UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-2111
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AXP GROWTH SERIES, INC.
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(Exact name of registrant as specified in charter)
50606 AXP Financial Center, Minneapolis, Minnesota 55474
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(Address of principal executive offices) (Zip code)
Leslie L. Ogg - 901 S. Marquette Avenue, Suite 2810, Minneapolis, MN 55402-3268
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(Name and address of agent for service)
Registrant's telephone number, including area code: (612) 330-9283
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Date of fiscal year end: 7/31
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Date of reporting period: 7/31
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AXP(R)
Growth
Fund
Annual Report
for the Period Ended
July 31, 2004
AXP Growth Fund seeks to provide shareholders with long-term capital growth.
(logo) (logo)
American AMERICAN
Express(R) EXPRESS
Funds (R)
Table of Contents
Fund Snapshot 3
Questions & Answers
with Portfolio Management 4
The Fund's Long-term Performance 8
Investments in Securities 10
Financial Statements (Portfolio) 14
Notes to Financial Statements (Portfolio) 17
Report of Independent Registered
Public Accounting Firm (Portfolio) 21
Financial Statements (Fund) 22
Notes to Financial Statements (Fund) 25
Report of Independent Registered
Public Accounting Firm (Fund) 34
Fund Expenses Example 35
Board Members and Officers 37
Proxy Voting 39
(Dalbar logo)
American Express(R) Funds' reports to shareholders have been awarded the
Communications Seal from Dalbar Inc., an independent financial services research
firm. The Seal recognizes communications demonstrating a level of excellence in
the industry.
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2 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Fund Snapshot
AS OF JULY 31, 2004
PORTFOLIO MANAGER
Portfolio manager Since Years in industry
Nick Thakore 4/02 11
FUND OBJECTIVE
For investors seeking long-term capital growth.
Inception dates
A: 3/1/72 B: 3/20/95 C: 6/26/00 Y: 3/20/95
Ticker symbols
A: INIDX B: IGRBX C: AXGCX Y: IGRYX
Total net assets $3.095 billion
Number of holdings 121
STYLE MATRIX
Shading within the style matrix indicates areas in which the Fund generally
invests.
STYLE
VALUE BLEND GROWTH
X LARGE
MEDIUM SIZE
SMALL
SECTOR COMPOSITION
Percentage of portfolio assets
(pie chart)
Health Care 25.7%
Telecommunications 16.4%
Consumer discretionary 13.4%
Consumer staples 11.7%
Technology 8.6%
Financials 7.0%
Energy 5.9%
Short-term securities* 5.4%
Materials 3.0%
Industrials 2.1%
Other 0.8%
* 2.9% of the securities in this category is due to security lending activity.
2.5% of the short-term securities is the Portfolio's cash equivalent position.
TOP TEN HOLDINGS
Percentage of portfolio assets
NTL (Cable) 7.1%
Nextel Communications Cl A
(Cellular telecommunications) 4.8
Pfizer (Health care products) 3.2
Disney (Walt) (Media) 3.0
Johnson & Johnson (Health care products) 2.8
Vodafone Group ADR (Cellular telecommunications) 2.6
Biogen Idec (Health care products) 2.5
AT&T Wireless Services
(Cellular telecommunications) 2.2
Halliburton (Energy equipment & services) 1.9
Healthsouth (Health care services) 1.7
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
Stock prices of established companies that pay dividends may be less volatile
than the stock market as a whole. There are special risk considerations
associated with international investing related to market, currency, political,
economic and other factors.
Fund holdings are subject to change.
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3 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Questions & Answers
WITH PORTFOLIO MANAGEMENT
Below, Portfolio Manager Nick Thakore discusses the Fund's positioning and
results for the 2004 fiscal year.
Q: How did AXP Growth Fund perform for the 12-month period ended July 31, 2004?
A: AXP Growth Fund's Class A shares rose 4.08%, excluding sales charge, for the
12-month period ended July 31, 2004. The Fund lagged the 6.14% return of its
peer group as represented by the Lipper Large-Cap Growth Funds Index. The
Fund's benchmark, the Russell 1000(R) Growth Index, advanced 8.51% for the
same period.
Q: What factors influenced performance during the period?
A: Our sector positioning and stock selection did not work as we expected in
fiscal year 2004, resulting in lower returns than most of the Fund's peers
as well as the Fund's benchmark. Most of the Fund's underperformance came in
the first half of the fiscal year as cyclical growth stocks outperformed
stable growth stocks. Lower quality stocks outperformed higher quality
stocks. We recovered some ground against the Fund's peer group during the
second half of the fiscal year as some of the more cyclical stocks in which
the Fund had a lower-than-index position, such as technology,
underperformed.
Through most of the fiscal year, we limited the Fund's exposure to certain
cyclical market sectors because we were concerned that these companies would
not be able to achieve the historically high levels of earnings growth
expected by the market. We also thought that even if expectations were met,
the stocks would not necessarily advance further since the earnings were
already reflected in stock prices. Due to these concerns, the Fund had
lower-than-index weightings in the technology, industrials and consumer
discretionary sectors, all pro-cyclical
(bar graph)
PERFORMANCE COMPARISON
For the year ended July 31, 2004
10% (bar 2)
8% +8.51% (bar 3)
6% (bar 1) +6.14%
4% +4.08%
2%
0%
(bar 1) AXP Growth Fund Class A (excluding sales charge)
(bar 2) Russell 1000(R) Growth Index (unmanaged)
(bar 3) Lipper Large-Cap Growth Funds Index
(see "The Fund's Long-term Performance" for Index descriptions)
Past performance is no guarantee of future results. The 5.75% sales charge
applicable to Class A shares of the Fund is not reflected in the bar chart; if
reflected, returns would be lower than those shown. The performance of Class B,
Class C and Class Y may vary from that shown above because of differences in
expenses.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
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4 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Questions & Answers
(begin callout quote)> It was not until the final months of the period that we
saw more balanced performance between cyclical and stable growth companies. (end
callout quote)
sectors. Instead, the Fund had significant exposure to more stable growth
sectors of the economy. This positioning had a negative effect on relative
performance. As the market's expectations for a vigorous economic recovery
persisted, stable growth stocks underperformed cyclical growth stocks,
particularly in the
AVERAGE ANNUAL TOTAL RETURNS
Class A Class B Class C Class Y
(Inception dates) (3/1/72) (3/20/95) (6/26/00) (3/20/95)
NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) NAV(5) POP(5)
as of July 31, 2004
1 year +4.08% -1.90% +3.29% -0.71% +3.29% +3.29% +4.24% +4.24%
3 years -7.16% -8.98% -7.89% -8.82% -7.90% -7.90% -7.01% -7.01%
5 years -9.51% -10.58% -10.21% -10.38% N/A N/A -9.37% -9.37%
10 years +6.45% +5.82% N/A N/A N/A N/A N/A N/A
Since inception +11.84% +11.64% +4.77% +4.77% -18.01% -18.01% +5.73% +5.73%
as of June 30, 2004
1 year +7.90% +1.69% +7.07% +3.07% +7.07% +7.07% +8.10% +8.10%
3 years -7.79% -9.60% -8.51% -9.44% -8.52% -8.52% -7.63% -7.63%
5 years -9.62% -10.69% -10.32% -10.49% N/A N/A -9.47% -9.47%
10 years +7.40% +6.77% N/A N/A N/A N/A N/A N/A
Since inception +12.04% +11.83% +5.36% +5.36% -17.38% -17.38% +6.33% +6.33%
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 will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by calling (888) 723-8476 or visiting
www.americanexpress.com/funds. You should consider the investment objectives,
risks, and charges and expenses of the Fund carefully before investing.
(1) Excluding sales charge.
(2) Returns at public offering price (POP) reflect a sales charge of 5.75%.
(3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as
follows: first year 5%; second and third year 4%; fourth year 3%; fifth
year 2%; sixth year 1%; no sales charge thereafter.
(4) 1% CDSC applies to redemptions made within the first year of purchase.
(5) Sales charge is not applicable to these shares. Shares available to
institutional investors only.
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5 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Questions & Answers
first half of the fiscal year. It was not until the final months of the
period, that we saw more balanced performance between cyclical and stable
growth companies.
In addition to the unfavorable effect of our emphasis on stable growth
sectors, the Fund had lower-than-index positions in a number of stocks that
performed quite well. During the first half of the period, these included
industrial firm 3M and technology stocks Cisco, Intel and Texas Instruments.
In the latter half of the period, we had lower-than-benchmark positions in
strong performers Microsoft and General Electric, and this detracted from
the Fund's relative results.
On the positive side, the Fund's relative performance benefited from a
larger-than-index position in the energy sector, which performed quite well,
especially in the second half of the period. Energy stocks had been trading
as if oil prices would come down substantially and when prices did not come
down, energy stocks began to catch up with the cyclical rally, which they
had previously lagged. The Fund's positioning in telecommunications
services, where we have generally preferred wireless services over wireline
companies, also had a favorable impact. We think the growth rates on
wireless service companies are much better than investors acknowledge and
the valuations are attractive to us as well.
A number of individual stocks added to relative return. In the first half of
the year NTL, a U.K. cable company, advanced strongly following its
emergence from bankruptcy. The company subsequently gave back some of those
gains, but we took advantage of the sell-off to increase our holdings
because we believe there could still be pent-up performance in the stock. In
the second half of the year, we added a position in health care holding
Biogen Idec, a biotechnology stock that subsequently aided the Fund's
performance. Biogen Idec's stock price advanced due to optimism surrounding
its new multiple sclerosis treatment. We think this drug could have a strong
favorable effect on the company's future earnings.
Q: What changes did you make during the 12-month period?
A: During the first half of the fiscal period, we substantially increased the
Fund's weighting of cable companies and telecommunications services stocks,
particularly the wireless service providers.
When stocks pulled back a bit in the first calendar quarter of 2004, we
modestly increased the portfolio's cyclical exposure, but as the market
quickly recovered, we again reduced the cyclical allocations.
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6 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Questions & Answers
Disney became a significant portfolio position in the second half of the
year. We increased our Disney holdings after the Comcast takeover bid
because we believed the Comcast offer improved Disney's risk/reward profile.
Even though the takeover did not succeed, in our view, it increased the
likelihood that Disney's current management would take steps to raise the
stock price.
Within the health care sector, in addition to Biogen Idec, we increased the
Fund's weighting in HealthSouth, a provider of inpatient and outpatient
health care services. We also increased the Fund's weighting in HMOs through
purchases of UnitedHealthcare and Aetna.
In general, we believe the sectors we focused on had more attractive growth
rates and valuations relative to the areas we de-emphasized. To summarize,
we had a lower-than-index position in technology, but maintained
higher-than-index weightings in wireless and cable companies as a
substitute. Likewise, we traded a lower-than-index weighting in industrials
for a larger-than-index weighting in energy and energy services. We also
emphasized the health care and consumer staples sectors.
Q: How do you plan to manage the Fund in the coming months given current market
conditions?
A: We continue to believe that higher-quality, stable growth stocks currently
offer more attractive opportunities than stocks in cyclical growth sectors.
Because earnings growth rates appear to be decelerating, we doubt the market
will be completely one-sided in favor of cyclical stocks going forward. The
Fund's portfolio will continue to emphasize industries that are not largely
dependent on the economy, where growth is very strong and valuations are
compelling. No matter what type of environment we encounter in the near
term, we will stick to our long-term investment discipline. Our goal is to
find companies with above average growth at attractive valuations.
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7 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
The Fund's Long-term Performance
The chart on the facing page illustrates the total value of an assumed $10,000
investment in AXP Growth Fund Class A shares (from 8/1/94 to 7/31/04) as
compared to the performance of two widely cited performance indices, the Russell
1000(R) Growth Index and the Lipper Large-Cap Growth Funds Index. In comparing
the Fund's Class A shares to these indices, you should take into account the
fact that the Fund's performance reflects the maximum sales charge of 5.75%,
while such charges are not reflected in the performance of the indices. Returns
for the Fund include the reinvestment of any distribution paid during each
period.
The performance information shown represents the past performance and is not a
guarantee of future results. The value of your investment and returns will
fluctuate so that your shares, when redeemed, may be worth more or less than
their original cost. Returns do not reflect taxes payable on distributions and
redemptions. Current performance may be lower or higher than the performance
information shown. You may obtain performance information current to the most
recent month-end by calling (888) 723-8476 or visiting
www.americanexpress.com/funds. Also see "Past Performance" in the Fund's current
prospectus. You should consider the investment objectives, risks, and charges
and expenses of the Fund carefully before investing.
DISTRIBUTION SUMMARY
The table below details the Fund's income and capital gain distributions for the
fiscal years shown. More information on the other classes can be found in the
Financial Highlights section of this report's Notes to Financial Statements.
Class A
Short-term Long-term
Fiscal year ended Income capital gains capital gains Total
July 31, 2004 $-- $-- $ -- $0.00
July 31, 2003 -- -- -- 0.00
July 31, 2002 -- -- 0.02 0.02
July 31, 2001 -- -- 2.20 2.20
July 31, 2000 -- -- 0.78 0.78
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8 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP GROWTH FUND
AXP Growth Fund
Class A
(includes sales charge) $ 9,425 $12,738 $14,431 $22,657 $24,089 $29,025 $38,026 $22,002 $15,507 $16,909 $17,606
Russell 1000(R)
Growth Index(1) $10,000 $13,142 $15,182 $23,054 $27,646 $34,292 $42,652 $27,698 $19,735 $22,032 $23,907
Lipper Large-Cap
Growth Funds Index(2) $10,000 $12,881 $14,348 $21,245 $25,528 $31,382 $38,305 $25,128 $18,097 $19,720 $20,931
'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
COMPARATIVE RESULTS
Results as of July 31, 2004 Since
1 year 3 years 5 years 10 years inception(3)
AXP Growth Fund (includes sales charge)
Class A Cumulative value of $10,000 $9,810 $7,541 $5,717 $17,606 $353,866
Average annual total return -1.90% -8.98% -10.58% +5.82% +11.64%
Russell 1000(R) Growth Index(1)
Cumulative value of $10,000 $10,851 $8,631 $6,972 $23,907 N/A(4)
Average annual total return +8.51% -4.79% -6.96% +9.11% N/A(4)
Lipper Large-Cap Growth Funds Index(2)
Cumulative value of $10,000 $10,614 $8,330 $6,670 $20,931 N/A(4)
Average annual total return +6.14% -5.91% -7.78% +7.67% N/A(4)
Results for other share classes can be found on page 5.
(1) Russell 1000(R) Growth Index, an unmanaged index, measures the performance
of those Russell 1000 companies with higher price-to-book ratios and higher
forecasted growth values.
(2) The Lipper Large-Cap Growth Funds Index, published by Lipper Inc., includes
the 30 largest funds that are generally similar to the Fund, although some
funds in the index may have somewhat different investment policies or
objectives.
(3) Fund data is from March 1, 1972.
(4) The Fund began operating before inception of its benchmark and Lipper peer
group.
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9 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Investments in Securities
Growth Portfolio
July 31, 2004
(Percentages represent value of investments compared to net assets)
Common stocks (97.2%)
Issuer Shares Value(a)
Aerospace & defense (1.6%)
Lockheed Martin 936,000 $49,598,640
Banks and savings & loans (1.7%)
Bank of America 120,500 10,243,705
Commerce Bancorp 414,000(d) 20,840,760
Investors Financial Services 174,500 7,971,160
U.S. Bancorp 492,500 13,937,750
Total 52,993,375
Beverages & tobacco (4.6%)
Altria Group 1,037,000 49,361,200
Coca-Cola 1,075,500 47,171,430
PepsiCo 910,000 45,500,000
Total 142,032,630
Building materials & construction (0.2%)
American Standard 196,500(b) 7,445,385
Cable (7.5%)
Comcast Special Cl A 227,500(b) 6,097,000
NTL 4,360,600(b) 227,274,472
Total 233,371,472
Cellular telecommunications (12.2%)
AT&T Wireless Services 4,873,500(b) 70,373,340
Nextel Communications Cl A 6,776,500(b) 154,233,140
Telesystem Intl Wireless 3,194,811(b,c) 34,024,737
Vodafone Group ADR 3,848,500(c) 83,627,905
Western Wireless Cl A 1,355,000(b) 35,758,450
Total 378,017,572
Computer hardware (3.2%)
Cisco Systems 2,290,500(b) 47,779,830
Dell 1,116,500(b) 39,602,255
Gateway 2,293,500(b) 10,320,750
Total 97,702,835
Computer software & services (1.8%)
Check Point Software
Technologies 144,500(b,c) 2,874,105
Juniper Networks 277,500(b) 6,371,400
Microsoft 1,313,500 37,382,210
Oracle 992,000(b) 10,425,920
Total 57,053,635
Electronics (3.9%)
Analog Devices 438,000 17,388,600
Broadcom Cl A 308,000(b) 10,890,880
Intel 1,730,000 42,177,400
KLA-Tencor 70,000(b) 2,884,700
Linear Technology 183,000 7,155,300
Marvell Technology Group 912,500(b,c) 21,188,250
Maxim Integrated Products 212,000 10,197,200
Taiwan Semiconductor Mfg ADR 850,000(c) 6,052,000
United Microelectronics ADR 884,500(c) 3,272,650
Total 121,206,980
Energy (2.0%)
Amerada Hess 142,000 11,835,700
ChevronTexaco 257,500 24,629,875
ConocoPhillips 304,000 23,946,080
Total 60,411,655
Energy equipment & services (4.2%)
Diamond Offshore Drilling 467,100(d) 11,415,924
Halliburton 1,948,000 61,849,000
Schlumberger 282,000 18,138,240
Transocean 413,000(b) 11,729,200
Weatherford Intl 559,300(b) 26,164,054
Total 129,296,418
Finance companies (0.8%)
Citigroup 558,000 24,602,220
Financial services (2.8%)
Capital One Financial 139,000 9,635,480
Fannie Mae 516,000 36,615,360
Freddie Mac 615,000 39,550,650
Total 85,801,490
See accompanying notes to investments in securities.
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10 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Food (1.5%)
Heinz (HJ) 657,000 $24,236,730
Kellogg 555,500 23,142,130
Total 47,378,860
Health care products (19.5%)
Baxter Intl 1,280,800 38,513,656
Biogen Idec 1,317,900(b) 79,074,000
Boston Scientific 1,410,000(b) 53,946,600
Bristol-Myers Squibb 263,000 6,022,700
Elan ADR 1,537,000(b,c,d) 31,585,350
Forest Laboratories 150,000(b) 7,543,500
Genentech 192,000(b) 9,346,560
Gilead Sciences 211,500(b) 13,671,360
GlaxoSmithKline ADR 247,500(c,d) 10,135,125
Guidant 58,000 3,208,560
Johnson & Johnson 1,638,500 90,559,895
Medco Health Solutions 1,417,500(b) 42,950,250
Medtronic 76,000 3,774,920
Merck & Co 1,223,000 55,463,050
Novartis ADR 453,500(c) 20,253,310
OSI Pharmaceuticals 334,000(b) 20,073,400
Pfizer 3,206,000 102,463,759
Schering-Plough 658,000 12,804,680
Total 601,390,675
Health care services (7.2%)
Aetna 580,000 49,764,000
AmerisourceBergen 154,000 8,325,240
Fisher Scientific Intl 639,500(b,d) 37,218,900
Healthsouth 10,370,800(b,d) 56,002,320
UnitedHealth Group 739,500 46,514,550
WellPoint Health Networks 249,000(b) 25,173,900
Total 222,998,910
Household products (5.6%)
Avon Products 357,500 15,376,075
Colgate-Palmolive 958,000 50,965,600
Estee Lauder Cl A 111,550 4,897,045
Gillette 1,257,000 48,997,860
Procter & Gamble 1,017,000 53,036,550
Total 173,273,130
Insurance (2.0%)
ACE 316,000(c) 12,826,440
Allstate 230,500 10,851,940
American Intl Group 309,500 21,866,175
Chubb 243,000 16,713,540
Total 62,258,095
Leisure time & entertainment (0.5%)
Viacom Cl B 455,500 15,300,245
Media (3.7%)
Cendant 406,000 9,289,280
Disney (Walt) 4,128,500 95,327,065
eBay 117,500(b) 9,203,775
Total 113,820,120
Metals (0.1%)
Royal Gold 216,000 3,034,800
Multi-industry (0.5%)
Tyco Intl 541,500(c) 16,786,500
Precious metals (2.7%)
Barrick Gold 309,000(c,d) 5,908,080
Coeur d'Alene Mines 4,234,200(b,d) 14,650,332
Newmont Mining 1,282,000 51,882,540
Stillwater Mining 809,500(b) 11,778,225
Total 84,219,177
Retail -- general (2.2%)
Home Depot 380,500 12,830,460
Target 527,500 22,999,000
Wal-Mart Stores 609,500 32,309,595
Total 68,139,055
Retail -- grocery (0.4%)
Kroger 650,000(b) 10,270,000
Safeway 141,500(b) 2,989,895
Total 13,259,895
Telecom equipment & services (2.9%)
Motorola 2,442,000 38,901,060
MTN Group 1,615,500(c) 6,947,554
Nextel Partners Cl A 812,500(b) 13,056,875
Nokia ADR 2,634,500(c) 30,612,890
Total 89,518,379
Utilities -- natural gas (--%)
Kinder Morgan Management LLC --(b) 12
Utilities -- telephone (1.9%)
Citizens Communications 488,500(b) 7,034,400
Sprint (FON Group) 2,729,000 50,977,720
Total 58,012,120
Total common stocks
(Cost: $2,927,455,271) $3,008,924,280
See accompanying notes to investments in securities.
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11 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Options purchased (0.8%)
Issuer Contracts Exercise Expiration Value(a)
price date
Puts
S&P 500 Index 6,039 $1,125 Sept. 2004 $20,854,770
S&P 500 Index 2,214 1,100 Sept. 2004 4,904,010
Total options purchased
(Cost: $24,767,977) $25,758,780
Short-term securities (5.6%)(e)
Issuer Effective Amount Value(a)
yield payable at
maturity
U.S. government agencies (1.2%)
Federal Home Loan Mtge Corp Disc Nts
08-26-04 1.32% $3,800,000 $3,796,238
09-07-04 1.30 9,700,000 9,686,357
Federal Natl Mtge Assn Disc Nts
08-04-04 1.06 1,500,000 1,499,780
08-13-04 1.28 22,700,000 22,688,701
Total $37,671,076
Commercial paper (4.4%)
CC (USA)/Centauri
08-16-04 1.27 5,600,000(f) 5,596,645
Dorado Finance
08-16-04 1.27 5,300,000(f) 5,296,825
Edison Asset Securitization
08-13-04 1.27 12,100,000(f) 12,094,023
09-02-04 1.37 20,800,000(f) 20,773,087
FCAR Owner Trust I
09-15-04 1.40 9,000,000 8,983,589
09-17-04 1.45 20,300,000 20,260,120
Galaxy Funding
08-06-04 1.19 6,000,000(f) 5,998,613
K2 (USA)
08-17-04 1.29 18,500,000(f) 18,488,080
09-10-04 1.40 1,300,000(f) 1,297,873
09-13-04 1.38 10,000,000(f) 9,982,787
Receivables Capital
08-02-04 1.13 4,100,000(f) 4,099,613
Scaldis Capital
08-18-04 1.29 4,700,000(f) 4,696,804
Variable Funding Capital
08-02-04 1.34 13,500,000 13,498,492
White Pine Finance
09-22-04 1.43 4,079,000(f) 4,070,274
Total 135,136,825
Total short-term securities
(Cost: $172,827,013) $172,807,901
Total investments in securities
(Cost: $3,125,050,261)(g) $3,207,490,961
See accompanying notes to investments in securities.
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12 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars. As of July 31, 2004, the
value of foreign securities represented 9.2% of net assets.
(d) Security is partially or fully on loan. See Note 4 to the financial
statements.
(e) Cash collateral received from security lending activity is invested in
short-term securities and represents 3.0% of this category (see Note 4 to
the financial statements). 2.6% of the short-term securities is the Fund's
cash equivalent position.
(f) Commercial paper sold within terms of a private placement memorandum, exempt
from registration under Section 4(2) of the Securities Act of 1933, as
amended, and may be sold only to dealers in that program or other
"accredited investors." This security has been determined to be liquid under
guidelines established by the board. These securities may be resold in
transactions exempt from registration, normally to qualified institutional
buyers. As of July 31, 2004, the value of these securities amounted to
$92,394,624 or 3.0% of net assets.
(g) At July 31, 2004, the cost of securities for federal income tax purposes was
$3,146,021,055 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $ 162,165,209
Unrealized depreciation (100,695,303)
------------
Net unrealized appreciation $ 61,469,906
-------------
How to find information about the Fund's portfolio holdings
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at www.americanexpress.com/funds.
- --------------------------------------------------------------------------------
13 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Financial Statements
Statement of assets and liabilities
Growth Portfolio
July 31, 2004
Assets
Investments in securities, at value (Note 1)*
(identified cost $3,125,050,261) $3,207,490,961
Dividends and accrued interest receivable 2,076,182
Receivable for investment securities sold 65,963,293
----------
Total assets 3,275,530,436
-------------
Liabilities
Disbursements in excess of cash on demand deposit 658,343
Payable for investment securities purchased 84,302,534
Payable upon return of securities loaned (Note 4) 94,119,000
Accrued investment management services fee 48,441
Other accrued expenses 85,551
------
Total liabilities 179,213,869
-----------
Net assets $3,096,316,567
==============
* Including securities on loan, at value (Note 4) $ 88,521,814
--------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
14 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Statement of operations
Growth Portfolio
Year ended July 31, 2004
Investment income
Income:
Dividends $ 35,189,522
Interest 2,673,605
Fee income from securities lending (Note 4) 380,617
Less foreign taxes withheld (331,683)
--------
Total income 37,912,061
----------
Expenses (Note 2):
Investment management services fee 16,372,054
Compensation of board members 18,963
Custodian fees 269,839
Audit fees 31,500
Other 71,437
------
Total expenses 16,763,793
Earnings credits on cash balances (Note 2) (1,949)
------
Total net expenses 16,761,844
----------
Investment income (loss) -- net 21,150,217
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 362,935,106
Foreign currency transactions (336,306)
--------
Net realized gain (loss) on investments 362,598,800
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies (210,306,341)
------------
Net gain (loss) on investments and foreign currencies 152,292,459
-----------
Net increase (decrease) in net assets resulting from operations $ 173,442,676
=============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
15 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Statements of changes in net assets
Growth Portfolio
Year ended July 31, 2004 2003
Operations
Investment income (loss) -- net $ 21,150,217 $ 19,243,868
Net realized gain (loss) on investments 362,598,800 (462,434,032)
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies (210,306,341) 741,212,811
------------ -----------
Net increase (decrease) in net assets resulting from operations 173,442,676 298,022,647
----------- -----------
Proceeds from contributions 20,257,382 46,555,814
Fair value of withdrawals (544,632,609) (443,556,729)
------------ ------------
Net contributions (withdrawals) from partners (524,375,227) (397,000,915)
------------ ------------
Total increase (decrease) in net assets (350,932,551) (98,978,268)
Net assets at beginning of year 3,447,249,118 3,546,227,386
------------- -------------
Net assets at end of year $3,096,316,567 $3,447,249,118
============== ==============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
16 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Notes to Financial Statements
Growth Portfolio
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Growth Portfolio (the Portfolio) is a series of Growth Trust (the Trust) and is
registered under the Investment Company Act of 1940 (as amended) as a
diversified, open-end management investment company. Growth Portfolio invests
primarily in common stocks and securities convertible into common stocks of U.S.
and foreign companies that appear to offer growth opportunities. The Declaration
of Trust permits the Trustees to issue non-transferable interests in the
Portfolio.
