.27%) (36.15%) (11.10%)(g)
(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 C would have been 2.30% for the six
months ended April 30, 2004.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
(h) Six months ended April 30, 2004 (Unaudited).
- --------------------------------------------------------------------------------
25 -- AXP INTERNATIONAL FUND -- 2004 SEMIANNUAL REPORT
Class I
Per share income and capital changes(a)
Fiscal period ended Oct. 31, 2004(b)
Net asset value, beginning of period $6.60
Income from investment operations:
Net investment income (loss) .01
Net gains (losses) (both realized and unrealized) (.29)
Total from investment operations (.28)
Net asset value, end of period $6.32
Ratios/supplemental data
Net assets, end of period (in millions) $4
Ratio of expenses to average daily net assets(c) 1.03%(d)
Ratio of net investment income (loss) to average daily net assets 3.07%(d)
Portfolio turnover rate (excluding short-term securities) 61%
Total return(e) (4.24%)(f)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date was March 4, 2004.
(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.
- --------------------------------------------------------------------------------
26 -- AXP INTERNATIONAL FUND -- 2004 SEMIANNUAL REPORT
Class Y
Per share income and capital changes(a)
Fiscal period ended Oct. 31, 2004(g) 2003 2002 2001 2000
Net asset value, beginning of period $5.91 $4.99 $5.99 $11.19 $13.46
Income from investment operations:
Net investment income (loss) .01 .03 .04 .02 .04
Net gains (losses) (both realized and unrealized) .44 .92 (.95) (3.46) .05
Total from investment operations .45 .95 (.91) (3.44) .09
Less distributions:
Dividends from net investment income (.04) (.03) (.09) -- (.16)
Distributions from realized gains -- -- -- (1.76) (2.20)
Total distributions (.04) (.03) (.09) (1.76) (2.36)
Net asset value, end of period $6.32 $5.91 $4.99 $ 5.99 $11.19
Ratios/supplemental data
Net assets, end of period (in millions) $31 $30 $69 $71 $114
Ratio of expenses to average daily net assets(b) 1.34%(c),(d) 1.45% 1.37% 1.11% 1.10%
Ratio of net investment income (loss) to average daily net assets .30%(c) 1.07% .61% .25% .33%
Portfolio turnover rate (excluding short-term securities) 61% 147% 103% 303% 133%
Total return(e) 7.68%(f) 19.14% (15.43%) (35.52%) (2.57%)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) Adjusted to an annual basis.
(d) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratio of expenses for Class Y would have been 1.37% for the six
months ended April 30, 2004.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended April 30, 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.
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27 -- AXP INTERNATIONAL 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 INTERNATIONAL SERIES, INC.
By /s/ Paula R. Meyer
------------------
Paula R. Meyer
President and Principal Executive Officer
Date July 1, 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 July 1, 2004
By /s/ Jeffrey P. Fox
------------------
Jeffrey P. Fox
Treasurer and Principal Financial Officer
Date July 1, 2004