The Portfolio's significant accounting policies are summarized below:
Use of estimates
Preparing financial statements that conform to accounting principles generally
accepted in the United States of America requires management to make estimates
(e.g., on assets, liabilities and contingent assets and liabilities) that could
differ from actual results.
Valuation of securities
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
Pursuant to procedures adopted by the Board of Trustees of the portfolios,
American Express Financial Corporation (AEFC) utilizes Fair Value Pricing (FVP).
FVP determinations are made in good faith in accordance with these 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 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.
- --------------------------------------------------------------------------------
17 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Option transactions
To produce incremental earnings, protect gains and facilitate buying and selling
of securities for investments, the Portfolio may buy and write options traded on
any U.S. or foreign exchange or in the over-the-counter market where completing
the obligation depends upon the credit standing of the other party. The
Portfolio also may buy and sell put and call options and write covered call
options on portfolio securities as well as write cash-secured put options. The
risk in writing a call option is that the Portfolio gives up the opportunity for
profit if the market price of the security increases. The risk in writing a put
option is that the Portfolio may incur a loss if the market price of the
security decreases and the option is exercised. The risk in buying an option is
that the Portfolio pays a premium whether or not the option is exercised. The
Portfolio also has the additional risk of being unable to enter into a closing
transaction if a liquid secondary market does not exist.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Portfolio
will realize a gain or loss when the option transaction expires or closes. When
an option is exercised, the proceeds on sales for a written call option, the
purchase cost for a written put option or the cost of a security for a purchased
put or call option is adjusted by the amount of premium received or paid.
Futures transactions
To gain exposure to or protect itself from market changes, the Portfolio may buy
and sell financial futures contracts traded on any U.S. or foreign exchange. The
Portfolio also may buy and write put and call options on these futures
contracts. Risks of entering into futures contracts and related options include
the possibility of an illiquid market and that a change in the value of the
contract or option may not correlate with changes in the value of the underlying
securities.
Upon entering into a futures contract, the Portfolio is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Portfolio each day. The variation margin payments are
equal to the daily changes in the contract value and are recorded as unrealized
gains and losses. The Portfolio recognizes a realized gain or loss when the
contract is closed or expires.
Foreign currency translations and foreign currency contracts
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars. Foreign currency amounts related to the
purchase or sale of securities and income and expenses are translated at the
exchange rate on the transaction date. The effect of changes in foreign exchange
rates on realized and unrealized security gains or losses is reflected as a
component of such gains or losses. In the statement of operations, net realized
gains or losses from foreign currency transactions, if any, may arise from sales
of foreign currency, closed forward contracts, exchange gains or losses realized
between the trade date and settlement date on securities transactions, and other
translation gains or losses on dividends, interest income and foreign
withholding taxes.
- --------------------------------------------------------------------------------
18 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
The Portfolio may enter into forward foreign currency exchange contracts for
operational purposes and to protect against adverse exchange rate fluctuation.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Portfolio and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates from an
independent pricing service. The Portfolio is subject to the credit risk that
the other party will not complete its contract obligations.
Federal taxes
For federal income tax purposes the Portfolio qualifies as a partnership and
each investor in the Portfolio is treated as the owner of its proportionate
share of the net assets, income, expenses and realized and unrealized gains and
losses of the Portfolio. As a "pass-through" entity, the Portfolio therefore
does not pay any income dividends or capital gain distributions.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date and interest income,
including amortization of premium, market discount and original issue discount
using the effective interest method, is accrued daily.
2. FEES AND EXPENSES
The Trust, on behalf of the Portfolio, has an Investment Management Services
Agreement with AEFC to manage its portfolio. Under an Investment Management
Service Agreement, AEFC determines which securities will be purchased, held or
sold. The management fee is a percentage of the Portfolio's average daily net
assets in reducing percentages from 0.60% to 0.48% annually. The fee may be
adjusted upward or downward by a performance incentive adjustment based on a
comparison of the performance of Class A shares of AXP Growth Fund to the Lipper
Large-Cap Growth Funds Index. The maximum adjustment is 0.12% per year. If the
performance difference is less than 0.50%, the adjustment will be zero. The
adjustment decreased the fee by $3,168,084 for the year ended July 31, 2004.
Under the agreement, the Trust also pays taxes, brokerage commissions and
nonadvisory expenses, which include custodian fees, audit and certain legal
fees, fidelity bond premiums, registration fees for units, office expenses,
consultants' fees, compensation of trustees, corporate filing fees, expenses
incurred in connection with lending securities of the Portfolio and any other
expenses properly payable by the Trust or Portfolio and approved by the board.
Under a Deferred Compensation Plan (the Plan), non-interested trustees may defer
receipt of their compensation. Deferred amounts are treated as though equivalent
dollar amounts had been invested in shares of the underlying Fund or other
American Express mutual funds. The Portfolio's liability for these amounts is
adjusted for market value changes and remains in the Portfolio until distributed
in accordance with the Plan.
- --------------------------------------------------------------------------------
19 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
During the year ended July 31, 2004, the Portfolio's custodian fees were reduced
by $1,949 as a result of earnings credits from overnight cash balances. The
Portfolio also pays custodian fees to American Express Trust Company, an
affiliate of AEFC.
According to a Placement Agency Agreement, American Express Financial Advisors
Inc. acts as placement agent of the Trust's units.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $5,441,818,688 and $5,868,102,303, respectively, for the
year ended July 31, 2004. Realized gains and losses are determined on an
identified cost basis.
Brokerage clearing fees paid to brokers affiliated with AEFC were $336,098 for
the year ended July 31, 2004.
4. LENDING OF PORTFOLIO SECURITIES
As of July 31, 2004, securities valued at $88,521,814 were on loan to brokers.
For collateral, the Portfolio received $94,119,000 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 $380,617 for year ended July 31, 2004. The risks to the
Portfolio of securities lending are that the borrower may not provide additional
collateral when required or return the securities when due.
5. FINANCIAL HIGHLIGHTS
The table below shows certain important financial information for evaluating the
Portfolio's results.
Ratios/supplemental data
Fiscal period ended July 31, 2004 2003 2002 2001 2000
Ratio of expenses to average daily net assets(a) .49% .62% .47% .55% .59%
Ratio of net investment income (loss) to average daily net assets .61% .59% .37% .09% .09%
Portfolio turnover rate (excluding short-term securities) 171% 205% 225% 41% 23%
Total return(b) 4.65% 9.73% (29.17%) (41.87%) 31.53%
(a) Expense ratio is based on total expenses of the Portfolio before reduction
of earnings credits on cash balances. The ratio does not include feeder
fund expenses.
(b) Total return is based on a calculated Portfolio NAV and does not reflect
payment of a sales charge.
- --------------------------------------------------------------------------------
20 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Report of Independent
Registered Public Accounting Firm
THE BOARD OF TRUSTEES AND UNITHOLDERS
GROWTH TRUST
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of Growth Portfolio (a series of
Growth Trust) as of July 31, 2004, the related statement of operations for the
year then ended, the statements of changes in net assets for each of the years
in the two-year period ended July 31, 2004, and the financial highlights for
each of the years in the five-year period ended July 31, 2004. These financial
statements and the financial highlights are the responsibility of portfolio
management. Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 2004, by correspondence with the custodian and
brokers or by other appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Growth
Portfolio as of July 31, 2004, and the results of its operations, changes in its
net assets and the financial highlights for each of the periods stated in the
first paragraph above, in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
Minneapolis, Minnesota
September 20, 2004
- --------------------------------------------------------------------------------
21 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Financial Statements
Statement of assets and liabilities
AXP Growth Fund
July 31, 2004
Assets
Investment in Portfolio (Note 1) $ 3,096,271,925
Capital shares receivable 160,582
-------
Total assets 3,096,432,507
-------------
Liabilities
Capital shares payable 662,878
Accrued distribution fee 31,127
Accrued service fee 944
Accrued transfer agency fee 16,748
Accrued administrative services fee 3,774
Other accrued expenses 221,669
-------
Total liabilities 937,140
-------
Net assets applicable to outstanding capital stock $ 3,095,495,367
===============
Represented by
Capital stock -- $.01 par value (Note 1) $ 1,323,291
Additional paid-in capital 4,239,045,992
Accumulated net realized gain (loss) (Note 5) (1,227,338,161)
Unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 82,464,245
----------
Total -- representing net assets applicable to outstanding capital stock $ 3,095,495,367
===============
Net assets applicable to outstanding shares: Class A $ 2,116,826,391
Class B $ 597,617,368
Class C $ 12,938,529
Class I $ 18,099,191
Class Y $ 350,013,888
Net asset value per share of outstanding capital stock: Class A shares 89,217,957 $ 23.73
Class B shares 27,231,529 $ 21.95
Class C shares 589,561 $ 21.95
Class I shares 750,932 $ 24.10
Class Y shares 14,539,091 $ 24.07
---------- ---------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
22 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Statement of operations
AXP Growth Fund
Year ended July 31, 2004
Investment income
Income:
Dividends $ 35,189,061
Interest 2,673,575
Fee income from securities lending 380,612
Less foreign taxes withheld (331,678)
--------
Total income 37,911,570
----------
Expenses (Note 2):
Expenses allocated from Portfolio 16,761,625
Distribution fee
Class A 5,652,896
Class B 7,755,577
Class C 135,534
Transfer agency fee 6,967,363
Incremental transfer agency fee
Class A 487,310
Class B 378,687
Class C 6,731
Service fee -- Class Y 382,486
Administrative services fees and expenses 1,523,915
Compensation of board members 13,596
Printing and postage 723,100
Registration fees 72,702
Audit fees 10,500
Other 46,723
------
Total expenses 40,918,745
Earnings credits on cash balances (Note 2) (36,633)
-------
Total net expenses 40,882,112
----------
Investment income (loss) -- net (2,970,542)
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions 362,930,744
Foreign currency transactions (336,301)
--------
Net realized gain (loss) on investments 362,594,443
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies (210,303,690)
------------
Net gain (loss) on investments and foreign currencies 152,290,753
-----------
Net increase (decrease) in net assets resulting from operations $ 149,320,211
=============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
23 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Statements of changes in net assets
AXP Growth Fund
Year ended July 31, 2004 2003
Operations
Investment income (loss) -- net $ (2,970,542) $ (5,450,978)
Net realized gain (loss) on investments 362,594,443 (462,429,500)
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies (210,303,690) 741,204,696
------------ -----------
Net increase (decrease) in net assets resulting from operations 149,320,211 273,324,218
----------- -----------
Capital share transactions (Note 3)
Proceeds from sales
Class A shares (Note 2) 285,165,756 299,443,361
Class B shares 80,166,420 108,759,258
Class C shares 4,297,146 5,623,858
Class I shares 18,579,557 --
Class Y shares 110,428,653 141,293,380
Payments for redemptions
Class A shares (533,084,922) (425,072,323)
Class B shares (Note 2) (286,628,598) (240,971,184)
Class C shares (Note 2) (3,709,528) (1,739,474)
Class I shares (7,079) --
Class Y shares (176,524,688) (258,890,708)
------------ ------------
Increase (decrease) in net assets from capital share transactions (501,317,283) (371,553,832)
------------ ------------
Total increase (decrease) in net assets (351,997,072) (98,229,614)
Net assets at beginning of year 3,447,492,439 3,545,722,053
------------- -------------
Net assets at end of year $3,095,495,367 $3,447,492,439
============== ==============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
24 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Notes to Financial Statements
AXP Growth Fund
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a series of AXP Growth Series, Inc. and is registered under the
Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company. AXP Growth Series, Inc. has 10 billion authorized
shares of capital stock that can be allocated among the separate series as
designated by the board.
The Fund offers Class A, Class B, Class C and Class Y shares.
o Class A shares are sold with a front-end sales charge.
o Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares during the ninth calendar year
of ownership.
o Class C shares may be subject to a CDSC.
o Class Y shares have no sales charge and are offered only to qualifying
institutional investors.
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 July 31, 2004, AEFC and the
AXP Portfolio Builder Series Funds owned 100% of Class I shares, which
represents 0.58% of the Fund's net assets.
All classes of shares have identical voting, dividend and liquidation rights.
The distribution fee, incremental transfer agency fee and service fee (class
specific expenses) differ among classes. Income, expenses (other than class
specific expenses) and realized and unrealized gains or losses on investments
are allocated to each class of shares based upon its relative net assets.
Investment in Growth Portfolio
The Fund invests all of its assets in Growth Portfolio (the Portfolio), a series
of Growth Trust (the Trust), an open-end investment company that has the same
objectives as the Fund. The Portfolio invests primarily in common stocks and
securities convertible into common stocks of U.S. and foreign companies that
appear to offer growth opportunities.
The Fund records daily its share of the Portfolio's income, expenses and
realized and unrealized gains and losses. The financial statements of the
Portfolio are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The Fund records its investment in the Portfolio at the value that is equal to
the Fund's proportionate ownership interest in the Portfolio's net assets. The
percentage of the Portfolio owned by the Fund as of July 31, 2004 was 99.99%.
- --------------------------------------------------------------------------------
25 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
All securities held by the Portfolio 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. Pursuant to procedures adopted by the Board of
Trustees of the portfolios, AEFC utilizes Fair Value Pricing (FVP). FVP
determinations are made in good faith in accordance with these 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 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.
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.
Federal taxes
The Fund's policy is to comply with all sections of the Internal Revenue Code
that apply to regulated investment companies and to distribute substantially all
of its taxable income to the shareholders. No provision for income or excise
taxes is thus required.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of deferred losses on
certain futures contracts, the recognition of certain foreign currency gains
(losses) as ordinary income (loss) for tax purposes, and losses deferred due to
"wash sale" transactions. The character of distributions made during the year
from net investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the year that the income or realized gains (losses) were recorded by
the Fund.
On the statement of assets and liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income has been increased by
$2,970,542 and accumulated net realized loss has been decreased by $336,304
resulting in a net reclassification adjustment to decrease paid-in capital by
$3,306,846.
- --------------------------------------------------------------------------------
26 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
The tax character of distributions paid for the years indicated is as follows:
Year ended July 31, 2004 2003
Class A
Distributions paid from:
Ordinary income $-- $--
Long-term capital gain -- --
Class B
Distributions paid from:
Ordinary income -- --
Long-term capital gain -- --
Class C
Distributions paid from:
Ordinary income -- --
Long-term capital gain -- --
Class I*
Distributions paid from:
Ordinary income -- N/A
Long-term capital gain -- N/A
Class Y
Distributions paid from:
Ordinary income -- --
Long-term capital gain -- --
* Inception date was March 4, 2004.
As of July 31, 2004, the components of distributable earnings on a tax basis are
as follows:
Undistributed ordinary income $ --
Accumulated long-term gain (loss) $(1,205,376,835)
Unrealized appreciation (depreciation) $ 60,502,919
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.
- --------------------------------------------------------------------------------
27 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
2. EXPENSES AND SALES CHARGES
In addition to the expenses allocated from the Portfolio, the Fund accrues its
own expenses as follows:
The Fund has an agreement with AEFC to provide administrative services. Under an
Administrative Services Agreement, the Fund pays AEFC a fee for administrative
and accounting services at a percentage of the Fund's average daily net assets
in reducing percentages 0.05% to 0.02% annually. A minor portion of additional
administrative service expenses paid by the Fund are consultants' fees and fund
office expenses. Under this agreement, the Fund also pays taxes, audit and
certain legal fees, registration fees for shares, compensation of board members,
corporate filing fees, and any other expenses properly payable by the Fund and
approved by the board.
Under a Deferred Compensation Plan (the Plan), non-interested board members may
defer receipt of their compensation. Deferred amounts are treated as though
equivalent dollar amounts had been invested in shares of the Fund or other
American Express mutual funds. The Fund's liability for these amounts is
adjusted for market value changes and remains in the Fund until distributed in
accordance with the Plan.
Under a separate Transfer Agency Agreement, American Express Client Service
Corporation (AECSC) maintains shareholder accounts and records. The Fund pays
AECSC an annual fee per shareholder account for this service as follows:
o Class A $19.50
o Class B $20.50
o Class C $20.00
o Class Y $17.50
The incremental transfer agency fee is the amount charged to the specific
classes for the additional expense above the fee for Class Y.
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.
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.
- --------------------------------------------------------------------------------
28 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Sales charges received by the Distributor for distributing Fund shares were
$4,319,599 for Class A, $869,869 for Class B and $4,580 for Class C for the year
ended July 31, 2004.
During the year ended July 31, 2004, the Fund's transfer agency fees were
reduced by $36,633 as a result of earnings credits from overnight cash balances.
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the years indicated are as follows:
Year ended July 31, 2004
Class A Class B Class C Class I* Class Y
Sold 11,944,233 3,592,298 193,314 751,217 4,533,974
Issued for reinvested distributions -- -- -- -- --
Redeemed (21,995,982) (12,837,345) (164,669) (285) (7,210,738)
----------- ----------- -------- ---- ----------
Net increase (decrease) (10,051,749) (9,245,047) 28,645 750,932 (2,676,764)
----------- ---------- ------ ------- ----------
* Inception date was March 4, 2004.
Year ended July 31, 2003
Class A Class B Class C Class I Class Y
Sold 13,842,204 5,510,181 283,408 N/A 6,670,940
Issued for reinvested distributions -- -- -- N/A --
Redeemed (20,576,625) (12,101,320) (89,705) N/A (12,224,761)
----------- ---------- ------- ------- ----------
Net increase (decrease) (6,734,421) (6,591,139) 193,703 N/A (5,553,821)
----------- ---------- ------- ------- ----------
4. BANK BORROWINGS
The Fund has a revolving credit agreement with a syndicate of banks headed by
Deutsche Bank, whereby the Fund is permitted to have bank borrowings for
temporary or emergency purposes to fund shareholder redemptions. The Fund must
maintain asset coverage for borrowings of at least 300%. The agreement, which
enables the Fund to participate with other American Express mutual funds,
permits borrowings up to $500 million, collectively. Interest is charged to each
Fund based on its borrowings at a rate equal to either the LIBOR plus 0.50%, the
IBOR plus 0.50% or the higher of the Federal Funds Rate plus 0.25% and the Prime
Lending Rate. Borrowings are payable within 60 days after such loan is executed.
The Fund also pays a commitment fee equal to its pro rata share of the amount of
the credit facility at a rate of 0.09% per annum. The Fund had no borrowings
outstanding during the year ended July 31, 2004.
5. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, the Fund has a capital loss carry-over of
$1,205,376,835 as of July 31, 2004, that if not offset by capital gains will
expire as follows:
2010 2011
$836,602,508 $368,774,327
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.
- --------------------------------------------------------------------------------
29 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
6. FINANCIAL HIGHLIGHTS
The tables below show certain important financial information for evaluating the
Fund's results.
Class A
Per share income and capital changes(a)
Fiscal period ended July 31, 2004 2003 2002 2001 2000
Net asset value, beginning of period $22.80 $20.88 $29.68 $ 54.36 $42.14
Income from investment operations:
Net investment income (loss) .02 -- (.04) (.14) (.14)
Net gains (losses) (both realized and unrealized) .91 1.92 (8.74) (22.34) 13.14
Total from investment operations .93 1.92 (8.78) (22.48) 13.00
Less distributions:
Distributions from realized gains -- -- (.02) (2.20) (.78)
Net asset value, end of period $23.73 $22.80 $20.88 $ 29.68 $54.36
Ratios/supplemental data
Net assets, end of period (in millions) $2,117 $2,263 $2,213 $3,851 $6,637
Ratio of expenses to average daily net assets(b) 1.03% 1.21% .99% .99% .99%
Ratio of net investment income (loss) to average daily net assets .07% --% (.15%) (.34%) (.30%)
Portfolio turnover rate (excluding short-term securities) 171% 205% 225% 41% 23%
Total return(c) 4.08% 9.20% (29.59%) (42.14%) 31.01%
(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) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
30 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Class B
Per share income and capital changes(a)
Fiscal period ended July 31, 2004 2003 2002 2001 2000
Net asset value, beginning of period $21.25 $19.61 $28.11 $ 52.02 $40.65
Income from investment operations:
Net investment income (loss) (.16) (.17) (.25) (.42) (.46)
Net gains (losses) (both realized and unrealized) .86 1.81 (8.23) (21.29) 12.61
Total from investment operations .70 1.64 (8.48) (21.71) 12.15
Less distributions:
Distributions from realized gains -- -- (.02) (2.20) (.78)
Net asset value, end of period $21.95 $21.25 $19.61 $ 28.11 $52.02
Ratios/supplemental data
Net assets, end of period (in millions) $598 $775 $845 $1,510 $2,468
Ratio of expenses to average daily net assets(b) 1.81% 1.99% 1.77% 1.75% 1.75%
Ratio of net investment income (loss) to average daily net assets (.71%) (.77%) (.93%) (1.11%) (1.06%)
Portfolio turnover rate (excluding short-term securities) 171% 205% 225% 41% 23%
Total return(c) 3.29% 8.36% (30.18%) (42.57%) 30.02%
(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) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
31 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Class C
Per share income and capital changes(a)
Fiscal period ended July 31, 2004 2003 2002 2001 2000(b)
Net asset value, beginning of period $21.25 $19.62 $28.12 $ 52.03 $52.65
Income from investment operations:
Net investment income (loss) (.16) (.17) (.21) (.42) (.04)
Net gains (losses) (both realized and unrealized) .86 1.80 (8.27) (21.29) (.58)
Total from investment operations .70 1.63 (8.48) (21.71) (.62)
Less distributions:
Distributions from realized gains -- -- (.02) (2.20) --
Net asset value, end of period $21.95 $21.25 $19.62 $ 28.12 $52.03
Ratios/supplemental data
Net assets, end of period (in millions) $13 $12 $7 $9 $1
Ratio of expenses to average daily net assets(c) 1.81% 2.01% 1.80% 1.75% 1.75%(d)
Ratio of net investment income (loss) to average daily net assets (.71%) (.81%) (.96%) (1.10%) (1.30%)(d)
Portfolio turnover rate (excluding short-term securities) 171% 205% 225% 41% 23%
Total return(e) 3.29% 8.31% (30.17%) (42.56%) (1.18%)(f)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date was June 26, 2000.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
- --------------------------------------------------------------------------------
32 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Class I
Per share income and capital changes(a)
Fiscal period ended July 31, 2004(b)
Net asset value, beginning of period $25.61
Income from investment operations:
Net investment income (loss) .09
Net gains (losses) (both realized and unrealized) (1.60)
Total from investment operations (1.51)
Net asset value, end of period $24.10
Ratios/supplemental data
Net assets, end of period (in millions) $18
Ratio of expenses to average daily net assets(c) .57%(d)
Ratio of net investment income (loss) to average daily net assets .43%(d)
Portfolio turnover rate (excluding short-term securities) 171%
Total return(e) (5.90%)(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.
Class Y
Per share income and capital changes(a)
Fiscal period ended July 31, 2004 2003 2002 2001 2000
Net asset value, beginning of period $23.09 $21.11 $29.96 $ 54.75 $42.37
Income from investment operations:
Net investment income (loss) .07 .04 -- (.07) (.06)
Net gains (losses) (both realized and unrealized) .91 1.94 (8.83) (22.52) 13.22
Total from investment operations .98 1.98 (8.83) (22.59) 13.16
Less distributions:
Distributions from realized gains -- -- (.02) (2.20) (.78)
Net asset value, end of period $24.07 $23.09 $21.11 $ 29.96 $54.75
Ratios/supplemental data
Net assets, end of period (in millions) $350 $398 $481 $974 $1,551
Ratio of expenses to average daily net assets(b) .86% 1.03% .82% .83% .83%
Ratio of net investment income (loss) to average daily net assets .25% .18% .02% (.18%) (.14%)
Portfolio turnover rate (excluding short-term securities) 171% 205% 225% 41% 23%
Total return(c) 4.24% 9.38% (29.48%) (42.04%) 31.20%
(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) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
33 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Report of Independent
Registered Public Accounting Firm
THE BOARD AND SHAREHOLDERS
AXP GROWTH SERIES, INC.
We have audited the accompanying statement of assets and liabilities of AXP
Growth Fund (a series of AXP Growth Series, Inc.) as of July 31, 2004, the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the years in the two-year period ended July
31, 2004, and the financial highlights for each of the years in the five-year
period ended July 31, 2004. These financial statements and the financial
highlights are the responsibility of fund management. Our responsibility is to
express an opinion on these financial statements and the financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AXP
Growth Fund as of July 31, 2004, and the results of its operations, changes in
its net assets and the financial highlights for each of the periods stated in
the first paragraph above, in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
Minneapolis, Minnesota
September 20, 2004
- --------------------------------------------------------------------------------
34 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Fund Expenses Example
(UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and (2) ongoing
costs, including management fees; distribution and service (12b-1) fees; and
other Fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the six months ended July 31, 2004.
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading titled "Expenses paid during the period" to
estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
- --------------------------------------------------------------------------------
35 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Beginning Ending Expenses paid
account value account value during the period
Feb. 1, 2004 July 31, 2004 Feb. 1, 2004-July 31, 2004
Class A
Actual(e) $1,000 $964.60 $4.88(a)
Hypothetical (5% return before expenses) $1,000 $1,019.89 $5.02(a)
Class B
Actual(e) $1,000 $961.00 $8.63(b)
Hypothetical (5% return before expenses) $1,000 $1,016.06 $8.87(b)
Class C
Actual(e) $1,000 $961.00 $8.68(c)
Hypothetical (5% return before expenses) $1,000 $1,016.01 $8.92(c)
Class I(f)
Actual N/A N/A N/A
Hypothetical (5% return before expenses) N/A N/A N/A
Class Y
Actual(e) $1,000 $965.10 $4.06(d)
Hypothetical (5% return before expenses) $1,000 $1,020.74 $4.17(d)
(a) Expenses are equal to the Fund's Class A annualized expense ratio of 1.00%,
multiplied by the average account value over the period, multiplied by
182/366 (to reflect the one-half year period).
(b) Expenses are equal to the Fund's Class B annualized expense ratio of 1.77%,
multiplied by the average account value over the period, multiplied by
182/366 (to reflect the one-half year period).
(c) Expenses are equal to the Fund's Class C annualized expense ratio of 1.78%,
multiplied by the average account value over the period, multiplied by
182/366 (to reflect the one-half year period).
(d) Expenses are equal to the Fund's Class Y annualized expense ratio of 0.83%,
multiplied by the average account value over the period, multiplied by
182/366 (to reflect the one-half year period).
(e) Based on the actual return for the six months ended July 31, 2004: (3.54%)
for Class A, (3.90%) for Class B, (3.90%) for Class C and (3.49%) for Class
Y.
(f) The values and expenses paid are not presented because Class I does not
have a full six months of history. The inception date for Class I was March
4, 2004.
- --------------------------------------------------------------------------------
36 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Board Members and Officers
Shareholders elect a board that oversees the Fund's operations. The board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the board.
The following is a list of the Fund's board members. Each member oversees 14
Master Trust portfolios and 87 American Express mutual funds. Board members
serve until the next regular shareholders' meeting or until he or she reaches
the mandatory retirement age established by the board.
Independent Board Members
Name, address, age Position held with Fund Principal occupation during past Other directorships
and length of service five years
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Arne H. Carlson Board member since 1999 Chair, Board Services
901 S. Marquette Ave. Corporation (provides
Minneapolis, MN 55402 administrative services to
Age 69 boards). Former Governor of
Minnesota
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Philip J. Carroll, Jr. Board member since 2002 Retired Chairman and CEO, Fluor Scottish Power PLC,
901 S. Marquette Ave. Corporation (engineering and Vulcan Materials Company,
Minneapolis, MN 55402 construction) since 1998 Inc. (construction
Age 66 materials/chemicals)
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Livio D. DeSimone Board member since 2001 Retired Chair of the Board and Cargill, Incorporated
0 Seventh Street East Chief Executive Officer, (commodity merchants and
Suite 3050 Minnesota Mining and processors), General
St. Paul, MN 55101-4901 Manufacturing (3M) Mills, Inc. (consumer
Age 70 foods), Vulcan Materials
Company (construction
materials/chemicals),
Milliken & Company
(textiles and chemicals),
and Nexia Biotechnologies,
Inc.
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Anne P. Jones Board member since 1985 Attorney and Consultant
901 S. Marquette Ave.
Minneapolis, MN 55402
Age 69
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Stephen R. Lewis, Jr.* Board member since 2002 Retired President and Professor Valmont Industries, Inc.
901 S. Marquette Ave. of Economics, Carleton College (manufactures irrigation
Minneapolis, MN 55402 systems)
Age 65
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
* Interested person of AXP Partners International Aggressive Growth Fund by
reason of being a security holder of FleetBoston Financial Corporation,
parent company of Columbia Wanger Asset Management, L.P., one of the fund's
subadvisers.
- --------------------------------------------------------------------------------
37 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
Independent Board Members (continued)
Name, address, age Position held with Fund Principal occupation during past Other directorships
and length of service five years
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Alan K. Simpson Board member since 1997 Former three-term United States
1201 Sunshine Ave. Senator for Wyoming
Cody, WY 82414
Age 72
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Alison Taunton-Rigby Board member since 2002 Founder and Chief Executive
901 S. Marquette Ave. Officer, RiboNovix, Inc. since
Minneapolis, MN 55402 2004; President, Forester
Age 60 Biotech since 2000; prior to
that, President and CEO, Aquila
Biopharmaceuticals, Inc.
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Board Member Affiliated with AEFC**
Name, address, age Position held with Fund Principal occupation during past Other directorships
and length of service five years
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
William F. Truscott Board member since Senior Vice President - Chief
53600 AXP Financial Center 2001, Vice President Investment Officer of AEFC since
Minneapolis, MN 55474 since 2002 2001. Former Chief Investment
Age 43 Officer and Managing Director,
Zurich Scudder Investments
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
** Interested person by reason of being an officer, director and/or employee
of AEFC.
- --------------------------------------------------------------------------------
38 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
The board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. The officers serve at the
pleasure of the board. In addition to Mr. Truscott, who is vice president, the
Fund's other officers are:
Other Officers
Name, address, age Position held with Fund Principal occupation during past Other directorships
and length of service five years
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Jeffrey P. Fox Treasurer since 2002 Vice President - Investment
50005 AXP Financial Center Accounting, AEFC, since 2002;
Minneapolis, MN 55474 Vice President - Finance,
Age 49 American Express Company,
2000-2002; Vice President -
Corporate Controller, AEFC,
1996-2000
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Paula R. Meyer President since 2002 Senior Vice President and
596 AXP Financial Center General Manager - Mutual Funds,
Minneapolis, MN 55474 AEFC, since 2002; Vice President
Age 50 and Managing Director - American
Express Funds, AEFC, 2000-2002;
Vice President, AEFC, 1998-2000
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Leslie L. Ogg Vice President, General President of Board Services
901 S. Marquette Ave. Counsel, and Secretary Corporation
Minneapolis, MN 55402 since 1978
Age 65
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
The SAI has additional information about the Fund's directors and is available,
without charge, upon request by calling (800) 862-7919.
Proxy Voting
The policy of the Board is to vote all proxies of the companies in which the
Fund holds investments. The procedures are stated in the Statement of Additional
Information (SAI). You may obtain a copy of the SAI without charge by calling
(800) 862-7919; by looking at the Web site americanexpress.com/funds; or by
searching the Web site of the Securities and Exchange Commission
http://www.sec.gov. You may view the Fund's voting record for all portfolio
companies whose shareholders meetings were completed the previous quarter on
americanexpress.com/funds or obtain a copy by calling the Fund's administrator,
Board Services Corporation, collect at (612) 330-9283. In addition, 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.
- --------------------------------------------------------------------------------
39 -- AXP GROWTH FUND -- 2004 ANNUAL REPORT
(logo)
AMERICAN
EXPRESS
(R)
American Express Funds
70100 AXP Financial Center
Minneapolis, MN 55474
This report must be accompanied or preceded by the Fund's current prospectus.
Distributed by American Express Financial Advisors Inc. Member NASD. American
Express Company is separate from American Express Financial Advisors Inc. and
is not a broker-dealer.
AXP(R)
Large Cap
Equity
Fund
Annual Report
for the Period Ended
July 31, 2004
AXP Large Cap Equity Fund seeks to provide shareholders with long-term growth of
capital.
(logo) (logo)
American AMERICAN
Express(R) EXPRESS
Funds (R)
Table of Contents
Fund Snapshot 3
Questions & Answers
with Portfolio Management 4
The Fund's Long-term Performance 8
Investments in Securities 10
Financial Statements 13
Notes to Financial Statements 17
Report of Independent Registered
Public Accounting Firm 30
Federal Income Tax Information 31
Fund Expenses Example 33
Board Members and Officers 35
Proxy Voting 37
[dalbar logo]
American Express(R) Funds' reports to shareholders have been awarded the
Communications Seal from Dalbar Inc., an independent financial services research
firm. The Seal recognizes communications demonstrating a level of excellence in
the industry.
- --------------------------------------------------------------------------------
2 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Fund Snapshot
AS OF JULY 31, 2004
PORTFOLIO MANAGER
Portfolio manager Since Years in industry
Doug Chase 3/02 12
FUND OBJECTIVE
The Fund seeks to provide shareholders with long-term growth of capital.
Inception dates
A: 3/28/02 B: 3/28/02 C: 3/28/02 Y: 3/28/02
Ticker symbols
A: ALEAX B: ALEBX C: ARQCX Y: ALEYX
Total net assets $1.852 billion
Number of holdings 86
STYLE MATRIX
Shading within the style matrix indicates areas in which the Fund generally
invests.
STYLE
VALUE BLEND GROWTH
X LARGE
MEDIUM SIZE
SMALL
SECTOR COMPOSITION
Percentage of portfolio assets
[pie chart]
Health care 24.6%
Financials 17.7%
Consumer staples 13.5%
Consumer discretionary 12.8%
Technology 11.6%
Energy 7.2%
Industrials 7.1%
Materials 2.2%
Telecommunications 2.0%
Short-term securities 1.3%
TOP TEN HOLDINGS
Percentage of portfolio assets
Pfizer (Health care products) 6.1%
Citigroup (Finance companies) 5.1
Procter & Gamble (Household products) 3.8
Cendant (Media) 3.6
Viacom Cl B (Leisure time & entertainment) 3.5
AmerisourceBergen (Health care services) 3.4
ExxonMobil (Energy) 3.3
Colgate-Palmolive (Household products) 2.8
PepsiCo (Beverages & tobacco) 2.7
Bank of America (Banks and savings & loans) 2.7
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
Stock prices of established companies that pay dividends may be less volatile
than the stock market as a whole.
Fund holdings are subject to change.
- --------------------------------------------------------------------------------
3 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Questions & Answers
WITH PORTFOLIO MANAGEMENT
Below, Portfolio Manager Doug Chase discusses the Fund's positioning and results
for the 2004 fiscal year.
On June 25, 2004, the assets of AXP Blue Chip Advantage Fund and AXP Research
Opportunities Fund were merged into AXP Large Cap Equity Fund. This
reorganization was completed after shareholders approved the plan on June 9,
2004. The integration of the three Funds had minimal effect on Fund performance.
On June 24, AXP Large Cap Equity Fund Class A shareholders of record received a
special distribution of $0.12896 in conjunction with the mergers.
Q: How did the AXP Large Cap Equity Fund perform for the 12 months ended July
31, 2004?
A: AXP Large Cap Equity Fund's Class A shares advanced 7.19%, excluding sales
charge, for the 12 months ended July 31, 2004. The Fund underperformed its
benchmark, the Russell 1000(R) Index, which advanced 13.03% and its peers as
represented by the Lipper Large-Cap Core Funds Index, which gained 10.01%
over the same time frame.
Q: What factors significantly affected performance?
A: While the Fund benefited from the stock market's continued advance, three
major market trends hampered its performance relative to the benchmark.
First, value-oriented stocks significantly outperformed growth stocks during
the year. The Fund invests primarily in companies that we believe will grow
faster than the market's historical earnings growth rate of around 8%.
Second, smaller-capitalization stocks outperformed larger stocks for the
period. This was a disadvantage for the Fund, which essentially focused on
the largest stocks within its benchmark, the Russell 1000 Index. Third, the
market favored lower quality stocks throughout most of the past
(bar chart)
PERFORMANCE COMPARISON
For the year ended July 31, 2004
15% (bar 2)
12% +13.03% (bar 3)
9% (bar 1) +10.01%
6% +7.19%
3%
0%
(bar 1) AXP Large Cap Equity Fund Class A (excluding sales charge)
(bar 2) Russell 1000(R) Index (unmanaged)
(bar 3) Lipper Large-Cap Core Funds Index
(see "The Fund's Long-term Performance" for Index descriptions) Past performance
is no guarantee of future results. The 5.75% sales charge applicable to Class A
shares of the Fund is not reflected in the bar chart; if reflected, returns
would be lower than those shown. The performance of Class B, Class C and Class Y
may vary from that shown above because of differences in expenses.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
- --------------------------------------------------------------------------------
4 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Questions & Answers
(begin callout quote)>The market favored lower quality stocks throughout most of
the past year, while we emphasized higher quality companies with sound balance
sheets and a history of stable growth.(end callout quote)
year, while we emphasized higher quality companies with sound balance sheets
and a history of stable growth.
The significant outperformance of value-oriented stocks continued to impede
the Fund through the end of the fiscal period. However, we were pleased to
see that the outperformance of smaller companies and the market's penchant
for lower quality stocks began to wane toward the end of the Fund's fiscal
period.
AVERAGE ANNUAL TOTAL RETURNS
Class A Class B Class C Class Y
(Inception dates) (3/28/02) (3/28/02) (3/28/02) (3/28/02)
NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) NAV(5) POP(5)
as of July 31, 2004
1 year +7.19% +1.04% +6.48% +2.48% +6.46% +6.46% +7.44% +7.44%
Since inception -1.20% -3.67% -1.99% -3.61% -1.90% -1.90% -1.01% -1.01%
as of June 30, 2004
1 year +12.51% +6.04% +11.60% +7.60% +11.57% +11.57% +12.49% +12.49%
Since inception +0.89% -1.72% +0.10% -1.62% +0.18% +0.18% +1.08% +1.08%
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 will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by calling (888) 723-8476 or visiting
www.americanexpress.com/funds. You should consider the investment objectives,
risks, and charges and expenses of the Fund carefully before investing.
(1) Excluding sales charge.
(2) Returns at public offering price (POP) reflect a sales charge of 5.75%.
(3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as
follows: first year 5%; second and third year 4%; fourth year 3%; fifth
year 2%; sixth year 1%; no sales charge thereafter.
(4) 1% CDSC applies to redemptions made within the first year of purchase.
(5) Sales charge is not applicable to these shares. Shares available to
institutional investors only.
- --------------------------------------------------------------------------------
5 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Questions & Answers
Regarding the Fund's sector positioning, we made a strategic decision at the
start of our fiscal year to emphasize stable growth companies in sectors
such as consumer staples and health care. However, economic growth and
corporate earnings were stronger than anticipated and, as a result, more
economically sensitive sectors such as materials, industrials and technology
outperformed, particularly in the first half of our fiscal period. The
Fund's larger-than-index allocation to health care was disadvantageous in
the first six months of the fiscal period, but the sector's performance
improved in the latter half of the period.
We had moved the Fund to a lower-than-index position in consumer
discretionary stocks prior to the start of the fiscal period. This was a
negative factor in the first half of the fiscal year when the sector
delivered strong relative performance. In the second half, the
lower-than-index weighting in consumer discretionary stocks had a favorable
effect, but was offset by our selection of industries and individual stocks
within the sector. In particular, a larger-than-index position in Viacom and
our avoidance of strong performers eBay and Yahoo! hindered results.
Individual contributors to relative return included real estate, travel
services company Cendant, mortgage broker Countrywide Financial, and
diversified industrial Tyco.
Q: What changes did you make to the portfolio during the period?
A: At the start of our fiscal period, we started to scale back the Fund's
exposure to cyclical stocks. We reduced our allocations to retail stocks and
to the industrial and materials sectors. We were wary of these areas because
we believed the expectations priced into many of these stocks were much too
high. We increased our position in media stocks during the period. Despite
being a cyclical industry, media had not kept pace with the other cyclical
sectors and we believed there was potential for further price appreciation.
Over the course of the year, we took profits in a handful of media stocks
that had been strong performers, including AOL Time Warner, but continued to
hold significant positions in others such as Viacom.
We trimmed some of our position in pharmaceutical firm Wyeth, which had
appreciated considerably, and used a portion of the proceeds to add a
broader mix of pharmaceutical stocks. We also initiated portfolio positions
in the HMO industry. Although the market has been negative about HMOs, these
companies have been regularly beating Wall Street earnings estimates. As for
the health care sector in general, we are cognizant that political issues
could increase volatility; however, we believe potential bad news is already
reflected in the stock prices. We see attractive appreciation opportunities
in this sector because we believe that over
- --------------------------------------------------------------------------------
6 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Questions & Answers
time health care stocks are likely to grow earnings faster than the overall
market. Consequently, we have taken advantage of any weakness to increase
our health care weighting.
After the energy sector's strong performance in December and January, we
reduced the portfolio's energy position. However, we subsequently increased
our holdings of major integrated oil producers.
We eliminated a number of stocks during the past year. We took profits in
defense contractor United Technologies following a run of very strong
performance. We sold Wells Fargo even though we think the money center bank
is well-run, because we considered it expensive and vulnerable to the
negative impact of higher short-term interest rates. We also sold technology
stock Hewlett Packard because the company appears to be facing greater
competition in printers. The Fund held a significant position in Dell, which
we think is better positioned in the printer market.
To summarize our sector positioning at the end of the period, the Fund had
larger-than-index positions in health care and consumer staples, and
smaller-than-index positions in the consumer discretionary, financials,
telecommunications, industrials, materials, utilities and technology
sectors.
Q: How will you manage the Fund in the coming months?
A: Regardless of the economic environment, we adhere to a strategy of
identifying stocks with strong fundamentals, sustainable growth rates and
reasonable valuations. We strive to identify stocks that we believe will
grow faster than the market's historical growth rate, but may be selling at
attractive valuation levels.
Our current view is that stock prices already reflect economic expectations
that may be higher than what actually occurs. Given the inevitable impact of
the Federal Reserve's shift toward higher short-term interest rates, as well
as the possibility of an economic slowdown and an earnings peak, we believe
the type of stocks we hold should begin to perform well. We have recently
seen the market put high-quality and low-quality stocks on a more even
level.
Should economic and earnings growth begin to moderate as we anticipate,
investors are likely to seek alternatives to cyclical and industrial
holdings. We believe health care, consumer staples and stable growth
companies should benefit from such a shift and have positioned the Fund
accordingly.
- --------------------------------------------------------------------------------
7 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
The Fund's Long-term Performance
The chart on the facing page illustrates the total value of an assumed $10,000
investment in AXP Large Cap Equity Fund Class A shares (from 4/1/02 to 7/31/04)
as compared to the performance of two widely cited performance indices, the
Russell 1000(R) Index and the Lipper Large-Cap Core Funds Index. In comparing
the Fund's Class A shares to these indices, you should take into account the
fact that the Fund's performance reflects the maximum sales charge of 5.75%,
while such charges are not reflected in the performance of the indices. Returns
for the Fund include the reinvestment of any distribution paid during each
period.
The performance information shown represents the past performance and is not a
guarantee of future results. The value of your investment and returns will
fluctuate so that your shares, when redeemed, may be worth more or less than
their original cost. Returns do not reflect taxes payable on distributions and
redemptions. Current performance may be lower or higher than the performance
information shown. You may obtain performance information current to the most
recent month-end by calling (888) 723-8476 or visiting
www.americanexpress.com/funds. Also see "Past Performance" in the Fund's current
prospectus. You should consider the investment objectives, risks, and charges
and expenses of the Fund carefully before investing.
DISTRIBUTION SUMMARY
The table below details the Fund's income and capital gain distributions for the
fiscal years shown. More information on the other classes can be found in the
Financial Highlights section of this report's Notes to Financial Statements.
Class A
Short-term Long-term
Fiscal year ended Income capital gains capital gains Total
July 31, 2004 $-- $0.20 $0.02 $0.22
July 31, 2003 -- -- -- 0.00
July 31, 2002(1) -- -- -- 0.00
(1) For the period from March 28, 2002 (when shares became publicly available)
to July 31, 2002.
- --------------------------------------------------------------------------------
8 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
(line graph)
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP LARGE CAP EQUITY FUND
AXP Large Cap Equity Fund Class A
(includes sales charge) $ 9,425 $7,766 $8,546 $ 9,160
Russell 1000(R) Index(1) $10,000 $8,014 $8,911 $10,072
Lipper Large-Cap Core Funds Index(2) $10,000 $8,108 $8,808 $ 9,690
4/1/02 7/02 7/03 7/04
COMPARATIVE RESULTS
Results as of July 31, 2004 Since
1 year inception(3)
AXP Large Cap Equity Fund (includes sales charge)
Class A Cumulative value of $10,000 $10,104 $9,160
Average annual total return +1.04% -3.67%
Russell 1000(R) Index(1)
Cumulative value of $10,000 $11,303 $10,072
Average annual total return +13.03% +0.31%
Lipper Large-Cap Core Funds Index(2)
Cumulative value of $10,000 $11,001 $9,690
Average annual total return +10.01% -1.35%
Results for other share classes can be found on page 5.
(1) The Russell 1000(R) Index, an unmanaged index, measures the performance of
the 1,000 largest companies in the Russell 3000 Index, and represents
approximately 92% of the total market capitalization of the Russell 3000
Index.
(2) The Lipper Large-Cap Core Funds Index, an 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.
(3) Fund data is from March 28, 2002. Index data is from April 1, 2002.
- --------------------------------------------------------------------------------
9 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Investments in Securities
AXP Large Cap Equity Fund
July 31, 2004
(Percentages represent value of investments compared to net assets)
Common stocks (98.6%)
Issuer Shares Value(a)
Aerospace & defense (1.7%)
Empresa Brasileira
de Aeronautica ADR 411,100(c) $11,757,460
Lockheed Martin 163,325 8,654,592
Northrop Grumman 223,428 11,752,313
Total 32,164,365
Banks and savings & loans (3.3%)
Bank of America 580,300 49,331,303
Commerce Bancorp 115,700 5,824,338
Investors Financial Services 119,600 5,463,328
Total 60,618,969
Beverages & tobacco (6.4%)
Altria Group 427,600 20,353,760
Anheuser-Busch Companies 193,500 10,042,650
Coca-Cola 871,050 38,204,253
PepsiCo 995,124 49,756,200
Total 118,356,863
Building materials & construction (0.3%)
Masco 177,800 5,376,672
Cable (0.6%)
NTL 225,469(b) 11,751,444
Cellular telecommunications (1.7%)
Nextel Communications Cl A 639,600(b) 14,557,296
Vodafone Group ADR 790,500(c) 17,177,565
Total 31,734,861
Chemicals (0.8%)
Dow Chemical 375,045 14,960,545
Computer hardware (4.8%)
Cisco Systems 1,994,400(b) 41,603,184
Dell 1,342,400(b) 47,614,928
Total 89,218,112
Computer software & services (4.4%)
Affiliated Computer
Services Cl A 342,700(b) 17,786,130
Microsoft 1,449,800 41,261,308
Oracle 1,521,100(b) 15,986,761
PeopleSoft 381,200(b) 6,869,224
Total 81,903,423
Electronics (2.4%)
Analog Devices 113,500 4,505,950
Broadcom Cl A 126,700(b) 4,480,112
Intel 1,130,700 27,566,466
Taiwan Semiconductor
Mfg ADR 1,068,583(c) 7,608,314
Total 44,160,842
Energy (7.2%)
ChevronTexaco 277,800 26,571,570
ConocoPhillips 210,373 16,571,081
ExxonMobil 1,307,446 60,534,750
Royal Dutch Petroleum ADR 591,600(c) 29,757,480
Total 133,434,881
Finance companies (5.1%)
Citigroup 2,133,308 94,057,550
Financial services (6.0%)
Capital One Financial 210,100 14,564,132
Countrywide Financial 352,398 25,407,896
Fannie Mae 595,497 42,256,467
MBNA 414,827 10,242,079
Utilities Select Sector SPDR Fund 803,900 19,390,068
Total 111,860,642
Health care products (15.5%)
Amgen 85,200(b) 4,846,176
Biogen Idec 225,400(b) 13,524,000
Boston Scientific 182,600(b) 6,986,276
Forest Laboratories 216,600(b) 10,892,814
Genentech 188,324(b) 9,167,612
Gilead Sciences 61,500(b) 3,975,360
Johnson & Johnson 623,650 34,469,136
Medco Health Solutions 942,000(b) 28,542,600
Medtronic 181,800 9,030,006
Merck & Co 410,100 18,598,035
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
10 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Health care products (cont.)
Momenta Pharmaceutical 147,350(b) $1,211,954
Novartis ADR 490,650(c) 21,912,429
Pfizer 3,534,800 112,972,207
Wyeth 236,000 8,354,400
Total 284,483,005
Health care services (9.3%)
Aetna 251,700 21,595,860
AmerisourceBergen 1,158,255 62,615,266
Cardinal Health 473,300 21,061,850
Caremark Rx 298,200(b) 9,095,100
Fisher Scientific Intl 104,900(b) 6,105,180
HCA 261,500 10,106,975
McKesson 771,966 24,834,146
UnitedHealth Group 248,600 15,636,940
Total 171,051,317
Household products (7.1%)
Colgate-Palmolive 988,600 52,593,520
Gillette 236,700 9,226,566
Procter & Gamble 1,343,116 70,043,499
Total 131,863,585
Insurance (3.3%)
ACE 358,647(c) 14,557,482
Allstate 185,200 8,719,216
American Intl Group 273,694 19,336,481
Chubb 263,200 18,102,896
Total 60,716,075
Leisure time & entertainment (3.6%)
Multimedia Games 171,300(b) 3,242,709
Viacom Cl B 1,908,200 64,096,438
Total 67,339,147
Machinery (1.1%)
Caterpillar 207,856 15,275,337
Ingersoll-Rand Cl A 76,900(c) 5,282,261
Total 20,557,598
Media (5.9%)
Cendant 2,914,835 66,691,425
Disney (Walt) 1,821,100 42,049,199
Total 108,740,624
Multi-industry (4.2%)
General Electric 1,444,156 48,018,187
Tyco Intl 984,800(c) 30,528,800
Total 78,546,987
Paper & packaging (0.6%)
Intl Paper 112,900 4,880,667
Weyerhaeuser 104,800 6,497,600
Total 11,378,267
Precious metals (0.5%)
Freeport McMoRan Copper &
Gold Cl B 271,241 9,452,749
Retail -- general (2.6%)
Home Depot 418,400 14,108,448
Target 214,300 9,343,480
Wal-Mart Stores 473,700 25,110,837
Total 48,562,765
Telecom equipment & services (0.2%)
Motorola 1,200 19,116
Nokia ADR 396,300(c) 4,605,006
Total 4,624,122
Total common stocks
(Cost: $1,857,738,532) $1,826,915,410
Short-term securities (1.3%)
Issuer Effective Amount Value(a)
yield payable at
maturity
U.S. government agencies (0.8%)
Federal Natl Mtge Assn Disc Nts
08-13-04 1.28% $900,000 $899,552
08-25-04 1.31 1,100,000 1,098,959
09-20-04 1.36 2,000,000 1,996,079
09-22-04 1.31 10,000,000 9,980,321
Total 13,974,911
Commercial paper (0.5%)
Fairway Finance
08-18-04 1.35 3,800,000 3,797,293
Swedbank (ForeningsSparbanken)
08-23-04 1.38 5,300,000(c) 5,295,123
Total 9,092,416
Total short-term securities
(Cost: $23,067,631) $23,067,327
Total investments in securities
(Cost: $1,880,806,163)(d) $1,849,982,737
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
11 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated. As of July 31,
2004, the value of foreign securities represented 8.0% of net assets.
(d) At July 31, 2004, the cost of securities for federal income tax purposes
was $1,916,814,225 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $ 64,841,529
Unrealized depreciation (131,673,017)
------------
Net unrealized depreciation $ (66,831,488)
-------------
How to find information about the Fund's portfolio holdings
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's
Public Reference Room in Washington, DC (information on the operations of
the Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at www.americanexpress.com/funds.
- --------------------------------------------------------------------------------
12 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Financial Statements
Statement of assets and liabilities
AXP Large Cap Equity Fund
July 31, 2004
Assets
Investments in securities, at value (Note 1)
(identified cost $1,880,806,163) $ 1,849,982,737
Capital shares receivable 262,334
Dividends and accrued interest receivable 2,274,997
Receivable for investment securities sold 31,109,269
----------
Total assets 1,883,629,337
-------------
Liabilities
Disbursements in excess of cash on demand deposit 353,667
Capital shares payable 266,038
Payable for investment securities purchased 30,385,691
Accrued investment management services fee 29,785
Accrued distribution fee 24,443
Accrued service fee 20
Accrued transfer agency fee 12,238
Accrued administrative services fee 2,414
Other accrued expenses 222,522
-------
Total liabilities 31,296,818
----------
Net assets applicable to outstanding capital stock $ 1,852,332,519
===============
Represented by
Capital stock -- $.01 par value (Note 1) $ 4,013,006
Additional paid-in capital 2,939,891,294
Undistributed net investment income 209,548
Accumulated net realized gain (loss) (Note 7) (1,060,957,903)
Unrealized appreciation (depreciation) on investments (30,823,426)
-----------
Total -- representing net assets applicable to outstanding capital stock $ 1,852,332,519
===============
Net assets applicable to outstanding shares: Class A $ 1,247,790,901
Class B $ 571,677,372
Class C $ 10,904,264
Class I $ 14,459,564
Class Y $ 7,500,418
Net asset value per share of outstanding capital stock: Class A shares 268,844,264 $ 4.64
Class B shares 125,365,561 $ 4.56
Class C shares 2,386,928 $ 4.57
Class I shares 3,094,279 $ 4.67
Class Y shares 1,609,548 $ 4.66
--------- ---------------
See accompanying notes to financial statements.
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13 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Statement of operations
AXP Large Cap Equity Fund
Year ended July 31, 2004
Investment income
Income:
Dividends $ 6,345,919
Interest 137,408
Less foreign taxes withheld (98,416)
-------
Total income 6,384,911
---------
Expenses (Note 2):
Investment management services fee 2,441,621
Distribution fee
Class A 688,355
Class B 1,291,172
Class C 53,881
Transfer agency fee 796,191
Incremental transfer agency fee
Class A 56,869
Class B 48,270
Class C 2,106
Service fee -- Class Y 796
Administrative services fees and expenses 212,114
Compensation of board members 9,463
Custodian fees 280,632
Printing and postage 100,300
Registration fees 77,313
Audit fees 23,000
Other 5,453
-----
Total expenses 6,087,536
Expenses waived/reimbursed by AEFC (Note 2) (102,210)
--------
5,985,326
Earnings credits on cash balances (Note 2) (2,134)
------
Total net expenses 5,983,192
---------
Investment income (loss) -- net 401,719
-------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on security transactions (Note 3) 12,441,166
Net change in unrealized appreciation (depreciation) on investments (66,709,001)
-----------
Net gain (loss) on investments (54,267,835)
-----------
Net increase (decrease) in net assets resulting from operations $(53,866,116)
============
See accompanying notes to financial statements.
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14 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Statements of changes in net assets
AXP Large Cap Equity Fund
Year ended July 31, 2004 2003
Operations and distributions
Investment income (loss) -- net $ 401,719 $ (820)
Net realized gain (loss) on security transactions 12,441,166 1,719,341
Net change in unrealized appreciation (depreciation) on investments (66,709,001) 7,080,694
----------- ---------
Net increase (decrease) in net assets resulting from operations (53,866,116) 8,799,215
----------- ---------
Distributions to shareholders from:
Net investment income
Class A (190,447) (27,013)
Class Y (99) (21)
Net realized gain
Class A (10,249,150) --
Class B (4,251,044) --
Class C (267,748) --
Class I (411,555) --
Class Y (29,079) --
----------- -------
Total distributions (15,399,122) (27,034)
----------- -------
See accompanying notes to financial statements.
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15 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Statements of changes in net assets (continued)
AXP Large Cap Equity Fund
Year ended July 31, 2004 2003
Capital share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) $ 303,658,868 $ 72,641,134
Class B shares 83,846,079 31,826,112
Class C shares 5,258,048 1,776,439
Class I shares 20,944,518 --
Class Y shares 8,142,956 35,963
Fund merger (Note 6)
Class A shares 942,709,419 --
Class B shares 589,683,135 --
Class C shares 4,576,296 --
Class Y shares 11,200 --
Reinvestment of distributions at net asset value
Class A shares 10,345,503 25,435
Class B shares 4,192,636 --
Class C shares 257,935 --
Class I shares 411,300 --
Class Y shares 28,728 13
Payments for redemptions
Class A shares (50,748,072) (6,855,152)
Class B shares (Note 2) (115,514,441) (4,072,868)
Class C shares (Note 2) (911,625) (107,435)
Class I shares (5,803,591) --
Class Y shares (413,179) (1,872)
-------- ------
Increase (decrease) in net assets from capital share transactions 1,800,675,713 95,267,769
------------- ----------
Total increase (decrease) in net assets 1,731,410,475 104,039,950
Net assets at beginning of year 120,922,044 16,882,094
----------- ----------
Net assets at end of year $1,852,332,519 $120,922,044
============== ============
Undistributed net investment income $ 209,548 $ --
-------------- ------------
See accompanying notes to financial statements.
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16 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Notes to Financial Statements
AXP Large Cap Equity Fund
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a series of AXP Growth Series, Inc. and is registered under the
Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company. AXP Growth Series, Inc. has 10 billion authorized
shares of capital stock that can be allocated among the separate series as
designated by the board. The Fund invests primarily in equity securities of
companies with a market capitalization greater than $5 billion at the time of
purchase.
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 July 31, 2004, American
Express Financial Corporation (AEFC) and the AXP Portfolio Builder Series funds
owned 100% of Class I shares, which represents 0.78% of the Fund's net assets.
All classes of shares have identical voting, dividend and liquidation rights.
The distribution fee, incremental transfer agency fee and service fee (class
specific expenses) differ among classes. Income, expenses (other than class
specific expenses) and realized and unrealized gains or losses on investments
are allocated to each class of shares based upon its relative net assets.
The Fund's significant accounting policies are summarized below:
Use of estimates
Preparing financial statements that conform to accounting principles generally
accepted in the United States of America requires management to make estimates
(e.g., on assets, liabilities and contingent assets and liabilities) that could
differ from actual results.
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17 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Valuation of securities
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
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 these 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 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.
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18 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Futures transactions
To gain exposure to or protect itself from market changes, the Fund may buy and
sell financial futures contracts traded on any U.S. or foreign exchange. The
Fund also may buy and write put and call options on these futures contracts.
Risks of entering into futures contracts and related options include the
possibility of an illiquid market and that a change in the value of the contract
or option may not correlate with changes in the value of the underlying
securities.
Upon entering into a futures contract, the Fund is required to deposit either
cash or securities in an amount (initial margin) equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Fund each day. The variation margin payments are equal to the
daily changes in the contract value and are recorded as unrealized gains and
losses. The Fund recognizes a realized gain or loss when the contract is closed
or expires.
Foreign currency translations and foreign currency contracts
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars. Foreign currency amounts related to the
purchase or sale of securities and income and expenses are translated at the
exchange rate on the transaction date. The effect of changes in foreign exchange
rates on realized and unrealized security gains or losses is reflected as a
component of such gains or losses. In the statement of operations, net realized
gains or losses from foreign currency transactions, if any, may arise from sales
of foreign currency, closed forward contracts, exchange gains or losses realized
between the trade date and settlement date on securities transactions, and other
translation gains or losses on dividends, interest income and foreign
withholding taxes.
The Fund may enter into forward foreign currency exchange contracts for
operational purposes. The net U.S. dollar value of foreign currency underlying
all contractual commitments held by the Fund and the resulting unrealized
appreciation or depreciation are determined using foreign currency exchange
rates from an independent pricing service. The Fund is subject to the credit
risk that the other party will not complete its contract obligations.
Federal taxes
The Fund's policy is to comply with all sections of the Internal Revenue Code
that apply to regulated investment companies and to distribute substantially all
of its taxable income to shareholders. No provision for income or excise taxes
is thus required.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of deferred losses on
certain futures contracts, the recognition of certain foreign currency gains
(losses) as ordinary income (loss) for tax purposes and losses deferred due to
"wash sale" transactions. The character of distributions made during the year
from net investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the year that the income or realized gains (losses) were recorded by
the Fund.
On the statement of assets and liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income has been decreased by $1,625
and accumulated net realized loss has been decreased by $903 resulting in a net
reclassification adjustment to increase paid-in capital by $722.
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19 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
The tax character of distributions paid for the years indicated is as follows:
Year ended July 31, 2004 2003
Class A
Distributions paid from:
Ordinary income $9,388,916 $27,013
Long-term capital gain 1,050,681 --
Class B
Distributions paid from:
Ordinary income 3,818,774 --
Long-term capital gain 432,270 --
Class C
Distributions paid from:
Ordinary income 240,898 --
Long-term capital gain 26,850 --
Class I*
Distributions paid from:
Ordinary income 350,249 N/A
Long-term capital gain 61,306 N/A
Class Y
Distributions paid from:
Ordinary income 25,037 21
Long-term capital gain 4,141 --
* Inception date was March 4, 2004.
As of July 31, 2004, the components of distributable earnings on a tax basis are
as follows:
Undistributed ordinary income $ 942,993
Accumulated long-term gain (loss) $ 1,648,977
Unrealized appreciation (depreciation) $(1,094,163,751)
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. On June 24, 2004, an additional
dividend was paid before the merger to ensure that current shareholders of AXP
Large Cap Equity Fund would not experience a dilution in their share of the
Fund's income or capital gains.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date and interest income,
including amortization of premium, market discount and original issue discount
using the effective interest method, is accrued daily.
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20 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
2. EXPENSES AND SALES CHARGES
The Fund has agreements with AEFC to manage its portfolio and provide
administrative services. Under an Investment Management Services Agreement, AEFC
determines which securities will be purchased, held or sold. The management fee
is a percentage of the Fund's average daily net assets in reducing percentages
from 0.60% to 0.48% annually. The fee may be adjusted upward or downward by a
performance incentive adjustment based on a comparison of the performance of
Class A shares of the Fund to the Lipper Large-Cap Core Funds Index. The maximum
adjustment is 0.12% per year. If the performance difference is less than 0.50%,
the adjustment will be zero. The adjustment decreased the fee by $25,769 for the
year ended July 31, 2004. In addition, AEFC has contractually agreed to waive
0.05% of the management fees through July 31, 2005.
Under an Administrative Services Agreement, the Fund pays AEFC a fee for
administration and accounting services at a percentage of the Fund's average
daily net assets in reducing percentages from 0.05% to 0.02% annually. A minor
portion of additional administrative service expenses paid by the Fund are
consultants' fees and fund office expenses. Under this agreement, the Fund also
pays taxes, audit and certain legal fees, registration fees for shares,
compensation of board members, corporate filing fees and any other expenses
properly payable by the Fund and approved by the board.
Under a Deferred Compensation Plan (the Plan), non-interested board members may
defer receipt of their compensation. Deferred amounts are treated as though
equivalent dollar amounts had been invested in shares of the Fund or other
American Express mutual funds. The Fund's liability for these amounts is
adjusted for market value changes and remains in the Fund until distributed in
accordance with the Plan.
Under a separate Transfer Agency Agreement, American Express Client Service
Corporation (AECSC) maintains shareholder accounts and records. The Fund pays
AECSC an annual fee per shareholder account for this service as follows:
o Class A $19.50
o Class B $20.50
o Class C $20.00
o Class Y $17.50
The incremental transfer agency fee is the amount charged to the specific
classes for the additional expense above the fee for Class Y.
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.
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.
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21 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for
service provided to shareholders by financial advisors and other servicing
agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net
assets attributable to Class Y shares.
Sales charges received by the Distributor for distributing Fund shares were
$2,433,798 for Class A, $111,016 for Class B and $2,425 for Class C for the year
ended July 31, 2004.
Under an agreement, effective until July 31, 2004, AEFC and its affiliates
agreed to waive certain fees and expenses such that net expenses would not
exceed 1.25% for Class A, 2.01% for Class B, 2.01% for Class C, 0.93% for Class
I and 1.07% for Class Y of the Fund's average daily net assets. Beginning June
10, 2004, AEFC contractually agreed to waive 0.05% of the management fee through
July 31, 2005.
For the year ended July 31, 2004, AEFC and its affiliates waived certain fees
and expenses to 1.20% for Class A, 1.95% for Class B, 1.98% for Class C, 0.71%
for Class I and 1.00% for Class Y.
During the year ended July 31, 2004, the Fund's custodian and transfer agency
fees were reduced by $2,134 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 $2,236,760,336 (including $1,323,493,648 from AXP Blue
Chip Advantage Fund and $195,865,122 from AXP Research Opportunities Fund that
were acquired in the fund merger as described in Note 6) and $495,774,461,
respectively, for the year ended July 31, 2004. Realized gains and losses are
determined on an identified cost basis.
Brokerage clearing fees paid to brokers affiliated with AEFC were $6,644 for the
year ended July 31, 2004.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the years indicated are as follows:
Year ended July 31, 2004
Class A Class B Class C Class I* Class Y
Sold 63,776,788 17,608,704 1,105,201 4,261,085 1,674,757
Fund merger 195,139,277 124,164,313 961,940 -- 2,310
Issued for reinvested distributions 2,127,178 875,289 53,736 83,939 5,876
Redeemed (10,573,028) (25,212,059) (190,776) (1,250,745) (86,872)
----------- ----------- -------- ---------- -------
Net increase (decrease) 250,470,215 117,436,247 1,930,101 3,094,279 1,596,071
----------- ----------- --------- --------- ---------
* Inception was March 4, 2004.
Year ended July 31, 2003
Class A Class B Class C Class I Class Y
Sold 17,273,053 7,641,133 426,869 N/A 8,203
Issued for reinvested distributions 6,391 -- -- N/A 3
Redeemed (1,688,951) (977,921) (25,450) N/A (400)
----------- ----------- --------- --------- ---------
Net increase (decrease) 15,590,493 6,663,212 401,419 N/A 7,806
----------- ----------- --------- --------- ---------
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22 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
5. BANK BORROWINGS
The Fund has a revolving credit agreement with a syndicate of banks headed by
Deutsche Bank, whereby the Fund is permitted to have bank borrowings for
temporary or emergency purposes to fund shareholder redemptions. The Fund must
maintain asset coverage for borrowings of at least 300%. The agreement, which
enables the Fund to participate with other American Express mutual funds,
permits borrowings up to $500 million, collectively. Interest is charged to each
Fund based on its borrowings at a rate equal to either the LIBOR plus 0.50%, the
IBOR plus 0.50% or the higher of the Federal Funds Rate plus 0.25% and the Prime
Lending Rate. Borrowings are payable within 60 days after such loan is executed.
The Fund also pays a commitment fee equal to its pro rata share of the amount of
the credit facility at a rate of 0.09% per annum. The Fund had no borrowings
outstanding during the year ended July 31, 2004.
6. FUND MERGER
At the close of business on June 25, 2004, AXP Large Cap Equity Fund acquired
the assets and assumed the identified liabilities of AXP Blue Chip Advantage
Fund and AXP Research Opportunities Fund. This reorganization was completed
after shareholders approved the plan on June 9, 2004.
The aggregate net assets of AXP Large Cap Equity Fund immediately before the
acquisition was $404,994,552 and the combined net assets immediately after the
acquisition was $1,941,974,602.
The merger was accomplished by a tax-free exchange of the following:
Shares Value
AXP Blue Chip Advantage Fund 171,778,024 $1,331,930,990
AXP Research Opportunities Fund 45,469,648 205,049,060
In exchange for the AXP Blue Chip Advantage Fund and AXP Research Opportunities
Fund shares and net assets, AXP Large Cap Equity Fund issued the following
number of shares:
Shares
Class A 195,139,277
Class B 124,164,313
Class C 961,940
Class Y 2,310
AXP Blue Chip Advantage Fund's and AXP Research Opportunities Fund's net assets
after adjustments for any permanent book-to-tax differences at the merger date
were as follows, which include the following amounts of capital stock,
unrealized appreciation, and accumulated net realized loss.
Total net Capital Unrealized Accumulated
assets stock appreciation net realized loss
AXP Blue Chip Advantage Fund $1,331,930,990 $2,300,150,539 $20,542,743 $(988,762,292)
AXP Research Opportunities Fund 205,049,060 265,819,324 9,544,965 (70,315,229)
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23 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
7. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, the Fund has a capital loss carry-over of
$1,027,332,263 that if not offset by future capital gains realized after July
31, 2004 will expire as follows:
2008 2009 2010 2011
$580,153,257 $416,711,846 $20,988,174 $9,478,986
AXP Large Cap Equity Fund acquired $1,028,552,364 of capital loss carry-overs in
connection with the AXP Blue Chip Advantage Fund and AXP Research Opportunities
Fund merger (Note 6). In addition to the acquired capital loss carry-overs, the
Fund also acquired unrealized capital gains as a result of the mergers. The
yearly utilization of the acquired capital losses as well as the utilization of
the acquired unrealized losses is limited by the Internal Revenue Code. 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.
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24 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
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 July 31, 2004 2003 2002(b)
Net asset value, beginning of period $4.53 $4.11 $5.00
Income from investment operations:
Net investment income (loss) .01 .01 --
Net gains (losses) (both realized and unrealized) .32 .41 (.89)
Total from investment operations .33 .42 (.89)
Less distributions:
Distributions from realized gains (.22) -- --
Net asset value, end of period $4.64 $4.53 $4.11
Ratios/supplemental data
Net assets, end of period (in millions) $1,248 $83 $11
Ratio of expenses to average daily net assets(c),(e) 1.20% 1.25% 1.25%(d)
Ratio of net investment income (loss) to average daily net assets .36% .24% (.11%)(d)
Portfolio turnover rate (excluding short-term securities) 99% 135% 88%
Total return(f) 7.19% 10.22% (17.80%)(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from March 28, 2002 (when shares became publicly available)
to July 31, 2002.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratios of expenses for Class A would have been 1.23%, 1.84% and
5.12% for the periods ended July 31, 2004, 2003 and 2002, respectively.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
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25 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Class B
Per share income and capital changes(a)
Fiscal period ended July 31, 2004 2003 2002(b)
Net asset value, beginning of period $4.48 $4.10 $5.00
Income from investment operations:
Net investment income (loss) (.01) (.01) (.01)
Net gains (losses) (both realized and unrealized) .31 .39 (.89)
Total from investment operations .30 .38 (.90)
Less distributions:
Distributions from realized gains (.22) -- --
Net asset value, end of period $4.56 $4.48 $4.10
Ratios/supplemental data
Net assets, end of period (in millions) $572 $36 $5
Ratio of expenses to average daily net assets(c),(e) 1.95% 2.01% 2.01%(d)
Ratio of net investment income (loss) to average daily net assets (.46%) (.52%) (.86%)(d)
Portfolio turnover rate (excluding short-term securities) 99% 135% 88%
Total return(f) 6.48% 9.27% (18.00%)(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from March 28, 2002 (when shares became publicly available)
to July 31, 2002.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratios of expenses for Class B would have been 1.98%, 2.60% and
5.88% for the periods ended July 31, 2004, 2003 and 2002, respectively.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
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26 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Class C
Per share income and capital changes(a)
Fiscal period ended July 31, 2004 2003 2002(b)
Net asset value, beginning of period $4.49 $4.10 $5.00
Income from investment operations:
Net investment income (loss) (.01) (.01) (.01)
Net gains (losses) (both realized and unrealized) .31 .40 (.89)
Total from investment operations .30 .39 (.90)
Less distributions:
Distributions from realized gains (.22) -- --
Net asset value, end of period $4.57 $4.49 $4.10
Ratios/supplemental data
Net assets, end of period (in millions) $11 $2 $--
Ratio of expenses to average daily net assets(c),(e) 1.98% 2.01% 2.01%(d)
Ratio of net investment income (loss) to average daily net assets (.43%) (.53%) (.92%)(d)
Portfolio turnover rate (excluding short-term securities) 99% 135% 88%
Total return(f) 6.46% 9.51% (18.00%)(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from March 28, 2002 (when shares became publicly available)
to July 31, 2002.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratios of expenses for Class C would have been 2.01%, 2.60% and
5.88% for the periods ended July 31, 2004, 2003 and 2002, respectively.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
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27 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Class I
Per share income and capital changes(a)
Fiscal period ended July 31, 2004(b)
Net asset value, beginning of period $5.08
Income from investment operations:
Net gains (losses) (both realized and unrealized) (.28)
Less distributions:
Distributions from realized gains (.13)
Net asset value, end of period $4.67
Ratios/supplemental data
Net assets, end of period (in millions) $14
Ratio of expenses to average daily net assets(c),(e) .71%(d)
Ratio of net investment income (loss) to average daily net assets .74%(d)
Portfolio turnover rate (excluding short-term securities) 99%
Total return(f) (5.65%)(g)
(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) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratio of expenses for Class I would have been 0.72% for the
period ended July 31, 2004.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- --------------------------------------------------------------------------------
28 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Class Y
Per share income and capital changes(a)
Fiscal period ended July 31, 2004 2003 2002(b)
Net asset value, beginning of period $4.54 $4.11 $5.00
Income from investment operations:
Net investment income (loss) .01 .01 --
Net gains (losses) (both realized and unrealized) .34 .42 (.89)
Total from investment operations .35 .43 (.89)
Less distributions:
Dividends from net investment income (.01) -- --
Distributions from realized gains (.22) -- --
Total distributions (.23) -- --
Net asset value, end of period $4.66 $4.54 $4.11
Ratios/supplemental data
Net assets, end of period (in millions) $8 $-- $--
Ratio of expenses to average daily net assets(c),(e) 1.00% 1.07% 1.07%(d)
Ratio of net investment income (loss) to average daily net assets .50% .45% .09%(d)
Portfolio turnover rate (excluding short-term securities) 99% 135% 88%
Total return(f) 7.44% 10.46% (17.80%)(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from March 28, 2002 (when shares became publicly available)
to July 31, 2002.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratios of expenses for Class Y would have been 1.03%, 1.66% and
4.94% for the periods ended July 31, 2004, 2003 and 2002, respectively.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
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29 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Report of Independent
Registered Public Accounting Firm
THE BOARD AND SHAREHOLDERS
AXP GROWTH SERIES, INC.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of AXP Large Cap Equity Fund (a
series of AXP Growth Series, Inc.) as of July 31, 2004, the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period ended July 31, 2004, and the financial
highlights for each of the years in the two-year period ended July 31, 2004 and
for the period from March 28, 2002 (when shares became publicly available) to
July 31, 2002. These financial statements and the financial highlights are the
responsibility of fund management. Our responsibility is to express an opinion
on these financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 2004, by correspondence with the custodian and
brokers or by other appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AXP
Large Cap Equity Fund as of July 31, 2004, and the results of its operations,
changes in its net assets and the financial highlights for each of the periods
stated in the first paragraph above, in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Minneapolis, Minnesota
September 20, 2004
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30 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Federal Income Tax Information
(UNAUDITED)
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its fiscal
year. The dividends listed below are reported to you on Form 1099-DIV, Dividends
and Distributions. Shareholders should consult a tax advisor on how to report
distributions for state and local tax purposes.
AXP Large Cap Equity Fund
Fiscal year ended July 31, 2004
Class A
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 44.25%
Dividends Received Deduction for corporations 44.00%
Payable date Per share
Dec. 18, 2003 $0.09465
June 24, 2004 0.10975
Total $0.20440
Capital gain distribution -- taxable as long-term capital gain.
Payable date Per share
June 24, 2004 $0.01921
Total distributions $0.22361
Class B
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 44.25%
Dividends Received Deduction for corporations 44.00%
Payable date Per share
Dec. 18, 2003 $0.08939
June 24, 2004 0.10975
Total $0.19914
Capital gain distribution -- taxable as long-term capital gain.
Payable date Per share
June 24, 2004 $0.01921
Total distributions $0.21835
- --------------------------------------------------------------------------------
31 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Class C
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 44.25%
Dividends Received Deduction for corporations 44.00%
Payable date Per share
Dec. 18, 2003 $0.08939
June 24, 2004 0.10975
Total $0.19914
Capital gain distribution -- taxable as long-term capital gain.
Payable date Per share
June 24, 2004 $0.01921
Total distributions $0.21835
Class I
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 44.25%
Dividends Received Deduction for corporations 44.00%
Payable date Per share
June 24, 2004 $0.10975
Capital gain distribution -- taxable as long-term capital gain.
Payable date Per share
June 24, 2004 $0.01921
Total distributions $0.12896
Class Y
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 44.25%
Dividends Received Deduction for corporations 44.00%
Payable date Per share
Dec. 18, 2003 $0.09635
June 24, 2004 0.10975
Total $0.20610
Capital gain distribution -- taxable as long-term capital gain.
Payable date Per share
June 24, 2004 $0.01921
Total distributions $0.22531
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32 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Fund Expenses Example
(UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and (2) ongoing
costs, including management fees; distribution and service (12b-1) fees; and
other Fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the six months ended July 31, 2004.
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading titled "Expenses paid during the period" to
estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
- --------------------------------------------------------------------------------
33 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Beginning Ending Expenses paid
account value account value during the period
Feb. 1, 2004 July 31, 2004 Feb. 1, 2004-July 31, 2004
Class A
Actual(e) $1,000 $958.30 $5.75(a),(g)
Hypothetical (5% return before expenses) $1,000 $1,019.00 $5.92(a),(g)
Class B
Actual(e) $1,000 $955.70 $9.43(b),(g)
Hypothetical (5% return before expenses) $1,000 $1,015.22 $9.72(b),(g)
Class C
Actual(e) $1,000 $955.80 $9.53(c),(g)
Hypothetical (5% return before expenses) $1,000 $1,015.12 $9.82(c),(g)
Class I(f)
Actual N/A N/A N/A
Hypothetical (5% return before expenses) N/A N/A N/A
Class Y
Actual(e) $1,000 $960.40 $4.87(d),(g)
Hypothetical (5% return before expenses) $1,000 $1,019.89 $5.02(d),(g)
(a) Expenses are equal to the Fund's Class A annualized expense ratio of 1.18%,
multiplied by the average account value over the period, multiplied by
182/366 (to reflect the one-half year period).
(b) Expenses are equal to the Fund's Class B annualized expense ratio of 1.94%,
multiplied by the average account value over the period, multiplied by
182/366 (to reflect the one-half year period).
(c) Expenses are equal to the Fund's Class C annualized expense ratio of 1.96%,
multiplied by the average account value over the period, multiplied by
182/366 (to reflect the one-half year period).
(d) Expenses are equal to the Fund's Class Y annualized expense ratio of 1.00%,
multiplied by the average account value over the period, multiplied by
182/366 (to reflect the one-half year period).
(e) Based on the actual return for the six months ended July 31, 2004: (4.17%)
for Class A, (4.43%) for Class B, (4.42%) for Class C and (3.96%) for Class
Y.
(f) The values and expenses paid are not presented because Class I does not
have a full six months of history. The inception date for Class I was March
4, 2004.
(g) AEFC has contractually agreed to waive 0.05% of the management fees for
this Fund through July 31, 2005. If the waiver had been in effect for the
entire six-month period ended July 31, 2004, the expenses would have been
the same as those presented above.
- --------------------------------------------------------------------------------
34 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Board Members and Officers
Shareholders elect a board that oversees the Fund's operations. The board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the board.
The following is a list of the Fund's board members. Each member oversees 14
Master Trust portfolios and 87 American Express mutual funds. Board members
serve until the next regular shareholders' meeting or until he or she reaches
the mandatory retirement age established by the board.
Independent Board Members
Name, address, age Position held with Fund Principal occupation during past Other directorships
and length of service five years
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Arne H. Carlson Board member since 1999 Chair, Board Services
901 S. Marquette Ave. Corporation (provides
Minneapolis, MN 55402 administrative services to
Age 69 boards). Former Governor of
Minnesota
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Philip J. Carroll, Jr. Board member since 2002 Retired Chairman and CEO, Fluor Scottish Power PLC,
901 S. Marquette Ave. Corporation (engineering and Vulcan Materials Company,
Minneapolis, MN 55402 construction) since 1998 Inc. (construction
Age 66 materials/chemicals)
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Livio D. DeSimone Board member since 2001 Retired Chair of the Board and Cargill, Incorporated
0 Seventh Street East Chief Executive Officer, (commodity merchants and
Suite 3050 Minnesota Mining and processors), General
St. Paul, MN 55101-4901 Manufacturing (3M) Mills, Inc. (consumer
Age 70 foods), Vulcan Materials
Company (construction
materials/chemicals),
Milliken & Company
(textiles and chemicals),
and Nexia Biotechnologies,
Inc.
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Anne P. Jones Board member since 1985 Attorney and Consultant
901 S. Marquette Ave.
Minneapolis, MN 55402
Age 69
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Stephen R. Lewis, Jr.* Board member since 2002 Retired President and Professor Valmont Industries, Inc.
901 S. Marquette Ave. of Economics, Carleton College (manufactures irrigation
Minneapolis, MN 55402 systems)
Age 65
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
* Interested person of AXP Partners International Aggressive Growth Fund by
reason of being a security holder of FleetBoston Financial Corporation,
parent company of Columbia Wanger Asset Management, L.P., one of the fund's
subadvisers.
- --------------------------------------------------------------------------------
35 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
Independent Board Members (continued)
Name, address, age Position held with Fund Principal occupation during past Other directorships
and length of service five years
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Alan K. Simpson Board member since 1997 Former three-term United States
1201 Sunshine Ave. Senator for Wyoming
Cody, WY 82414
Age 72
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Alison Taunton-Rigby Board member since 2002 Founder and Chief Executive
901 S. Marquette Ave. Officer, RiboNovix, Inc. since
Minneapolis, MN 55402 2004; President, Forester
Age 60 Biotech since 2000; prior to
that, President and CEO, Aquila
Biopharmaceuticals, Inc.
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Board Member Affiliated with AEFC**
Name, address, age Position held with Fund Principal occupation during past Other directorships
and length of service five years
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
William F. Truscott Board member since Senior Vice President - Chief
53600 AXP Financial Center 2001, Vice President Investment Officer of AEFC since
Minneapolis, MN 55474 since 2002 2001. Former Chief Investment
Age 43 Officer and Managing Director,
Zurich Scudder Investments
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
** Interested person by reason of being an officer, director and/or employee
of AEFC.
- --------------------------------------------------------------------------------
36 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
The board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. The officers serve at the
pleasure of the board. In addition to Mr. Truscott, who is vice president, the
Fund's other officers are:
Other Officers
Name, address, age Position held with Fund Principal occupation during past Other directorships
and length of service five years
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Jeffrey P. Fox Treasurer since 2002 Vice President - Investment
50005 AXP Financial Center Accounting, AEFC, since 2002;
Minneapolis, MN 55474 Vice President - Finance,
Age 49 American Express Company,
2000-2002; Vice President -
Corporate Controller, AEFC,
1996-2000
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Paula R. Meyer President since 2002 Senior Vice President and
596 AXP Financial Center General Manager - Mutual Funds,
Minneapolis, MN 55474 AEFC, since 2002; Vice President
Age 50 and Managing Director - American
Express Funds, AEFC, 2000-2002;
Vice President, AEFC, 1998-2000
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Leslie L. Ogg Vice President, General President of Board Services
901 S. Marquette Ave. Counsel, and Secretary Corporation
Minneapolis, MN 55402 since 1978
Age 65
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
The SAI has additional information about the Fund's directors and is available,
without charge, upon request by calling (800) 862-7919.
Proxy Voting
The policy of the Board is to vote all proxies of the companies in which the
Fund holds investments. The procedures are stated in the Statement of Additional
Information (SAI). You may obtain a copy of the SAI without charge by calling
(800) 862-7919; by looking at the Web site americanexpress.com/funds; or by
searching the Web site of the Securities and Exchange Commission
http://www.sec.gov. You may view the Fund's voting record for all portfolio
companies whose shareholders meetings were completed the previous quarter on
americanexpress.com/funds or obtain a copy by calling the Fund's administrator,
Board Services Corporation, collect at (612) 330-9283. In addition, 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.
- --------------------------------------------------------------------------------
37 --- AXP LARGE CAP EQUITY FUND --- 2004 ANNUAL REPORT
(logo)
AMERICAN
EXPRESS
(R)
American Express Funds
70100 AXP Financial Center
Minneapolis, MN 55474
This report must be accompanied or preceded by the Fund's current prospectus.
Distributed by American Express Financial Advisors Inc. Member NASD. American
Express Company is separate from American Express Financial Advisors Inc. and
is not a broker-dealer.
AXP(R)
Large Cap
Value
Fund
Annual Report
for the Period Ended
July 31, 2004
AXP Large Cap Value Fund seeks to provide shareholders with long-term growth of
capital.
(logo) (logo)
American AMERICAN
Express(R) EXPRESS
Funds (R)
Table of Contents
Fund Snapshot 3
Questions & Answers
with Portfolio Management 4
The Fund's Long-term Performance 8
Investments in Securities 10
Financial Statements 14
Notes to Financial Statements 17
Report of Independent Registered
Public Accounting Firm 28
Federal Income Tax Information 29
Fund Expenses Example 31
Board Members and Officers 33
Proxy Voting 35
(Dalbar logo)
American Express(R) Funds' reports to shareholders have been awarded the
Communications Seal from Dalbar Inc., an independent financial services research
firm. The Seal recognizes communications demonstrating a level of excellence in
the industry.
- --------------------------------------------------------------------------------
2 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Fund Snapshot
AS OF JULY 31, 2004
PORTFOLIO MANAGER
Portfolio manager Since Years in industry
Bob Ewing, CFA 6/02 16
FUND OBJECTIVE
The Fund seeks to provide shareholders with long-term growth of capital.
Inception dates
A: 6/27/02 B: 6/27/02 C: 6/27/02 Y: 6/27/02
Ticker symbols
A: ALVAX B: ALVBX C: -- Y: --
Total net assets $109.9 million
Number of holdings 168
STYLE MATRIX
Shading within the style matrix indicates areas in which the Fund generally
invests.
STYLE
VALUE BLEND GROWTH
X LARGE
MEDIUM SIZE
SMALL
SECTOR COMPOSITION
Percentage of portfolio assets
(pie chart)
Financials 31.1%
Energy 11.0%
Consumer discretionary 10.6%
Health care 7.5%
Consumer staples 7.2%
Industrials 6.8%
Short-term securities 6.6%
Materials 6.2%
Telecommunications 5.7%
Technology 4.2%
Utilities 3.1%
TOP TEN HOLDINGS
Percentage of portfolio assets
Bank of America (Banks and savings & loans) 4.2%
Citigroup (Finance companies) 4.2
ExxonMobil (Energy) 2.8
J.P. Morgan Chase (Broker dealers) 2.1
ChevronTexaco (Energy) 2.0
Wells Fargo (Banks and savings & loans) 2.0
ConocoPhillips (Energy) 1.9
Altria Group (Beverages & tobacco) 1.8
American Intl Group (Insurance) 1.7
U.S. Bancorp (Banks and savings & loans) 1.7
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
Stock prices of established companies that pay dividends may be less volatile
than the stock market as a whole.
Fund holdings are subject to change.
- --------------------------------------------------------------------------------
3 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Questions & Answers
WITH PORTFOLIO MANAGEMENT
Below, Portfolio Manager Bob Ewing discusses the Fund's positioning and results
for the 2004 fiscal year.
Q: How did AXP Large Cap Value Fund perform for the 2004 fiscal year?
A: AXP Large Cap Value Fund's Class A shares advanced 12.85%, excluding sales
charge, for the 12 months ended July 31, 2004. The Fund underperformed its
peers, as represented by the Lipper Large-Cap Value Funds Index, which
advanced 15.13% for the period. The Fund's benchmark, the Russell 1000(R)
Value Index, gained 17.68%.
Q: What factors had a significant effect on performance?
A: Although the Fund benefited from the stock market's advance during the
period, its more conservative positioning ran counter to several dominant
market themes. During the past year, value stocks outpaced growth stocks.
However, two market trends were working against the Fund's strategy. First,
smaller capitalization stocks generally performed better than the larger
stocks that are the focus of this Fund. Second, lower-quality stocks
outperformed higher-quality stocks for most of the period.
In our view, stocks were vulnerable to elevated global risks during the
period -- both economic and political. This led us to conclude that a
conservative portfolio positioning was prudent. The market, however, seemed
to throw caution to the wind. Investors were willing to pay premiums for
companies whose earnings are more sensitive to economic activity and thus
would benefit more if the economy continued to accelerate. In many cases,
stocks that garnered the most favor were those of companies in riskier
market sectors, with higher debt levels and less financial strength. In
contrast, we kept the Fund's
(bar graph)
PERFORMANCE COMPARISON
For the year ended July 31, 2004
20% (bar 2)
+17.68% (bar 3)
15% (bar 1) +15.13%
+12.85%
10%
5%
0%
(bar 1) AXP Large Cap Value Fund Class A (excluding sales charge)
(bar 2) Russell 1000(R) Value Index (unmanaged)
(bar 3) Lipper Large-Cap Value Funds Index
(see "The Fund's Long-term Performance" for Index descriptions)
Past performance is no guarantee of future results. The 5.75% sales charge
applicable to Class A shares of the Fund is not reflected in the bar chart; if
reflected, returns would be lower than those shown. The performance of Class B,
Class C and Class Y may vary from that shown above because of differences in
expenses.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
- --------------------------------------------------------------------------------
4 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Questions & Answers
(begin callout quote)> Although the Fund benefited from the stock market's
advance during the period, its more conservative positioning ran counter to
several dominant market themes.(end callout quote)
average market capitalization larger than its benchmark, focused on higher
quality companies and reduced the Fund's risk relative to its benchmark.
Given this strategy, the market environment placed the Fund at a near-term
disadvantage compared to its benchmark and peers.
AVERAGE ANNUAL TOTAL RETURNS
Class A Class B Class C Class Y
(Inception dates) (6/27/02) (6/27/02) (6/27/02) (6/27/02)
NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) NAV(5) POP(5)
as of July 31, 2004
1 year +12.85% +6.35% +12.00% +8.00% +12.19% +12.19% +13.14% +13.14%
Since inception +6.93% +3.94% +6.14% +4.34% +6.16% +6.16% +7.17% +7.17%
as of June 30, 2004
1 year +17.00% +10.28% +15.92% +11.92% +15.91% +15.91% +17.09% +17.09%
Since inception +8.52% +5.37% +7.71% +5.84% +7.62% +7.62% +8.68% +8.68%
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 will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by calling (888) 723-8476 or visiting
www.americanexpress.com/funds. You should consider the investment objectives,
risks, and charges and expenses of the Fund carefully before investing.
(1) Excluding sales charge.
(2) Returns at public offering price (POP) reflect a sales charge of 5.75%.
(3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as
follows: first year 5%; second and third year 4%; fourth year 3%; fifth
year 2%; sixth year 1%; no sales charge thereafter.
(4) 1% CDSC applies to redemptions made within the first year of purchase.
(5) Sales charge is not applicable to these shares. Shares available to
institutional investors only.
- --------------------------------------------------------------------------------
5 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Questions & Answers
Stock selection among consumer discretionary stocks detracted from the
Fund's relative performance in the first half of the period. We had expected
many consumer discretionary categories to underperform, but continuing signs
of economic improvement sustained the market's enthusiasm for consumer
stocks. Consequently, the Fund's conservative positioning in selected
retailers and media companies hurt relative performance.
In terms of individual contributors, Capital One Financial, a credit card
company, performed quite well. Capital One has been working to diversify its
revenue sources and increase its business with upscale customers. These
efforts led to strong 2003 earnings and a reduction in the company's
delinquency rate.
Q: What changes did you make to the portfolio during the period?
A: As always, we made a number of changes to specific portfolio holdings as
selected stocks reached their price targets and we replaced them with others
that we considered to be more attractively valued. However, we have not
meaningfully altered the Fund's thematic orientation, which was implemented
a year ago. First, we favored higher-quality, larger-capitalization
companies. Second, we sought to reduce the Fund's overall price-to-earnings
ratio relative to its benchmark, as a means of reducing the Fund's risk.
Third, we continued to look for the most attractively valued stocks, but not
necessarily in traditional value sectors. We looked for pockets of
opportunity in areas -- like energy stocks -- that had been largely left
behind in the recent rally. Finally, we positioned the Fund to perform well
in a flat market environment. To that end, the portfolio's beta, a measure
of its aggressiveness, was slightly lower than the index at the end of the
period.
We believe that lowering the portfolio's risk level is best accomplished by
owning cheap stocks and we are open to finding these stocks in any sector.
Currently, we are not finding the most attractively priced stocks in
traditional value sectors such as industrials and cyclicals. Instead, two
areas where we have been finding more attractively valued stocks are health
care and consumer products, which are typically more growth-oriented
sectors. Health care stocks, particularly pharmaceutical firms and
hospitals, were exceptionally inexpensive and an excellent place to find
valuation opportunities.
In the consumer products area, we purchased shares of Colgate Palmolive
during the first calendar quarter of 2004. It is unusual for such a company
to meet
- --------------------------------------------------------------------------------
6 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Questions & Answers
our valuation standards, but Colgate's stock price declined due to some
international pressure, making the valuation attractive to us.
To summarize our sector positioning at fiscal year-end, the Fund had
higher-than-index positions in the health care, consumer staples and
materials sectors. The three sectors that had the lowest weightings compared
to the index were industrials, utilities and technology.
Q: How do you plan to manage the Fund in the coming months?
A: We are cautious in our outlook for the stock market because the U.S. is now
almost three years into the economic recovery. It seems clear that the
Federal Reserve's monetary policy will be more restrictive going forward and
we believe the corporate earnings growth rate probably peaked in the first
or second quarter of 2004. Although we do expect the economy to continue to
improve somewhat, we believe it is likely to fall short of expectations,
which could negatively affect the stock market. We expect to maintain a
relatively conservative portfolio positioning, with continued emphasis on
the themes mentioned earlier.
As in all market environments, we will maintain our focus on relative value,
with our team of analysts building the portfolio on a stock-by-stock basis.
We will continue to seek companies that have potential for earnings growth
and also offer attractive value relative to the overall market, to their
peers and to their own histories.
- --------------------------------------------------------------------------------
7 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
The Fund's Long-term Performance
The chart on the facing page illustrates the total value of an assumed $10,000
investment in AXP Large Cap Value Fund Class A shares (from 7/1/02 to 7/31/04)
as compared to the performance of two widely cited performance indices, the
Russell 1000(R) Value Index and the Lipper Large-Cap Value Funds Index. In
comparing the Fund's Class A shares to these indices, you should take into
account the fact that the Fund's performance reflects the maximum sales charge
of 5.75%, while such charges are not reflected in the performance of the
indices. Returns for the Fund include the reinvestment of any distribution paid
during each period.
The performance information shown represents the past performance and is not a
guarantee of future results. The value of your investment and returns will
fluctuate so that your shares, when redeemed, may be worth more or less than
their original cost. Returns do not reflect taxes payable on distributions and
redemptions. Current performance may be lower or higher than the performance
information shown. You may obtain performance information current to the most
recent month-end by calling (888) 723-8476 or visiting
www.americanexpress.com/funds. Also see "Past Performance" in the Fund's current
prospectus. You should consider the investment objectives, risks, and charges
and expenses of the Fund carefully before investing.
DISTRIBUTION SUMMARY
The table below details the Fund's income and capital gain distributions for the
fiscal years shown. More information on the other classes can be found in the
Financial Highlights section of this report's Notes to Financial Statements.
Class A
Short-term Long-term
Fiscal year ended Income capital gains capital gains Total
July 31, 2004 $0.03 $0.23 $0.01 $0.27
July 31, 2003 0.01 -- -- 0.01
July 31, 2002(1) -- -- -- 0.00
(1) For the period from June 27, 2002 (when shares became publicily available)
to July 31, 2002.
- --------------------------------------------------------------------------------
8 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
(line chart)
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP LARGE CAP VALUE FUND
AXP Large Cap Value Fund Class A
(includes sales charge) $ 9,425 $8,695 $ 9,610 $10,845
Russell 1000(R) Value Index(1) $10,000 $9,070 $10,045 $11,821
Lipper Large-Cap Value Funds Index(2) $10,000 $9,136 $ 9,923 $11,424
7/1/02 7/02 7/03 7/04
COMPARATIVE RESULTS
Results as of July 31, 2004 Since
1 year inception(3)
AXP Large Cap Value Fund (includes sales charge)
Class A Cumulative value of $10,000 $10,635 $10,845
Average annual total return +6.35% +3.94%
Russell 1000(R) Value Index(1)
Cumulative value of $10,000 $11,768 $11,821
Average annual total return +17.68% +8.36%
Lipper Large-Cap Value Funds Index(2)
Cumulative value of $10,000 $11,513 $11,424
Average annual total return +15.13% +6.60%
Results for other share classes can be found on page 5.
(1) The Russell 1000(R) Value Index, an unmanaged index, measures the
performance of those Russell 1000 companies with lower price-to-book ratios
and lower forecasted growth values.
(2) The Lipper Large-Cap Value Funds Index, an 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.
(3) Fund data is from June 27, 2002. Index data is from July 1, 2002.
- --------------------------------------------------------------------------------
9 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Investments in Securities
AXP Large Cap Value Fund
July 31, 2004
(Percentages represent value of investments compared to net assets)
Common stocks (95.1%)
Issuer Shares Value(a)
Aerospace & defense (3.6%)
Boeing 15,911 $807,483
Empresa Brasileira de Aeronautica ADR 20,890(c) 597,454
General Dynamics 4,220 417,020
Lockheed Martin 10,705 567,258
Northrop Grumman 17,132 901,144
United Technologies 7,312 683,672
Total 3,974,031
Automotive & related (0.4%)
General Motors 10,658 459,786
Banks and savings & loans (11.3%)
Bank of America 55,710 4,735,906
Bank of New York 23,061 662,543
Commerce Bancorp 6,600 332,244
Investors Financial Services 4,500 205,560
PNC Financial Services Group 9,540 482,724
U.S. Bancorp 65,450 1,852,235
Wachovia 19,038 843,574
Washington Mutual 26,601 1,032,119
Wells Fargo 38,786 2,226,703
Total 12,373,608
Beverages & tobacco (3.5%)
Altria Group 41,337 1,967,642
Coca-Cola 18,790 824,129
Coca-Cola Enterprises 13,200 269,280
PepsiCo 15,715 785,750
Total 3,846,801
Broker dealers (4.8%)
Franklin Resources 2,250 108,563
J.P. Morgan Chase 63,224 2,360,152
Merrill Lynch & Co 26,197 1,302,515
Morgan Stanley 29,756 1,467,863
Total 5,239,093
Building materials & construction (1.5%)
American Standard 16,654(b) 631,019
Masco 14,548 439,932
Temple-Inland 8,099 552,757
Total 1,623,708
Cable (1.7%)
Comcast Cl A 15,914(b) 436,044
Comcast Special Cl A 16,275(b) 436,170
EchoStar Communications Cl A 13,231(b) 366,763
NTL 11,242(b) 585,933
Total 1,824,910
Cellular telecommunications (0.9%)
Nextel Communications Cl A 12,200(b) 277,672
Vodafone Group ADR 33,838(c) 735,300
Total 1,012,972
Chemicals (2.4%)
Dow Chemical 32,884 1,311,743
Eastman Chemical 6,513 291,001
Hercules 10,200(b) 120,462
Lyondell Chemical 35,952 653,607
RPM Intl 18,000 270,900
Total 2,647,713
Computer hardware (1.7%)
Cisco Systems 20,755(b) 432,949
Dell 9,650(b) 342,286
EMC 20,800(b) 228,176
Hewlett-Packard 43,583 878,197
Total 1,881,608
Computer software & services (1.8%)
Affiliated Computer Services Cl A 7,588(b) 393,817
Cadence Design Systems 24,800(b) 334,056
Intl Business Machines 5,200 452,764
Microsoft 10,858 309,019
State Street 11,000 470,910
Total 1,960,566
Electronics (0.8%)
Cypress Semiconductor 21,000(b) 238,140
Intel 16,150 393,737
Texas Instruments 9,441 201,377
Total 833,254
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
10 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Energy (9.5%)
Anadarko Petroleum 13,800 $825,102
BP ADR 17,800(c) 1,003,208
ChevronTexaco 23,537 2,251,314
ConocoPhillips 26,440 2,082,679
Devon Energy 5,562 386,503
ExxonMobil 67,896 3,143,584
Newfield Exploration 8,720(b) 515,090
Royal Dutch Petroleum ADR 4,519(c) 227,306
Total 10,434,786
Energy equipment & services (1.7%)
Cooper Cameron 10,800(b) 551,772
Schlumberger 5,895 379,166
Transocean 11,301(b) 320,948
Weatherford Intl 14,046(b) 657,073
Total 1,908,959
Environmental services (0.1%)
Allied Waste Inds 9,675(b) 89,397
Finance companies (4.3%)
Citigroup 106,491 4,695,188
Financial services (4.5%)
Capital One Financial 9,800 679,336
Countrywide Financial 14,280 1,029,588
Fannie Mae 17,349 1,231,085
Freddie Mac 23,267 1,496,301
MBNA 20,935 516,885
Total 4,953,195
Food (1.5%)
General Mills 11,200 502,880
Hain Celestial Group 9,600(b) 158,688
Heinz (HJ) 19,000 700,910
Sara Lee 12,141 266,616
Total 1,629,094
Furniture & appliances (0.1%)
Leggett & Platt 4,288 115,990
Health care products (5.4%)
Amgen 1,982(b) 112,736
Baxter Intl 9,530 286,567
Biogen Idec 5,278(b) 316,680
Boston Scientific 7,900(b) 302,254
Bristol-Myers Squibb 12,106 277,227
Gilead Sciences 4,246(b) 274,461
GlaxoSmithKline ADR 5,744(c) 235,217
Guidant 1,850 102,342
Johnson & Johnson 11,834 654,065
Medco Health Solutions 10,972(b) 332,452
Merck & Co 28,374 1,286,761
Novartis ADR 7,642(c) 341,292
Pfizer 25,403 811,880
Schering-Plough 19,723 383,810
Wyeth 5,958 210,913
Total 5,928,657
Health care services (2.2%)
Aetna 10,160 871,728
AmerisourceBergen 4,364 235,918
HCA 12,408 479,569
Hospira 8,500(b) 220,235
Lincare Holdings 7,763(b) 247,950
Select Medical 7,575 97,263
Tenet Healthcare 28,300(b) 316,394
Total 2,469,057
Household products (2.1%)
Clorox 5,650 281,201
Colgate-Palmolive 16,950 901,740
Procter & Gamble 22,408 1,168,577
Total 2,351,518
Insurance (6.2%)
ACE 15,362(c) 623,544
Allstate 25,391 1,195,408
American Intl Group 27,710 1,957,711
Assurant 4,200 102,480
Chubb 9,900 680,922
CIGNA 5,679 352,155
Endurance Specialty Holdings 16,800(c) 555,240
First American 8,828 237,120
Hartford Financial Services Group 3,748 243,995
Montpelier Re Holdings 4,998(c) 176,829
St. Paul Travelers Companies 8,290 307,310
Willis Group Holdings 9,523(c) 331,400
Total 6,764,114
Leisure time & entertainment (1.5%)
Mattel 30,696 537,794
Viacom Cl B 32,904 1,105,245
Total 1,643,039
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
11 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Machinery (1.2%)
AGCO 22,450(b) $469,654
Caterpillar 4,530 332,910
Illinois Tool Works 2,150 194,618
Ingersoll-Rand Cl A 4,993(c) 342,969
Total 1,340,151
Media (4.8%)
Cendant 34,500 789,360
Disney (Walt) 72,320 1,669,868
IAC/InterActiveCorp 8,482(b) 231,559
Liberty Media Cl A 102,548(b) 869,607
Liberty Media Intl Cl A 5,112(b) 159,392
Reader's Digest Assn 13,950 199,206
Scripps (EW) Cl A 2,900 297,018
Time Warner 31,800(b) 529,470
Tribune 12,299 522,093
Total 5,267,573
Metals (0.6%)
Alcan 6,677(c) 264,543
Alcoa 12,068 386,538
Total 651,081
Multi-industry (2.0%)
General Electric 22,373 743,902
ITT Inds 3,687 294,776
Tyco Intl 38,116(c) 1,181,596
Total 2,220,274
Paper & packaging (1.9%)
Avery Dennison 8,000 484,560
Bowater 10,693 398,849
Intl Paper 15,964 690,124
Weyerhaeuser 8,193 507,966
Total 2,081,499
Real estate investment trust (0.7%)
Apartment Investment &
Management Cl A 6,596 210,874
Equity Office Properties Trust 21,191 549,907
Total 760,781
Restaurants (0.3%)
Domino's Pizza 8,000(b) 111,200
McDonald's 8,999 247,473
Total 358,673
Retail -- general (2.0%)
BJ's Wholesale Club 10,985(b) 256,060
Costco Wholesale 11,500 467,590
Dollar Tree Stores 4,000(b) 107,640
Home Depot 13,393 451,612
Sonic Automotive 15,062 336,636
Target 12,176 530,874
Total 2,150,412
Retail -- grocery (0.2%)
Kroger 12,800(b) 202,240
Telecom equipment & services (0.6%)
Lucent Technologies 32,500(b) 99,125
Motorola 28,334 451,361
Nokia ADR 9,000(c) 104,580
Total 655,066
Utilities -- electric (2.9%)
Dominion Resources 15,225 966,179
Entergy 3,100 178,250
Exelon 35,700 1,245,929
FirstEnergy 7,390 288,949
FPL Group 2,650 178,425
PPL 4,000 185,400
Xcel Energy 10,200 174,420
Total 3,217,552
Utilities -- natural gas (0.3%)
ONEOK 13,700 287,700
Utilities -- telephone (4.2%)
BellSouth 25,800 698,922
Citizens Communications 8,000(b) 115,200
KT ADR 26,796(c) 476,701
SBC Communications 61,973 1,570,395
Sprint (FON Group) 25,100 468,868
Verizon Communications 34,681 1,336,606
Total 4,666,692
Total common stocks
(Cost: $100,176,488) $104,520,738
Other (--%)
Issuer Shares Value(a)
Liberty Media Intl Cl A
Rights 1,153(b) $6,930
Total other
(Cost: $1,051) $6,930
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
12 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Short-term securities (6.7%)
Issuer Effective Amount Value(a)
yield payable at
maturity
U.S. government agencies (5.2%)
Federal Home Loan Bank Disc Nt
08-11-04 1.22% $2,500,000 $2,498,983
Federal Home Loan Mtge Corp Disc Nts
08-23-04 1.26 1,700,000 1,698,574
09-07-04 1.30 1,500,000 1,497,890
Total 5,695,447
Commercial paper (1.5%)
Barton Capital
08-02-04 1.33 1,700,000 1,699,812
Total short-term securities
(Cost: $7,395,672) $7,395,259
Total investments in securities
(Cost: $107,573,211)(d) $111,922,927
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars. As of July 31, 2004,
the value of foreign securities represented 6.6% of net assets.
(d) At July 31, 2004, the cost of securities for federal income tax purposes
was $108,081,916 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $ 5,852,772
Unrealized depreciation (2,011,761)
----------
Net unrealized appreciation $ 3,841,011
-----------
How to find information about the Fund's portfolio holdings
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's
Public Reference Room in Washington, DC (information on the operations of
the Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at www.americanexpress.com/funds.
- --------------------------------------------------------------------------------
13 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Financial Statements
Statement of assets and liabilities
AXP Large Cap Value Fund
July 31, 2004
Assets
Investments in securities, at value (Note 1)
(identified cost $107,573,211) $111,922,927
Cash in bank on demand deposit 83,708
Capital shares receivable 61,515
Dividends and accrued interest receivable 178,566
Receivable for investment securities sold 630,976
-------
Total assets 112,877,692
-----------
Liabilities
Capital shares payable 12,027
Payable for investment securities purchased 2,918,449
Accrued investment management services fee 1,796
Accrued distribution fee 1,179
Accrued transfer agency fee 472
Accrued administrative services fee 150
Other accrued expenses 93,267
------
Total liabilities 3,027,340
---------
Net assets applicable to outstanding capital stock $109,850,352
============
Represented by
Capital stock -- $.01 par value (Note 1) $ 206,058
Additional paid-in capital 102,108,716
Undistributed net investment income 336,307
Accumulated net realized gain (loss) 2,849,555
Unrealized appreciation (depreciation) on investments 4,349,716
---------
Total -- representing net assets applicable to outstanding capital stock $109,850,352
============
Net assets applicable to outstanding shares: Class A $ 66,930,223
Class B $ 25,089,800
Class C $ 1,396,231
Class I $ 16,374,402
Class Y $ 59,696
Net asset value per share of outstanding capital stock: Class A shares 12,533,070 $ 5.34
Class B shares 4,742,971 $ 5.29
Class C shares 264,069 $ 5.29
Class I shares 3,054,544 $ 5.36
Class Y shares 11,139 $ 5.36
------ ------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
14 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Statement of operations
AXP Large Cap Value Fund
Year ended July 31, 2004
Investment income
Income:
Dividends $1,632,142
Interest 47,103
Less foreign taxes withheld (9,088)
------
Total income 1,670,157
---------
Expenses (Note 2):
Investment management services fee 446,686
Distribution fee
Class A 126,365
Class B 216,940
Class C 11,354
Transfer agency fee 124,186
Incremental transfer agency fee
Class A 8,939
Class B 7,330
Class C 451
Service fee -- Class Y 43
Administrative services fees and expenses 41,856
Compensation of board members 5,230
Custodian fees 202,375
Printing and postage 46,465
Registration fees 79,284
Audit fees 18,500
Other 3,683
-----
Total expenses 1,339,687
Expenses waived/reimbursed by AEFC (Note 2) (224,746)
--------
1,114,941
Earnings credits on cash balances (Note 2) (1,777)
------
Total net expenses 1,113,164
---------
Investment income (loss) -- net 556,993
-------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on security transactions (Note 3) 5,214,984
Net change in unrealized appreciation (depreciation) on investments 1,187,608
---------
Net gain (loss) on investments 6,402,592
---------
Net increase (decrease) in net assets resulting from operations $6,959,585
==========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
15 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Statements of changes in net assets
AXP Large Cap Value Fund
Year ended July 31, 2004 2003
Operations and distributions
Investment income (loss) -- net $ 556,993 $ 177,570
Net realized gain (loss) on investments 5,214,984 673,743
Net change in unrealized appreciation (depreciation) on investments 1,187,608 3,294,759
--------- ---------
Net increase (decrease) in net assets resulting from operations 6,959,585 4,146,072
--------- ---------
Distributions to shareholders from:
Net investment income
Class A (292,557) (40,203)
Class B (34,475) (7,259)
Class C (1,580) (539)
Class Y (292) (39)
Net realized gain
Class A (2,044,844) --
Class B (923,944) --
Class C (49,121) --
Class Y (1,778) --
---------- -------
Total distributions (3,348,591) (48,040)
---------- -------
Capital share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 40,922,272 26,344,197
Class B shares 15,773,087 12,297,591
Class C shares 859,541 637,405
Class I shares 16,471,765 --
Class Y shares 46,998 11,000
Reinvestment of distributions at net asset value
Class A shares 2,313,251 34,417
Class B shares 949,778 7,127
Class C shares 49,389 514
Class Y shares 1,511 9
Payments for redemptions
Class A shares (9,764,607) (2,271,256)
Class B shares (Note 2) (6,087,609) (1,533,475)
Class C shares (Note 2) (329,387) (11,095)
Class I shares (5,871) --
Class Y shares (17,446) --
---------- -------
Increase (decrease) in net assets from capital share transactions 61,182,672 35,516,434
---------- ----------
Total increase (decrease) in net assets 64,793,666 39,614,466
Net assets at beginning of year 45,056,686 5,442,220
---------- ---------
Net assets at end of year $109,850,352 $45,056,686
============ ===========
Undistributed net investment income $ 336,307 $ 133,587
------------ -----------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
16 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Notes to Financial Statements
AXP Large Cap Value Fund
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a series of AXP Growth Series, Inc. and is registered under the
Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company. AXP Growth Series, Inc. has 10 billion authorized
shares of capital stock that can be allocated among the separate series as
designated by the board. The Fund invests primarily in equity securities of
companies with a market capitalization greater than $5 billion. 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 July 31, 2004, American
Express Financial Corporation (AEFC) and the AXP Portfolio Builder Funds owned
100% of Class I shares, which represents 14.91% of the Fund's net assets.
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.
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 these 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
- --------------------------------------------------------------------------------
17 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
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 LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Foreign currency translations and foreign currency contracts
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars. Foreign currency amounts related to the
purchase or sale of securities and income and expenses are translated at the
exchange rate on the transaction date. The effect of changes in foreign exchange
rates on realized and unrealized security gains or losses is reflected as a
component of such gains or losses. In the statement of operations, net realized
gains or losses from foreign currency transactions, if any, may arise from sales
of foreign currency, closed forward contracts, exchange gains or losses realized
between the trade date and settlement date on securities transactions, and other
translation gains or losses on dividends, interest income and foreign
withholding taxes.
The Fund may enter into forward foreign currency exchange contracts for
operational purposes. The net U.S. dollar value of foreign currency underlying
all contractual commitments held by the Fund and the resulting unrealized
appreciation or depreciation are determined using foreign currency exchange
rates from an independent pricing service. The Fund is subject to the credit
risk that the other party will not complete its contract obligations.
Federal taxes
The Fund's policy is to comply with all sections of the Internal Revenue Code
that apply to regulated investment companies and to distribute substantially all
of its taxable income to shareholders. No provision for income or excise taxes
is thus required.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of deferred losses on
certain futures contracts, the recognition of certain foreign currency gains
(losses) as ordinary income (loss) for tax purposes and losses deferred due to
"wash sale" transactions. The character of distributions made during the year
from net investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the year that the income or realized gains (losses) were recorded by
the Fund.
On the statement of assets and liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income has been decreased by $25,369
and accumulated net realized gain has been increased by $25,369.
- --------------------------------------------------------------------------------
19 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
The tax character of distributions paid for the years indicated is as follows:
Year ended July 31, 2004 2003
Class A
Distributions paid from:
Ordinary income $2,282,707 $40,203
Long-term capital gain 54,694 --
Class B
Distributions paid from:
Ordinary income 933,705 7,259
Long-term capital gain 24,714 --
Class C
Distributions paid from:
Ordinary income 49,387 539
Long-term capital gain 1,314 --
Class I*
Distributions paid from:
Ordinary income -- N/A
Long-term capital gain -- N/A
Class Y
Distributions paid from:
Ordinary income 2,024 39
Long-term capital gain 46 --
* Inception date was March 4, 2004.
As of July 31, 2004, the components of distributable earnings on a tax basis are
as follows:
Undistributed ordinary income $1,788,714
Accumulated long-term gain (loss) $1,905,853
Unrealized appreciation (depreciation) $3,841,011
Dividends to shareholders
An annual dividend from net investment income, declared and paid at the end of
the calendar year, when available, is reinvested in additional shares of the
Fund at net asset value or payable in cash. Capital gains, when available, are
distributed along with the income dividend.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date and interest income,
including amortization of premium, market discount and original issue discount
using the effective interest method, is accrued daily.
- --------------------------------------------------------------------------------
20 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
2. EXPENSES AND SALES CHARGES
The Fund has agreements with AEFC to manage its portfolio and provide
administrative services. Under an Investment Management Services Agreement, AEFC
determines which securities will be purchased, held or sold. The management fee
is a percentage of the Fund's average daily net assets in reducing percentages
from 0.60% to 0.48% annually. The fee may be adjusted upward or downward by a
performance incentive adjustment based on a comparison of the performance of
Class A shares of the Fund to the Lipper Large-Cap Value Funds Index. 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 $10,737
for the year ended July 31, 2004.
Under an Administrative Services Agreement, the Fund pays AEFC a fee for
administration and accounting services at a percentage of the Fund's average
daily net assets in reducing percentages from 0.05% to 0.02% annually. A minor
portion of additional administrative service expenses paid by the Fund are
consultants' fees and fund office expenses. Under this agreement, the Fund also
pays taxes, audit and certain legal fees, registration fees for shares,
compensation of board members, corporate filing fees and any other expenses
properly payable by the Fund and approved by the board.
Under a Deferred Compensation Plan (the Plan), non-interested board members may
defer receipt of their compensation. Deferred amounts are treated as though
equivalent dollar amounts had been invested in shares of the Fund or other
American Express mutual funds. The Fund's liability for these amounts is
adjusted for market value changes and remains in the Fund until distributed in
accordance with the Plan.
Under a separate Transfer Agency Agreement, American Express Client Service
Corporation (AECSC) maintains shareholder accounts and records. The Fund pays
AECSC an annual fee per shareholder account for this service as follows:
o Class A $19.50
o Class B $20.50
o Class C $20.00
o Class Y $17.50
The incremental transfer agency fee is the amount charged to the specific
classes for the additional expense above the fee for Class Y.
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.
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.
- --------------------------------------------------------------------------------
21 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for
service provided to shareholders by financial advisors and other servicing
agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net
assets attributable to Class Y shares.
Sales charges received by the Distributor for distributing Fund shares were
$438,979 for Class A, $15,276 for Class B and $716 for Class C for the year
ended July 31, 2004.
For the year ended July 31, 2004, AEFC and its affiliates waived certain fees
and expenses to 1.24% for Class A, 2.00% for Class B, 2.00% for Class C, 0.93%
for Class I, and 1.06% for Class Y. Under this agreement, which was effective
until July 31, 2004, net expenses would not exceed 1.25% for Class A, 2.01% for
Class B, 2.01% for Class C, 0.93% for Class I and 1.07% for Class Y of the
Fund's average daily net assets. Beginning Aug. 1, 2004, AEFC and its affiliates
have agreed to waive certain fees and expenses until July 31, 2005. Under this
agreement, net expenses will not exceed 1.35% for Class A, 2.11% for Class B,
2.11% for Class C, 1.03% for Class I, and 1.17% for Class Y of the Fund's
average daily net assets.
During the year ended July 31, 2004, the Fund's custodian and transfer agency
fees were reduced by $1,777 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 $98,389,437 and $42,792,159, respectively, for the year
ended July 31, 2004. Realized gains and losses are determined on an identified
cost basis.
Brokerage clearing fees paid to brokers affiliated with AEFC were $595 for the
year ended July 31, 2004.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the years indicated are as follows:
Year ended July 31, 2004
Class A Class B Class C Class I* Class Y
Sold 7,723,484 3,005,409 163,615 3,055,637 8,912
Issued for reinvested distributions 443,151 182,649 9,516 -- 289
Redeemed (1,837,759) (1,153,773) (61,678) (1,093) (3,191)
---------- ---------- ------- --------- ------
Net increase (decrease) 6,328,876 2,034,285 111,453 3,054,544 6,010
---------- ---------- ------- --------- ------
* Inception date was March 4, 2004.
Year ended July 31, 2003
Class A Class B Class C Class I Class Y
Sold 5,828,574 2,731,482 142,666 N/A 2,495
Issued for reinvested distributions 7,804 1,620 117 N/A 2
Redeemed (509,520) (335,784) (2,292) N/A --
---------- ---------- ------- --------- ------
Net increase (decrease) 5,326,858 2,397,318 140,491 N/A 2,497
---------- ---------- ------- --------- ------
- --------------------------------------------------------------------------------
22 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
5. BANK BORROWINGS
The Fund has a revolving credit agreement with a syndicate of banks headed by
Deutsche Bank, whereby the Fund is permitted to have bank borrowings for
temporary or emergency purposes to fund shareholder redemptions. The Fund must
maintain asset coverage for borrowings of at least 300%. The agreement, which
enables the Fund to participate with other American Express mutual funds,
permits borrowings up to $500 million, collectively. Interest is charged to each
Fund based on its borrowings at a rate equal to either the LIBOR plus 0.50%, the
IBOR plus 0.50% or the higher of the Federal Funds Rate plus 0.25% and the Prime
Lending Rate. Borrowings are payable within 60 days after such loan is executed.
The Fund also pays a commitment fee equal to its pro rata share of the amount of
the credit facility at a rate of 0.09% per annum. The Fund had no borrowings
outstanding during the year ended July 31, 2004.
6. FINANCIAL HIGHLIGHTS
The tables below show certain important financial information for evaluating the
Fund's results.
Class A
Per share income and capital changes(a)
Fiscal period ended July 31, 2004 2003 2002(b)
Net asset value, beginning of period $4.98 $4.52 $4.90
Income from investment operations:
Net investment income (loss) .04 .03 --
Net gains (losses) (both realized and unrealized) .59 .44 (.38)
Total from investment operations .63 .47 (.38)
Less distributions:
Dividends from net investment income (.03) (.01) --
Distributions from realized gains (.24) -- --
Total distributions (.27) (.01) --
Net asset value, end of period $5.34 $4.98 $4.52
Ratios/supplemental data
Net assets, end of period (in millions) $67 $31 $4
Ratio of expenses to average daily net assets(c),(e) 1.24% 1.25% 1.19%(d)
Ratio of net investment income (loss) to average daily net assets .95% 1.01% .23%(d)
Portfolio turnover rate (excluding short-term securities) 59% 77% 9%
Total return(f) 12.85% 10.52% (7.75%)(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from June 27, 2002 (when shares became publicly available)
to July 31, 2002.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratios of expenses for Class A would have been 1.54%, 2.64% and
20.50% for the periods ended July 31, 2004, 2003 and 2002, respectively.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- --------------------------------------------------------------------------------
23 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Class B
Per share income and capital changes(a)
Fiscal period ended July 31, 2004 2003 2002(b)
Net asset value, beginning of period $4.95 $4.52 $4.90
Income from investment operations:
Net investment income (loss) -- .01 --
Net gains (losses) (both realized and unrealized) .59 .43 (.38)
Total from investment operations .59 .44 (.38)
Less distributions:
Dividends from net investment income (.01) (.01) --
Distributions from realized gains (.24) -- --
Total distributions (.25) (.01) --
Net asset value, end of period $5.29 $4.95 $4.52
Ratios/supplemental data
Net assets, end of period (in millions) $25 $13 $1
Ratio of expenses to average daily net assets(c),(e) 2.00% 2.00% 1.95%(d)
Ratio of net investment income (loss) to average daily net assets .16% .25% (.49%)(d)
Portfolio turnover rate (excluding short-term securities) 59% 77% 9%
Total return(f) 12.00% 9.66% (7.75%)(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from June 27, 2002 (when shares became publicly available)
to July 31, 2002.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratios of expenses for Class B would have been 2.30%, 3.40% and
21.26% for the periods ended July 31, 2004, 2003 and 2002, respectively.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- --------------------------------------------------------------------------------
24 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Class C
Per share income and capital changes(a)
Fiscal period ended July 31, 2004 2003 2002(b)
Net asset value, beginning of period $4.94 $4.52 $4.90
Income from investment operations:
Net investment income (loss) -- .01 --
Net gains (losses) (both realized and unrealized) .60 .42 (.38)
Total from investment operations .60 .43 (.38)
Less distributions:
Dividends from net investment income (.01) (.01) --
Distributions from realized gains (.24) -- --
Total distributions (.25) (.01) --
Net asset value, end of period $5.29 $4.94 $4.52
Ratios/supplemental data
Net assets, end of period (in millions) $1 $1 $--
Ratio of expenses to average daily net assets(c),(e) 2.00% 2.00% 1.95%(d)
Ratio of net investment income (loss) to average daily net assets .19% .26% (.45%)(d)
Portfolio turnover rate (excluding short-term securities) 59% 77% 9%
Total return(f) 12.19% 9.50% (7.75%)(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from June 27, 2002 (when shares became publicly available)
to July 31, 2002.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratios of expenses for Class C would have been 2.30%, 3.40% and
21.26% for the periods ended July 31, 2004, 2003 and 2002, respectively.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- --------------------------------------------------------------------------------
25 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Class I
Per share income and capital changes(a)
Fiscal period ended July 31, 2004(b)
Net asset value, beginning of period $5.57
Income from investment operations:
Net investment income (loss) .03
Net gains (losses) (both realized and unrealized) (.24)
Total from investment operations (.21)
Net asset value, end of period $5.36
Ratios/supplemental data
Net assets, end of period (in millions) $16
Ratio of expenses to average daily net assets(c),(e) .93%(d)
Ratio of net investment income (loss) to average daily net assets 1.33%(d)
Portfolio turnover rate (excluding short-term securities) 59%
Total return(f) (3.77%)(g)
(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) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratios of expenses for Class I would have been 1.02% for the
period ended July 31, 2004.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- --------------------------------------------------------------------------------
26 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Class Y
Per share income and capital changes(a)
Fiscal period ended July 31, 2004 2003 2002(b)
Net asset value, beginning of period $4.99 $4.52 $4.90
Income from investment operations:
Net investment income (loss) .04 .03 --
Net gains (losses) (both realized and unrealized) .61 .45 (.38)
Total from investment operations .65 .48 (.38)
Less distributions:
Dividends from net investment income (.04) (.01) --
Distributions from realized gains (.24) -- --
Total distributions (.28) (.01) --
Net asset value, end of period $5.36 $4.99 $4.52
Ratios/supplemental data
Net assets, end of period (in millions) $-- $-- $--
Ratio of expenses to average daily net assets(c),(e) 1.06% .95% 1.01%(d)
Ratio of net investment income (loss) to average daily net assets 1.12% 1.30% .31%(d)
Portfolio turnover rate (excluding short-term securities) 59% 77% 9%
Total return(f) 13.14% 10.76% (7.75%)(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from June 27, 2002 (when shares became publicly available)
to July 31, 2002.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratios of expenses for Class Y would have been 1.36%, 2.46% and
20.32% for the periods ended July 31, 2004, 2003 and 2002, respectively.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- --------------------------------------------------------------------------------
27 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Report of Independent
Registered Public Accounting Firm
THE BOARD AND SHAREHOLDERS
AXP GROWTH SERIES, INC.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of AXP Large Cap Value Fund (a series
of AXP Growth Series, Inc.) as of July 31, 2004, the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period ended July 31, 2004, and the financial
highlights for each of the years in the two-year period ended July 31, 2004, and
for the period from June 27, 2002 (when shares became publicly available) to
July 31, 2002. These financial statements and the financial highlights are the
responsibility of fund management. Our responsibility is to express an opinion
on these financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 2004, by correspondence with the custodian and
brokers or by other appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AXP
Large Cap Value Fund as of July 31, 2004, and the results of its operations,
changes in its net assets and the financial highlights for each of the periods
stated in the first paragraph above, in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Minneapolis, Minnesota
September 20, 2004
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28 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Federal Income Tax Information
(UNAUDITED)
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its fiscal
year. The dividends listed below are reported to you on Form 1099-DIV, Dividends
and Distributions. Shareholders should consult a tax advisor on how to report
distributions for state and local tax purposes.
AXP Large Cap Value Fund
Fiscal year ended July 31, 2004
Class A
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 39.18%
Dividends Received Deduction for corporations 38.87%
Payable date Per share
Dec. 18, 2003 $0.26701
Capital gain distribution -- taxable as long-term capital gain.
Payable date Per share
Dec. 18, 2003 $0.00641
Total distributions $0.27342
Class B
Income distribution -- taxable as dividend income:
Qualified Dividend Income for individuals 39.18%
Dividends Received Deduction for corporations 38.87%
Payable date Per share
Dec. 18, 2003 $0.24312
Capital gain distribution -- taxable as long-term capital gain.
Payable date Per share
Dec. 18, 2003 $0.00641
Total distributions $0.24953
Class C
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 39.18%
Dividends Received Deduction for corporations 38.87%
Payable date Per share
Dec. 18, 2003 $0.24095
Capital gain distribution -- taxable as long-term capital gain.
Payable date Per share
Dec. 18, 2003 $0.00641
Total distributions $0.24736
- --------------------------------------------------------------------------------
29 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Class Y
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 39.18%
Dividends Received Deduction for corporations 38.87%
Payable date Per share
Dec. 18, 2003 $0.27255
Capital gain distribution -- taxable as long-term capital gain.
Payable date Per share
Dec. 18, 2003 $0.00641
Total distributions $0.27896
- --------------------------------------------------------------------------------
30 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Fund Expenses Example
(UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and (2) ongoing
costs, including management fees; distribution and service (12b-1) fees; and
other Fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the six months ended July 31, 2004.
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading titled "Expenses paid during the period" to
estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
- --------------------------------------------------------------------------------
31 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Beginning Ending Expenses paid
account value account value during the period
Feb. 1, 2004 July 31, 2004 Feb. 1, 2004-July 31, 2004
Class A
Actual(e) $1,000 $985.20 $6.12(a)
Hypothetical (5% return before expenses) $1,000 $1,018.70 $6.22(a)
Class B
Actual(e) $1,000 $981.40 $9.85(b)
Hypothetical (5% return before expenses) $1,000 $1,014.92 $10.02(b)
Class C
Actual(e) $1,000 $981.40 $9.85(c)
Hypothetical (5% return before expenses) $1,000 $1,014.92 $10.02(c)
Class I(f)
Actual N/A N/A N/A
Hypothetical (5% return before expenses) N/A N/A N/A
Class Y
Actual(e) $1,000 $985.30 $5.23(d)
Hypothetical (5% return before expenses) $1,000 $1,019.59 $5.32(d)
(a) Expenses are equal to the Fund's Class A annualized expense ratio of 1.24%,
multiplied by the average account value over the period, multiplied by
182/366 (to reflect the one-half year period).
(b) Expenses are equal to the Fund's Class B annualized expense ratio of 2.00%,
multiplied by the average account value over the period, multiplied by
182/366 (to reflect the one-half year period).
(c) Expenses are equal to the Fund's Class C annualized expense ratio of 2.00%,
multiplied by the average account value over the period, multiplied by
182/366 (to reflect the one-half year period).
(d) Expenses are equal to the Fund's Class Y annualized expense ratio of 1.06%,
multiplied by the average account value over the period, multiplied by
182/366 (to reflect the one-half year period).
(e) Based on the actual return for the six months ended July 31, 2004: (1.48%)
for Class A, (1.86%) for Class B, (1.86%) for Class C and (1.47%) for Class
Y.
(f) The values and expenses paid are not presented because Class I does not
have a full six months of history. The inception date for Class I was March
4, 2004.
- --------------------------------------------------------------------------------
32 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Board Members and Officers
Shareholders elect a board that oversees the Fund's operations. The board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the board.
The following is a list of the Fund's board members. Each member oversees 14
Master Trust portfolios and 87 American Express mutual funds. Board members
serve until the next regular shareholders' meeting or until he or she reaches
the mandatory retirement age established by the board.
Independent Board Members
Name, address, age Position held with Fund Principal occupation during past Other directorships
and length of service five years
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Arne H. Carlson Board member since 1999 Chair, Board Services
901 S. Marquette Ave. Corporation (provides
Minneapolis, MN 55402 administrative services to
Age 69 boards). Former Governor of
Minnesota
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Philip J. Carroll, Jr. Board member since 2002 Retired Chairman and CEO, Fluor Scottish Power PLC,
901 S. Marquette Ave. Corporation (engineering and Vulcan Materials Company,
Minneapolis, MN 55402 construction) since 1998 Inc. (construction
Age 66 materials/chemicals)
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Livio D. DeSimone Board member since 2001 Retired Chair of the Board and Cargill, Incorporated
0 Seventh Street East Chief Executive Officer, (commodity merchants and
Suite 3050 Minnesota Mining and processors), General
St. Paul, MN 55101-4901 Manufacturing (3M) Mills, Inc. (consumer
Age 70 foods), Vulcan Materials
Company (construction
materials/chemicals),
Milliken & Company
(textiles and chemicals),
and Nexia Biotechnologies,
Inc.
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Anne P. Jones Board member since 1985 Attorney and Consultant
901 S. Marquette Ave.
Minneapolis, MN 55402
Age 69
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Stephen R. Lewis, Jr.* Board member since 2002 Retired President and Professor Valmont Industries, Inc.
901 S. Marquette Ave. of Economics, Carleton College (manufactures irrigation
Minneapolis, MN 55402 systems)
Age 65
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
* Interested person of AXP Partners International Aggressive Growth Fund by
reason of being a security holder of FleetBoston Financial Corporation,
parent company of Columbia Wanger Asset Management, L.P., one of the fund's
subadvisers.
- --------------------------------------------------------------------------------
33 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
Independent Board Members (continued)
Name, address, age Position held with Fund Principal occupation during past Other directorships
and length of service five years
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Alan K. Simpson Board member since 1997 Former three-term United States
1201 Sunshine Ave. Senator for Wyoming
Cody, WY 82414
Age 72
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Alison Taunton-Rigby Board member since 2002 Founder and Chief Executive
901 S. Marquette Ave. Officer, RiboNovix, Inc. since
Minneapolis, MN 55402 2004; President, Forester
Age 60 Biotech since 2000; prior to
that, President and CEO, Aquila
Biopharmaceuticals, Inc.
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Board Member Affiliated with AEFC**
Name, address, age Position held with Fund Principal occupation during past Other directorships
and length of service five years
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
William F. Truscott Board member since Senior Vice President - Chief
53600 AXP Financial Center 2001, Vice President Investment Officer of AEFC since
Minneapolis, MN 55474 since 2002 2001. Former Chief Investment
Age 43 Officer and Managing Director,
Zurich Scudder Investments
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
** Interested person by reason of being an officer, director and/or employee
of AEFC.
- --------------------------------------------------------------------------------
34 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
The board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. The officers serve at the
pleasure of the board. In addition to Mr. Truscott, who is vice president, the
Fund's other officers are:
Other Officers
Name, address, age Position held with Fund Principal occupation during past Other directorships
and length of service five years
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Jeffrey P. Fox Treasurer since 2002 Vice President - Investment
50005 AXP Financial Center Accounting, AEFC, since 2002;
Minneapolis, MN 55474 Vice President - Finance,
Age 49 American Express Company,
2000-2002; Vice President -
Corporate Controller, AEFC,
1996-2000
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Paula R. Meyer President since 2002 Senior Vice President and
596 AXP Financial Center General Manager - Mutual Funds,
Minneapolis, MN 55474 AEFC, since 2002; Vice President
Age 50 and Managing Director - American
Express Funds, AEFC, 2000-2002;
Vice President, AEFC, 1998-2000
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Leslie L. Ogg Vice President, General President of Board Services
901 S. Marquette Ave. Counsel, and Secretary Corporation
Minneapolis, MN 55402 since 1978
Age 65
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
The SAI has additional information about the Fund's directors and is available,
without charge, upon request by calling (800) 862-7919.
Proxy Voting
The policy of the Board is to vote all proxies of the companies in which the
Fund holds investments. The procedures are stated in the Statement of Additional
Information (SAI). You may obtain a copy of the SAI without charge by calling
(800) 862-7919; by looking at the Web site americanexpress.com/funds; or by
searching the Web site of the Securities and Exchange Commission
http://www.sec.gov. You may view the Fund's voting record for all portfolio
companies whose shareholders meetings were completed the previous quarter on
americanexpress.com/funds or obtain a copy by calling the Fund's administrator,
Board Services Corporation, collect at (612) 330-9283. In addition, 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.
- --------------------------------------------------------------------------------
35 -- AXP LARGE CAP VALUE FUND -- 2004 ANNUAL REPORT
(logo)
AMERICAN
EXPRESS
(R)
American Express Funds
70100 AXP Financial Center
Minneapolis, MN 55474
This report must be accompanied or preceded by the Fund's current prospectus.
Distributed by American Express Financial Advisors Inc. Member NASD. American
Express Company is separate from American Express Financial Advisors Inc. and
is not a broker-dealer.
AXP(R)
Quantitative
Large Cap Equity
Fund
Annual Report
for the Period Ended
July 31, 2004
AXP Quantitative Large Cap Equity Fund seeks to provide shareholders with
long-term capital growth.
(logo) (logo)
American AMERICAN
Express(R) EXPRESS
Funds (R)
Table of Contents
Fund Snapshot 3
Questions & Answers
with Portfolio Management 4
The Fund's Long-term Performance 8
Investments in Securities 10
Financial Statements 14
Notes to Financial Statements 17
Report of Independent Registered
Public Accounting Firm 28
Federal Income Tax Information 29
Fund Expenses Example 31
Board Members and Officers 33
Proxy Voting 35
- --------------------------------------------------------------------------------
2 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Fund Snapshot
AS OF JULY 31, 2004
PORTFOLIO MANAGERS
Portfolio managers Since Years in industry
Dimitris J. Bertsimas 4/03 11
Gina K. Mourtzinou 4/03 7
FUND OBJECTIVE
This Fund seeks to provide shareholders with long-term capital growth.
Inception dates
A: 4/24/03 B: 4/24/03 C: 4/24/03 Y: 4/24/03
Ticker symbols
A: -- B: -- C: -- Y: --
Total net assets $25.4 million
Number of holdings 151
STYLE MATRIX
Shading within the style matrix indicates areas in which the Fund generally
invests.
STYLE
VALUE BLEND GROWTH
X LARGE
MEDIUM SIZE
SMALL
SECTOR COMPOSITION
Percentage of portfolio assets
[pie chart]
Consumer discretionary 13.9%
Financials 13.0%
Telecommunications 11.9%
Health care 10.3%
Consumer staples 10.2%
Technology 10.1%
Short-term securities 9.4%
Industrials 8.6%
Energy 7.0%
Utilities 3.3%
Materials 2.3%
TOP TEN HOLDINGS
Percentage of portfolio assets
Altria Group (Beverages & tobacco) 5.6%
Tyco Intl (Multi-industry) 3.7
Intel (Electronics) 3.5
Johnson & Johnson (Health care products) 3.3
Fannie Mae (Financial services) 2.6
QUALCOMM (Telecom equipment & services) 2.6
Motorola (Telecom equipment & services) 2.3
Bank of America (Banks and savings & loans) 2.1
Home Depot (Retail -- general) 2.0
SBC Communications (Utilities -- telephone) 1.9
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
Fund holdings are subject to change.
- --------------------------------------------------------------------------------
3 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Questions & Answers
WITH PORTFOLIO MANAGEMENT
Below, Portfolio Managers Dimitris Bertsimas and Gina Mourtzinou discuss the
Fund's positioning and results for the 2004 fiscal year.
Q: How did AXP Quantitative Large Cap Equity Fund perform for the 12 months
ended July 31, 2004?
A: AXP Quantitative Large Cap Equity Fund's Class A shares gained 11.99%,
excluding sales charge, for the 12 months ended July 31, 2004. The Fund
outperformed the Lipper Large-Cap Core Funds Index, representing the Fund's
peer group, which returned 10.01%, but underperformed its benchmark, the S&P
500 Index, which gained 13.17% for the same period.
Q: What factors most significantly affected performance?
A: Stocks selected using the Fund's three quantitative models (value, momentum,
and quality) drove strong performance relative to its peers in the 12-month
period. We do not make sector or industry bets based on our outlook for the
economy or the equity markets. At the beginning of the period, the Fund
invested 60% of its holdings in the momentum model, 20% in the value model,
and 20% in the quality model. To take advantage of strong performance by the
value model, the Fund shifted to an investment allocation of 50% in the
momentum model, 30% in the value model, and 20% in the quality model during
the fourth calendar quarter of 2003. The Fund maintained that allocation
through the end of the fiscal year. For the 12-month period, the value and
quality sub-portfolios outperformed the S&P 500 Index, and the momentum
sub-portfolio underperformed. Momentum model weakness resulted in the Fund's
underpeformance of its benchmark for the period.
(bar graph)
PERFORMANCE COMPARISON
For the year ended July 31, 2004
15% (bar 2)
+13.17%
12% (bar 1) (bar 3)
+11.99% +10.01%
9%
6%
3%
0%
(bar 1) AXP Quantitative Large Cap Equity Fund Class A (excluding sales charge)
(bar 2) S&P 500 Index (unmanaged)
(bar 3) Lipper Large-Cap Core Funds Index
(see "The Fund's Long-term Performance" for Index descriptions)
Past performance is no guarantee of future results. The 5.75% sales charge
applicable to Class A shares of the Fund is not reflected in the bar chart; if
reflected, returns would be lower than those shown. The performance of Class B,
Class C and Class Y may vary from that shown above because of differences in
expenses.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
- --------------------------------------------------------------------------------
4 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Questions & Answers
(begin callout quote)> Stocks selected using the Fund's three quantitative
models (value, momentum, and quality) drove strong performance relative to its
peers in the 12-month period.(end callout quote)
Our use of risk modeling, through limits on individual holding size and on
sector and industry allocations relative to the applicable benchmark, also
proved an important strategy. We tightened the Fund's risk controls overall
and improved the quality of the portfolio as another measure of risk
management. For example,
AVERAGE ANNUAL TOTAL RETURNS
Class A Class B Class C Class Y
(Inception dates) (4/24/03) (4/24/03) (4/24/03) (4/24/03)
NAV(1) POP(2) NAV(1) After CDSC(3) NAV(1) After CDSC(4) NAV(5) POP(5)
as of July 31, 2004
1 year +11.99% +5.55% +10.95% +6.95% +10.96% +10.96% +11.87% +11.87%
Since inception +16.85% +11.52% +15.83% +12.79% +15.84% +15.84% +16.92% +16.92%
as of June 30, 2004
1 year +17.01% +10.29% +15.97% +11.97% +16.18% +16.18% +17.10% +17.10%
Since inception +23.01% +17.01% +21.90% +18.63% +22.08% +22.08% +23.09% +23.09%
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 will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by calling (888) 723-8476 or visiting
www.americanexpress.com/funds. You should consider the investment objectives,
risks, and charges and expenses of the Fund carefully before investing.
(1) Excluding sales charge.
(2) Returns at public offering price (POP) reflect a sales charge of 5.75%.
(3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as
follows: first year 5%; second and third year 4%; fourth year 3%; fifth
year 2%; sixth year 1%; no sales charge thereafter.
(4) 1% CDSC applies to redemptions made within the first year of purchase.
(5) Sales charge is not applicable to these shares. Shares available to
institutional investors only.
- --------------------------------------------------------------------------------
5 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Questions & Answers
during the second calendar quarter of 2004, we added limitations on the
percentage of assets allocated to small-cap stocks based on our view that
large-cap stocks, as represented by stable companies with high revenues, low
volatility of earnings, and low debt, would bring more quality to the
portfolio. These enhanced risk controls were a key factor supporting the
Fund's outperformance of its peers.
Q: Which equity sectors and securities affected the Fund's performance most
during the fiscal year?
A: From a sector perspective, the utilities, consumer discretionary, and
telecommunications services sectors made positive contributions to the
Fund's performance for the fiscal year. On the other hand, positions in the
health care, information technology, and consumer staples sectors detracted
from the Fund's relative performance.
At the end of the fiscal year, the Fund had top ten positions in Altria
Group and Tyco International, each selected by all three of our proprietary
quantitative models, and in Intel, selected by the momentum model.
Multi-industry conglomerate Tyco and beverages & tobacco giant Altria made
positive contributions to the Fund's performance during the annual period.
Electronics bellwether Intel detracted from performance.
Q: What changes did you make to the portfolio and how is it currently
positioned?
A: Throughout the fiscal year, the Fund's assets grew substantially. During the
first half of the annual period, the influx of cash caused us to rebalance
the portfolio more than once a month. We were able to stick to our core plan
of rebalancing the portfolio once a month during the second half of the
fiscal year.
- --------------------------------------------------------------------------------
6 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Questions & Answers
Early in the annual period, as mentioned, we made a gradual move to increase
the weighting of the value model. During the second half of the fiscal year,
we reduced the number of stocks in the portfolio from approximately 200 on
Jan. 31, 2004 to 150 at July 31, 2004 in an effort to reduce transaction
costs. Other than these moves, we have not made any significant changes to
the Fund.
In relation to the benchmark, the Fund held higher-than-index positions in
consumer discretionary, health care, information technology,
telecommunications services, and utilities at the end of the fiscal year.
The Fund held lower-than-index positions in energy, materials, industrials,
consumer staples, and financials.
Q: How do you intend to manage the Fund in the coming months?
A: We expect significant volatility in the equity markets ahead. Thus, we
intend to continue increasing the quality of the Fund's portfolio over the
next months, while still maintaining our style diversification. The Fund's
goal is to outpace the performance of the S&P 500 Index over time with less
risk and with lower-than-average portfolio turnover. Our focus going forward
is to keep using our three well-tested models to find the best-performing
stocks regardless of market conditions. Also, we will continue our strategy
of monitoring weightings as a risk control, so that no individual security,
industry or sector becomes too large within the Fund's portfolio. Finally,
we intend to continue to employ our risk controls, including constraints on
market capitalization, price, quality, turnover, transaction costs, and
more.
- --------------------------------------------------------------------------------
7 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
The Fund's Long-term Performance
The chart on the facing page illustrates the total value of an assumed $10,000
investment in AXP Quantitative Large Cap Equity Fund Class A shares (from 5/1/03
to 7/31/04) as compared to the performance of two widely cited performance
indices, the Standard & Poor's 500 Index and the Lipper Large-Cap Core Funds
Index. In comparing the Fund's Class A shares to these indices, you should take
into account the fact that the Fund's performance reflects the maximum sales
charge of 5.75%, while such charges are not reflected in the performance of the
indices. Returns for the Fund include the reinvestment of any distribution paid
during each period.
The performance information shown represents the past performance and is not a
guarantee of future results. The value of your investment and returns will
fluctuate so that your shares, when redeemed, may be worth more or less than
their original cost. Returns do not reflect taxes payable on distributions and
redemptions. Current performance may be lower or higher than the performance
information shown. You may obtain performance information current to the most
recent month-end by calling (888) 723-8476 or visiting
www.americanexpress.com/funds. Also see "Past Performance" in the Fund's current
prospectus. You should consider the investment objectives, risks, and charges
and expenses of the Fund carefully before investing.
DISTRIBUTION SUMMARY
The table below details the Fund's income and capital gain distributions for the
fiscal years shown. More information on the other classes can be found in the
Financial Highlights section of this report's Notes to Financial Statements.
Class A
Short-term Long-term
Fiscal year ended Income capital gains capital gains Total
July 31, 2004 $0.02 $0.11 $0.01 $0.14
July 31, 2003(1) -- -- -- --
(1) For the period from April 24, 2003 (when shares became publicly available)
to July 31, 2003.
- --------------------------------------------------------------------------------
8 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
[line graph]
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN AXP QUANTITATIVE LARGE CAP EQUITY FUND
AXP Quantitative Large
Cap Equity Fund Class A
(includes sales charge) $ 9,425 $10,254 $10,933 $11,889 $11,580 $11,484
S&P 500 Index(1) $10,000 $10,849 $11,562 $12,501 $12,287 $12,277
Lipper Large-Cap Core
Funds Index(2) $10,000 $10,755 $11,351 $12,166 $11,929 $11,831
5/1/03 7/03 10/03 1/04 4/04 7/04
COMPARATIVE RESULTS
Results as of July 31, 2004 Since
1 year inception(3)
AXP Quantitative Large Cap Equity Fund (includes sales charge)
Class A Cumulative value of $10,000 $10,555 $11,484
Average annual total return +5.55% +11.52%
S&P 500 Index(1)
Cumulative value of $10,000 $11,317 $12,277
Average annual total return +13.17% +17.84%
Lipper Large-Cap Core Funds Index(2)
Cumulative value of $10,000 $11,001 $11,831
Average annual total return +10.01% +14.40%
Results for other share classes can be found on page 5.
(1) Standard & Poor's 500 Index (S&P 500 Index), an unmanaged index of common
stocks, is frequently used as a general measure of market performance. The
index reflects reinvestment of all distributions and changes in market
prices, but excludes brokerage commissions or other fees. However, the S&P
500 companies may be generally larger than those in which the Fund invests.
(2) The Lipper Large-Cap Core Funds Index, an 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.
(3) Fund data is from April 24, 2003. Index data is from May 1, 2003.
- --------------------------------------------------------------------------------
9 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Investments in Securities
AXP Quantitative Large Cap Equity Fund
July 31, 2004
(Percentages represent value of investments compared to net assets)
Common stocks (98.7%)
Issuer Shares Value(a)
Aerospace & defense (1.8%)
Boeing 1,999 $101,449
General Dynamics 1,018 100,599
Goodrich 1,437 46,458
Honeywell Intl 3,559 133,854
United Technologies 856 80,036
Total 462,396
Automotive & related (2.4%)
Delphi 5,201 49,462
Ford Motor 5,214 76,749
General Motors 7,784 335,801
Johnson Controls 1,248 70,450
Navistar Intl 547(b) 19,665
PACCAR 860 51,566
Total 603,693
Banks and savings & loans (5.1%)
Bank of America 6,924 588,609
Bank of New York 3,952 113,541
Comerica 1,646 96,242
First Horizon National 649 28,134
Natl City 4,664 170,236
Washington Mutual 8,000 310,400
Total 1,307,162
Beverages & tobacco (8.5%)
Altria Group 32,582 1,550,903
Coca-Cola 7,782 341,319
Coca-Cola Enterprises 4,003 81,661
Pepsi Bottling Group 2,231 62,133
Reynolds American 1,689 121,524
Total 2,157,540
Broker dealers (1.3%)
Bear Stearns Companies 560 46,715
J.P. Morgan Chase 4,957 185,045
Schwab (Charles) 11,308 99,284
Total 331,044
Building materials & construction (0.3%)
American Standard 1,861(b) 70,513
Cellular telecommunications (1.6%)
AT&T Wireless Services 10,184(b) 147,057
Nextel Communications Cl A 11,657(b) 265,313
Total 412,370
Computer hardware (1.2%)
Cisco Systems 12,744(b) 265,839
Lexmark Intl Cl A 525(b) 46,463
Total 312,302
Computer software & services (4.6%)
Autodesk 1,252 50,330
Automatic Data Processing 3,035 127,409
Computer Associates Intl 3,431 86,598
Electronic Arts 2,105(b) 105,524
Electronic Data Systems 5,613 103,728
First Data 1,603 71,510
NCR 1,614(b) 74,938
Novell 2,825(b) 19,323
Oracle 35,719(b) 375,408
Symantec 2,686(b) 125,597
VERITAS Software 2,236(b) 42,618
Total 1,182,983
Electronics (5.2%)
Agilent Technologies 4,942(b) 117,669
Applied Materials 4,099(b) 69,560
Broadcom Cl A 1,589(b) 56,187
Intel 39,445 961,669
Natl Semiconductor 4,068(b) 69,766
Sanmina-SCI 4,941(b) 36,267
Total 1,311,118
Energy (7.6%)
Amerada Hess 1,392 116,023
Anadarko Petroleum 2,677 160,058
Ashland 442 23,103
Burlington Resources 2,440 93,135
ChevronTexaco 2,029 194,074
ConocoPhillips 4,396 346,273
Devon Energy 1,532 106,459
ExxonMobil 10,803 500,178
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
10 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Energy (cont.)
Marathon Oil 1,837 $69,200
Occidental Petroleum 4,651 229,155
Sunoco 486 33,131
Valero Energy 965 72,298
Total 1,943,087
Finance companies (0.5%)
MGIC Investment 1,629 115,659
Financial services (4.0%)
Capital One Financial 636 44,088
Countrywide Financial 2,380 171,598
Fannie Mae 10,228 725,779
MBNA 2,205 54,441
Providian Financial 2,319(b) 32,095
Total 1,028,001
Furniture & appliances (0.2%)
Stanley Works 1,095 46,428
Health care products (10.0%)
Becton, Dickinson & Co 3,217 151,939
Biogen Idec 1,360(b) 81,600
Bristol-Myers Squibb 2,252 51,571
Forest Laboratories 2,050(b) 103,095
Guidant 1,943 107,487
Johnson & Johnson 16,519 913,005
Medtronic 1,454 72,220
Merck & Co 10,222 463,568
Pfizer 3,247 103,774
Schering-Plough 7,816 152,099
Zimmer Holdings 4,287(b) 327,141
Total 2,527,499
Health care services (1.3%)
Anthem 657(b) 54,183
Cardinal Health 1,590 70,755
Humana 1,438(b) 26,042
Tenet Healthcare 6,272(b) 70,121
WellPoint Health Networks 1,011(b) 102,212
Total 323,313
Home building (0.8%)
Centex 2,054 87,130
KB HOME 696 44,579
Pulte Homes 1,392 76,045
Total 207,754
Household products (0.6%)
Gillette 4,019 156,661
Insurance (3.3%)
Allstate 2,946 138,698
Aon 2,594 68,585
CIGNA 2,570 159,366
Jefferson-Pilot 487 23,464
Lincoln Natl 652 28,492
Loews 2,783 157,601
Prudential Financial 2,823 131,439
Torchmark 1,431 74,813
UnumProvident 4,002 63,832
Total 846,290
Leisure time & entertainment (0.5%)
Harley-Davidson 2,190 131,115
Lodging & gaming (0.5%)
Intl Game Technology 3,838 124,121
Machinery (0.6%)
Deere & Co 1,063 66,768
Ingersoll-Rand Cl A 744(c) 51,105
Parker-Hannifin 814 46,707
Total 164,580
Media (1.4%)
Cendant 4,208 96,279
eBay 3,438(b) 269,299
Total 365,578
Metals (0.5%)
Phelps Dodge 887(b) 69,133
United States Steel 1,413 53,892
Total 123,025
Multi-industry (6.9%)
3M 3,490 287,436
Eastman Kodak 5,690 150,728
Emerson Electric 1,346 81,702
Monsanto 3,520 127,635
Textron 1,148 70,372
Tyco Intl 33,124(c) 1,026,845
Total 1,744,718
Paper & packaging (0.6%)
Georgia-Pacific 4,349 146,126
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
11 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Precious metals (1.1%)
Freeport McMoRan Copper
& Gold Cl B 1,754 $61,127
Newmont Mining 5,519 223,354
Total 284,481
Restaurants (1.3%)
McDonald's 10,097 277,667
Starbucks 977(b) 45,880
Total 323,547
Retail -- drugstores (0.5%)
CVS 2,909 121,800
Retail -- general (7.7%)
Best Buy 1,780 85,725
Dollar General 1,016 19,609
Federated Dept Stores 1,618 77,535
Gap 3,605 81,834
Home Depot 16,663 561,875
Lowe's Companies 803 39,122
May Dept Stores 2,545 67,519
Nordstrom 2,151 94,429
Penney (JC) 3,073 122,920
Sears, Roebuck & Co 8,380 307,378
Toys "R" Us 2,214(b) 36,442
Wal-Mart Stores 8,763 464,527
Total 1,958,915
Retail -- grocery (1.5%)
Albertson's 4,620 112,682
Kroger 7,142(b) 112,844
Safeway 5,541(b) 117,081
SUPERVALU 1,805 51,551
Total 394,158
Telecom equipment & services (5.5%)
Avaya 2,364(b) 34,633
Motorola 39,983 636,929
QUALCOMM 10,392 717,879
Scientific-Atlanta 647 19,895
Total 1,409,336
Textiles & apparel (0.4%)
Nike Cl B 1,297 94,305
Utilities -- electric (3.6%)
American Electric Power 1,769 55,034
CenterPoint Energy 14,746 171,201
Duke Energy 5,086 109,349
Edison Intl 6,459 173,101
PG&E 8,116(b) 231,630
Public Service Enterprise Group 1,311 51,129
TECO Energy 2,771 35,746
TXU 2,151 85,309
Total 912,499
Utilities -- telephone (5.8%)
AT&T 6,645 100,340
BellSouth 18,476 500,515
SBC Communications 20,949 530,847
Sprint (FON Group) 10,994 205,368
Verizon Communications 3,591 138,397
Total 1,475,467
Total common stocks
(Cost: $24,415,395) $25,119,584
Short-term security (10.2%)
Issuer Effective Amount Value(a)
yield payable at
maturity
U.S. government agency
Federal Home Loan Mtge Corp Disc Nt
08-26-04 1.32% $2,600,000 $2,597,426
Total short-term security
(Cost: $2,597,521) $2,597,426
Total investments in securities
(Cost: $27,012,916)(d) $27,717,010
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
12 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars. As of July 31, 2004,
the value of foreign securities represented 4.2% of net assets.
(d) At July 31, 2004, the cost of securities for federal income tax purposes
was $27,014,489 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $1,471,494
Unrealized depreciation (768,973)
--------
Net unrealized appreciation $ 702,521
----------
How to find information about the Fund's portfolio holdings
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's
Public Reference Room in Washington, DC (information on the operations of
the Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at www.americanexpress.com/funds.
- --------------------------------------------------------------------------------
13 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Financial Statements
Statement of assets and liabilities
AXP Quantitative Large Cap Equity Fund
July 31, 2004
Assets
Investments in securities, at value (Note 1)
(identified cost $27,012,916) $27,717,010
Cash in bank on demand deposit 163,036
Dividends and accrued interest receivable 28,840
------
Total assets 27,908,886
----------
Liabilities
Capital shares payable 5,588
Payable for investment securities purchased 2,398,291
Accrued investment management services fee 414
Accrued distribution fee 166
Accrued transfer agency fee 59
Accrued administrative services fee 34
Other accrued expenses 54,550
------
Total liabilities 2,459,102
---------
Net assets applicable to outstanding capital stock $25,449,784
===========
Represented by
Capital stock -- $.01 par value (Note 1) $ 42,813
Additional paid-in capital 23,963,335
Undistributed net investment income 52,439
Accumulated net realized gain (loss) 687,103
Unrealized appreciation (depreciation) on investments 704,094
-------
Total -- representing net assets applicable to outstanding capital stock $25,449,784
===========
Net assets applicable to outstanding shares: Class A $13,464,768
Class B $ 2,609,382
Class C $ 139,132
Class I $ 9,213,408
Class Y $ 23,094
Net asset value per share of outstanding capital stock: Class A shares 2,264,572 $ 5.95
Class B shares 442,220 $ 5.90
Class C shares 23,572 $ 5.90
Class I shares 1,547,057 $ 5.96
Class Y shares 3,879 $ 5.95
----- -----------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
14 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Statement of operations
AXP Quantitative Large Cap Equity Fund
Year ended July 31, 2004
Investment income
Income:
Dividends $ 232,296
Interest 2,289
-----
Total income 234,585
-------
Expenses (Note 2):
Investment management services fee 83,580
Distribution fee
Class A 26,959
Class B 20,361
Class C 1,308
Transfer agency fee 14,838
Incremental transfer agency fee
Class A 1,119
Class B 788
Class C 54
Service fee -- Class Y 23
Administrative services fees and expenses 6,521
Custodian fees 22,200
Printing and postage 29,905
Registration fees 39,509
Audit fees 18,000
------
Total expenses 265,165
Expenses waived/reimbursed by AEFC (Note 2) (100,431)
--------
164,734
Earnings credits on cash balances (Note 2) (1,073)
------
Total net expenses 163,661
-------
Investment income (loss) -- net 70,924
------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) 830,429
Futures contracts (5,819)
------
Net realized gain (loss) on investments 824,610
Net change in unrealized appreciation (depreciation) on investments 335,658
-------
Net gain (loss) on investments 1,160,268
---------
Net increase (decrease) in net assets resulting from operations $1,231,192
==========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
15 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Statements of changes in net assets
AXP Quantitative Large Cap Equity Fund
For the period from
July 31, 2004 April 24, 2003* to
Year ended July 31, 2003
Operations and distributions
Investment income (loss) -- net $ 70,924 $ 14,024
Net realized gain (loss) on investments 824,610 105,405
Net change in unrealized appreciation (depreciation) on investments 335,658 368,601
------- -------
Net increase (decrease) in net assets resulting from operations 1,231,192 488,030
--------- -------
Distributions to shareholders from:
Net investment income
Class A (32,550) --
Class B (921) --
Class C (88) --
Class Y (94) --
Net realized gain
Class A (204,671) --
Class B (35,467) --
Class C (2,669) --
Class Y (461) --
--------- -------
Total distributions (276,921) --
--------- -------
Capital share transactions (Note 4)
Proceeds from sales
Class A shares (Note 2) 6,113,596 2,122,213
Class B shares 2,111,340 985,940
Class C shares 99,094 49,247
Class I shares 9,070,761 --
Class Y shares -- 10,000
Reinvestment of distributions at net asset value
Class A shares 96,546 --
Class B shares 34,783 --
Class C shares 2,508 --
Class Y shares 257 --
Payments for redemptions
Class A shares (1,001,408) (18,491)
Class B shares (Note 2) (582,132) (53,851)
Class C shares (Note 2) (31,819) --
Class I shares (701) --
--------- -------
Increase (decrease) in net assets from capital share transactions 15,912,825 3,095,058
---------- ---------
Total increase (decrease) in net assets 16,867,096 3,583,088
Net assets at beginning of period 8,582,688 4,999,600**
--------- ---------
Net assets at end of period $25,449,784 $8,582,688
=========== ==========
Undistributed net investment income $ 52,439 $ 15,388
----------- ----------
* When shares became publicly available.
** Initial capital of $5,000,000 was contributed on April 17, 2003. The Fund
had a decrease in net assets resulting from operations of $400 during the
period from April 17, 2003 to April 24, 2003 (when shares became publicly
available).
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
16 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Notes to Financial Statements
AXP Quantitative Large Cap Equity Fund
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a series of AXP Growth Series, Inc. and is registered under the
Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company. AXP Growth Series, Inc. has 10 billion authorized
shares of capital stock that can be allocated among the separate series as
designated by the board. The Fund invests primarily in equity securities of
companies listed on U.S. exchanges with market capitalizations greater than $5
billion at the time of purchase. On April 17, 2003, American Express Financial
Corporation (AEFC) invested $5,000,000 in the Fund (994,000 shares for Class A,
2,000 shares for Class B, Class C and Class Y, respectively), which represented
the initial capital for each class at $5 per share. Shares of the Fund were
first offered to the public on April 24, 2003.
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 July 15, 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 July 31, 2004, AEFC and the
AXP Portfolio Builder Series Funds owned 100% of Class I shares, which
represents 36.20% of the Fund's net assets.
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.
- --------------------------------------------------------------------------------
17 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Valuation of securities
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
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 these 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 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.
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18 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Futures transactions
To gain exposure to or protect itself from market changes, the Fund may buy and
sell financial futures contracts traded on any U.S. or foreign exchange. The
Fund also may buy and write put and call options on these futures contracts.
Risks of entering into futures contracts and related options include the
possibility of an illiquid market and that a change in the value of the contract
or option may not correlate with changes in the value of the underlying
securities.
Upon entering into a futures contract, the Fund is required to deposit either
cash or securities in an amount (initial margin) equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Fund each day. The variation margin payments are equal to the
daily changes in the contract value and are recorded as unrealized gains and
losses. The Fund recognizes a realized gain or loss when the contract is closed
or expires.
Foreign currency translations and foreign currency contracts
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars. Foreign currency amounts related to the
purchase or sale of securities and income and expenses are translated at the
exchange rate on the transaction date. The effect of changes in foreign exchange
rates on realized and unrealized security gains or losses is reflected as a
component of such gains or losses. In the statement of operations, net realized
gains or losses from foreign currency transactions, if any, may arise from sales
of foreign currency, closed forward contracts, exchange gains or losses realized
between the trade date and settlement date on securities transactions, and other
translation gains or losses on dividends, interest income and foreign
withholding taxes.
The Fund may enter into forward foreign currency exchange contracts for
operational purposes 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.
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19 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
On the statement of assets and liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income has been decreased by $220 and
accumulated net realized gain has been increased by $220.
The tax character of distributions paid for the periods indicated is as follows:
For the year ended For the period from
July 31, 2004 April 24, 2003* to July 31, 2003
Class A
Distributions paid from:
Ordinary income $228,642 $--
Long-term capital gain 8,579 --
Class B
Distributions paid from:
Ordinary income 34,902 --
Long-term capital gain 1,486 --
Class C
Distributions paid from:
Ordinary income 2,645 --
Long-term capital gain 112 --
Class I**
Distributions paid from:
Ordinary income -- N/A
Long-term capital gain -- N/A
Class Y
Distributions paid from:
Ordinary income 536 --
Long-term capital gain 19 --
* When shares became publicly available.
** Inception date was July 15, 2004.
As of July 31, 2004, the components of distributable earnings on a tax basis are
as follows:
Undistributed ordinary income $545,425
Accumulated long-term gain (loss) $195,690
Unrealized appreciation (depreciation) $702,521
Dividends to shareholders
An annual dividend from net investment income, declared and paid at the end of
the calendar year, when available, is reinvested in additional shares of the
Fund at net asset value or payable in cash. Capital gains, when available, are
distributed along with the income dividend.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date and interest income,
including amortization of premium, market discount and original issue discount
using the effective interest method, is accrued daily.
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20 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
2. EXPENSES AND SALES CHARGES
The Fund has agreements with AEFC to manage its portfolio and provide
administrative services. Under an Investment Management Services Agreement, AEFC
determines which securities will be purchased, held or sold. The management fee
is a percentage of the Fund's average daily net assets in reducing percentages
from 0.60% to 0.48% annually. The fee may be adjusted upward or downward by a
performance incentive adjustment based on a comparison of the performance of
Class A shares of the Fund to the Lipper Large-Cap Core Funds Index. The maximum
adjustment is 0.12% per year. If the performance difference is less than 0.50%,
the adjustment will be zero. The adjustment increased the fee by $5,326 for the
year ended July 31, 2004.
Under an Administrative Services Agreement, the Fund pays AEFC a fee for
administration and accounting services at a percentage of the Fund's average
daily net assets in reducing percentages from 0.05% to 0.02% annually. A minor
portion of additional administrative service expenses paid by the Fund are
consultants' fees and fund office expenses. Under this agreement, the Fund also
pays taxes, audit and certain legal fees, registration fees for shares,
compensation of board members, corporate filing fees and any other expenses
properly payable by the Fund and approved by the board.
Under a Deferred Compensation Plan (the Plan), non-interested board members may
defer receipt of their compensation. Deferred amounts are treated as though
equivalent dollar amounts had been invested in shares of the Fund or other
American Express mutual funds. The Fund's liability for these amounts is
adjusted for market value changes and remains in the Fund until distributed in
accordance with the Plan.
Under a separate Transfer Agency Agreement, American Express Client Service
Corporation (AECSC) maintains shareholder accounts and records. The Fund pays
AECSC an annual fee per shareholder account for this service as follows:
o Class A $19.50
o Class B $20.50
o Class C $20.00
o Class Y $17.50
The incremental transfer agency fee is the amount charged to the specific
classes for the additional expense above the fee for Class Y.
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.
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21 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL 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
$62,838 for Class A, $2,029 for Class B and $90 for Class C for the year ended
July 31, 2004.
For the year ended July 31, 2004, AEFC and its affiliates waived certain fees
and expenses to 1.13% for Class A, 1.95% for Class B, 1.95% for Class C, 0.93%
for Class I and 0.98% for Class Y. In addition, AEFC and its affiliates have
agreed to waive certain fees and expenses until July 31, 2005. Under this
agreement, net expenses will not exceed 1.25% for Class A, 2.04% for Class B,
2.06% for Class C, 0.93% for Class I and 1.06% for Class Y of the Fund's average
daily net assets.
During the year ended July 31, 2004, the Fund's custodian and transfer agency
fees were reduced by $1,073 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 $23,947,224 and $8,520,633 respectively, for the year
ended July 31, 2004. Realized gains and losses are determined on an identified
cost basis.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
Year ended July 31, 2004
Class A Class B Class C Class I* Class Y
Sold 1,028,744 358,722 17,252 1,547,177 --
Issued for reinvested distributions 16,447 5,946 429 -- 45
Redeemed (166,966) (99,601) (5,323) (120) --
--------- ------- ------ --------- -----
Net increase (decrease) 878,225 265,067 12,358 1,547,057 45
--------- ------- ------ --------- -----
* Inception date was July 15, 2004.
April 24, 2003** to July 31, 2003
Class A Class B Class C Class I Class Y
Sold 395,711 184,979 9,214 N/A 1,834
Issued for reinvested distributions -- -- -- N/A --
Redeemed (3,364) (9,826) -- N/A --
--------- ------- ------ --------- -----
Net increase (decrease) 392,347 175,153 9,214 N/A 1,834
--------- ------- ------ --------- -----
** When shares became publicly available.
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22 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
5. BANK BORROWINGS
The Fund has a revolving credit agreement with a syndicate of banks headed by
Deutsche Bank, whereby the Fund is permitted to have bank borrowings for
temporary or emergency purposes to fund shareholder redemptions. The Fund must
maintain asset coverage for borrowings of at least 300%. The agreement, which
enables the Fund to participate with other American Express mutual funds,
permits borrowings up to $500 million, collectively. Interest is charged to each
Fund based on its borrowings at a rate equal to either the LIBOR plus 0.50%, the
IBOR plus 0.50% or the higher of the Federal Funds Rate plus 0.25% and the Prime
Lending Rate. Borrowings are payable within 60 days after such loan is executed.
The Fund also pays a commitment fee equal to its pro rata share of the amount of
the credit facility at a rate of 0.09% per annum. The Fund had no borrowings
outstanding during the year ended July 31, 2004.
6. FINANCIAL HIGHLIGHTS
The tables below show certain important financial information for evaluating the
Fund's results.
Class A
Per share income and capital changes(a)
Fiscal period ended July 31, 2004 2003(b)
Net asset value, beginning of period $5.44 $5.00
Income from investment operations:
Net investment income (loss) .02 .01
Net gains (losses) (both realized and unrealized) .63 .43
Total from investment operations .65 .44
Less distributions:
Dividends from net investment income (.02) --
Distributions from realized gains (.12) --
Total distributions (.14) --
Net asset value, end of period $5.95 $5.44
Ratios/supplemental data
Net assets, end of period (in millions) $13 $8
Ratio of expenses to average daily net assets(c),(e) 1.13% 1.22%(d)
Ratio of net investment income (loss) to average daily net assets .65% .81%(d)
Portfolio turnover rate (excluding short-term securities) 64% 17%
Total return(f) 11.99% 8.80%(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from April 24, 2003 (when shares became publicly available)
to July 31, 2003.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratios of expenses for Class A would have been 1.91% and 7.39%
for the periods ended July 31, 2004 and 2003, respectively.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
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23 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Class B
Per share income and capital changes(a)
Fiscal period ended July 31, 2004 2003(b)
Net asset value, beginning of period $5.43 $5.00
Income from investment operations:
Net investment income (loss) (.02) --
Net gains (losses) (both realized and unrealized) .61 .43
Total from investment operations .59 .43
Less distributions:
Distributions from realized gains (.12) --
Net asset value, end of period $5.90 $5.43
Ratios/supplemental data
Net assets, end of period (in millions) $3 $1
Ratio of expenses to average daily net assets(c),(e) 1.95% 2.01%(d)
Ratio of net investment income (loss) to average daily net assets (.16%) (.08%)(d)
Portfolio turnover rate (excluding short-term securities) 64% 17%
Total return(f) 10.95% 8.60%(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from April 24, 2003 (when shares became publicly available)
to July 31, 2003.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratios of expenses for Class B would have been 2.73% and 8.18%
for the periods ended July 31, 2004 and 2003, respectively.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
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24 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Class C
Per share income and capital changes(a)
Fiscal period ended July 31, 2004 2003(b)
Net asset value, beginning of period $5.43 $5.00
Income from investment operations:
Net investment income (loss) (.02) --
Net gains (losses) (both realized and unrealized) .61 .43
Total from investment operations .59 .43
Less distributions:
Distributions from realized gains (.12) --
Net asset value, end of period $5.90 $5.43
Ratios/supplemental data
Net assets, end of period (in millions) $-- $--
Ratio of expenses to average daily net assets(c),(e) 1.95% 2.01%(d)
Ratio of net investment income (loss) to average daily net assets (.17%) (.05%)(d)
Portfolio turnover rate (excluding short-term securities) 64% 17%
Total return(f) 10.96% 8.60%(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from April 24, 2003 (when shares became publicly available)
to July 31, 2003.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratios of expenses for Class C would have been 2.73% and 8.20%
for the periods ended July 31, 2004 and 2003, respectively.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
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25 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Class I
Per share income and capital changes(a)
Fiscal period ended July 31, 2004(b)
Net asset value, beginning of period $5.99
Income from investment operations:
Net investment income (loss) .02
Net gains (losses) (both realized and unrealized) (.05)
Total from investment operations (.03)
Net asset value, end of period $5.96
Ratios/supplemental data
Net assets, end of period (in millions) $9
Ratio of expenses to average daily net assets(c),(e) .93%(d)
Ratio of net investment income (loss) to average daily net assets 5.35%(d)
Portfolio turnover rate (excluding short-term securities) 64%
Total return(f) (.50%)(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date was July 15, 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) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratio of expenses for Class I would have been 1.27% for the
period ended July 31, 2004.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
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26 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Class Y
Per share income and capital changes(a)
Fiscal period ended July 31, 2004 2003(b)
Net asset value, beginning of period $5.45 $5.00
Income from investment operations:
Net investment income (loss) .03 .01
Net gains (losses) (both realized and unrealized) .61 .44
Total from investment operations .64 .45
Less distributions:
Dividends from net investment income (.02) --
Distributions from realized gains (.12) --
Total distributions (.14) --
Net asset value, end of period $5.95 $5.45
Ratios/supplemental data
Net assets, end of period (in millions) $-- $--
Ratio of expenses to average daily net assets(c),(e) .98% 1.01%(d)
Ratio of net investment income (loss) to average daily net assets .78% .90%(d)
Portfolio turnover rate (excluding short-term securities) 64% 17%
Total return(f) 11.87% 9.00%(g)
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from April 24, 2003 (when shares became publicly available)
to July 31, 2003.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) Adjusted to an annual basis.
(e) AEFC waived/reimbursed the Fund for certain expenses. Had AEFC not done so,
the annual ratios of expenses for Class Y would have been 1.76% and 7.20%
for the periods ended July 31, 2004 and 2003, respectively.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
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27 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Report of Independent
Registered Public Accounting Firm
THE BOARD AND SHAREHOLDERS
AXP GROWTH SERIES, INC.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of AXP Quantitative Large Cap Equity
Fund (a series of AXP Growth Series, Inc.) as of July 31, 2004, and the related
statements of operations for the year then ended and the statements of changes
in net assets and the financial highlights for the year ended July 31, 2004, and
for the period from April 24, 2003 (when shares became publicly available) to
July 31, 2003. These financial statements and the financial highlights are the
responsibility of fund management. Our responsibility is to express an opinion
on these financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 2004, by correspondence with the custodian and
brokers or by other appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AXP
Quantitative Large Cap Equity Fund as of July 31, 2004, and the results of its
operations, changes in its net assets and the financial highlights for the
periods stated in the first paragraph above, in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
Minneapolis, Minnesota
September 20, 2004
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28 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Federal Income Tax Information
(UNAUDITED)
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its fiscal
year. The dividends listed below are reported to you on Form 1099-DIV, Dividends
and Distributions. Shareholders should consult a tax advisor on how to report
distributions for state and local tax purposes.
AXP Quantitative Large Cap Equity Fund
Fiscal year ended July 31, 2004
Class A
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 38.48%
Dividends Received Deduction for corporations 32.40%
Payable date Per share
Dec. 18, 2003 $0.13516
Capital gain distributions -- taxable as long-term capital gain.
Payable date Per share
Dec. 18, 2003 $0.00504
Total distributions $0.14020
Class B
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 38.48%
Dividends Received Deduction for corporations 32.40%
Payable date Per share
Dec. 18, 2003 $0.11838
Capital gain distributions -- taxable as long-term capital gain.
Payable date Per share
Dec. 18, 2003 $0.00504
Total distributions $0.12342
- --------------------------------------------------------------------------------
29 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Class C
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 38.48%
Dividends Received Deduction for corporations 32.40%
Payable date Per share
Dec. 18, 2003 $0.11920
Capital gain distributions -- taxable as long-term capital gain.
Payable date Per share
Dec. 18, 2003 $0.00504
Total distributions $0.12424
Class Y
Income distributions -- taxable as dividend income:
Qualified Dividend Income for individuals 38.48%
Dividends Received Deduction for corporations 32.40%
Payable date Per share
Dec. 18, 2003 $0.13970
Capital gain distributions -- taxable as long-term capital gain.
Payable date Per share
Dec. 18, 2003 $0.00504
Total distributions $0.14474
- --------------------------------------------------------------------------------
30 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Fund Expenses Example
(UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and (2) ongoing
costs, including management fees; distribution and service (12b-1) fees; and
other Fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the six months ended July 31, 2004.
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading titled "Expenses paid during the period" to
estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
- --------------------------------------------------------------------------------
31 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Beginning Ending Expenses paid
account value account value during the period
Feb. 1, 2004 July 31, 2004 Feb. 1, 2004-July 31, 2004
Class A
Actual(e) $1,000 $965.90 $5.03(a)
Hypothetical (5% return before expenses) $1,000 $1,019.74 $5.17(a)
Class B
Actual(e) $1,000 $960.90 $9.21(b)
Hypothetical (5% return before expenses) $1,000 $1,015.47 $9.47(b)
Class C
Actual(e) $1,000 $959.40 $9.21(c)
Hypothetical (5% return before expenses) $1,000 $1,015.47 $9.47(c)
Class I(f)
Actual N/A N/A N/A
Hypothetical (5% return before expenses) N/A N/A N/A
Class Y
Actual(e) $1,000 $964.30 $4.44(d)
Hypothetical (5% return before expenses) $1,000 $1,020.34 $4.57(d)
(a) Expenses are equal to the Fund's Class A annualized expense ratio of 1.03%,
multiplied by the average account value over the period, multiplied by
182/366 (to reflect the one-half year period).
(b) Expenses are equal to the Fund's Class B annualized expense ratio of 1.89%,
multiplied by the average account value over the period, multiplied by
182/366 (to reflect the one-half year period).
(c) Expenses are equal to the Fund's Class C annualized expense ratio of 1.89%,
multiplied by the average account value over the period, multiplied by
182/366 (to reflect the one-half year period).
(d) Expenses are equal to the Fund's Class Y annualized expense ratio of 0.91%,
multiplied by the average account value over the period, multiplied by
182/366 (to reflect the one-half year period).
(e) Based on the actual return for the six months ended July 31, 2004: (3.41%)
for Class A, (3.91%) for Class B, (4.06%) for Class C and (3.57%) for Class
Y.
(f) The values and expenses paid are not presented because Class I does not
have a full six months of history. The inception date for Class I was July
15, 2004.
- --------------------------------------------------------------------------------
32 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Board Members and Officers
Shareholders elect a board that oversees the Fund's operations. The board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the board.
The following is a list of the Fund's board members. Each member oversees 14
Master Trust portfolios and 87 American Express mutual funds. Board members
serve until the next regular shareholders' meeting or until he or she reaches
the mandatory retirement age established by the board.
Independent Board Members
Name, address, age Position held with Fund Principal occupation during past Other directorships
and length of service five years
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Arne H. Carlson Board member since 1999 Chair, Board Services
901 S. Marquette Ave. Corporation (provides
Minneapolis, MN 55402 administrative services to
Age 69 boards). Former Governor of
Minnesota
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Philip J. Carroll, Jr. Board member since 2002 Retired Chairman and CEO, Fluor Scottish Power PLC,
901 S. Marquette Ave. Corporation (engineering and Vulcan Materials Company,
Minneapolis, MN 55402 construction) since 1998 Inc. (construction
Age 66 materials/chemicals)
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Livio D. DeSimone Board member since 2001 Retired Chair of the Board and Cargill, Incorporated
0 Seventh Street East Chief Executive Officer, (commodity merchants and
Suite 3050 Minnesota Mining and processors), General
St. Paul, MN 55101-4901 Manufacturing (3M) Mills, Inc. (consumer
Age 70 foods), Vulcan Materials
Company (construction
materials/chemicals),
Milliken & Company
(textiles and chemicals),
and Nexia Biotechnologies,
Inc.
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Anne P. Jones Board member since 1985 Attorney and Consultant
901 S. Marquette Ave.
Minneapolis, MN 55402
Age 69
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Stephen R. Lewis, Jr.* Board member since 2002 Retired President and Professor Valmont Industries, Inc.
901 S. Marquette Ave. of Economics, Carleton College (manufactures irrigation
Minneapolis, MN 55402 systems)
Age 65
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
* Interested person of AXP Partners International Aggressive Growth Fund by
reason of being a security holder of FleetBoston Financial Corporation,
parent company of Columbia Wanger Asset Management, L.P., one of the fund's
subadvisers.
- --------------------------------------------------------------------------------
33 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
Independent Board Members (continued)
Name, address, age Position held with Fund Principal occupation during past Other directorships
and length of service five years
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Alan K. Simpson Board member since 1997 Former three-term United States
1201 Sunshine Ave. Senator for Wyoming
Cody, WY 82414
Age 72
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Alison Taunton-Rigby Board member since 2002 Founder and Chief Executive
901 S. Marquette Ave. Officer, RiboNovix, Inc. since
Minneapolis, MN 55402 2004; President, Forester
Age 60 Biotech since 2000; prior to
that, President and CEO, Aquila
Biopharmaceuticals, Inc.
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Board Member Affiliated with AEFC**
Name, address, age Position held with Fund Principal occupation during past Other directorships
and length of service five years
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
William F. Truscott Board member since Senior Vice President - Chief
53600 AXP Financial Center 2001, Vice President Investment Officer of AEFC since
Minneapolis, MN 55474 since 2002 2001. Former Chief Investment
Age 43 Officer and Managing Director,
Zurich Scudder Investments
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
** Interested person by reason of being an officer, director and/or employee
of AEFC.
- --------------------------------------------------------------------------------
34 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
The board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. The officers serve at the
pleasure of the board. In addition to Mr. Truscott, who is vice president, the
Fund's other officers are:
Other Officers
Name, address, age Position held with Fund Principal occupation during past Other directorships
and length of service five years
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Jeffrey P. Fox Treasurer since 2002 Vice President - Investment
50005 AXP Financial Center Accounting, AEFC, since 2002;
Minneapolis, MN 55474 Vice President - Finance,
Age 49 American Express Company,
2000-2002; Vice President -
Corporate Controller, AEFC,
1996-2000
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Paula R. Meyer President since 2002 Senior Vice President and
596 AXP Financial Center General Manager - Mutual Funds,
Minneapolis, MN 55474 AEFC, since 2002; Vice President
Age 50 and Managing Director - American
Express Funds, AEFC, 2000-2002;
Vice President, AEFC, 1998-2000
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
Leslie L. Ogg Vice President, General President of Board Services
901 S. Marquette Ave. Counsel, and Secretary Corporation
Minneapolis, MN 55402 since 1978
Age 65
- -------------------------------------- ------------------------- ---------------------------------- ---------------------------
The SAI has additional information about the Fund's directors and is
available, without charge, upon request by calling (800) 862-7919.
Proxy Voting
The policy of the Board is to vote all proxies of the companies in which the
Fund holds investments. The procedures are stated in the Statement of Additional
Information (SAI). You may obtain a copy of the SAI without charge by calling
(800) 862-7919; by looking at the Web site americanexpress.com/funds; or by
searching the Web site of the Securities and Exchange Commission
http://www.sec.gov. You may view the Fund's voting record for all portfolio
companies whose shareholders meetings were completed the previous quarter on
americanexpress.com/funds or obtain a copy by calling the Fund's administrator,
Board Services Corporation, collect at (612) 330-9283. In addition, 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.
- --------------------------------------------------------------------------------
35 -- AXP QUANTITATIVE LARGE CAP EQUITY FUND -- 2004 ANNUAL REPORT
(logo)
AMERICAN
EXPRESS
(R)
American Express Funds
70100 AXP Financial Center
Minneapolis, MN 55474
This report must be accompanied or preceded by the Fund's current prospectus.
Distributed by American Express Financial Advisors Inc. Member NASD. American
Express Company is separate from American Express Financial Advisors Inc. and
is not a broker-dealer.
Item 2. (a) The Registrant has adopted a code of ethics that applies to the
Registrant's principal executive officer and principal financial
officer. A copy of the code of ethics is filed as an exhibit to this
form N-CSR.
(b) During the period covered by this report, there were not any
amendments to the provisions of the code of ethics adopted in 2(a)
above.
(c) During the period covered by this report, there were not any
implicit or explicit waivers to the provisions of the code of ethics
adopted in 2(a).
Item 3. The Registrant's board of directors has determined that independent
directors Livio D. DeSimone and Anne P. Jones, each qualify as audit
committee financial experts.
Item 4. Principal Accountant Fees and Services
Fund - Related Fees*
(a) Audit Fees. The fees paid for the years ended July 31, to KPMG LLP for
professional services rendered for the audits of the annual financial
statements for AXP Growth Series, Inc. were as follows:
2004 - $67,007; 2003 - $40,789
(b) Audit - Related Fees. The fees paid for the years ended July 31, to
KPMG LLP for additional professional services rendered in connection
with the registrant's security count pursuant to Rule 17f-2 for AXP
Growth Series, Inc. were as follows:
2004 - $845; 2003 - $648
(c) Tax Fees. The fees paid for the years ended July 31, to KPMG LLP for
tax compliance related services for AXP Growth Series, Inc. were as
follows:
2004 - $11,375; 2003 - $8,600
(d) All Other Fees. The fees paid for the years ended July 31, to KPMG LLP
for additional professional services rendered in connection to proxy
filing for AXP Growth Series, Inc. were as follows:
2004 - None; 2003 - $46
(e) (1) Audit Committee Pre-Approval Policy. Pursuant to Sarbanes-Oxley
pre-approval requirements, all services to be performed by KPMG LLP for
the registrant and to the registrant's investment adviser and any
entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
must be pre-approved by the audit committee.
(e) (2) 100% of the services performed for items (b) through (d) above
during 2004 and 2003 were pre-approved by the audit committee with the
exception of the 2003 tax fees.
(f) Not applicable.
(g) Non-Audit Fees. The fees paid for the years ended July 31, by the
registrant for non-audit services to KPMG LLP were as follows:
2004 - None; 2003 - None
The fees paid for the years ended July 31, to KPMG LLP by the
registrant's investment adviser, and any entity controlling, controlled
by, or under common control with the adviser that provides ongoing
services to the registrant were as follows:
2004 - $88,450; 2003 - $184,000
(h) For the fees disclosed in item (g) above, 100% and 97% of the fees for
services performed during 2004 and 2003, respectively, were
pre-approved by the audit committee. The exception was a 2003 tax
research request by the adviser on defaulted securities for $5,000. The
amounts not pre-approved are compatible with maintaining KPMG LLP's
independence.
* 2003 represents bills paid 8/1/02 - 7/31/03
2004 represents bills paid 8/1/03 - 7/31/04
Item 5. Audit Committee of Listed Registrants. Not applicable.
Item 6. The complete schedule of investments is included in Item 1 of this
Form N-CSR.
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) Based upon their evaluation of the registrant's disclosure
controls and procedures as conducted within 90 days of the filing
date of this Form N-CSR, the registrant's Principal Financial
Officer and Principal Executive Officer have concluded that those
disclosure controls and procedures provide reasonable assurance
that the material information required to be disclosed by the
registrant on this report is recorded, processed, summarized and
reported within the time periods specified in the Securities and
Exchange Commission's rules and forms.
(b) There were no changes in the registrant's internal controls over
financial reporting that occurred during the registrant's last fiscal
half-year (the registrant's second fiscal half-year in the case of an
annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over
financial reporting.
Item 11. Exhibits.
(a)(1) Code of ethics as applies to the Registrant's principal
executive officer and principal financial officer, as required to be
disclosed under Item 2 of Form N-CSR, is attached as Ex. 99.CODE ETH.
(a)(2) Separate certification for the Registrant's principal
executive officer and principal financial officer, as required by
Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a)
under the Investment Company Act of 1940, are attached as
EX.99.CERT.
(a)(3) Not applicable.
(b) A certification by the Registrant's principal executive officer
and principal financial officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment
Company Act of 1940, is attached as EX.99.906 CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) AXP Growth Series, Inc.
By /s/ Paula R. Meyer
------------------
Paula R. Meyer
President and Principal Executive Officer
Date October 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 October 1, 2004
By /s/ Jeffrey P. Fox
------------------
Jeffrey P. Fox
Treasurer and Principal Financial Officer
Date October 1, 2004